With volumes of onshore wind transactions to increase over the coming years, France is regarded as a hot spot for wind energy projects as well as one of the most attractive European markets in the wind industry.
In order to assist this promising development and satisfy the requirement of gradual liberalization of the market by the European Commission, the French Government has had no choice but to substantially modify the regulatory framework applicable to the financial support mechanism of renewable energies
In this context, the French parliament enacted a new law socalled “Law on energy transition and on green growth” on 17 August 2015, with the purpose of creating a new French energy model, based on a new support mechanism called “the additional remuneration” or feed-in-premium, which is a bonus paid monthly to a producer of renewable energy in addition to the sale of energy on the market that he has produced.
Such feed-in-premium shall then become the main support mechanism for renewable energy, while feed-in-tariffs mechanism would only be applicable to a limited number of projects.
The above-mentioned Law of 17 August 2015 was supplemented by three implementation decrees published on 27 and 28 May 2016, which give more detail on the new additional remuneration systems.
Since doubts were expressed as to the compatibility of this new regulatory framework with the 2014 guidelines of the European Commission relating to state aid for the protection of the environment and the energy sector, intense discussions between France and the European Commission took place.
On 12 December 2016, the European Commission validated compliance with European Union rules regarding state aid for four types of renewable energy, and more particularly for wind energy installations having filed an application for aid in 2016.
In light of this success, on 13 December 2016 the French government published a ministerial order laying down the conditions of the additional remuneration for electricity produced by the wind energy installations.
This order, which repeals notably the wind energy tariff order of 17 June 2014, previously applicable, thus creates a legal framework for wind energy installations already developed or in the process of development up to December 31, 2016, by ensuring a transition between the previous regime of feed-in tariffs and the new mechanism for feed-in-premium.
Finally, on 14 December 2016 the government published a decree defining the new rules on operating and administrative supervision applicable to installations producing energy, giving increased powers of surveillance and control to prefects extending as far as to suspend or terminate contracts concluded with producers.
New projects developed from 1 January 2017 onwards will be the subject of a forthcoming ministerial order which will finally define the new regulatory framework applicable to wind energy installations, and will serve as a sustainable basis for the development of these projects in France for the future.
Support mechanisms available for wind energy installations up to 31 December 2016: feed-intariffs or feed-in-premium
The implementation by the above mentioned 13 December 2016 Ministerial order of a transitional legal framework for wind energy installations led to several evolutions for the wind energy sector.
As a matter of fact, whilst a new support mechanism called the additional remuneration (feed-in-premium) was created for replacing over a larger period the former power purchase mechanism (feed-in tariffs), the French government decided to maintain the benefit of feed-in tariffs to a limited number of wind installations developed or to be developed by the end of 2016:
- Feed-in-tariffs - only owners of onshore and offshore wind installations who lodged a complete application for a power purchase agreement (PPA) or were granted a CODOA prior 1st January, 2016 shall continue to benefit from the feed-intariff regime (as defined by the Ministerial order dated 17th June 2014).
- Feed-in-premium (additional remuneration) - only onshore wind installations are eligible for the additional remuneration mechanism.
How to keep benefiting from feed-in tariffs and PPA ?
According to article 14 of the Ministerial order dated 13 December 2016, installations using mechanical energy derived from wind for which a complete application for a PPA was filled or a CODOA was granted before 1st January 2016 can keep benefiting from the feed-in tariffs defined by the Ministerial order dated 17 June 2014.
In this context, owners of wind farms that obtained a CODOA and already submitted a complete application of the purchase contract to EDF to benefit from the PPA do not have to fulfill any additional obligations and must follow the procedure described by the Ministerial order dated 17th June 2014, while owners of wind farms which obtained a CODOA before 1st January 2016 but did not complete a full application of the purchase contract to EDF to benefit from a PPA before that date must follow the procedure and conditions laid down by article 3 of the Ministerial order dated 17th June 2014 in order to obtain a PPA and benefit from feed-in tariffs.
Finally, and as Article 14 of the ministerial order of 13 December 2016 expressly recalls, PPA’s signed before the 14 December 2016 (date of publication of said Ministerial Order in the Official Journal of the French Republic) will continue to be regulated by the wind energy tariff order of 17 June 2014.
