Controversy over proposed French feed-in tariff cuts
The proposed implementation of French legislation retrospectively cutting feed-in tariffs for solar energy producers could lead to disputes against the State
On 13 November 2020, the French government took advantage of the discussions on the draft Financial Law for 2021, to introduce an amendment aiming at retroactively cutting feed-in tariffs that were formerly granted by virtue of so-called "power purchase agreements", allowing energy producers to sell their energy at a preferential price fixed by the State for a period up to 20 years.
This retroactive reduction of tariffs (which will represent from 300 to 600 million euros of budget savings for the State) will affect contracts signed between 2006 and 2010 which relate to energy facilities with a peak power of more than 250 kilowatts - which, according to the French government, would concern around 800 contracts.
In the words of the French Ministry of Energy Transition, the purpose of this amendment is to reduce the profitability of those contracts, for it to correspond to a reasonable return on the invested capital.
The amendment also provides for a safeguard mechanism, pursuant to which an energy producer would be able to negotiate either a specific tariff, or the extension of its contract, where the implementation of the contemplated measure would jeopardise its economic viability. In any event, it is clear that the financial assistance derived from this mechanism will necessarily be lower than the expected benefits which would have derived from the initial energy contract.
This situation is therefore strongly opposed by most actors within the solar energy industry, who criticise both the lack of real consultation by the Government about the adoption of such measure, as well the measure's potential disastrous economic effects.
Despite the fact that this amendment has only been adopted by the Assemblée Nationale, and that the French Senate might decide to strike it out, the government may still push for its inclusion in the final draft of the Finance Law, which should be adopted on 18 December 2020.
If and when adopted, this measure will necessarily give rise to negotiations between the relevant investors and the State, and to potential litigation and/or arbitration cases against the State, because it unilaterally and retroactively altered the contractual framework under which such investors agreed to operate, thereby breaching the investors' legitimate expectations. Spain and Ukraine have faced similar claims following their decisions to change incentive schemes for renewable energy projects (see here for our recent article).
Such situations will prove to be all the more complex as the legal issues raised are of high importance and could even lead to a constitutional challenge.
Despite the Government's argument that the measure will only affect a small number of contracts, it appears that such measure will have serious consequences on the investments of a large number of solar energy investors, and on the trust of such investors in the State, which may in turn affect potential future solar energy agreements.
