with the support of Australia Japan Azerbaijan Kazakhstan Brazil Kyrgyzstan Chile Luxembourg Czech Republic Macedonia Denmark Poland Egypt Russia Finland South Africa Germany Turkey Hungary Ukraine Indonesia United Arab Emirates Ireland United Kingdom Israel United States of America
2017
Çakmak Yayınevi Piyade Sokak No: 18/8 Çankaya / Ankara Tel: +90 312 440 89 91 2017 Editors Özlem Kızıl Voyvoda Courtney Kirkman Gücük Erdem Başgül Doğa Usluel
Publication Assistant Simla Özden Namal
Published by Çakmak Yayınevi Piyade Sokak, No. 18 06650 Çankaya, Ankara, Turkey
Printed by Miki Matbaacılık San. ve Tic. Ltd. Şti. Matbaacılar Sitesi1516/1 Cadde No. 27 İvedik, Ankara, Turkey
January 2018, Ankara
ISBN: 978-605-68097-0-5 ISBN (e-book): 978-605-68097-2-9
© Çakmak Yayınevi
All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, mechanical, photocopying, recording or otherwise, without the prior written permission of the publisher. Due to the general nature of its contents, this publication should not be regarded as legal advice. The Publisher, Editor and Authors makes no representation or warranty as to, and assume no responsibility for, the accuracy or completeness of the information contained herein.
CONTENTS
1- AUSTRALIA, White & Case LLP ...... 3
2- AZERBAIJAN, Baker & McKenzie - CIS ...... 15
3- BRAZIL, Machado, Meyer, Sendacz E Opice Advogados ...... 23
4- CHILE, Larrain Y Asociados ...... 41
5- CZECH REPUBLIC, White & Case (Europe) LLP, Prague ...... 49
6- DENMARK, Bech-Bruun Law Firm P/S ...... 54
7- EGYPT, Sharkawy & Sarhan Law Firm ...... 65
8- FINLAND, Asianajotoimisto White & Case Oy ...... 73
9- GERMANY, White & Case LLP, Duesseldorf ...... 86
10- HUNGARY, Lakatos, Köves and Partners ...... 101
11- INDONESIA, Ali Budiardjo, Nugroho, Reksodiputro ...... 109
12- IRELAND, Arthur Cox ...... 119
13- ISRAEL, Erdinast, Ben-Nathan, Toledano & Co. Advocates ...... 137
14- JAPAN, White & Case LLP, Tokyo ...... 147
15- KAZAKHSTAN, White & Case, Kazakhstan ...... 158
16- KYRGYZSTAN, Kalikova & Associates ...... 164
17- LUXEMBOURG, Arendt & Medernach SA ...... 171
18- MACEDONIA, Kimova Law Office ...... 185
19- POLAND, White & Case, Warszawa ...... 189
20- RUSSIA, White & Case LLC, Moscow...... 197 21- SOUTH AFRICA, White & Case ...... 207
22- TURKEY, Çakmak Avukatlık Ortaklığı ...... 217
23- UKRAINE, Avellum ...... 230
24- UNITED ARAB EMIRATES, White & Case, Abu Dhabi ...... 239
25- UNITED KINGDOM, White & Case LLP, London ...... 245
26- UNITED STATES OF AMERICA, White & Case LLP, Washington, DC ...... 273
4 FOREWORD ÇAKMAK PUBLISHING is pleased to publish this 2017 edition of the Global Renewable Energy Guide, which has been published annually since 2010. The Global Renewable Energy Guide is designed to provide an overview of applicable legislation and available incentives to renewable energy companies worldwide. It will aid investors, lenders and government agencies and their counsel in understanding and comparing different facets of renewable energy regulation in different jurisdictions around the world. The publication maintains a Q&A format with a common questionnaire set by the editors and answered by leading practitioners from 26 jurisdictions around the world. The following are notable observations from this 2017 edition of the Guide regarding the regulatory regime and available incentives for renewable energies in the 26 jurisdictions explored:
Most of the countries, 21 out of 26, have an independent regulatory authority to supervise and regulate the electricity sector, including renewable energies, while the remaining 5 countries opt for regulation of the electricity sector by a Ministry.
Most of the countries, 22 out of 26, provide for tax advantages for the generation of electricity from certain or all types of renewable energy sources.
Purchase guarantees (feed-in tariffs) or similar support mechanisms are available in most of the countries, 20 out of 26.
The ratio of ensuring a minimum price for the electricity generated by renewable energy companies is high as well (14 countries out of 26 countries).
In 13 out of the 26 countries, priority for connection to and/or usage of the transmission and/or distribution system is provided for renewable energy companies.
11 out of the 26 countries provide for additional incentives for the domestic manufacturing of equipment and materials. We gratefully acknowledge the contributions of all the authors of this publication, who have been selected for their recognized expertise in the field of renewable energy law, and thank them for making this Guide a reality. We also gratefully acknowledge the support of Gama Enerji A.Ş., IC İçtaş Enerji and Zorlu Enerji for their support in the publication of this Guide. Özlem Kızıl Voyvoda Courtney Kirkman Gücük Erdem Başgül Doğa Usluel Editors
Ankara, January 2017
AUSTRALIA
Adeline Pang Fiona Curl Anna O’Reilly Yasmin Parat
WHITE & CASE LLP
advances of battery technology, there is now an GENERAL appetite for battery storage facilities to assist with the intermittent renewable energy sources, 1. What are the nature and importance of in providing additional grid stability and renewable energy in your country? allowing renewable energy to be a reliable contender when compared to thermal energy. The renewable energy industry in Australia has seen political uncertainty in the last ten years, According to the latest Clean Energy Australia which has resulted in a scaling back of Report (“CER Report”), the current level of renewables investment in the country.1 activity in the industry means that Australia is However, the current climate as at July 2017 is on track to meet the RET. With only a few years intense with the race towards meeting the 2020 left to meet the large-scale part of the RET, national Renewable Energy Target (“RET”) 2017 is set to deliver an unprecedented program promoting significant investment particularly in of works. As of March 2017, the projects set to the wind and solar industries. go to construction during the year will deliver more than $AU6.9 billion in investment and The outlook for the renewable energy in build 3,150 MW of capacity2. Australia is positive, as the costs of renewable energy reduce and investor confidence is Beyond 2020, the government has set a new restored, particularly through the introduction target of reducing greenhouse gas emissions to of a variety of state and territory government 26-28% below 2005 levels by 2030, which policies that incentivize investment in builds on Australia's existing 2020 target of 5% renewable energy, combined with support from below 2000 levels. the Australian Renewable Energy Agency (“ARENA”) and the Clean Energy Finance While “Australia is realizing the significant Corporation (“CEFC”). Further, with the benefits of backing the renewable energy
1 For example, the introduction and subsequent with changes to the subsidy system and reductions repeal (in July 2014) of the carbon tax scheme, and to government funding on a national level. policy uncertainty around the Renewable Energy 2 Clean Energy Council, Clean Energy Australia Report Target (RET) (which, in mid-2015, was reduced (2016)
GLOBAL RENEWABLE ENERGY GUIDE 2017 3 WHITE & CASE LLP AUSTRALIA industry”, the CER Report also notes that there is a lack of long-term federal government REGULATION policies to support the achievement of Australia’s longer-term commitments and “for 3. How is the renewable energy sector these economic benefits to continue, clear regulated? What are the principal laws policy direction and support is required beyond and regulations? 2020”. The key federal government policy driving In 2017, the government is undertaking a review renewable energy investment in Australia is the of the national electricity sector and its domestic RET, which is established under the Renewable climate change policies to consider how Energy Act. The objectives of the Renewable Australia can transition to a reliable and Energy Act are to encourage generation of affordable low emissions future (a key feature electricity from renewable sources, reduce of the review being that of national energy greenhouse gas emissions and ensure renewable security, following a state-wide blackout in energy sources are ecologically sustainable, South Australia in September 2016). through the creation of a mechanism of tradable renewable energy certificates (“RECs”). For 2. What are the definition and coverage of more detail on how the RET scheme operates, renewable energy under the relevant see question 12. legislation? Other legislation and regulations under which Pursuant to clause 17(1) of the Renewable Energy the RET scheme is administered are the: (Electricity) Act 2000 (Cth) (as amended) (“Renewable Energy Act”)3, renewable Renewable Energy Regulations; energy sources include hydro, wave, tide, ocean, wind, solar, geothermal-aquifer, hot dry rock, Renewable Energy (Electricity) (Large-scale energy crops, wood waste, agricultural waste, Generation Shortfall Charge) Act 2000 (Cth); waste from processing of agricultural products, and food waste, food processing waste, bagasse, black liquor, biomass-based components of Renewable Energy (Electricity) (Small-scale municipal solid waste, landfill gas, sewage gas Technology Shortfall Charge) Act 2010 (Cth). and biomass-based components of sewage and any other energy source prescribed by the Some states and territories have also legislated regulations. their own renewable energy targets that go beyond the national RET, including: The Renewable Energy (Electricity) Regulations 2001 (Cth) (“Renewable Energy Regulations”) South Australia, under the Climate Change provide further guidance on the definition of and Greenhouse Emissions Reduction Act 2007 certain renewable energy sources such as (SA); and agricultural waste, black liquor and landfill gas4. the Australian Capital Territory, under the Climate Change and Greenhouse Gas Reduction Act 2000 (ACT).
3 See question 3 for further details on the Renewable 4 See section 6 of the Renewable Energy Regulations. Energy Act (and other renewable energy sector legislation).
4 GLOBAL RENEWABLE ENERGY GUIDE 2017 AUSTRALIA WHITE & CASE LLP
For further detail on the state and territory and ownership of ACCUs issued under the renewable energy targets, refer to question 15. EMF and emission units issued under the Kyoto Protocol. The federal government’s policy framework for clean energy and carbon abatement also More broadly, Australia’s electricity sector is includes the following principal laws: primarily regulated by the National Electricity (South Australia) Act 1996 (SA), which sets out, National Greenhouse and Energy Reporting Act amongst other things, a framework for the 2007 (Cth) (National Greenhouse and operation of the National Electricity Market Energy Reporting (“NGER”) Act) (and (“NEM”), and is supported by the National 5 supplementary legislative instruments ), Electricity Rules (“NER”) and the National which sets out a national reporting Electricity (South Australia) Regulations. framework in relation to greenhouse gas emissions, energy projection and energy Queensland, New South Wales, the Australian consumption (“NGER scheme”); Capital Territory, Victoria, South Australia and Tasmania participate in the NEM. Western Carbon Credits (Carbon Farming Initiative) Act Australia and the Northern Territory are not 2011 (Cth) (“Carbon Credits Act”) (and connected to the NEM and have their own related rules and regulations6), which electricity system and separate regulatory establishes the Emissions Reduction Fund arrangements. (“EMF”), a national voluntary scheme for the crediting, purchasing and safeguarding Each state and territory also has different of Australian carbon credit units legislative requirements in relation to licensing7 (“ACCUs”) to incentivize the reduction of and the required planning permits and emissions across the economy. For further approvals8 for renewable energy projects. detail on the EMF, see question 12; and 4. What are the principal regulatory Australian National Registry of Emissions Units bodies in the renewable energy sector? Act 2011 (Cth) (“ANREU Act”) and the Australian National Registry of Emissions The Clean Energy Regulator (“CER”) is the Units Regulations 2011, which provide regulatory body responsible for the legislative support for the administration of administration of the carbon abatement and the Australian National Registry of clean energy schemes legislated by the Australian Emissions Units (“ANREU”), an Government. Established as an independent electronic system for tracking the location statutory authority by the Clean Energy Regulator
5 National Greenhouse and Energy Reporting Regulations (ACT); Electricity Safety Act 1971 (ACT); Electricity 2008 (Cth); National Greenhouse and Energy Reporting Act 1945 (WA); Electricity Industry Act 2004 (WA); (Measurement) Determination 2008 (Cth); National Electricity Supply Industry Act 1995 (Tas); Electricity Greenhouse and Energy Reporting (Audit) Determination Reform Act 2000 (NT); Electricity Safety Act 1998 2009 (Cth); National Greenhouse and Energy Reporting (Vic); Electricity Industry Act 2000 (Vic). (Auditor Registration) Instrument 2016 (Cth); National 8 Environmental Planning and Assessment Act 1979 Greenhouse and Energy Reporting (Safeguard Mechanism) (NSW); Sustainable Planning Act 2009 (Qld); Rule 2015 (Cth). Development Act 1993 (SA); Planning and Development 6 Such as the Carbon Credits (Carbon Farming Initiative) Act 2007 (ACT); Planning and Development Act 2005 Regulations 2011 (Cth) and the Carbon Credits (Carbon (WA); Land Use Planning and Approvals Act 1993 Farming Initiative) Rule 2015 (Cth). (Tas); Environmental Assessment Act 1982 (NT); 7 Electricity Supply Act 1995 (NSW); Electricity Act 1994 Planning and Environment Act 1987 (Vic). (Qld); Electricity Act 1996 (SA); Utilities Act 1945
GLOBAL RENEWABLE ENERGY GUIDE 2017 5 WHITE & CASE LLP AUSTRALIA
Act 2011 (Cth) (“CER Act”), the CER has 5. What are the main permits/licenses administrative responsibilities for the: required for renewable energy projects?
NGER scheme, under the NGER Act; 5.1 Regulatory aspects
ERF, under the Carbon Credits Act; Electricity industry participants require a license to generate, transmit, distribute or retail RET, under the Renewable Energy Act; electricity in each state or territory. The and application requirements differ in each jurisdiction, but generally require the applicant ANREU, under the ANREU Act. to show that they are a fit and proper person to Responsibilities of the CER include: hold the relevant license, they have the technical capability to maintain the license, and are providing education and information on financially viable and have access to sufficient the schemes that the CER administers; financial resources.
monitoring, facilitating and enforcing In addition to a license to generate, distribute or compliance with each scheme; transmit electricity, an applicant must also register to participate in the NEM or equivalent collecting, analyzing, assessing, providing if the applicant owns, controls or operates a and publishing information and data; generating, transmission or distribution system connected to the national electricity system. accrediting auditors for the schemes the CER administers; and If the renewable energy project intends to generate RECs, first the owner of the generator working with other law enforcement and 9 must be registered, following which the project regulatory bodies . must also be registered. In the broader electricity sector: 5.2 Planning permits the Australian Energy Regulator is In all states and territories, a planning permit is responsible for the economic regulation of required to develop and operate a renewable the electricity transmission and distribution energy project such as a wind farm or solar networks and for enforcement in farm. The application for the permit must jurisdictions participating in the NEM; include an assessment of the environmental the Australian Energy Market Commission impacts of the renewable energy project, such undertakes rule making and energy market as noise emissions and landscape effects. development; and Depending on the jurisdiction and the size of the development, the application may be to the states and territories also each have local council or the state planning department separate regulators for generation and or minister. The assessment of the permit electricity retail licensing10. application may be subject to public notice and a public inquiry process and, in some
9 Clean Energy Regulator, What we do (14 December 10 For example, the Essential Services Commission in 2016)
6 GLOBAL RENEWABLE ENERGY GUIDE 2017 AUSTRALIA WHITE & CASE LLP jurisdictions, there are third party appeal rights Although there are no exemptions in respect of to specialist environmental courts or tribunals. generation licenses, some classes of renewable energy may be exempt from planning and In addition, if the development of the environmental assessment and approval renewable energy project includes the removal processes. Exemptions typically only apply of native vegetation, either as part of the where a project presents minimal construction of the project itself, or as part of environmental impacts and meets designated the connection to the electricity network (which minimum energy output restrictions. For may be a separate project by a utility service example, several jurisdictions exempt small- provider in some jurisdictions), a separate scale solar or wind from assessment processes, vegetation removal permit may be required. provided they satisfy manufacturer 5.3 Environmental licenses specifications, visibility and heritage restrictions and do not involve the removal of native If the renewable energy project’s development vegetation. will or is likely to have a significant impact on matters of national environmental significance Certain renewable energy projects may be (such as migratory bird species or nationally exempt from public notification requirements protected plant species), a referral to the or the statutory requirement to obtain Commonwealth Minister for the Environment landholder consent, depending on the project’s may be required under the Environment Protection scale, location and potential environmental & Biodiversity Conservation Act 1999 (Cth) to impacts. determine whether an approval is required. If 7. Has there been any reform related to the Minister decides that approval is required, renewable energy regulations since an environmental impact assessment must be 2016? Do you expect any undertaken of the impact of the renewable reform/change in the near future? energy project on the relevant matters of national environmental significance. There has been no major reform to the In some state jurisdictions, an environment renewable energy regulatory framework since protection license is required during the government’s review of the federal RET in 12. However, there is the possibility of construction and operation for certain renewable 2014-2015 major market reform in the near future. energy projects. For example, in New South Wales, a wind farm with a generating capacity of In 2017, the government is reviewing its climate greater than 30 MW of electricity generally change policies to ensure that Australia can 11 requires an environment protection license . meet its 2030 target and Paris Agreement 6. Is there a category of “license-exempt commitments. The review, led by the Department of the Environment and Energy, generation”? If so, does it cover some 13 types of renewable energy based will conclude by the end of 2017 . generation?
11 Protection of the Environment Operations Act 1997 Energy (Method for Solar Water Heaters) Determination (NSW). 2016. 12 While no major reform, there were some legislative 13 Department of the Environment and Energy, instruments that were passed to give effect to policy Review of Australia’s climate change policies details or new policy requirements. See, for
GLOBAL RENEWABLE ENERGY GUIDE 2017 7 WHITE & CASE LLP AUSTRALIA
In addition, an independent review is being research & development (“R&D”) tax undertaken by Chief Scientist Alan Finkel of the incentive which is accessible across all industry national electricity market to provide advice to sectors. The incentive is available to eligible governments on a coordinated, national reform companies in respect of eligible R&D blueprint, which will outline the approach activities17. In some cases, the activities required to maintain the security, reliability, conducted as part of renewable energy affordability and sustainability of the national development may be eligible for this incentive. electricity market14. The principal aim of this incentive scheme is to encourage industry to conduct R&D that may At a state and territory level, there is potential not otherwise have been conducted, and for further reform as some state and territory thereby increase competitiveness and governments continue to develop their own productivity across the Australian economy. It policies beyond the national requirements. For operates by providing smaller companies (those example, in 2017 the Victorian Government with an aggregated annual turnover of less than proposes to legislate a reverse auction scheme AU$20 million), which are not controlled by a to support the achievement of its renewable tax-exempt entity, a refundable 43.5% tax offset energy generation targets15. against notional deductions for R&D expenditure to which they are entitled. Those INCENTIVES companies which are controlled by a tax- exempt entity or which have an aggregated annual turnover greater than AU$20 million are 8. Are tax advantages available to entitled to a similar offset but at a lower rate of renewable energy generation 38.5%18. companies? There are further tax advantages available to There are no tax advantages specific to small companies generally (those with an renewable energy generation companies in aggregated annual turnover of less than AU$2 Australia16. million19) – for example, the accelerated depreciation of assets purchased for less than However, the federal government offers a AU$20,00020 – however, it is unlikely that any
14 Department of the Environment and Energy, information or experience, but can only be Independent Review into the Future Security of the National determined by applying a systematic progression of Electricity Market
8 GLOBAL RENEWABLE ENERGY GUIDE 2017 AUSTRALIA WHITE & CASE LLP
Australian renewable energy generator would ratified? If yes, what are the qualify as a small company in order to be eligible undertakings of your Country in the for any such tax benefit. Similarly, the NDC (national determined exemption of the goods and services tax contributions) submitted for the first (“GST”) to the sale or transfer of small-scale five-year period? technology certificates under the Small-scale Renewable Energy Scheme21 would apply only Australia has ratified the Paris Agreement (on to smaller companies and to individuals who are 10 November 2016) and set a target to reduce not engaged in these activities as part of its carbon emissions by 26-28% below 2005 conducting a business22. levels by 2030 as its “nationally determined contribution” – furthering Australia’s national 9. Is there a purchase guarantee given by 2020 target of reducing emissions by 5% below the relevant legislation for the 2000 levels by 2020. This target represents a 50- electricity generated by renewable 52% percent reduction in emissions per capita energy companies? and 64-65% reduction in emissions intensity of the economy between 2005 and 203023. There is no federal or state mandated purchase guarantee applicable to electricity generated by In Australia’s submission to the Paris process in renewable energy companies. August 2015, Australia committed to considering a potential long-term emissions However, see our response to question 15 in reduction goal for beyond 203024. relation to the Australian Capital Territory feed- in tariff. Although this has now closed, it points 12. Is there a carbon market or carbon to initiatives being run out of the State level. credits mechanism in your jurisdiction?
10. Is there a minimum price guarantee Australia briefly implemented a national carbon given by the relevant legislation for the pricing mechanism under the Clean Energy Act electricity generated by renewable 2011 (Cth) but this was repealed in 2014. Since energy companies? the repeal, Australia’s federal climate law landscape is relatively sparse. There is no minimum price guarantee for electricity generated by renewable energy The Australian government has established the companies in Australia. There is however a EMF which allows project proponents to market price for RECs – see our answer to generate ACCUs for domestic emissions- question 12. reducing projects across a number of sectors. Participants tender emissions-reducing projects 11. Has the Paris Agreement under the that are then selected through an auction United Nations Framework process run by the CER. Eligible renewable Convention on Climate Change been energy projects include capture and combustion
21 See further question 12 in relation to small scale change/publications/factsheet-australias-2030- technology certificates (STCs) created under the climate-change-target>. Small-scale Renewable Energy Scheme. 24 Department of the Environment and Energy, Review 22 The GST applies only to goods or services provided of climate change policies – Discussion Paper (2017) < as part of conducting a business. http://www.environment.gov.au/ climate- 23 Department of the Environment and Energy, change/review-climate-change-policies/discussion- Australia’s 2030 Climate Change Target (2015) paper-2017>. GLOBAL RENEWABLE ENERGY GUIDE 2017 9 WHITE & CASE LLP AUSTRALIA of landfill gas and agricultural waste. ACCUs non-tax deductible renewable energy shortfall can be sold to generate income, either to the charge, currently set at AU$65 per REC not government through a carbon abatement surrendered27. contract, or in the secondary carbon market. The REC Registry enables the REC market to In addition, the federal RET creates a market in operate. Market participants use the REC RECs generated by renewable energy activities Registry for all REC transactions. As a tradeable and purchased by electricity generators. Each commodity, RECs attract a price on the REC represents a megawatt hour of renewable secondary market. Financial institutions, source electricity generated or a megawatt hour brokers, traders, registered agents and electricity of electricity displaced. retailers are involved in buying and selling certificates in this market. The aim of the RET is to encourage the uptake of renewable energy sources in the electricity The market price for RECs is dependent on sector. The RET began in 2001 and now supply and demand and varies daily. The LGC includes incentives for both large scale power spot price was AU$86.75 at the end of 201628. stations such as solar farms, wind farms and While significantly higher than the AU$72 at the hydro-electric power stations in the form of end of 2015, it remained below the AU$93 tax- large-scale generation certificates (“LGCs”) and effective cost of the shortfall charge29. small-scale projects such as rooftop solar in the form of small-scale technology certificates Liable entities may also purchase STCs through (STCs). In 2015, the 2020 target for the large- the STC Clearing House, a clearing house scale component of the RET was reduced from established by the CER (and accessible via the 41,000 GWh to 33,000 GWh – a cut of REC Registry). There is a government- approximately 20%. In 2016, approximately guaranteed price of AU$40 (GST exclusive) per 17,500 GWh of renewable energy was STC30 sold through the STC Clearing House. generated towards meeting the large-scale component of the RET (just over half way to 13. Do renewable energy-based power achieving the 2020 target of 33,000 GWh)25. plants have priority for connection to the grid? Demand for RECs is created by a legal obligation that the Renewable Energy Act Renewable energy based power plants do not places on “liable entities”26 who buy wholesale have priority for connection to the grid. electricity (for example, retailers and large users of electricity) to purchase and surrender a There are four main electricity grids in Australia: certain amount of RECs each year. Western Australia: South West If a liable entity does not have enough RECs to Interconnected System; surrender, the liable entity will have to pay a 25 Above, footnote no. 2. 28 Clean Energy Regulator, Tracking towards 2020 – 26 Renewable Energy (Electricity Act) 2000 (Cth), s35. Encouraging renewable energy in Australia (2017) 10 GLOBAL RENEWABLE ENERGY GUIDE 2017 AUSTRALIA WHITE & CASE LLP Western Australia: North West Commonwealth government Interconnected System; procurements, grants and payments through state and territory governments Northern Territory: Darwin-Katherine valued at AU$20 million or more; and Electricity Network; and CEFC investments, Queensland, New South Wales, Australian Capital Territory, Victoria, South Australia, meaning that projects (including renewable Tasmania: NEM. energy projects) seeking government contributions or CEFC funding are incentivized Under the NEM, for example, the NER set out to utilize domestic manufacturing in order to a regime that obliges transmission and meet the local content requirements. distribution network operators to connect generator’s equipment provided that the In relation to the CEFC in particular, the CEFC generator is a “Registered Participant” under Investment Mandate Direction 2016 (No. 2) the NER. Chapter 5 of the NER sets out a provides that the CEFC is a mechanism to help detailed process which must be followed when mobilize not only investment in renewable connecting to the grid, involving the energy projects in Australia, but also the “Registered Participant” submitting a manufacturing businesses and services that “connection enquiry” followed by an produce the required input. The CEFC “application to connect” and the network Investment Policies therefore require that its services provider in return must prepare an funded projects are “solely or mainly Australian offer to connect. This process operates on a based”31. “first in best dressed” basis and provides no priority regime for renewable participants. In practice, CEFC funded renewable energy projects will usually include a local content 14. Is there an incentive for domestic requirement as a condition precedent to draw (local) manufacturing of equipment or down of CEFC funds. materials used in the construction of renewable energy based power plants? In addition, ARENA also seeks to promote Australian based projects by requiring that Commonwealth, state and territory ARENA-funded expenditure incurred outside governments across Australia have signed up to of Australia must not be more than 10% of the the Australian Industry Participation National total ARENA funds, however this does not Framework, which encourages governments to apply to equipment or materials32. maximise Australian industry participation in major projects in Australia in a consistent and 15. What are the other incentives available effective manner. Each state has also to renewable energy generation implemented state based policies aimed at companies? encouraging Australian industry participation in public and private projects. 15.1 Federal Relevantly, the Australian industry participation In addition to those incentives identified in requirements apply to: question 12, the federal government has established ARENA and the CEFC to provide 31 Clean Energy Finance Corporation, CEFC 32 Australian Renewable Energy Agency, Advancing Investment Policies, s 6.4. Renewables Program – Program Guidelines (2017), s 2.5. GLOBAL RENEWABLE ENERGY GUIDE 2017 11 WHITE & CASE LLP AUSTRALIA funding and initiatives in the renewable energy the Clean Energy Innovation Fund (part of sector. the CEFC but operated in consultation with ARENA), which provides debt The aim of ARENA is to support the and/or equity finance, to technologies and development of local renewable energy businesses that have passed beyond the technology by providing funding to projects R&D stage, but are not yet established or that advance renewable energy technologies or of sufficient maturity, size or otherwise innovative systems that increase renewable commercially ready to attract sufficient energy in Australia and the sharing of private sector capital36. knowledge in relation to those technologies33. The CEFC was created in 2012 as a corporate ARENA has a budget of approximately Commonwealth entity to facilitate and co- AU$800 million to manage until 2022 and to ordinate AU$10 billion to overcome capital date, ARENA has committed to the funding of market barriers that hinder financing and approximately AU$1.1 billion in 250 projects34. commercialization of renewable energy, energy ARENA currently carries out its mission efficiency and low emissions technology. through the following programs in accordance with ARENA’s general funding strategy35: The CEFC is commercially orientated with an aim to make a positive return on investments the Renewable Energy Venture Capital (which are retained for re-investment). The Fund Program, which aims to provide CEFC invests on a case by case basis through expertise and equity investment to early project finance, equity finance, corporate loans stage renewable projects through a private and aggregation funding but does not issue sector fund manager; grants. The CEFC prefers investments that have a co-financier or sufficient equity buffer the Research Development Program, against underperformance37. which supports renewable energy R&D that will increase the commercial The CEFC's Portfolio Vision for 2018 sets out deployment of renewable energy a 50% investment in renewable energy and 50% technology in Australia; in energy efficiency and low emissions. The 50% renewable energy portion of the portfolio the Advancing Renewables Program, will focus among other things on wind, solar which supports a broad range of and geothermal and include both on-grid and development, demonstration and pre- off-grid projects and enable transactions in commercial deployment projects; and energy storage and transmission38. 33 Australian Renewable Energy Agency, About 36 Australian Renewable Energy Agency, 12 GLOBAL RENEWABLE ENERGY GUIDE 2017 AUSTRALIA WHITE & CASE LLP 15.2 State / Territory A similar renewable energy reverse auction scheme is proposed for Victoria to help deliver Given the lack of federal initiatives beyond Victoria’s renewable energy generation targets. 2020, there is also an array of climate law If fully implemented, the Victorian renewable initiatives at a state and territory level to energy target will create up to 5400 MW of new incentivize investment in renewable energy. renewable energy generation capacity by 2025. Consultation on the design of Victoria’s scheme The Australian Capital Territory, South has commenced and it is expected to come into Australia, Northern Territory, Queensland and operation later in 2017. Victoria have implemented renewable energy targets (in addition to the federal RET) to Other than the above-mentioned schemes there promote investment in the renewable energy are currently no large-scale feed-in tariff sector: schemes in Australia (at both a state and federal level). There are, however, various state based State / Renewable Year Territory Energy initiatives for small scale renewable energy Target generation. Victoria 25% 2020 40% 2025 STATISTICS Australian 100% 2020 Capital 16. What is the percentage of electricity Territory generated based on each type of Queensland 50% 2030 renewable energy source in the total South 50% 2025 generation of electricity on a country- Australia wide scale? Northern 50% 2030 Territory Renewable Energy Generation40 To support the Australian Capital Territory Technology Renewable Percentage of achieving its renewable energy target, the Energy Total government implemented a reverse auction Generation Renewable scheme39 which supported up to 640 MW of in 2016 Generation renewable energy generation in the NEM. The (GWh) process involved project proponents bidding to Hydro 17,747 7.32% build wind and solar farms at the lowest Wind 12,903 5.32% possible cost, thereby delivering maximum value for every dollar of government funding. Small-scale 6,701 2.76% The successful projects selected though the solar PV reverse auction process received long term Bioenergy 3,608 1.49% feed-in tariffs under a “contracts for difference” Medium-scale 456 0.19% arrangement. solar PV investments/the-cefc%E2%80%99s-2018- 40 Clean Energy Council Renewable Energy Database, portfolio-vision.aspx>. NEM Watch, Australian Energy Statistics 2016, REC 39 Electricity Feed-in (Large Scale Renewable Energy Registry, SunWiz, AEMO, AEMC. Note: some Generation) Act 2011 (ACT). figures have been rounded. Figures do not include auxiliary load or transmission line losses. GLOBAL RENEWABLE ENERGY GUIDE 2017 13 WHITE & CASE LLP AUSTRALIA Technology Renewable Percentage of Overall, renewable energy supplied 17.29% of Energy Total Australia’s electricity during 2016, the highest Generation Renewable proportion of Australia’s electricity being in 2016 Generation generated from renewable source in any year of (GWh) this century. This figure represents Large-scale 502 0.21% approximately a 2.69% increase from 2015, solar PV largely due to a resurgent hydro sector (as improved rainfall restored dams in Tasmania)41. Solar 27 0.01% Thermal Geothermal 0.50 0.00% OTHER Total 41,944 17.29% 17. Is there anything else you wish to add? No. WHITE & CASE LLP Adeline Pang Fiona Curl Level 32, 525 Collins Street, Level 32, 525 Collins Street, Melbourne, Australia VIC 3000 Melbourne, Australia VIC 3000 T +61 3 8486 8035 T +61 3 8486 8011 F +61 3 8486 8123 F +61 3 8486 8123 E [email protected] E [email protected] Anna O’Reilly Yasmin Parat Level 32, 525 Collins Street, Level 32, 200 George Street, Melbourne, Australia VIC 3000 Sydney, Australia NSW 2000 T +61 3 8486 8032 T +61 2 8277 4422 F +61 3 8486 8123 F +61 3 8486 8123 E [email protected] E [email protected] 41 Above, footnote no. 2. 14 GLOBAL RENEWABLE ENERGY GUIDE 2017 AZERBAIJAN Gunduz Karimov Rena Eminova BAKER & MCKENZIE - CIS GENERAL Energy, dated 24 November 1998 (“Energy Law”), define “renewable energy resources” as 1. What is the nature and importance of “the energy resources which permanently exist in the renewable energy in your country? environment or are constantly renewed (solar, wind, geothermal, biomass, sea and water currents, etc.)”. Azerbaijan has on average 300 days of sunshine and 260 windy days a year; the average wind speeds of eight meters per second on the REGULATION Abseron peninsula is well above the minimum requirements for power generation. As 3. How is the renewable energy sector indicated in the State Program on Use of regulated? What are the principal laws Energy Derived from Alternative and and regulations? Renewable Resources approved by Order No. 462 of the President of the Republic of Although the Law on Renewable Energy was Azerbaijan dated October 21, 2004 (“State drafted some time ago, the document has not Program”), Azerbaijan alternative (renewable) been adopted yet. Along with the Energy energy potentials cover wind energy, solar Resources Law and the Energy Law, renewable energy, biomass energy, small hydro-power energy is mainly regulated by the Law No. 459- plants and geothermal energy. IQ on Electric Energy, dated 3 April 1998 (“Electric Energy Law”), the Law No. 784-IQ The government of Azerbaijan and industry on Electricity and Heat Power Stations, dated experts consider alternative power to be 28 December 1999 (“Power Station Law”), economically feasible given the country’s high and the State Program. Pursuant to Presidential average wind speeds, the number of sunny days, Instructive Order No. 1958, dated December and water resources. 29, 2011, the State Agency on Alternative and Renewable Energy Resources (“Agency”), 2. What is the definition and coverage of acting under the Ministry, is responsible for renewable energy under the relevant preparing a new State Strategy on the use of legislation? alternative and renewable energy sources (“National Strategy”) in 2012-2020. The Both Law No. 94-IQ on Use of Energy National Strategy is in the process of Resources, dated 30 May 1996 (“Energy development and the draft of the document is Resources Law”) and Law No. 541-IQ on not publicly available. However, the Agency has GLOBAL RENEWABLE ENERGY GUIDE 2017 15 BAKER & MCKENZIE – CIS, LIMITED AZERBAIJAN developed the Strategic Plan of the Agency for 1995, the President of the Republic of the Years 2016-2020, which is available at its Azerbaijan approves state economic and social official website. programs. According to Presidential Decree No. 85 On Application of the Energy Law Furthermore, the Development Concept - dated February 1, 1999 and Presidential Decree Azerbaijan - 2020: Outlook for the Future, No. 723 On Application of the Electric Energy approved by Decree No. 800 of the President Law dated June 13, 1998, the Cabinet of of the Republic of Azerbaijan dated December Ministers of the Republic of Azerbaijan is 29, 2012 (“Development Concept”) also authorized to develop and clarify the long-term regulates certain issues related to the sphere and state programs in the power sector of the considers the close involvement of the private Republic of Azerbaijan. The main decision- sector to the power generation process and the maker in connection with the state programs is flexible regulation of alternative energy tariffs. the President, and the President delegated his powers to the Cabinet of Ministers by adopting The Strategic Plan and Plan of Measures of the relevant presidential decrees. However, most of Ministry of Energy of the Republic of the state programs continue to be approved by Azerbaijan (“MOE”) for the years 2015-2020, the President himself, notwithstanding the approved by Order No. 39 of the MOE dated mentioned delegation. December 5, 2014, lists the strategic objectives and activity directions up to 2020 in the power Moreover, pursuant to Section 3 of the Bylaw sector in general. of the MOE, the MOE is empowered to prepare and implement the state programs and Along with other documents mentioned development concepts in the relevant field. At hereby, the Strategic Road Map on the the same time, the same authority is determined Development of Public Utilities (power and under Section 3.1.1 of the Bylaw of the Agency. heat energy, water and gas) in the Republic of Given the relevant powers of MOE and the Azerbaijan, approved by Decree of the Agency, these institutions are the main President dated December 6, 2016 (“Road regulating bodies and controllers of the Map”), and the State Program on Development implementation of the state programs and of Industry in the Republic of Azerbaijan for similar strategic documents directed to the the Years of 2015-2020, approved by Order No. power sector of the Republic of Azerbaijan. On 964 of the President of the Republic of a related note, the existing market players Azerbaijan dated December 26, 2014, considers submit relevant reports reflecting the the expansion of the production of alternative implementation status of the projects energy until 2020. mentioned in the programs to the MOE and the Azerbaijan is a signatory to the Statute of the Agency where it is appropriate. International Renewable Energy Agency Being one of the main controllers in the (“IRENA”), established on 26 January 2009, renewable energy sector, the Agency (i) and became a full member of IRENA following participates in the development and procures the ratification of its Charter by the Azerbaijani the implementation of state policy on renewable Parliament. energy and infrastructure; (ii) participates in the 4. What are the principal regulatory development of laws and regulations; (iii) makes bodies in the renewable energy sector? recommendations to the Government on improving the utilization of energy sources, Under Article 109 of the Constitution of the planning, construction and use of facilities, and Republic of Azerbaijan dated November 12, on control of production of necessary 16 GLOBAL RENEWABLE ENERGY GUIDE 2017 AZERBAIJAN BAKER & MCKENZIE – CIS, LIMITED equipment; and (iv) promotes planning, gas derived from bio-mass or other fuel construction and production in the renewable type - more than 500 KW. energy industry. 7. Has there been any reform related to All energy tariffs, including energy generated renewable energy regulations since from alternative sources, are set by the Tariff 2016? Do you expect any Council of the Republic of Azerbaijan (“Tariff reform/change in the near future? Council”). Under the Road Map mentioned in Section 3 5. What are the main permits/licenses above, until 2025 the Government plans to required for renewable energy projects? stimulate investments in new power stations under public-private partnership frameworks. Azerbaijan recently adopted numerous new This could be realized by the application of the normative legal acts relating to licensing of Build-Operate-Transfer model and feed-in entrepreneurial activities and repealed certain tariffs or auction mechanisms. The old ones. Government hopes to minimize the need for state investments through these mechanisms. Most notably, on April 21, 2016 the President signed a new Law On Licenses and Permits The Government expects that beginning in (“Licensing Law”). 2025, foreign direct investments and private businesses will play a major role in the Under the Licensing Law, the generation of development of a renewable energy ecosystem electric energy, as well as the distribution, (mainly wind and solar). Furthermore, it expects transmission, and imporation/exportation of that end consumers will begin the production of electricity require a permit of the MOE. micro-electrical energy by 2025 to meet their 6. Is there a category of "license-exempt power supply needs through the installation of generation"? If so, does it cover some photoelectric energy equipment on the roofs of types of renewable energy based their buildings or in rural areas. generation? In order to achieve the increase in the share of As a general rule, special permits to carry out alternative energy sources in total power activity in the power sector are granted, and the production after 2025, the Government aims to contractors determined, on a competitive basis. intensify the construction of alternative energy The Electric Energy Law and the Licensing Law power stations. It is envisaged that this goal will require that individuals and legal entities obtain be achieved through direct investments into special permission to conduct activities for the wind and solar energy projects, as well as generation of electricity exceeding certain potentially into geothermal and biomass energy power limits determined by the Cabinet of resources. The Government expects that the Ministers. The Cabinet of Ministers determined liberalization of the power sector, as well as the the following power limits for the application of participation of private businesses through the the generation permit: Build-Operate-Transfer, feed-in tariffs or auction mechanisms will boost these For power plants generating energy from developments. alternative and renewable energy sources - more than 150 KW; The Government considers the privatization of power stations as one of the ways of increasing For hydro-power plants and power plants their efficiency. Therefore, efficiency generating power and heat energy through GLOBAL RENEWABLE ENERGY GUIDE 2017 17 BAKER & MCKENZIE – CIS, LIMITED AZERBAIJAN requirements will be part of the privatization income/profit tax and full exemption from terms. property tax and land tax for 7 years, counting from the date of issuance of the Investment The Road Map also sets a goal for alternative Certificate. Additionally, the Investment energy production. According to this goal, 350 Certificate holders are exempt for 7 years from MW wind energy, 50 MW solar energy and 20 paying customs duties and value added tax on MW bioenergy shall be produced in the machinery, technological equipment and country. The timeline for this goal is not clear; devices imported for investment purposes in however, it could be inferred from the Road priority industries of the economy such as the Map that this is a short-term goal for 2020. generation of alternative energy. INCENTIVES 9. Is there a purchase guarantee given by the relevant legislation for the electricity generated by renewable 8. Are tax advantages available to energy companies? renewable energy generation companies? There is a guarantee in the Power Station Law for the purchase of electricity from renewable The legislation considers certain incentives in energy without any limitation. The law, the form of exemptions from taxes and customs however, does not impose sanctions on the grid duties. Thus, according to the Decision No. 112 operator or distributor for failing to purchase of the Cabinet of Ministers dated April 25, 2014, the power and the provision, in general, does the import of certain devices, their parts and not provide the mechanism of such purchase, accessories used in the field of alternative and which makes implementation difficult in renewable energy is free from import customs practice. duties. The Decision expires in 2024. 10. Is there a minimum price guarantee Recently, the President approved the Decree given by the relevant legislation for the On Additional Measures to Promote electricity generated by renewable Investment dated January 18, 2016, endorsing energy companies? the Regulations on providing a document which encourages investment in Azerbaijan Electricity prices are regulated by the state (“Investment Certificate”). According to the under the legislation. There is a fixed price for Decree, new incentives in the form of tax and electricity from renewable energy. The Tariff customs duties exemptions in the priority Council has recently updated the electricity industries of the economy are introduced. tariffs by adopting Decision No. 17, dated November 2016. The wholesale price of The tax and customs incentives that investors electricity produced by private small can benefit from were approved by the hydropower stations is AZN 0.05 per kW/hour Azerbaijani Parliament by the Law on (approx. US$ 0.03 cents) while the wholesale Amendments to the Tax Code of the Republic price of electricity produced by wind power of Azerbaijan, effective 19 February 2016 stations is AZN 0.055 (approx. (“Amendments”). The Amendments US$ 0.035 cents). The wholesale price of introduce incentives which consider a 7-year electricity produced by other alternative and exemption from paying 50% of the renewable sources is AZN 0.057 (approx. US$ 0.037). 