Thursday, 04 February 2021
In a controversial move, the French government is looking to retroactively cut subsidies (tariffs) awarded to larger solar producers via the 2021 Finance Act.
The budget savings resulting from a tariff cut amounts to approximately 400 million Euros per annum, with the tariffs affecting 800 contracts (for suppliers with more than 250 kW capacity) based on tariff rates published between 2006 and 2010.
Those tariff rates result in certain investments receiving greater than 20% rates of return, in what has been dubbed 'excessive profitability'.
The French Feed-in Tariff (FiT or Tarif d´achat) was introduced in 2000 to promote the installation of renewable capacity, offering long term security of returns to developers. In the mid-2010's the government made moves to wind back the tariff and expose renewable energy to market competition.
However, smaller installations are still eligible for tariff support. Furthermore, tariffs apply over the length of a supply contract (typically 20+ years), larger installations that secured their contracts before the changes can continue to benefit.
The generous tariffs continued to apply despite the fact that the cost of installing solar panels had fallen markedly over the past two decades. Nevertheless, the retroactive application of the tariff decrease sets a precedent, which may affect the ability of the French government to secure the trust of prospective green investors. Such concerns likely lead to the rule initially being struck down by the French Senate in November 2020 before effectively being overridden by the government with an ad-hoc decree.
In a joint statement, French solar market players have stated the cut in subsidies would lead to 'economic catastrophe' which threatens the country's energy transition.
At least one CEO has suggested the tariff cuts could lead to a decrease in solar capacity of 2 GW due to hardships experienced by affected operators.
Such a drastic decrease in capacity seems unlikely however. Furthermore, recent trends suggest the momentum of solar in France will be difficult to stymie.
The average rate of growth of solar capacity in France over the last ten years has been around 1 GW per annum. Even in the face of the Covid-19 pandemic, the IEA suggests investment in renewables is still strong.
It should be noted that the consideration of Solar GOs in relation to the tariff changes is minimal. The tariff cuts represent an effective income loss of approximately 90 Euro/MWh for affected producers whereas Solar GO prices are typically below 1 Euro/MWh (closer to 20 Eurocent/MWh for 2021 production).
French solar GO volumes are expected to continue to increase along with installed capacity, in addition to existing solar facilities registering to receive GOs.