Oil & Gas 360 Publishers Note: We are seeing this throughout the world – How much covid stimulus can countries afford, and should it all go to renewable projects? 

PV cost has plummeted within the past 10 years due to an increase in equipment installation and improvement in PV technology. Since 2010, PV cost has dropped by 82%. Although this spells good news for consumers and developers alike, the price drop also means the earlier fixed electricity rate (FIT, or feed-in-tariff) has become much more expensive than the rates offered by newly built PV power stations. In light of this discrepancy, the French government has now deemed it appropriate to adjust the earlier fixed rates. Should the proposal pass into law, this will likely have dire ramifications for PV power plants with capacities exceeding 250KW built between 2006 and 2010.

French Government plans to renege on fixed PV rates to cut down on 2 Billion in yearly subsidies, but what is the real cost -oilandgas360

Spain, Italy and Czech Republic had to contend with similar problems of PV rate adjustment in the past. Incidentally, if the French government were to abolish the earlier fixed rate, it could potentially reap hundreds of millions of Euros in subsidy savings. That is why the French government is targeting 800 large-scale PV power plants built between 2006 and 2010 in its revised budget for 2021. In support of slashing fixed PV electricity rates, the government is claiming that a number of PV suppliers have been benefitting from abnormal levels of ROI, with some quoted figures exceeding 20%. To curb this supposed usury, France will aim to lower the earlier rates based on what it considers to be an acceptable return on fixed capital.

The French government is citing a fiscal responsibility to reduce government expenditure, with the resultant savings supposedly reinvested into renewable energy. At any rate, revising the 235,000 contracts signed during the 2006-2010 period would result in savings of €400-600 million per year for the government given the ongoing expenditure of €2 billion per year. It should also be pointed out that PV power plants with capacities lower than 250KW, which supply electricity primarily for personal and agricultural use, remain unaffected under the proposed rate cuts. The French government claims that, in spite of the €2 billion yearly spending on feed-in-tariffs, the subsidized PV stations still provide for less than 1% of France’s total electricity consumption. Furthermore, this expenditure eats up about one-third of governmental budget allocated for renewable energies.

Needless to say, French PV operators are none too happy about what they perceive as a back stab by the government. According to Xavier Davel, CEO of French PV consultancy kiloWattsol, if approved, the rate adjustment will affect 800 PV power stations, some of which may need to file for the French equivalent of Chapter 11. Incidentally, the construction of most PV power stations were funded with non-recourse loans.

In response to the French government’s proposal, even some of the smaller companies that will theoretically remain unaffected are speaking up. One such company is Neoen, which has an installed PV capacity of 19GW. Neoen believes that the government is sabotaging what reputation it has left, and the company’s founder Xavier Barbaro indicates that, if fixed electricity rates for 2020 were to be retroactively revised based on 2030 costs, no one will find it convincing.

Daniel Bour, who heads French PV association Enerplan, similarly believes the revised rates may damage the government’s image, while French PV giant Tenergie president and co-founder Nicolas Jeuffrain calls into question the veracity of the official figure of 20% ROI, since PV companies generally see ROIs within the 4-6% range. Even in cases of possible usury, most of the beneficiaries are government-owned utility providers such as EDF and initial investors funding power plant constructions and selling electricity.

In response to these criticisms, the government is brandishing the pretext of public good while continuing to discuss the finer details of the new budget. It has also indicated that what would qualify as usury under the new rates will not be retroactively collected, and it will officially guarantee that no companies go bankrupt as a result.



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