18 GLOBAL RENEWABLE ENERGY GUIDE 2017 AZERBAIJAN BAKER & MCKENZIE – CIS, LIMITED 11. Has the Paris Agreement under the Considered Total emissions United Nations Framework emissions reduction for 2030 Convention on Climate Change been reduction compared to the base ratified? If yes, what are the year: undertakings of your Country in the 25.666 Gg CO2 NDC (national determined equivalent (excluding contributions) submitted for the first LULUCF) five-year period? 24.374 Gg CO2 The Paris Agreement under the United Nations equivalent (including Framework Conventon on Climate Change LULUCF) (“NFCCC”) was signed by the Minister of Adaptation In order to reduce Ecology and Natural Resources (“MENR”) on element Azerbaijan’s behalf of the Government of the Republic of vulnerability to climate Azerbaijan and was ratified by the Azerbaijani change impacts, Parliament on October 28, 2016. Azerbaijan is considering developing Azerbaijan supported the adoption of a new relevant adaptation Global Agreement on climate change to be held measures for decreasing in Paris prior to the signing. Information or minimizing the losses provided to UNFCCC on the Intended that may occur at Nationally Determined Contribution of the national, local and Republic of Azerbaijan, shown in the table community levels per below, includes the main undertakings of the sector. country: 12. Is there a carbon market or carbon Base year 1990 credits mechanism in your jurisdiction? Emissions per Total emission 73.331 Azerbaijan acceded to the Kyoto Protocol on base year Gg CO2 equivalent UNFCCC on July 18, 2000. Since then, a 1 (excluding LULUCF ); number of measures have been taken to Net emission 69.641 Gg decrease the carbon emissions derived from CO2 equivalent industrial production, especially from power (including LULUCF) generation. The Republic of Azerbaijan Time framework 2030 submitted its new climate action plan to the UNFCCC in 2015. According to the Intended Covered sectors Energy, agriculture, Nationally Determined Contribution of the waste, LULUCF Republic of Azerbaijan, the country targets a Covered gases CO2, CH4, N2O, HFC, 35% reduction in the level of greenhouse gas CF4 emissions by 2030 compared to the 1990 base Considered 35% reduction at total year. emissions emissions level reduction compared to the base Moreover, the Development Concept year. mentioned above also plans to bring the amount of energy used in the GDP production 1 Land Use, Land-Use Change, and Forestry (“LULUCF”). GLOBAL RENEWABLE ENERGY GUIDE 2017 19 BAKER & MCKENZIE – CIS, LIMITED AZERBAIJAN and carbon dioxide emission closer to the 14. Is there an incentive for domestic indicators of the member countries of the (local) manufacturing of equipment or Organization for Economic Cooperation and materials used in the construction of Development. renewable energy based power plants? The EU Directive "20-20-20" set the goals to No. The Program instructs a number of reduce greenhouse gas (“GHG”) emissions by ministries and state agencies to investigate the at least 20% below the 1990 levels, to produce possibility of manufacturing in Azerbaijan the 20% electricity from renewables, and to equipment and materials used for the increase energy efficiency by 20%. According to generation of renewable energy. the official web page of the Agency, Azerbaijan declared its adherence to the principles 15. What are the other incentives available mentioned in the said Directive as well. to renewable energy generation companies? No concrete policies or laws on carbon market issues have been established to date for There are separate agreements and normative implementing the Kyoto Protocol. However, acts which directly or indirectly provide some Law No. 109-IIQ of the Republic of Azerbaijan incentives for private investors in connection On Protection of Atmospheric Air, dated with their activities in the power energy field. March 27, 2001, requires a special Thus, pursuant to the Power Station Law if permit/license from the MENR for the (i) the construction of new power plants or emission of hazardous substances into the reconstruction of old power plants is atmosphere. implemented in accordance with the provisions Both SOCAR, the national oil company, and of the Power Station Law; (ii) it has a status of Azerenerji, the state monopolist for power independent power producer (“IPP”); and (iii) generation and electricity transmission, are there is a public interest (i.e., a state importance), implementing GHG emission projects. This has then the relevant authority guarantees for the mostly eliminated the need for central GHG local and foreign investors the opportunities emission plans and targets, since the World mentioned below: Bank reports that in Azerbaijan almost all GHG emissions are generated in the energy sector. exemption from import/export taxes and duties for all main production funds 13. Do the renewable energy based power required for the construction of IPP; plants have priority for connection to the grid? creation of a condition for fuel supply of IPP (from or outside of the country); At present, there are no legal provisions giving priority to the renewable energy plants. The supply of power to any destination point in Power Station Law, however, does provide that accordance with a contract executed the Government may subsidize the between an IPP, transmission and development of renewable energy producing distribution entity; power plants. unlimited and non-discriminatory access to the energy market; 20 GLOBAL RENEWABLE ENERGY GUIDE 2017 AZERBAIJAN BAKER & MCKENZIE – CIS, LIMITED unlimited export of power energy (in part STATISTICS or completely) produced by an IPP, provided that the local demand is satisfied; 16. What is the percentage of electricity complete use and free transfer in a generated based on each type of convertible currency of the profit share and renewable energy source in the total any cash derived from the sale of fixed generation of electricity at country scale? assets; and The generation capacity of the country reached 7,129 MW as of 20152. Energy generation in the the guarantee of other incentives whole country was 24,688.4 million KWh in considered under the legislation. 20153, whereas energy generated from alternative The government can also subsidize the and renewable sources in the same year was 1,816 construction of power stations working on million KWh (21% more in comparison with the previous year) which constituted 7.4% of all renewable energy sources. Additionally, there is power generated in Azerbaijan. The amount of no limit on power generated from those electricity derived from each type of renewable stations. energy is given in the below table4: The Energy Resources Law determines the scope of works which can be granted with Type 2015 2014 subsidies. Thus, according to the same law, (mln KWh) (mln subsidies from the fund on the efficient use of KWh) energy may be granted to enterprises creating Hydro 1603.9 1294.0 energy-saving techniques and technologies for Biomass & 181.9 174.0 the following works: waste scientific - research, experimental - Wind 25.6 23.4 constructor works; Solar 4.6 2.9 production of modern test equipment and The percentage of electricity per each type of performing construction - installation alternative and renewable energy source is as works in this field; follows: re-use of energy resources; Hydro - 88.3%; examination of renewable energy sources Biomass & waste - 10%; and carrying out energy forecasting; provision of objects with metering and Wind - 1.4%; and control devices for the energy supply; and Solar - 0.3%. efficient supply of the population with thermal energy etc. 2 http://www.minenergy.gov.az/db/Hesabat/Illik_ 4 http://www.area.gov.az/public/uploads/ Hesabat_2015_1.pdf. Hesabat/ Hesabat-2015.pdf. 3 http://www.azstat.org/MESearch/details. GLOBAL RENEWABLE ENERGY GUIDE 2017 21 BAKER & MCKENZIE – CIS, LIMITED AZERBAIJAN OTHER 17. Is there anything else you wish to add? No. BAKER & MCKENZIE – CIS, LIMITED Gunduz Karimov Rena Eminova The Landmark III, 8th Floor The Landmark III, 8th Floor 90A Nizami Street 90A Nizami Street Baku AZ1010 Azerbaijan Baku AZ1010 Azerbaijan T +994 12 497 18 01 T +994 12 497 18 01 F +994 12 497 18 05 F +994 12 497 18 05 E [email protected] E [email protected] 22 GLOBAL RENEWABLE ENERGY GUIDE 2017 BRAZIL Antonio Meyer Ana Karina E. de Laura Garcia de Paulo de Tarso C. Souza Freitas Souza Machado MACHADO, MEYER, SENDACZ E OPICE ADVOGADOS development of other renewable sources of GENERAL energy and reduce Brazilian exposure to hydroelectric power, which comprised more 1. What are the nature and importance of than 90% of the Brazilian energy matrix. the renewable energy in your country? As result of the Brazilian energy shortage crisis, In Brazil, renewable sources of energy play a the so-called “PROINFA” was created in 2002, significant role in the country’s energy matrix. so as to bring incentives for the development of Differently from many countries across the alternative energy sources, such as wind energy, world (most of them largely dependent on biomass projects and small hydroelectric plants traditional fossil-fueled power plants), Brazilian (“PCHs”). It was created by Law No. hydrology and topography historically allowed 10,438/02, as amended, and implemented by the development of an energy matrix strongly Decree No. 5,025/2004. The plan was divided dependent on hydroelectric power. However, into two phases: the purpose of the first stage since the past decade Brazil is continuously of PROINFA was to produce 3,300 MW from learning that one’s blessing might be one’s alternative sources, equally distributed among curse. In 2001 and 2002, Brazil faced severe wind power, PCHs and biomass sources. In the climate changes that nearly stopped Brazilian second stage, alternative sources should meet economic growth. The lack of rain cumulated 10% of annual electricity consumption demand with high temperatures dropped the level of the in Brazil within 20 years. water in the reservoirs of the main Brazilian hydroelectric power plants forcing the Brazilian Projects qualified during the first stage were Federal Government to take the hard decision initially scheduled to be rolled out by of stopping the energy production of several 30 December 2006, but this deadline was hydroelectric power plants (and consequently repeatedly extended due to significant delays. reducing the economic growth) or continuing By the end of 2011, 3,155 MW of installed the generation of energy, which could kill the power became operational. The PROINFA was reservoirs of such power plants and hinder the the first strong governmental initiative for the supply of water to many regions in Brazil. renewable industry in Brazil and resulted in the implementation in its first phase of 2,649.87 At that time, the decision taken by the Brazilian MW of renewable energy in Brazil, divided into Federal Government was to generate energy at 41 wind, 19 biomass and 59 small hydroelectric a low level and speed-up the enactment of a plants. number of policies tending to promote the GLOBAL RENEWABLE ENERGY GUIDE 2017 23 MACHADO, MEYER, SENDACZ E OPICE ADVOGADOS BRAZIL However, the second phase of PROINFA has These auctions which are coordinated by the never been launched. After the implementation Ministry of Mines and Energy (“MME”) and of the first phase of PROINFA, the Brazilian the National Electric Energy Agency government continued to provide firm (“ANEEL”) have led to the development of incentives to the private sector for the local biomass and wind energy industries and diversification of the Brazilian energy matrix have even spurred the interest of foreign through renewable energy projects by, among investors. others, conducting public auctions for the purchase of energy on a long-term basis. With As can be seen in the graph below, an increase the successful development of federal of the installed capacity of Brazil from 133GW governmental auctions, no initiative was taken (in 2014) to nearly 206.5GW (in 2024) can be to proceed with the second phase. expected, mostly boosted by a significant increase of renewable projects in the coming decade. Evolution of the installed capacity of the national interconnected system (MW) (Source: EPE, Plano Decenal de Energia 2024) It was only in 2007, however, that the first energy auctions for renewable energy projects, energy auction for contracting energy output which are still being promoted on an annual from alternative sources projects was held. In basis, was important for securing the this case, wind energy was placed alongside bankability and market availability for such new hydroelectric and other sources such as biomass renewable projects, becoming an efficient and fuels. cost-friendly way to keep increasing the input of renewable energy in the Brazilian energy matrix. Although the price for wind power (ranging around R$140.00/MWh) was not sufficiently It was only in 2009 that the first auction competitive for allowing the development of exclusively for energy from wind source was wind power plants, the initiative of organizing held. The auction was organized by ANEEL 24 GLOBAL RENEWABLE ENERGY GUIDE 2017 BRAZIL MACHADO, MEYER, SENDACZ E OPICE ADVOGADOS dependent on the MME as a “reserve auction” dropped to an average of R$148.39/MWh. At or auction for additional energy to be supplied this price 71 projects were selected, amounting to the basic grid – the National Integrated to 1,805.7 MW of installed capacity. System (“SIN”) - so as to reduce the operational costs of the system. Interested With the success of the 2009 energy auction, parties could participate either alone or by several auctions were promoted by the Brazilian forming consortiums with other parties. In all, Federal Government resulting in a significant 339 projects were enrolled to participate in the reduction of dependency on hydroelectric auction with an installed capacity of more than power. 10,000 MW. The auction was a decreasing-price or Dutch type auction in which bidding started The Figure 1, below, represents the changes to in a first-round set at R$189/MWh and began the Brazilian energy matrix after 2007. to drop by R$0.50. More than seven hours and 75 rounds later, the price had Shifting of the Brazilian Energy Matrix (2007 – 2014) Hydro Hydro SHP SHP Nuclear Nuclear Oil Oil Natural Gas Natural Gas Diesel Diesel Coal Coal Biomass Biomass Process Gases Process Gases Steam Steam Wind Wind Solar Solar (Source: EPE / Plano Decenal de Expansão de Energia PDEE 2008-2017) In 2014 and 2015, Brazil once more struggled power plants to operate in full capacity, which with its high dependency on hydroelectric caused severe impacts on the energy price, energy. The shortfall of rain during the years resulting in significant financial losses to 2012, 2013, 2014 and 2015 in conjunction with Brazilian distribution concessionaires. the increase of energy consumption motivated by the drop of energy prices imposed by the As result of that, the Brazilian Federal Brazilian Federal Government nearly caused Government once more took measures to the adoption of austerity measures and stimulate the implementation of generation rationing of energy to avoid black-outs and projects powered by renewable sources. In this economic recession. In order to avoid the context, the Brazilian Federal Government adoption of such new rationing program, the organized several auctions for the purchase of Brazilian Government ordered all fossil-fueled energy from new renewable power projects, GLOBAL RENEWABLE ENERGY GUIDE 2017 25 MACHADO, MEYER, SENDACZ E OPICE ADVOGADOS BRAZIL especially from solar power projects, along with creation of PROINFA. the enactment of further regulation on distributed generation (on-site generation). Policy-wise, however, much needs to be done During such new auctions, the Brazilian Federal to develop a general framework and long-term Government purchased from private policy for the generation of energy from developers nearly 2.8GW of energy to be renewable sources, especially considering the supplied by solar power projects after 2017. declared intention of the Brazilian Government to expand the total energy input from renewable Although still highly dependent on the energy sources from the current 30 GW to 57 GW by input from large hydroelectric power plants, 2024, representing 24GW of wind power which represents 61% of the total current projects, 7GW of solar power projects, 8GW of energy production in Brazil, the production of PCHs and 18GW of biomass fueled power energy by other different energy sources, such projects. In order to achieve such goal, the as biomass, thermal power plants, small Brazilian Government is mainly focusing on hydroelectric power plants, wind farms and promoting the exploitation of Brazil’s vast and solar plants, is progressively occupying an almost entirely untapped wind and solar outstanding position in the Brazilian energy potential through spurring the interest of matrix. foreign and national private investors by offering financial support from the Brazilian 2. What are the definition and coverage of National Development Bank (“BNDES”), tax renewable energy under the relevant and regulatory incentives, and facilitating the legislation? environmental licensing procedures. The Brazilian legal framework does not have a Although the legal framework for renewable specific provision defining the concept of sources is taking its first steps, much needs to renewable energy. Further, there is no general be developed in relation with the environmental long-term policy regarding the use and rules and creating more specific conditions for development of renewable energy projects. the companies that generate alternative sources in order to make investments in this sector Notwithstanding the above, Law No. 9,478, more and more attractive. dated 6 August 1997, sets forth the national policies for the rational use of energy resources. The law sets forth a number of guidelines REGULATION including “the protection of the environment and conservation of energy” and the “use of alternative 3. How is the renewable energy sector sources of energy through the economic use of raw regulated? What are the principal laws materials available and the applicable technologies”. and regulations? Also, Law No. 10,438/2002 – which, among According to Article 22, IV of the Federal other things, created PROINFA – sets forth the Constitution, the Brazilian Union is competent objective of increasing the generation of energy to regulate energy-related matters. As such, the from biomass, small hydroelectric plants and member States and Municipalities cannot wind power projects. establish laws contradicting the federal law and regulations. In practice, the promotion of renewable energy sources has been implemented through specific The Brazilian concern regarding renewable auctions (as highlighted above), through the sources of energy was first portrayed in 26 GLOBAL RENEWABLE ENERGY GUIDE 2017 BRAZIL MACHADO, MEYER, SENDACZ E OPICE ADVOGADOS Law 9,478/1997. As referred supra, this Law distributed generation projects (with a established the general guidelines for the generating capacity up to 1MW) from rational use of energy and set forth that the renewable sources. economic use of renewable sources was to be a priority. Under such regulation, the power consumers who wish to implement a renewable source and The PROINFA scheme, which emerged at a on-site generation system, up to 1 MW in size, moment in which Brazil was struggling to are authorized to use net metering systems and overcome the energy shortage crisis, also compensate any excess of generated energy defined important mechanisms for subsidies for with future consumption of energy to be the use of renewable sources in SIN, amongst received from SIN. Accordingly, this regulation other benefits for generating companies of the authorizes the compensation of the energy alternative sources. credit from an on-site generation unit with the future energy consumption of any related Law 10,848 dated 15 March 2004 instituted the consumption under the same ownership chain, so-called “new model” of the Brazilian Power within a 60-month period, including Sector allowing the trading of electric energy to distribution concessionaires. take place either in the free market (“ACL”), through which the power generating companies Since the enactment of Resolution 482/2012 are authorized to freely negotiate the price and and until March 2016, 2,440 distributed conditions for delivering their energy output to generation projects have been implemented in large consumers and energy trading companies, Brazil (of which 2,387 are photovoltaic or in the regulated market (“ACR”), through projects). However, such figure is significantly which the power generating companies lower than that originally expected by the commercialize their energy output with Brazilian Government. distribution concessionaires, in a highly regulated environment and by means of In this sense, in order to achieve the main goal standardized long-term power purchase of increasing the energy input of distributed agreements. generation projects up to 2 GW by 2024, ANEEL approved certain amendments to In the ACR, the trading of energy is conducted Resolution 482/2012 that (1) simplified the through specific auctions organized by rules related to the connection of the distributed ANEEL, under guidelines set forth by the generation projects to the SIN, (2) improved MME. the compensation system, and (3) increased the installed capacity up to 5 MW (except for Specific rulings for the authorization or hydroelectric power projects, which were registration of the renewable energy projects capped at 3 MW). have been issued by ANEEL since 2009. Currently such requirements are governed by These amendments were included through Resolution 390/2009, as amended by Resolution 687/15 that entered into force on Resolution 546/2013, and Resolution March 1, 2016. Such new conditions 675/2015. substantially increased the number of distribution generation projects: up to this Furthermore, at the beginning of 2012, ANEEL moment, 12,405 projects were implemented in approved, by means of ANEEL Resolution No. Brazil (of which 12,283 are photovoltaic 482, dated as of 17 April 2012, the regulatory projects). In addition to the existing regulation cornerstone for the development of new regarding the renewable energy sector, which is GLOBAL RENEWABLE ENERGY GUIDE 2017 27 MACHADO, MEYER, SENDACZ E OPICE ADVOGADOS BRAZIL still incipient, there are a number of bills related MME is the Federal Government entity to the theme under discussion in the Special responsible for the execution of energy-related Committee on Renewable Energy of the policies within the country. Its paramount Brazilian House of Representatives. The main attributions include the formulation and the purpose of such Special Committee is to implementation of policies for the energy develop the Brazilian renewable energy law, in sector, according to the guidelines defined by order to create a strong and stable renewable the CNPE. sector. The MME is responsible for setting up the Despite the political and financial incentives for planning for the domestic energy sector, the development of a more sustainable energy monitoring the Brazilian power sector safety of matrix through the increase of energy supply, and for defining preventive actions to production by renewable energy projects (and preserve the safety of supply in case of the reduction of Brazilian dependency on imbalances between the supply and demand of hydroelectric energy), the Brazilian energy electricity. As of the sanction of Law No. 10,848 sector is still suffering high dependency on dated March 2004, which instituted the “New hydroelectric generation, which creates a Energy Model”, the Brazilian government, considerably instable environment for the acting primarily through the MME, assumed Brazilian economic growth. certain functions previously assigned to ANEEL, including preparing the guidelines that 4. What are the principal regulatory govern the granting of concessions and the bodies in the renewable energy sector? issuance of regulations with respect to the bidding process for public utility and electricity The institutional framework for regulation of plants concessions. MME, for example, is the energy in Brazil includes the Ministry of Mines body that approves the amount of energy to be and Energy - MME, ANEEL, the National purchased in a public auction promoted by the Electric System Operator (“ONS”) and the Federal Government. Consequently, the MME Wholesale Energy Chamber (“CCEE”). Other defines the list of generation projects. agents include National Council for Energy Policy (Conselho Nacional de Política Energética) The CMSE is an advisory board, dependent on (“CNPE”), the Power Sector Monitoring the MME, established for the purpose of Committee (“CMSE”), and the Energy monitoring and evaluating the continuity of Research Company (“EPE”). energy supply. Its principal functions include that of monitoring the generation, transmission, The CNPE is an advisory board to the Brazilian distribution, export, import and trading of Executive Power. Its main attributions are energy; as well as evaluating current conditions formulating energy-related policies and and identifying problems and risks within the guidelines and assuring the supply of materials Brazilian energy industry and elaborating necessary for power generation in remote areas proposals for adjustments in order to preserve of Brazil. The CNPE is also in charge of the safety of supply and service. reviewing the energy in each region of the country, as well as for establishing general The EPE was instituted by Law No. guidelines for specific programs such as 10,847/2004 and established by Decree No. programs for the use of natural gas, alcohol, 5,184/2004 as a company in charge of carrying biomass, coal and thermonuclear power. out research and studies within the Brazilian electric energy sector. As such, EPE performs surveys and carries out projections which allow 28 GLOBAL RENEWABLE ENERGY GUIDE 2017 BRAZIL MACHADO, MEYER, SENDACZ E OPICE ADVOGADOS for further developments, expansions and, in preliminary authorization, the developer will be general, short, medium and long-term planning. allowed to proceed with the relevant environmental licensing. Please note that some ANEEL was instituted by Law No. 9,247/96 projects, such as large hydro power plants, may and established by Decree No. 2,335/97. Its only be implemented under the concession attributions are to regulate and inspect regime, by means of the execution of production, transmission, distribution and concession agreements with granting commercialization of electricity so that the authorities (MME in the electricity sector), quality of provided services and universal access preceded by bidding procedures. to electricity are assured. ANEEL also sets tariffs for consumers. Further, under the new In accordance with ANEEL Resolution Nos. model established in 2004, ANEEL is to 390 and 391, dated 15 December 2009, promote, directly or indirectly, auctions for the amended by ANEEL Resolution No. 546, distributing agents to purchase electricity dated 16 April 2013, in order to obtain an through long-term contracts within SIN. authorization to build renewable power plants, the participant must present to ANEEL specific The ONS was created by Law No. 9,648 in 1998 legal and technical documentation in order to as a private, non-profit organization made up of attest its qualification to receive such agents representing customers and private and authorization. state-owned companies involved in the electricity generation, transmission, and Specifically regarding wind power plants, after distribution businesses. The New Industry the enactment of ANEEL Resolution Model Law granted the Brazilian government No. 546/2013, wind power developers have to the authority to appoint three members to the present, in addition to the required technical ONS executive committee. documents, a statement issued by owners of already authorized wind farms implemented or The CCEE was instituted in August 2004 to to be implemented in the whereabouts of the take over the attributions previously carried out new wind farm acknowledging the construction by the Wholesale Electricity Market. Its of a new wind farm and confirming that the principal attributions are determining the spot implementation of such wind power project will price, used to value short-term market not cause interference in the energy production transactions; executing so-called energy capacity of the existing/authorized power accounting processes to identify the agents and plants. ANEEL promoted such modification amount of electricity involved in multilateral with the purpose to avoid the construction of short-term market transactions; preparing new wind farms that may affect the financial settlement of amounts calculated in performance of already installed or authorized the energy accounting process; and preparing projects. and executing electricity auctions within ACR by delegation of ANEEL. Also, wind power developers must also present a performance bond to ANEEL – a guarantee 5. What are the main permits/licenses of compliance with the terms and conditions set required for renewable energy projects? forth by the authorization - in the amount of 5% of the project’s total estimated investment. With the purpose to construct and operate The performance bond must be valid for thirty renewable energy projects, the entrepreneur days from the start of commercial operation of shall obtain a prior authorization issued by the power plant and may be foreclosed on the ANEEL, pursuant to Resolution 390/2009, as (i) noncompliance with the building schedule of amended. After the obtainment of such the project; (ii) noncompliance with the terms GLOBAL RENEWABLE ENERGY GUIDE 2017 29 MACHADO, MEYER, SENDACZ E OPICE ADVOGADOS BRAZIL and conditions set forth by the authorization; do Meio Ambiente, e dos Recursos Naturais Renováveis and/or (iii) revocation of the authorization. or “IBAMA”) has the jurisdiction over the environmental licensing of enterprises and In addition to the authorization granted by activities with environmental impacts on a ANEEL, the construction, installation, regional or international level. Municipal expansion and operation of any establishment environmental authorities are the competent or activity which uses environmental resources authorities for licensing enterprises for which and is deemed as actually or potentially impacts are only local. polluting as well as those capable of causing any kind of environmental degradation depend on a 6. Is there a category of “license-exempt licensing process. Generally, the process to generation”? If so, does it cover some obtain an environmental license follows three types of renewable energy based stages: generation? Preliminary License (Licença Preliminar Under the current legislation in Brazil, certain or “LP”) – it is granted during the power plants are exempted from complying preliminary stage of planning the enterprise with the requirements imposed by Resolution or activity and approves its location and 390/2009, as amended by Resolution 546/2013 conception based on the environmental and Resolution 675/2015. studies presented by the entrepreneur attesting the environmental feasibility and Pursuant to Article 8 of Law 9,074/1995, as setting forth the basic conditional amended by Law 13,360/2016, hydroelectric requirements to be met during the power plants and thermoelectric power plants subsequent stages of its implementation; with an installed capacity lower than 5 MW are subject to a simplified procedure in which the Installation License (Licença de Instalação developer is only required to submit a formal or “LI”) – it authorizes the setting up of written communication notifying ANEEL that the enterprise according to the the power plant will be implemented. For such specifications in the approved plans, cases the authorization or concession regime programs and designs, including measures are not applicable. of environmental control and conditions; and Also, Resolution 482/2012 establishes a simplified procedure for implementing Operation License (Licença de Operação distributed generation units. Similar to the or “LO”) – it authorizes the operation of procedure imposed by Article 8 of Law the activity or enterprise after effective 9,074/1995 for implementing a distributed compliance with the foregoing licenses and generation unit, the interested parties are only with the environmental control and required to file before ANEEL a conditions determined for the operation. communication informing (a) the location of the generating unit; (b) the name of the State environmental authorities are competent distribution concessionaire to which the to license enterprises for which the generating unit will be connected; (c) the total environmental impacts are restricted to their installed capacity of the generating unit; (d) the territories as well as to impose specific date on which is expected to initiate conditions, restrictions and control measures. the operation of the generating unit; and The Brazilian Institute of Environment and (e) information of the consumer for settlement Renewable Natural Resources (Instituto Brasileiro purposes. According to the rules applicable for 30 GLOBAL RENEWABLE ENERGY GUIDE 2017 BRAZIL MACHADO, MEYER, SENDACZ E OPICE ADVOGADOS distributed generation, the consumer must (iii) elevation of the power limit for hydraulic comply with connection and operation distributed generation from 3 MW to 5 MW, requirements imposed by the local distribution preventing the participation of existing plants in concessionaire, in order not to cause damages the Electric Energy Compensation System. to the local distribution system. Also, MME has recently opened Public 7. Has there been any reform related to Consultation No. 32/2017 in which the report renewable energy regulations since “Principles for the Reorganization of the 2016? Do you expect any Brazilian Energy Sector” is being discussed. reform/change in the near future? Among the orienting principles that the Brazilian Government established there are: The main recent change made on renewable sustainability, power efficiency and universal energy regulation concerns the special discount power access. for solar plants on connection tariffs. In order to promote the increase of solar generation in Although the Public Consultation is still in the Brazil, which was unimpressive, the Brazilian contributions phase, and up to this moment no Government in 2012 issued a regulation consolidated draft has been published yet, we applying an 80% discount for solar plants on expect that the subjects of distributed connection tariffs for the first 10 years of generation, growth of the free market commercial operation of the plants that are consumers, and hydrological risk will be greatly initiated by December 2017 and a 50% discount discussed. after such period or for new solar power plants. Recently, through Resolution 745 issued on INCENTIVES 22 November 2016, the discounts on connection tariffs applied for solar plants 8. Are tax advantages available to initiating commercial operation after December renewable energy generation 2017 were set equal to the discount applied for companies? other renewable sources. In this sense, as set through the current regulation, the projects of Generation companies can adhere to the Special all renewable sources shall have power injected Regime of Incentives for the Development of in the transmission and distribution system Infrastructure (Regime Especial de Incentivos para o equal to or less than 30 MW in order to obtain Desenvolvimento da Infra-Estrutura – “REIDI”) the 50% discount on connection tariffs. established by Law No. 11,488, dated 15 June 2007 and regulated by the Decree No. Furthermore, Public Hearing No. 37/2017 is 6,144/2007 that suspends the requirement of currently being held by ANEEL in order to specific taxes PIS/PASEP and COFINS in the update Resolution 482/2012, in what regards acquisition and import of services and the possible alteration of the regulatory power equipment linked to infrastructure projects limit applicable to distributed generation. There approved and carried out in a period of 5 years are three alternatives under discussion: (i) as from the approval date. maintenance of the current limits that qualify a project as distributed generation; (ii) elevation The license and co-license of the beneficiaries of the power limit for hydraulic distributed of the REIDI can only be required by private generation from 3 MW to 5 MW, allowing all legal entities that hold the implementation of an generation plants to participate in the infrastructure project of the energy sector. Electric Energy Compensation System; and GLOBAL RENEWABLE ENERGY GUIDE 2017 31 MACHADO, MEYER, SENDACZ E OPICE ADVOGADOS BRAZIL In the case of companies of the energy sector, Contratação Livre, or ACL), on the other hand, according to Ruling No. 274, dated negotiation among the generating Agents, 19 August 2013 and Ruling No. 310, dated Commercialization Agents, Free Consumers 12 September 2013, the legal entity holding the (i.e. consumers with a minimum energy demand concession, permission or authorization to of 3MW), Importers and Exporters of generate, transmit or distribute electric energy electricity takes place through privately needs to submit a request to ANEEL to negotiated agreements. Distributing entities participate in the program. may operate only in the regulated market. Generating companies (whether public Subsequently, the legal entity needs to file with generation concessionaires, Independent the Secretary of the Brazilian Federal Revenue Producers of electric power or Self-Producers) to receive the benefits of this program. can trade power both in the free market and in the regulated market. In addition, in 2011, the Brazilian Government, seeking to attract more investments for the Companies operating within the regulated country, issued Law No. 12,431/11, dated as of market must submit winning bids in the 24 June 2011, which enabled the creation of auctions promoted by the regulatory bodies and infrastructure bonds (debentures). The referred will consequently sell the predetermined law permits specific purpose companies to issue amount set forth in the contract. In this case infrastructure bonds for the financing of they have a purchase guarantee of the energy projects considered by the Government as a generated. priority, including renewable energy undertakings. These infrastructure bonds are a A general overview of the two different trading form of incentive for investments because they markets is portrayed below: present certain privileges, especially regarding tax aspects: infrastructure bonds issued by renewable energy generating companies – Sellers whose project was duly approved by the Public Service Generation, Independent Procedures, Commercializing Agents and Self- Government as a priority – shall be subject to a Producers 15% income tax aliquot (such percentage is reduced to 0% for individuals). Regulated Contracting Free Contracting 9. Is there a purchase guarantee given by Environment Environment (ACR) (ACL) the relevant legislation for the Distributors Free Consumers, electricity generated by renewable (Captive Consumers) Commercializing Agents energy companies? Agreements resulting Under the new model for the electric sector, the from auctions Agreements negotiated freely trading (or commercialization) of electric energy may take place in two different markets: (i) within the regulated market (Ambiente de (Source: CCEE) Contratação Regulada, or ACR), electric power purchase agreements (so-called CCEARs) are In the 2009 wind energy reserve auction, executed by and between selling agents and projects submitting successful bids had a purchasing agents (distributors) through purchase guarantee from CCEE. In the case of specific auctions hosted by the government; and the PROINFA, it was established that (ii) within the free market (Ambiente de Eletrobrás would purchase 100% of the generated energy of the power plants registered 32 GLOBAL RENEWABLE ENERGY GUIDE 2017 BRAZIL MACHADO, MEYER, SENDACZ E OPICE ADVOGADOS in the program, thus all the generating In practice, however, there is no minimum companies that participate of this program have price. Auctions are conducted as Dutch-type or a purchase guarantee. In other public auctions, decreasing price auctions whereby the long-term power purchase agreements (PPAs) maximum price is previously established by the are entered into with the pool of MME and interested parties are to submit bids concessionaires of distribution services lower than this price in order to prevail. participating in each auction, with the purpose to amortize the investment performed by In effect, under the new model of the Brazilian generating companies. power sector, the principle of the lowest price is to serve as guideline for auctions coordinated Also, currently Brazilian law provides for by the Federal government (item VII of art. 20 several incentives for the consumption of of Decree No. 5,163/2004). In other words, energy produced from renewable sources by (1) winners of the auction shall be those bidders allowing consumers with energy demand of 0.5 which offer electric power for the least price per MW or higher (the so-called “special Mega-Watt Hour to supply the demand consumers”) to acquire energy produced by envisaged by the Distributors. A power renewable sources with lower prices than the purchase agreement (in the form of a CCEAR) energy acquired from distribution companies; is then executed between the winners and the (2) organizing energy auctions specifically for Distributors. the acquisition of energy from renewable sources; (3) promoting the expansion of the In the case of the PROINFA regime, the distributed generation; (4) reducing connection minimum price was set in relation to the average cost of renewable sources power plants; and (5) national tariff of supply for the final consumers providing special credit lines and financial in the last 12 months with an increase in the support from the Brazilian National amount of 50% for biomass projects, 70% for Development Bank (BNDES), in order to small hydropower plant (PCHs) and 90% for secure the bankability of new renewable wind power projects. This resulted in final projects, among others. bidding prices significantly higher than prices for projects from other energy sources. 10. Is there a minimum price guarantee given by the relevant legislation for the In subsequent energy auctions, the maximum electricity generated by renewable price defined by the MME was set at energy companies? R$189/MWh (in the 2009 wind energy auction) and at R$167.00/MWh for wind and biomass A question that generates controversy is that and R$155.00/MWh for small hydroelectric related to the maintenance and growth of power plants (in the 2010 auctions). During the renewable sources of energy versus the cost that auction, the price dropped to an average of such sources often entail. In this sense, some R$148.39/MWh (in the 2009 wind energy claim that the cost of renewable sources of auction) and to R$130.86/MWh (wind), energy is higher than that of energy from other R$144.20/MWh (biomass) and sources. At the same time, a minimum price R$141.93/MWh (small hydroelectric power must be guaranteed in order to attract investors. plants) in the 2010 auctions, and R$300.00/MWh (photovoltaic) in the 2015 auction. GLOBAL RENEWABLE ENERGY GUIDE 2017 33 MACHADO, MEYER, SENDACZ E OPICE ADVOGADOS BRAZIL 11. Has the Paris Agreement under the the Brazilian House of Representatives United Nations Framework approved certain arrangements to expedite the Convention on Climate Change been ratification and in September 2016 the ratified? If yes, what are the Presidential ratification of the Paris Agreement undertakings of your Country in the was concluded. Under Brazilian law, the NDC (national determined ratification of international treaties shall depend contributions) submitted for the first on the approval by the House of five-year period? Representatives and the Senate. The treaty became effective and binding after it was Brazil is one of the 195 countries that signed the ratified by the President and published in Paris Agreement under the UN Framework Brazilian official gazette, in September 2016. Convention on Climate Change. In June 2016, In what relates to the NDC, Brazil made 12. Is there a carbon market or carbon commitments for a period longer than 5 years. credits mechanism in your jurisdiction? In this sense, Brazil committed to reducing by 2025 greenhouse gas emissions by 37% below Regarding a carbon market, our energy 2005 levels. The subsequent indicative regulatory authorities have also enabled the contribution is to reduce by 2030 greenhouse possibility of using credits arising from the gas emissions by 43% below 2005 levels. Clean Development Mechanism (“CDM”) in connection with renewable energy projects. Moreover, consistent with the long-term goal of holding the increase in global average For instance, Decree No. 5,882, dated as of temperature below 2ºC above pre-industrial 31 August 2006, sets forth that power purchase levels, Brazil shall endeavor for a transition agreements executed under PROINFA may towards energy systems based on renewable have an express clause giving Eletrobrás the sources and the decarbonization of the global right to commercialize credits from CDM as economy by the end of the century. For this, well as to produce all documents required for Brazil has also committed to further measures filing with CDM. to achieve 45% of renewables in the energy matrix by 2030, which include: (i) expanding the In addition to this legal provision, the latest use of renewable energy sources other than renewable energy auctions permitted energy hydropower in the total energy matrix to sellers to plead for themselves the credits between 28% and 33% by 2030; (ii) expanding related to CDM. the domestic use of non-fossil fuel energy sources; and (iii) achieving 10% efficiency gains in the electricity sector by 2030. 34 GLOBAL RENEWABLE ENERGY GUIDE 2017 BRAZIL MACHADO, MEYER, SENDACZ E OPICE ADVOGADOS 13. Do renewable energy based power Decree No. 4,541 of 2002) the generating plants have priority for connection to companies that participate in the PROINFA the grid? have priority in the dispatch with the ONS to the connection on the grip in comparison with The Brazilian electricity network consists of one other types of energy. main interconnected grid, namely SIN, comprised of several transmission lines, In this sense, ANEEL enacted the Normative connecting the regional systems: South, Resolution No. 56/2004 that sets forth the Southeast, Centre-west, Northeast and part of procedure for the access of the generating the Northern area. The SIN is responsible for companies that participate in the PROINFA to supplying energy to approximately 98% of the system of the transportation of energy. This Brazil’s market of electric energy. The basic grid Resolution established that the ONS, the is composed by more than 90,000 km of concession or permission company of transmission lines. The Brazilian regions that do distribution, needs to send a definitive access not form part of the SIN compose the isolated report (parecer de acesso) defining the way that the system. In 2009, the so-called “isolated generation company that participates in the systems” supplied energy to approximately 3% PROINFA will be connected to the grid. The of the Brazilian population. access report needs to observe the criteria of minimum global value that is a valuation of the technically equivalent ways to the integration of the generating companies to the grid spending the minimum global value of investments to do this connection. Article 4 of the same Resolution contemplates the possibility of shared connection to the grid. This alternative is usually considered by the generating companies because normally the costs to implement, operate and maintain the connection installations of shared use are divided, in a proportional way, to the power installed by the companies in the power plant units. (Source: EPE, Plano Decenal de Energia 2023) Regarding the possibility of shared connection The map above portrays the SIN including to the grid, ANEEL Normative Resolution No. existing connection (full lines), expansions to 320/2008 established special conditions for the grid that have already been auctioned and wind, biomass and PCHs to access the SIN certain planned expansions to the grid (dotted through the shared use of the transmission line). installations by the generating companies of In what regards the national grid or SIN, a renewable energy, prorate the high costs that an priority condition was given to the companies isolated connection can imply, and that participate in the PROINFA. According to consequently help the companies that generate the Decree No. 5,025 of 2004 (before the these types of energy to reduce the total price of the energy sold. GLOBAL RENEWABLE ENERGY GUIDE 2017 35 MACHADO, MEYER, SENDACZ E OPICE ADVOGADOS BRAZIL 14. Is there an incentive for domestic South/Southeast interconnected power system (local) manufacturing of equipment or pay a charge for the transportation of electricity materials used in the construction of from Itapú and some distribution companies renewable energy based power plants? that access the shared transmission system pay a connection charge. The PROINFA system, enacted by Law No. 10,438/2002, included a local content TUSD is paid by generators and free consumers requirement. Thus, as per Article 3, § 4o only for the use of the concessionaire’s distribution producers complying with the 60% local system to which they are connected and is content requirement for equipment and services adjusted annually taking into consideration for the first phase of the program and 90% for two factors: (i) inflation in the year; and the second phase, were qualified for the auction. (ii) investments in network expansion, maintenance and operation made in the Subsequent auctions did not impose a previous year. The monthly charge to be paid by minimum local content requirement. However, the entities connected to the distribution local content requirements for equipment and system, by connection point, is calculated by services are a condition to qualify for certain multiplying the use amount, by the tariff financing facilities of the BNDES, the Brazilian established by ANEEL, in R$/kW. Distribution National Development Bank, including the concessionaires receive the TUSD from Free FINEM1 and FINAME2. Consumers located in their concession area and possible distribution companies connected to 15. What are the other incentives available their distribution systems. to renewable energy generation companies? TUST is paid by distribution companies, generation companies and Free Consumers for Despite the lack of a general long-term policy the use of the base network and is adjusted regarding renewable energy, there are a number annually according to (i) inflation; and of incentives available to renewable energy (ii) annual revenues permitted to transmission generation companies. concessionaires set by ANEEL. Under the principles set by ANEEL, the owners of the a) Discount in connection tariffs: different parts of the main transmission network transferred the coordination of their ANEEL supervises and regulates the access to facilities to the ONS in exchange for the the distribution and transmission systems, sets regulated payments of transmission systems the tariffs, and charges for the use of and access users. Network users entered into contracts to such systems. Tariffs are (i) TUSD, a tariff with the ONS that grant them the right to use charged for the use of the exclusive distribution the transmission network in exchange for the system of the distribution company; and (ii) payment of the published tariffs. Other TUST, a tariff charged for the use of the base portions of the network owned by transmission network and other transmission facilities. companies but that are not considered an Additionally, distribution companies of the integral part of the transmission network are 1 FINEM is a financing line to support infrastructure institutions, for the production and commercialization projects. To find more information about these of new domestically manufactured machinery and/or financial facilities please see: equipment accredited with BNDES. To find more http://inter.bndes.gov.br/english/finem.asp. information about these financing facilities, please 2 FINAME is Special Agency for Industrial Financing refer to: http://inter.bndes.gov.br/english/ finame.asp. of BNDES. It finances through accredited financial 36 GLOBAL RENEWABLE ENERGY GUIDE 2017 BRAZIL MACHADO, MEYER, SENDACZ E OPICE ADVOGADOS made available directly to interested users that lower than 50 MW, in this case, the discount pay a specific fee. shall apply only for the 30 MW. Section 26, § 1 of Law No. 9,427/1996 (as TUSD and TUST reduction was also granted to amended by Law No. 13,360/2016) establishes solar generators under special conditions: that discounts on distribution and transmission pursuant to ANEEL Resolution No. 745, dated tariffs shall be available to small hydroelectric as of 22 November 2016, the tariff charged for plants, solar, wind, biomass and qualified co- the transportation of the energy from a solar generation projects with power injected in the source to the interconnected system was transmission and distribution system equal to or reduced by 80% for a 10-year period for less than 30 MW in an amount not inferior to projects entering into commercial operation by 50% of the TUST and TUSD values. On December 2017. After such 10-year period, the December 2015, Law No. 9,427/1996 was discount shall reduce to 50% and the new solar amended to allow the above discount to be projects entering into commercial operation extended to solar, wind, biomass and qualified after December 2017 shall be granted with the co-generation projects with power input higher 50% discount according to the power than 30 MW and equal to or less than 300MW, conditions mentioned above. which has been awarded in ANEEL Auctions as of 2016 or its implantation has been b) According to Section 26 § 5o of Law No. authorized by ANEEL as of 2016. 