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In France, renewable energy is supported mainly by way of feed-in tariffs and premiums for power plants1. For new PV power plants with a nominal capacity of up to 100 kWp, the French Energy Act provides for a fixed feed-in tariff (FIT). Its rate is adjusted on a quarterly basis.2 For the second quarter 2019, the feed-in tariff for power plants of up to 100 kWp ranged between 11-19 ct/ kWh. The results of the auction round for rooftop installations of between 100 kWp and 8 Mwp have shown that the price for which a contract was awarded averaged out to 8.46 ct/ kWh. After the last auction round, the average price for which a contract was awarded for greenfield plants of between 500 kWp and 30 Mwp was 6.11 ct/ kWh. The tariff rates have thus slightly declined compared to the previous year of 2018.In France, in addition to tariffs, premiums are paid for PV power plants that partly use electricity for self-consumption purposes.3 Until the end of September 2018, the tariff for the energy fed into the grid was 10.00 ct/ kWh for PV power plants with a nominal capacity of up to 9 kWp and 6.00 ct/ kW for PV power plants of between 9 and 100 KWp. The so-called power plant premiums amounted to 30-40 ct/ kWh for PV power plants of up to 9 kWp, and 10-20 ct/ kWh for PV power plants of between 9 and 100 kWp.
The rates for which contracts are awarded depend on outcomes of the auction rounds and their amounts, thus, vary. The rate for which a contract is awarded as part of an auction round applies for a limited period of time only.
With the adoption of the French Act on Energy Transition in 2015 and the update of the Energy Programme [“programmation pluriannuelle de l’énergie” (PPE)] in 2018, France has set itself the goal of reducing the share of nuclear energy in French electricity production to 50% by 2035. In view of this goal, this model promises great potential.
2 Article D.314-16 of the French Energy Code
3 Article D.314-23 of the French Energy Code
This model still has a small market volume in photovoltaics. It enables power plant owners to use the whole of the produced energy or part of it for their own supply or to sell all of the produced electricity or part of it to the utility. The electricity is usually sold at a fixed tariff below the electricity price. For power plants with a capacity of less than 1 MV, the electricity consumed as part of self-supply is tax-exempt. Operators of power plants for self-consumption purposes with a capacity of less than 100 kW can obtain an investment grant and a feed-in tariff for the excess electricity fed into the public grid.
Grid parity is technically not yet possible to achieve due to the lack of storage facilities for the energy produced. Therefore, selling all of the produced electricity to the utility at a fixed rate and repurchasing it from that utility is a more financially viable option for those who produce electricity for self-consumption purposes.
This model is especially suitable for service providers in the tertiary and industrial sectors because, in those sectors, production times match consumption times in most cases. Due to the lack of storage facilities, this model is still less suitable for private consumption. But in view of the constant development of technical storage capacities, this problem might be eased in the future. Due to declining acquisition costs and inexorable technical progress the number of electricity self-suppliers is rather expected to grow. In southern regions, power plants operating under this model have already become financially viable without state subsidies.
In France, the legal provisions on market premium-based direct marketing (complément de rémunération) enshrined in the French Energy Code allow power producers to freely choose how they will sell their produced power as part of the direct marketing system.4 The PPA model offers three types of PPAs: on-site PPAs, off-site PPAs and financial PPAs. It is also possible to conclude a corporate PPA as part of the direct marketing strategy. The parties can choose a fixed or a variable tariff structure for a PPA. In addition, subject to certain conditions, a PPA can also allow for the inclusion of guarantees of origin. The purchase of a guarantee of origin, which can be further sold abroad, serves as evidence that “green electricity” has been supplied. In France, all three types of the PPAs still have a very small market volume.
As a rule, PPAs are concluded as long-term contracts and the intention is, on the one hand, to ensure project financing and, on the other hand, to enable consumers to estimate the prospective cost.
The corporate PPA model is still quite new and unknown in France and, thus, still has a small market volume. In recent years, this model has become particularly popular among large energy consumers and offers high growth potential in this sector.
4 Article L.314-18 to L.314-27 of the French Energy Code
The lease model is offered in France as an alternative model of financing renewable energy installations. This form of financing is offered, in particular, by energy project financing companies (Sofergie – sociétés pour le financement de l'énergie). They are leasing companies whose activities include the financing of power plants or materials operated or used to generate energy savings and of works and equipment used by local authorities or related to environmental protection. The operation of leased power plants is not subject to any specific legal provisions.
Investors should pay particular attention to the fact that lease agreements should be appropriately structured and the power plants should be properly depreciated for tax purposes; otherwise, the lease costs might be non-tax deductible under certain circumstances. Another challenge is the financing of the model.
This model is an alternative form of financing that is becoming more and more popular in France. It can be expected that the growing popularity and use of this model might lead to increasing bankability, which will simplify the implementation of future projects and increase the market volume.
In France, direct marketing was implemented in 2015 when the Act on Energy Transition for Green Growth (loi relative à la transition énergétique pour la croissance verte) entered into force. Under the French Energy Code, new power plants receive a floating market premium.5 They are granted to photovoltaic power plants with a capacity of over 500 kWp, onshore wind turbines and fixed-bottom offshore wind turbines.
The direct marketing model is still in its infancy in France and has, thus, hardly any market volume. But, if acting tactically, a power producer can earn higher revenue as compared with the fixed feed-in tariff. But, in the end, it is the power producers who shoulder the financial risk of over- or underproduction because, depending on the situation, they have to buy energy in case of shortage or sell excess electricity on the market.
The introduction of the statutory regulations on energy transition and green growth has laid the foundations for the development of renewable energy. Decisive here will be the further course of the renewable energy policy and adherence to the set targets. As for individual issues, the structuring of the responsibility for the management of the balancing group and the willingness of banks to provide financing will play a vital role. Therefore, it remains to be seen whether this model will take root.
5 Article D.314-23 of the French Energy Code
Timotheus Tangermann
Associate Partner
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