The publication of a decree detailing tariffs for electricity from renewable sources of energy in France has brought to an end a long period of uncertainty for wind power developers. At last, it seems, France has the political measure it needs to kick start its renewable energy market, which has big potential but which has made only sluggish progress so far.
Secretary of state for industry Christian Pierret carefully chose his moment to announce the birth of France's renewable energy feed-in tariff, picking the annual conference of renewables association Syndicat de Energies Renouvelables (SER) in Paris in June. Waving a copy of the price decree that he had just signed he was met with unanimous applause. But as Pierret enjoyed his photo-opportunity, it was obvious to all who had sat through the conference presentations, that the fate of French wind power had not been fully and finally settled; rather the debate was only just beginning.
The decree answers the question of price, but it brings to the fore many other issues. The next few years will be a test of the government's stated commitment to move away from the familiarity of nuclear power towards sustainable sources of electricity.
The terms of the decree are considered a cautious triumph by renewable experts. From now on, operators of wind farms under 12 MW will sign a 15 year contract with the state utility Electricité de France (EDF) or one of the smaller utilities. For the first five years all producers will get FFR 0.55/kWh (EUR 0.0838/kWh). Over the following ten years the tariff will vary according to the productivity of each site, from FFR 0.20/kWh (EUR 0.0305/kWh) for sites that produced an average of more than 3,600 kWh/kW during the initial five years and up to FFR 0.55/kWh for sites where the yearly average per kilowatt of installed capacity was only 2000 kWh.
The aim of this variable tariff is to favour the development of less windy sites, effectively subsidising projects which stay away from areas likely to meet opposition from landscape protection groups. It is hoped this will avoid a gold rush towards sites which could produce a "not in my backyard" or NIMBY backlash in the French countryside.
For wind farms over 12 MW another system of pricing will be designed, probably involving competitive tendering. An announcement on this is expected by the end of the year. But it could be that the 12 MW limit -- an arbitrary threshold -- will be circumnavigated by developers building, say, a 24 MW wind farm presented as two smaller projects on adjacent sites. Offshore wind farms -- a potentially big growth area -- will also be priced separately. Studies have been completed on both the Mediterranean and Atlantic coasts and suitable sites identified, but with so much potential to exploit on land large-scale offshore projects are still a few years off.
Sixteen months of talks
The new prices represent the final step in a process which began with a ground-breaking electricity law passed on February 10, 2000. This declared the government's intention to promote renewables even if consumers would have to pay more. Two months later prime minister Lionel Jospin opened the 2000 SER conference with a bold commitment, stating that France aimed to produce 21% of its electricity from renewable sources by 2010, including 3000 MW of wind power. Such an ambitious new target spelled the demise of EOLE 2005, a government initiative based on a series of calls for tenders with the aim of installing up to 500 MW by 2005. EOLE 2005 had increased capacity to about 100 MW.
It was clear from the moment of Jospin's announcement that a new pricing system would be needed to meet such an ambitious target. A long debate started on the merits of kick-starting a market with a fixed premium price for wind kilowatt hours, or creating demand for wind power by setting a threshold for the minimum percentage of renewable energy in a power supplier's portfolio. A report by the vice-president of the National Assembly, Yves Cochet, was the inspiration for the government to opt for a feed-in tariff similar to the successful German model. The Cochet report became, "The bible that inspires all our thoughts," as André Antolini, president of SER and chief renewables negotiator, puts it.
The government's proposed new tariffs were announced at a wind power conference in December last year but industry experts at the time advised caution until the small print had been debated. By this time, France's 2010 target had been upped again to between 5000 MW and 10,000 MW.
It took six months of negotiations between the industry ministry on one side and the Agency for the Environment and Energy Management (ADEME) and representatives of the renewable energy industries led by SER on the other to ensure the government did not waver. "It was quite a struggle," says André Antolini, "But I think we have a good tariff for the next few years: it's a good start."
The wind industry had to make only one significant concession: only the first 1500 MW of installed capacity under the new law will get a premium price for its output. Nevertheless, with still only about 100 MW of wind power installed in France, this is a sizeable guaranteed market.
The regulator replies
The dealing done, the fixed tariff versus percentage threshold argument settled for the time being by a decree, it looked as if everyone was happy about the new arrangements. But as soon as the decree appeared the electricity regulator, the Commission de Régulation de l'Electricté (CRE), reopened the debate with its critical response. The tariffs are unrealistically high, it challenged, and they may not produce the desired result.
