Reed Smith In-Depth

On December 1, 2021, the French government reduced the purchase price for electricity produced by photovoltaic installations with a peak power of more than 250 kW, subject to certain power purchase agreements concluded before August 2010. These reductions in solar feed-in tariffs, provided for in Article 225 of the 2021 Finance Act, stand to impact producers within the solar power sector. Although the Act contains a safeguard clause for producers who may find their economic viability compromised by the reductions, it is possible that the reductions may simply affect producers’ financial position or the value of their assets. This client alert outlines the new regime and addresses possible remedies against the state for foreign producers affected by the feed-in tariff reductions.

Introduction

On December 29, 2020, the French National Assembly amended the 2021 Finance Act by introducing Article 225, which reduced the purchase price for electricity produced by certain photovoltaic (PV) installations. This tariff reduction aims to correct the tariffs that were applicable before the photovoltaic “moratorium” of December 2010,1 and will apply to certain power purchase agreements concluded before December 2010 and PV installations with a peak power of more than 250 kW. 

The implementing legislation (a decree2 and an implementing order3) was published in the Official Journal of the French Republic on October 27, 2021 and stipulated that the reductions would take effect on December 1, 2021.

This legislation has helped clarify the specific terms of the tariff reductions, making it possible for producers of impacted PV installations to examine the consequences of the reductions, and evaluate the legal remedies available.

The existing legal framework for solar feed-in tariffs

Under Article 10 of Law No. 2000-108 of February 10, 2000 (and subsequently Articles L. 314-1 et seq. of the French Energy Code), if requested, electricity distributors are required to enter into fixed-price contracts for the purchase of electricity produced in France or its territories by operators whose facilities produce renewable energy. This scheme was set up to encourage the share of renewable energy as a percentage of national electricity production, with the French State compensating distributors for any additional costs incurred.

The implementation of this compensation scheme, combined with the introduction of a high 20-year fixed feed-in tariff, has contributed to the development of PV installations by encouraging significant investment in this sector. The high cost of solar panels justified the establishment of the high purchase price, and was required to make investments profitable and attractive.

Terms of the tariff reductions

The French government now considers that State support for electricity production by PV installations between 2006 and 2010 “has proved ... too costly in light of the significant reduction in costs.”4 The feed-in tariff reductions aim, therefore, to reduce the amount of compensation due by the State for electricity from solar energy “so that the total return on fixed capital, resulting from the accumulation of all revenues from the installation and the financial or tax aid granted for it, does not exceed a reasonable return on capital, taking into account the risks inherent in its operation.”5

As indicated above, the tariff reductions apply to PV installations (i) with a peak power of more than 250 kW, and (ii) that have concluded power purchase agreements pursuant to the tariff orders of July 10, 2006, January 12, 2010 and August 31, 2010. According to the French Finance Commission’s report on the draft 2021 Finance Law,6 the measure will impact between 800 and 1,000 out of the 235,000 solar power purchase agreements concluded (some involving the largest players in the sector), and will result in estimated savings of €400 million per year for the State.