9,427/1996, as amended by Law No. 13,360/2016, the generators of renewable ANEEL Resolution No. 77/2004, as amended energy with power equal or inferior to 50,000 by Resolution No. 745/2016, granted a 50% kW have the possibility of commercializing reduction in the tariffs. The same Resolution energy with potentially free consumers with established in some specific cases the reduction power consumption equal or superior to of 100% of the tariff, as follows: 500Kw. In this case, the generators can supply (i) PCHs with a power higher than 1 MW and the energy to the potentially free consumer in lower than 30 MW that initiated commercial conjunction with other renewable energy operation between 1 October 1999 and generators to the limit of 49% of the energy 31 December 2003; (ii) plants that operate with generated by them. Before this Law only the wind, biomass or by a qualified co-generation generators with more than 3,000 kW and with a process with power inferior or equal to 30MW tension equal or superior to 69 kV had the and that initiated the commercial operation possibility to commercialize the remaining between 23 April 2003 and 31 December 2003; energy generated with free consumers. The (iii) use as energetic input, at least 50% of conditions for the commercialization of the biomass composed by solid waste and/or generators of renewable energy are defined in biogas of landfill or animal or vegetal waste, as the ANEEL Resolution No. 247/2006, further well as sludge from sewage treatment plants; (iv) amended by the Resolution No. 323/2008 and the power plants that have their reduced 376/2009. percentage of generation established by an authoritative act and initiated the commercial c) Another type of incentive that is applicable operation until 31 December 2003; and for renewable energy is the Electricity (v) plants that operate with biomass and Development Account (“CDE”). This initiated commercial operation between mechanism was created in April 2002 by the 23 April 2003 and 31 December 2003, that have Brazilian government to promote increased their power to higher than 30 MW but (i) competition of the alternative sources GLOBAL RENEWABLE ENERGY GUIDE 2017 37 MACHADO, MEYER, SENDACZ E OPICE ADVOGADOS BRAZIL market, such as from wind, biomass, PCHs, energy can request the subsidy of the fund natural gas, and Brazilian minerals, in areas (subrogate in the right of the other companies) served by interconnected power systems; and if they prove that the energy generated will be (ii) the universal supply of electricity services. used as a substitute of the thermoelectric CDE is effective for 25 years and is managed by generation in the isolated system. Eletrobrás. CCC funds were managed by Eletrobrás until CDE funds come from annual payments made the enactment of Provisional Measure for the use of public resources, fines imposed 735/2016, converted into Law No. 13,360 of on concessionaires, permission holders and November 17, 2016. Since then, the CCC has companies authorized by ANEEL, and the fees been managed by CCEE. It was Eletrobrás’s paid by all entities that purchase and sell power role to set the value of the early quotas to be to end consumers. paid by electric- power distributors to provide funds for the fuel-consumption account. Before CDE can also be used to subsidize tariffs to the approval of the Provisional Measure low-income household consumers when funds 579/2012, converted into Law No. that the Brazilian government uses for such 12,783/2013, these charges were in turn purpose are insufficient. Low income transferred to consumers by means of a consumers are those served by single-phase monthly additional contribution included in circuits with a monthly consumption from 80 to their electricity bills. However, the above 220 kWh/month, registered in the single mentioned Provisional Measure established that registry of the Brazilian government or in the the payment of fuel-consumption account is no family support program of the Brazilian longer required. Despite this provision, CCC’s government by 27 February 2006. resources shall still be used to subsidize the price of diesel fuel for thermoelectric- d) The Brazilian Federal Constitution sets generation facilities in isolated areas of the forth - in its Article 21 (XIX) - that PCHs do country not serviced by SIN. not have to pay the financial compensation for the use of the water sources. Law No. 9,427/96 (Section 26 § 4o) states that the water plants with STATISTICS a power superior to 5,000 kW and equal to or lower than 30,000 kW that maintain the 16. What is the percentage of electricity characteristics of a PCH can use this incentive. generated based on each type of renewable energy source in the total e) The Fuel-Consumption Account (“CCC”) generation of electricity on a country- has been in force since 1993 and collects funds wide scale? from the electric-power concessionaires of the interconnected grid to subsidize the price of According to data published by the ANEEL, in diesel fuel for thermoelectric-generation July 2017 there were 4,682 power generating facilities in isolated areas of the country not units operating in Brazil, which totals nearly serviced by the national grid (mainly in the 153GW of installed capacity. Such number North region). It is important to note that, as represents an increase of 11.6% of installed established by Law No. 12,111/2009 in capacity if compared with the number of Sections 3 and 4, CCC can also be used for existing power plants in May 2015. companies that do not generate thermoelectric energy but are also part of the isolated system. As can be seen in the chart below, although Thus, the companies that generate renewable showing a substantial reduction during the past 38 GLOBAL RENEWABLE ENERGY GUIDE 2017 BRAZIL MACHADO, MEYER, SENDACZ E OPICE ADVOGADOS years, hydroelectric power plants stand as the However, as referred below, generation of main source of electricity in Brazil, accounting electricity from renewable sources such as wind, for 61.05% of the domestic supply. Although biomass and solar are increasing significantly as with a relevant increase from May 2015 (mainly a result of the auctions coordinated by ANEEL boosted by growth of energy consumption, rain for the purchase of power from renewable shortfalls and higher incentives from the sources. As such, the installed power from Brazilian Federal Government), the generation renewable sources is to increase significantly in of electricity from other renewable sources of the coming years. energy continues to be incipient if compared with other sources of electric energy. Source May 2015 July 2017 Increase from Installed Capacity No. of Power Installed Capacity % of Total May 2015 to July (MW) Plants (MW) Installed Capacity 2017 1. Hydro 89,983 1,242 98,736 61.383% 9.7% 2. Thermo 40,753 2,951 43,035 26.92% 5.5% 2.1 Natural Gas 12,898 153 13,017 8.09% 0.9% 2.2 Biomass 12,492 525 14,102 8.767% 12.88% 2.3 Oil 9,756 2,218 10,046 6.245% 2.9% 2.4 Coal 3,614 22 3,731 2.32% 3.23% 2.5 Nuclear 1,990 2 1,990 1.4% 0.0% 2.6 Other 0 31 153 0.1% - 3. Wind 6,025 361 10,765 6.69% 78.6% 4. Solar 15 40 144 0.9% 860% Total 136,776 4,594 152,711 95.895% * 11.6% (Source: Ministry of Mines and Energy - Boletim Mensal de Monitoramento do Sistema Elétrico Brasileiro – Maio/2016 and ANEEL – Banco de Informações de Geração – July/2017) * The remaining 4.105% of Brazil’s total installed capacity is provided by imported energy. OTHER 17. Is there anything else you wish to add? No. GLOBAL RENEWABLE ENERGY GUIDE 2017 39 MACHADO, MEYER, SENDACZ E OPICE ADVOGADOS BRAZIL MACHADO, MEYER, SENDACZ E OPICE ADVOGADOS Antonio Meyer Ana Karina E. de Souza Naming Partner Partner of Energy Department Avenida Brigadeiro Faria Lima, Avenida Brigadeiro Faria Lima, 3.144 – 11 andar 3.144 – 11 andar CEP 01451 – 000 CEP 01451 – 000 Jardim Paulistano, São Paulo Brasil Jardim Paulistano, São Paulo Brasil T +55 (11) 3150-7702 T +55 (11) 3150-7702 F +55 (11) 3150-7071 F +55 (11) 3150-7071 E [email protected] E [email protected] Laura Garcia de Freitas Souza Paulo de Tarso C. Machado Senior Associate of Energy Department Full Associate of Energy Department Avenida Brigadeiro Faria Lima, Avenida Brigadeiro Faria Lima, 3.144 – 11 andar 3.144 – 11 andar CEP 01451 – 000 CEP 01451 – 000 Jardim Paulistano, São Paulo Brasil Jardim Paulistano, São Paulo Brasil T +55 (11) 3150-7070 T +55 (11) 3150-7608 F +55 (11) 3150-7071 F +55 (11) 3150-7071 E [email protected] E [email protected] 40 GLOBAL RENEWABLE ENERGY GUIDE 2017 CHILE Cristóbal Morandé Francisco Cerda LARRAIN Y ASOCIADOS energy prices that allowed these projects to be GENERAL profitable without requiring public subsidies. 1. What is the nature and importance of Installed Capacity renewable energy in your country? Energy Source 2011 20163 Renewable energies have taken a relevant role Gas 33% 23% in the Chilean energy industry and in the long- Carbon 16% 22% term economic development of the country. Oil 14% 14% Chile used to have one of the more expensive energy costs in Latin America (in the year 2011, Conventional 34% 27% 182.3 US$/MWh12), caused mainly by its hydroelectric4 dependence on imported fuels (coal, petroleum, Small hydro power 1% 2% and natural gas) for purposes of producing Biomass 1% 2% energy for supplying the mining regions of the northern part of the country. Also, in the center Wind 1% 5% part of the country, where most people live and Solar 0% 5% which traditionally has been supplied with Geothermal 0% 0% hydro energy, several dry years reduced the percentage of energy generated by this source, (Source: Ministry of Energy and Annual Energy Report 2016 of the National Energy Commission) being replaced by the more expensive and polluting fossil fuels. The entrance of non-conventional renewable energies to the energy matrix helped to solve the Since 2013, however, renewable energies have existing crisis in the energy sector. A good experienced a significant increase in Chile, example is that of the last public tender process mainly supported by the great climate for the supply of energy to distribution conditions for solar photovoltaic projects in the companies, where the average awarded price north of Chile, where there is one of the highest was 47.6 US$/MWh with a relevant share of solar radiation levels in the world, and high 1 Average marginal cost measured in the Substation 3 Total installed capacity = 22,043 MW. Quillota 220, of the Central Interconnected System. 4 Hydropower plants of more than 20 MW of 2 Source: Annual Energy Report 2016 of the National installed capacity. Energy Commission. GLOBAL RENEWABLE ENERGY GUIDE 2017 41 LARRAIN Y ASOCIADOS CHILE renewable energies. It is worth noting that the energy definition covers the following energy best price per MWh was US$ 29.1, offered by a sources: (a) energy generated from biomass; non-conventional renewable energy company. (b) hydro energy up to 20 MW; (c) geothermal energy; (d) solar energy; (e) wind energy; (f) the Currently, however, the construction of new energy of the seas; and (g) other renewable non-conventional renewable projects has energy sources determined by the National slowed down due to technical and economic Energy Commission that contribute to reasons. diversifying the energy matrix with low environmental impact. First, in the middle-northern part of the country, there are transmission restrictions that make solar photovoltaic projects experience REGULATION difficulties for dispatching energy to the areas of higher demand. As a consequence, these plants 3. How is the renewable energy sector are forced to sell energy at a very low price and regulated? What are the principal laws even in some situations at $0. This transmission and regulations? restriction is expected to be solved by 2018- 2019, with the commissioning of a 500-kV 3.1. Law No. 4 of 2007 transmission line of 750 kilometers, between middle-north to the more populated area of This law corresponds to the Electric Services central Chile. General Law, which regulates the generation, transmission, and distribution of electric energy; Also, due to a reduction of the economic the concessions and tariffs regime; and the role growth that Chile has been experienced since of the state in relation to these subjects. 2014 to date, and a decrease in the international price of minerals during the same period, the Law No. 4 of 2007 contains several regulations demand for energy has been reduced that are applicable to both conventional accordingly. The main effect is that marginal projects and non-conventional renewable costs of energy have experienced a relevant energy projects, but also some specific rules that decrease, as mining companies and other have been introduced through subsequent laws, industries are demanding less energy. As a and which are applicable only to non- consequence, the current scenario for new non- conventional renewable energy projects. conventional renewable projects is not as encouraging as in the past years. 3.2. Decree No. 244 of 2006 2. What are the definition and coverage of This decree introduced the first regulations in renewable energy under the relevant the Chilean legislation in relation to non- legislation? conventional renewable energies and also rules the process for connecting projects of less than Under Chilean law, renewable energy does not 9,000 kilowatts of installed capacity into the have a specific regulation, but non-conventional electric grid. renewable energy does. This distinction impacts mainly in respect to hydro energy projects, as Pursuant to Decree No. 244, non-conventional only hydropower plants under 20 MW are renewable energy projects that inject less than considered as a non-renewable energy source. 9,000 kilowatts have the following advantages: (a) exemption for paying injection tolls for the Pursuant to Article 225 letter aa) of Law No. 4 usage of the national transmission facilities, and of 2007, the non-conventional renewable proportional reduction in such tolls with a limit 42 GLOBAL RENEWABLE ENERGY GUIDE 2017 CHILE LARRAIN Y ASOCIADOS of 20,000 kilowatts of injections; (b) may 4. What are the principal regulatory operate under the self-dispatch regime5; and (c) bodies in the renewable energy sector? the operator of these projects may elect to sell the energy at instant marginal cost or at a 4.1. The National Electric Coordinator stabilized price6. The National Electric Coordinator is an 3.3. Law 20,257 of 2008 and Law 20,698 of 2013, independent and technical body that is which amends Law No. 4 of 2007 responsible for the coordination of the operation of the facilities connected to the Law 20,257 sets forth that generation electric system, in order to (a) preserve the companies shall certify that at least 20%7 of the security of the system; (b) guarantee the most energy withdrawn from the system to supply economic operation of it; and (c) guarantee the final consumers in a year has been injected into open access to the transmission systems. the system by a non-conventional renewable energy source (whether of its own or hired from 4.2. The National Energy Commission a third party). Companies that do not certify the compliance of this obligation are obliged to pay Pursuant to Article 6 of the Law Decree No. approximately 28 USD per each 2,224 of 1978, as amended, the National Energy megawatt/hour of deficit. Commission will be a technical organization, responsible for analyzing prices, tariffs and Also, this law creates a market for the non- technical rules with which energy production, conventional renewable energy certifications, as generation, transport and distribution generation companies that exceed the 20% may companies must comply, in order to ensure transfer the surplus to other generation sufficient, safe, quality service, compatible with companies in deficit. the most economic operation. Law 20,698 introduced a public tender Its functions are as follows: (a) analyze from a mechanism to be carried out by the Ministry of technical standpoint the structure and level of Energy when the missing portion of non- the prices and tariffs on energy goods and conventional renewable energy to reach 20% is services, in the cases and manner established by not covered with injections of non- law; (b) set the technical and quality rules that conventional renewable energy of existing or are required for the functioning and operation under construction projects. Up to this date, the of energy installations, in the cases indicated by Ministry of Energy has not performed any law; (c) supervise and project the current and tender process, as the injections of energy from expected functioning of the energy sector, and non-conventional renewable projects have been propose to the Ministry of Energy the legal and superior to the required percentage. regulatory rules that may be required; and (d) advise the Government, through the Ministry of Energy, on all matters related to the energy sector in order to improve its development. 5 For more information please refer to question 7 The application of Law 20,257 is progressive in No. 9. time; the 20% requirement is applicable as 6 For more information please refer to question from the year 2025. This percentage initially was No. 10. 10%, but Law 20,698 of 2013 raised it to the current 20%. GLOBAL RENEWABLE ENERGY GUIDE 2017 43 LARRAIN Y ASOCIADOS CHILE 4.3. The Ministry of Energy aspects of the project under their competence. The process concludes with the issuance of an The Ministry of Energy was created in 2010, Environmental Assessment Resolution and it is the body responsible for elaborating approving or rejecting the relevant project. and coordinating the plans, policies, and rules for the proper operation and development of Transmission lines over 23 kV and electric the energy sector. substations must be environmentally assessed under this procedure as well. 4.4. The Superintendence of Electricity and Fuels 5.2. Electric Concession The Superintendence of Electricity and Fuels, created by Law No. 18,410 of 1985, has the Although it is not obligatory, for the goal, in general terms, to oversee the construction of transmission lines, electric compliance with the rules in relation to substations, and hydropower plants, the generation, production, storage, transportation developer may obtain a definitive electric and distribution of liquid fuels, gas and concession from the Ministry of Energy, which electricity, in order to verify the quality of the allows the owner of the project to impose an services for the users and that such operations electric easement over the land in exchange for do not imply a risk to the population. the payment of an indemnification to the owner, without needing the consent of the Also, the Superintendence of Electricity and latter. Fuels is responsible for (a) imposing sanctions due to non-compliance of the above-mentioned Also, pursuant Article 34 bis of Law No. 4 of rules; (b) the administrative interpretation of the 2007, the holder of an electric concession has rules applicable to the energy sector; and (c) an additional protection vis-à-vis the owners of reviewing and management of the electric the mining concessions overlapped to the concessions applications. project. 5. What are the main permits/licenses In Chile, the owner of the land may be different required for renewable energy projects? from the owner of mining concessions, and sometimes this creates conflicts between them. Renewable energy projects do not require In particular, the owner of the mining specific permits or licenses other than those that concession may file an action called a “New are required for any other kind of energy Works Claim”, which seeks to suspend or project. These main permits and licenses are the reverse the construction of new projects that following: may affect the rights of the mining concessionaire. Upon the filing of the New 5.1. Environmental authorization Works Claim, the judge has to order the provisional suspension of the works until the Pursuant to Article 10 c) of Law 19,300 of 1994, action is solved. This may entail a serious risk to an electric power plant over 3 MW, regardless a project, and financial entities are reluctant to of its energy source, must be environmentally finance projects that have not secured the assessed under the Environmental Impact mining properties that are overlapped to the Assessment System. Such assessment is project. However, if the developer of the performed through an administrative procedure project has obtained an electric concession, in in which a wide range of public agencies with case the mining concessionaire files a New environmental faculties participate by Works Claim, the judge will revoke the evaluating and making observations on the 44 GLOBAL RENEWABLE ENERGY GUIDE 2017 CHILE LARRAIN Y ASOCIADOS suspension order if the developer provides a aspects, which, however, did not introduce new sufficient security. regulations or amend the existing ones in relation to renewable energy. 5.3. Sectoral permits It is expected that in the near future, new Several permits are usually required for the regulations in relation to ancillary services will construction and operation of an energy project, be introduced, as conventional power each of which needs to be filed before and generators claim that currently the system is not granted by the relevant sectoral authority with properly paying them for services which are competence in the matter. For instance, some provided due to the intermittence of non- common sectoral permits that are required for conventional renewable energies. energy projects are8: authorization for building infrastructure facilities in rural areas; building INCENTIVES permit; authorization for forest-clearing operations; permit for crossing public roads with transmission lines; authorization for capturing 8. Are tax advantages available to wildlife species; authorization to execute an renewable energy generation access to a national public road; sanitary report; companies? and authorization to store hazardous and non- hazardous waste, among others. There is a tax advantage which allows construction companies to have a tax credit for 6. Is there a category of “license-exempt the installation of thermal solar systems in new generation”? If so, does it cover some buildings. types of renewable energy based The tax credit will be determined as a variable generation? percentage of the cost of a thermal solar system As explained above, Article 10 c) of Law 19,300 plus the cost of its installation. of 1994 sets forth that power plants over 3 MW The applicable percentage will depend on the must be assessed with respect to their construction cost of the building: 100% for environmental impacts through the buildings which cost up to USD 80,000; 40% Environmental Impact Assessment System. On for buildings which costs between USD 80,000 the contrary, power plants under 3 MW, and USD 120,000; 20% for buildings which cost regardless of their energy source, do not require 9 between USD 120,000 and USD 180,000; and this assessment . 0% for buildings which cost more than USD 180,000. 7. Has there been any reform related to renewable energy regulations since This tax advantage is available until 2020. 2016? Do you expect any reform/change in the near future? During 2016, a major amendment was made to Law No. 4 of 2007 regarding transmission 8 The complete list of sectoral permits required for a 9 If a project has less than 3 MW of installed capacity particular project will depend on the specific it may be required to enter into the Environmental characteristics of it, and the activities necessary for Impact Assessment System if it generates other its construction and operation. environmental impacts (for instance, if it is placed in a protected wild area). GLOBAL RENEWABLE ENERGY GUIDE 2017 45 LARRAIN Y ASOCIADOS CHILE 9. Is there a purchase guarantee given by months, considering (a) the basic price of the the relevant legislation for electricity energy, and (b) the basic price of the peak generated by renewable energy power10. companies? Currently, under Chilean market conditions, the Pursuant to Decree No. 244 of 2006, non- stabilized price is one of the few ways (along conventional renewable energy projects of less with a power purchase agreement with than 9 MW may operate under the self-dispatch distribution companies or with industrial regime, which means that the operator of those clients) that an energy company may obtain projects will determine the power and energy to steady revenue in order to get the renewable inject into the grid, regardless of the economic energy project financed. dispatch order set by the National Electric Coordinator. This right guarantees that the 11. Has the Paris Agreement under the energy produced by these projects will be United Nations Framework purchased in the spot market. Convention on Climate Change been ratified? If yes, what are the Also, there are periodic tender processes carried undertakings of your Country in the out by the National Energy Commission, which NDC (national determined is intended to award an energy supply for contributions) submitted for the first distribution companies through power five-year period? purchase agreements. Although both renewable energy and conventional power producers may Yes, Chile ratified the Paris Agreement on participate in them, the past two tender February 10, 2017. No commitments were processes were awarded mainly to renewable undertaken for the first five-year period, but for energy power companies. the year 2030 the following commitments were made: (a) reducing the CO2 emissions in a 30% 10. Is there a minimum price guarantee per GDP unit to the year 2030, in comparison given by the relevant legislation for to the levels reached in the year 2007; (b) to electricity generated by renewable increase the reduction of CO2 emissions by 35% energy companies? to 45% in case of receiving international support; and (c) to recover 100,000 hectares of Pursuant to Decree No. 244 of 2006, non- forest by the year 2030. conventional renewable energy projects of less than 9 MW may elect to sell the injected energy 12. Is there a carbon market or carbon (i) at instant marginal cost or (ii) at a stabilized credits mechanism in your jurisdiction? price. Chile ratified the Kyoto Protocol to the United The stabilized price corresponds to the nodal Nations Framework Convention on Climate price for the short term, which is determined by Change in 2002, and this way can participate in the National Energy Commission every 6 10 (a) “Basic price of the energy” corresponds to the generation units, in order to supply additional average marginal cost of the energy of the electric power during the hours of the annual higher system operating at the minimum updated demand of the electric system, increased in a operation and rationing cost, and (b) “basic price of percentage equal to the margin of theoretical power the peak power” corresponds to the annual reserve of the electric system. marginal cost for increasing the installed capacity of the electric system considering the most economic 46 GLOBAL RENEWABLE ENERGY GUIDE 2017 CHILE LARRAIN Y ASOCIADOS the carbon market through the Clean 2007. Pursuant to this Article, the developers of Development Mechanism. a non-conventional renewable energy based project have the same benefit described in Also, there is a private carbon stock exchange Section 5.2 above, as if they were holders of an created in 2011 by private companies which is electric concession. not governed by any regulation, where private and public entities and even individuals may This simplifies the development of non- trade CO2 reductions. conventional renewable energy projects by giving a protection against the filing of a New 13. Do renewable energy-based power Works Claim by mining concessionaires, plants have priority for connection to without requiring them to have previously the grid? obtained an electric concession. There is no special priority for connection to Law No. 20,571 of 2012, which amends Law No. 4 the grid for renewable energy based power of 2007 plants. However, they are normally dispatched considering their low operational costs This Law introduced the new Article 149 bis compared with conventional projects. into Law No. 4 of 2007, incorporating a net Additionally, as we mentioned, non- billing regulation into Chilean law. Pursuant to conventional renewable energy projects of less this Article, regulated final users11 that have than 9 MW may operate under the self-dispatch their own efficient cogeneration facilities or regime. non-conventional renewable energy sources with an installed capacity of up to 100 kilowatts 14. Is there an incentive for domestic will have the right to inject and sell the (local) manufacturing of equipment or generated energy into the electric distribution materials used in the construction of grid. renewable energy based power plants? There are no special incentives in Chile for local STATISTICS manufacturing of equipment or materials used in the construction of renewable energy based 16. What is the percentage of electricity power plants. generated based on each type of renewable energy source as a 15. What other incentives are available to proportion of the total generation of renewable energy generation electricity on a country-wide scale? companies? In Chile, there are two main different electric Article 2 of Law No. 20,897 of 2016, which amends interconnected systems, (1) the Central Law No. 4 of 2007 Interconnected System, and (2) the Northern Interconnected System12. Law No. 20,897 of 2016 introduced a new paragraph to Article 34 bis of Law No. 4 of 11 Regulated final users are those whose energy supply or less than 5,000 kilowatts located within a prices are fixed by the authority. Pursuant to Article distribution concession area. 147 of Law No. 4 of 2007, this situation is mainly 12 The two systems are projected to be connected to applicable to users with a connected power equal to each other during 2017. In the meantime, there are GLOBAL RENEWABLE ENERGY GUIDE 2017 47 LARRAIN Y ASOCIADOS CHILE Central Interconnected System With respect to the total installed capacity on a country-wide scale, the share of renewable Energy % of the total energy is as follows: Source generation capacity (total generation Country-wide scale capacity March 2017 = 4,781 GWh) Energy % of the total installed Solar 5% Source capacity (total installed capacity April 2017 = Wind 4% 22,840.91 MW) Hydro 26% Solar 6.68% Biomass 5% Wind 5.88% (Source: National Electric Coordinator – Energy Report April 2017) Hydro 27.08% (mini hydro = 1.95%) Northern Interconnected System Biomass 2.01% Energy % of the total generation (Source: www.energiaabierta.cl) Source capacity of the system (total generation capacity March 2017 = OTHER 1,350 GWh) Solar 8% 17. Is there anything else you wish to add? Wind 3% No. Hydro 1% Biomass 0% (Source: National Electric Coordinator – Energy Report April 2017) LARRAIN Y ASOCIADOS Cristóbal Morandé Francisco Cerda Avenida El Bosque Sur 130, Avenida El Bosque Sur 130, Las Condes Santiago, Chile Las Condes Santiago, Chile T + 56 22 463 5800 T + 56 22 463 5800 E [email protected] E [email protected] no statistics on a country-wide scale, but only for each interconnected system. 48 GLOBAL RENEWABLE ENERGY GUIDE 2017 CZECH REPUBLIC Vít Stehlík David Wilhelm WHITE & CASE (EUROPE) LLP, Prague air energy, biomass energy, landfill gas energy, GENERAL sewage gas energy and biogas energy. 1. What are the nature and importance of REGULATION the renewable energy in your country? The renewable energy sector was a very fast- 3. How is the renewable energy sector growing sector within the energy business. Due regulated? What are the principal laws to frequent legislative changes and uncertainty in and regulations? the sector, development of large renewable sources is rather scarce. Currently, transactions The renewable energy sector is regulated by the on the secondary market and refinancing of the following legal regulations: Act No. 458/2000 existing power plants are the typical transactions. Coll., the Energy Act (“Energy Act”), as At the same time, the market for household amended; and Act No. 165/2012 Coll., on renewables installations (mainly solar panels) is Supported Renewable Sources (“Supported slowly growing, as the investment costs are Renewable Sources Act”). decreasing and thus becoming more affordable. The Czech government has made a commitment The regulatory environment is subject to at the EU level to achieve a share of 13% from continuous modifications. renewable energy resources by the end of 2020. At the time of the most recent official statistics 4. What are the principal regulatory from the Ministry of Industry and Trade (year bodies in the renewable energy sector? 2015), this share was 11.2% of the total gross electricity production, and the total production The main regulatory bodies are the Energy of electricity from renewable sources was 9.423 Regulatory Office (“ERO”), the State Energy TWh. Inspection and the Ministry of Industry and Trade. Further, OTE, a.s., the Czech electricity 2. What are the definition and coverage of and gas market operator, administers certain renewable energy under the relevant matters concerning the renewable energy legislation? sector (administration of the registration system and payment administration). A renewable energy resource is any non-fossil resource, specifically wind energy, solar energy, geothermal energy, hydro energy, soil energy, GLOBAL RENEWABLE ENERGY GUIDE 2017 49 WHITE & CASE (EUROPE) LLP, Prague CZECH REPUBLIC 5. What are the main permits/licenses 7. Has there been any reform related to required for renewable energy projects? renewable energy regulations since 2016? Do you expect any Depending on the size and type of renewable reform/change in the near future? energy project, certain construction law and environmental law permits are required (such as The Energy Act has not been significantly environmental impact assessment, zoning amended since 2016, nor has been the permit, and construction permit). Further, an Supported Renewable Sources Act. An electricity generation license needs to be overhaul of the pricing regulatory framework acquired from ERO, with the exception of concerning the distribution payments was license-exempt generation stated under Section 6 discussed, but has not yet been finalized. below. Finally, construction of any energy project with capacity in excess of 1 MW requires INCENTIVES authorization issued by the Ministry of Industry and Trade. 8. Are tax advantages available to 6. Is there a category of “license-exempt renewable energy generation generation”? If so, does it cover some companies? types of renewable energy based generation? No, the exemption from tax applicable to income generated from certain renewable energy In the Czech Republic, conducting business in facilities was abolished as of 1 January 2011. the energy sector generally requires a license issued by the ERO. Effective as of 1 January Furthermore, the feed-in tariffs or green 2016, the production of electricity in power bonuses for all PV Plants commissioned generation facilities with an installed capacity of between 1 January 2010 and 31 December 2010 no more than 10 kW is exempted from the (except for units with installed power up to 30 license requirement, where the output of such kW) are subject to a withholding of 10% on the facility is designated for the user’s own feed-in tariff (i.e., fixed prices), and 11% on the consumption, provided that no other power green bonus (subsidy added to the market price generation facility of a license holder is of the electricity) on electricity produced from 1 connected to the point of consumption. January 2014 for as long as the right to receive the feed-in tariff or green bonus for such PV Also, no license is required for trading, Plant exists. producing, distributing, or storing clean coking gas, gas from degasification wells, generator gas, 9. Is there a purchase guarantee given by biomethane, propane, butane, and mixtures the relevant legislation for the thereof, unless these commodities are electricity generated by renewable distributed via pipeline systems to which more energy companies? than 50 points of consumption are connected. Finally, no license is required for the production Except for hydro power plants with installed of heat that is designated for the needs of one capacity not exceeding 10 MW, only producers facility of one and the same user. of electricity generated by renewable resources commissioned by 31 December 2013 have the These rules do not differentiate between right to sell the electricity on the market, or to renewable energy sources and non-renewable the mandatory buyer (in Czech “povinně energy sources. 50 GLOBAL RENEWABLE ENERGY GUIDE 2017 CZECH REPUBLIC WHITE & CASE (EUROPE) LLP, Prague vykupující”)1 and receive the feed-in tariff (in 11. Has the Paris Agreement under the Czech “výkupní ceny”) or green bonus. United Nations Framework Convention on Climate Change been Allowing the completion of developed projects, ratified? If yes, what are the new plants using wind, water, geothermal or undertakings of your Country in the biomass energy that had obtained the relevant NDC (national determined building permit or authorization for plants with contributions) submitted for the first capacity in excess of 100 kW on or before 2 five-year period? October 2013 also became entitled to the feed- in tariff or green bonus without regard to the Although not ratified yet, the Czech Republic limitation in the preceding paragraph, if such signed the Paris Agreement under the United plant was commissioned (in Czech “uveden do Nations Framework Convention on Climate provozu”) by 31 December 2015. Change on April 22, 2016. 10. Is there a minimum price guarantee 12. Is there a carbon market or carbon given by the relevant legislation for the credits mechanism in your jurisdiction? electricity generated by renewable energy companies? The Czech Republic is a member of the EU Emissions Trading System (“ETS”) and the The ERO determines feed-in tariffs and green mechanism is regulated by the Act No. bonuses by the year end for the following 383/2012 Coll., on Conditions for Trade of calendar year. The feed-in tariffs and green Emission Allowances. bonuses are guaranteed by the Supported Renewable Sources Act for a lifetime period The ETS works on the “cap and trade” defined in secondary legislation. principle where an overall cap is set on the total amount of greenhouse gases that can be emitted Under the Supported Renewable Sources Act, by installations included in ETS. Companies only green bonuses will be provided to new receive or buy emission allowances which they producers for the electricity produced by can then trade with one another as needed. The renewable resources facilities, unless the limit on the total number of allowances capacity exceeds 10 MW in case of water power available ensures that they maintain their value. plants and 100 kW in case of any other plants. After each year a company must surrender a corresponding number of allowances to cover Also, feed-in tariffs and green bonuses are all of its emissions. If a company reduces its capped to CZK 4,500/MWh during the initial emissions, it may either keep the spare year of plant operation. allowances to cover its future needs or sell them to an ETS participant that is in need of allowances. 1 The mandatory buyer is an electricity trader resort. Depending on the region, this would be determined by law or selected by the Ministry of E.ON Energie, a.s., ČEZ Prodej, s.r.o., or Pražská Industry and Trade. Unless and until a decision on energetika, a.s., respectively. Despite the this selection has been handed down, the electricity announcement of the Ministry of Industry and trader for a given region is the supplier of the last Trade, no other mandatory buyer has been selected. GLOBAL RENEWABLE ENERGY GUIDE 2017 51 WHITE & CASE (EUROPE) LLP, Prague CZECH REPUBLIC 13. Do renewable energy based power plants The data is available at: https://www.mpo.cz/ have priority for connection to the grid? assets/cz/energetika/statistika/obnovitelne- zdroje-energie/2017/2/Obnovitelne-zdroje- Yes, renewable energy based power plants in energie2015.pdf compliance with certain technical requirements have priority access to the connection to the grid, According to the raw statistics data available unless the technical status of the grid and technical from ERO for the year 2016, the percentage of reasons do not allow such connection (the main electricity generated based on each type of reason for refusing grid connection of a facility is renewable energy source is as follows: the risk of safe and reliable operation of the distribution grid and entire network). Biomass 2% Biogas 3% 14. Is there an incentive for domestic Water 2% (local) manufacturing of equipment or materials used in the construction of Wind 1% renewable energy based power plants? Solar 3% Sewage 0.1% No. The data is available at: http://www.eru.cz/ documents/10540/462820/Rocni_zprava_provoz_ES_ 15. What are the other incentives available to 2015.pdf/3769f65b-3789-4e93-be00-f84416e1ca03 renewable energy generation companies? OTHER None. 17. Is there anything else you wish to add? STATISTICS The renewable energy market is slowly transitioning from large projects developed by 16. What is the percentage of electricity large and medium size investors to smaller generated based on each type of systems developed by private individuals as part renewable energy source in the total of household improvement, with a growing generation of electricity on a country- number of small solar installations. This trend wide scale? will impact the approach to the operation of the distribution network and smart grid operation The percentage of electricity generated based and changes are expected. on each type of renewable energy source according to statistics by the Ministry of Industry and Trade is as follows (as of the end of 2015): Biomass 2.49% Biogas 3.12% Water 2.14% Wind 0.68% Solar 2.70% Sewage 0.10% 52 GLOBAL RENEWABLE ENERGY GUIDE 2017 CZECH REPUBLIC WHITE & CASE (EUROPE) LLP, Prague WHITE & CASE (EUROPE) LLP, Prague Vít Stehlík David Wilhelm Na Příkopě 14 Prague 1 Na Příkopě 14 Prague 1 Czech Republic Czech Republic T +420 255 771 221 T +420 255 771 208 F +420 255 771 122 F +420 255 771 122 E [email protected] E [email protected] GLOBAL RENEWABLE ENERGY GUIDE 2017 53 DENMARK Jakob Østervang Per Hemmer BECH-BRUUN LAW FIRM P/S targets and the execution thereof, including GENERAL continuous upscaling in terms of use of renewables and thereby making the entire 1. What is the nature and importance of system more energy efficient, while creating a renewable energy in your country? high standard of living and more jobs, increased exports and a reduction of the country’s energy Denmark is considered a world leader of dependence. renewable energy (“RE”). Accordingly, RE is of great significance to the country, for example The Danish Parliament (in Danish “Folketinget”) illustrated by the facts that the Danish has set a number of targets, thereby committing economy’s energy consumption is among the itself to continue to increase the annual lowest in the world relative to gross output, that production of RE with the aim of further the green sector employs approximately 58,000 developing the energy sector (for an people in Denmark, that close to 30% of elaboration, see our answer to question 3):2 Denmark’s final energy consumption is covered by renewable energy, and that CO2 emissions by 2050, Denmark plans to meet 100% of from electricity production have decreased by its energy needs by means of renewables; 60% in the period from 1990 to 2015.1 by 2035, Denmark plans to cover Denmark’s current position as a global leader of Denmark’s electricity and heat supply by RE is founded on a fundamental rethinking of RE; and the Danish energy system launched in the 1970s when the oil crisis started. The development in by 2030, Denmark plans to completely the Danish energy system is ascribable to, eliminate coal from power generation. among other things, ambitious renewable 1 Source: the Danish Energy Agency (webpage: and Sustainable, published by the Danish Energy https://ens.dk/en/our-responsibilities/global- Agency. cooperation/danish-energy-model) and the 2 Source: See footnote 1. brochure The Danish Energy Model, Innovative, Efficient 54 GLOBAL RENEWABLE ENERGY GUIDE 2017 DENMARK BECH-BRUUN LAW FIRM P/S 2. What are the definition and coverage of More detailed regulation may be found in renewable energy under the relevant executive orders issued pursuant to the said legislation? Acts. Pursuant to s. 2(2) of the Danish Act on the The Acts and executive orders on RE Promotion of Renewable Energy (“RE Act”),3 implement the energy policy as set out by the RE sources cover, among other things, wind Danish Parliament. power, hydropower, biogas, biomass, solar energy, wave and tidal energy as well as The energy policy is traditionally agreed upon geothermal heating. by way of broad-based political agreements between successive governments and other Section 5(1)1) of the RE Act further defines parties in Parliament and by agreements biogas as gas produced through between the Government and energy biodegradability of biological material under companies. deoxidised conditions. The most recent major energy policy agreement was entered into in March 2012 by and between REGULATION a large majority of parties in Parliament (Energy Agreement 2012). 3. How is the renewable energy sector regulated? What are the principal laws The Energy Agreement 2012 covers the period and regulations? 2012-2020 and contains a number of initiatives with the objective of promoting the transition RE in Denmark is mainly regulated by the RE to a low carbon economy in Denmark, Act. including initiatives promoting wind power, new energy technologies transitioning the The RE Act, among other things, forms the energy supply to RE, bioenergy and energy regulatory framework for electricity generated efficiency measures. The aim is for such by means of wind turbines, including the initiatives to contribute to reaching the overall framework for tenders for offshore wind farms goals for the climate policy. and for the licences required to construct and operate offshore wind farms, and for solar The long-term goal of the energy and climate power plants. policy is for Denmark to become entirely independent of fossil fuels and to reduce Issues of RE electricity generation are further greenhouse gas emissions by 40% (as compared regulated by the Danish Act on Electricity to 1990) by 2050. Supply (“Electricity Supply Act”).4 Furthermore, by 2020, Denmark aims to: The Electricity Supply Act applies to electricity production, transport, trade and supply and cover 35% of the final energy consumption contains, among other things, provisions by energy from renewable sources regarding authorisation for electricity (“RES”); production. 