The tariff will pay wind energy producers well above their costs, according to the CRE. Wind producers in France will be getting an average of FFR 0.48/kWh (EUR 0.07/kWh) for 15 years whereas prices on competitive wind markets in the EU and the United States will be closer to FFR 0.30-0.35/kWh (EUR 0.05/kWh).
The cost of renewable electricity purchases under the government tariff will fall on consumers, the CRE points out. If the most recent official target of 10,000 MW is to be reached, it calculates that electricity bills will rise by 3% for private consumers and 15% for industrial users. These surcharges could be around a third lower if the price reflected wind energy's true market cost, according to CRE. As it is, wind farm operators will be getting profits of 20% after tax and simultaneously benefiting from local government grants.
The CRE wants a return to calls for tenders, used under EOLE 2005, to avoid excessive profits being made at public expense. It would also support a green power trading mechanism similar to those being introduced in Britain, Denmark and the Netherlands. And this from a government watchdog supposed to have no vested interests of its own, as its chairman Jean Syrota explains. "The fundamental preoccupation of CRE is its quest for the optimum quality/price ratio for all consumers...through the intensification of competition," he says.
For its part, SER questions the regulator's figures and the implication that some wind farm operators would be making super-profits. It also stresses that the tariffs are needed to kick start the French market.
ADEME's Bernard Chabot says the tariffs are based on "fair profitability for private investors" and are based on an economic instrument called a Profitability Index Method (PI). This ensures viable returns from a site with middle good winds of about 6 m/s while on sites with wind speeds up to 8.5 m/s "profitability may be higher but not undue." Chabot argued that by 2018 the extra cost of wind power each year will EUR 670 million, less than EUR 11 per person per year, or less than FFR 0.01/kWh (EUR 0.0015/kWh).
What Chabot describes as a "simple and powerful" method for calculating tariffs, the CRE considers suspect. It feels that fixed prices for wind power go against the free energy market policy agreed on by all EU member states and the French government must thus be reported to the European Commission for flouting EU law. Chabot, however, is sure that his method of paying for wind power is not against EU policy. "As the over-cost from those tariffs will be passed equally over all electricity consumers, this tariff system is compatible with the liberalisation of the electricity sector, as it does not involve unfair competition," he says.
Under the EU's new Renewable Energy Directive, however, a four year period of grace has been granted to allow full consideration of the different ways of supporting renewables. Fixed prices, it is argued, may be necessary if the EU is to meet its target for 12% of electricity to come from renewable sources by 2010, a vital part of its Kyoto protocol commitment. The CRE makes it clear, however, that nothing will stop the French electricity market opening up to competition.
The regulator sees itself as the defender of the consumer, but it can only advise the government -- and the government this time chose to ignore its advice. It remains to be seen, however, if public opinion will back the government's enthusiasm for renewables. The only serious study so far has found that 52% of consumers are not willing to pay higher electricity bills just because their electricity is coming from a sustainable source. However 42% -- especially the young, better educated and better off -- say they could be won over to the idea.
The tide of public opinion is an important variable because it could dictate what happens after the 1500 MW threshold is reached. "It won't be up to EDF but to France as a whole to support the wind industry and this will be reflected in electricity bills," explained Pierret in his speech to the Paris conference.
The direction of the French public's sympathies may depend on how proactive the government is in selling the cause of renewables to voters. Its first initiative was a national Energy Week, held May 14-20, which was an attempt to inform the consumer of the changes coming to the production of French electricity, with emphasis given to the increasing role renewables will play.
Renewables may be riding high but nuclear power has not gone away. The nuclear industry in France has been successful in lending a bizarre twist to environmental logic. In July, EU energy commissioner Loyola de Palacio put her weight behind a line of reasoning that is taken seriously in France: nuclear power is needed to meet the EU's Kyoto protocol commitments. National utility Electricité de France (EDF), which is conspicuously backing both horses, notes pragmatically: "In France today, the kWh generated by EDF releases eight times less CO2 than the generating facilities of the other countries of Europe, thanks to hydro and nuclear power plants."
Another warning sign is the troubled history of the government's plans for an industrial energy tax to enforce emissions reductions. Industry has put up strong opposition to the tax, instead calling for voluntary self-regulation.
