France has unveiled plans to retroactively cut the solar feed-in tariff awarded to solar projects between 2006 and 2010, denouncing the subsidies as “excessive profitability”.
The move was laid out in an amendment to the government’s budget presented to legislators this month and is set to come into effect before the end of the year. According to the government, the current subsidy rate means it will be paying €2 billion per year up to 2030 to support the projects, which amount to less than 5 percent of energy production from renewables. The new measures will reduce this annual payment by €300 million.
“[The feed-in tariff rate] turned out to be too high for significant reduction in costs, which led to profitability out of proportion with normal return on invested capital,” the draft legislation states. It adds that the payments received did not comply with the original legislated aim in 2006 of the payments being used to help modernise the electricity system through the growth of renewables.
“This excessive profitability of purchase contracts guaranteed over 20 years also leads to harmful consequences for the efficiency of public financing of renewable energies,” the new budget adds, explaining that the payments made to these facilities amounted to about a third of the French government’s annual support of renewables.
‘Abuse of power’
The move has been met with fury by Enerplan, France’s solar industry association, which said it amounts to an “abuse of power”.
“On the merits, the arguments put forward are not at all convincing. They are based on vague notions with a completely anachronistic comparison between the cost of solar today and that of 10 years ago. Enerplan recalls that if solar energy is so efficient today, it is because there were pioneering companies that took the risk of investing 10 years ago during the financial crisis,” it added in its statement. “With the tabling of this amendment, the government is abandoning these companies and creating a precedent: many partners of the state are now entitled to ask questions about the solidity of public speech and to ask themselves who will be next to be aimed.”
The actions are reminiscent of those taken by the Spanish and Italian governments on projects built in a similar era, a move which many international investors have successfully litigated in international courts, although this may be unlikely in this situation.
“Most of these developers and investors were French so there’s no notion of international courts here,” Alexandre Chavarot, co-founder and head of climate advisory at Access Corporate Finance, told Infrastructure Investor. “Nonetheless, this is still sending the wrong signal to the investment community, both French and international.”
Chavarot added that the retroactivity element was “quite disturbing” from a legal perspective. He has previously worked with developers in 2018 when the French government proposed lower tariffs than originally offered and the issue was negotiated to an amicable conclusion by industry and government.
The government remains keen on renewable development, having unveiled its €100 billion recovery plan in September, with about €9 billion reserved to support the energy transition.
“I don’t think it will reduce the quantum of capital available [for a green recovery], but what it might do is increase the cost of that capital,” Chavarot said. “The losers in this are likely to be the ratepayers, because the subsidies are transferred to ratepayers through increases on electricity bills.”