Monday, 4 September 2017

Changes to the French Onshore Wind Support Scheme: a tortuous pathway toward an ill-conceived auction regime ?


By Romain Mauger, Post-doctoral fellow, Groningen Centre of Energy Law

Onshore wind energy development in France was marked by a very high level of legal uncertainty caused by regulation volatility in the past years. This factor is one of the main to explain the volatility of annual wind energy new connections to the grid in France from 2006 to 2016, especially with a difficult time from 2011 to 2013 [1]. Regarding the support scheme, since 2001 onshore wind energy was supported by Feed-in-Tariffs (FiT) [2], but this has changed in 2017 after a rather difficult transition to Feed-in-Premiums (FiP). The following lines provide elements on the multiple steps of this policy change, portray its current results and raise some critics.



1) The European Commission guidelines regarding State aids for wind energy


According to the European Commission (EC) guidelines on State aid for environmental protection and energy for the period 2014-2020, since 1 January 2016 renewable energy producers receiving State aids should “sell their electricity directly in the market” and be submitted to market obligations [3]. Therefore, the traditional FiT, key feature of the wind energy development in Europe [4], is to be replaced by European Union (EU) Member States into their legislation by other support schemes, including FiP.

From 1 January 2017, the same guidelines require to grant  the public funds “in a competitive bidding process on the basis of clear, transparent and non-discriminatory criteria” [5]. It means that technology neutral bidding processes should be, at the date of publication of this note, the usual way to allocate public support money to renewable energy in EU Member States.

Multiple exceptions however apply, particularly for wind energy. Regarding the FiP, wind farms can avoid them when totalling no more than 3 MW of installed capacity or 3 “generation units” [6]. Concerning the attribution of the support by tenders, wind energy is also favoured as it can avoid auctions for facilities up to 6 MW or 6 generation units [7]. Finally, regarding technology neutrality, the guidelines authorise 5 alternative possibilities to circumvent them but they will not be developed in these lines.

2) The transitional regime in France from administratively defined FiT to auctioned FiP



As developed hereunder, France made full use of the exceptions provided by the EC guidelines in order to keep a support scheme model as close as possible as the FiT implemented for onshore wind energy and then preserve its competitive capital costs [8]. The transition from the pre-2016 to the 2017 and onwards regime has been tortuous though, and the new support scheme is fully active since July 2017 only. Some of its aspects also contain strong shortcomings.

a) 2016-2017: the tortuous way out of the administratively set FiT


The Energy Transition for Green Growth Act 2015-992 of 17 August 2015, a flagship act supposed to establish a legal framework enabling the energy transition from fossil and fissile fuels to renewable energy in France, paved the way for the transition from FiT to FiP for renewable energy sources. Its article 104 created a new section in the Energy Code (art. L. 314-18 and following) providing the regime for the FiP or Complément de rémunération.

Nonetheless, it is not before May 2016 that Decrees have been published specifying the eligible facilities to FiT, FiP or both and the modalities of the FiP (calculation formula, etc.). As defined in the 2016-691 Decree of 28 May 2016 [9], onshore wind turbines were eligible to both schemes, without any limit of installed capacity or number of generation units. This provision, clearly violating the requirements of the 2014 guideline seen before, was based on the 10-years validity of the 2014 wind tariff order issued after a long-winded court case launched in 2008 by wind energy opponents [10].

The wind support scheme was finally adjusted the 13 December 2016 by a retroactive tariff order [11]. Approved by the EC, this order produced effects from the 1 January 2016. It placed the total target price at the same level as the previous FiT (82 €/MWh) in order to preserve the legal certainty for the wind farm developers having requested or obtained the tariff during 2016. Though reluctantly, the French energy regulator (the Energy Regulatory Commission or Commission de régulation de l'énergie) approved this move [12].

More recently, the Decree 2017-676 of 28 April 2017 repealed and replaced the December 2016 tariff order but with a grace period of 3 months, meaning that the FiP based on the FiT level was still available until July 2017 [13]. It also definitely repealed the access for onshore wind energy to the FiT [14] and implemented a threshold for having access to the FiP without auction [15]. These aspects will be developed in the following lines.

b) 2017 onwards: an ill-conceived wind energy FiP auction regime



The new onshore wind support regime can be considered as completed with the 28 April 2017 Decree seen before and the 6 May 2017 tariff order [16], establishing a FiP accessible directly without competition and administratively set, which will be developed first in the following lines, and a FiP accessible via competitive bidding, detailed in the next paragraph. In accordance with the EC guidelines of 2014 exceptions, the FiP is then available without competitive bidding procedure for wind farms under 6 units. No wind turbine can be of an installed capacity of more than 3 MW and the full facility must be at least distant by 1500m from any other wind farm [17]. The FiP has a duration of 20 years [18]. The total target price at which the electricity produced is sold (adding the direct sale on the market plus the premium(s)) is set by the regulation between 72 and 74 €/MWh depending of the rotor diameter and is annually capped [19]. Once that the annual electricity output eligible to the premium is reached, the remaining production has a target price of 40 €/MWh [20]. This mechanism is supposed to limit the cost for the taxpayer and avoid excessive remunerations for the best situated facilities.

For the wind farm falling outside of the conditions for having a direct access to the FiP, non-technologically neutral tenders have been implemented in May 2017 as well. They then mainly concern the facilities gathering more than 6 wind turbine or having at least 1 wind turbine of an installed capacity superior to 3 MW. The tender specification has been released the 5 May 2017 and the auction will take place in 6 phases spanning from 2017 to 2020, of 500 MW each time, for a total of 3 GW of opened capacity [21]. The only selection criteria is the price and the unallocated capacity can be added to the following phase. Some advantages are provided for participative projects to foster their development (taking the shape of a bonus on the premium).

