REPOWERING, PROLONGATION, EXTENSION OF SUPPORT. WHAT IS GOING TO HAPPEN FOR ELECTRICITY PRODUCERS?

There is a draft amendment to the Support Act in the Parliament, the aim of which is to introduce an extension of the 15-year support period, to which producers of electricity from renewable energy sources (RES) are currently entitled. However, this extension of the support period has a catch. And not only one. We have therefore summarized the basic questions on this topic.

What does the amendment to the Support Act introduce?

In short, it can be said that the amendment brings an extension of support period with a reduced price of electricity.

The duration of the support in the form of surcharge is to be extended by five years, however the Regulatory Office for Network Industries (RONI) will at the same time reduce the price of electricity set to the producer in the price decision. Ultimately, its originally guaranteed support should thus be "spread over time".

You can see the full text of the proposed amendment and its current legislative process at this link.

This model at first sight appears to be an interesting piece of legislation. However, if we take a closer look at it, it is natural that it elicits conflicting reactions.

Who does this repowering, or in other words, prolongation of support concern?

The proposed amendment concerns facilities for the production of electricity from hydropower, solar energy, biomass, biogas, landfill gas or sewage treatment plant gas. These sources have the opportunity to apply for a prolongation of support.

However, the problem is that prolongation should be mandatory for some producers. These are electricity producers who for the previous calendar year achieved an average sum of surcharge of at least 150 EUR / MWh and a total sum of surcharge of at least 75 000 EUR.

According to published information, it is supposed to be just over 440 facilities, primarily solar power plants.

How will the electricity producer enter into the mandatory prolongation of support?

According to the proposed amendment, if the electricity producer meets special conditions (average amount of surcharge at least 150 EURO / MWh and its total amount of at least 75 000 EUR), they are obliged to submit to RONI by 31 August a proposal to reduce the price of electricity for its electricity production facility.

If they fail to do so, they commit an administrative offense for which RONI imposes a penalty ranging from 500 to 100 000 EUR. However, the payment of the penalty will not avoid the mandatory prolongation. RONI will still initiate proceedings to reduce the price of electricity, from its own initiative.

What will be the new level of electricity prices for facilities that will enter the prolongation?

Undoubtedly, the important question is what will be the real financial implications for the facilities that will enter the system of prolongation of support. This applies not only to those for whom prolongation is mandatory, but also to those who would intend a voluntary entry.

However, the answer is not entirely clear. It is this ambiguity that causes significant friction between the concerned parties. However, it can be concluded that if the prolongation and the calculation of the reduced electricity price itself were intended to be beneficial to electricity producers, it would probably not be necessary to introduce a relatively contradictory obligation for producers to enter this prolongation.

The draft of the amendment states that RONI will recalculate the price of electricity for the remaining period and for the extended support period in accordance with a special regulation. In other words, more specific calculations will be clearer only from the final wording of the RONI decree. Its proposed wording is currently in the interdepartmental comment procedure. You can take a look at it HERE.

According to the amendment, the final wording of the decree should be based on the fact that RONI is obliged to take into account:

1. the amount of electricity covered by the surcharge,
2. number of operating hours of the electricity producer's unit per year and technology of electricity production,
3. the expected amount of support in the form of surcharge for the remaining period of support and the discount factor taking into account the time value of support for the remaining period and the extended support,
4. economically justified costs, which only apply to the necessary repair or modification of the technological part of the unit for the purpose of extending its operability during the remaining support period and the extended support period, but only if such repair or modification does not increase the total installed capacity of the electricity producer's facility and its costs are lower than 10% of the investment costs for the acquisition of a new comparable technological part of the unit,
5. time of submitting a proposal to reduce the price of electricity,
6. the requirement to maintain the economic viability of the electricity producer's facility.

 

The above criteria are relatively general. It will therefore be very important how they are conceived by RONI in the prepared decree.

It is interesting that according to the amendment, RONI will be obliged to publish on its website a calculation tool for determining the reduction of the price of electricity. The electricity producer should thus have a kind of "calculator" at their disposal, with which they will be able to calculate the expected price of electricity.

Is the proposed mandatory prolongation in accordance with the Constitution of the Slovak Republic?

The answer to this question is suitable for a separate analysis. From the constitutional point of view, however, there are several extremely important aspects that seem controversial at first glance.

It is a fact that this is a rather surprising and sudden change in the support system that few people probably expected or could have expected. The Support Act has not provided for any similar mechanism since its adoption, nor has it even suggested that it should occur in the future. The basic principle of the rule of law is legal certainty, which also includes the protection of legitimate expectations of subjects.

