Retroactive cuts for French solar feed-in tariffs



The French National Assembly has adopted, in the first reading of the finance bill for 2021, an amendment tabled by the government that leads to the "retroactive"1 reduction of the electricity purchase tariff for certain installations, so that the return on capital does not exceed a "reasonable" level. The energy ministry "expects (...) savings of around €350 million to €400 million per year, i.e. around €4 billion over 10 years, which will be reinvested in the form of aid for renewable energies".

What is the plan?

The targeted installations. These are those that:

  • use solar energy, with photovoltaic or thermodynamic technologies;
  • have more than 250 kWp capacity;
  • have signed a purchase contract pursuant to the decrees of July 10, 2006, January 12, 2010 or August 31, 2010.

According to the ministry, fewer than 800 out of the 235,000 solar power purchase contracts that have been concluded would be affected. If adopted, the measure could hit large to medium-sized photovoltaic projects commissioned between 2007-2008 and 2011-2012.

The extent of the reduction. According to the energy ministry, the feed-in tariff that the producers concerned would currently benefit from would be "in the order of €600/MWh".

The level of the tariff reduction is not yet known. The bill mentions the idea of a ceiling for the feed-in tariff; that of a "reasonable return on capital, taking into account the risks inherent in the operation". It specifies that the level of the reduction will be determined by an order of the ministry, taken after the opinion of the Energy Regulation Commission, and will depend "on the tariff order under which the contract is concluded, the technical characteristics of the installation, its location, its commissioning date and its operating conditions".

No reimbursement of aid already received. The planned measure is "retroactive", since it applies to contracts that have already been concluded. As of a future date, to be set by the energy ministry, the feed-in tariff will be reduced for the remaining duration of the contract (i.e. generally nearly 10 years, in the case of contracts concluded in 2010 for a period of 20 years).

However, this amendment does not imply the reimbursement of aid already received by producers.

It is surprising that the energy ministry, Mrs Pompili should have based her defense of the amendment on the fact that "the [purchase] contracts in question are illegal under European law since they have not been validated by the European Commission as State aid". If this is the case, the amendment does not remedy the illegality described here. The French State is required to notify the aid to the Commission, and the contemplated measure does not cure that.

Safeguard clause for producers in difficulty. For producers for whom the reform is likely to "compromise economic viability", a different date or level of tariff, as well as the extension of the duration of the contract, could be provided. Article 54 sexies of the finance bill for 2021 contains a "safeguard clause" in paragraph 2. This will primarily concern non-interconnected zones (ZNIs). Its application will have to be requested by the producer, on the basis of a reasoned request.

On the other hand, in order to avoid any circumvention of the reform, the article currently provides that "producers who have made changes to their capital structure or financing arrangements after November 7, 2020, with the exception of the recovery and support measures mentioned above", will not be able to take advantage of this safeguard clause.

What is the next step in the legislative procedure?

The text having been adopted by the National Assembly at first reading, it still has to be voted on by the Senate.

However, the Senate Finance Committee adopted an amendment to delete it on November 18. The text will be discussed in public session at the end of the month.

Is this the first time that a measure of this type has been envisaged?

This idea of a law reducing tariffs "retroactively" is part of a constant trend in recent years to reduce the purchase price of the first electricity purchase contracts, which are particularly high. It should nevertheless be remembered that this tariff was set during a period when the cost of solar panels was very high and a high feed-in tariff was necessary to make the investments requested by the State profitable.

In 2018, the French "ESSOC"2 law had led to the reduction of the feed-in tariff for offshore renewable energy production facilities from 180 - 230 to about 130 - 150 €/ MWh at that time.

At the time, this was an infringement of acquired rights resulting from an administrative decision (in the event of a candidate's refusal to "improve its offer", the decision to designate it as the winner, and therefore its authorization to operate, could be revoked); but this was not, as here, the application of a new rule to current contracts, since the purchase contracts had not yet been concluded.

Other European countries such as Italy, Spain, the Czech Republic, Bulgaria, Slovakia and Romania have introduced similar measures.

However, it is unusual for a law to infringe acquired contractual situations and it is to be expected that operators will try, if the law is passed, different legal remedies to safeguard their interests. Obviously, the contemplated measure would have wide-ranging effects on the business model of the affected operators. Investors will also need to evaluate whether the tariff reduction will put them in violation of loan covenants and thus whether negotiations with their banks will be needed.

Is this measure constitutional?