If the FiP regime for onshore wind in France seems fine-tuned, it however contains strong shortcomings when one knows the French onshore wind energy market. Because of the mix of diverse constraints such as urban sprawl, rules of distance with dwellings, radars, airports, historical monuments and other facilities, it is very unusual to develop a wind farm of more than 10 wind turbines in the recent years. According to the Ministry in charge of the Environment and Energy, in 2016 the average size of a typical wind farm in France was a bit less than 10 MW, that is to say, 5 wind turbines of 2 MW each [22]. The same source provides a distribution by capacity groups, and 93% of the wind farms gather a total installed capacity of less than 12 MW [23].

The risk is therefore that most of the wind farms in France will still apply to the administratively set FiP and that the 3 GW of capacity opened for bigger wind farms will probably lack of the sufficient competition to really drive the costs down. This is the reason why the French energy regulator requested to reduce the total capacity opened for bidding and/or to limit the direct access to the FiP to the facilities up to 6 MW instead of 6 wind turbines [24].

Once that all the pieces of the new support scheme for onshore wind energy in France are put together, doubts arise on its capacity to reproduce the steep price fall that has been witnessed in 2017 in Germany and in Spain [25]. If the new legal frame follows the EC guidelines and seems able to provide some well-needed stability and predictability to wind farm developers, ironically some changes should take place if the French Government wishes to drive down wind energy costs via competitive bidding procedures.

 

 

Sources:

[1] See graph in 2016 report of the French TSO, RTE: http://bilan-electrique-2016.rte-france.com/production/23-eolien/#

[2] Loi n° 2000-108 du 10 février 2000 relative à la modernisation et au développement du service public de l'électricité, art. 10;  Arrêté du 8 juin 2001 fixant les conditions d'achat de l'électricité produite par les installations utilisant l'énergie mécanique du vent telles que visées à l'article 2 (2°) du décret n° 2000-1196 du 6 décembre 2000.

[3] European Commission guidelines on State aid for environmental protection and energy 2014-2020, 2014/C 200/01, para 124.

[4] Fan Zhang, “How Fit are Feed-in Tariff Policies? Evidence from the European Wind Market”, World Bank Policy Research Working Paper 6376, February 2013, p. 1 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2226284 ; Tim Maxian Rusche, EU Renewable Electricity Law and Policy: From National Targets to a Common Market, Cambridge University Press, October 2015, pp. 62 – 68.

[5] European Commission guidelines on State aid for environmental protection and energy 2014-2020, 2014/C 200/01, para 126.

[6] Id., para 125.

[7] Id., para 127.

[8] PÖYRY, « Observatoire des coûts de l’éolien terrestre », oct. 2016, p. 44. http://fee.asso.fr/wp-content/uploads/2016/12/Poyry_FEE_Observatoire_couts_eolien_terrestre_final-1.pdf

[9] Décret n° 2016-691 du 28 mai 2016 définissant les listes et les caractéristiques des installations mentionnées aux articles L. 314-1, L. 314-2, L. 314-18, L. 314-19 et L.314-21 du code de l'énergie, art. 4.

[10] Jérôme Pentecoste, Alexandre Silva-Delaquaize, « ENR : entre tarifs administrés et prix de marché », Énergie - Environnement - Infrastructures n° 7, July 2016, study 16, pt 4.

[11] Arrêté du 13 décembre 2016 fixant les conditions du complément de rémunération de l'électricité produite par les installations de production d'électricité utilisant l'énergie mécanique du vent.

[12] Délibération de la Commission de régulation de l’énergie du 3 novembre 2016 portant avis sur le projet d’arrêté fixant les conditions du complément de rémunération de l'électricité pro-duite par les installations de production d’électricité utilisant l’énergie mécanique du vent.

[13] Décret n° 2017-676 du 28 avril 2017 relatif à l'autoconsommation d'électricité et modifiant les articles D. 314-15 et D. 314-23 à D. 314-25 du code de l'énergie.

[14] Id., art. 1, 1° b).

[15] Id., art. 1, 2° b).

[16] Arrêté du 6 mai 2017 fixant les conditions du complément de rémunération de l'électricité produite par les installations de production d'électricité utilisant l'énergie mécanique du vent, de 6 aérogénérateurs au maximum  .

[17] Id., art. 3.

[18] Id., art. 11.

[19] Id., annex I and III.

[20] Id., annex III.

[21] Appel d’offres portant sur la réalisation et l’exploitation d’Installations de production d’électricité à partir de l’énergie mécanique du vent, implantées à terre http://www.cre.fr/documents/appels-d-offres/appel-d-offres-portant-sur-la-realisation-et-l-exploitation-d-installations-de-production-d-electricite-a-partir-de-l-energie-mecanique-du-vent-implantees-a-terre

[22] Ministère de l’Environnement, de l’Energie et de la Mer, « Tableau de bord : éolien - Quatrième trimestre 2016 », February 2017, p. 1. http://www.statistiques.developpement-durable.gouv.fr/fileadmin/documents/Produits_editoriaux/Publications/Datalab_essentiel/2017/datalab-essentiel-90-tableau-bord-eolien-4t2016-fevrier-2017.pdf

[23] Id., p. 3.

[24] Délibération de la Commission de régulation de l’énergie du 23 mars 2017 portant avis sur le projet de cahier des charges de l’appel d’offres portant sur la réalisation et l’exploitation d’installations de production d’électricité à partir de l’énergie mécanique du vent, implantées à terre, p. 5, recommandation n° 3.




 

 

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