Market Status: France - Regulatory pressures mount for French wind

FRANCE: Last year was very difficult for the wind industry in France.

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Despite an additional 1,084MW of installed capacity taking the national total to 5.66GW - including 76MW in the French overseas territories - the legislative tide turned heavily against the sector.

The most significant event was the ratification in July of Grenelle 2, a law detailing how France is to meet its target of 25GW of installed wind capacity by 2020. Among other things, Grenelle 2 stipulates that wind power plants must comprise at least five turbines. This could affect more than a quarter of projects nationwide, according to the French renewable energy trade association SER.

A further restriction is that turbines can only be installed in areas defined in the wind power plans currently being drawn up for each region. If the plans are not ready by July 2012, central government will step in to ensure publication by October 2012 to avoid a moratorium.

Tighter regulatory system

The law tightens rules for the wind power development zones, known as ZDE, in which plants must be built to qualify for guaranteed power-purchase prices. When deciding whether to approve a ZDE, the authorities must now take heed of public safety, biodiversity and archeological sites in addition to the original criteria of protection of the countryside, historic monuments and other outstanding and protected sites.

Adding yet another layer to the already challenging permitting process, Grenelle 2 also includes the provision that turbines will be subject to rules covering industrial installations that are considered a risk to the environment and public health. The rules are to be issued by July.

Some predict new installed capacity could fall by as much as 50% from present levels once the full force of the law begins to take effect in 2012.

The Grenelle 2 does contain one crucial clause in support of the wind industry, however, which stipulates that at least 500 turbines must be installed in France each year, with a review after three years. The then energy minister Jean-Louis Borloo followed this up with a letter to the regional prefects, giving a breakdown of the number of turbines to be installed per year to achieve the target.

Unfortunately, the law does not indicate what happens if fewer than 500 turbines are installed in a given year.

Two more measures added to the industry's woes last year. A recent reform of the business tax regime imposes a higher burden on operating plant. Paradoxically, the reform was intended to help make French companies more competitive by reducing the tax burden. However, the end result for wind power is that operators now have to pay EUR7,000/MW per year. This is 88% more than under the old tax regime, according to analysis by international law firm Norton Rose.

As well as hitting the profitability of operating plant, the tax change could also signal the end of the road for projects that no longer appear viable. Doubts have been raised over the legitimacy of this measure, given that most other forms of generation including nuclear, coal and gas pay a much lower rate of EUR2,913/MW.

Disposal costs worry

Right at the end of the year, the government announced that operators would have to deposit EUR50,000 per turbine into a designated bank account to cover the cost of dismantling the facility at the end of its life.

The payment has to be made before the plant comes into service, or within five years for those that are already operating. This "dismantling fee" was originally introduced in 2003 but had not yet come into force because the government had failed to issue the necessary decree.

Doubts are now growing as to whether France will meet its 2020 targets. Projects that received permits two or three years ago are still being built, which means that another 1GW of new capacity should materialize in 2011. But the industry believes 2012 might be much harder. A lot depends on getting the regional wind power plans in place - and that depends on the government.

On the all-important political front, Borloo's former super-ministry combining energy and the environment has been dismantled. Now, Nathalie Kosciusko-Morizet is in charge of environment, while the energy portfolio has reverted to the industry ministry under the avowedly pro-nuclear Eric Besson. Besson, in turn, reports to finance minister Christine Lagarde.

The consequences of this reshuffle are as yet unknown, but it has been said that a long-delayed tender for offshore wind power was caught between the three ministries (see page 35). Lagarde has announced a national conference on energy to redefine policy over the next two decades, raising further questions as to what the future holds.

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