Insights | August 16, 2018
Getting ready for the new Finnish renewable energy support scheme
On 25 June 2018, the new Finnish support scheme for renewable energy entered into force. The amendment to Act 1397/2010 on the Subsidies for Renewable Energy (the Subsidies Act) was adopted with few changes. We reported on the Government Proposal HE 175/2017 in our previous article “What you need to know about the proposal for a new Finnish renewable energy support scheme”.
The premium scheme
Under the new scheme, the Energy Authority will open tenders for 1.4 TWh of annual capacity. Bids can be submitted between 15 November and 31 December 2018.
Electricity producers can submit bids for the level of support (called premium) they require to produce a certain annual amount of renewable electricity. The granted premium is flexible, being determined by comparing the area average market price of electricity to a reference price (EUR 30 per MWh). The premium can decrease or not be paid if the price that the electricity producer has bid is obtained without the premium at market price; however, the premium will not increase from the bid amount. Eligible tenderers offering the lowest premiums will be approved in the premium scheme until the accepted offers fill in the auctioned 1.4 TWh (or until the next offer would exceed 1.4 TWh).
The requirements for an electricity producer to submit a bid are stated in Chapter 4, Section 30 of the Subsidies Act:
- The power plant must be located in Finland or in Finnish territorial waters
- The power plant must be entirely new and not contain any parts already used except for the power plant building and its foundations
- There should be no state aid granted for the use of the power plant or for investing in it and no pending matters concerning the approval to the feed-in tariff system (i.e. the previous scheme), approval to the premium system or the granting of energy aid under the State Aid Act
- The power plant must not be constructed in place of a power plant located in the same place which has been granted stated aid and for which there is more than a little technical life left
- No binding decision has been made concerning the acquisition of fixed assets related to the power plant or the construction of thereof
- Zoning plans, deviation decisions, possible decisions concerning the need for planning and any building and action permits required for the construction of the power plant have become legally final
- The electricity producer must have a connection offer from a network operator that allows, taking into account the conditions pertaining to the system capacity in the offer, the connection of the power plant to an electricity system referred to in the Electricity Market Act or, if such offer has not been received, a connection agreement referred to in the Electricity Market Act has been made with the electricity system operator
Guidelines of the Energy Authority
On 25 July 2018 the Energy Authority (Fi: Energiavirasto) published guidelines to help tenderers in the preparation of their bids. Guidelines for participating in the tendering process will be published at a later date.
The Finnish Energy Authority’s guidance clarifies some of the eligibility requirements, based on Government Proposal HE 175/2017. In this article, we only review the key points that clarify some of the above mentioned requirements.
What belongs to the power generating system of the power plant?
The guidelines introduce the concept of the ‘power generating system of the power plant’ (FI: voimalaitoksen sähköenergiaa tuottava järjestelmä), which excludes the plant building and the power plant foundations. For example, a building containing a biogas reactor and the foundations of a wind turbine are considered as the plant building, whereas a wind turbine’s mast is considered part of the power generating system. The concept is based on the requirement to build an entirely new plant in Proposal HE 175/2017, because after stakeholder statements, the proposal was relaxed by allowing some renewal and renovation projects. An existing plant building or the foundations of the power plant need not be new.
The limitation to the power generating system has further been extended to the requirement of not having obtained state aid in the past or not being involved in another application process for state aid, as well as to the prohibition on having made binding decisions to acquire assets needed for the project or starting construction.
What is a binding decision to acquire assets needed for the project or starting construction?
The prohibition on a binding decision as a requirement for bidding is intended to exclude projects that would be built even without the subsidy. This requirement only applies to the power generating system. Therefore, agreements concerning grid or road connection, electrical stations, possession of property or even construction of the foundations of the power plant are not covered by the prohibition.
A binding decision under the Subsidy Act is a binding agreement between two or many parties in the sense of contract law, for example, a binding procurement agreement such as a turbine supply agreement. The electricity producer’s internal decisions concerning the power plant project, for example, under the Companies Act (board decisions, general meeting decisions) are not considered binding decisions under the Subsidy Act.
Negotiations to acquire necessary assets or for a construction agreement are allowed. However, the guidelines contain a warning concerning different letters of intention, preliminary agreements and other non-binding documents that are drafted during negotiations. These may require case-by-case assessment, and the Energy Authority may review the terms to make sure that no binding decisions are made regardless of the title of the document. For example, if a preliminary agreement contains a condition to be accepted in the subsidy scheme before signing the actual agreement, then it would not be considered a binding decision.
In order to participate in the auction, the electricity producer must confirm that it has not and will not make a binding decision until 1 January 2019.
What kind of offer is needed for grid connection?
If the grid connection is obtained after the Subsidies Act amendment entered into force on 25 June 2018, the primary way to fulfill grid connection requirement is to have a binding offer from the network operator to connect the power plant in the form described in the bid. The offer must enable the producer to connect the plant to the network within three years of having been accepted into the premium scheme and be valid for the duration of the auction process. The validity can be connected to the Energy Authority’s decision; for example, it can expire two weeks after the decision has been issued.
The offer of the network operator can be conditional if the network capacity is limited and the projects in the auction located in the area could not all be connected to the grid at the same time within three years of being accepted in the premium scheme. In this case, the offer must grant priority to projects accepted into the scheme.
If the network operator does not issue an offer to connect the plant despite the electricity producer having requested one, the producer can submit its bid with a regular connection agreement under the Electricity Market Act. In this case, the network operator will have to complete a form provided by the Energy Authority confirming that it has refused to provide an offer. Due to requirements of the Electricity Market Act, network operators have been reluctant to issue offers.
Another alternative is to submit a connection agreement with a real estate internal network (Fi: kiinteistön tai kiinteistöryhmän sisäinen sähköverkko). In this case, the producer will need to provide the internal network operator’s statement that the power plant can be connected to the internal network.
If the grid connection has been obtained before 25 June 2018, a connection agreement ensuring the plant’s connection to the grid is sufficient.
What collateral can be submitted in order to take part in the auction?
In order to take part in the auction, the Subsidies Act requires the tenderer to provide collateral at the latest on the last day of the tendering period, which must be issued by a credit, insurance or financial institution registered in the EEA.
The guidelines provide more information on requirement for collateral. The accepted collateral includes guarantees, pledges and insurance. However, if the available collateral type is not listed, the electricity producer can contact the Energy Authority to discuss the matter. The collateral is subject to specific requirements, such as being in force at least until 30 June 2019 and being written in Finnish, subject to Finnish law and the competence of the Helsinki District Court (Fi: Helsingin käräjäoikeus).
The participation collateral will be released when the Energy Authority issues a negative decision, or against construction collateral if the project is accepted into the premium scheme. If the electricity producer fails to provide construction collateral that is valid for a duration of 3 years and 6 months within one month of being accepted into the premium scheme, it will lose the participation collateral and its spot in the scheme.
As a practical matter, the Energy Authority urges electricity producers to familiarize themselves with the Suomi.fi platform early on and to create a profile, because bids will be submitted electronically through this online platform and will require a person with signatory rights or a power of attorney to be appointed to act for the electricity producer. No binding date has been set for the Energy Authority to issue its decisions, but March has been used in some examples of timelines for the auctions. Current estimations are that the first payments under the scheme would be made in 2020.