Legal Alerts/25 Nov 2016
Legal Alert – From General Feed-In-Tariffs to Competitive Bidding – New Smaller Subsidies for Renewable Energy
The Finnish government published its new Energy and Climate Strategy yesterday. The new strategy introduces different ways to reach Finland’s climate and energy targets for 2030 and onwards. From electricity producers’ point of view the most interesting and long-awaited part of the programme is the planned subsidy scheme for new renewable energy production. The strategy outlines that during 2018–2020 the government will carry out competitive bidding to single out the most economical projects, after which the subsidies would be paid in the form of operating aid from 2020 onwards to the successful bidders according to their bids.
The current feed in tariff stays in force and projects under the new scheme receive smaller subsidy
The new system is very different from the current subsidy scheme for wind power, in which all projects accepted in the 2500 MVA quota receive the same feed-in tariff. The present quota for wind power is practically full and the accepted projects receive the feed-in tariff for all their produced electricity until the end part of the 2020’s. The new bidding process for renewable energy will probably lead to smaller subsidies than in the current feed-in tariff. Also, the targeted amount of 2 TWh for new projects can be considered rather small as, in comparison, the total wind energy produced in Finland last year alone was 2.3 TWh and the permitted projects ready to be built correspond to approx. 6 TWh’s annual production.
The current programme has been widely seen as expensive and having adverse effects on the market. The new subsidy scheme is meant to function as a temporary bridge towards totally market-based production investments in the future. The bidding competitions will be technology neutral, which means that different renewable technologies will have an equal opportunity. There are no separate quotas for e.g. wind power in the new scheme. However, it is to be expected that other technologies, such as solar PV, cannot effectively compete against wind power in the near future. The government will continue to have other tools available for supporting solar PV technology, such as energy investment aids for small-scale production.
Implications to energy producers
The competitive bidding process will bring about changes to the investment preparations required from energy companies compared to the current subsidy scheme.
- The bids will probably need to be binding, which will require considerable project development measures and financial commitments before the bid is issued, without certainty whether or not the bid will be successful. This can be a heavy burden to new technologies developed by small entities.
- If the operating aid is paid in addition to the market price for electricity and not as a guaranteed total fee, the producer bears the risk related to fluctuating electricity market prices and has to consider this when setting the price for the bid.
For producers it would be extremely important that the government issues a long-term plan and schedule on the upcoming bidding competitions. This would secure that the product development costs would not go down the drain even if the first bidding is not successful.
The model of the aid and rules of the bidding competitions have not been outlined very precisely and they will be clarified in a separate act of law. According to the preliminary schedule, the draft legislative proposal will be ready in Q1/2017 and submitted to the parliament in Q3/2017 so that the bidding competitions could start in 2018. Before the legislative drafting, the Ministry of Employment and the Economy will undertake a survey of the possible health and environmental effects of wind power.
Our experts will continue to monitor the drafting of the applicable legislation and are happy to provide more information on the new energy and climate strategy and its implications to energy companies.