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The new Flemish support scheme for green power and cogeneration further elaborated

The new Flemish support scheme for green power and cogeneration further elaborated

The new Flemish support scheme for green power and cogeneration further elaborated

08.01.2013 BE law

On 21 December 2012 the Flemish Government adopted an order amending the Energy Order of 2010, following the Decree of 13 July 2012 amending the Energy Decree of 2009. The rationale of the amendments is to provide for a stable investment climate on the long term for renewable energy and cogeneration projects. The principal amendments to the Energy Order concern amendments to the green power and CHP certificate regime, and to the regime of the guarantees of origin.

On 21 December 2012 the Flemish Government adopted an order amending the provisions of the Energy Order of 2010 with regard to the green power certificates (“GPC”), combined heat and power certificates (“CHP Certificates”), and the guarantees of origin1. The rationale behind the amendments is to provide for a stable investment climate on the long term for renewable energy and cogeneration projects. This should contribute to Flanders’s attainment of its 20-20-20 goals. After all in recent years, the unexpected growth of new projects (in part due to excessive support) has given rise to a surplus of green power certificates and CHP-certificates on the market, affecting both the value of the certificates and the stability of the investment climate itself.

Since the Energy Order is an executive order of the Energy Decree (as amended by the Decree of 13 July 2012), the amendments to it regarding the support mechanism for renewable energy must be in line with the recent amendments to the Energy Decree. These amendments concerned (a) the increasing of the quota for the number of certificates that energy suppliers must purchase; (b) the more limited granting of certificates per MWh due to the application of “banding factors” (in Dutch: bandingfactoren) that are calculated based on the “unprofitable top” (in Dutch: onrendabele top); (c) the limiting of the banding scale for the value of the certificates; (d) the limiting of the support duration based on the depreciation time.

The principal amendments to the Energy Order concern amendments to the GPC regime, the CHP certificates regime, and the guarantees of origin regime.

For what concerns the Green Power Certificates, there are some amendments to the procedure regarding the application for and the conferral of GPC:

  •  it is possible to submit a “principle application” (in Dutch: principe-aanvraag) for installations that have not yet become operational (Art. 6.1.2, §1);
  •  for applications concerning photovoltaic installations, the system operator is also competent to assess those applications (Art. 6.1.2, §4);
  •  large photovoltaic installations with a converter capacity of more than 10 kW will be awarded GPC from the moment the system operator has installed a production meter (Art. 6.1.7, §4);
  •  the VREG’s central database will mention the applicable minimum support, the duration of this support, and the commencement date of this support per installation (Art. 6.1.14, §10).

Since large or grouped consumers may hand in GPC on behalf of the debtor of the GPC, they will have to notify the concerning supplier whether they wish to submit their GPC during the submission period ending 31 March of the year “n”. Such notification is due either before 1 October of year n-2 or when they switch to a new supplier (Art. 6.1.15). At the same time, they will have to notify the VREG about the following too: the offtake points for which they were registered, the duration of this registration, the offtakes during this period, and the number of GPC they wish to submit.

For what concerns the CHP Certificates, one can also submit a “principle application” (Art. 6.2.2, §1). In addition, the amendments specify that useful heat will in principle be measured as close as possible to the place of useful application of the heat. If an emergency cooler has been installed in the circuit, measuring will take place at the emergency cooler (Art. 6.2.5, §1).

For both GPC and CHP certificates, it has been determined that the number of certificates will be calculated by (i) adding the generated electricity and the primary energy saving, respectively, to the eventual surplus of the previous month and (ii) consequently multiplying this number with the  “banding factor” applicable to the installation. The result will be rounded down to a natural number which will be the number of certificates to be granted. The surplus from the rounding down of the number will be carried over to the next month’s calculation (Articles 6.1.7 and 6.2.7, respectively). The average monthly price of GPC and CHP certificates that have been traded in a specific month will (continue to) be published by the VREG (Articles 6.1.24 and 6.2.19, respectively).