How to benefit from the new feed-in-premium regime (additional remuneration mechanism) ?
List of wind installations eligible to feed-in-premium and additional remuneration contract
According to Article 2 of the ministerial order of 13 December 2016 and of Article D. 314-23 7° of the French Energy Code, installations using mechanical energy derived from wind can benefit from the additional remuneration contract in the following cases:
- New Installations using mechanical energy derived from wind for which an application is completed before 31st December 2016. An installation is considered as new if a complete application was filled before the beginning of the works linked to the project. The beginning of works is either the start of the construction work, or a firm commitment making the investment irreversible.
- Installations using mechanical energy derived from wind benefiting from a signed PPA pursuant to the ministerial order dated 17 June 2014, whose the request to benefit from the additional remuneration was filed from 1st January 2016. u
- 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 from 1st January 2016 and before 14th December 2016 entered into force.
How to apply for feed-in-premium and additional remuneration contract ?
Owners of onshore wind farms who fall into one of those categories can benefit from this supplementing remuneration mechanism.
The decree n°2016-682, 27th May 2016 and the Ministerial order dated 13th December provide that in order to benefit from such mechanism, the producer must send a completed application for a contract of additional remuneration to Electricity de France (EDF).
It should be emphasized here that this additional remuneration contract is not a contract for the purchase of electricity, insofar as EDF does not commit to purchasing the electricity produced (as in the case of the purchase contract with feedin-tariffs) but simply to pay an additional remuneration to its contracting electricity producer should the market tariffs do not exceed certain thresholds.
The above mentioned decree provides that the application of the owners must contain personal details concerning the producer, but that more importantly the applicants must provide accurate information about the installation such as:
- its localization,
- the delivery station,
- its installed power capacity,
- a sworn statement specifying that the request was made before the commencement of work,
- number and type of generators.
When EDF receives the application, it must formally acknowledge the receipt of the application.
EDF then has a time limit of three months to offer this contract to the producer whose installation is eligible for additional remuneration. The decree specifies that the contract of additional remuneration remains into force throughout the life span of the installation, being specified that the duration of such contract for wind installations is 15 years. The contract of additional remuneration 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 requirements set down by the Ministerial order dated 13 December 2016. Moreover, until EDF receives the certificate of compliance that the producer must send to it within three years (from the date of application to the additional remuneration contract), some details of its initial 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 initial installed power capacity) can be modified.
In addition, the ministerial order also states regarding Installations benefiting from (i) a signed PPA pursuant to the ministerial order dated 17 June 2014, whose the request to benefit from the additional remuneration was filed from 1st January 2016, as well as for (ii) installations not benefiting from a PPA but for which a complete application was filed pursuant to the Ministerial order dated 17th June 2016 from 1st January 2016 and before 14th December 2016, that the limitation of time is extended when the installations are put in service with delay because of the grid connection work or because of a judicial appeal by a third party. The ministry of energy can also extend the time limitation due to force majeure. In that cases additional time corresponding to the delay or until the Court rules that case. The decree n°2016-682, 27th May 2016 also specifies that when an owner of wind farms benefits from a power purchase obligation mechanism and that he/she may decide to switch to the additional remuneration mechanism for the remaining duration of its PPA. To do so, the owner must follow the procedure that was previously described and add in its application a request for the withdrawal of the power purchase agreement. It is also provided that the contract of additional remuneration can be transferred to another producer after signature of an amendment to the original contract. The Ministerial order dated 13th December 2016 also specifies that the owner of wind farms will have to communicate to the Energy Regulatory Commission details about costs and incomes related to his installations. 