It certainly cannot be overlooked that the Constitutional Court of the Slovak Republic in its judgment PL.US 50/2015 in the case of the so-called "Loss of support" explicitly stated that the right of producers to support in the form of surcharge for a period of 15 years is their property right, which is protected by the constitution.

Although the Constitutional Court also stated that producers cannot rely on the fact that the conditions of their operation on the market within a regulated sector will not change, or that no new legislation will be adopted introducing new business conditions in the regulated sector in the future. However, in the case of mandatory prolongation, it is something else. It does not change "only" some business conditions or obligations of electricity producers. It changes the very essence of the property right to support in the form of surcharge. At the beginning, this right was defined by two components - a guaranteed 15-year support period and a guaranteed amount of electricity. However, mandatory prolongation changes both of these components.

It is also possible to encounter the opinion that the interference with the property rights of electricity producers will not be so great, because these producers have received surcharge in a convenient amount for years. Irrespective of whether this argument is acceptable, it should be borne in mind that the mandatory prolongation affects all producers concerned, whether they have operated the plant since its entry into operation or have acquired it only recently, at a considerable purchase price, legitimately expecting the guaranteed returns.

It is possible to describe other controversial moments of the proposed mandatory prolongation, but this would probably be a topic for a separate article.

What will be the impact of the mandatory prolongation on the development of the renewable sources market?

In general, sudden and unexpected changes to the detriment of regulated entities always have a negative impact on the development of a certain area of industry. In the case of mandatory prolongation, this is a relatively sensitive intervention, which is capable not only of concerning but also of discouraging a number of investors from their potential activities.

If, after years of guarantees that support in the form of surcharge is provided for 15 years at unchanged electricity prices, the state intervenes in this situation, it is a strong precedent and a relatively negative signal not only within Slovakia but also abroad.

In a broader context, the mandatory prolongation does not only apply to those 440 electricity producers operating photovoltaic facilities. Once a principle is violated for them, what is the certainty that the right to support for electricity producers from highly efficient electricity and heat cogeneration or the right to support, which is guaranteed on the basis of reconstruction or modernization of the facility, will not be affected in some time.

If the state cannot clearly guarantee a stable system of support in the form of surcharge (the scheme of which has existed here for years), how to persuade investors to engage in new business opportunities?

From the point of view of the effects of the mandatory prolongation on the future development of green electricity production, this is the topic of a separate study, which certainly cannot be exhausted in a few paragraphs.

Where did the prolongation of support come from?

Discussions have been going on for a long time about what will happen in Slovakia after the end of the 15-year support in the form of surcharge for producers of electricity from RES and highly efficient electricity and heat cogeneration. Some facilities declare that without state support or an advantage over the current market situation, their continued operation will be jeopardized. The network of green energy facilities built and subsidized for years could easily fall apart after the end of the 15-year support period. There is a great demand for a model that would allow the economic operation of these facilities even after the end of support in the form of surcharge.

The Ministry of Economy came up with a proposal, which should partially mitigate the effects of the ending of the 15-year support period. It labelled it with the term "prolongation" of support, that is the extension of the support period, stating that in principle the original amount of support should be spread over a longer period. The support will be paid to the electricity producer for 5 years longer, but its amount will be lower. However, the problem with this solution is that the main objective of extending the support is not (according to the explanatory memorandum) to ensure the long-term continuity of operation of electricity production facilities, but simply to "reduce the annual financial costs of billing the support in the form of surcharge".

The original draft amendment to the Support Act, which was submitted to the interdepartmental comment procedure, differed significantly from the draft currently in the Parliament. Perhaps the most fundamental difference was that the prolongation of support was to be built on a voluntary basis in the interdepartmental comment procedure, according to the original draft.

An electricity producer who was interested in extending the support period by 5 years while reducing its amount could (but did not have to) submit a proposal to the RONI to reduce the price of electricity. If the legal conditions were met, the price of electricity that would apply to them for the remainder of the extended support period would subsequently change.

Within the interdepartmental comment procedure, several fundamental comments from various entities were raised against the proposed voluntary prolongation. It is only possible to speculate what the scope and content of the comments would be if they were to comment on the prolongation, which is mandatory.

Naturally, several electricity producers were surprised that the result of the interdepartmental comment procedure was (among other things) a fundamental change in the prolongation, from voluntary to mandatory.