With the publication in early May by the French Government of long-awaited game changing regulations, a stable regulatory framework for wind energy has finally been put in place, and will supersede the transitional regime implemented in December 2016. Indeed, the applicable regime has been considerably clarified through the publication of: u a Ministerial order dated 6th May 2017; and u a call for tender launched by the French Energy Regulatory Commission on 5th May 2017. This final move towards a brand new regulatory regime applying to wind energy has been made possible further to the European Commission’s decision of 5th May 2017 to validate compliance with European Union rules regarding state aid for a new French scheme to support electricity production from wind energy installations, taking the form of a premium, on top of the market price (so-called “additional remuneration”), for operators of small-scale onshore installations of less than six turbines. In light of this success, the French Government published the above mentioned Ministerial order setting out the conditions of the additional remuneration mechanism for electricity produced by wind energy installations of less than six turbines (with an individual limit of three megawatts per turbine). Such regulation definitively puts an end to the era of the purchase obligation regime and its well-known feed-in tariffs (FITs), and opens the way for a new support mechanism called “additional remuneration contract” (French equivalent of “Contract for Difference”) to be entered into between the electricity producer and the company Électricité de France (EDF). As a reminder (please see our previous Client Alerts), this additional remuneration contract is not a contract for the purchase of electricity, insofar as EDF does not commit to purchasing the electricity produced at a fixed price (as in the case of the purchase contract with FITs), but simply to pay an additional remuneration to its contracting electricity producer should the market price not exceed a certain threshold. This Client Alert provides an overview of the new regulatory framework that shall apply to wind energy installations to be developed as of 1st January 2017. The coexistence of two support schemes: open window mechanism (“guichet ouvert”) or call for tenders Further to the above mentioned Ministerial order of 6th May 2017, the implementation of a stable legal framework for wind energy installations has led to several evolutions for the wind energy sector. The publication of both the 6th May 2017 Ministerial order and the specifications for the above mentioned call for tender have allowed a clear distinction between the applicable rules regarding the size of the installations. As a matter of fact, different rules of procedure will apply depending on the size of the installations: u For installations of six turbines or less (with an individual limit of three megawatts per turbine), producers will be able to ask for an additional remuneration contract, in the context of the open window mechanism; u For installations of seven turbines or more, producers will have to participate in a tendering procedure organized by the French Energy Regulatory Commission. How to benefit from the open window mechanism? This mechanism shall be set up through the Ministerial order dated 6th May 2017. u Eligibility for the additional remuneration scheme This procedure is reserved for installations of less than six turbines (with an individual limit of three megawatts per turbine). According to article 2 of the Ministerial order dated 6th May 2017, installations using mechanical energy derived from wind can benefit from the additional remuneration contract in the following cases: g New installations using mechanical energy derived from wind for which an application is completed from 1st January 2017 can benefit from the additional remuneration contract. An installation is considered as new if a complete application was filed before the beginning of the works linked to the project (the beginning of the works is either the start of the construction work or a firm commitment making the investment irreversible) and Client Alert | Wind Energy in France June 2017 the major components of the installation are new (they were not previously used in generating electricity, within the framework of a commercial agreement or for selfconsumption). g Installations using mechanical energy derived from wind not benefiting from a PPA but for which a complete application was filed pursuant to the Ministerial order dated 17th June 2016 between 1st January 2016 and 14th December 2016 can also benefit from the additional remuneration mechanism. It is worth pointing out that the Ministerial order of 6 May 2017 sets up rules on distances between installations: at the time of application for an additional remuneration contract, a distance of at least 1500 meters has to be maintained between the new installation and the wind installations for which a contract application was lodged during the past two years. This aims at avoiding situations where producers practice “salami-slicing” in order to benefit from additional remuneration contracts. u Procedure Owners of wind farms who fall into one of these categories can benefit from this additional remuneration mechanism. Article 5 of the Ministerial order dated 6th May 2017 provides that in order to benefit from such mechanism, the producer must send a completed application for a contract of additional remuneration to Électricité de France (EDF). The above mentioned order provides that the application file must contain personal details concerning the producer, but that more importantly the applicants must provide accurate information about the installation such as: g number, type of the wind generators, and rotor diameter; g installed electrical capacity; g sitting communes; g environmental authorization. Article 11 of the Ministerial order specifies that the duration of the contract is 20 years. The additional remuneration contract