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What are the consequences of changing feed-in tariffs in photovoltaics?

Article 225 of Act no. 2020-1721 of 29th December 2020 promulgating the 2021 Finance Act leads to considerably disrupting the economic conditions of operating certain photovoltaic power stations. Indeed, it allows the government to reduce the purchase price of the electricity generated by the facilities of a peak power of more than 250 kilowatts, for agreements signed in accordance with the decrees of 10th July 2006, 12th January 2010 and 31st August 2010. This reduction will take place at a level and on a date set by joint decree of the Ministers in charge of energy and of the budget.

This measure is very clearly inspired by budgetary concerns, as illustrated by the debates held prior to adopting it. Indeed, it enables the State to make savings as regards the compensation due for the public service energy costs, on the basis of the fact that the costs of photovoltaic power generation have significantly decreased over the last few years. The motivation behind the measure (and the speed with which it has been decided) most certainly convey a desire by Bercy to make a certain number of savings, at a time when the national debt has experienced an unprecedented increase in 2020 due to the COVID-19 epidemic.

Of course, as this measure challenges the economic conditions having prevailed upon the signature of the power purchase agreements and necessarily affects their profitability, it has raised serious issues of constitutional legitimacy, justifying the parliamentary challenges against it.

In its decision no. 2020-813 DC of 28th December 2020, the Constitutional Council validated the whole measure. Despite beginning by admitting that the law infringed the right to maintain agreements entered into lawfully, the Council however indicated that there were sufficient grounds of public interest to justify such infringement.

These grounds are derived from the fact that, by doing this, “the legislator has intended to rectify a situation of contractual imbalance between the energy producers and distributors and thus to put an end to the windfall effect from which certain energy producers benefited to the detriment of the correct use of public funds and the State’s financial interests”. The State’s budgetary interests may, indeed, constitute such grounds, according to its case-law examples (CC decision no.2006-545 of 28th December 2006).

However, in my opinion, the Council only validates the law because it governs (in passing, perhaps in an insufficiently precise way) the conditions in which this pricing reduction will take place. Thus, the Council indicates that this operation must protect, in any event, the “profitability of the facilities”.

As stipulated by article 225 itself, the reduction of the purchase price must enable a “reasonable payment” for the tied-up capital, considering the risks related to their operation. Similarly, the price reduction must take into account a certain number of criteria: the pricing decree in relation to which the agreement is entered into, the technical characteristics of the facilities, their location, the date of commissioning and the conditions of operation. In addition, if the application of this general system is not likely to protect the interests of the operators, a “safeguard mechanism” may be implemented upon request with grounds from the operator “on a case-by-case basis” and as decided by the CRE (National Energy Regulatory Commission).

Moreover, the Council has dismissed the objection regarding the infringement of the principle of equality, considering that the discrimination thus established, depending on whether or not the power generated by the facilities exceeds a peak of 250 kilowatts, corresponded to a difference in situation in light of the “significantly higher profitability” that operators of facilities exceeding this limit have been able to achieve; such reasoning can only be considered here as laconic …

The validation by the Constitutional Council does not however put a definitive end to any legal debate on this decision by the Government.

Indeed, the implementation of article 225 requires the intervention of a decree taken by the Council of State which will define the context in which the reduction of the purchase prices will take place, then that of the inter-ministerial decree deciding on a reduction of the prices with a “scale” format in order to consider all of the criteria reminded by the constitutional judge in his decision. The new system will only be legal if the profitability of the facilities is maintained. If this were not the case, the infringement of the agreements entered into lawfully would become excessive and would be likely to be censured. In addition, it is only once this new context has been defined that the purchase obligation contracts will then be adapted according to a procedure that has not yet been outlined.

The issues to be settled by the regulatory texts implementing article 225 are clearly extremely complicated. In particular, the actual translation of the notion of “reasonable payment of the tied-up capital considering the risks related to their operation” is a difficult exercise, in itself, considering the necessary work required for defining each of these terms, along with the variety of situations to be taken into account. In this respect, we understand from the provisions of article 225 that the “safeguard mechanism” implemented here must remain exceptional and that its use will be reserved for special situations, unless the exception becomes the rule.

In the coming period, the operators must thus be particularly attentive to the process of drafting these texts and the choices to be made by the Government. These debates will be decisive as regards the content of the final mechanism. In this respect, ensuring its legal security will not be the easiest of tasks for the Government.

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Gilles Le Chatelier
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