On Reflection: New generation for France

FRANCE: Legislation currently before the French parliament signals a shift away from a long-standing dependence on nuclear power towards renewable electricity, and a flexible market structure that will stabilise finance and encourage renewables investment.

France's energy system has been dominated by nuclear for many years, but the energy transition bill now going through parliament aims to reduce it to 50% of generation by 2025 and push renewable electricity to 40% by 2030. It would do so, in part, through its support for renewable energy financing.

The current system provides a strong incentive for renewable energy through a feed-in tariff and a tender system, which give long term guaranteed revenues for investors. The utility EDF and local distribution operators, who are required by law to buy electricity from renewable sources, are compensated for additional cost by premiums added to consumer electricity bills.

This renewables obligation mechanism hit a problem in December 2013 when the European Court of Justice ruled that this constituted state aid, which led to cancellation of the 2008 onshore and offshore tariffs. Finally, in March 2014, a new onshore feed-in tariff was approved by the European Commission (EC). Onshore wind projects are now guaranteed a feed-in payment for 15 years, with a tariff of €82/MWh for ten years, then between €28 (for 3,600 hours or more) and €82/MWh (for 2,400 hours or less) for five years, depending on the location of the wind farms and the electricity produced.

The feed-in tariff has been central to supporting wind energy since 2006, enabling continuous and rapid market development. But it has often been criticised by national bodies who say that due to the purchase obligation, renewable energy generators do not take into account the actual need for electricity, and this can negatively affect price.

Under the existing system, the National Energy Regulator has regularly requested tenders for large renewables projects, including offshore wind, with the energy minister having a final say. The winner enters into a long-term power purchase agreement at a guaranteed price. While the tendering system is nowadays only used for large projects and coexists with the feed-in tariff scheme, it will become a dominant mechanism in the renewable energy sector.

The draft bill addresses concerns about feed-in tariffs by proposing to restrict their application in favour of a more flexible process, in line with EC guidance. It would phase out tariffs and replace them with feed-in premiums to top up the market price.

Wholesale market

Even though existing wind projects will continue to benefit from the feed-in tariff, the bill's compensation mechanism would allow renewable energy producers to sell electricity directly on the wholesale market, ensuring that they are remunerated if the market price falls below a certain level. The government intends to set out compensation levels and specify installations still subject to purchase obligations once the law is in force. The bill would also allow those requesting tenders to decide if the winner receives a variable premium.

The proposed regime has its advantages. Renewable energy producers should be able to respond to electricity price signals, helping stabilise the market and providing higher revenues during peak periods. Consumer contribution would be reduced, although electricity producers would be more visible than through a feed-in-tariff scheme.

The bill also aims to promote renewable energy funding by letting municipalities and inter-municipal bodies acquire shares in trading, cooperative or mixed-economy companies who generate renewable energy. It also encourages citizens' participation by enabling crowd-funding for renewable schemes.

If this legislation is passed, France could indeed turn away from nuclear and embrace a renewable future, one where offshore wind plays a significant part. Businesses likely to take advantage are wind energy developers and companies that invest in these projects. This could prompt a rush of wind firms eager to benefit from the feed-in tariff, for at least three years and possibly a decade, since the new feed-in tariff for onshore has been allowed to be maintained for ten years from the European Commission's approval in March 2014.

Fabrice Cassin is a partner in the energy law department at CGR Legal

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