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 owner will also have to pay to EDF an indemnity corresponding to the discounted amounts collected and paid under the contract of supplementary 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 owner. ◊ Calculation formula of the feed-in-premium for wind installations According to the new article L.314-20 of the French energy code, the amount of the additional remuneration is calculated by especially taking into account: u the investments and operating costs of efficient plants that are representative of each energy sector; u the cost of integration into the electrical system/network; u the revenues from the installation, including the value from the generated electricity and value from guarantees on capacity; u whether these facilities contribute to achieving the national electricity policy goals; u whether the consumer concerned also produces some or part of the electricity generated by the plant. The main objective of this feed-in premium 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 be of course 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 feed-in-premium for wind installations will be fixed in application of the following formula, as defined by the Ministerial Order dated 13th December 2016: The amount of the additional remuneration thus corresponds to the difference between the energy bonus (equal to the difference between a reference tariff and the average value of the energy produced in the given sector), and the income obtained on the capacity market, by adding 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 13 December 2016 thus sets the reference tariff at 82 €/MWH for eligible projects. In this regard, the decree and the Ministerial Order dated 13th December 2016 define precisely each of the parameters provided for in the above mentioned formula. This additional remuneration shall also be increased by a “performance 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 decree specifies the modalities for implementing the purchaser of last resort mechanism. In fact, the Law on energy transition 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 TWF_00002_10.17 © 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 January 2017 uOlivier Laffitte Partner, Paris Projects T: +33 (0)1 72 74 03 33 firstname.lastname@example.org Contact (impossibility of enlisting with a physical person or legal entity responsible for the sale of electricity on behalf of a producer or failing of this 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. The new regime for controls and administrative sanctions applicable to energy producing installations The above-mentioned three decrees published on 27 and 28 May 2016 were supplemented by a decree published on 14 December 2016, which frames the control of installations benefiting from feed-in tariffs or additional remuneration contract. u Firstly, the time limit for completion of the installation is framed in order to keep benefiting from feed-in tariffs. According to the decree dated 28 May 2016, wind farms for which a complete application of the purchase contract was filed before 30 May 2016 must be completed no later than three years after the complete application of the purchase contract, or within eighteen months from 30 May 2017. u The decree dated 14 December 2016 relaxes those rules by offering producers the opportunity to request additional time from the Minister of Energy when the installation is put into service with a delay due to the grid connection work, a judicial appeal by a third party, or in the event of force majeure, left to the Minister’s discretion in this case. The decree of 14 December 2016 also specifies the methods of completion and control of the installations. Indeed, pursuant to the decree of 28 May 2016, the operator must ensure the good completion of his installation by submitting to EDF a certificate of compliance of the installation. u The decree of 14 December 2016 reinforces the repressive nature of the control mechanism by adapting the conditions under which the prefect may pronounce administrative sanctions against energy producers, such as suspending or terminating the contract. The six month time limit, in which the producer can remedy his situation in order to avoid a sanction, has thus been abolished. However, the process for giving formal notice is better regulated and enables the prefect to grant a second time limit for the producer to remedy his situation. u Finally, the decree of 14 December 2016 requires the authorized bodies to transmit a visit report to the prefect within one month at the latest, when they find nonconformity in the installation. New Ministerial orders should describe the general and specific requirements imposed on producers and how they should be monitored. What’s next? The era of feed-in-premium and public tenders As explained earlier, the projects developed from 2017 onwards will be subject to a different regulatory framework from the transitional regime organized by the Ministerial Order of 13 December 2016. For example the Minister of the Environment undertook to communicate as rapidly as possible to the European Commission a draft ministerial pricing order applicable to wind energy installations developed from 1 January 2017onwards, so that it may enter into force as soon as possible. Although the terms of this draft ministerial pricing order are not yet known with accuracy, the Minister of the Environment has already indicated that from 2017, the wind energy sector will be backed by an additional remuneration for small wind farms and by tender offers for the rest. In this regard, she stated that in accordance with the new European Commission guidelines on state aid in the energy sector, wind farms with a capacity of up to six turbines will be assisted by an additional remuneration; for the others a multiannual three year tender procedure will be launched, with two project applications per year. These new support mechanisms will thus help to achieve the ambitious targets for the development of renewable energies set by the law on energy transition and that the Minister of the Environment has set out in the multiannual periods of energy programming (PPE), published on 28 October last. Therefore in the near future, a comprehensive and ultimately stable regulatory framework will be effective in France, thus fulfilling the expectations of investors and developers of the wind energy sector. So, be patient, the best is yet to come!