It is obviously far too early to venture to analyze the constitutionality of this amendment. However, a number of principles can be mentioned:

  • Guarantee of rights resulting from contractual situations: In principle, the Constitutional Council protects legally concluded contracts and ensures that the legislator does not undermine them on the basis of the guarantee of rights proclaimed by Article 16 of the Declaration of the Rights of Man and of the Citizen of 17893 . This reasoning led the Council to declare unconstitutional, in 2008, the deletion of all clauses in collective agreements relating to overtime in 20084 . However, the legislator may undermine existing contracts if the law is based on a "sufficient public interest ground"5 . The question here will be whether the government can justify such a ground of public interest. The question is further complicated by the fact that power purchase contracts are administrative contracts by determination of the law (Article L314-7 of the French Energy Code), and that constitutional case law could more easily allow the immediate application of the current law to such contracts, of which mutability is one of the characteristics.
  • Freedom to undertake: This protects economic operators against excessive incursions by the legislator into their right to access and exercise an activity. Here again, in order to undermine the freedom to undertake, the legislator must rely on a sufficient public interest ground and act in a proportionate manner. A law which "has the effect of allowing the company to dismiss only if its continued existence is in question" was censured on this basis: Even if the objective of preserving employment is in the general interest, the infringement on the freedom to undertake was excessive 6.
  • Equality: As we have seen, the amendment only targets certain types of installations (solar, over 250 kWp, etc.), without it being possible to determine whether this is justified from the point of view of the principle of equality.
  • Protection of the right to property: The challenge would then be to qualify the measure in terms of the distinction between "deprivation of property" (which must meet a legally established public need, and be preceded by fair compensation), or a simple "infringement" (which must in principle simply be justified by the general interest).

An appeal to the constitutional courts has been attempted in other EU member States. For instance, Italy had enacted Decree-Law No. 91/2014 of 24 June 2014, leading to a reduction in the feed-in tariff for photovoltaic installations. Producers had a choice between several options, all of which were unfavorable (extension of the duration of the contract, "reorganization" of the tariff into two periods (reduced tariff, then increased tariff) or outright reduction by a percentage ranging from 6% to 8% of the tariff, depending on the size of the installation). On January 24, 2017, the Italian Constitutional Court rejected an appeal based on the constitutionality issue, which had been argued based on the principles of non-retroactivity of the law, legitimate expectations, freedom of enterprise and protection of property rights7 . However, it is not clear whether the Italian precedent is applicable and dooms any appeal, as will be seen below.

Is this measure compatible with Union law?

The matter could be referred to the ECJ for a preliminary ruling by the national courts.

This was the case with regard to the Italian decree-law of 2014. On October 29, 2020, the Advocate General presented his conclusions. He considered that Union law (in particular the principles of the protection of legitimate expectations, freedom of enterprise, the right to property and legal certainty) does not preclude a measure which "significantly reduces or delays the payment of incentives already granted de lege and fixed by virtue of ad hoc agreements concluded by producers of electrical energy", such as the Italian decree-law 8.

However, the Italian case is not in all respects similar to the French case. For example, the Advocate General based his denial of any "legitimate expectation" of the producers that the tariff would be maintained on the fact that, in the purchase contracts, GSE (the public body that manages the incentive system) reserved "the right (...) to unilaterally modify the content of the contracts in order to take account of changes in the legislative framework of reference", which "clearly indicated that these incentives were liable to be adapted, or even abolished, precisely by virtue of legislative amendments". Purchase contracts concluded in France should be examined to see whether an analogy can be made ̶ a priori, it is true that, as administrative contracts, their content may be unilaterally modified by the purchaser, but this must be accompanied by compensation.

Moreover, these are only the conclusions of the Advocate General, and the Court's decision is still awaited in Joined Cases C-798/18 and C-799/18, as well as in the other cases relating to the Italian Decree-Law (C-306/19, C-512/19, C-595/19).

Is this measure compatible with the European Convention on Human Rights (ECHR)?

It should be recalled that, according to Article 1 of the first Additional Protocol to the ECHR, "every natural or legal person has the right to the respect of his or her property. No one may be deprived of his or her property except in the public interest and in accordance with the law and the general principles of international law".

The European Court of Human Rights has also been appealed to over the Italian Decree-Law (applications 20445/15 and 59246/17) and has not yet given its decision.

However, the protection of private property is not absolute and the whole question will therefore be whether the reasons invoked by the legislature do indeed respond to a "cause of public utility".

Is this measure compatible with public international law?

Public international law in the form of treaties for the protection and promotion of investment may also apply to the unilateral revision of tariff contracts contemplated by the legislation. Some of these treaties are multilateral ones, notably the Energy Charter Treaty (ECT). Other investment treaties are bilateral. France has over 100 bilateral investment treaties in force.

