Uproar in France at up-front disposal fee

FRANCE: The wind industry in France has yet another fight on its hands as the government seeks to introduce a hefty dismantling fee on top of a massive increase in the tax burden on operating wind power plants.

"Totally unacceptable" is how Nicolas Wolff, president of the French Wind Energy Association (FEE), describes the proposed measures to pay for dismantling wind turbines at the end of their lives. The industry is ready to "battle hard against this inequitable proposal", he says.

The threat of a measure has been pending since 2003, when a planning law required operators to provide financial guarantees to cover the cost of dismantling turbines and restoring sites. The government never got round to issuing the necessary decree, however. It now proposes a cash payment of EUR50,000 per turbine, to be deposited in a designated bank before the plant starts operating, or within five years for those already in service.

The proposal will have a considerable impact on the financing, and therefore profitability, of wind plants. It is also discriminatory, Wolff says, given that no other industry is subject to the same requirement. Furthermore, because wind power plants earn a guaranteed income, "to have to pay the deposit before you have even started earning money does not make sense", he argues.

The industry is pushing for a financial or insurance warranty instead, neither of which would involve an up-front payment.

Operators are already seeing their profits hit because of recent changes in business taxation. A wide-ranging reform was introduced in the 2010 budget to help make French companies more competitive and discourage them from relocating abroad by reducing the tax burden. At the same time, however, another tax was added to neutralise the fiscal benefits for industries unable to relocate, such as power producers and train and telecoms operators.

Shortfall realised

This flat-rate tax on network businesses, or IFER, was originally set at EUR2,913/MW of installed capacity per year for all electricity generation. For most wind power operators, this represented a marginal increase compared with the amount paid under the old mechanism. And the government promised to make up the shortfall in the amount received by local authorities for plant connected to the network before 1 January 2010. This has since been extended to include projects entering the permitting process by the same date.

However, local authorities saw revenues fall by as much as 75% for plants brought into service in 2010, according to analysis by international law firm Norton Rose. Furthermore, there was no longer any economic benefit for local authorities hosting wind power facilities.

In an attempt to remedy the situation, the 2011 budget passed in December more than doubled the IFER to EUR7,000/MW per year, but only for onshore wind power plants, tidal turbines and photovoltaic installations. This will counter the strong disincentive for local authorities, says the government, and compensate them for "any harm resulting from the installation of wind turbines" on their territory.

According to Norton Rose, however, because of the way the tax is apportioned, the local authorities will still lose around 50% of their revenues while operators will pay around 88% more than under the old business tax. "There is massive pressure as far as the operator is concerned - and yet the reform does not help the communal authorities much in terms of what they receive," says Anne Lapierre, a lawyer at Norton Rose.

The increased tax burden will destroy profitability for wind plants already operating and have a negative impact on development. "It is likely that some projects will not be built because the economic case has changed," says Lapierre. There is also a question as to whether the increase in the IFER is constitutional, given that it only applies to certain electricity generators. Nuclear, coal and gas plant are subject to the lower tax rate of EUR2,913/MW.

The industry is extremely unhappy about these two new measures - only partly because of the economic consequences. It seems that wind power is being singled out yet again for particularly harsh treatment, adding yet more layers to what is already a challenging array of rules and regulations. "The sector is constantly asking for a stable regulatory framework so it can build an industry and invest and develop local facilities," says Wolff.