Even assuming that the French renewables market will spring to life and that the government and the public will go on supporting it, this may not be enough to keep France on track to meet its share of the EU's Kyoto commitments (Windpower Monthly, August 2001). French Environment Institute (Ifen) predicts that growth in demand may swallow up any drop in CO2 emissions. A modest increase in electricity consumption would be enough to cause the renewables share of the market to fall from 17% in 1999 to 15.5% in 2010, instead of increasing to the EU's suggested target of 21%.
Centralised and bureaucratic
With the price secure over the short to medium term (at least for small wind farms) the industry must now move on from negotiating to tackling a number of other issues which stand in the way of a truly large scale wind power development. Chief among these are likely to be how to improve administrative procedures to do with the planning of wind farms and whether France's national grid can cope with the arrival of new producers sited away from the major centres of traditional electricity production and consumption.
Wind farm developer Jean-Michel Germa sums up progress in France so far: "Fifteen years ago what we needed most of all was a good turbine. Then the need became to find a good site and a bank to provide the finance. Four years ago, under EOLE 2005, the problems changed from technical to general -- to administration and the grid."
France is still a highly centralised, bureaucratic country more used to monolithic nationalised industries than to the diversity and competition of free market forces. It is one thing to create a favourable price structure; it is another thing to make sure red tape doesn't undermine it in practice. The government has set up a working party to summarise the administrative procedures existing and see how they can be simplified.
The other great obstacle is the grid. "There are parts of France where the grid is weak," says André Merlin, director of transmission system operator RTE. He fears a sudden influx of new producers. "Renewable energies will use a great diversity of sites, particularly in areas of low consumption zones and these are often where the grid is weak." Significantly half the new wind energy projects in France are in the region of Languedoc-Roussillon, which is also one of the areas where the grid is at its weakest.
A domestic industry?
French industry is only just beginning to show serious interest in the wind power business. At the SER conference, state secretary for housing, Marie-Noëlle Lienemann, appealed to the French renewables industry not to lag any further behind the Anglo-Saxon world." "I regret that France has been on the defensive," she declared. "We have all the capability we need. We must go on the offensive."
Only one large French company, Framatome, has invested in serious turbine research through its subsidiary Jeumont. Jeumont has plans to supply turbines to several of the new French wind farms, but the majority of turbines will be imported unless smaller companies rise to the challenge. There are signs that this will happen. Vergnet, which has an established reputation for making smaller turbines for isolated sites is likely to increase the size of its models. And there is a newcomer in the market: CITA is currently testing micro turbines but is also keen to apply its technology to much greater ones.
The largest and best placed player in the French wind energy market is the utility EDF. "Our goal is to become one of the world leaders in new renewable energies. EDF is highly committed to the development of a profitable wind energy sector," says Jean-Pierre Bourdier, the EDF vice president for the environment. EDF aims to take a 20-30% stake in the French wind energy market by 2010. A first step has been to acquire a 35% holding in renewable energy project developer SIIF Energie, which as well as undertaking projects in France has just announced a large investment in Brazil (page 30).
Could France go further?
One person who apparently thinks the French industry could and should do more is Pierret. "We must change the scale of our exploitation of our renewable resources. I am issuing a challenge to you. You have the know-how and the technology and you are offering us products which are more innovative, better performing, more competitive. I can assure you that I will be at your side to get through the next stage ahead," he said in a rousing conclusion to his presentation at the SER conference.
Renewables campaigners like Antolini will want to hold Pierret at his word. There may be a feeling of victory in the air, but some are already asking whether the government has gone as far as it could. The law which laid the foundation for the new prices was not made to promote renewable energy. It was made to meet the requirements of the European directive on the internal energy market. "This law is not the ideal instrument to develop renewable energy in France," says Antolini. Nonetheless, it does allow the wind lobby to "patch things up a little," he says. "I would like to see a law on renewable energy, not just covering the economic aspects but also regulations, especially planning."
But for now, at least French renewable promoters are seizing the opportunity they have been given to expand their industry. Having unashamedly opted for a political rather than a free market approach, France, the second windiest country in Europe, is likely to soon overtake the windiest country, Britain. There may be obstacles still to overcome but the renewable industry in France is currently euphoric. As Jean-Pierre Bourdier, environment director of EDF, says: "The renewable energy machine in France is in motion and it is irreversible."