[Smart News] May 2017: the wind power system is (finally) stabilised

The publication of specifications by CRE (French Regulatory Commission of Energy) on May 5^th, followed by the publication of the decree dated 6 May 2017, on May 10^th 2017 in the French Official Journal, marks the end of a decade of a feed-in tariff regime, the end of a transitory period, and the clear start of a new era in onshore wind energy, with its full integration into the electricity market. One can only hope that the new regime, now endorsed by the European Commission, will enjoy stability. The conditions for this exist, including the creation by the Ordonnance of January 26^th 2017, effective as of March 1^st, of an environmental permit replacing planning permission for wind farms.

It is recalled that following the vote on December 29^th 2015 of the Rectifying Finance Law for 2016, which includes reforms to the Contribution to the public electricity service (CSPE), the State was forced to introduce a market + premium scheme for wind farms as from January 1^st 2016. This was enforced by the decree of December 13^th 2016, which sets no limitation of installed power and retains the open-window principle. The system was designed to enact the switch from a mechanism of the feed-in tariff regime to a support scheme consistent with the European Guidelines for energy and environmental state aid of June 2014, while reserving the right to premium contract for operators following Call for tenders as from January 1^st 2017.

The decree of 6 May 2017 thus clarifies the basic scheme, based on Call for tenders, by making it coexist with an open-window system as an exception to ordinary law.

As regards tenders, the specifications stipulate that they are open to installations of at least 7 machines or in which one of the wind turbines has a rated power of more than 3 MW, or to installations providing evidence of rejection (notified by EDF) of an application for a premium contract (demande de contrat de complément de rémunération – DCCR) filed under the open window system.

More importantly, it finally provides much-needed visibility: the specifications set a sequencing of the allocation of the 3000 MW allocated over a period of 3 years. Six tender bidding sessions will be launched half-yearly for 500 MW, with carry-over of volumes not allocated to the next session. It also lays down the conditions for wind farm eligibility and construction.

Conversely, the open window system, in line with the 2014 Guidelines, is reserved for installations of up to 6 machines and with 3MW nominal power maximum for each turbine.

In order to avoid “salami-slicing” in accessing the open window system, a distance rule has been added, namely 1500 m at least from a wind turbine belonging to any other installation or project for which a DCCR has been filed in the two years preceding the date a DCCR was filed for the installation concerned.

Contrary to what was provided for in the former wind power scheme prior to the implementation of wind power development areas (zone de développement éolien – ZDE), the decree does not refer to Article L.233-3 of the Code of Commerce to apply the distance rule: it merely states that the Minister may grant a waiver “if the producer who has applied for a contract provides evidence that the companies involved in the installations proposed are totally independent from each other”, which gives the Minister more leeway. The margin of appreciation is thus retained, although this will probably lead to a period of uncertainty until who will or will not be considered as “totally independent” companies is determined more precisely.

As standard also, a time limit for the completion of construction is instituted: three years from the date the DCCR was filed. Should the time limit fails to be respected, the duration of the contract would be reduced, as is the GWh cap applicable to the contract.

The time limit is however extended in the event of litigation “against one or more administrative decisions concerning the installation permit” or, if approved by the Minister, in cases of force majeure.

In order to regulate the maturity of projects filing for a DCCR, the decree also allows the construction period to be extended in the event of delays caused by difficulties in completing connection to the grid. Such hypothesis is not new, as it has existed for a number of years for other renewable energies, and since the Decree of December 14^th 2016 for wind power.

The decree does, however, restrict such situation to installations for which a full application for connection was filed with the network operator no later than two months after filing the DCCR, and that the producer has “taken all steps in compliance with the network operator’s requirements to ensure that connection work is carried out in due time”. This avoids holding the producer responsible for delays caused by the network operator, but only and strictly for the delays attributable to the grid operator.

Producers – however tempting this may have been – will be unable to “fiddle” with the full application for connection filing date in order to benefit from an extension of the time limit to complete the installation. More importantly, the mechanism implies either that the full application for connection was filed before the DCCR, or that the producers have properly anticipated the time it would take to get their installation connected before filing the DCCR, if it must precede application for connection. In any event, they must fully comply with the grid operator’s Reference Technical Documentation so that they can’t be faulted when requesting an extension of the time limit for completion if necessary.

Although predictable, this is undoubtedly an essential innovation for project promoters: it creates a link between DCCR and connection procedure.

Importantly too, although the new twofold call for a tender/open window system does not create an upheaval in the economic setup in force since the decree of December 13^th 2016, it nevertheless contains a few notable innovations in this respect.

The premium contract will be concluded – whether through tendering or open window – for a period of 20 years instead of 15 years previously. The longer contract term, however, is mirrored by a reduction in the basic tariff and a cap on the number of MWh that can be injected into the grid at full price.

The specifications of the Call for tender set a price cap of €74.8/MWh, including the €2.8/MWh management premium already defined by the decree of December 13^th 2016. It should be noted that a significant innovation here is that price is the only criterion for attribution.

The price cap thus determined matches the price also fixed by the Tariff Order of 6 May 2017 for the open window system.

So although the tariff order’s basic elements are nothing new, the key change – besides the shift to the premium system already in effect since the decree of December 13^th 2016 – is the pricing mechanism.

First, the basic tariff is now defined depending on the turbines’ rotor diameter. With a diameter of 80 meters or less, the basic tariff is €74/MWh. For a diameter of 100 meters or more, the tariff drops to €72/MWh. Tariffs in between are calculated by “linear interpolation”.

Secondly, the premium contract is now capped annually. The cap is calculated using a formula involving the number of turbines of the wind farm and the rotor diameter. Beyond the cap, the premium will be calculated based on a single tariff of €40/MWh.

Regrettably, MWh not produced in one year cannot be carried forward to the following year’s cap.

As the switch to premium contract had already been instituted in December 2016, the main innovation lies in onshore wind now switching to a tendering system.

We can only hope that another innovation created by this scheme will be stability, both in terms of preserving an open window system for small installations and in the sequential launch of tender bidding periods.