shall take effect once the producer has submitted to EDF a certificate of compliance of its installation with the terms of its application for contract and the requirement set out by article R.314-7 of the French environmental Code. Moreover, until EDF receives the certificate of compliance that the producer must produce within three years (from the date of application for the additional remuneration contract), certain details of its application (such as the producer’s personal details or the installed power capacity, as long as it respects the eligibility threshold and without exceeding 30% of the installed power capacity) can be modified. If the certificate of compliance is not sent within three years (as mentioned above), the duration of the contract is reduced in proportion to the period of delay. In addition, the Ministerial order also states that the limitation in time is extended when the operation of the installations is delayed because of grid connection works or because of a judicial appeal by a third party. The Ministry of energy can also extend such time limitation due to force majeure. In such cases the time delay can be prolonged in proportion to the delay incurred or until the Court rules the case. It should be noted that rules concerning the amendment of the contract are not modified and remain the same, as we explained in our January Client Alert. Finally, the additional remuneration contract may be terminated prior to its expiry date at the owner’s request. In that case, the request has to indicate the effective date of termination with a minimum notice period of three months. The producer will also have to pay EDF an indemnity corresponding to the discounted amounts collected and paid under the contract of additional remuneration from the effective date of the contract until its termination, except if the definitive cessation of the installation is beyond the control of the producer. u Calculation formula of the additional remuneration for wind installations According to article L.314-20 of the French energy code, the amount of the additional remuneration is calculated by taking into account notably: g the investments and operating costs of efficient plants that are representative of each energy sector; g the cost of integration into the electrical system/network; g the revenues from the installation, including the value from the generated electricity and value from guarantees on capacity; g whether these facilities contribute to achieving national electricity policy goals; g whether the consumer concerned also produces some or part of the electricity generated by the plant. The main objective of this additional remuneration is to ensure a reasonable return on the capital, given the risks associated with these activities, in order to avoid an excessive return of investment capital and speculative bubbles. The above mentioned criteria will, of course, be subject to periodic reviews in order to take into account the evolution of the market prices applicable to the facilities that benefit from such additional remuneration. The exact amount of the additional remuneration for wind installations will be fixed in application of the following formula, as defined by the Ministerial Order dated 6th May 2017: Client Alert | Wind Energy in France June 2017 The amount of the additional remuneration thus corresponds to (i) the difference between the “energy bonus” (equal to the difference between a reference tariff and the average marketbased value of the energy produced in the given sector) and the income obtained on the capacity market, (ii) to which is added a “management bonus” intended to compensate for the costs of placing the electricity on the market. The amount will be paid each month on the basis of the monthly energy bonus and the management bonus defined in Article R.314-41 of the French Energy Code. The Ministerial Decree of 6 May 2017 thus sets a reference tariff, depending on the turbines’ rotor diameter. For a diameter of 80 meters or less, the basic tariff is 74€/MWH, while the tariff for installations which have a diameter of 100 meters or more is 72€/MWH. Tariffs in between are calculated by “linear interpolation”. Beyond this limit, there will be a single tariff of 40€/MWH. Furthermore, the additional remuneration contract shall have an annual cap, which varies according to the number of turbines and their rotor diameter. In this regard, the Ministerial order dated 6th May 2017 defines precisely each of the parameters provided for in the above mentioned formula. As mentioned above, this additional remuneration shall also be increased by a “management bonus” representing the costs incurred by the producer for selling what it produces on the energy markets. This amount is calculated for a calendar year and therefore revised annually. Finally, the Ministerial order specifies the modalities for implementing the purchaser of last resort mechanism. In fact, the 17 August 2015 Law on energy transition and green growth provides for the possibility for the authorities to designate, by way of a tender offer, a purchaser of last resort required to conclude a contract for the purchase of electricity produced with any producer who makes the application and who justifies the impossibility of selling its electricity (impossibility of enlisting with a physical person or legal entity responsible for the sale of electricity on behalf of a producer, or failing this, a physical person or legal entity responsible for the sale of electricity). When this mechanism is implemented, the sale of electricity must not engender a level of remuneration higher than 80% of the total remuneration that would have come from the sale of the electricity produced on the market and the payment of the additional remuneration. How to participate in a tendering procedure? The tendering procedure is provided for in the specifications, which was published by the French Energy Regulatory Commission (“CRE”) on 5th May 2017. It is worth noting that such specifications are