In this regard, the amended Energy Order also prescribes that the Flemish Energy Agency (“VEA”) is to calculate the “unprofitable top” based on the most cost-efficient and best performing installations (Chapter II/1 of Title VI). The VEA must do this by using the calculation methods specified in the Energy Order’s annexes. The formula for calculating the “unprofitable top” applies to different kinds of projects, although it varies depending on the type of the project. More particularly, it is important to classify an installation under either a representative project category or a non-representative one. The amended Energy Order contains a list of categories for classifying an installation. The exact calculation methods are described in various annexes: Annex III/1 for green power projects that start from 01/01/2013 and fall under the representative project categories; Annex III/2 for CHP projects that start from 01/01/2013 and fall under the representative project categories; Annex III/3 for relevant technologies and projects that start from 01/01/2013 but fall under the non-representative project categories; and Annex III/4 for green power projects that start before 01/01/2013. When using the formula for calculating the “unprofitable top”, one must especially take into account the following factors: the total amount of the investment, the depreciation period, the construction period for the project, the operational cash flow after taxation, and the desired return on the entire investment. The Annexes state that the parameters of the operational cash flow of projects (except for CHP) whose commencement date is from 1 January 2013 should be indexed when the calculation method of the “unprofitable top” is updated. The net present value of the investment after the “unprofitable top” has been awarded will be zero for the construction and depreciation periods. For wind and solar energy projects, the deprecation period will be 15 years. The calculation methods start from project financing, in which all tax advantages need to be recorded in the books of the project (if need be, by carrying them over to the next fiscal year). Consequently, transferring any tax advantages to other projects of the undertaking is forbidden.

Concerning Guarantees of Origin, an entire chapter has been newly added (Chapter II/3 of Title VI)2. Contrary to the past, GPC and Guarantees of Origin are completely independent from each other. Nevertheless, due to their cross references, the procedure regarding the application for and the conferral of guarantees of origin are quite similar to that of the GPC. Guarantees of origin are conferred monthly per 1,000 kWh of electricity that has been generated. Any surplus of kWh is carried over to the next month. The VREG can specify the rules on how to measure the electricity generated or how to communicate the data to the VREG. However, the amended Energy Order prescribes that a minimum quantity of data is to be kept in the central data base.

The guarantees of origin are freely marketable. In this regard, the VREG will (continue to) publish monthly the average price of the guarantees of origin that have been traded in that month (Art. 6.2/3.8). If a guarantee of origin is exported outside the Flemish Region, the VREG will—upon the request of the owner of the guarantee of origin—transfer the necessary data to the competent authority of the region or country to which the guarantee of origin is exported (Art. 6.2/3.11). On the other hand, guarantees of origin from other regions of the EEA can be imported if they meet the requirements as set out in the Energy Order (Art. 6.2/3.12).

According to the new Article 6.2/3.14, electricity suppliers must provide the VREG monthly with a list of consumers connected to the grid of the DSO or TSO, mentioning per consumer the percentage of electricity stemming from renewable energy sources or qualitative CHP in the total electricity supply to this consumer. The DSO and TSO must provide the VREG and the electricity suppliers monthly with the aggregated offtake data.

Finally, Article 6.4.13 of the Energy Order has been amended. For wind farms projects that requested an offer for being connected to the grid after 19 October 2012, the connection costs are to be paid by the grid operator, in so far as these costs do not exceed €56,000/MW. Any other costs are to be paid by the applicant. This maximum sum of €56,000/MW will be assessed every two years, taking into account the indicative sub-objectives for wind energy as indicated in execution of the Energy Decree. The DSO will have to provide the applicant with a complete overview of the most appropriate connection point, the calculation of the costs mentioned above, and the execution time for the connection.

We note that the SERV and the MINA-Raad remained critical towards the amendments to the Energy Order (and the Energy Decree), as set out in the drafts they commented on. With regard to the support mechanism for renewable energy, they encouraged the introduction of the new mechanism with “banding factors” and “unprofitable tops”. However, they urged the Flemish Government to ensure (i) that the “unprofitable tops” are representative and to take into account all costs and revenues and (ii) that the scope of the support is in due time known by investors3. Prima facie, the calculation methods seem to be flexible enough to ensure that all costs such as, for example, injection tariffs are taken into account4. With regard to the legal certainty of investors, one can feel regret about the timing of the adoption of the Order (21 December 2012) and of the publication in the Belgian Gazette (31 December 2012). Indeed, most of the articles of the Order entered into force on 1 January 2013, only one day after publication, while a some articles even entered into force on the day of publication (Art. 37 of the amending Order).

 

Footnotes

  1. Published in the Belgian Gazette on 31 December 2012.
  2. The Order should read II/3 instead of II/2.
  3. Advice of the SERV and the MINA-raad of 28 September 2012 regarding the reform of the GPC and CHP certificates system, p. 5.
  4. See, in this regard, the rather wide notion of “operational costs”, which does not cover any further specifications, e.g., variable costs per unit of production.
 

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