3 Consolidated Act no. 1288 of 27 October 2016, as 4 Consolidated Act no. 418 of 25 April 2016, as subsequently amended. subsequently amended. GLOBAL RENEWABLE ENERGY GUIDE 2017 55 BECH-BRUUN LAW FIRM P/S DENMARK have approximately 50% of the electricity the DEA is the supervisory authority and consumption be supplied by wind power; enforces compliance with the terms of such licences granted. reduce gross energy consumption by 7.6% in comparison to 2010; and In addition to the Minister and the DEA, the Danish TSO Energinet.dk is an important reduce 34% of greenhouse gas emissions in authority within the RE sector.6 comparison to 1990. Energinet.dk is organised as a non-profit Denmark is a party to the UNFCCC and the company wholly owned by the Danish State.7 It Kyoto Protocol and a member of the European handles the majority of the administrative tasks Union. Therefore, the policies and regulations relating to RE electricity production pursuant to of the Danish RE sector are also affected by the Electricity Supply Act and the RE Act, UN and EU energy regulations. including the disbursement of subsidies for RE- based electricity production. 4. What are the principal regulatory bodies in the renewable energy sector? The Danish Energy Regulatory Authority (“DERA”) is responsible for supervision and Generally, the Minister for Energy, Utilities and appeals lodged within the energy sector in Climate (“Minister”) is responsible for accordance with the purpose of the Electricity administering the climate and energy areas, Supply Act.8 The Energy Board of Appeal is the including the RE Act and the Electricity Supply supreme appeals body for decisions made by Act as well as executive orders issued under the energy authorities according to the principal these Acts. energy laws, particularly decisions made by the DEA, the DERA and the municipalities.9 The Minister, for example, proposes bills on climate and energy matters to be adopted by 5. What are the main permits/licenses Parliament and issues executive orders under required for renewable energy projects? the RE Act and Electricity Supply Act. 5.1. General In practice however, the Danish Energy Agency (“DEA”) exercises most of the powers vested Electricity generation by means of installations in the Minister pursuant to the RE Act and the with a capacity exceeding 25 MW requires Electricity Supply Act.5 authorisation from the DEA.10 Connected installations are considered as one in relation to The DEA, among other things, handles matters the threshold. Thus, it is the total effect of e.g. relating to offshore utilisation of wind, a wind farm that is decisive for determining including the granting of licences. In addition, whether authorisation is required. 5 See Executive Order no. 436 of 11 May 2012 on the 2000 on the tasks of the DERA. The DERA was Tasks and Powers of the Danish Energy Agency. established on the statutory basis of the Electricity 6 Energinet.dk owns and operates the Danish Supply Act. electricity and gas transmission system and serves as 9 See Executive Order no. 664 of 19 June 2006 on the the Danish TSO for electricity as well as gas. rules of procedure of the Energy Board of Appeal. 7 Energinet.dk was established by the Act on 10 See s. 10 of the Electricity Supply Act. The Energinet.dk (Consolidated Act no. 1097 of 8 authorisation will be granted for a minimum period November 2011). of 20 years. 8 See s. 1 of Executive Order no. 163 of 26 February 56 GLOBAL RENEWABLE ENERGY GUIDE 2017 DENMARK BECH-BRUUN LAW FIRM P/S Any authorisation is subject to the applicant such as a project approval from the local documenting having the necessary technical municipality prior to construction.15 and financial capacity. The authorisation may be subject to a number of terms and conditions.11 The Danish Nature Agency under the Ministry of Environment and Food manages the Furthermore, the construction of new – or legislation on planning activities in connection major changes to existing – electricity with the installation of onshore wind turbines.16 generating plants require prior approval from the DEA.12 However, certain types of (RE) 5.3. Offshore wind turbines plants are exempted from this requirement. See our answer to question 6 immediately below. Exploitation of wind energy in Danish territorial waters and in the exclusive economic Finally, the environmental impact of any new zone (“EEZ”) is subject to the consent of the project must be taken into account. If a project Danish State. is expected to have a significant impact on the environment, an Environmental Impact Licences for the construction and operation of Assessment (“EIA”) must as a general rule be offshore wind farms are granted by the State prepared before construction may commence.13 under the framework set out in the RE Act. 5.2. Onshore RE projects Such licences are granted by way of a one-stop- shop approach whereby the DEA grants the key Onshore RE projects may, generally, be licences and coordinates with other relevant installed and operated only if the local public authorities.17 municipality has drafted a local development plan including the project and issued a land Two different procedures apply when obtaining zone permit for the project. licences for the construction and operation of offshore wind farms in Denmark: Tenders If the project includes heating, such as a CHP announced by the Minister and the so-called plant, it may further be subject to requirements open-door procedure. 14 of approvals under the Heating Supply Act, 11 The rules regarding the terms and conditions of and 14 Consolidated Act no. 523 of 22 May 2017, as procedures for granting the authorisation are subsequently amended. specified in Executive Order no. 565 of 2 June 2014 15 See s. 4 of the Heating Supply Act. The local on authorisation for construction of and changes to municipality is responsible for planning the heating electricity producing plants. However, the supply in its area. All projects for the supply of construction of production plants utilising energy heating must therefore be coordinated with the from water or wind in the territorial sea or in the municipality. exclusive economic zone is not subject to the rules of this Executive Order. 16 Whereas regulations on technical requirements of wind turbines, grid connection and subsidies for 12 See s. 11 of the Electricity Supply Act. wind power are managed by the DEA. 13 See Consolidated Act no. 448 of 10 May 2017 on 17 Pursuant to a recent amendment to the RE Act, the environmental assessment of plans and Minister intends to revoke the delegation to the programmes and of concrete projects (EIA). The DEA to grant pre-investigation licences. The local municipal authorities are the competent authority to issue such licence will instead be with authorities for onshore projects, while the DEA is the Minister. However, as of June 2017, the the competent authority with respect to projects on amendment has not yet been implemented. the construction of offshore electricity generation plants using water and wind. GLOBAL RENEWABLE ENERGY GUIDE 2017 57 BECH-BRUUN LAW FIRM P/S DENMARK Under the tender procedure, the Danish State 6. Is there a category of “license-exempt invites tenders for an offshore wind farm in a generation”? If so, does it cover some designated location and with a specified types of renewable energy based capacity in the form of a concession.18 Under generation? the open-door procedure, a licence application is filed on the project developer’s own initiative, In general, installations or plants with an and the project developer also determines the installed effect of less than 25 MW do not location and capacity of the offshore wind farm. require an electricity production authorisation. See our answer to question 5 immediately Regardless of the procedure applied, the licence above. granting process consists of four key licences: (1) a pre-investigation licence; (2) a construction As for the requirement of approval by the DEA licence; (3) a licence to exploit the wind power prior to the construction of any new electricity generated by the wind farm; and (4) an generating plant, the following are exempted: authorisation to produce electricity (see Section (1) onshore wind farms;19 (2) other plants that 5.1 above). generate electricity based on RE and have an effect of less than 10 MW; and (3) any electricity The licences may include specific terms and generation plants with an output of less than 5 conditions, including environmental and safety MW. requirements as well as obligations to share and report data. Offshore wind farms are also exempted from the requirement, but must instead obtain the 5.4. Solar power plants licences and approvals stipulated in Section 5.3 above. No licence requirements or similar apply to solar power plants only. For the general 7. Has there been any reform related to requirements, see Section 5.1 above. renewable energy regulations since 2016? Do you expect any As with onshore wind turbines, the reform/change in the near future? construction of large solar power plants may also require that the local municipality has made The Energy Agreement 2012 covers the period a local development plan, including the solar 2012-2020. power installations, and has issued a land zone permit. The Danish Government has announced that, in the autumn of 2017, it will present its However, certain requirements apply to solar proposal for a new broad energy agreement power plants obtaining subsidies. Reference is covering the period after 2020. According to the made to Section 15.3 below. Government, the proposal for a new energy 18 The successful tenderer is usually selected based on conditions of the tender or other conditions agreed the price of the tendered offer (i.e. the lowest price upon, including time limits. per kWh to be produced on the wind farm resulting 19 Provided they fulfil the requirements of Executive in the lowest subsidy needed, see also our answer to Order no. 73 of 25 January 2013 on certification of question 15 below) and the tenderers’ technical and wind turbines. financial capabilities. A fine may be payable if the successful tenderer fails to comply with the 58 GLOBAL RENEWABLE ENERGY GUIDE 2017 DENMARK BECH-BRUUN LAW FIRM P/S agreement will, among other things, be based RE can be exempted from ET, provided that on the work of an Energy Commission set up the following requirements are met: in March 2016 and consisting of members from the Danish energy sector and universities.20 the electricity must be generated through RE; In the spring of 2017, the Energy Commission published a report with its findings and the electricity must be used directly by the recommendations for the future energy policy generator, i.e. it must not be delivered to in Denmark. The report focuses on the steps public electricity suppliers; and required to be taken to reach the goal of transitioning Denmark to a low-emissions the electricity must be used in the course of society based on renewable energy by 2050. the generator’s business. The Energy Commission’s recommendations (ii) Depreciation of wind turbines and solar include phasing out public subsidies for RES as panels the technologies become cost-competitive and establishing an integrated and flexible energy Wind turbines and solar panels are depreciated system through increased electrification. at the same rate as machinery and equipment, at an annual maximum depreciation rate of 25%. For wind turbines with a capacity of over 1 INCENTIVES MW, the annual depreciation rate is maximum 15% if the wind turbine is acquired after 1 8. Are tax advantages available to January 2013. For new wind turbines and solar renewable energy generation panels acquired between 30 May 2012 and 31 companies? December 2013 the acquiring company may depreciate on a basis of 115% of the acquisition In Denmark there are a few tax advantages in price. applying or investing in RE. Note that we do not describe legislation regarding carbon credits 9. Is there a purchase guarantee given by provided by the Danish state to companies the relevant legislation for electricity acquiring certain equipment etc. as this is not generated by renewable energy regulated by tax law. However, it should be companies? noted that a company that has acquired equipment partially financed through carbon Until 2005, the Danish grid companies and credits from the Danish state, may only effect system operators were obliged to purchase partial depreciations on the equipment in electricity from plants producing electricity by accordance with the part of the equipment way of renewable energy sources. financed by the company itself. However, the obligation to purchase electricity (i) Electricity produced by RE-based plants was abolished. Since 2005, electricity produced by way of RE In principle, all electricity (including electricity sources is allocated on market terms, but may generated by RE) is subject to electricity tax be eligible for subsidies (see our answer to (“ET”). However, electricity generated through question 15). 20 See the website of the Danish Government (in og-klima/. Danish only): https://www.regeringen.dk/ regeringens-politik-a-%C3%A5/energi-forsyning- GLOBAL RENEWABLE ENERGY GUIDE 2017 59 BECH-BRUUN LAW FIRM P/S DENMARK The electricity produced by way of renewable an effort to reduce the greenhouse gas energy sources, however, enjoys preferential emissions by at least 40% before 2030 as access to the collective grid (see our answer to compared to the 1990 emissions. The scope of question 13). each Member State’s contribution, including the Danish contribution, will be decided by the EU. 10. Is there a minimum price guarantee Negotiations are currently ongoing. given by the relevant legislation for the electricity generated by renewable 12. Is there a carbon market or carbon energy companies? credits mechanism in your jurisdiction? Under some subsidy schemes, subsidy is Denmark is subject to the international granted as a fixed settlement price. Please refer emission trading scheme under the Kyoto to our answer to question 15. Protocol (article 17) and the EU emission trading scheme under the EU ETS Directive.2122 However, ways and means of granting subsidies to electricity generated by way of RES depend The schemes have been implemented in 23 on the specific type of RES and the applicable Denmark by the CO2 Allowances Act. subsidy scheme under the RE Act, the Electricity Supply Act and executive orders About 360 Danish installations, including issued pursuant to the said Acts. airline operators, are covered by the CO2 allowance trading scheme. Most of them are Consequently, there is no generally applicable power and heat generators. The rest are minimum price guarantee for RE-based industrial enterprises, apart from a few electricity. installations within the offshore sector. 11. Has the Paris Agreement under the 13. Do renewable energy-based power United Nations Framework plants have priority for connection to Convention on Climate Change been the grid? ratified? If yes, what are the undertakings of your Country in the The local grid companies are responsible for NDC (national determined connecting and obliged to connect RE contributions) submitted for the first installations to the collective grid. The terms five-year period? and conditions thereof are subject to agreement between the owner of the installation and the The Paris Agreement was ratified by Denmark grid company. No provisions exist resulting in on 27 October 2016 and approved on 1 RE installations having priority over other types November 2016. Denmark has entered into an of electricity producers for connection. agreement with the other EU countries in a joint effort to fulfil their National Determined Furthermore, the grid companies are under no Contributions. The first NDC were announced obligation to accept the electricity produced in by the EU in March 2015, and they constitute case of grid constraints. 21 Directive 2003/87/EC, as amended by the Linking Growth, whereas the Danish Business Authority Directive (2004/101/EC), the Aviation Directive administers the Danish Kyoto Registry separately (2008/101/EC) and the Amending Directive from the Union Registry. All Danish installations (2009/29/EC). covered by the CO2 Allowances Act must have an 22 Danish accounts in the Union Registry are operator holding an account in the Union Registry. administered by the Minister for Business and 23 Consolidated Act no. 1605 of 14 December 2016. 60 GLOBAL RENEWABLE ENERGY GUIDE 2017 DENMARK BECH-BRUUN LAW FIRM P/S Electricity produced by way of plants using RE Types of subsidies does, however, have preferential access to the collective electricity supply grid.24 Subsidies for RE-based electricity may be divided into the following types: This means that Energinet.dk may only reduce or discontinue the priority RES electricity Type Characteristics generation if a reduction in the electricity Price A fixed amount which is production by other installations using supplement granted in addition to the conventional sources of energy is insufficient to market price. This subsidy may maintain the technical quality and balance be granted with or without a within the coherent electricity supply system. cap, whereby the price supplement decreases if the 14. Is there an incentive for domestic market price reaches a (local) manufacturing of equipment or predetermined level and materials used in the construction of completely lapses if the cap is renewable energy based power plants? reached. Denmark is a Member of the European Union Fixed The subsidy varies according to and, therefore, Danish statutes and regulations settlement the market price, as a fixed must comply with EU regulations, such as rules price settlement price is calculated by regarding non-discrimination and the free deducting the electricity market movement of goods, services and capital within price from the fixed settlement the EU. Therefore, no incentives for domestic price which the producer is (local) manufacturing of equipment or materials guaranteed. The payment is are used in the construction of RE-based power handled by Energinet.dk which, plants. as a rule, is also responsible for selling the produced electricity 15. What other incentives are available to in the market. renewable energy generation Contract The electricity producer has to companies? for allocate the produced electricity difference to the market, and the CfD is 15.1. Subsidies for RE (“CfD”) granted as the difference between the spot market price In general and a fixed settlement price (e.g. the tendered price per kWh for Electricity produced using renewable energy is offshore wind farms, cf. 15.2 subject to subsidy schemes set out in the RE below). Act and the Electricity Supply Act. Which subsidy scheme applies in a specific case Basic A fixed annual amount. depends on factors, such as type of installation amount (and renewable energy source), its installed Investment Typically covers a given effect and the time of installation. aid percentage of the construction costs. 24 See s. 27(c)(5) of the Electricity Supply Act. GLOBAL RENEWABLE ENERGY GUIDE 2017 61 BECH-BRUUN LAW FIRM P/S DENMARK Subsidies for RE-based electricity are currently DKK 0.013 per kWh and is granted considered State aid under EU law.25 Prior for a period of 20 years as from the time of grid notification of all new State aid measures to the connection. European Commission is required, and, subject to certain exceptions, the aid measures may be Offshore wind turbines established under the implemented only upon approval by the open-door procedure European Commission. Offshore wind farms established pursuant to 15.2. Subsidies for wind energy the open-door procedure are entitled to subsidies under the subsidy scheme applying to Onshore wind turbines onshore wind farms. See immediately above. Currently, onshore wind turbines supplying Offshore wind turbines established under the electricity to the collective grid receive a price tender procedure supplement of maximum DKK 0.25 per kWh in addition to the market price for electricity.26 Tendered offshore wind farms generating However, the total settling price (the price electricity are entitled to subsidies pursuant to a supplement together with the market price) may CfD. The CfD is specific for each tendered not exceed DKK 0.58 per kWh. Consequently, offshore wind farm and is based on the lowest if the market price exceeds DKK 0.33 per kWh, tendered price. the premium is reduced accordingly. Upon conclusion of the concession agreement, The price supplement is granted for a total the CfD is embedded in Danish law in a specific amount of production (e.g. in MWh) provision of the RE Act by ordinary legislative determined for each project based on a procedure of the Danish Parliament. combination of the wind farm’s installed effect The CfD applies from the time of grid and its swept area. connection and is subject to the produced The European Commission’s state aid approval electricity being delivered to the Danish of this subsidy scheme expires on 21 February collective grid. 2018. In order to be entitled to the premium The CfD is calculated per hour as the difference under this subsidy scheme, wind turbines must between the tendered price per kWh and the therefore be connected to the grid prior to this spot price of electricity in the relevant area27 as date. stated by the Nordic electricity exchange, Nord 28 At this time, no new subsidy scheme for the Pool. period after 21 February 2018 has been The CfD is granted for a limited amount of announced. electricity produced, corresponding to a certain In addition to the premium, compensation for quantity of full-load hours, and is limited to a 29 balancing costs is granted. This compensation is specific period. 25 See Article 107 of the Treaty on the Functioning of 27 I.e. Western Denmark (DK1) or Eastern Denmark the European Union (TFEU). (DK2). 26 The price supplement applies to wind turbines 28 The CfD is not granted for electricity produced in which were connected to the grid on 1 January 2014 hours when the spot price is not positive. or later. 29 E.g. in the recently awarded tender for the Kriegers Flak Offshore Wind Farm, the CfD is granted for a maximum production of 30 TWh, corresponding to 62 GLOBAL RENEWABLE ENERGY GUIDE 2017 DENMARK BECH-BRUUN LAW FIRM P/S Balancing costs are not reimbursed or otherwise kWh.30 In addition, price supplements of DKK compensated. 0.26 and DKK 0.1 per kWh also currently apply.31 15.3. Subsidies for solar power plants and other RE installations The biogas used for electricity production must have been made subject to the criteria for Solar power plants sustainable production of biogas as set out in Subsidies for solar power plants are regulated by Executive Order no. 301 of 25 March 2015. the RE Act. The applicable regulation has been This mainly entails that the biogas was subject to great debate and has been changed produced using residual and waste products. multiple times in a relatively short period of time due to unforeseen circumstances. Energinet.dk administers the scheme and approves the biogas power plants for the subsidy. The approval must be granted anew Under the current scheme, subsidies may only 32 be granted within a pool of 20 MW per year and each year. only to solar power installations to be Biogas installations with an installed effect of established in connection with private homes or less than 6 kW may also be granted an increased buildings. The scheme is administered by fixed settlement price subject to a pre-approval Energinet.dk which must pre-approve an by Energinet.dk issued before construction of installation by a pre-commitment letter before the installation. it is established in order for it to be eligible for the subsidies once in operation. STATISTICS In 2015 and 2016, Energinet.dk carried out rounds for applications under the scheme. 16. What is the percentage of electricity However, no round for 2017 has yet been generated based on each type of announced. renewable energy source as a The subsidy consists of a fixed settlement price proportion of the total generation of which is granted for a period of 10 years. electricity on a country-wide scale? The level of the settlement price depends on the According to the DEA’s energy statistics for time of grid connection. For installations 2015, the total gross generation of electricity in connected in 2017, the fixed settlement price is Denmark in 2015 was 104.2 PJ. DKK 0.74 per kWh. The proportion of electricity generated by way Other sources - biogas of renewable energy amounted to 65.5% of the total national generation of electricity. Electricity produced solely on biogas is eligible for a fixed settlement price of DKK 0.816 per 50,000 full-load hours at 600 MW, and for no longer 32 See Executive Order no. 1113 of 18 September than 20 years as from the time of grid connection. 2015 on premium for electricity produced by certain 30 Subject to index regulation. The amount stated is solar power plants and renewable energy applicable in 2017. installations other than wind turbines. 31 The price supplements follow from the Energy Agreement 2012. GLOBAL RENEWABLE ENERGY GUIDE 2017 63 BECH-BRUUN LAW FIRM P/S DENMARK The share of each type of renewable energy is shown in the table below: OTHER Total electricity generation in 2015 17. Is there anything else you wish to add? Total (TJ/percentage) 104.2 / 100 Until recently, the subsidies for RE-based Renewable energy (% of total) 65.5 electricity were entirely financed through the Wind (% of total) 48.8 Public Service Obligation (PSO) tariff, which is Biomass (% of total) 12.8 paid by all electricity consumers in Denmark Solar (% of total) 2.1 through their electricity bills. Biogas (% of total) 1.6 However, the European Commission has found Hydro (% of total) 0.06 that the PSO tariff is incompatible with Community law. Therefore, the PSO tariff is currently being phased out. The costs for subsidies are instead gradually moved to a spending allocation on the Finance Act and must therefore be formally renewed each year. The PSO tariff will have been fully abolished in 2022. BECH-BRUUN LAW FIRM P/S Jakob Østervang Per Hemmer Værkmestergade 2 Langelinie Allé 35 8000 Aarhus C, Denmark 2100 Copenhagen, Denmark T +45 7227 3524 T +45 7227 3550 M +45 2526 3524 M +45 2526 3550 E [email protected] E [email protected] 64 GLOBAL RENEWABLE ENERGY GUIDE 2017 EGYPT Mohamed Nabil Marwa El-Shaarawy Hazzaa SHARKAWY & SARHAN LAW FIRM Over the years, Egypt has been trying to expand GENERAL its utilization of renewable energy. The Supreme Council of Energy in February 2008 1. What are the nature and importance of approved a plan to generate 20% of electricity renewable energy in your country? from renewable energy by 2020, including a 12% contribution from wind energy. Egypt is considered by many observers to be a country which has the right environment to Most recently, in the framework of expanding meet a large proportion of its energy needs by power production and overcoming the shortage utilizing mainly wind and solar power. of oil and gas, the Ministry of Electricity However, the country’s potential in renewable announced on 20 September 2014 the new energy is not properly utilized and it accounts feed-in tariff (“FIT”) pricing for electricity for a minor share of Egypt’s energy mix. The generated from renewable energy resources wind and solar conditions in Egypt, as some (photovoltaic (“PV”) - wind) (“FIT might argue, are among the best in the world. Program”). Egypt1 faces a major challenge in providing a According to the FIT Program, the government sufficient amount of electricity from its primary is committed to purchase the electricity energy resources, especially oil and natural gas produced from renewable energy facilities via that contribute up to 95% of the total energy power purchase agreements lasting 25 years for resources needed for generating electricity in photovoltaic (PV) facilities and 20 years for Egypt. Studies show that even though Egypt wind facilities at the last prices announced by possesses a reserve of primary energy resources, the Cabinet of Ministers. The applicable tariffs Egypt will face a deficit to cover its demand shall be contractually fixed for 25 years for solar from these resources due to rapid utilization projects and for 20 years for wind projects. The and increase of extraction costs. Therefore, tariffs are not indexed or annually adjusted with there has to be diversification of the energy inflation or any other index. resources such as renewable resources that are rich in Egypt. 1 http://egyptera.org/en/kwa3d%20tanzmia.aspx GLOBAL RENEWABLE ENERGY GUIDE 2017 65 SHARKAWY & SARHAN LAW FIRM EGYPT The deployment of the FIT Program is phased out into so-called regulatory periods. The first REGULATION regulatory period has run for two years as of date of the Cabinet Decree No. (1947) for 2014 3. How is the renewable energy sector (“Round One FIT Decree”). It has expired on regulated? What are the principal laws 27 October 2016 (“Round One”). and regulations? The second and current round of the FIT has History of Egyptian Electricity Utility been launched by the Cabinet Decree No. (2532) for 2016 (“Round Two FIT Decree”). In 1893, electricity was first introduced in Egypt It runs as of 28 October 2016, for one year in and it was owned and operated totally by private relation to solar projects (i.e. expiring on companies. In 1962, all of these companies were 29 October 2017), and for a year and a half in nationalized, and the government became the relation to wind projects (i.e. expiring on owner and operator of the electricity utility. 29 April 2018) or until reaching the maximum limit for contractual capacities, whichever is In 1964, the first Ministry for Electricity was earlier (“Round Two”). formed and shortly thereafter the Public Egyptian Corporation for Electricity was During Round Two, the maximum targeted established in 1965, being the entity responsible capacities are 4,300 megawatts, less the for generating, transmitting and distributing capacities that were already secured by virtue of electricity. Round One, divided as follows: In 1976, the Public Egyptian Corporation for Electricity was subsequently converted into the 300 megawatts of small-scale solar facilities Egyptian Electricity Authority (“EEA”) (i.e. below 500 kilowatts); pursuant to Law No. 12 for 1976. 2,000 megawatts of medium and large-scale In 1996, the Law No. 100 for 1996 solar facilities (i.e. between 500 kilowatts (“Electricity Sector-Specific Law”) amended and 50 megawatts); and the EEA establishment law and allowed for the grant of public utility concessions to private 2,000 megawatts of wind facilities with no investors (whether local or foreigners) to construct, limitation on the size of the facility. manage, operate and maintain electricity generation stations, provided that such 2. What are the definition and coverage of concession is issued by virtue of a decree of the renewable energy under the relevant Cabinet of Ministers. legislation? In 1997, the Egyptian Electric Utility and As per the Renewables Law No. 204 for the year Consumer Protection Regulatory Agency 2014 (“Renewables Law”) and the Electricity (“EERA”) was established by virtue of the Law No. 87 for the year 2015 (“New Presidential Decree No. 326 for 1997 as a Electricity Law”), renewable energy is defined regulatory body subsidiary to the Ministry of as the natural power resources that are not Electricity and Power. The EERA mainly took subject to depletion and can be used to produce over the regulatory competencies of the EEA, electricity. This includes hydro, solar (including while the EEA maintained control over the both PV and Concentrated solar power operational affairs of the electricity utility in (“CSP”)) and wind powers. Egypt including the grant of public utility 66 GLOBAL RENEWABLE ENERGY GUIDE 2017 EGYPT SHARKAWY & SARHAN LAW FIRM concessions pursuant to the Electricity Sector- As of 2001, the Electricity Utility in Egypt was Specific Law. divided into three major sectors namely: In 2000, the EEA was converted into a 100% (i) Generation: which involves generating government-owned holding company under the electricity from its various sources for sale name of the Egyptian Electricity Holding to other parties; Company (“EEHC”) pursuant to Law No. 164 of the year 2000. The Law No. 164 for 2000 (ii) Transmission: which involves transmission explicitly considered EEHC a private law legal of electricity over the transmission grid in person subject to the provisions of the hyper voltages (i.e. 132 KV or more) and high companies’ law and the capital market law (i.e. voltages (i.e. from 33 KV to 66 KV); and the same as any private company). EEHC owns a (iii) Distribution: which involves distribution number of subsidiaries including electricity of electricity at medium voltages (i.e. above 1 generation companies and electricity KV and below 33 KV) or low voltages (i.e. up distribution companies. to 1KV) to either direct consumers or other licensed parties. Pursuant to Law No. 339 of the year 2000, the electricity utility in Egypt was restructured and The generation and distribution sectors are run the role of the EERA was redefined to be the by both state-owned companies and private supervising and regulatory authority with sector companies all under the supervision of respect to all issues related to electrical energy EERA. On the other hand, the transmission in terms of generation, transmission, sector and the national power grid are distribution and consumption. The significant monopolized by EETC, which was a subsidiary addition in this role is that it gave the EERA the of EEHC and the bulk electricity off-taker from power to grant licenses for the establishment, private generation plants in Egypt. operation, management and maintenance of plants for generating, transferring, distributing On 7 June 2015, the New Electricity Law was and selling electricity. issued by virtue of a Presidential Decree. The New Electricity Law further restructured the Historically, the operation and control of the roles of both EERA and EETC and defined Grid was carried out by EEA and then EEHC. their competencies and interaction with the The assets comprising the National Power Grid power sector participants. Furthermore, the were owned by EEHC subsidiaries and the New Electricity Law allows for private sector National Power Control Centre was operated participation in the generation and distribution by EEHC. In 2001, EEHC and its subsidiaries of electricity through an overhauled licensing were restructured to separate the power and permitting scheme, and introduces the generation activities from power distribution concept of competitive electricity markets for activities within EEHC subsidiaries. Moreover, the first time in Egypt setting out the the Egyptian Electricity Transmission framework for market liberalization over an Company (“EETC”) emerged as a result of the eight-year transition period. More recently, the spin-off of the high voltage network assets and executive regulations of the New Electricity control centers owned by EEHC and seven of Law have been published in the Official Gazette its subsidiaries. Accordingly, EETC was on 23 May 2016. established as a subsidiary of EEHC which monopolizes the electricity transmission Legal Framework for Power Projects activities and the control and operation of the Historically, public power projects were mainly Grid. carried out and run by the government. Under GLOBAL RENEWABLE ENERGY GUIDE 2017 67 SHARKAWY & SARHAN LAW FIRM EGYPT this scheme, the government (through EEHC or (iii) Feed-in-Tariff Projects: one of its power generation subsidiaries) would typically contract with an EPC contractor to Investors may construct, own and operate establish a power plant to be owned and renewable energy power plants and sell the operated directly by the government through its generated power to EETC and distribution owned electricity sector companies. companies through long-term offtake agreements according to the tariffs More recently, the Electricity Sector-Specific announced by the Cabinet of Ministers – Law allowed the grant of public utility Please refer to our answer to Question 1 above for concessions to private investors (whether local an overview of the FIT Program. or foreign) to construct, manage, operate and maintain electricity generation plants provided (iv) Independent Power Projects: that such concession is issued by virtue of a decree of the Cabinet of Ministers. Precedent Investors may construct, own and operate electricity generation concessions were granted renewable energy power plants and may under the BOOT regimes, where the directly enter into agreements with government – through EEHC – was the sole consumers to sell power generated from purchaser of electricity from the project. renewable sources. In addition to the BOOT public power projects, Main Laws Regulating Renewable Energy it is possible to have independent power Sector stations completely established, managed, The renewable energy sector is mainly regulated operated and maintained by private companies. by the following laws: In general, generation companies are under strict licensing and operational supervision by (i) The New Electricity Law; EERA. Typically, independent power producers (“IPPs”) sell electricity to other (ii) the executive regulations of the New private consumers rather than to EETC Electricity Law issued by virtue of the through the national grid. Minister of Electricity and Power Decree No. 230 for the year 2016 (the “Executive As for renewable power generation projects, Regulations”); and these projects can be implemented through one of the following four schemes: (iii) the Renewables Law. (i) EPC Projects: 4. What are the principal regulatory bodies in the renewable energy sector? Power projects procured on an EPC basis by the New and Renewable Energy The principal regulatory bodies in the Authority (“NREA”) to be owned and renewable energy sector involve three main operated by NREA. bodies that are responsible for the projects’ qualification, award, licensing and (ii) BOO Tender: implementation: Power generation concessions tendered by (i) Egyptian Electricity Transmission NREA to be implemented on a BOO Company (“EETC”); scheme (i.e. the developer decommissions the plant after the lapse of the project term rather than (ii) New and Renewable Energy Authority transferring its ownership to the government). (“NREA”); and 68 GLOBAL RENEWABLE ENERGY GUIDE 2017 EGYPT SHARKAWY & SARHAN LAW FIRM (iii) Egyptian Electric Utility and Consumer syndicated engineer and under his/her Protection Regulatory Agency (“EERA”). responsibility. Although the three abovementioned bodies are 5.4 Environmental Approval independent and autonomous, their roles overlap such that typically each step taken with The EEAA is the competent authority one of them is dependent on completing certain responsible for creating and enforcing procedures with the other bodies. regulatory standards relating to the environment. The most important 5. What are the main permits/licenses environmental approval is the Environmental required for renewable energy projects? Impact Assessment (“EIA”) approval issued by the Central Department for Environmental The following are the key licenses required for Impact Assessment (a subordinate department renewable energy projects: of the EEAA). 5.1 Power Generation License Under the Environment Law, certain establishments that may impact the The project company must obtain and maintain environment (including power plants) will only a generation license from EERA in order to be granted an operating license from the perform electricity generation activity. licensing authority following the issuance of an Environmental Impact Assessment (EIA) The object of the license is to approve the Report. practice of the project company to generate electricity, and then sell it to end consumers and 5.5 New Licensing Scheme other license-holders (including selling power to EETC under a utility concession). EERA issues A new investment law is being discussed in the only one license per generating company even Egyptian parliament. Under the current draft of if a generating company owns and operates the new investment law, specific projects more than one power plant. including new and renewable energy projects can be granted one license for the 5.2 Project Site Permits establishment, operation and management of industrial projects (which would include the The permits necessary for the project site vary construction license and allocation of any from one case to another depending on the necessary facilities). This unified licensing location of the project site and the relevant scheme can be granted by virtue of a decision governmental entities involved. from the Cabinet of Ministers. The conditions and regulations for the unified licensing 5.3 Construction License scheme’s approval should be reflected in the executive regulations of the new investment The project company will have to obtain a law. The executive regulations draft is not license from the relevant municipal body for the available yet, but should be issued within construction works of the Project. Such licenses 90 days from the issuance of the new are typically obtained by the EPC Contractor investment law. based on the designs submitted to the relevant engineering department of the municipal body. The timeline for issuing and implementing such It is required that the designs submitted for revised scheme is not clear yet. Until such new obtaining the license are certified by a law is implemented, the project company will be GLOBAL RENEWABLE ENERGY GUIDE 2017 69 SHARKAWY & SARHAN LAW FIRM EGYPT subject to the current licensing regulations/ tariff, which increased the competitive requirements as reflected above. advantage of renewable energy in the market. The attention is currently focused on the 5.6 Note closing of the Round II FIT Scheme mega projects. We expect further regulations of In Egypt, licensing is often a matter of different activities in the market, including the administrative discretion, in that laws frequently sale of electricity by private companies and give wide licensing powers to administrative various schemes with the government for the authorities. These powers are sometimes used purchase, exchange, and use of renewable inconsistently, are usually subject to energy generated by private companies and unpublished policy considerations, and past individuals. practice may at any time be changed without notice. There are no laws that would set an exhaustive list of the licenses required for a INCENTIVES specific project. We cannot therefore advise on the totality of the licenses which may in practice 8. Are tax advantages available to be required for a power generation project, yet renewable energy generation we set out above the material licenses that we companies? believe, based on our previous experience, may be required in this context. There are no specific tax advantages applicable for renewable energy generating companies. 6. Is there a category of “license-exempt generation”? If so, does it cover some There are general advantages applicable to most types of renewable energy based companies incorporated in Egypt. For example, generation? as per the recent amendments introduced to the Investment Law by virtue of Law No. 17 for Any project company must obtain and maintain 2015 (“Investment Law Amendment”), a generation license from EERA in order to customs payable on imports of machinery, perform electricity generation activity in Egypt. equipment and devices necessary for projects were reduced from 5% to 2%. An exception from the foregoing is in case the generated electricity is for personal use. In this In addition, the general corporate income tax case, no licenses will be required provided that rate in Egypt was 25%; however, it was reduced EERA’s approval is obtained and subject to to 22.5% by virtue of Presidential Decree fulfilling certain conditions2. This is also the Number 96 for 2015 issued on 20 August 2015. case where the project capacity does not exceed 500 KW. 9. Is there a purchase guarantee given by the relevant legislation for the 7. Has there been any reform related to electricity generated by renewable renewable energy regulations since energy companies? 2016? Do you expect any reform/change in the near future? Yes. Where EEHC or one of its subsidiaries is the There are no significant regulations issued in the electricity off-taker, the Minister of Finance sector other than the increase of the electricity (“MoF”) (acting on behalf of the government) 2 Article (21) of the Executive Regulations. 70 GLOBAL RENEWABLE ENERGY GUIDE 2017 EGYPT SHARKAWY & SARHAN LAW FIRM can guarantee the obligations of EEHC and its For instance, EERA may sell carbon certificates subsidiaries in relation to projects that it to the investors through direct agreement in the commissions to the private sector or executes in context of the renewable energy projects6. partnership with the private sector3. However, we are not aware whether or not this is operational in practice. Where EETC is the electricity off-taker (for instance, such as the case under the FIT 13. Do the renewable energy based power scheme), either the MoF or the Central Bank of plants have priority for connection to Egypt (“CBE”) can guarantee the obligations the grid? of EETC4. Renewable energy based power plants do not 10. Is there a minimum price guarantee have priority for connection to the grid. As a given by the relevant legislation for the general principle, Article 47 of the New electricity generated by renewable Electricity Law requires EETC to grant without energy companies? discrimination access to the grid to all electricity generators. In general, there is no such minimum price guarantee. 14. Is there an incentive for domestic (local) manufacturing of equipment or It should be noted, however, under the FIT materials used in the construction of scheme, the tariff is fixed for 25 years for solar renewable energy based power plants? projects and for 20 years for wind projects. The tariffs are not indexed or annually adjusted with Under Egyptian law, there is no specific inflation or any other index. incentive available to manufacturers of equipment or materials used in the construction 11. Has the Paris Agreement under the of renewable energy based power plants. United Nations Framework Convention on Climate Change been 15. What are the other incentives available ratified? Is there a carbon market or to renewable energy generation carbon credits mechanism in your companies? jurisdiction? There are no specific non-tax incentives Egypt signed the Paris Agreement on 22 April applicable for renewable energy generating 2014. However, the Agreement has not been companies. There are general advantages ratified yet5. applicable to most companies incorporated in Egypt. 12. Is there a carbon market or carbon credits mechanism in your jurisdiction? For instance, under the Investment Law 7 Egypt does not have a carbon trading market. Amendment several project/activities may be Nonetheless, some regulations permit some eligible for further non-tax advantages and institutions in Egypt to trade on carbon incentives which shall be determined by virtue certificates. of a decree of the Cabinet of Ministers based upon the proposal of the competent Minister. 3 The MoF Guarantee Law no. (14) for 2013. 6 Article (123) of the Minister of Electricity decree no. 4 Article (52) of the Executive Regulations. 430 for the year 2015. 7 5 https://treaties.un.org/Pages/ViewDetails. Investment Law Amendment Law No. 17 for 2015, aspx?src=IND&mtdsg_no=XXVII-7-d&chapter= Article (20-Bis). 27&clang=_en GLOBAL RENEWABLE ENERGY GUIDE 2017 71 SHARKAWY & SARHAN LAW FIRM EGYPT Projects investing in the fields of electricity persons in accordance with the rules set (production, transmission, and/or distribution) forth in the Investment Law Amendment. from conventional, new or renewable energy resources are among these projects. STATISTICS The additional incentives as mentioned in the Law include: 16. What is the percentage of electricity generated based on each type of (i) permitting the establishment of private renewable energy source in the total customs outlets for the exports and generation of electricity on a country- imports of the relevant project, in wide scale? agreement with the Minister of Finance; According to the CBE, the total electricity (ii) granting projects reduced tariffs or generation in 2015-2016 was 185.6 billion payment facilities for the power used by the Kilowatt-hours. Of this, over 90% was produced project; by thermal energy from fossil fuels, around 8% was produced from hydro power, and around 1% (iii) reimbursement of the expenses, or part was produced from wind and solar power. thereof, incurred by the project company for installing utilities in the land allocated Kindly note that the current energy strategy in for the project after the project operation; Egypt (adopted by the Supreme Council of Energy in February 2008) is to increase renewable (iv) the State may bear part of the cost of energy generation up to 20% of the total energy technical training for personnel; mix by 2020. (v) the State may bear the social insurance premiums payable for the employees and OTHER the employer, in whole or in part, for a specified period; or 17. Is there anything else you wish to add? (vi) allocation of lands and real estate privately No. owned by the State, or by public legal SHARKAWY & SARHAN LAW FIRM Mohamed Nabil Hazzaa Marwa El-Shaarawy 2 Metwaly El Sharawy St., 2 Metwaly El Sharawy St., Sheraton Heliopolis, Sheraton Heliopolis, Cairo, Egypt Cairo, Egypt T +202 2269 0881 T +202 2269 0881 F +202 2269 0882 F +202 2269 0882 E [email protected] E [email protected] 72 GLOBAL RENEWABLE ENERGY GUIDE 2017 FINLAND Timo Airisto Kati Punakallio Krista Rekola ASIANAJOTOIMISTO WHITE & CASE OY renewable energy to at least 38% of its final GENERAL energy consumption by 2020.2 In addition, as much as 78% of the electricity produced in 1. What are the nature and importance of Finland in 2016 was carbon neutral.3 renewable energy in your country? According to 2016 statistics, Finland’s total Among other international obligations, Finnish energy consumption increased as a result of energy policy aims to execute the goals and colder weather by 2% year-on-year to 371 TWh objectives of the European Union’s energy (of which renewable energy sources accounted policy including, inter alia, the Third Energy for approximately 34%, a slight decrease from Package1. In general, Finnish national energy the previous year) and total electricity policy has succeeded in promoting renewable generation was 66.1 TWh (of which renewable energy in line with European Union directives energy sources accounted for approximately and Finland has already reached its national 45%).4 Based on a breakdown of total energy target requiring Finland to increase the use of 1 The Third Energy Package is a legislative package In 2015, renewable energy represented 39.3% of which, among others, aims to create a single final energy consumption in Finland, with the 38% European Union gas and electricity market. The target first being reached in 2014. package consists of two directives, one on common 3 Please see article by Finnish Energy “Sähköntuotanto rules for the internal market in gas (2009/73/EC), energialähteittäin 2016” available at: one on common rules for the internal market in https://energia.fi/perustietoa_energia- electricity (2009/72/EC), both transposed into alasta/energiantuotanto/sahkontuotanto. Finnish legislation in 2013, and three regulations, directly applicable in Finland. 