slightly different from the above mentioned rules applying to the open window mechanism, in particular with respect to the calculation formula of the additional remuneration. u Eligibility for the tendering procedure According to article 1.2.1 of the specifications, installations using mechanical energy derived from wind can take part in the tender in the following cases: g Installations of more than seven turbines; g Installations, a wind generator which has a nominal wattage over 3 MW; g Installations which would justify a refusal of an application for a contract of additional remuneration by EDF (application as provided for by the above-mentioned Ministerial order dated 6th May 2017). Moreover, according to article L.311-10 of the French Energy Code, any legal person established on the territory of a European Union Member State or in the context of international agreements, on the territory of any other State, can take part in competitive tendering procedures. u The tendering procedure Under the specifications, six bidding periods are scheduled between 1st November 2017 and 1st June 2020. For each tender procedure, the cumulative released quantity is 500 Megawatts. The French Energy Regulatory Commission is responsible for organising the call for tenders. The Commission puts in place an online application website and an automated classification system for tenders. Candidates have to send their online application with all the required documents. They should note that the tender cannot be modified between the application deadline and the decision of the Energy Minister. The candidate must provide several documents that must all be written in French. The tender is automatically rejected if some documents are missing. Each candidate must attach the following documents to the application: g an identification document; g the application form; g the environmental authorization (not applicable for the first bidding period: 1st November to 1st December 2017); g a delegation of signature (if necessary); g a commitment to crowd funding (if applicable); and g a copy of the letter of rejection of the additional remuneration contract (if applicable). Within six weeks from the application deadline, the Commission checks the compliance of tenders with the eligibility conditions. In order to analyse the bids, the Commission focuses on some key points, such as: Client Alert | Wind Energy in France June 2017 g Only installations which fulfil the requirements of Article 1.2.1 of the specifications mentioned above can take part in the tender; g Excluding the first bidding period, only installations which have already obtained an environmental authorization under article L.512-1 of the French Environmental Code are eligible for submission; g Only new installations can take part in the tender. An installation is considered as new if the beginning of the works is subsequent to the application deadline and the major components of the installation are new (they were not used in generating electricity, within the framework of a commercial agreement or for self-consumption); g The candidate must be the producer of the wind installation. Each complete application which has not been eliminated is then assigned a grade out of 100. Price is the only award criteria. The score is linearly decreasing with “T” (the reference price set by the candidate), which is between 0 and 74.8 €/ MWH. Then, the Commission forwards several documents to the Energy Minister including the list of successful candidates and the rejected ones (with the grounds for refusal), the ranking of the candidates, the operation instructions of each candidate and the report summarising the tendering procedure. u The designation of the winners of the call for tender According to article R.311-23 of the French energy code, the Energy Minister shall, at the same time as the unsuccessful candidates are informed that their tenders have not been accepted, inform the successful tenderers of the award decisions. Afterwards, successful candidates construct the installation in accordance with their application form. Any modification of the installation has then to be authorized by the regional environment directorate. However, there are some limits such as: g The producer cannot be changed prior to completion of the facility; g Changes in capital structure cannot be carried out prior to the setting-up of the financial guarantees; g The commune can be changed but only to a neighboring town (the Préfet must then be informed within one month); g The installed capacity can be changed within +/- 10% of the capacity contained in the offer (the Préfet must then be informed). Each candidate must fulfil a number of obligations under the specifications. Indeed, amongst other things, he has to apply for a grid connection agreement (if it has not been done before), to provide bank guarantees for performance, to commission the facility, and to submit to EDF a certificate of compliance of its installation with the terms of its application for contract within 36 months from the nomination of candidates. u The conclusion of the additional remuneration contract Each successful candidate concludes an additional remuneration contract with EDF, subject to respecting the provisions of the specifications. The producer must send an application for a contract of additional remuneration to EDF for this purpose. EDF then has a maximum of three months to offer this contract to the producer and the contract is concluded within six months of the application of the producer. The agreement includes the provisions of the specifications, the characteristics of the offer submitted by the candidate, and the provisions of articles R.311-26 to R.311-27-3 of the French Energy Code. Article 7.1 of the specifications provides that the contract of additional remuneration (for a duration of 20 years) shall take effect once the producer has submitted to EDF a certificate of compliance of its installation. The additional remuneration calculation formula is not the same