Insights

21/06/2018

New renewable energy premium scheme enters into force

The Finnish Parliament has approved the government proposal concerning the replacement of the current renewable energy feed-in tariff system with a new premium scheme on 23 May 2018. The Government has now issued a decree on the entry into force of the amendments to the Act on Production Subsidy for Electricity Produced from Renewable Energy Sources. The amended Act will enter into force on 25 June 2018.

The Ministry of Economic Affairs and Employment further announced that the first and only auction round under the premium scheme will take place in November-December this year. The annual electricity production available for auction is 1.4 TWh.

The Parliament is currently in discussions to approve the budget authority for government subsidy for the annual production of up to 1.4 TWh as proposed in the first supplementary budget for 2018. The premium would be paid for 12 years. It is estimated that the first instalment of the premium would be paid in 2020.

Please see our article on the draft government proposal for the new renewable energy subsidy reform here.

WINNING BIDS OF NEW PREMIUM SCHEME

The premium scheme is a technology neutral support system based on auction process organised by the Finnish Energy Authority. Wind, solar, wave, wood fuel and biogas power plants can participate in the auction. Hydro power is excluded from the scheme.

The winners of the auction are those fulfilling the rather strict legal criteria and placing the lowest bid. The bid has to include the premium required for the project, the annual electricity production of the power plant as well as, for wind power projects, the number of wind turbines to be constructed.

STRICT PARTICIPATION CRITERIA

The participation criteria include seven project-specific participation criteria and financial criteria.

The project-specific participation criteria are:

  1. The power plant is located in Finland;
  2. The power plant is entirely new, except for the power plant building (not applicable to  wind turbines) and the foundations;
  3. The power plant has not previously received state aid;
  4. The power plant does not replace an old power plant that has more than five (5) percent of operating life left;
  5. There are no binding agreements concerning the procurement of fixed assets or commencement of the construction works, e.g. turbine supply agreement, civil works agreement etc.;
  6. The land use planning and the construction permits are legally valid and binding; and
  7. A binding grid connection offer has been received from the grid operator.

Furthermore, the power plant's maximum annual electricity production cannot exceed the production targeted by the auction. 

In addition to the project-specific criteria, there are financial criteria that the project must fulfil in order to be eligible for the auction. The power producer must submit a EUR 2,500 non-refundable participation fee and deposit a participation guarantee of EUR 2 per MWh multiplied by the annual electricity production of the power plant.

Further, upon acceptance to the premium scheme the power producer must deposit a construction period guarantee. The amount of the guarantee is EUR 16 per MWh multiplied by the annual electricity production.

POWER PRODUCER'S OBLIGATIONS IN THE PREMIUM SCHEME AND SANCTIONS

The power producer has to complete the power plant project in set timelines and produce a set amount of electricity to avoid any sanctions that may follow any underperformance. The project must be at least partially connected to the grid within three years and the entire power plant project must be completed within five years from the acceptance date to the new scheme. If the project is delayed from the set timelines, the construction period guarantee will be withheld at least partially. 

If the power producer does not produce on average at least 75% of the annual electricity production offered in the bid within the first four-year period, or at least 80% thereof within the second or third four-year period, the power producer must compensate the underproduction to the Finnish Energy Authority. The underproduction compensation is calculated as the shortfall of the produced annual average electricity production multiplied by the quoted premium.

PREMIUM SUPPORT

The auction is a pay-as-bid auction where the winning bidders receive premiums in accordance with their respective bids. The premium support is capped at annual average electricity production over three four-year periods or, if the production cap is not reached earlier, at maximum 12 years.

The premium support is a combination of a fixed and reduced premium. When the electricity market price is equal or lower to EUR 30 per MWh (floor price), the power producer is paid the premium that they bid for.

When the electricity market price is higher than EUR 30 per MWh, the difference between the electricity market price and the floor price is reduced from the premium that the power producer bid for. The formula for calculating the reduced premium is: Bid premium – (Electricity market price – EUR 30 per MWh).

WHAT NEXT?

The Energy Authority will provide further instructions on the practical implementation and timetables for the electricity producers participating in the auction on its website in July.

Krogerus' Energy and Infrastructure team will continue monitoring the progress of the new premium scheme and the information to be published by the Energy Authority next month.