4 It should also be noted that the consumption of biofuels fell by 65% in 2016. Such variation is 2 Please see Directive 2009/28/EC of the European caused by the fact that the Act on Promoting the Parliament and of the Council of April 23, 2009 on Use of Biofuels in Transport (446/2007, as the promotion of the use of energy from renewable amended) allows distributors to fulfill their biofuel sources and amending and subsequently repealing distribution obligation in advance. However, Directives 2001/77/EC and 2003/30/EC and pursuant to an amendment which entered into force Official Statistics of Finland (OSF): Energy supply and as of July 3, 2017, in respect of biofuel made th consumption. ISSN=1799-7976. 4 Quarter 2016. available for consumption after 2019, only 50% of Helsinki: Statistics Finland. Available at: any such distribution excess can be transferred to http://www.stat.fi/til/ehk/2016/04/ehk_2016_04_2 the subsequent year in order to fulfill the 017-03-23_tie_001_en.html. distribution requirement. Please also see Official Statistics of Finland (OSF): Energy supply and GLOBAL RENEWABLE ENERGY GUIDE 2017 73 ASIANAJOTOIMISTO WHITE & CASE OY FINLAND consumption by source, the main renewable on Production Subsidies for Electricity energy sources in Finland in 2016 were wood- Produced from Renewable Energy Sources based fuels (26%), hydropower (4%) and wind (“Production Subsidy Act”, 1396/2010, as power (1% ).5 As regards electricity generation amended) refers to the following sources: wind in Finland, of renewable energy sources, power, biogas and wood-based fuels (including hydropower (23.6%), biomass (16.3%) and wood by-products and waste products as well as wind (4.6%) represented the most significant woodchips).8 sources of electricity in 2016.6 Please also see Section 16 below for further statistical Moreover, Finland generally considers the information. energy sources specified in Directive 2009/28/EC of the European Parliament and The Finnish government approved a new of the Council of April 23, 2009 on the National Energy and Environmental Strategy to promotion of the use of energy from renewable 2030 on November 24, 2016 (“Energy sources, as from time to time in force in Finland Strategy”).7 Many of the goals and objectives (“RES Directive”) to be renewable.9 set out in the Energy Strategy relate to According to the RES Directive, the term increasing the significance and share of renewable energy refers to energy produced renewable energy in Finland. Among others, from renewable, non-fossil sources such as Finland aims to increase the share of renewable wind, solar, aerothermal, geothermal, energy of final energy consumption to over hydrothermal and ocean energy, as well as 50% during the 2020s. Further, as a long-term hydropower, biomass, landfill gas, sewage strategy, Finland aims to achieve carbon treatment plant gas and biogas. It should also be neutrality by 2050, with an energy system noted that, although considered a slowly strongly focused on renewable energy sources. renewable biomass, peat does not fall within the scope of renewable energy sources under 2. What are the definition and coverage of Finland’s energy policy. renewable energy under the relevant legislation? Although national legislation does not exhaustively define renewable energy, the Act consumption. ISSN=1799-7976. 4th Quarter 2016. 7 Please refer to publication 4/2017 of the Ministry Helsinki: Statistics Finland. Available at: of Economic Affairs and Employment, available at: http://www.stat.fi/til/ehk/2016/04/ehk_2016_04_2 http://julkaisut.valtioneuvosto.fi/bitstream/handle/ 017-03-23_tie_001_en.html and article by Finnish 10024/79189/TEMjul_4_2017_verkkojulkaisu.pdf?se Energy “Sähköntuotanto energialähteittäin 2016” quence=1. available at: https://energia.fi/perustietoa_energia- 8 It should also be noted that electricity may only be alasta/energiantuotanto/sahkontuotanto. marketed as “electricity produced from renewable 5 For further information, please see Official sources” if it has been issued a guarantee of origin. Statistics of Finland (OSF): Energy supply and In Finland, guarantees of origin are issued by the consumption. ISSN=1799-7976. 4th Quarter 2016. transmission system operator Fingrid Oyj, whereas Helsinki: Statistics Finland. Available at: the Energy Authority is generally responsible for http://www.stat.fi/til/ehk/2016/04/ehk_2016_04_2 supervising compliance with relevant legislation. 017-03-23_tie_001_en.html. 9 Please refer to the Ministry of Economic Affairs 6 Please see article by Finnish Energy “Sähköntuotanto and Employment implementing guidelines dated energialähteittäin 2016” available at: http://energia.fi/ May 3, 2012 (TEM/1096/08.10.02/2012). perustietoa_energia-alasta/energiantuotanto/ sahkontuotanto. 74 GLOBAL RENEWABLE ENERGY GUIDE 2017 FINLAND ASIANAJOTOIMISTO WHITE & CASE OY In addition to general provisions and laws REGULATION applicable to local operators and the market in general (including, for example, the Companies 3. How is the renewable energy sector Act (624/2006, as amended), general principles regulated? What are the principal laws of contract law and competition law), the and regulations? renewable energy sector is also regulated by various national laws and European Union As noted above, the renewable energy sector legislation, which aim to execute the policy forms a significant part of the current electricity goals of regulators through taxation, subsidies, market in Finland. As a preliminary matter environmental protection and funding cleaner regarding the Finnish electricity market, it is technologies. The principal national laws worth noting that Nordic and Baltic regulating the renewable energy sector in transmission system operators, including the Finland specifically include, among others: Finnish transmission system operator Fingrid Oyj, own the Nordic electricity exchange Nord The Electricity Market Act (588/2013, as Pool Spot AS (“Nord Pool”), which organizes amended) (“Electricity Market Act”), electricity trading within, among others, the which aims to provide the preconditions Nordic countries. In addition to the Nord for an efficient, secure and environmentally Pool’s spot market, electricity is traded through sustainable electricity market. over-the-counter transactions and directly between buyers and sellers.10 The Natural Gas Market Act (“Natural Gas Market Act”, 508/2000, as amended), Most of the electricity consumed in Finland is which also applies to gas produced from transmitted through the national grid. Fingrid renewable energy sources (being, among Oyj is the sole national transmission system others, biogas produced thermally from operator in Finland, responsible for, among biomass and through putrefaction) if such others, electricity transmission in the high- gas can be delivered and transported in voltage transmission system. Regional existing pipelines.11 electricity and distribution networks in Finland are local monopolies mainly owned and The Act on Supervision of the Electricity operated by various electricity companies, and Natural Gas Markets (590/2013, as public entities (such as municipalities) and amended), which regulates the general private investors. goals, duties and jurisdiction of the Energy Authority.12 10 Please note that in June 2017, the Swedish and 11 Please also see Government Bill 50/2017, which Norwegian transmission system operators sent the proposed certain changes to the Natural Gas Finnish and Danish transmission system operators Market Act, including opening up the natural gas a new proposal for balancing Nordic electricity market for competition, and aimed to create a local production and consumption. As currently drafted, natural gas market between Finland and the Baltics. the proposal is not, however, supported by the In addition, the reform seeks to improve the market Finnish transmission system operator, Fingrid Oyj, penetration of gas produced from renewable energy or the Nordic Energy Authorities. Please see sources. A new Natural Gas Market Act (587/2017) http://www.fingrid.fi/en/news/announcements/Pages/Th will primarily enter into force as of January 1, 2018. e-proposal-regarding-a-new-imbalance-settlement-model- 12 Please also see Government Bill 50/2017 relating to conflicts-seriously-with-Finland%E2%80%99s-national- amendments to the act that will primarily enter into decision-making-power-.aspx for further information. GLOBAL RENEWABLE ENERGY GUIDE 2017 75 ASIANAJOTOIMISTO WHITE & CASE OY FINLAND The Production Subsidy Act, which 2003/87/EC establishing a scheme for establishes the feed-in tariff promoting the greenhouse gas emission allowance trading construction of wind farms, biogas and (excluding emission trading relating to wood fuel power plants as well as aviation) and amending Council Directive woodchip power plants.13 96/61/EC regarding integrated pollution prevention and control (“IPPC”).17 The Decree on Production Subsidy for Electricity Produced from Renewable The Act on Compensating Indirect Costs Energy Sources (1397/2010, as amended). Resulting from Emissions Trading (138/2017) and related Government The State Aid Act (688/2001, as amended), Decree (311/2017), which provide the which provides the legal basis for the basis for the compensation framework Government Decree on General Rules for referred to under Section 12 below. the Allocation of Subsidies for Energy (1063/2012, as amended), which in turn The Act on Energy Efficiency (1429/2014, sets out provisions regarding the allocation as amended), which implemented Directive of financial aid for investment and research 2012/27/EC on energy efficiency. projects relating to renewable energy and promotes the use of new technologies in The Act on Climate (609/2015) (“Climate the renewable energy sector. 14 Act”), which sets the framework for Finnish climate change policy planning and Government Decree on General Rules for execution and aims to ensure that the Allocation of Investment Subsidies for European Union greenhouse gas reduction Renewable Energy and New Energy goals will be reached. Technologies (145/2016).15 The Environmental Impact Assessment The Act on Promoting the Use of Biofuels Act (252/2017), which, among others, aims in Transport (446/2007, as amended), to promote environmental impact which promotes the use of biofuels in assessments and sets out the main rules transport and sets an obligation for regarding the completion thereof. transport fuel distributors to distribute biofuels for consumption.16 The Act on Wind Power Compensation Areas (490/2013, as amended), which is, The Emission Trading Act (311/2011, as amended), which implemented Directive force as of January 1, 2018 and the Act on the Biofuels and Bioliquids (393/2013, as amended). Energy Authority (870/2013, as amended). According to the Energy Strategy, Finland aims for 13 Please also refer to Sections 7 and 10 below. at least a third of the fuel used in transportation to be renewable fuel by 2030. Please also see Press 14 Please also refer to Section 7 below and note that Release of the Ministry of the Environment on a the current decree shall only remain in force until Carbon Neutral Society by 2045, dated February 20, the end of 2017. 2017, available at: http://valtioneuvosto.fi/artikkeli/- 15 Please see Section 15 below. /asset_publisher/ministeri-tiilikainen-suomesta- 16 It should be noted that the distribution requirement hiilineutraali-yhteiskunta-viimeistaan-vuonna-2045. does not apply to distributors that distribute less 17 Please also see the Act on Aviation Emission than 1 million liters of gasoline, diesel and biofuels Trading (34/2010, as amended). per calendar year. Please also refer to the Act on 76 GLOBAL RENEWABLE ENERGY GUIDE 2017 FINLAND ASIANAJOTOIMISTO WHITE & CASE OY however, only applicable to the area of the and supervising compliance with the Bothnian Bay. provisions of the Production Subsidy Act, although the Ministry of Economic Affairs 4. What are the principal regulatory and Employment remains responsible for bodies in the renewable energy sector? the general direction, administration and development of measures in compliance Given the broad scope of different laws and with the Production Subsidy Act. regulations governing the renewable energy sector, various regulatory bodies may be Energy subsidies payable under the State involved, with their relevance for and/or Aid Act and related government decrees involvement in a given renewable energy fall within the purview of the Ministry of project depending on the scope and type Economic Affairs and Employment and thereof. The principal regulatory bodies the Finnish Funding Agency for involved in the renewable energy sector in Innovation, as applicable. Compensation Finland include, among others: payable for indirect costs resulting from emissions trading, as referred to under The Ministry of Economic Affairs and Section 12 below falls, however, within the Employment, whose Energy Department’s scope of responsibility of the Energy Director General serves as a key authority Authority. in the field of energy. The Ministry of Economic Affairs and Employment is 5. What are the main permits/licenses responsible for, among others, required for renewable energy projects? implementing national energy policy. The permits required for renewable energy The Ministry of Finance, which is primarily projects depend, among others, on the location responsible for preparing legislation (e.g. on-shore or off-shore), nature and size relating to taxation, including any tax thereof. In general, all construction projects and incentives allocated to the renewable land use in Finland must be in compliance with energy sector. the rules set out in the Land Use and Building Act (1999/132, as amended). In addition, The Energy Authority is in charge of, renewable energy projects may require various among others, enforcing Finnish and other permits and approvals, which are European energy and climate policy regulated under multiple specific statutes. Some through supervision and promoting the of the main permits and approvals renewable operation of the energy market and the energy projects in Finland may require include, fulfillment of climate goals. The Energy among others: Authority also grants various permits for energy projects and monitors the activities Construction permit(s) for plant facilities, of the electricity and natural gas markets such as turbines. (including, among others, interconnectivity issues with the grid) as well as generally Certain larger projects (such as e.g. certain seeks to promote the reduction of wind farms) may require the completion emissions, energy efficiency and the use of and approval of an environmental impact renewable energy. assessment (“EIA”) by the relevant authority. The main rules regarding EIAs The Energy Authority is also, in practice, are set out in the Environmental Impact responsible for the feed-in tariff system Assessment Act (252/2017). GLOBAL RENEWABLE ENERGY GUIDE 2017 77 ASIANAJOTOIMISTO WHITE & CASE OY FINLAND Environmental permit requirements for 6. Is there a category of “license-exempt certain projects are regulated under the generation”? If so, does it cover some Environmental Protection Act (527/2014, types of renewable energy based as amended) and the Environmental generation? Protection Decree (713/2014, as amended). As noted above, the notifications, authorizations and permits required for a given Permits required under the Water Act renewable energy project depend on the nature, (587/2011, as amended) should be scale and scope thereof. On a general level, in considered when developing e.g. addition to limited case-specific exemptions, hydropower plants and off-shore projects. including certain tax exemptions and exemptions relating to small-scale production Some construction projects and of electricity, there is no general license or installations may compromise aviation permit exemption for renewable energy security. For example, under the Aviation generation in Finland. It should, however, be Act (864/2014, as amended) turbines, noted that the mere sale of electricity in itself masts and other structures higher than 30 does not require a license. meters may require an aviation safety permit. 7. Has there been any reform related to renewable energy regulations since Depending on the technical layout of a 2016? Do you expect any project, a permit from the Energy reform/change in the near future? Authority under the Electricity Market Act During 2016 and the first half of 2017, there (588/2013, as amended) may be required have been various reforms of Finnish legislation for the construction of power lines governing the renewable energy sector, exceeding 110 kV. 18 including, among others: Redemption of land or consent from the Government Decree on Amending the municipality or other landowners may be Decree on General Rules for the Allocation necessary when e.g. placing cables of Subsidies for Energy (34/2017), which underground or planning maintenance entered into force on January 23, 2017 and routes. Further, it may be necessary to includes, among others, minor changes establish various easements in connection regarding competent authorities with renewable energy projects. responsible for the allocation of energy subsidies. At present, competent A statement from the Finnish Defense authorities to process and administer Forces confirming that the project will not energy subsidy applications and related disturb radars is necessary for e.g. most decision-making are the Ministry of wind power projects.19 Economic Affairs and Employment and the Finnish Funding Agency for Innovation.20 18 In the event that such power line crosses national 19 Please also see the Act on Wind Power borders, such permit must be requested from the Compensation Areas (490/2013, as amended). Ministry of Economic Affairs and Employment. 20 Tasks which previously belonged to the Centre for Economic Development, Transport and the 78 GLOBAL RENEWABLE ENERGY GUIDE 2017 FINLAND ASIANAJOTOIMISTO WHITE & CASE OY Government Decree on Amending Section Act, entering into force as of September 1, 1 of the Decree on Production Subsidy for 2017. Electricity Produced from Renewable Energy Sources (1014/2016), which We also note that a Government Bill (96/2017) entered into force on December 1, 2016. remains pending in respect of certain The amended decree sets out specific amendments to the Real Estate Tax Act conditions under which a wind turbine is (654/1992, as amended). The proposed changes considered to be connected to the grid and would, under certain circumstances, allow can thus be considered to fulfill the municipalities to apply a higher real estate tax requisite criteria for eligibility to the feed-in rate to wind farms with less than 10 mega volt- tariff.21 ampere individual nominal output and which would under the current regime not necessarily 23 Environmental Impact Assessment Act fall within the scope of such tax levels. (252/2017), which entered into force on April 16, 2017. The general scope, Please also see: (i) Section 10 below for further assessment procedures and tasks of the discussion regarding the expected future reform relevant authorities are, however, similar to of the renewable energy production subsidy those set out under the previous act. framework; (ii) Section 12 below for further discussion regarding a new support scheme We also note that Government Bill 50/2017 relating to costs incurred due to emissions regarding, among others, comprehensive trading; and (iii) Section 15 below for further reform of the Natural Gas Market Act as well discussion regarding a new, discretionary as various amendments to, among others, the investment subsidy. Electricity Market Act, was approved in June 2017.22 The main changes proposed by the INCENTIVES Government Bill relate to, among others: (i) opening up the natural gas market to competition in connection with the 8. Are tax advantages available to construction and commissioning of a new renewable energy generation natural gas pipeline between Finland and companies? Estonia; (ii) seeking to improve the market Finland seeks to promote the use of renewable penetration of natural gas produced from energy through various taxation related renewable sources; and (iii) the imposition of measures. Under the Act on Excise Duty on certain limits on unreasonable increases to Electricity and Certain Fuels (1260/1996, as electricity and natural gas transmission and amended), in addition to a stockpile fee, an distribution fees. A new Natural Gas Market excise duty consisting of energy content tax, Act (587/2017) will primarily enter into force as carbon dioxide tax and energy tax is, subject to of January 1, 2018, with certain amendments to certain limitations, payable on, among others, other legislation, such as the Electricity Market electricity. Electricity used by industry is subject Environment were transferred to the Finnish 22 Please see Government Bill 50/2017, available at: Funding Agency for Innovation. https://www.eduskunta.fi/FI/vaski/HallituksenEsitys/ 21 Please, however, also refer to Section 10 below in Documents/HE_50+2017.pdf for further respect of further discussion regarding the feed-in information. tariff. 23 The drafting process can be followed in Finnish at: http://vm.fi/hanke?selectedProjectId=27306. GLOBAL RENEWABLE ENERGY GUIDE 2017 79 ASIANAJOTOIMISTO WHITE & CASE OY FINLAND to lower taxation while, for example, networks, delivered outside Finland or used by households as well as the forestry and the power plant itself. agriculture sectors pay higher taxes. There are also certain further, specific exemptions on Under the Act on Excise Duty on Liquid Fuels excise duties and stockpile fees as well as tax (1472/1994, as amended), liquid fuels are refunds paid to certain energy intensive generally subject to an excise duty consisting of industries24 and agriculture.25 energy content and carbon dioxide tax as well as a stockpile fee. The Act on Excise Duty on As regards electricity, exemptions from both Liquid Fuels was amended in 2011 with the the excise duty and strategic stockpile fee are objective of, among others, guiding granted to, among others: consumption of transport fuels towards use of the most carbon dioxide-efficient biofuels.27 electricity produced with a generator or Among others, the following liquid fuels remain generators with an aggregate nominal exempt from the excise duty and stockpile fee:28 capacity not exceeding 100 kVA, provided, however, that electricity transferred from fuel entered in the reserve stock of the such plant to the grid will be subject to the Finnish government; provisions of the Act on Excise Duty on Electricity and Certain Fuels (1260/1996, fuel used as an energy source in oil as amended); and refinement processes; electricity produced with a generator or fuel used as raw material or auxiliary in generators with an aggregate nominal industrial production, or in direct first use capacity exceeding 100 kVA, provided, in the production of goods; however, that such production does not exceed 800,000 kWh in a calendar year fuel used in vessel traffic other than private (provided that, although such production leisure boating; will be subject to a registration obligation, the zero-tax rate will be applied to the fuel used for electricity generation; and producer).26 fuel used in aviation other than private There are also certain further exemptions from leisure flights. the excise duty and the stockpile fee available to electricity producers, for example, if the According to the Energy Strategy, in the future electricity is transmitted between electricity energy taxation will, among others, be used to: 24 Please see Section 8 a of the Act on Excise Duty on 27 Please see Government Bill 147/2010 on Electricity and Certain Fuels (1260/1996, as Amending Energy Taxation, available at amended). http://www.finlex.fi/fi/esitykset/he/2010/20100147.pdf. 25 Please see the Act on Refund of Excise Duty Levied 28 Please see the Act on Excise Duty on Liquid Fuels on Certain Energy Products Used in Agriculture (1472/1994, as amended) and Guidelines of the (603/2006, as amended) and Decree 309/2003 of Finnish Tax Administration, available at: the Finnish Ministry of Trade and Industry. https://www.vero.fi/fi- 26 Please see Section 7 of the Act on Excise Duty on FI/Syventavat_veroohjeet/Valmisteverotus/Energiaverotu Electricity and Certain Fuels (1260/1996, as s(41357). amended). 80 GLOBAL RENEWABLE ENERGY GUIDE 2017 FINLAND ASIANAJOTOIMISTO WHITE & CASE OY (i) encourage the use of woodchips and other In general, production subsidies may be paid by-products of the forestry industry in pursuant to the Production Subsidy Act to combined electricity and heat production and companies that generate energy from renewable separate heat production; and to (ii) ensure that sources. According to the Production Subsidy peat is not more competitive than wood-chips Act, electricity producers whose plants generate or other by-products of the forestry industry, energy from woodchip, wind power, biogas or but still remains more competitive than coal and wood-based fuels may be accepted to the feed- other fossil fuels. in tariff upon the fulfillment of certain further criteria.30 As general prerequisites for eligibility 9. Is there a purchase guarantee given by for the feed-in tariff, each relevant plant must: the relevant legislation for the (i) be located in Finland or its waters; (ii) be electricity generated by renewable connected to the grid; and (iii) have requisite energy companies? operational and financial qualifications for the production of electricity.31 Further Although some countries have purchase preconditions applicable to wind farms, biogas guarantees for electricity produced from plants and plants using wood-based fuel also renewable sources, Finland does not apply such include, among others: (i) the plant must be new a purchase guarantee system. Under the and may not contain used parts; and (ii) the Electricity Market Act, licensed grid operators plant may not have received other forms of are, however, upon request and reasonable state aid.32 The Production Subsidy Act also sets compensation obligated to connect all power out certain further criteria regarding, among plants fulfilling applicable technical others, the capacity of the relevant plants. requirements in their area of operation to the grid. The connection terms and technical Mainly, the feed-in tariff scheme compensates requirements must be explicit, impartial and for production costs by guaranteeing a premium non-discriminatory as well as take into account (amount calculated based on either the market the security of supply and the efficiency of the price of electricity and/or the price of emission electricity system.29 rights33) to the producer for a limited time. Under the feed-in tariff scheme, the target price 10. Is there a minimum price guarantee guaranteed for eligible wind power, biogas and given by the relevant legislation for the wood-based fuel plants is EUR 83.5 per MWh.34 electricity generated by renewable In general, the feed-in tariff payable is energy companies? determined based on the target price, subtracted by the three-month average market price of 29 Please see Chapter 5, Section 20 of the Electricity feed-in tariff even if they have received other forms Market Act. of state aid and that such restrictions on the receipt 30 Please see Chapter 2, Section 6 of the Production of state aid (other than the feed-in tariff) do not Subsidy Act. Please also note that e.g. solar power apply to woodchip plants. does not fall within the scope of the current 33 The price of emission rights is applied in production subsidy framework. determining the variable feed-in tariff payable to 31 Please see Chapter 2, Section 7 of the Production woodchip plants. Subsidy Act. 34 Please see Chapter 3, Section 23 of the Production 32 Please see Chapter 2, Sections 9-10 of the Subsidy Act. Note that the guaranteed price system Production Subsidy Act. It should, however, also be is, in fact, degressive as the aid level is not noted that, as an exception to the foregoing, certain automatically adjusted for inflation. pilot off-shore wind power projects (in Finnish: merituulivoimalan kokeiluhanke) are eligible for the GLOBAL RENEWABLE ENERGY GUIDE 2017 81 ASIANAJOTOIMISTO WHITE & CASE OY FINLAND electricity in the location of the relevant plant.35 to the feed-in tariff. As of April 1, 2017, the Biogas and wood-based fuel plants may, under Energy Authority had handled and approved certain circumstances, also be eligible to receive 96% of all applications of producers that will an additional heat premium (EUR 20 per MWh receive the feed-in tariff.40 for plants producing electricity from wood- based fuels and EUR 50 per MWh for biogas According to the Energy Strategy, the existing plants).36 Woodchip plants eligible to receive wind power production subsidy framework will production subsidies receive a variable feed-in be winded down as previously indicated, with a tariff, such amount varied so that the use of view that such projects (as well as other woodchip as a fuel in combined electricity and renewable energy projects that currently receive heat production remains competitive in a subsidy) will, in the future, be market based. comparison to peat.37 Subject to certain The Energy Strategy proposes that, during the limitations and maximum levels, eligible parties transition period, there will be a production may receive the feed-in tariff for a maximum subsidy scheme based on technology neutral period of 12 years.38 competitive bidding processes, pursuant to which production subsidies will only be paid to According to the Production Subsidy Act, wind the most cost-efficient and competitive power projects may be accepted to the feed-in investments into renewable energy.41 Based on tariff scheme until the combined nominal the Energy Strategy, the objective is to invite capacity of all accepted projects exceeds 2,500 tender offers for an aggregate amount of 2 TWh MVA.39 However, the combined nominal of renewable energy between 2018 and 2020. capacity of accepted wind farms, accepted The specifics of such transition period applications and filed applications for quota production subsidy scheme will be set out in a reservations already exceeded the 2,500 MVA government bill to be prepared on the matter. limit on June 2, 2015. Only wind farms that had The Ministry of Economic Affairs and applied for a quota decision confirming their Employment subsequently announced on June share of the total capacity quota before the 16, 2017 that preparation of the new production nominal capacity was exceeded may be accepted subsidy framework would be commenced as the 35 Please see Chapter 3, Section 25 of the Production 38 Please see Chapter 2, Section 16 of the Production Subsidy Act. If the average market price of Subsidy Act. electricity over three months is less than EUR 30 39 Please see Chapter 2, Section 6 of the Production per MWh, the feed-in tariff payable will be a Subsidy Act for further information regarding premium of the target price subtracted by EUR 30 similar caps placed on accepting biogas plants per MWh. (combined nominal capacity maximum 19 MVA) 36 Please see Chapter 3, Section 26 of the Production and wood-based fuel plants (over 50 such plants Subsidy Act. In order to be eligible for such and combined nominal capacity exceeds 150 MVA) premium, the plant must produce heat for a utility to the feed-in tariff. purpose in connection with the production of 40 Please see the Energy Authority’s calculation tool, electricity and its overall efficiency must be at least which is updated periodically: 50% or, if the combined nominal capacity of its https://tuotantotuki.emvi.fi/QuotaCounter. generators is at least 1 MVA, 75%. It should, however, be noted that an additional cap of EUR 41 Please see pp. 42-43 of the Energy Strategy, 750,000 in production subsidies has been set in available at: respect of electricity produced in plants operating http://julkaisut.valtioneuvosto.fi/bitstream/handle/1002 on wood-based fuel. 4/79189/TEMjul_4_2017_verkkojulkaisu.pdf?sequenc e=1 and Report 16/2016 of the Ministry of 37 Please see Chapter 3, Section 25 of the Production Economic Affairs and Employment, analyzing Subsidy Act for further details on how the variable various production subsidy frameworks. feed-in tariff is determined. 82 GLOBAL RENEWABLE ENERGY GUIDE 2017 FINLAND ASIANAJOTOIMISTO WHITE & CASE OY health and environmental studies that were set electricity prices resulting from emissions as a prerequisite thereto under the Energy trading.47 The state aid scheme seeks to Strategy had been completed.42 Further studies circumvent an increase in global greenhouse gas regarding the health effects of wind power will, emissions resulting from shifts of production however, also be undertaken during the fall of outside the European Union. The scheme will 2017.43 cover the period from 2016 to 2020 and eligible participants may seek compensation for 2016 11. Has the Paris Agreement under the retroactively. United Nations Framework Convention on Climate Change been 13. Do the renewable energy based power ratified? plants have priority for connection to the grid? The European Union ratified the Paris Agreement in October 2016 and the Paris Under the Electricity Market Act, grid operators Agreement entered into force on 4 November are required to grant connection to the grid, 2016. Finland finalized its national ratification among others, according to non-discriminatory proceedings on 14 November 2016.44 criteria.48 Accordingly, access to the grid is guaranteed for all electricity users and 12. Is there a carbon market or carbon electricity-producing plants alike (please also credits mechanism in your jurisdiction? refer to Section 9 above), including renewable energy plants, but electricity generated from Finland has a national scheme for emission renewable sources is not given priority. trading and strict goals for emission reductions. The Emission Trading Act (311/2011, as 14. Is there an incentive for domestic amended) established the Finnish scheme for (local) manufacturing of equipment or greenhouse gas emission allowance trading in materials used in the construction of 2011 as well as implemented the amendment of renewable energy based power plants? the IPPC directive.45 In addition, the Climate Act which entered into effect on June 1, 2015 In addition to the general incentives for sets out a target of bringing average national renewable energy projects described above and annual emissions down to 80% below the 1990 below, to our knowledge there are no specific level by 2050.46 local incentives for manufacturing equipment or materials used in the construction of On 4 April 2017, the European Commission renewable energy based power plants. approved a new Finnish support scheme to partially compensate energy-intensive companies in certain sectors for higher 42 Please see press release of the Ministry of Economic Aviation Emission Trading Act (34/2010, as Affairs and Employment, dated June 16, 2017, amended). available at: http://tem.fi/artikkeli/-/asset_publisher/ 46 Please see Section 6 of the Climate Act and ministeri-tiilikainen-uusiutuvan-sahkon-uuden- Government Bill 82/2014 available at: tukijarjestelman-valmistelu-aloitetaan. https://www.finlex.fi/fi/esitykset/he/2014/20140082. 43 Ibid. 47 Please see Act on Compensating Indirect Costs 44 Please see Ministry of Environment on the Paris Resulting from Emissions Trading (138/2017) and Agreement generally: http://www.ym.fi/pariisi2015. related Government Decree (311/2017). 45 Please note that there is also an emission trading 48 Please see Chapter 4, Section 20 of the Electricity regime for aviation which is regulated under the Market Act. GLOBAL RENEWABLE ENERGY GUIDE 2017 83 ASIANAJOTOIMISTO WHITE & CASE OY FINLAND 15. What are the other incentives available state aid and, accordingly, applicable limitations, to renewable energy generation such as the maximum permitted amount of companies? state aid under national and EU legislation also need to be taken into account. In addition to the incentives (e.g. production subsidies) described above, renewable energy generation companies may also be eligible to STATISTICS receive certain other subsidies and incentives, such as: 16. What is the percentage of electricity generated based on each type of Discretionary investment subsidies under renewable energy source in the total the State Aid Act (2001/688, as amended) generation of electricity on a country- and, in particular, the Government Decree wide scale? on General Rules for the Allocation of Subsidies for Energy (1063/2012, as In 2016, total electricity production in Finland was amended) issued thereunder. Such aid may 66.1 TWh, which was 2% more than in 2015, (subject to certain limitations and further whereas net imports of electricity to Finland criteria) be provided in the form of amounted to 19.0 TWh, more than ever before. financing for, inter alia, certain operations In fact, net imports of electricity grew by 16% or projects or related studies that e.g. year-on-year, representing 22% of the electricity promote the production or use of consumed in Finland in 2016.51 The following is a renewable energy, promote energy saving breakdown of electricity generation in Finland in or improving the efficiency of energy 2016 by source: 33.7% nuclear power, 23.6% production or reduce environmental hydropower, 16.3% biomass, 10.4% coal, 5.3% damage caused by energy production.49 natural gas, 4.4% peat, 1.4% waste, 4.6% wind and 0.3% oil. Renewable energy sources accounted for In 2016, a new form of investment subsidy 45% of the electricity generated.52 aimed at promoting mid-size and large energy projects relating to the use of new technologies with investment costs exceeding EUR 5,000,000 was also 50 introduced. Given that such incentives are paid from the government budget, the feed-in tariff and the other above described incentives constitute 49 Please see Government Decree on General Rules 51 Please see: Official Statistics of Finland (OSF): for the Allocation of Subsidies for Energy Energy supply and consumption. ISSN=1799-7976. 4th (1063/2012, as amended) for further information. Quarter 2016. Helsinki: Statistics Finland. Available 50 Please see Government Decree on General Rules at: for the Allocation of Investment Subsidies for http://www.stat.fi/til/ehk/2016/04/ehk_2016_04_2 Renewable Energy and New Energy Technologies 017-03-23_tie_001_en.html. (145/2016) for further details. It should be noted 52 Please see: original statistics of Finnish Energy that projects that have received energy subsidies “Sähköntuotanto energialähteittäin 2016” available at: under the General Rules for the Allocation of http://energia.fi/perustietoa_energia- Subsidies for Energy (1063/2012, as amended) are alasta/energiantuotanto/sahkontuotanto. not eligible to receive such investment subsidies. 84 GLOBAL RENEWABLE ENERGY GUIDE 2017 FINLAND ASIANAJOTOIMISTO WHITE & CASE OY Finnish Electricity Production 2016.53 OTHER 17. Is there anything else you wish to add? No. ASIANAJOTOIMISTO WHITE & CASE OY Timo Airisto Kati Punakallio Krista Rekola Pohjoisesplanadi 37 A Pohjoisesplanadi 37 A Pohjoisesplanadi 37 A FI-00100 Helsinki, FI-00100 Helsinki, FI-00100 Helsinki, Finland Finland Finland T +358 9 228 64 322 T +358 9 228 641 T +358 9 228 64 342 F +358 9 228 64 228 F +358 9 228 64 228 F +358 9 228 64 228 E [email protected] E [email protected] E [email protected] 53 Please see: original diagram of Finnish Energy http://energia.fi/perustietoa_energia- “Sähköntuotanto energialähteittäin 2016” available at: alasta/energiantuotanto/sahkontuotanto. GLOBAL RENEWABLE ENERGY GUIDE 2017 85 GERMANY Thomas Burmeister Dr. Guido Hermeier WHITE & CASE LLP, Duesseldorf power in electricity generation from renewable GENERAL sources accounted for 42.3%. 1. What are the nature and importance of Up until 2012 Germany was one of the world’s renewable energy in your country? top photovoltaic (“PV”) markets. Given the climate change discussion, as well as At the end of 2016 the total nominal PV power the limited availability of fossil energy resources installed in Germany was ca. 41 GW, such as coal and oil, the importance of distributed over 1.5 million power plants. In renewable energies is constantly increasing. 2016, 1.2 GW new PV capacity was installed in Germany has taken this issue very seriously and Germany. Solar energy currently accounts for 6 sees a huge opportunity in renewable energies, per cent of Germany’s electricity demand. as these are virtually inexhaustible and are (in Germany’s share of the global installed principle) being perceived as not having a photovoltaics capacity in 2015 was around 17.6 negative effect on the climate. per cent. In 2015, renewable energy sources had a share Germany aims at reducing greenhouse of 33% of the electricity supply and 12.6% of emissions by 40% by the year 2020 compared the total energy consumption in Germany to the year 1990. Such ambitious goals require (figures of the Federal Ministry for Economic an ambitious strategy to increase energy Affairs and Energy for 2016, AG efficiency and expand the renewable energy Energiebilanzen, AGEE-Stat). sector. Accordingly, the German government published an integrated energy and climate Germany is one of the pioneers in program in 2007 (“IEKP”) which set out global the wind power sector. Wind energy now standards and considerations on an appropriate accounts for about 15% of the German power response for a modern economy. It contained supply. With an installed onshore capacity of both political and legal initiatives aimed at 45,911 MW in 2016, Germany has one of the securing energy supply while at the same time largest installed onshore wind power capacities being cost-effective and environmentally worldwide. At the end of 2016, Germany’s sustainable. All of the 29 legal initiatives in the offshore wind power capacity in the grid program have been implemented. reached around 4,160 MW. The share of wind 86 GLOBAL RENEWABLE ENERGY GUIDE 2017 GERMANY WHITE & CASE LLP, Duesseldorf In September 2010, the German government 40 to 45% by the year 2025, 55 to 60% published its first energy strategy (“ES”) with by the year 2035, and 80% by the year the intention of organizing an environmentally 2050 of gross electricity consumption; and friendly, sustainable and affordable energy supply for the first half of the 21st century. The to increase the share of renewable energy core of this ES was the extension of the sources in terms of total gross final energy operating time for nuclear power plants by consumption to at least 18% by 2020. twelve years (average) and the development of the renewable energy sector. In addition, the ES The EEG entered into force in 2000 and has comprised plans concerning the grid system been amended several times thereafter with the extension, modernization of the insulation of latest substantial amendment as of 1 January buildings and the transport sector. After the 2017. The amendment is to be seen against the nuclear disaster in Fukushima in March 2011, backdrop of the approach of the EU the German government revised its ES – after a Commission to qualify the German renewables new evaluation of nuclear power risks – and support scheme as being a notifiable state aid. decided to shut down the last nuclear power In this regard, the EEG is based on the plant in Germany in 2022. The eight oldest Guidelines on environmental and energy State operating nuclear power plants in Germany Aid for 2014 - 2020 (in force since 1st July 2014) were shut down immediately in 2011. of the European Commission to ensure its Therefore, the development of the renewable compliance with European Law. energy sector became more significant. A main focus of the German government now lies on 2. What are the definition and coverage of improving the integration of the renewable renewable energy under the relevant energy sources in the system and in the market. legislation? With the Act on Development of Renewable According to the European Directive on the Energy Sources (Erneuerbare-Energien-Gesetz promotion of the use of energy from renewable – “EEG”), the German legislature created a sources (Directive 2009/28/EC), energy from regulatory instrument: renewable sources covers energy from renewable non-fossil sources, namely wind, to enable the energy supply to develop in a solar, aerothermal, geothermal, hydrothermal and sustainable manner in particular in the ocean energy, hydropower, biomass, landfill gas, interest of mitigating climate change and sewage treatment plant gas and biogases protecting the environment; (Article 2 para. 2 lit. (a) Directive 2009/28/EC). However, even though German law on to reduce the costs of energy supply to the renewable energies is already consistent with economy not least by including long-term material provisions of Directive 2009/28/EC, external effects; there is no generally accepted definition of “renewable energy” in the German legislation. to conserve fossil energy resources; Therefore, the coverage of renewable energy may differ between the respective legislative to promote the further development of acts. technologies to generate electricity from renewable energy sources; Within the meaning of the EEG, renewable energy is defined as: to increase the share of electricity generated from renewable energy sources to at least hydropower including wave, tidal, salinity gradient and marine current energy; GLOBAL RENEWABLE ENERGY GUIDE 2017 87 WHITE & CASE LLP, Duesseldorf GERMANY wind energy (onshore and offshore); heat extracted from the ground (geothermal energy); solar radiation; heat extracted from the air or water, geothermal energy; and excluding waste heat (ambient heat); energy from biomass (as defined in detail in heat made technologically usable to cover the Biomass Ordinance) including biogas, thermal energy demand through the use of biomethane, landfill gas and sewage solar radiation; treatment gas and from the biologically degradable part of waste from households heat generated from solid, liquid or gaseous and industry. biomass; and Biomass (energy sources from phyto and cooling energy extracted from the zoomass) is defined in Sec. 2 of the Biomass ground or water or extracted from heat Ordinance as: extracted or generated as per the above. plants and parts of plants; Only the following energy sources shall be recognized as biomass within the meaning of fuels made from plants or parts of plants the EEWärmeG: whose components and intermediate products have all been produced from biomass within the meaning of the biomass; Biomass Ordinance; waste and by-products of plant and animal biodegradable fractions of household and origin from agriculture, forestry and industrial wastes; commercial fish production; landfill gas; biological waste within the meaning of Sec. 2 no. 1 Biological Waste Ordinance; sewage treatment plant gas; gas produced from biomass by sewage sludge within the Sewage Sludge gasification or pyrolysis and all resulting Ordinance; and products and by-products; and vegetable oil methyl ester. alcohols produced from biomass, whose components, intermediate products, REGULATION products and by-products have been produced from biomass. 3. How is the renewable energy sector Please note that the EEG also promotes mine regulated? What are the principal laws gas – even if mine gas is not a renewable energy and regulations? within the meaning of the EEG. The principal laws and regulations are: The Act on the Promotion of Renewable Energies in the Heat Sector (Erneuerbare- Energien-Wärmegesetz - EEWärmeG) defines renewable energy as: 88 GLOBAL RENEWABLE ENERGY GUIDE 2017 GERMANY WHITE & CASE LLP, Duesseldorf a. Renewable Energy Sources Act – Erneuerbare- Remuneration Energien-Gesetz (EEG); in force since March 2000, latest amendment in 2017.1 In the past the promotion scheme for renewable energies in the EEG was based on The EEG is the most important legislative act feed-in tariffs. Operators were entitled to offer promoting the use of renewable energies in the produced power to the grid operator who Germany. It covers the connection of was obliged to purchase the power and pay installations for the generation of electricity feed-in tariffs as fixed by the EEG. from renewable sources to the grid system, the provisions for the promotion to be received The amendment of the EEG in 2014 changed from the grid operator and a nationwide scheme the promotion scheme fundamentally from the to equalize the financial burden of the feed-in tariff model to a mandatory direct promotion of renewable energies. In detail: selling for all newly commissioned plants (Sec. 2 para. 2 EEG). The operator sells the produced Priority connection to the grid system power to a third party and receives as remuneration the agreed contract price. For Installations generating energy from renewable promotion he is entitled to claim the payment energy sources have priority regarding of a market premium from the grid operator. connection to the grid system. The market premium is, simplified, calculated on a monthly basis as the difference between Priority grid access, transmission and distribution the promotional level and the average monthly Grid system operators are obliged to grant market price of the respective renewable energy. grid access, transmit and distribute electricity Direct selling is in general mandatory to all new from renewable sources. Upon generated installations. Existing installations are free to request, grid system operators must choose and move between feed-in tariffs and immediately optimize, strengthen and expand direct selling. their grid systems in accordance with the best available technology in order to ensure the Further, it is to be mentioned that the EEG purchase, transmission and distribution of 2017 includes exemptions from the obligation such electricity. In the event of grid system of direct selling. Feed-in tariffs still apply to overload grid system operators are obliged to small installations. Under Sec. 21 EEG regulate the installations generating energy installation operators are entitled to receive feed- from renewable energy sources provided it is in tariffs: ensured that the largest possible quantity of electricity from renewable energy sources and for electricity from installations which have from combined heat and power generation is a total maximum installed capacity of 100 being purchased (feed-in management). If, kilowatts; and however, they have to do so, they are obliged to compensate the installation operator a reduced feed-in tariff of 80% for (hardship clause). electricity from larger installations of more than 100 kilowatts installed capacity in 1 An English translation is available on the Federal Downloads/E/eeg-2017-gesetz-en.pdf?