as the one applicable to additional remuneration contracts under the Ministerial order dated 6th May 2017 mentioned above. The exact amount of the additional remuneration will be fixed in application of the following formula, as defined by the specifications dated 5th May 2017: The amount of the additional remuneration thus corresponds to the difference between the reference tariff stated by the producer and the average value of the energy produced in the given sector. The amount will be paid each month on the basis of the monthly average value of the energy produced in the given sector. This amount can be increased if the producer uses crowdfunding. The amount of this mark-up will be calculated depending on the part of the crowdfunding in the project funding. In this regard, the specifications dated 5th May 2017 precisely define each of the parameters provided for in the above mentioned formula. The specifications also define the modalities for implementing the purchaser of the last resort mechanism. Finally, the additional remuneration contract may be terminated prior to its expiry date at the owner’s request. In such case, the request has to indicate the effective date of termination. The owner will also have to pay to EDF an indemnity corresponding to the discounted amounts collected TWF_00018_06.17 © Taylor Wessing 2017 This publication is intended for general public guidance and to highlight issues. It is not intended to apply to specific circumstances or to constitute legal advice. Taylor Wessing’s international offices offer clients integrated international solutions. Though our offices are established as distinct legal entities and registered as separate law practices, we are able to help our clients succeed by providing clear and precise solutions with high-level legal and commercial insights. For further information about our offices and the regulatory regimes that apply to them, please refer to taylorwessing.com/regulatory.html and rhtlawtaylorwessing.com. Europe > Middle East > Asia taylorwessing.com Client Alert | Wind Energy in France June 2017 uOlivier Laffitte Partner, Paris Projects T: +33 (0)1 72 74 03 33 email@example.com Contact and paid under the additional remuneration contract from the effective date of the contract until its termination, except if the definitive cessation of the installation is beyond the control of the owner. Moreover, according to article L.311-13-5 of the French Energy Code, facilities can be inspected by recognized organizations, at the producer’s expense. As a result, a fraudulent declaration or a failure of the producer to comply with his obligations may result in termination of the contract. Massive simplification of administrative procedures The clarification of the additional remuneration regime was accompanied by a simplification of administrative procedures required for the implementation of wind farms. Firstly, as explained within our previous Client Alerts, the power purchase certificate (“CODOA”) was removed by a decree dated 28th May 2016. Secondly, the French order of 26th January 2017 introduced an “environmental authorization”. The aim of this procedure is to combine the various authorization procedures for a given project. For this purpose, this “new” authorization includes, for example, authorizations under obstacles to air navigation, heritage sites, historic buildings or military easements. The ICPE authorization (for installations classified for the Protection of Environment) also disappears, as well as the construction permit which will be included in the environmental authorization for wind farms, according to article R.425-29-2 of the French planning code. In order to be granted such environmental authorization, the producer has to submit the application to the Préfet in four paper copies, as well as an electronic copy. Thus begins the first phase of the procedure for the examination of the application. This phase usually lasts four months from the day of acknowledgement of receipt of the application. This period can be extended in certain circumstances. Then comes the second phase: the public inquiry. According to article L.123-9 of the French environmental code, the minimum duration of the inquiry is one month and can be extended by one month by the inquiry commissioner. Finally, in the third and final phase, the Préfet makes his decision. He shall give a decision on the application within two months of the date on which the producer received the report to the public inquiry. Such change to the administrative process was made with a view to simplifying the overall administrative procedures applying to the development of onshore wind energy installations. From now, indeed, producers of wind energy will only have to deal with one public entity (the “Préfet”) and timelines will be shortened. As a consequence, it is worth noting that litigation risks will also be limited as only one administrative decision (i.e. the environmental authorization) will be able to be challenged by the opponents to the project. In such a case, third parties will have the right to appeal against the decision of the Préfet to grant the environmental authorization within four months of the notification of the decision. This period may be extended by two months in case of a prior administrative appeal. Producers and investors shall therefore feel much more comfortable regarding the litigation risk and “not in my backyard” syndrome, which used to be the main obstacle for the development of wind farms. Conclusion: a new stable and secure regulatory framework The publication of both the Ministerial order and the specifications of the call for tender pave the way for a longawaited secured and simplified new regulatory framework applying to onshore wind installations. All the conditions to make France the Promised Land for wind installations, as operators and investors had always hoped, are met. The time for a Green New Deal has come and the French Government has finally done its part of the job. Now, it is your turn!