These treaties provide protection for investments in France by an investor of a state that is a party to the treaty. These protections vary from one treaty to another, but often include a requirement that France observe the obligations it entered into with covered investors or investments; a requirement of fair and equitable treatment, including respect for the investor’s legitimate expectations; protection from discriminatory measures; and a prohibition of a deprivation of the investment without compensation.

The ECT and bilateral investment treaties generally give the investor a right of direct claim against the French Republic for violation of these investment protections. The claim can generally be submitted to a neutral international arbitration tribunal rather than to French courts. The arbitration tribunal applies the treaty and international law, not French or EU law, to assess the legality of the measure. The result of the proceedings is an arbitration award that can be enforced like international commercial arbitration awards.

When Spain and Italy adopted similar measures some years ago, dozens of investors filed international arbitrations against them under the Energy Charter Treaty. Results in the cases have varied. Many of the arbitrations resulted in awards in favor of the investor in the millions of euros – some in the hundreds of millions.

It is too early to predict whether France will see a similar wave of cases. However, it is not too early for foreign investors with assets at risk from this new legislation to begin to evaluate their options, including those under the ECT and other investment treaties.

Source : le nouvel article 54 sexies du projet de loi de finances pour 2021 adopté en Première lecture par l’Assemblée nationale :

"The feed-in tariff for electricity produced by installations with a peak power of more than 250 kilowatts using the sun's radiative energy by means of photovoltaic or thermodynamic technologies is reduced for contracts concluded pursuant to the orders of 10 July 2006, of 12 January 2010 and of 31 August 2010 setting the conditions for purchasing electricity produced by installations using the radiative energy of the sun as mentioned in 3° of Article 2 of Decree no. 2000-1196 of 6 December 2000 setting the power limits for each category of installation that can benefit from the electricity purchase obligation, at a level and as from a date set by order of the ministers responsible for energy and the budget so that the total return on fixed assets, resulting from the accumulation of all the revenues of the installation and the financial or fiscal aid granted in respect thereof, does not exceed a reasonable return on capital, taking into account the risks inherent in its operation. The draft decree is submitted to the Energy Regulatory Commission for its opinion. This opinion is made public. The tariff reduction takes into account the tariff order under which the contract is concluded, the technical characteristics of the installation, its location, its commissioning date and its operating conditions. 

At the reasoned request of a producer, the ministers in charge of energy and the budget may, on a proposal from the Energy Regulation Commission, set by joint order a tariff level or a date different from those resulting from the application of the first paragraph of this article, if these are likely to compromise the economic viability of the producer, in particular taking into account the specific financing characteristics of non-interconnected areas, provided that the latter has taken all the remedial measures at its disposal and that those who hold it directly or indirectly have implemented all the support measures at their disposal, and to the extent strictly necessary to preserve this viability. In this case, the ministers responsible for energy and the budget may also extend the duration of the purchase contract, provided that the sum of the financial assistance resulting from all the changes is less than the sum of the financial assistance that would have been paid under the initial conditions. Producers who have made changes to their capital structure or financing arrangements after 7 November 2020, with the exception of the above-mentioned recovery and support measures, may not avail themselves of this paragraph.

A decree of the Council of State, issued after obtaining the opinion of the Energy Regulatory Commission, shall specify the terms and conditions for the application of this Article. ”

  1. To be more precise, this involves the application of a new law to current contracts, but, as the Conseil d'Etat (the administrative Supreme Court) ruled, "a new legislative or regulatory provision cannot apply to contractual situations in progress on the date of its entry into force, without being retroactive” [CE, 24 March 2006, Sté KPMG, No 288460 - ECLI:FR:CEASS:2006:288460.20060324].
  2. Article 58 of Law No. 2018-727 of 10 August 2018 for a State at the service of a trust company (the "ESSOC Law").
  3. Constitutional Council (“CC”), 10 June 1998, Loi relative au temps de travail, No. 98-401 DC - ECLI:FR:CC:1998:98.401.DC.
  4. CC, August 7, 2008, Loi portant rénovation de la démocratie sociale et réforme du temps de travail, No. 2008-568 DC - ECLI:FR:CC:2008:2008.568.DC.
  5. See for e.g. CC, 14 June 2013, M. Philippe W. [Statut des maîtres sous contrat des établissements d'enseignement privés], No. 2013-322 QPC - ECLI:FR:CC:2013:2013.322.QPC.
  6. CC, 12 January 2002, Loi de modernisation sociale, No. 2001-455 DC - ECLI:FR:CC:2002:2001.455.DC.
  7. Corte costituzionale, January 24, 2017, No. 16/2017.
  8. Opinion of Advocate General Henrik Saugmandsgaard Øe presented on 29 October 2020, Athesia Energy Srl and others v Ministero dello Sviluppo Economico, joined cases C-798/18 and C-799/18.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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