__blob= Ministry for Economic Affairs and Energy’s publicationFile&v=2. website, https://www.bmwi.de/Redaktion/EN/ GLOBAL RENEWABLE ENERGY GUIDE 2017 89 WHITE & CASE LLP, Duesseldorf GERMANY exceptional cases for up to three months in provides some exemptions for plants which still a row and not more than sixth months per fall under the system of determination of the calendar year. claim and level of promotion by law (and as it continues for hydro, geothermal and mine gas). Determination of promotional level and operators eligible for In particular small installations of up to 750 kW promotion (wind onshore, PV) respectively 100 kW (biomass) are excluded from auctions. In Prior to the amendment of the Renewable addition, transitions rules were granted for Energies Act which entered into force 1st those projects which were granted with January 2017 the level of promotion to be construction permits prior to 1st January 2017. granted was determined by the law directly. For each renewable energy source the law stipulates Nationwide equalization scheme respective promotional level depending on the size of installation (for further details see The costs resulting from the payment of feed-in question 10 below). Each operator was in the tariffs and market premiums are equalized past entitled to claim for promotion if the plant according to the EEG and the Ordinance on fulfils all requirements such as technical Renewable Energies (EEV). While the EEG specifications. provides for the principles of the equalization mechanism, the Renewable Energies Ordinance However, since the amendment entered into stipulates detailed rules on the marketing of force 1st January 2017 this approach does no electricity generated from renewable sources by longer apply to wind onshore, wind offshore, the transmission operators. biomass and larger PV-plants. For those plants promotion can be claimed only after a Step 1: successful bid in the newly established auctioning process. Grid system operators who purchase electricity generated from renewable energy sources or The auctions are held and organized by the paying market premiums to the plant operator are Federal Network Agency. For each of the obliged to deliver the power immediately to the mentioned renewable energy sources subject to respective upstream transmission system auctioning process the law stipulates yearly operator, who has to reimburse the grid system volumes to be tendered in auctions. In general, operators with the financial support given by the auctions are held for each renewable energy them to the installation operators. source separately. However, there will be in the future a common auction for Onshore Wind Step 2: and PV as well. In general, only plants to be located in Germany are allowed to take part in The four transmission system operators are the auctions. But 5 % of newly installed capacity obliged to balance the amount of power and costs shall be subject to auctions open for plants resulting from step one amongst each other. located in such European Member States, Step 3: which entered into respective international treaties with Germany in order to establish Transmission system operators are obliged to sell common cross-border auctions. The first of electricity for which feed-in tariffs have been paid, such cross-border auctions is held in November either themselves or jointly, without 2017 for PV in Germany and Denmark. discrimination, transparently and observing the provisions of the Equalisation Scheme Ordinance With regard to those renewable energy sources on the spot market of an energy exchange. subject to auctions (wind onshore, wind offshore, biomass and larger PV-plants) the law 90 GLOBAL RENEWABLE ENERGY GUIDE 2017 GERMANY WHITE & CASE LLP, Duesseldorf Step 4: The aim of the Offshore Wind Act is to concentrate the provisions for the planning and Transmission system operators can demand establishing of an offshore wind farm. reimbursement of the difference between the However, the general provisions of the EEG costs resulting from step one and the earnings with regard to promotion still apply as well and resulting from step three from electricity suppliers the regime regarding the grid connection of which supply electricity to final consumers to offshore wind farms is still set out in the share the costs caused due to the EEG promotion EnWG. regime that exceed the compensation received by selling this electricity on the spot market of an c. Renewable Energies Ordinance (latest amendment energy exchange (the so-called “EEG 2017) and Renewable Energies Implementation surcharge”). This EEG surcharge has to be Ordinance (latest amendment 2017) calculated in a transparent manner according to the Equalisation Scheme Ordinance. The EEG These Ordinances set out details of the surcharge for 2011 was set at 3.530 ct/kWh, for complex equalization scheme under the EEG 2012 at 3.592 ct/kWh for 2013 at 5.277 ct/kWh, according to which purchased electricity is for 2014 6.240 ct/kWh, for 2015 6.170ct/kWh, for marketed on the spot energy market and costs 2016 6.354 ct/kWh and for 2017 6.880 ct/kWh. are distributed amongst the electricity suppliers (Resource: www.netztransparenz.de ). which supply electricity to final consumers (see above, steps 3 and 4). These Ordinances Step 5: intend to simplify the process by minimizing costs and risks for the involved parties. Generally, electricity suppliers are entitled to claim the financial burden arising from the d. Act on the Promotion of Renewable Energies in EEG surcharge from final consumers on a the Heat Sector (Renewable Energy Heat Act – contractual basis (general equalization scheme). Erneuerbare-Energien-Wärmegesetz (“EEWärmeG”); in force since 2008, latest However, there is an exception granted to amendment in 2017). electro-intensive undertakings and railways. Upon request, their financial burden arising The purpose of this Act is to enable the from the EEG promotion of renewable energy sustainable development of the energy supply shall be limited pursuant to a special and to promote the further development of equalization scheme (Secs. 63 et. seq. EEG technologies for the generation of heat and cold 2017). The reason for this exception is that the from renewable energies, especially with a view electro-intensive undertakings shall not lose to climate protection, efficient use of fossil their competitiveness due to the EEG resources and the reduction of import regulatory framework. dependence. According to this Act, owners of new buildings are obliged to satisfy their heat b. Offshore Wind Act and cold demand by using a specific amount of renewable energy (unless the building meets By 1st January 2017 the new Offshore Wind certain requirements regarding thermal Act entered into force. The Offshore Wind Act insulation). comprises the relevant specific provisions for auction procedures for Offshore Wind as well as the detailed framework for permitting the offshore wind farms. GLOBAL RENEWABLE ENERGY GUIDE 2017 91 WHITE & CASE LLP, Duesseldorf GERMANY e. Ordinance on Generation of Electricity from g. Ordinance on Requirements Pertaining to Biomass (Biomass Ordinance – Sustainable Production of Biofuels (Biofuel- Biomasseverordnung; in force since 2001, latest Sustainability Ordinance – Biokraftstoff- amendment in 2017) Nachhaltigkeitsverordnung; in force since 2009, latest amendment in 2012) This Ordinance sets forth details regarding the scope of application of the EEG. This includes To promote biofuels, the German legislature descriptions of: grants tax relief. Energy products are generally subject to energy taxes under the German substances that shall be considered to be Energy Tax Act. Upon request, tax relief can, biomass; however, be granted for the share of biofuels used in the fuel mix, as long as the biofuels are the technical processes for generating generated in a sustainable manner according to electricity from biomass; and the Biofuel-Sustainability Ordinance. Germany aims at increasing the share of biofuels in the environmental standards that must be fuel mix up to a volume of met in relation to the generation of 10% by 2020, while ensuring at the same time electricity from biomass. that biofuels are generated in a sustainable manner. f. Ordinance on Requirements Pertaining to Sustainable Production of Bioliquids for Furthermore, the Federal Emission Protection Electricity Production (Biomass-Electricity- Law (Bundesimmissionsschutzgesetz) requires that Sustainability Ordinance – Biomassestrom- fuels placed on the market have to contain a Nachhaltigkeitsverordnung; in force since 2009, certain amount of biofuels. latest amendment in 2016) h. Ordinance on System Services by Wind Energy This Ordinance aims at ensuring that bioliquids Plants (System-Service Ordinance – Verordnung used for electricity production which are eligible zu Systemdienstleistungen durch for the promotion framework under the EEG Windenergieanlagen (“SDLWindV”); in force are always produced in full compliance with since 2009, latest amendment in 2011) binding sustainability standards. Bioliquids not complying with these standards are not eligible The development of onshore wind energy for the promotion under the EEG. The liquid generation has been progressing above the biomass must – in the interest of environment, political objectives with respect to the climate and nature – have the capability to development of renewable energies. This reduce greenhouse gases by 35%. This value will development represents a challenge for grid climb to 50% in 2017 and 60% in 2018. system operators. They must ensure the security Furthermore, the cultivation of the crops must and stability of the grid system and at the same not take place in areas having a high ecological time transport significantly increasing shares of value. wind-generated electricity through the grid system. Therefore, newly installed and To qualify for the regulated feed-in tariffs repowered onshore wind farms have to provide stipulated by the EEG, installation operators system services which have – so far – only been have to prove vis-à-vis the grid system operator, required from conventional installations. This that the offered energy has been solely Ordinance intends to boost the security and generated from renewable energy sources, i.e., stability of the grid system, particularly solving that it has been produced in accordance with wind-energy-related problems (such as these sustainability standards. 92 GLOBAL RENEWABLE ENERGY GUIDE 2017 GERMANY WHITE & CASE LLP, Duesseldorf frequency control, voltage control, network Installation register security), as well as technical developments in this field. The Federal Network Agency shall establish and maintain an installation register in which all 4. What are the principal regulatory necessary information on the installations will bodies in the renewable energy sector? be gathered, centralized and made available to the public. Further, the installation register is Federal Network Agency (Bundesnetzagentur) the official data basis for the amount for newly installed capacity. The amount of newly The tasks of the Federal Network Agency with installed capacity in a respective time period has regard to renewable energy are enumerated in an impact of the promotional level of new the EEG. plants built in future. Auction Process Stipulations regarding technical devices and Feed-in Management The Federal Network Agency is responsible for organizing and holding the auction procedures The Federal Network Agency has the option under the EEG. to determine specifications of the technical equipment necessary to allow the so-called Monitoring the (nationwide) equalization scheme feed-in management (Secs. 9 and 14 EEG) and the order of deactivation pursuant to Sec. 14 The Federal Network Agency particularly EEG (Sec. 85 EEG). monitors the (nationwide) equalization scheme (Secs. 56 – 62 EEG – see question 3). Federal Office of Economics and Export Control (Bundesamt für Wirtschaft und Ausfuhrkontrolle) The Federal Network Agency shall monitor: The Federal Office of Economics and Export that electricity suppliers are only charged Control are charged with duties regarding the by transmission system operators with special equalization scheme for electro- feed-in tariffs and market premiums paid in intensive undertakings and railways (Secs. 63 – accordance with the nationwide 69 EEG). The financial burdens arising from equalization scheme; the renewable energies promotion system according to the EEG and imposed on electro- that the data referring to the location and intensive undertakings or railways can be capacity of the installations the grid system limited to them under certain conditions. operators are obliged to present to the Federal Network Agency, and other data 5. What are the main permits/licenses the grid system operators have to publish, required for renewable energy projects? are duly submitted and published; and As main permits/licenses, the construction and that, based on the information provided by operation of renewable energy installations may the transmission system operators, third require a building permit under the applicable parties are able to understand how the Federal Building Code (Baugesetzbuch – BauGB) EEG surcharge is calculated. and/or a permit according to the Federal Emmission Control Act (Bundesimmissionsschutzgesetz – BImSchG). The building permit is issued by the competent building control authority; the permit under the GLOBAL RENEWABLE ENERGY GUIDE 2017 93 WHITE & CASE LLP, Duesseldorf GERMANY BImSchG is generally issued by the relevant concentrating effect (Konzentrationseffekt). This district authority. means that, with the exception of planning approvals, approvals of operation plans under A building permit may be necessary depending mining law, official decisions based on nuclear law on the type, size and location of an installation, and permits and authorizations under water law, the area in which it is built as concerns planning the permit under the BImSchG includes all other law requirements as well as the applicable official decisions, in particular licenses under federal state law. The main legal basis for the public law, approvals, grants, permits and requirements and conditions of licensing are authorizations. Thus, a permit under the BauGB, the Federal Land Utilisation Ordinance BImSchG also contains a building permit under (Verordnung über die bauliche Nutzung der the applicable federal state building code. Grundstücke - BauNVO) and the respective building codes of the federal states. A building Offshore wind farms, which are usually situated permit may be granted only if the installation beyond Germany’s coastal waters in the complies with the planning law requirements, exclusive economic zone, require a permit particularly with the determinations laid down pursuant to the Offshore Wind Act from the in the respective building plan. Federal Maritime and Federal Hydrographic Agency (Bundesamt für Seeschifffahrt und A permit according to the BImschG is generally Hydrographie – BSH) as the single authority required for installations that due to their nature responsible for granting such permits. or their operation are particularly liable to cause harmful effects on the environment or 6. Is there a category of “license-exempt otherwise endanger or cause considerable generation”? If so, does it cover some disadvantages or considerable nuisance to the types of renewable energy based general public or the neighborhood. The generation? installations subject to licensing are listed in the Ordinance on Installations Requiring a Permit Besides the above-mentioned licenses, no (Verordnung über genehmigungsbedürftige Anlagen - 4. permit is needed under the German Energy BImSchV). Law Framework to operate an installation, which produces electricity from renewable The respective permit has to be granted if the energies. Only in cases where an operator wants installations are in compliance with the to supply household consumers directly, he requirements set forth in the BImSchG itself must give notice to the Federal Network and the ordinances issued thereunder as well as Agency about starting the supply. with all other public law requirements. This includes, inter alia, the relevant planning law 7. Has there been any reform related to situation, the obligations of operators of renewable energy regulations since installations subject to a permit according to the 2016? Do you expect any BImSchG and any other provisions under reform/change in the near future? public law or any occupational safety and health concerns. Depending on the type and size of an As mentioned before a major amendment installation, it may be necessary to carry out an entered into force 1 January 2017, which ecological impact assessment as part of the established the auction procedures for onshore applicable licensing procedure. wind, offshore wind, larger PV plants and biomass as set out above. Currently no Since the BImSchG provides the legal basis for additional legislative procedures are ongoing. the granting of a permit, the permit has a so-called However, due to the results of the election of 94 GLOBAL RENEWABLE ENERGY GUIDE 2017 GERMANY WHITE & CASE LLP, Duesseldorf the Federal Parliament in autumn 2017 it is to operators, which are operating upstream be expected that the German energy policy will grid systems of up to 110 kilovolts (Sec. 12, be slightly adjusted which might include the para. 1 sentences 2 EEG). Renewable Energies Act as well. In the event of grid system overload, grid system operators may regulate the system by INCENTIVES means of so-called feed-in management instruments (Sec. 14 EEG). Using these 8. Are tax advantages available to renewable instruments, grid system operators shall be energy generation companies? entitled to take technical control over installations connected to their grid system Electrical power is generally subject to an with a capacity of more than 100 kW and of electricity tax in Germany. However, the more than 30 kW in the case of solar radiation if: electricity tax law allows for exemptions for electrical power if it is exclusively generated otherwise there would be a grid system from renewable energy sources and if the bottleneck in the respective grid system electrical power is withdrawn from a grid area including the upstream grid system; system / power line that provides electrical power exclusively from renewable energy priority for electricity from renewable sources (Sec. 9 para. 1 no. 1 Electricity Tax energy sources, mine gas and combined Act). heat and power generation is maintained to the extent that other power generators do 9. Is there a purchase guarantee given by not have to remain on the grid system in the relevant legislation for the order to ensure the security and reliability electricity generated by renewable of the electricity supply system; and energy companies? According to the principle of the priority grid they have called up the available data on access, transmission and distribution: the current level of feed-in in the respective grid system region. grid system operators must, without delay The respective installation operator, however, and as a priority, grant grid access, transmit can claim compensation: The grid system and distribute electricity, which is operator whose grid system gives rise to the generated from renewable energy sources need for the feed-in management shall and sold in the forms of supported direct compensate those installation operators who, selling, other direct selling and feed-in tariff due to such measures, were not able to feed in (Sec. 11 and 20, para. 1 EEG); and electricity. Compensation is limited to 95% of the lost revenues plus additional expenses and grid system operators must, upon request minus the saved expenses. If the lost revenues of those wishing to feed in electricity, in a year exceed 1 percent of the revenues of without delay in accordance with the best that year, the operators affected by the available technology optimize, strengthen assumption of feed-in management measures and expand their grid systems in order to can claim 100% compensation from that point ensure the purchase, transmission and in time (Sec. 15 para. 1 sentence 2 EEG). Claims distribution of the electricity generated for further compensation made by the from renewable energy sources (Sec. 12, installation operators against the grid system para. 1 sentence 1 EEG). This obligation also applies to upstream grid system GLOBAL RENEWABLE ENERGY GUIDE 2017 95 WHITE & CASE LLP, Duesseldorf GERMANY operator shall generally remain unaffected Results auction procedures PV: (Sec. 15 para. 3 EEG). February June 2017 10. Is there a minimum price guarantee 2017 given by the relevant legislation for the Auction capacity (MW) 200 200 electricity generated by renewable Sum capacity of all bids 488 646 energy companies? (MW) There is a minimum price guarantee for Maximum bid limit ct/kWh 8.91 8.91 electricity which is exclusively generated from Lowest successful bid 6.0 5.34 renewable energy sources and sold under the ct/kWh feed-in tariff regime to the grid operator. Highest successful bid 6.75 5.9 However, with regard to new installations to ct/kWh which the feed-in tariff system is in general not Average successful bid 6.58 5.66 applicable and which are subject to the direct ct/kWh selling the payment of the market premium by the grid operator is guaranteed. Results auction procedures wind offshore: The promotional level has to be determined for April 2017 each installation separately. For those Auction capacity (MW) 1550 installations subject to auctions the respective Maximum bid limit ct/kWh 12.0 result of the auctioning process sets the Lowest successful bid ct/kWh 0.0 promotional level. Thus, the following results of Highest successful bid ct/kWh 6.0 the auction procedures already held are not applicable in general, but can provide orientation Average successful bid ct/kWh 0.44 of promotion to be reached in auction procedures: For all installations which are not subject to auction procedures the promotional level is still Results auction procedures wind onshore: determined by law. The following table shows the promotional level for those installations. May 2017 August The table below sets forth the promotional 2017 levels shown in the EEG which, however, are Auction capacity (MW) 800 1000 subject to further degression depending on the Sum capacity of all bids 2137 2927 time of commissioning of the installation. (MW) Maximum bid limit ct/kWh 7.0 7.0 Lowest successful bid 4.2 3.5 ct/kWh Highest successful bid 5.78 4.29 ct/kWh Average successful bid 5.71 4.28 ct/kWh 96 GLOBAL RENEWABLE ENERGY GUIDE 2017 GERMANY WHITE & CASE LLP, Dusseldorf Renewable Energy Promotional level (cent/KWh) EEG Rated Output/Capacity Source (subject to degression) Hydropower Sec. 40 max. 500 kW 12.40 max. 2 MW 8.17 max. 5 MW 6.25 max. 10 MW 5.48 max. 20 MW 5.29 max. 50 MW 4.24 > 50 MW 3.47 Landfill Gas Sec. 41 max. 500 kW 8.17 para 1 max. 5 MW 5.66 Sewage Treatment Gas Sec. 41 max. 500 kW 6.49 para 2 max. 5 MW 5.66 Mine Gas Sec. 41 max. 1 MW 6.54 para 3 max. 5 MW 4.17 > 5 MW 3.69 Biomass Sec. 42 max. 150 kW 13.32 max. 500 kW 11.49 max. 5 MW 10.29 max. 20 MW 5.71 Biogas from Sec. 43 max. 500 kW 14.88 fermentation of max. 20 MW 13.05 biological waste Biogas from Sec. 44 all installations (< 75 kW, 23.14 fermentation of liquid minimum 80 % liquid manure manure use) Geothermal Energy Sec. 4 all installations 25.20 Wind Energy Onshore Sec. 46 ● basic value 4.66 until 2018 ● initial value (first 5 years 8.38 after start of commissioning) Wind Energy Offshore Sec. 47 ● basic value 3.90 (until 2020 for projects ● initial value (first 12 years 15.40 with exemption from after start of auction due to transition commissioning) rules) or 19.40 ● initial value (first 8 years after start of commissioning before 1st January 2020) Solar Radiation Sec. 48 basic tariff 8.91 para. 1 Solar Radiation – fixed Sec. 48 max. 10 kW 12.70 in, on or to a building or para 2 max. 40 kW 12.36 a noise barrier max. 750 kW 11.09 GLOBAL RENEWABLE ENERGY GUIDE 2017 97 WHITE & CASE LLP, Dusseldorf GERMANY 11. Has the Paris Agreement under the In Germany, the EU ETS is implemented by United Nations Framework the carbon emission trading act Convention on Climate Change been (Treibhausgas-Emissionshandelsgesetz – TEHG) in ratified? If yes, what are the national law. The allocation of allowances for undertakings of your Country in the the third trading period from 2013 until 2020 is NDC (national determined stipulated in the Ordinance on allocation 2020 contributions) submitted for the first (Zuteilungsverordnung 2020 – ZuV 2020). five-year period? Generally, the German Emissions Trading Authority (Deutsche Emissionshandelsstelle – The Paris Agreement has been ratified by the DEHSt) at the Federal Environment Agency European Union and Germany. The German (Umweltbundesamt) is the competent national contributions are part of the NDC of the authority regarding the allocation of allowances European Union. and the surveillance of actual emissions. The German Emissions Trading Authority also is 12. Is there a carbon market or a carbon the competent authority to implement the credits mechanism in your jurisdiction? market instruments of the Kyoto Protocol. The Kyoto Protocol was ratified by Germany in 13. Do renewable energy based power 2002. It entered into force on 16 February 2005. plants have priority for connection to the The general regime for carbon credits in grid? Germany is the European Union Emissions According to the principle of priority connection Trading System (“EU ETS”). Under the EU to the grid system, grid system operators shall ETS, the EU Member States agree on national immediately and as a priority connect installations emission caps which have to be approved by the generating electricity from renewable energy EU Commission. In order to comply with the sources and from mine gas to the place in their grid national cap the Member States allocate system which is appropriate in terms of voltage allowances to the industrial operators subject to level and which is at the shortest linear distance to the EU ETS. The operators may reassign or the site of the installation if this or different grid trade their allowances. However, after the end system does not have a technically and of each year they have to return a number of economically more suitable connection point (Sec. allowances depending on their actual emissions 8 para. 1 sentence 1 EEG). to the competent national authority. The costs associated with connecting installations When the Kyoto Protocol came into force, generating electricity from renewable energy Phase I of the EU ETS had already become sources to the grid system connection point and operational. The EU later incorporated the so- with installing the necessary metering devices for called Kyoto flexible mechanism certificates recording the quantity of electricity transmitted (these are in detail: Joint Implementation shall be borne by the installation projects (JI), Clean Development Mechanism and received (CDM) and International Emissions Trading operator (Sec. 16 para. 1 EEG). (IET)) into the EU ETS. Up to a certain extent, If the grid system operator assigns a different grid Emission Reduction Units (ERUs) and system connection point to the installation, it shall Certified Emission Reductions (CERs) resulting bear the resulting additional costs (Sec. 16 para. 2 from JI respectively CDM may be used by EEG). industrial operators in order to cover their emissions. Regarding the grid connection of offshore windfarms, further amendments to the German Energy Act (Energiewirtschaftsgesetz – 98 GLOBAL RENEWABLE ENERGY GUIDE 2017 GERMANY WHITE & CASE LLP, Duesseldorf EnWG) have been adopted at the end of 2012. renewable energy generation companies, issued Such amendments set forth planning mechanisms by the Federal Republic and the Federal States. for the offshore grids, provisions for claims of In particular, the loans by the Reconstruction windfarm operators due to delayed grid Loan Corporation (Kreditanstalt für Wiederaufbau connection or unavailability of the grid as well as – KfW) are to be mentioned. The KfW grants provisions and conditions for a pass through of loans with low interest rates for the erection of damages paid by grid operators to end installations producing heat or power from customers. renewable energy sources. The standard loan has an annual percentage rate starting of 1.31% 14. Is there an incentive for domestic and the duration can be up to 20 years (local) manufacturing of equipment or (https://www.kfw.de/inlandsfoerderung/Unternehmen materials used in the construction of /Energie-Umwelt/). renewable energy based power plants? There are no incentives, such as state aids, for STATISTICS local manufacturing of equipment or materials used in the construction of renewable energy- 16. What is the percentage of electricity based power plants. If the public procurement generated based on each type of law is applicable, the public authority or public renewable energy source as a proportion company is obliged to set non-discriminatory of the total generation of electricity on a conditions for the bidders. country-wide scale? 15. What other incentives are available to In 2016, renewable energy sources had a renewable energy generation 29% share in the total generation of electricity. companies? This share is steadily growing. There are various incentives available to (Source: Federal Ministry for Economic Affairs and Energy, Working Group on Energy Balances (AGEE-Stat) Status as per March 2017) GLOBAL RENEWABLE ENERGY GUIDE 2017 99 WHITE & CASE LLP, Dusseldorf GERMANY provided transition and grandfathering rules for OTHER existing plants and projects under construction. Shortcuts of feed-in tariffs and promotion for 17. Is there anything else you wish to add? existing plants, which were due to increasing costs to be burdened by end-consumers, has The legal framework for renewable energies in been expressively declined. Due to the high Germany has been amended several times over value of investment protection, which is to a the last seventeen years. However, it has to be certain extent protected by the German mentioned that in any case the German constitution as well, it is so far not to be government outlined the protection of expected that serious shortcuts of promotion investments made under certain legal for existing plants will take place in Germany. conditions. Therefore, all amendments WHITE & CASE LLP Thomas Burmeister Dr. Guido Hermeier Graf-Adolf-Platz 15 Graf-Adolf-Platz 15 40213 Duesseldorf 40213 Duesseldorf Germany Germany T +49 211 49195 227 T +49 211 49195 383 F +49 211 49195 100 F +49 211 49195 100 E [email protected] E [email protected] 100 GLOBAL RENEWABLE ENERGY GUIDE 2017 HUNGARY Péter Köves Péter Lakatos Szabolcs Mestyán LAKATOS, KÖVES AND PARTNERS GENERAL The NAP, enacted in 2010, is an ambitious guide that seeks to replace the state’s antiquated economic model – which relied too heavily on 1. What are the nature and importance of fossil fuels – with a modern “green” economic renewable energy in your country? model. The NAP sets out measures with a long- Although renewable energy has not been in the term outlook. The NAP has three main foreground of political debates, renewable energy objectives: (i) to optimize security of supply by sources are seen as opportunities for the country developing renewable energy sources in order to develop new economic sectors. Their to reduce the country’s dependence on energy development may serve as a solution to recent imports; (ii) to develop environmental economic difficulties because it has the potential sustainability and climate protection; and (iii) to to create numerous “green-collar” jobs. More promote competitiveness. Ultimately, the NAP broadly, it could also provide a solution to attempts to utilize the country’s natural, national and global sustainability and economic, social, cultural and geopolitical assets environmental preservation issues. In effect, the in order to reach the goals it sets for the state. government has adopted multiple strategies to In the long-term, the NAP should serve as the utilize the country’s renewable resources. basis for an Act on sustainable energy management, which will stipulate precise As a member of the European Union, Hungary measures and a framework for the sustainable is committed, under the EU Renewable Energy development of Hungary’s economy. Directive, to increasing the share of renewable energy sources in its energy production. Under The National Energy Strategy and the New the Hungarian Renewable Energy Action Plan Széchenyi Plan, both adopted in 2011, cite the (otherwise known as National Action Plan or development of a green economy as a key point “NAP”), Hungary has set itself a target that in the recovery and expansion of Hungary’s exceeds the one set by EU directives. More economy. Among other suggestions, these specifically, the government is committed to documents emphasize the importance of achieving a 14.65% share of renewable energy increasing the use of renewable energy sources in sources in the total energy production by 2020. order to achieve a sustainable energy supply. In In 2013 9.22% of the electricity generated in accordance with these efforts, recent renewable Hungary was produced by renewable energy energy projects include a new waste and bio-mass sources. processing unit in the Mátra Power Plant with a value of HUF 2 billion; the construction of a bio- GLOBAL RENEWABLE ENERGY GUIDE 2017 101 LAKATOS, KÖVES AND PARTNERS HUNGARY gas power plant in Tatabánya valued at HUF 3 billion; and the construction of a solar power REGULATION plant near Mátra Power Plant with a value of HUF 6.4 billion. 3. How is the renewable energy sector regulated? What are the principal laws Despite the ambitious targets set by the and regulations? Government, Hungary remains dependent on energy imports in particular with respect to General regulatory framework natural gas which, combined with coal and nuclear energy, accounts for approximately The Electricity Act sets out a framework that 90% of its energy mix. The lengthy permitting regulates the production of electricity through procedures, high costs of grid connection and renewable energy sources. With respect to insufficient grid capacity hinder the full renewable energy producers, the Act regulates utilization of the growth potential of the the establishment of new energy capacities, the renewable energy sector. Still, thanks to its access of energy producers to the electricity geographical location, Hungary has a relatively network (the grid) and the licensing of power strong resource of solar power, an excellent bio- plants. The framework tries to promote the energy potential and large reserves of production of electricity through renewable geothermal energy, all of which could lure energy sources by reducing some of those further investments, if combined with a more producers’ input costs. For example, authorized flexible administrative environment and fewer network operators bear a portion of the costs investment barriers. associated with required technical adaptions to the public utility system, which are necessary to 2. What are the definition and coverage of integrate renewable energy producers into the renewable energy under the relevant electricity network. legislation? In order to promote the use of renewable Renewable energy is defined by Section 3 (45) energy sources, the Electricity Act imposes a of Hungary’s Act No. LXXXVI of 2007 on purchasing obligation which guarantees Electricity (“Electricity Act”) as energy from a renewable energy producers a certain level of renewable, non-fossil and non-nuclear energy income for their investment. Government source such as solar, wind, geothermic energy, Decree No. 389/2007 (XII. 23.) sets out the wave, tide or hydro energy, biomass or other rules on the feed-in obligation and feed-in energy source either directly or indirectly tariffs of electricity produced from renewable generated from biomass, landfill gas, gas from a energy resources, or from waste and electricity sewage treatment facility and biogas. generated in co-generation facilities. Decree Aerothermal energy is also qualified as No. 63/2016 (XII. 28.) of the Ministry for renewable energy by Decree No. 1/2012 (I.20.) National Development further details the rules of the Ministry for National Development on on determining the method of payment and the the calculation methodology of the share of necessary amount of financial aid regarding energy from renewable sources, which electricity produced from renewable energy implements the definition of the European resources. Directive 2009/28/EC on the promotion of the use of energy from renewable sources. The Electricity Act also designates the Hungarian Energy and Public Utility 102 GLOBAL RENEWABLE ENERGY GUIDE 2017 HUNGARY LAKATOS, KÖVES AND PARTNERS Regulatory Authority as the main regulatory repealing energy licenses and supervising their authority in the Hungarian energy market. observation; (ii) supervising the energy market including market abuse and protecting Specific rules for wind and biofuel customers; (iii) setting the amount and duration of the electricity off-take obligation; (iv) setting As regards wind energy, Decree No. 33/2009 charges for system usage and prices in regulated (VI. 30.) of the Ministry for Transportation, markets; (v) issuing the guarantee of origin of Communications and Energy sets out the renewable energy; and (vi) rendering decisions conditions for the announcement of tenders to in relation to the daily operation of a licensee establish wind power capacities and the (e.g. approve its merger, demerger or internal minimum requirements in such tenders, and the codes). rules of procedure in such tendering. Besides MEKH, regulatory powers are also As far as biofuel is concerned, the European exercised by the Government and particularly by Union’s Renewable Energy Directive the Ministry for National Development in the (2009/28/EC) on the promotion of the use of form of adopting decrees for the implementation energy from renewable sources and the Fuel of sectoral energy acts (e.g. Decree No. 1/2012 of Quality Directive (2009/30/EC) on the Ministry for National Development on the specification of petrol, diesel and gas-oil and Calculation of the Proportion of Renewable introducing a mechanism to monitor and Energy or Government Decree No. 389/2007 on reduce greenhouse gas emissions have been the Off-Take Obligation and the Price of implemented in Hungary by Act No. CXVII of Electricity from Renewable Sources). As decision- 2010 as amended by Act No. LV of 2017. making regarding long-term projects and strategic According to the amendment, which enters into objectives also falls within the competence of the force in September 2017, the ratio of the use of Government and the Ministry, they can energy produced from renewable energy substantially influence the market indirectly resources regarding transportation shall reach (e.g. by the approval of the Hungarian Renewable ten percent of the final energy consumption. Energy Action Plan 2010-2020). The requirements for sustainable biofuel production are further detailed by Government 5. What are the main permits/licenses Decree No. 343/2010. required for renewable energy projects? 4. What are the principal regulatory The permits/licenses required for renewable bodies in the renewable energy sector? energy projects do not substantially differ from the permits/licenses required for energy projects The main regulatory authority in the Hungarian generally. Accordingly, every renewable energy energy market is the Hungarian Energy and project needs general, non-energy-related permits Public Utility Regulatory Authority and special, energy-related permits. (“MEKH”). MEKH is an independent regulatory body which means that it enjoys wide The general permits mainly cover the discretion in exercising its competency, and the (i) environmental permits (issued by the Ministry for National Development as environmental authority if the project has an MEKH’s supervisory organ has limited powers effect on the environment); (ii) water usage over it (e.g. neither can MEKH’s decision be permits (issued by the disaster prevention modified or repealed by the Ministry, nor can authority if the project involves water-related MEKH be forced to commence proceedings). work or the establishment of a water facility); and (iii) building permits (issued by the building In the renewable energy sector the competence authority). Before planning a renewable energy of MEKH extends to (i) approving and GLOBAL RENEWABLE ENERGY GUIDE 2017 103 LAKATOS, KÖVES AND PARTNERS HUNGARY project, it is also advisable to consult the local a micro power plant connected to a low voltage municipalities affected, as they have the system with an interconnection capacity of less authority to designate areas within their than 50 kVA at any given connection point); territories where the installation of energy and (ii) power plants with a nominal capacity projects is possible. below 0.5 MW. For both of these power plants, neither a general building permit (except for The installation and commencement of the power plants with a nominal capacity below 0.5 operation of power plants also require special MW that operate in Natura 2000 or other energy-related permits. Furthermore, a change protected sites or which connect to a power in the nominal capacity of each power plant is installation) nor special permits are needed. subject to special permits. With respect to However, other statutory requirements are still special permits, the MEKH acts as the applicable to this license-exempt energy administrative authority and issues licenses. generation (e.g. there shall be a connection Licenses are mainly differentiated by the point to the main electricity grid system). nominal capacity of the power plants (regardless of whether they generate energy from Due to the governmental incentives and renewable or non-renewable sources) and fall economic considerations, household power into the following categories: (i) simplified plants have become widespread in the area of license for power plants with a nominal capacity solar and wind energy, while power plants with of 0.5 MW or above; and (ii) normal license for a nominal capacity below 0.5 MW are common power plants with a nominal capacity of 50 MW in the field of water and bio-gas energy. A or above. In the case of power plants with recent amendment of Act LXXXV of 2011 on nominal capacity of 500 MW or above, a Environmental Protection Product Charges preliminary license must also be procured which imposed a duty on solar cells, thus the growth may be granted upon the affirmative resolution rate of solar power is likely to decrease. of the Parliament. 7. Has there been any reform related to In accordance with the provisions of renewable energy regulations since Government Decree No. 389/2007, renewable 2016? Do you expect any energy projects may participate in the off-take reform/change in the near future? system (for a description of this system, please refer to Section No. 8) if the licensee submits its The rules of Government Decree No. request and MEKH approves that. In this case, 165/2016 (VI. 23.) on mandatory feed-in and MEKH determines the amount and the price of premium aid regarding electricity produced the electricity eligible for feed-in in the off-take from renewable energy resources, which system. It is noteworthy that, for wind turbines, entered into force in January 2017, impose a a slightly different procedure applies as MEKH new state aid regime to promote the may issue licenses only through tenders. production, the use and the competitiveness of electricity produced from renewable energy 6. Is there a category of “license-exempt sources. generation”? If so, does it cover some types of renewable energy based The new state aid regime is called METÁR generation? (which means renewable and alternative energy resources state aid system) and it is based on the The Electricity Act provides for license market price of electricity, instead of mandatory exemption for energy generation, regardless of feed-in prices regarding new power plants that whether from renewable or non-renewable will be constructed in the future. In this regime, sources, for (i) household power plants (means power plants sell the electricity at market price 104 GLOBAL RENEWABLE ENERGY GUIDE 2017 HUNGARY LAKATOS, KÖVES AND PARTNERS and then they may apply for a premium No. 165/2014 (VII.17.) on Development Tax payment on a state tender. The premium is Allowances. above the market price paid by the Hungarian State in return for producing electricity from The tax allowance may only be claimed if a renewable energy resources. Decree No. minimum of 25% of investment costs is funded 10/2016 (XI. 14.) of the MEKH determines the by the investor’s own equity and if prior to the amount of the state aid. commencement of the investment either a notification has been sent to the relevant Ministry The procedural rules regarding the state tenders or – in the case of projects exceeding certain have been set out in Decree No. 62/2016 thresholds – the request for approval by the (XII.28.) of the Ministry for National Government has been submitted. The investor Development. must also have been a tax payer in Hungary for a minimum of five years prior to the submission of the notification or request for approval. The INCENTIVES project must be operated for a minimum of 5 years by a large enterprise or 3 years by an SME 8. Are tax advantages available to after completion for the investor to be allowed to renewable energy generation claim the tax allowance. companies? The taxpayer may take advantage of the tax Development tax incentives in the form of tax allowance either in the tax year of or following the allowances may be granted under Act LXXXI of year when the operation started, and may 1996 on Corporate Tax and Dividend Tax continue utilizing the incentive in the following (“Corporate Tax Act”) to taxpayers who install nine tax years but not later than the fourteenth tax and operate ‘independent environment protection year after the submission of the initial notification projects’ with a minimum value of HUF 100 or the request for approval for the project. million. An investment may qualify as an eligible project if it exclusively serves the environmental The extent of the tax allowance that may be protection and rehabilitation objectives as defined claimed (i.e. the maximum amount of investment by Act LIII of 1995 on the General Rules of costs that may be deducted from the corporate Environmental Protection. Such objectives tax) depends on the qualification of the investor include: (i) the reduction of the use and pollution as a small, medium or large enterprise and the of the environment, and the prevention of geographical location of the investment project. damaging the environment and its rehabilitation; (ii) the protection of human health and the Further to the above environment specific tax improvement of the environmental conditions of allowance, companies that generate energy from life quality; and (iii) the preservation and renewable sources may also be eligible for general, conservation of natural resources, and rational non-renewable specific tax incentives available and efficient management that ensures the under the Corporate Tax Act. renewal of such resources. A further eligibility 9. Is there a purchase guarantee given by criteria is that the investment shall be either (i) a the relevant legislation for the electricity green field investment performed by a small or generated by renewable energy medium-sized enterprise (SME) or realized in companies? specific regions of Hungary, or (ii) an investment for a new business activity to be realized by a large Hungary operates a feed-in tariff system enterprise in specific settlements in the central (designated as a mandatory off-take regime, with region of Hungary. Investors must also comply the Hungarian abbreviation: “KÁT”) which with the requirements of Government Decree guarantees tariffs for renewable and waste based GLOBAL RENEWABLE ENERGY GUIDE 2017 105 LAKATOS, KÖVES AND PARTNERS HUNGARY electricity higher than the actual market price. The schedule of Government Decree No. operation of this feed-in tariff system is based on 389/2007), as well as by technology (solar and the so-called KÁT balance group. Electricity wind energy get slightly different tariffs). The producers eligible for KÁT support have to join feed-in tariff of the producers of renewable the KÁT balance group and contract with energy licensed before 1 January 2008 is MAVIR, the Hungarian transmission system adjusted by the Hungarian Consumer Price operator, which is the recipient of the electricity Index of the previous year. sold in the KÁT system and pays the feed-in tariffs to the power generators. Its tasks also By contrast, the tariffs of waste-to-energy include balancing deviations from the production producers and those renewable producers who schedule, buying and selling the electricity eligible were licensed after 1 January 2008 are indexed for KÁT support, and distributing it to KÁT on a yearly basis by the consumer price index of recipients. The base load in the KÁT system is the previous year reduced by one percentage distributed among the obliged “balance group” point. Actual tariffs can be found on the operators in proportion to the consumption webpage of the Authority. (excluding consumption under universal service subject to certain conditions) in their balance 11. Has the Paris Agreement under the group. The remaining quantity of KÁT electricity United Nations Framework above the base load is sold on the organized Convention on Climate Change been power market (“HUPX”). ratified? The feed-in quantity and feed-in period for each In October 2016, Hungary ratified the Paris eligible electricity producer is determined by Agreement. The agreement has been promulgated MEKH. Producers can sell in the KÁT system by Act L of 2016, which entered into force on 4 until their respective feed-in period expires or November 2016. until the feed-in quantity is used up. This mechanism is intended to ensure that the 12. Is there a carbon market or carbon producer does not get more support than required credits mechanism in your jurisdiction? for the return of the investment. The feed-in period for biomass and biogas plants is 15 years, As a member of the European Union, Hungary for landfill gas plants it is 5 years; other kinds of follows EU directives in order to participate in the support may proportionally reduce these periods. EU Emission Trading System (“EU ETS”), In the case of other technologies the feed-in which operates pursuant to Article 17 of the period and quantity is determined individually for Kyoto Protocol. The regime governing the trade each project. of carbon credits in Hungary is found in Act CCXVII of 2012. Moreover, Act LX of 2007 10. Is there a minimum price guarantee alongside Government Decree 323/2007 (XII. given by the relevant legislation for the 11.) provide a detailed framework regarding the electricity generated by renewable execution of Hungary’s commitments under the energy companies? Kyoto Protocol. As a consequence of the successful ratification of the Paris Agreement, Feed-in tariffs are different for renewable revision of the EU ETS is foreseeable. electricity and waste-to-energy electricity. Furthermore, tariffs are differentiated by size In its third trading period, the EU ETS imposes (nominal capacity), time of licensing (before or an EU-wide cap on emissions, which is reduced after 1 January 2008), time period during the day each year. Businesses must cover their total (peak, valley and deep-valley periods with emissions by maintaining a sufficient number of different lengths as set out in detail in the allowances (carbon credits). In order to meet their 106 GLOBAL RENEWABLE ENERGY GUIDE 2017 HUNGARY LAKATOS, KÖVES AND PARTNERS target, businesses can either reduce their total operators must observe the principles of an emissions or purchase allowances from objective, transparent, and non-discriminatory businesses that have a surplus of allowances. In decision-making and compliance with effect, the scheme adds value to allowances, applicable regulations. which in turn creates an incentive for companies to invest in emission reducing projects. Decree No. 7/2014 reduces the costs for RES- E plants to connect to the grid. The Decree In order to improve transparency, allowances are provides for a reduction in connection fees for increasingly allocated through auctioning. power plants that generate at least 70% or 90% However, a portion of the allowances continues of their electricity through renewable energy to be allocated for free by governments on the sources by 30% and 50% respectively. basis of harmonized rules. 14. Is there an incentive for domestic Due to changes in Hungary’s industries and recent (local) manufacturing of equipment or economic downturns, the greenhouse gas materials used in the construction of emissions in the country have been below target, renewable energy based power plants? which has generated a surplus of carbon credits. In Hungary, equipment or materials used for The minister responsible for energy policy can the construction of renewable energy based buy or sell carbon credits on behalf of the power plants do not receive preferential Hungarian State. Pursuant to Section 22 of treatment; however, there are other incentives Government Decree 323/2007 (XII. 11.), the intended to support the production of raw money generated by the sale of allowances must material at the local level that can be used in be used to operate the Green Investment Scheme. renewable energy based power plants. The most More specifically, the Scheme aims at further important incentives apply to the following reducing national emissions and at supporting the renewable energy sources: (i) bio-mass; (ii) bio- state’s environmental commitments by gas; and (iii) bio-fuel. subsidizing emission reducing projects. With regard to bio-mass, electricity produced by 13. Do the renewable energy based power using bio-mass must take part in the off-take plants have priority for connection to obligation in line with Government Decree the grid? 389/2007. Renewable energy based power plants enjoy As to bio-gas, livestock establishments may certain benefits when connecting to the grid apply for non-refundable subsidies to develop under the Electricity Act and Decree No. bio-gas plants as set out by the Decree No. 10/2016 (XI. 14.) of MEKH on the financial 27/2007 (IV.17.) of the Ministry for conditions of connecting to the grid. As a Agriculture. means of prioritizing Renewable Energy Sources for Electricity (RES-E), the Electricity In relation to bio-fuel, the fuel distributors shall Act allows grid operators to impose importation ensure that the proportion of the bio-fuel in the restrictions on energy imports that are fuel distributed by them reaches a certain target disadvantageous for renewable energy specified by a government decree in accordance producers. Such restrictions include denying with the provisions of Act CXVII of 2010 on access to the grid, or limiting, reducing or the Promotion of Renewable Energy in the suspending previously agreed supplies. When Field of Traffic, which serves as an indirect applying any of these restrictions, network incentive for bio-fuel producers. GLOBAL RENEWABLE ENERGY GUIDE 2017 107 LAKATOS, KÖVES AND PARTNERS HUNGARY 15. What are the other incentives available individual ministries and the Prime Minister’s to renewable energy generation Office may reduce the length and the companies? administrative burden of the tendering and application procedures for funding under the There are several incentives which are non- EU schemes. energy or non-renewable energy specific and from which renewable energy generation companies can benefit. STATISTICS Hungary has a favourable position in the 2014- 16. What is the percentage of electricity 2020 EU Fiscal Period as more than HUF 7,000 generated based on each type of billion can be allocated to supported projects. renewable energy source in the total Three of the operative programs may be of generation of electricity on a country particular importance for investors as they wide scale? consider energy – and particularly renewable energy – as key areas. These programs are: Statistical data regarding the Hungarian Power (i) the Environmental and Energy Efficiency System has yet to be released for 2015. Operative Program (“KEHOP”); (ii) the Economy Development and Innovation In 2014, the data showed that 10.7% of the Operative Program (“GINOP”); and (iii) the electricity generated in Hungary was produced Area and Settlement Development Operative from renewable energy sources. At that time, Program (“TOP”). This implies that in the biomass (5.8%) and wind (2.2%) were the major future, many new tender opportunities will sources of renewable energy. Other renewable potentially be available for investors of energy sources included biogas, landfill gas and sewage generation from renewable sources. These gas, hydro, solar, and biodegradable waste. programs put emphasis on the application and enhancement of renewable energy sources, the OTHER decrease of CO2 emission or the establishment of smart and low energy cost economy. The recent restructuring of the management of 17. Is there anything else you wish to add? tendering and decision-making procedures and the allocation of the powers to the No. LAKATOS, KÖVES AND PARTNERS Péter Köves Péter Lakatos Szabolcs Mestyán 1075 Budapest, Madách 1075 Budapest, Madách 1075 Budapest, Madách Imre út 14. Imre út 14. Imre út 14. Hungary Hungary Hungary T +36 1 4291300 T +36 1 4291300 T +36 1 4291300 F +36 1 4291390 F +36 1 4291390 F +36 1 4291390 E [email protected] E [email protected] E [email protected] 108 GLOBAL RENEWABLE ENERGY GUIDE 2017 INDONESIA Ayik Candrawulan Theodoor Bakker Mahatma Hadhi Gunadi ALI BUDIARDJO, NUGROHO, REKSODIPUTRO GENERAL Grid integration of variable renewable energy; 1. What are the nature and importance of Lack of bankable off-takers (for off-grid renewable energy in your country? areas), risk of inadequacy of system design, and operational issues due to the Although Indonesia is known as a major fossil insufficient operation and maintenance of fuel producing country, the Minister of Energy systems; and Mineral Resources (“MEMR”) of Indonesia is currently trying to boost the Cost recovery for PT PLN (Persero) utilization of renewable energy in Indonesia. (Indonesia’s national electricity company); This is conducted by way of focusing on the utilization of various renewable energy Project finance opportunities for resources for provision in electricity. This is also renewable energy projects in Indonesia are in line with the Law No. 30 of 2009 concerning limited as local banks do not allocate Electricity (“Electricity Law 2009”), which sufficient resources to this segment; states that a source of primary energy (whether domestic or offshore) must be utilized optimally Land acquisitions issues are common due to guarantee a sustainable provision of to a lack of clarity regarding land ownership electricity, where in such utilization, the in many locations, while the process of land utilization of renewable energy resources must acquisitions is often costly and time be prioritized. consuming; and Technology specific challenges (i.e. solar, However, challenges still exist in accelerating wind, etc.) include a lack of awareness of the development of renewable energy in solutions, the need to build local capacity, Indonesia. Specifically, for the power sector, the lack of streamlined permitting and following are the points of challenges:1 regulatory frameworks, and the absence of detailed resource assessments. 1 Source: International Renewable Energy Agency: Renewable Energy Prospects in Indonesia (issued on March 2017). GLOBAL RENEWABLE ENERGY GUIDE 2017 109 ALI BUDIARDJO, NUGROHO, REKSODIPUTRO INDONESIA Nonetheless, it is the Government’s Although not specifically implementing the commitment to boost up the utilization of renewable energy policy as described in the renewable energy as a source for electricity Energy Law, GR 79/2014 has set forth a supply to meet the country’s further electricity number of policies regarding renewable energy. demand while reducing the greenhouse gas The renewable energy policy provided under emission – this can be seen by the fact that the the Energy Law and GR 79/2014 shall be Government continuously issues new further implemented by the relevant ministries, regulations and amendments to existing particularly the MEMR (via the Directorate regulations in relation to utilization of General of New Renewable Energy and Energy renewable energy resources, where such act is Conservation). implemented to make sure that the sector is being properly regulated. This is done in hopes 4. What are the principal regulatory to attract and trigger the acceleration of the bodies in the renewable energy sector? development of the renewable energy power The MEMR has four Directorate Generals: plant business, considering that now the Government has provided more clarity for the (i) the Directorate General of Oil and Gas sector. To the present, there have been over 62 (Direktorat Jenderal Minyak dan Gas Bumi); renewable energy-based power plants which are being developed under the regime of the new (ii) the Directorate General of Electricity regulations. (Dirjen Ketenagalistrikan) (“DGE”); 2. What are the definition and coverage of (iii) Directorate General of Mineral and Coal; renewable energy under the relevant and legislation? (iv) the Directorate General of New Law No. 30 of 2007 on Energy (“Energy Law Renewable Energy and Energy 2007”) defines renewable energy resources as Conservation (Direktorat Jenderal Energi energy resources which are produced from Baru, Terbarukan dan Konservasi Energi) (“DG sustainable energy resources if they are being EBTKE”). managed well, including, among others, geothermal, wind, bioenergy, solar, streams and DG EBTKE is the authorized Directorate falls of water as well as movement and General for renewable energy matters. In differences in the temperature of sea layers. particular for power generation using renewable energy resources, renewable energy policies are under the co-authority of DGE and DG REGULATION EBTKE. 3. How is the renewable energy sector 5. What are the main permits/licenses regulated? What are the principal laws required for renewable energy projects? and regulations? In Indonesia, an extensive amount of licenses is The renewable energy sector is mainly regulated required in order to implement renewable by the Energy Law. To implement the Energy energy projects (especially for the provision of Law, the Government of Indonesia has issued electricity), which consists of main and the Government Regulation No. 79 of 2014 on supporting permits/licenses. National Energy Policy (“GR 79/2014”). 110 GLOBAL RENEWABLE ENERGY GUIDE 2017 INDONESIA ALI BUDIARDJO, NUGROHO, REKSODIPUTRO The main licenses are as follows: (ii) Governor, the head of province, for business entities which: (a) Electricity Supply Business License business areas cover cross-regencies/cities For the provision of electricity, in accordance or within one province; and with the Electricity Law, the license that will be issued to an independent power producer sell electricity and/or rent their electric (“IPP”) is an Electricity Business License or power grids to a holder of an electricity locally known as Izin Usaha Penyediaan Tenaga supply business license issued by the Listrik (“IUPTL”). The procedure and governor. requirements for obtaining an IUPTL is further regulated in GR 14/2012 and Regulation of the Save for IPPs, which are a foreign investment Minister of Energy and Mineral Resources No. company, or locally known as Penanaman Modal 35 of 2013 concerning Procedure of Issuance of Asing (PMA Company), the IUPTL will be Electricity Business License, as amended with issued by the Head of Investment Coordinating Regulation of the Minister of Energy and Board or Badan Koordinasi Penanaman Modal Mineral Resources No. 12 of 2016 concerning (“BKPM”) on behalf of the MEMR. amendment to the Regulation of the Minister of Energy and Mineral Resources No. 35 of 2013 (b) Environmental Licenses concerning Procedure of Issuance of Electricity Business License (“MEMR Regulation Pursuant to Regulation of Minister of 35/2013, as amended”). Environmental of Republic of Indonesia Number 05 of 2012 regarding Type of Business Prior to obtaining the IUPTL, an IPP is and/or Activities that Mandatory to Own required to obtain a Temporary IUPTL or Environmental Impact Analysis, renewable locally known as IUPTL Sementara (“IUPTL- energy based power plants with the following S”). After the IPP has fulfilled the criteria are required to obtain an Environmental administrative and technical requirements as set Impact Analysis (Analisis Mengenai Dampak out in the MEMR Regulation 35/2013, as Lingkungan or “AMDAL”): amended, i.e. conducting a feasibility study and fulfilling funding ability, the IPP may then be (i) Construction of a geothermal power plant eligible to obtain an IUPTL. with capacity equal to or more than 55 MW; An IUPTL is issued by the following various government entities: (ii) Construction of a hydroelectric power plant with weir height of approximately (i) The MEMR, for business entities which: 15 m, or capacity equal to or more than 50 MW; business areas cover cross-provinces; (iii) Construction of a waste power plant with are a State-Owned Enterprise; and methane harvesting process with capacity of or more than 30 MW; and sell electricity and/or rent their electric power grids to a holder of an electricity (iv) Other renewable energy based power plant supply business license issued by the construction (i.e., wind power plant, solar MEMR. power plant, biomass power plant,) GLOBAL RENEWABLE ENERGY GUIDE 2017 111 ALI BUDIARDJO, NUGROHO, REKSODIPUTRO INDONESIA since such activities may have a significant On 20 February 2017, President Jokowi issued impact on (i) chemical physical aspects, the Presidential Regulation No. 14 of 2017 especially quality of air and water as well as concerning the Amendment on Presidential ground water; and (ii) social, economic, and Regulation No. 4 of 2016 concerning the cultural aspects, especially upon land clearance Acceleration on Electricity Infrastructure and social disturbance. Development. This new Presidential Regulation is aimed to actualize the Government’s goal to Pursuant to the Environmental Law in put forward the electricity infrastructure conjunction with Governmental Regulation development in Indonesia through the Number 27 of 2012 regarding Environmental implementation of the 35,000 MW program. Permit, any company which has already obtained an AMDAL or Environmental To support this purpose, since the beginning of Management Efforts Report (Upaya Pengelolaan 2017, the MEMR has issued several regulations Lingkungan or “UKL”)/Environmental which are critical for the implementation of Monitoring Efforts Report (Upaya Pemantauan electricity business in Indonesia. So far, 62 new Lingkungan or “UPL”) must also submit an regulations and decrees issued by the MEMR application to obtain an environmental permit, are in relation to the electricity and renewable which is issued by the Minister of Environment, energy sector, with the regulations concerning Governor, or Mayor/Regent. The granting of the power purchase agreement between PT such environmental permit is based on either: PLN (Persero) and the IPP and regulations concerning tariffs and utilization of renewable (i) an environmental feasibility study carried energy and coal for electricity supply as the out by an independent third party, which is most highlighted regulations among those approved by the AMDAL Assessment issued in 2017. Commission, the Minister of Environment, the Governor or Head of Several of the major new regulations in relation Regent/Mayor, as appropriate; or to electricity and renewable energy are as follows: (ii) a recommendation on the UKL and UPL issued by the appropriate government or (i) MEMR Regulation No. 10 of 2017 regional government institution concerning Power Purchase Agreement responsible for the environmental (“MEMR Regulation No. 10 of 2017”); management and control of the applicable area. (ii) MEMR Regulation No. 50 of 2017 concerning Utilization of Renewable 6. Is there a category of “license-exempt Energy for the Electricity Supply generation”? If so, does it cover some (“MEMR Regulation No. 50 of 2017”); types of renewable energy based generation? (iii) MEMR Decree No. 1415 K/20/MEM/2017 concerning Approval No, there is not. In Indonesia, all types of power of Electricity Supply Business Plan generation require licenses regardless of what (“RUPTL”) by PT PLN (Persero) for the energy is being used as the base of generation. Years of 2017 – 2026; 7. Has there been any reform related to (iv) MEMR Regulation No. 24 of 2017 renewable energy regulation since concerning Mechanism for the 2016? Do you expect any Determination of Primary Cost of Supply reform/change in the near future? 112 GLOBAL RENEWABLE ENERGY GUIDE 2017 INDONESIA ALI BUDIARDJO, NUGROHO, REKSODIPUTRO for Power Generation by PT PLN (e) in a pioneer industry; (“MEMR Regulation No. 24 of 2017”); (f) that are located in a remote area, a less- (v) MEMR Decree No. 1404 developed area, a contiguous area, or K/20/MEM/2017 concerning Amount of another area deemed needy; Primary Cost of Supply for Power Generation by PT PLN (“MEMR Decree (g) that keep the environment sustainable; No. 1404 K/20/MEM/2017”); (h) that involve research, development, and (vi) Government Regulation No. 7 of 2017 innovation activities; concerning Geothermal for Indirect Utilization (“GR No. 7/2017”); (i) that are made in partnership with micro, small and medium enterprises or (vii) MEMR Regulation No. 37 of 2017 cooperatives; or concerning Geothermal Working Area for Indirect Utilization; and (j) in an industry that uses domestically- produced capital goods or machinery and (viii) MEMR Regulation No. 42/2017 equipment. concerning Supervision of Business Activities in the Sector of Energy and Investment facilities available to investors: Mineral Resources on Electricity Sector (“MEMR Regulation No. 42/2017”). (a) reduction of net income tax, depending on the total investment amount made within a Given the government’s current ambition to specified period; boost up the utilization of renewable energy and supply of electricity, we are currently expecting (b) import duty exemption or relief for further implementing regulations for this production of capital goods, machinery, or sector. equipment not yet produced in Indonesia; (c) import duty exemption or relief on import INCENTIVES duty for production of raw materials or components for a specified period upon 8. Are tax advantages available to fulfilment of specified requirements; Value renewable energy generation Added Tax exemption or deferment for a companies? specified period for importation or production of capital goods, machinery or Generally, the Law No. 25 of 2007 regarding equipment not yet produced in Indonesia; Investment Law provides foreign investment with investment facilities for companies: (d) accelerated depreciation or amortization; and (a) that are labor intensive; (e) Land and Buildings Tax relief for specified (b) that fall under the category of highly business fields in specified regions, areas or prioritized investments; zones. (c) in the infrastructure sector; Further, pursuant to the Minister of Finance Regulation No. 21/PMK.011/2010 regarding (d) that involve technology transfers; the Granting on Taxation and Customs Facilities for the Utilization Activity of GLOBAL RENEWABLE ENERGY GUIDE 2017 113 ALI BUDIARDJO, NUGROHO, REKSODIPUTRO INDONESIA Renewable Energy, the utilization of renewable (i) Solar (Photovoltaics) Power Plants and Wind energy is subject to the following tax advantages Power Plants and/or incentives: (a) If the respective plant’s Local Primary Unit (a) Withholding tax incentives, such as: Cost (Besaran Biaya Pokok or “BPP”) is above the average of National BPP, the discounted net revenue of 30% of the total maximum tariff of electricity purchase Foreign Investment amount, to be paid in price is 85% of the Local BPP; or 6 years at 5% per year; (b) If the respective plant’s Local BPP is equal accelerated amortization and depreciation to or below the average of National BPP, with certain calculation; the electricity purchase price is based on the mutual agreement of the parties. (b) Value Added Tax (VAT) exemption on the importation of taxable goods (i.e. (ii) Hydropower Plants machinery, equipment); (a) in the event that the Local BPP is above the (c) Import duty exemption; and National BPP, the maximum tariff of electricity purchase is equal with the (d) Exemption from certain taxes (which are applicable Local BPP; or borne by the government under the State Budget Law and its implementing (b) in the event that the BPP applicable in regulations). Sumatera, Jawa and Bali Area or other Local BPP is equal to or below the 9. Is there a purchase guarantee given by National BPP, the price is based on the the relevant legislation for the mutual agreement of the parties. electricity generated by renewable energy companies? (iii) Biomass and Biogas Power Plants Yes. In accordance with MEMR Regulation No. The maximum tariff for Biomass/Biogas power 50 of 2017, within the framework of promoting plants: the sustainable supply of electricity power, PT PLN (Persero) is obliged to purchase electricity (a) 85% of the plant’s Local BPP if the plant’s power generated by renewable energy power Local BPP is above the average of National plants. However, such utilization must be BPP; or conducted in accordance with the National Energy Policy and the Electricity Supply Business (b) based on the mutual agreement of the Plan. parties if the plant’s Local BPP is equal to or below the average of National BPP. 10. Is there a minimum price guarantee given by the relevant legislation for the (iv) Waste-based Power Plants electricity generated by renewable (a) A maximum of 100% of the plant’s Local energy companies? BPP if the plant’s Local BPP is above the MEMR Regulation No. 50 of 2017 provides the National BPP; or following tariff pricing arrangements for the (b) based on the mutual agreement of the purchase of electricity from renewable energy parties if the Local BPP of the plant power plants: concerned, which is located in Sumatra, 114 GLOBAL RENEWABLE ENERGY GUIDE 2017 INDONESIA ALI BUDIARDJO, NUGROHO, REKSODIPUTRO Java or Bali, is equal to or below the before the adoption of the Paris Agreement National BPP. through a mechanism called Reducing Emissions from Deforestation and Forest (v) Geothermal Power Plants Degradation (“REDD”). The REDD scheme is expected to enable polluting countries to offset (a) Maximum 100% of the plant’s Local BPP their own emissions by buying carbon credits if the plant’s Local BPP is above the generated by forest protection and restoration National BPP; or projects, thereby meeting their domestic (b) based on the mutual agreement of the emission reduction targets without having to parties if the Local BPP of the plant impose deep cuts in their own fossil fuel use. concerned, which is located in Sumatra, The other policy enacted by the Government of Java or Bali, is equal to or below the Indonesia before the adoption of the Paris National BPP. Agreement is the National Carbon Scheme The actual price of the electricity purchase must (Skema Karbon Nusantara – “SKN”). SKN is a be approved by the MEMR. certification and registration mechanism on a voluntary basis for any activity to reduce green 11. Has the Paris Agreement under the house gas emission. United Nations Framework Convention on Climate Change been 12. Is there a carbon market or carbon ratified? Is there a carbon market or credits mechanism in your jurisdiction? carbon credits mechanism in your Please refer to our explanation in Section 11 jurisdiction? above. Indonesia has ratified the Paris Agreement by 13. Do renewable energy based power virtue of Law No. 16 of 2016 regarding plants have priority for connection to Ratification of Paris Agreement to the United the grid? Nations Framework Convention on Climate Change. Indonesia has submitted its Intended No, the renewable energy based power plants Nationally Determined Contribution do not have priority for connection to the grid. (“INDC”) related to renewable energy. The In fact, in Indonesia, power plants generated by priority action of Indonesia is to reduce several types of renewable energy, such as solar emissions by 26% (41% with international (photovoltaic) and wind, are being used as support) against the business as usual scenario supporting power plants, to supply electricity to by 2020. Under the leadership of President Joko the local area where the plant is located – it does Widodo, Indonesia has determined priority not connect to the main grid. actions within the national Nawa Cita (Nine Priority Agendas), which includes protecting 14. Is there an incentive for domestic Indonesia’s citizens, encouraging rural and (local) manufacturing of equipment or regional development, and improving materials used in the construction of productivity and global competitiveness. renewable energy based power plants? Furthermore, with respect to the adoption of Yes, the use of equipment and material the Paris Agreement, the Government of produced by local manufacturers in the Indonesia has not established a carbon credit construction of renewable energy based power infrastructure as referred to by the Paris plants are prioritized. This incentive is regulated Agreement. However, the Government of under Presidential Regulation No. 4 of 2010 Indonesia has implemented “carbon offset” concerning Assignment to PT PLN (Persero) to GLOBAL RENEWABLE ENERGY GUIDE 2017 115 ALI BUDIARDJO, NUGROHO, REKSODIPUTRO INDONESIA Accelerate the Development of Renewable (d) Installed capacity of more than 150 MW: Energy, Coal and Gas Power Plants, as amended with Presidential Regulation No. 194 Minimum TKDN for goods is 47.82%; of 2014. Minimum TKDN for service is 46.98%; Furthermore, under Minister of Industry and Regulation No. 54/M-IND/PER/3/2012 as amended by Minister of Industry Regulation Minimum TKDN for combination of No. 05/M-IND/PER/2/2017 (“MOI goods and service is 47.60%. Regulation 54/2012”), Hydropower, (ii) Geothermal Power Plant Geothermal and Solar Power Plants are also subject to the requirement of local content (a) Installed capacity of up to 5 MW per unit: (locally known as Tingkat Komponen Dalam Negeri – “TKDN”), with different composition as Minimum TKDN for goods is 31.30%; follows: Minimum TKDN for service is 89.18%; (i) Hydropower Plant and (a) Installed capacity of up to 15 MW per unit: Minimum TKDN for combination of goods and service is 42%. Minimum TKDN for goods is 64.20%; (b) Installed capacity of 5 – 10 MW: Minimum TKDN for service is 86.06; and Minimum TKDN for goods is 21%; Minimum TKDN for combination of goods and service is 70.76%. Minimum TKDN for service is 82.30%; and (b) Installed capacity of 15 – 50 MW: Minimum TKDN for combination of Minimum TKDN for goods is 49.84%; goods and service is 40.45%. Minimum TKDN for service is 55.54%; (c) Installed capacity of 10 – 60 MW: and Minimum TKDN for goods is 15.70%; Minimum TKDN for combination of goods and service is 51.60%. Minimum TKDN for service is 74.10%; and (c) Installed capacity of 50 – 150 MW: Minimum TKDN for combination of Minimum TKDN for goods is 48.11%; goods and service is 33.24%. (d) Installed capacity of more than 60 – 110 Minimum TKDN for service is 51.10%; MW: and Minimum TKDN for goods is 16.30%; Minimum TKDN for combination of goods and service is 49%. Minimum TKDN for service is 60.10%; and 116 GLOBAL RENEWABLE ENERGY GUIDE 2017 INDONESIA ALI BUDIARDJO, NUGROHO, REKSODIPUTRO Minimum TKDN for combination of STATISTICS goods and service is 29.21%. (e) Installed capacity of 60 – 110 MW: 16. What is the percentage of electricity generated based on each type of Minimum TKDN for goods is 16%; renewable energy source in the total generation of electricity on a country- Minimum TKDN for service is 58.40%; wide scale? and Based on RUPTL 2017 – 2026, up until Minimum TKDN for combination of November 2016, the realization of installed goods and service is 28.95%. capacity of power plants and electricity production from renewable energy resources (iii) Solar was as follows: (a) Installed capacity of 60 – 110 MW: Realization of Installed Capacity of Renewable Energy Power Plants Minimum TKDN for goods is 25.63%; (in MW) Total 6,055 Minimum TKDN for service is 100%; and Hydro 4,607 Geothermal 1,338 Minimum TKDN for combination of goods and service is 43.85%. Biomass 47 Biofuel 51 The TKDN also must meet Indonesian Solar 11 electricity standardization and international Other 1 standard i.e. International Organization for Renewable Standardization (ISO) or International Electro- Energy Technical Commission (IEC). (Source: RUPTL 2017 – 2026) 15. What are the other incentives available to Realization of Electricity Production from renewable energy generation Renewable Energy Power Plants (in GWh) companies? Total 28,972,385 Please refer to our explanation in Section 8 Hydro 17,466,738 above. Geothermal 9,728,400 Biomass 537,882 Biodiesel/Biofuel 1,222,519 Solar 10,539 Other Renewable 5,307 Energy GLOBAL RENEWABLE ENERGY GUIDE 2017 117 ALI BUDIARDJO, NUGROHO, REKSODIPUTRO INDONESIA (b) For transfer of shares conducted privately OTHER once the exploration phase is completed, Geothermal IPPs do not need to obtain 17. Is there anything else you wish to add? prior approval from the MEMR. Geothermal must, however, notify the The MEMR has recently enacted MEMR Minister of the transfer within 5 (five) Regulation No. 48 of 2017. The highlighted business days from the date of providing provision in this regulation is concerning the notice to and/or obtaining approval from transfer of shares, which is applicable for all the Minister of Law and Human Rights of types of power generation business and the Republic of Indonesia; and particularly for geothermal independent power producer (IPP): (c) any change of a member of the board of directors and/or the board of (a) Geothermal IPP may conduct share commissioners must be notified to MEMR transfers on the Indonesian Stock within 5 (five) business days from the date Exchange after it has completed its of providing notice of the change to the exploration phase, subject to receiving Minister of Law and Human Rights of the approval from the Minister of Law and Republic of Indonesia. Human Rights of the Republic of Indonesia; ALI BUDIARDJO, NUGROHO, REKSODIPUTRO Ayik Candrawulan Gunadi Theodoor Bakker Mahatma Hadhi Graha CIMB Niaga, Graha CIMB Niaga, Graha CIMB Niaga, 24th Floor 24th Floor 24th Floor Jl. Jend. Sudirman Kav. 58 Jl. Jend. Sudirman Kav. 58 Jl. Jend. Sudirman Kav. 58 Jakarta, Indonesia Jakarta, Indonesia Jakarta, Indonesia T + 62 21 2505125/5136 T + 62 21 2505125/5136 T + 62 21 2505125/5136 F + 62 21 2505001/5121 F + 62 21 2505001/5121 F + 62 21 2505001/5121 E [email protected] E [email protected] E [email protected] 118 GLOBAL RENEWABLE ENERGY GUIDE 2017 IRELAND Alex McLean Niall Esler Niall Donnelly ARTHUR COX reliance on imported fuel sources. Meeting 2020 GENERAL renewable energy efficiency targets could put Ireland on a low-carbon pathway and trajectory 1. What are the nature and importance of in terms of meeting future targets in 2030 and renewable energy in your country? 2050. Under the Renewable Energy Directive The National Renewable Energy Action Plan 2009/28/EC (“RED”), the European (“NREAP”) sets out the Government's Commission has set out its “20-20-20” goals, strategic approach and concrete measures to i.e., a 20% reduction in greenhouse gases by achieve Ireland’s 2020 targets. Member States 2020; a 20% increase in EU energy efficiency by are required to submit a report on progress to 2020; and for 20% of total energy consumption the European Commission every two years, in the EU to come from renewable sources by with the final report to be submitted by 31 2020. The RED also imposes individual December 2021. To date Ireland has submitted renewable energy consumption targets for each three reports, dated January 2012, February Member State based on a flat rate approach 2014 and April 2016. The NREAP estimates the adjusted to each Member State’s GDP. The EU total contribution expected from each has set a target of 16% of Ireland’s gross final renewable energy technology sector. By 2020, it consumption of energy to come from is proposed that the following renewable energy renewable sources by 2020. In addition to technologies will hold the following energy specific targets in respect of transport (10%) share in electricity: and heat (12%), 40% of overall electricity consumption must be generated from Hydro: 34 MW; renewable sources. Tide, wave, ocean: 75 MW; Ireland has some of the most valuable renewable energy resources in Europe. The Biomass: 153 MW; development and growth of the domestic renewables sector will continue to be of the Wind (Onshore): 4,094 MW; utmost importance for Ireland as a means of both satisfying its own 2020 obligations and of Wind (Offshore): 555 MW. realizing sustainable alternatives to our dependency on fossil fuels and reducing our GLOBAL RENEWABLE ENERGY GUIDE 2017 119 ARTHUR COX IRELAND Ireland faces a significant challenge to reach its Ireland’s generation portfolio. The Irish 2020 targets for installed renewable capacity. Transmission System Operator, EirGrid, is Several reports in recent years have provided a involved in a detailed examination of the sense of the scale of the challenge remaining in challenges posed by large scale intermittent order to achieve those targets. Between 200 power on the Irish grid, and is leading several MW and 250 MW of additional wind capacity facilitation studies to ensure the appropriate must be installed every year to 2020. management of the grid and stability of the Approximately 229 MW of wind capacity was electricity system during this transition. installed in 2015. Average installed capacity over the past five years has been 177 MW. This In order to meet binding national and European compares to an average level of between 250 targets, EirGrid has introduced Delivering a and 300 MW/annum (approximately 125 Secure, Sustainable Electricity System (“DS3 turbines) estimated to be required in 2020 to Programme”). The aim of the DS3 deliver 40% RES-E target. Total electrical Programme is to address the challenges of output from wind in 2015 was 6,573 GWh operating the electricity system in a secure representing an increase of 27.9% on 2014.1 manner, while achieving the 2020 renewable Electricity generated from wind in 2015 energy targets. The DS3 Programme is designed accounted for 21.1% of Ireland’s gross electrical to ensure that the power system can be operated consumption. Notwithstanding the above, securely with increasing amounts of variable significant progress has in fact been made. non-synchronous renewable generation over Ireland is just over half-way towards meeting its the coming years. The DS3 Programme is made 2020 renewable energy target of 16%, with up of 11 work streams, which fall under three 9.1% of gross final consumption derived from pillars: System Performance, System Policies renewables in 2015. Target achievement in 2020 and System Tools. The annual budget for the is possible. In order to meet the national 2020 DS3 Programme has been set at some €235 goal, a range of existing and new actions – and million and may provide additional revenue a scaling up of action across all sectors – will be streams for generators. The implementation of required. The share of electricity from the DS3 System Services arrangements is renewable energy was 25.3% in 2015, over half divided into two phases, interim and enduring. way to the RES-E target of 40%. The DS3 System Services Interim Regulators and policy makers alike face the Arrangements went live on 1 October 2016. challenge of ensuring a smooth transition from Notwithstanding the successful implementation the current market to a market fueled by up to of the Interim Arrangements, a number of key 40% renewable energy in less than three years’ issues have emerged which impact the design of time. While renewable technologies continue to the DS3 System Services programme of work as be promoted at a government policy level, key envisaged by the SEM Committee in its stakeholders are working to address practical Decision Paper. In response, the SEM implementation issues such as grid Committee published the DS3 System Services development and management of variability. A Future Programme Approach Information high penetration of intermittent renewable Paper on 23 March 2017 which outlines the generation (largely wind) has placed a premium emerging thinking of the SEM Committee for on flexibility and resilience in the balance of System Services going forward. EirGrid and 1 Renewable energy in Ireland Report by SEAI; August 2016; http://docplayer.net/43558518- Renewable-electricity-in-ireland-report.html 120 GLOBAL RENEWABLE ENERGY GUIDE 2017 IRELAND ARTHUR COX System Operator Northern Ireland (“SONI”) In relation to the Grid West project, following are now working with the Commission for public consultation, a report was submitted to a Regulation of Utilities (“CRU”) (formerly government appointed independent expert known as the Commission for Energy panel in 2015 detailing three options for this Regulation) and Utility Regulatory (“UR”) to project. These included a fully underground develop a detailed programme plan. The 107 direct current cable, a 400kV overhead line and existing Interim Framework Agreements for the a 200kV overhead line with partial use of 11 services, due to expire in October 2017, will underground cable. All project activity was be extended until April 2018. paused awaiting a planning decision on Oweninny wind farm. Following the granting of In 2008 EirGrid launched a major initiative, consent for this development in June 2016, known as Grid25, to develop and upgrade the EirGrid assessed the impact that this project transmission infrastructure throughout Ireland. would have on the Grid West project. EirGrid commenced a number of large-scale regional projects under this initiative, including In September 2017, EirGrid announced plans having invested €500 million in the Grid Link to replace Grid West with a smaller scale project to develop the electricity infrastructure development. The decision to replace Grid in the south and east of Ireland. Since 2008, West was made due to the lower than expected EirGrid has completed the construction of over amount of wind generation in the region. 330km of new circuits, in addition to upgrading Renewable generation can now be connected and refurbishing over 1,200km of existing through the development of a lower voltage, circuits. 110kV line carried on poles. EirGrid believe that the new project will reinforce the electricity In March 2015, EirGrid published a draft network in the region. review of its Grid25 strategy after extensive public consultation. Acknowledging the The proposed development of a 400kV changing economic context and advanced overhead line as part of the North South transmission technologies, EirGrid considered Interconnector project will be unaffected by alternatives to the construction of 400kV this revised strategy. An Bord Pleanála have overhead lines as part of the Grid West and granted planning permission for the portion of Grid Link projects. The results of EirGrid’s the line which will be in the Republic of Ireland review were published in its 2017 Grid in December 2016. The Northern Ireland Development Strategy. The strategy Planning Permission process continues. highlighted that the Grid Link project had been replaced by an initiative called Regional The East-West Interconnector, a 500MW Solution. Regional Solution was developed as HVDC electricity link between the Irish and part of EirGrid’s review of the need for the British grids, was completed in 2012. This was Grid Link project. The Regional Solution is a major step forward for both markets, as it will made up of a number of independent projects help to improve security of supply as well as such as (i) Series Compensation (putting more promoting competition in the electricity sector. power on existing 400kV overhead lines that cross the country), (ii) a new underwater cable Investigations are also being undertaken in across the Shannon estuary and (iii) uprating relation to the potential for HVDC busbars at certain substations. The objectives of interconnection between Ireland and France. the project are to maintain security of supply and integrate renewable energy. In the transport sector, the Government introduced a number of measures to reduce the GLOBAL RENEWABLE ENERGY GUIDE 2017 121 ARTHUR COX IRELAND dependency on imported oil. In order to meet its skilled workers and providing a welcome boost target of 10% of vehicles to be powered by to the construction sector. electricity in 2020, the Government has introduced tax incentives to encourage both 2. What are the definition and coverage of private individuals and businesses to purchase renewable energy under the relevant electric vehicles. Although high costs and legislation? underdeveloped support systems have so far hindered the popularity of the electric car, the The principal legislation governing the existing scheme is encouraging and indicative of electricity industry in the Republic of Ireland is the Government’s intention to grow this sector in the Electricity Regulation Act 1999, as amended the future. 2014 saw an increase of 400% in the (“1999 Act”). The 1999 Act defines “renewable, number of people buying electric cars in Ireland. sustainable or alternative forms of energy” as While 222 were sold in 2014, compared with just energy used in the production of electricity 51 in 2013, the figure remained well below the which uses as its primary source one or a 13,929 petrol cars and 47,559 diesel cars sold. The combination of more than one of the following: number of electric cars sold in 2015 increased to wind; hydro; biomass; waste (including waste 562 but this still only accounts for 0.23% of all heat); biofuel; geothermal; fuel cells; tidal; solar; cars on Irish roads, well below the 20% target for and wave. 2020. The definition of renewable energy was further In addition, the national Biofuel Obligation expanded in the European Communities Scheme 2010 places an obligation on suppliers (Renewable Energy) Regulations 2011 (“2011 of mineral oil to ensure that a minimum Regulations”) (which transposed the RED percentage of motor fuels placed on the market into Irish law) to include energy from renewable are produced from renewable sources. The non-fossil sources, namely aerothermal, minimum percentage requirements (by volume) geothermal, hydrothermal and ocean energy, were increased to 8.695% on 1 January 2017. hydropower, biomass, landfill gas, sewage treatment plant gas and biogases. The 2011 The Irish government withdrew Vehicle Regulations have since been repealed and Registration Tax (“VRT”) relief on biofuel car replaced by the European Union (Renewable models in 2013. This approach is in line with the Energy) Regulations 2014. These Regulations European Commission’s proposal to scale back were then amended in the European Union support for biofuels, for example by eliminating (Renewable Energy) (Amendment) Regulations subsidies for food crop based biofuel 2016. production and imposing caps on biofuel shares 2 of total transportation fuels . VRT and other tax REGULATION reliefs will however continue to be available in respect of electric and hybrid vehicles in Ireland. 3. How is the renewable energy sector regulated? What are the principal laws In addition to reducing Ireland’s dependence on and regulations? fossil fuels and securing energy supply, Ireland’s renewable energy industry plays a central role in The Minister for Communications, Climate our economy by creating a demand for highly- Action and Environment (“Minister”) has overall responsibility for the renewable energy 2 Ren21’s Renewables Global Status Report 2013. 122 GLOBAL RENEWABLE ENERGY GUIDE 2017 IRELAND ARTHUR COX sector. The Minister is advised by a range of of supply provisions. The European other statutory bodies including the CRU which Communities (Internal Market in Electricity was established under the 1999 Act as the and Gas) (Consumer Protection) Regulations of national regulatory authority responsible for 2011 give further legal effect to consumer overseeing the liberalization of Ireland's energy protection provisions of Directive sector and granting licenses for the generation, 2009/72/EC and the European Communities transmission, distribution and supply of (Internal Market in Gas and Electricity) electricity. The Minister is also assisted by (Amendment) Regulations 2015 set out the Ireland’s national energy authority, Sustainable unbundling rules which apply to, inter alia, Energy Authority Ireland (“SEAI”), which electricity transmission system operators. promotes and provides grants for the development of sustainable energy structures, The European Communities (Renewable technologies and practices. Energy) Regulations 2014 (as supplemented by the Sustainable Energy Act 2002 (section 8(2)) Government policy in the electricity sector is (Conferral of Additional Functions – driven principally by the relevant European Renewable Energy) Order 2012) have Directives. The European Communities transposed Directive 2009/28/EC on the (Internal Market in Electricity) Regulations promotion of use of energy from renewable 2000 (“2000 Regulations”) completed the sources. In addition, the European Union transposition of Directive 96/92/EC of the (Energy Efficiency) Regulations 2014 and the European Parliament and of the Council of European Union (Energy Efficiency Obligation 19 December 1996 concerning common rules Scheme) Regulations 2014 (“2014 for the internal market in electricity (Directive Regulations”) transpose certain provisions of 96/92/EC). The European Communities the Energy Efficiency Directive (2012/27/EU) (Internal Market in Electricity) Regulations (“EED”). Under the 2014 Regulations, the 2005 (“2005 Regulations”) were promulgated Minister is authorised to issue Energy to transpose the requirements of Directive Efficiency Notices to energy suppliers, setting 2003/54/EC of the European Parliament and out energy efficiency standards, timescales and of the Council of 26 June 2003 concerning targets to be achieved. The scheme enables the common rules for the internal market in Minister to monitor performance and electricity and repealing Directive 96/92/EC compliance with the EED by apportioning the (Directive 2003/54/EC). obligations between the market players. The European Communities (Internal Market Most recently the Energy Act 2016 (“Energy in Electricity) Regulations 2010 (“2010 Act”) was passed to, amongst other things, Regulations”) represented the first step taken strengthen regulatory enforcement powers. The in Ireland towards the transposition of majority of the Act has been commenced. Its Directive 2009/72/EC of the European most significant aspect provides for: Parliament and of the Council of 13 July 2009 concerning common rules for the internal (1) Enhanced enforcement powers for the market in electricity. The Directive repeals CRU, including powers to impose Directive 2003/54/EC. The 2010 Regulations administrative sanctions; provide, inter alia, for the strengthening of independent regulation, better levels of (2) Increases in existing penalty levels on consumer protection, the licensing of a public conviction from those already in the 2014 electricity supplier, the designation of a supplier REMIT Statutory Instrument which relate of last resort and the enhancement of security to market abuse offences in the wholesale GLOBAL RENEWABLE ENERGY GUIDE 2017 123 ARTHUR COX IRELAND electricity and gas markets pursuant to the (“IDM”) – implicit allocation of cross-border requirements of the EU’s REMIT capacity via continuous trading through a single Regulation; and European platform; and (iv) the balancing market (“BM”) – the exchange of balancing (3) Increased flexibility in the administration services, including cross-border balancing of the Biofuels Obligations Scheme by the services. National Oil Reserves Agency. Following a consultation process with Ireland operates within an all-island single stakeholders in the industry, the then Minister electricity market (“SEM”) encompassing the (Alex White T.D.) published a White Paper in Republic of Ireland and Northern Ireland. The December 2015 setting out Ireland’s new SEM is a gross mandatory pool with central Energy Policy Framework. The White Paper is commitment, a single system marginal price, a welcome addition to the industry as it has set transmission-constraint payments and the out a clear policy to address the challenges introduction of capacity payments. The Energy facing Ireland’s energy market, particularly the (Miscellaneous Provisions) Act 2006 and the renewable sector. Its publication came shortly Electricity Regulation (Amendment) (Single following the UN’s 21st Conference of the Electricity Market) Act 2007 provide the legal Parties within the United Nations Framework basis for the SEM in Ireland, including Convention on Climate Change, which was held establishment of a SEM Committee of the CRU in November 2015. to regulate SEM matters in conjunction with an equivalent committee of the CRU’s counterpart The White Paper outlined an ambitious energy in Northern Ireland. transition which will require the active engagement of Ireland’s citizens, communities, The SEM is currently being redesigned. EU businesses, academics and experts, and local Member States are obliged to implement and national State agencies. It will also require electricity markets that are consistent with the better public awareness of the nature and scale EU Target Model. The SEM faces certain of the challenges Ireland faces, and a robust challenges in this regard, as it does not provide consensus about the broad policy measures for an ex-ante price or permit widespread intra- required to meet those challenges. day trading. Ireland has been granted a derogation to implement the necessary SEM The Minister’s vision of a low carbon energy reforms by the end of 2017. system means that greenhouse gas emissions from the energy sector will be reduced by The new wholesale market, which will be between 80% and 95%, compared to 1990 known as the Integrated Single Electricity levels, by 2050, and will fall to zero or below by Market (“I-SEM”), is now scheduled to go-live 2100. To achieve this, fossil fuels will grow to on 23 May 2018. account for 19-30% of final energy demand in Ireland. This means that non-renewable energy The I-SEM will offer four timeframes/ markets sources will make a significant – though to trade: (i) the forward market – a single pan- progressively smaller – contribution to Ireland’s European platform for the allocation of longer energy mix over the course of the energy term cross-border capacity rights; (ii) the day- transition. ahead market (“DAM”) – allocation of cross- border capacity with the trade of energy The overall regulatory framework (supported through a single European platform with firm by various action plans published by the prices and quantities; (iii) the intra-day market Government) is indicative of Ireland’s 124 GLOBAL RENEWABLE ENERGY GUIDE 2017 IRELAND ARTHUR COX commitment to become a low carbon economy monitoring. based on energy efficiency and renewable energy, driven principally by EU policy. The CRU also has functions in relation to the development of an all-island energy market and 4. What are the principal regulatory the development and regulation of the SEM. bodies in the renewable energy sector? The powers of the CRU were enhanced in The Ireland has successfully fostered a strong Energy Act which was passed on 30 July 2016. culture of independent regulation through the This legislation amended, consolidated and appointment of an independent energy sector broadened energy legislation in Ireland. As regulator. The CRU is an independent body and noted above, the Energy Act introduced is responsible for overseeing the liberalization enhancements to the enforcement powers of of Ireland’s energy sector and granting licenses the CRU, made provision for the renaming of for the generation, transmission, distribution the CRU to reflect its current role (it was and supply of electricity. previously known as the Commission for Energy Regulation) , which now includes the The CRU is Ireland’s designated National economic regulation of water services. It also Regulatory Authority (“NRA”) for the gives the existing SEM a wider definition to purposes of the New Electricity and Gas bring it into full compliance with the EU Directives and has responsibility for gas, integrated single electricity market. The CRU electricity and water regulation. In light of already possessed a range of enforcement European and Irish energy policy, the role and powers but there was a lack of effective functions of the CRU have been expanded over administrative sanctions beneath the ultimate time and with various legislative amendments. measure of licence revocation. The Energy Act gave the CRU the power to appoint inspectors Its functions are extensive, and include: to investigate suspected/alleged improper conduct by energy undertakings and to impose licensing and regulation of gas and administrative sanctions. Sections 8 and 19 of electricity undertakings; the Energy Act have not yet been commenced. Section 19 obliges the Minister to produce an regulating allowed revenues and tariffs for Energy Strategy Statement. incumbents; Since the establishment of the SEM in 2007, the overseeing market arrangements including, role of market operator for the island of Ireland without limitation, approving changes to has been discharged by a contractual joint the electricity and gas industry Codes; venture between EirGrid plc, operator of the transmission system in Ireland, and its promoting and regulating gas and Northern Ireland counterpart, SONI, known as electricity safety; the single electricity market operator (“SEMO”). cooperation with other NRAs and the European Commission; The electricity transmission system is owned by the State-owned vertically integrated company, settling disputes; the Electricity Supply Board (“ESB”). On 1 July 2006, a newly established independent state- ensuring a high standard of protection for owned company, EirGrid, took over the role of final customers in dealings with licensed transmission system operator (“TSO”). suppliers; and GLOBAL RENEWABLE ENERGY GUIDE 2017 125 ARTHUR COX IRELAND Pursuant to Section 14(2A) of the 1999 Act, by the vertically integrated State-owned Ervia only EirGrid may be granted a license to act as (formerly known as Bord Gáis Éireann). TSO. Pursuant to Section 14(2B) of the 1999 Pursuant to the European Communities Act, only the ESB may be granted a license to (Internal Market in Natural Gas) (BGÉ) act as transmission asset owner (“TAO”). In Regulations 2005, as amended, Gas Networks July 2011, having undertaken an extensive Ireland (formerly known as Gaslink), an independent analysis of the issue, the Irish independent subsidiary of Ervia, was government decided that ownership of the established as the independent system operator electricity transmission network assets would for the Ervia transportation system remain with the ESB while the operation and (transmission and distribution system). development of the transmission system would continue to be the responsibility of EirGrid. 5. What are the main permits/licenses required for renewable energy projects? In a decision published on 21 May 2013, the European Commission determined that the The main permits and licenses required for effective implementation of the transmission renewable energy projects are listed below. system arrangements in place in Ireland met the requirements of the EU Third Energy Package (a) Authorization to Construct (Directive 2009/72/EC). Accordingly, EirGrid was certified as the transmission system Under Section 16 of the 1999 Act, projects operator (“TSO”) for Ireland. The ESB require authorization from the CRU to remains as owner of the transmission assets in construct or reconstruct a generating station, Ireland and is responsible for the funding of, for the purpose of supply to final customers. and carrying out construction and maintenance Contravention of this section is an indictable on, the transmission network. offence. A project is also required to hold an authorization to construct under the terms of The electricity distribution system is owned and their connection agreement. operated by the ESB. Pursuant to Section 14(2C) of the 1999 Act, only the ESB or a The criteria to which the CRU may have regard subsidiary of the ESB may be granted a license in determining an application for such an as distribution system operator (“DSO”). The authorization are prescribed under Section 18 European Communities (Internal Market in of the 1999 Act (Criteria for Determination of Electricity) (Electricity Supply Board) Authorizations), Order 1999 (SI No. 309 of Regulations 2008 provide for the establishment 1999) and include the safety and security of the of a subsidiary company of the ESB to operate electricity system, electric plant and domestic the distribution system. Pursuant to these lines and the protection of the environment Regulations, the subsidiary company and the including the limitation of emissions to the ESB must enter into agreements in respect of atmosphere, water or land. how the subsidiary company will fulfil its duties as DSO. ESB Networks Limited, a ring-fenced (b) Licence to Generate Electricity subsidiary within the ESB group charged with The key administrative authorization required the operation and management of the electricity to operate a generation facility is a license to distribution system, was established in generate electricity granted by the CRU under December 2008. Section 14(1A) of the 1999 Act. In respect of gas, the transportation (transmission and distribution) system is owned 126 GLOBAL RENEWABLE ENERGY GUIDE 2017 IRELAND ARTHUR COX Applicants are required to provide information function in regard to the planning aspects of as to their technical and financial competence to renewable energy developments. The grant of construct and operate the relevant facilities. planning permission for these projects is a matter for the relevant local authority. Under Regulation 4(1)(a) of the European Communities (Internal Market in Electricity) An applicant will need to apply to the relevant Regulations 2000 (S.I. No. 445 of 2000) as planning authority for the area in which the amended by Regulation 23(a) of the European proposed development is to be situated with Communities (Internal Market in Electricity) details of the proposed project and provide an (Electricity Supply Board) Regulations 2008 Environmental Impact Statement, if required. (S.I. No. 280 of 2008), unauthorized generation There are some planning exemptions and of electricity is an offence and parties are liable restrictions for small scale renewable on summary conviction to a fine not exceeding technologies and CHP structures available. €5,000 or to imprisonment for a term not exceeding 12 months, or to both. Furthermore, 6. Is there a category of “license-exempt by virtue of section 34(3) of the 1999 Act, the generation”? If so, does it cover some making by the ESB of a connection offer is types of renewable energy based subject to the offeree holding a license to generation? generate. Any person who wishes to construct or (c) Transmission Use of System Agreement reconstruct a generator which is not greater in installed generating capacity of 1 MW is exempt A Transmission Use of System (“TUOS”) from the need to apply for an authorization to Agreement with EirGrid is one of the construct or reconstruct a generating station conditions to accepting a connection offer to and is duly authorized by the CRU under the distribution system. The TUOS Agreement Electricity Regulation Act 1999 (Section is a standard form agreement which sets out the 16(3A)) Order 2008 (S.I. 383/2008). terms and conditions upon which EirGrid permits the User to use the ESB Transmission 7. Has there been any reform related to System. Under the TUOS Agreement, EirGrid renewable energy regulations since agree to the User being provided with the use 2016? Do you expect any of the ESB Transmission System at the reform/change in the near future? Network Connection Points. The User in turn agrees to pay the generation related Generation As noted in section 3, the Energy Act was Transmission Service TUOS Charges under a passed to, amongst other things, strengthen specified tariff schedule. TUOS Tariffs are regulatory enforcement powers such as the revised annually. The General Conditions of CRU’s ability to impose administrative Connection and Transmission Use of System sanctions. are incorporated into the TUOS Agreement. Perhaps the most significant reform facing (d) Planning Permission renewables in Ireland relates to updating existing renewable support schemes so that they Planning permission will need to be secured for are compatible with I-SEM. The introduction every renewable energy project in addition to of I-SEM will change some of the parameters any other consents required. The Department currently used for determining REFIT and PSO of Communications, Climate Action and levy payments. In May 2017, DCCAE Environment (“DCCAE”) has no direct published an Options Paper which outlined a GLOBAL RENEWABLE ENERGY GUIDE 2017 127 ARTHUR COX IRELAND number of options being considered and the be based on the day ahead price. For all DCCAE’s emerging thinking on the optimal supported generators, capacity market costs will outcome.3 The DCCAE’s preferred option was not be included in the calculation of market to amend the manner in which compensation revenues for PSO levy calculation purposes. under REFIT was calculated so that in I-SEM purchasers of qualifying electricity will be The DCCAE will issue its final decision as soon compensated for any shortfall between the day as possible after receipt of submissions from ahead market price and the support level industry groups and will notify changes to the prescribed by the relevant REFIT scheme. calculation of market revenues to the European Electricity supply companies are currently Commission. Thereafter the DCCAE will compensated for any shortfall between the update the relevant regulatory rules. actual market revenues received and the support level prescribed by the REFIT scheme. INCENTIVES The DCCAE also indicated that it preferred to exclude any balancing costs in the calculation of the energy component of the market revenues 8. Are tax advantages available to for REFIT purposes. The DCCAE noted that renewable energy generation it sought to implement an approach that strikes companies? the appropriate balance between providing certainty such that REFIT supported generators (a) Employment Investment Incentive Scheme are able to finance their projects and ensuring The Employment Investment Incentive that electricity consumers do not bear the risk (“EII”) is a tax relief incentive that allows of increased costs. investors to obtain income tax relief on In November 2017, following on from the investments made, in each tax year, into EII publication of the Options Paper and certified qualifying companies. The EII scheme engagement with the industry, the DCCAE has replaced the previous Business Expansion published a proposed Decision Paper in relation Scheme (“BES”). Investments in renewable to the electricity support schemes.4 The energy companies qualify for EII/BES relief. DCCAE’s proposed decision is that market EII relief enables investors to deduct the cost revenues for the purposes of REFIT for of their qualifying investment from their total supported wind generation will, for the energy income for income tax purposes and is given at component, be based on the lower of; (a) a the claimant’s marginal rate of income tax. blend of 80% of the day ahead market price and Securing EII/BES status therefore enhances 20% of the balancing market price; and (b) the the ability of eligible companies to attract day ahead market price for all supported wind outside investment. generators above 5MW capacity. (b) Research and Development (“R&D”) Grants The market revenue calculation for the R&D grants and capital grants are offered to purposes of calculating the PSO levy for other support innovative domestic and commercial supported generation (e.g. peat, hydro and schemes using biofuels, CHP, large-scale wood biomass under REFIT 1, 2 and 3 and the Peat PSO Scheme), for the energy component will 3 https://www.dccae.gov.ie/documents/ 4 https://www.dccae.gov.ie/en-ie/energy/ 23052017%20REFIT%20-ISEM%20 consultations/Documents/32/consultations/2017 options%20paper.pdf. _11_30%20Proposed%20Decision_REFIT%20Tr ansition%20to%20I-SEM_.pdf. 128 GLOBAL RENEWABLE ENERGY GUIDE 2017 IRELAND ARTHUR COX heating systems and domestic renewable heat Renewable energy companies and qualifying technologies. hybrid plants have mandatory priority dispatch under EU law. Various funding programmes are offered through the SEAI. A fund is currently available As noted above, the redesigned market, known to stimulate the development and deployment as I-SEM, is due to go-live on 23 May 2018. of ocean energy devices and systems.5 The One of the key design challenges is the high emphasis is on industry-led projects for the proportion of priority dispatch plant that will be following types of activities: operating on the island of Ireland by 2020. industry-led projects to develop and test A high level design paper published by the SEM wave and tidal energy capture devices and Committee provides for unit-based systems; participation for generation in the day-ahead and intraday markets, mandatory participation independent monitoring of projects / in the Balancing Mechanism after the day-ahead technologies; stage, as well as the introduction of a capacity remuneration mechanism. industry-led R&D aimed at the integration of ocean energy into the electricity market It is intended that the revised market design will and the national electricity grid (and promote liquid and transparent trading network); arrangements accessible by market participants of all technologies and sizes. data monitoring, forecasting, communications and control of OE systems; 10. Is there a minimum price guarantee and given by the relevant legislation for the electricity generated by renewable specific industry-led research projects energy companies? carried out by research centres, third level institutions and centres of excellence with The Renewable Energy Feed In Tariff (“REFIT”) a high level of expertise in the relevant area. While there is no minimum price guarantee 9. Is there a purchase guarantee given by under Irish legislation for electricity generated the relevant legislation for the by renewable energy companies, Ireland has electricity generated by renewable implemented a number of supplier energy companies? compensation regimes for additional costs of renewable energy purchased, which are known There is no purchase guarantee given by the as Renewable Energy Feed In Tariffs or REFIT. relevant legislation for the electricity generated REFIT allows suppliers to contract with by renewable energy companies. However, the generators outside the SEM pool and provide a 1999 Act requires the Transmission System price floor in power purchase agreements Operator to give priority dispatch into the reflecting the level of compensation available to SEM’s mandatory gross pool, subject to system the suppliers. These REFIT supported power security considerations. Therefore, priority purchase agreements operate to insulate dispatch, coupled with a gross pool market, renewable generators from fluctuations in the gives rise to an effective purchase guarantee, wholesale market price. subject to constraints and curtailment. 5 Available at “http://mw.seai.ielGrants/oceanenergy”. GLOBAL RENEWABLE ENERGY GUIDE 2017 129 ARTHUR COX IRELAND The first REFIT programme (“REFIT I”) was biomass up to 30% of the capacity of the plant opened by way of competition in 2006 by the (up to a maximum of 50MW) in any single year. DCCAE to support the construction of new Plants above 50MW would have required an electricity generation plant powered by biomass, individual state aid application to be submitted hydropower or wind energy. The REFIT I by DCCAE to the European Commission. The scheme accepted applications until 31 deadline for funding for REFIT III was December 2009, and was subject to a extended from 30 September 2016 to 30 quantitative limit which was reached. Since that September 2017. date no new applications have been accepted; although projects accepted into the scheme REFIT II projects must now be built and before that date, which were granted an operational by 31 December 2019, following an extension of time to become operational, extension of the previous deadline of 31 continue to be developed. Applications for the December 2017. The support for any particular second REFIT programme6 (“REFIT II”) and project cannot exceed 15 years and the support third REFIT programme7 (“REFIT III”) may not extend beyond 31 December 2032. The closed for new applications on 31 December wind sector has therefore been increasingly 2015. REFIT II provides support for electricity active in the last 12 months as developers seek exported to the grid in the onshore wind, hydro to meet the REFIT II deadlines. and biomass landfill gas technology categories subject to a quantitative limit of 4000MW in In order to participate in the REFIT Schemes, total. The maximum size of an individual plant renewable generators must first have been that may be accepted into REFIT II is 125MW. accepted by the DCCAE in accordance with the Plants above 125MW will require an individual relevant REFIT terms and conditions. state aid application to be submitted by Successful generators who have received a DCCAE to the European Commission. “letter of offer” are subsequently required to enter into a power purchase agreement (“PPA”) REFIT III covers biomass technologies and is with a supplier licensed by the CRU. With the designed to incentivize the addition of 310MW benefit of a REFIT letter of offer (the generator of renewable electricity capacity. Of this, is the addressee although details of the supplier 150MW will be High Efficiency CHP (HE are subsequently notified to the DCCAE), the CHP), using both Anaerobic Digestion and the supplier counterparty to a REFIT PPA is thermo-chemical conversion of solid biomass, entitled to be reimbursed its “additional costs” while 160MW will be reserved for biomass in performing its “public service obligation” combustion and biomass co-firing. REFIT III (“PSO”) to purchase the output from the new provides support for electricity exported to the electricity generation plant. This PSO is grid subject to the following quantitative limits: imposed on licensed suppliers by way of Anaerobic Digestion (including AD CHP) statutory instrument. Where the additional costs 50MW; Biomass CHP 100MW; and Biomass to suppliers of purchases under REFIT PPAs Combustion (including co-firing with peat) exceed market incomes in the SEM, suppliers 1603VTW. The maximum size of an individual are entitled to compensation from funds plant that could be accepted into REFIT III was collected from all consumers of electricity 50MW. An exception to this rule applied to peat through the PSO levy together with a balancing co-firing stations which can co-fire peat and payment to compensate the supplier for the 6 A Competition for Electricity Generation - from 7 A Competition for Electricity Generation from Onshore Wind, Hydro and Biomass Landfill Gas Biomass Technologies 2010-2015. Technologies 2010-2015. 130 GLOBAL RENEWABLE ENERGY GUIDE 2017 IRELAND ARTHUR COX costs associated with balancing renewable Onshore Wind (above 5MW) – 69.72 euro electricity. The balancing payment for REFIT I per MWh; is 15% of the reference price for large scale wind (indexed). The balancing payment for Onshore Wind (equal to or less than 5MW) REFIT II and REFIT III is €9.90 MWh (not – 72.167 euro per MWh; indexed), payable only to the extent that the market price does not exceed the applicable Hydro – 88.068 euro per MWh; reference price. Biomass Landfill Gas – 85.622 euro per On 31 July 2015, the DCCAE published a MWh. Consultation Document on a proposed new Renewable Energy Support Scheme to replace c. REFIT III REFIT. The DCCAE is developing a new support scheme for renewable electricity. The The reference prices for REFIT III are: initial phase of this consultation closed on 18 September 2015. There will be an additional Biomass Combustion (non CHP): consultation phase announced later this year. This will need to comply with EU State Aid Appendix 1 For using Energy Crops – Rules and will therefore be a market-based 99.822 euro per MWh; support mechanism, unlike REFIT. Appendix 2 For all other biomass – REFIT Reference Prices indexed to 2017:8 89.314 euro per MWh; a. REFIT I Biomass CHP units greater than 1500 kW – 126.091 euro per MWh; The reference prices for REFIT I are: Biomass CHP units less than or equal to Large Wind category (above 5MW) – 69.72 1500 kW – 147.106 euro per MWh; euro per MWh; AD CHP greater than 500 kW – 136.598 Small Wind category (equal to or less than euro per MWh; 5MW) – 72.167 euro per MW; AD CHP unit less than or equal to 500 kW Hydro – 88.068 euro per MWh; – 157.613 euro per MWh; Biomass Landfill Gas – 85.622 euro per AD (non-CHP) units greater than 500 kW MWh; – 105.076 euro per MWh; Other Biomass – 88.068 euro per MWh. AD (non-CHP) units less than or equal to 500kW - 115.583 euro per MWh. b. REFIT II A key consideration in the development of the The reference prices for REFIT II are: I-SEM is how the REFIT schemes will be amended, and whether they will continue to 8 Figures taken from Department of gov.ie/documents/2017%20Reference%20Prices Communications, Climate Action and %20for%20REFIT.pdf. Environment website at: http://www.dccae. GLOBAL RENEWABLE ENERGY GUIDE 2017 131 ARTHUR COX IRELAND protect revenues in the same manner. We Ireland, along with Denmark and Luxembourg, anticipate widespread negotiations on existing has the most challenging target for greenhouse power purchase agreements and potentially in gas emissions reductions in the EU; Ireland’s financing documents when the I-SEM and target is to achieve 20% lower than 2005 REFIT changes are confirmed, as generators, greenhouse gas emissions levels by 2020. offtakers and lenders rush to preserve their Emissions targets also include emissions from position in the event that REFIT does not agriculture and waste disposal; such emissions address new risks or costs that may arise in I- currently account for 35% of Ireland’s SEM. The new I-SEM arrangements greenhouse gas emissions, with energy-related necessitate the existing REFIT support emissions accounting for the remainder. schemes be aligned with the structure and rules of the new market to ensure the scheme The EU ETS was launched in 2005 as the continues to function. The DCCAE published world’s first international company-level “cap- an Options Paper in May 2017 on the transition and trade” system for cost-effectively reducing to I-SEM and the effect on renewable support greenhouse gas emissions. The EU ETS is schemes. The paper notes that the emerging established under Directive 2003/87/EC and approach is that REFIT reimbursements are to amendments thereto. This was implemented in be calculated by reference to the day-ahead Ireland under S.I. 490 of 2012, S.I. No. 261 of market reference price, effectively putting 2010, and amendments thereto. The scheme is balancing risk on generators. being implemented in distinct phases or “trading periods”. 11. Has the Paris Agreement under the United Nations Framework 12. Is there a carbon market or carbon Convention on Climate Change been credits mechanism in your jurisdiction? ratified? Ireland has also developed its own voluntary The Paris Agreement was opened for signature carbon exchange platform. The Irish Carbon at the United Nations Headquarters in New Trading Platform (Cosain) was established in York on 22 April 2016 and remained open until 2009 and enables installations and brokers to 21 April 2017, in accordance with Article 20, trade allowances online. Cosain also facilitates paragraph 1 thereof. Ireland signed the the trading of carbon credits (permitting the Agreement on 22 April 2016 and it was ratified holder to emit one tonne of carbon dioxide) in in November 2016. voluntary offset markets. Ireland, as an EU Member State, is required Building on Ireland’s huge success in under the European Union Emissions Trading securitisation, aircraft leasing and funds Scheme (“EU ETS”) to limit or cap the amount management, a highly supportive tax regime has of greenhouse gases emitted by certain been created as Ireland seeks to become a hub installations covered by the scheme. The relevant for carbon trading. The key vehicle in this regulator in Ireland is the Environmental regime is the use of what are known as Section Protection Agency. Each Member State is 110 Companies. A unique aspect of Irish tax required to put in place a national allocation plan legislation for Section 110 vehicles is that it in order to allocate allowances for each generally allows such companies a tax deduction installation, which can then be bought and sold. for all interest payable including any profit The objective is to create scarcity and reduce participating element. This enables Section 110 overall emissions. companies to be effectively tax neutral, which has resulted in Ireland becoming one of the top 132 GLOBAL RENEWABLE ENERGY GUIDE 2017 IRELAND ARTHUR COX locations for trading carbon credits. A recent interest; where it would result in a breach of the survey ranked Ireland 7th globally for 1999 Act, the regulations made under the 1999 attractiveness of its green tax regime. Act, the grid code or any condition of any license or authorization; or where the applicant 13. Do renewable energy based power does not undertake to be bound by the terms of plants have priority for connection to the grid code. the grid? The holder of a license to transport electricity Renewable energy power plants do not have across and maintain an interconnector is required priority connection to the grid, although priority to offer interconnector access on the basis of connection for small scale generators below published non-discriminatory terms which must 5MW (see below) predominately benefit be approved by the CRU. The interconnector renewables (other than small scale wind). operator may refuse to enter into an agreement providing access where it can demonstrate to the Ireland has implemented a Third-Party Access CRU that to do so would not be in the public Regime under Sections 33, 34 and 34A of the interest or if doing so would involve the operator 1999 Act. These Sections govern access to breaching the 1999 Act, regulations made under transmission and distribution systems and the Act and as the case may be, the grid code or interconnectors as well as arrangements and distribution code or, its license or authorization. agreements relating to the transmission system In practice, there has traditionally been a lack of together with the Northern Ireland capacity for parties seeking to connect to the transmission system. Anyone may apply to transmission and distribution systems. The CRU EirGrid for connection to the transmission enjoys powers under Section 34(1) of the 1999 system and to ESB Networks DAC for Act to issue directions relating to the terms for connection to the distribution system. Offers connections to the transmission and distribution are subject to the applicant becoming an eligible system. Pursuant to those powers, the CRU customer or obtaining a license or imposed until mid-2004 a moratorium on new authorization. wind farms. Since then, the CRU has been The CRU may issue directions to the Relevant implementing a group processing approach for System Operator specifying the terms of the issue of connection offers by the Relevant connection offers from time to time. The CRU System Operators under successive "Gates", but may give directions in relation to matters to be there remains a considerable backlog and delays. specified in a connection and/or use of system The issuance of offers for the Gate III process agreement; terms and conditions of a commenced in December 2009 and the issue of connection offer; respective proportions of offers from the system operators continued until costs to be borne by the Relevant System June 2011. All offers have now been issued under Operator and connecting parties; and time this Gate process. periods within which an offer must be made or In 2009, the CRU published a Decision Paper6 a refusal notified. which details how small, renewable and low The only circumstances in which the Relevant carbon generators that fulfil public interest System Operator can refuse to make a criteria would be processed outside the Group connection offer to an applicant are set out in Processing Approach (“GPA”). The public Section 34(4) of the 1999 Act and include where interest criteria include diversity of fuel mix, the CRU is satisfied that it is not in the public predictability and power system support, 6 CER/09/099. GLOBAL RENEWABLE ENERGY GUIDE 2017 133 ARTHUR COX IRELAND environmental benefits and research or interactions do exist, then the CRU will innovation. The CRU decision paper also sets consider these on a case-by-case basis. out a list of pre-approved classes of technology for processing outside the GPA which include: On 11 December 2015, a consultation process was launched to revise connection policy, Bioenergy; primarily to address the large increase in connection applications, principally driven by CHP; prospective solar developers. If actioned, this revised approach will ensure solar and other Autoproducers; sub-5MW projects cannot automatically avoid all forms of group processing. Hydro; The CRU published a Decision Paper in April Ocean; 2017 on the connection policy transitional arrangements9. The Decision Paper provides Wave; for a time-limited opportunity to projects that may not progress to release their capacity in Solar; exchange for 80% of their first stage payments under their connection agreement. The deadline Geothermal; to apply for this release was extended to 30 June Experimental/Emerging Technologies. 2017. Renewable generators (<500kW) were In December 2011, the SEMC published a final previously all subject to the GPA, which is decision in relation to treatment of curtailment in effectively a queue system. The current the SEM where the instantaneous penetration approach differentiates between wind and non- of wind exceeds 50% of system demand. wind renewable generators. Applications by However, following a number of industry non-wind renewable generators with a submissions, the decision was partially Maximum Export Capacity (“MEC”) less than withdrawn by the SEMC in March 2012. The or equal to 5 MW will be processed outside of decision outlined the preferred option for the queue and interaction studies will not be allocating curtailment in tie-break situations on carried out. Only auto production wind sites, a firm access quantity basis, i.e., giving where the generator (up to 5MW) is installed on preference to plant which had already obtained an industrial site to predominantly supply in- a firm access quantity (a grandfathering house demand, will be included in this new approach). This would mean existing plant arrangement. Wind sites with a direct would have different rights to new plant. On 1 connection to the grid will not be included and March 2013, the SEMC published its final will be subject to the full GPA. Non-wind decision, which provided that all wind renewable generator applicants with an MEC generators should make a contribution on a greater than 5 MW will also be processed pro-rata basis to address the fact that outside of the GPA but interaction studies will curtailment is a system-wide problem. This be performed. If no interactions exist, then they decision was largely welcomed by the industry can proceed to be given a connection offer. If as a fair alternative which provided much needed certainty to the market. 9 CER/16/284. 134 GLOBAL RENEWABLE ENERGY GUIDE 2017 IRELAND ARTHUR COX 14. Is there an incentive for domestic (local) manufacturing of equipment or STATISTICS materials used in the construction of renewable energy based power plants? 16. What is the percentage of electricity generated based on each type of There are no incentives for domestic renewable energy source in the total manufacturing of equipment or materials used in generation of electricity on a country- the construction of renewable energy based wide scale? power plants. In 2015 the share of electricity from renewable 15. What are the other incentives available energy was 25.3%, over half way to the RES-E to renewable energy generation target of 40% in 2020. Renewables have companies? continued to contribute more to the fuel mix over recent years; there are a number of There are various incentives available to contributing factors to this increased renewable energy generation companies. The tax contribution. Firstly, and primarily, a significant and financial schemes have previously been amount of Guarantee of Origin (“GO”) discussed under section 7. certificates have been imported from Europe by In addition, the Irish government has also suppliers for use in their fuel mix figures. introduced a number of measures to encourage Secondly, there was an increase in installed investment in renewable energy including: capacity of wind in 2013 and 2014 of 198.5 MW and 367 MW respectively. The rate of changes to planning legislation with the development has varied since then with 229MW potential to significantly expedite the added in 2015. Finally, the wind capacity factor planning process for wind farms with more for 2014 and 2015 was 28.5% and 32% 10 than 50 turbines or an output greater than respectively, compared to 28.4% for 2012. 100MW and publication of revised “Wind This significant increase in electricity produced Energy Development Guidelines for Planning from wind has allowed Ireland to reduce its Authorities”; and dependency on imported fossil fuels. According to the latest contracted generators the introduction of a biofuels obligation lists published by EirGrid and ESB Networks, scheme, corporate investment in certain approximately 2,200 MW of wind capacity is renewable energy projects and registration contracted to be added to the grid in the period of hybrid electrical vehicles and flexible fuel 2016-2018. See Figure 1 for a breakdown of the vehicles. fuel mix in Ireland in 2015.11 10 11 SEAI Energy in Ireland 1990-2015, 2016 Report. CER Fuel Mix Disclosure and CO2 Emissions 2015 Report, published 26 August 2016. GLOBAL RENEWABLE ENERGY GUIDE 2017 135 ARTHUR COX IRELAND Figure 1 All Island Fuel Mix 2015 All Island Mix - Final 1% 16% Coal Gas 41% Peat Renewable 36% Other 6% OTHER 17. Is there anything else you wish to add? No. ARTHUR COX Alex McLean Niall Esler Niall Donnelly 10 Earlsfort Terrace 10 Earlsfort Terrace 10 Earlsfort Terrace Dublin 2, D02 T380, Ireland Dublin 2, D02 T380, Ireland Dublin 2, D02 T380, Ireland T: +353 (0)1 920 1195 T: +353 (0)1 920 1044 T: +353 (0)1 920 1291 F: +353 (0)1 920 1020 F: +353 (0)1 920 1020 F: +353 (0)1 920 1020 E: [email protected] E: [email protected] E: [email protected] 136 GLOBAL RENEWABLE ENERGY GUIDE 2017 ISRAEL Uri Noy Yaron Cohen ERDINAST, BEN-NATHAN, TOLEDANO & CO. ADVOCATES resolved to reach targets as set out in the GENERAL previous resolution and determined an intermediary target of 5% production of 1. What are the nature and importance of renewable energy of the gross production of renewable energy in your country? electricity, by the end of 2014.3 In addition, it was resolved to increase quotas of photovoltaic Since the beginning of the 2000s, the Israeli solar energy production by shifting quotas from government has acted and promulgated a other renewable energy sources such as wind regulatory system aimed at encouraging the and biogas.4 The main reason for the shift was construction and operation of renewable energy that while the implementation of the PV facilities and power plants by independent technology regulation was successful, the private providers. Renewable energy sources regulation for wind was still under process, and include sunlight, wind, water and waste. that Israel does not produce enough waste for reaching the published quota for biogas. In In 2009, the Israeli government enacted a 2015, and in preparation for the United Nations resolution which set a target according to which Framework Convention on Climate Change in 10% of Israel's electricity needs will be Paris, the Israeli government enacted a generated from renewable energy sources by resolution which updated the target for 2020, and asserted that steps must be taken to production of electricity from renewable construct power stations at an annual rate of no energy, such that at least 13% of the electricity 1 less than 250 MW per year, as of 2010. This consumed in 2025 will be generated from resolution was later followed by additional renewable energy sources, and at least 17% in 2 resolutions which amongst other things, 2030.5 1 Government Resolution No. 4450 (SE/176) dated 3 In accordance with Government Resolution No. January 29, 2009. Government Resolution No. 2178 3484 dated 17 July 2011. dated 12 August 2007 and Government Resolution 4 Government Resolution No. 2117 dated 22 No. 3954 (SE/122) dated August 21, 2008 which October 2014. undertook to promote and advance the production of renewable energy. 5 Government Resolution No. 542 dated 20 September 2015. 2 Government Resolution No. 3484 dated July 17, 2011 and Government Resolution No. 2117 dated 22 October 2014. GLOBAL RENEWABLE ENERGY GUIDE 2017 137 EBN & CO ISRAEL However, in spite of targets set, renewable 2. What are the definition and coverage of energy production in Israel in 2016 accounted renewable energy under the relevant for approximately 2.6% of gross electricity legislation? production – half of the intermediary target of 2014. According to the Electricity Authority Pursuant to Section 1 of the Electricity Sector report for 2016,6 the total installed net capacity Rules (Transactions with an Essential Service of renewable energy in Israel was 971MW Provider) 2000, which was enacted by virtue of divided as follows: the Electricity Sector Law (as further described below), renewable energy sources cover all PV – 909MW. energies generated, amongst other things, from the sun, wind, water, solid waste, or biomass, Wind – 27MW. but not from fossil fuels. Bio-gas – 15MW. REGULATION Landfills Gas – 13MW. 3. How is the renewable energy sector Hydro – 7MW. regulated? What are the principal laws As a result of this relatively low percentage and and regulations? in order to help reach targets set by the government for 2020, the Electricity Authority The Electricity Sector Law is the principal law has promulgated additional regulation for in the field of energy. Its main role is to regulate competitive procedure with respect to PV solar activities in the electricity market, for the good energy with a total quota of 900-1,300MW that of the public. Accordingly, it provides core is to be allocated to winning bidders during provisions in the field of renewable energy. The 2017-2018. The first competitive procedure was Electricity Sector Law establishes the Electricity Authority and authorizes it to regulate the completed successfully on March 20, 2017, and 8 represented the Electricity Authority's efforts to electricity sector. In addition, it asserts that all promote the said government's targets.7 production of electricity with a net capacity over 5MW is permitted subject to a production On August 6, 2017, the Electricity Sector Law, license and must be carried according to its 5756 – 1996 ("Electricity Sector Law"), was provisions.9 It also sets out the obligations of amended to include, among others, an essential service providers towards both instruction to the Minister of Energy to producers of electricity and consumers.10 implement a multi-year program plan for the production of electricity from renewable Furthermore, regulations emanating from the energy, in order to achieve the government's Electricity Sector Law also govern the targets as set out in the government's resolution renewable energy sector. These include the dated September 20, 2015 - at least 13% of the Electricity Market Rules (Transactions with an electricity consumed in 2025 will be generated Essential Service Provider), 2000, which set out from renewable energy sources, and at least part of the requirements for obtaining a 17% in 2030. 6 Electricity Authority's 2016 electricity market status 8 Section 21 of the Electricity Sector Law. report, dated April 2017. 9 Section 3 of the Electricity Sector Law, as amended 7 For further information regarding the competitive on January 1, 2005. procedure please refer to Section 6 below. 10 As set out in Part III of the Electricity Sector Law. 138 GLOBAL RENEWABLE ENERGY GUIDE 2017 ISRAEL EBN & CO provisional production license;11 determine the 4. What are the principal regulatory purchase guarantee of renewable energy by an bodies in the renewable energy sector? essential service provider;12 and set out different methods of conducting transactions with an The Electricity Authority, which is part of the essential service provider.13 Ministry of Energy, is the principal professional regulator in the renewable energy sector. The Electricity Market Regulations (Terms and Procedures for Granting a License and Duties The Electricity Authority was established by the of a License Holder), 5758-1997 set out specific Electricity Sector Law, and is vested with the requirements for acquiring licenses in the authority to supervise the compliance of the electricity market; and the provisions for electricity market with the provisions of the acquiring transmission licenses, distribution Electricity Sector Law and the relevant licenses, production licenses, supply licenses, regulations.17 and any other matters arising thereof. According to the Electricity Sector Law, the The Electricity Market Regulations Electricity Authority's roles are: (i) determining (Cogeneration) 5765-2004 also set out a number the rates for services in the electricity market of provisions relevant to the renewable energy and the method for their update. The rates are sector, namely with respect to the provision of published in the "Rate Book"; (ii) determining guarantees within the framework of the the standards for the level, characteristics, and provisional licenses.14 quality of services provided by an essential service provider to: its consumers, supply The Israel Electricity Law 5714-1954, sets out, license holders, electricity producer, or to among others, the requirement for a prior another essential electricity provider, and written permit from the commissioner of the supervising the fulfillment of the said standards. Electricity Administration,15 for the installation The standards are published in the "Book of of an Electrical Facility16 or a fundamental Standards"; (iii) issuance of licenses and change to it. supervising the compliance of their terms by their holders;18 (iv) setting the rules for transactions between an essential provider and 11 Section 2(a) of the Electricity Market Rules permanent or portable electrical equipment, (Transactions with an Essential Service Provider), connected to the facility." 2000. 17 Until Amendment 13 to the Electricity Sector Law, 12 Section 2 of the Electricity Market Rules of 1 January 2016, the Electricity Authority was an (Transactions with an Essential Service Provider), independent authority operating separately from the 2000. Ministry of Energy. 13 Section 3 of the Electricity Market Rules 18 As a general rule, the Electricity Authority is (Transactions with an Essential Service Provider), responsible for granting licenses, however certain 2000. types of licenses, as determined by Section 4(b2) of 14 Section 15 of the Electricity Market Regulations the Electricity Sector Law, are also subject to the (Cogeneration) 5765-2004. Minister of Energy's approval: (i) production license for a capacity exceeding 100 MW; (ii) supply license 15 A unit of the Electricity Authority. for a capacity exceeding 100 MW; (iii) distribution 16 Electricity Facility is defined as: "A facility for license exceeding 5% of the total annual electricity production, transmission, distribution, consumption; (iv) transmission license or system consumption, accumulation, or modification management license; and (v) distribution license, if (transformation), including structures, machines, the total distributions licenses, which are not held instruments, batteries, conductors, accessories, and GLOBAL RENEWABLE ENERGY GUIDE 2017 139 EBN & CO ISRAEL a license holder; and (v) supervising the operate the power plant and generate electricity compliance of the license holders with the to the national grid. provisions of the Electricity Sector Law, and enforcing such provisions.19 This two-stage process used to be relevant to all types of renewable energy power plants. With regard to renewable energy, the Electricity However, as part of the Electricity Authority's Authority, as part of its responsibility to issue reform at the beginning of 2017, PV power production and supply licenses, has determined plants with a net capacity between 5-10MW the license issuance procedure and the were exempt from the requirement of a requirements to be fulfilled by the applicant provisional license as a precondition for the during the construction and operation of the receipt of a permanent production license power plant (for the license issuance procedure (please refer below under section 7). 20 please refer to section 5 below). These following steps for obtaining provisional In addition, the Electricity Authority has production licenses for renewable energy power determined in the "Book of Standards" the plants, as well as the milestones required to be regulations for each type of renewable energy adhered to within their framework as set forth technology and published in the "Rate Book", below, are the main requirements of receiving the rates to be paid by the government owned production licenses and are mostly similar for company – the Israeli electricity Corporation all renewable energy technologies (except for ("IEC") for the generated electricity whether on PV technology, as mentioned above and further a feed in tariff basis in PV, wind, biogas and described below). thermo solar, or net metering in PV and wind facilities with net capacity up to 50kw. In applying for a provisional production license, the applicant must provide to the Electricity 5. What are the main permits/licenses Authority's review, among others, the following required for renewable energy projects? documents/information: (i) proof as to the applicant's legal rights as ownership or as a 5.1 Electricity Production License lessee, for the real-estate where the power plant According to the Electricity Sector Law, one is planned to be erected; (ii) it has received from cannot generate and supply electricity without a the IEC a positive feasibility survey stating that license. An exemption to this demand is the it is possible to export to the grid the electricity generation of electricity from a power plant that will be generated from the power plant; (iii) with a net capacity under 5MW, that is not sold details of the applicant's incorporation and to anyone other than an essential service shareholders; (iv) proof as to the financial provider license holder. abilities of the applicant; (v) provide a detailed description of the operations that are to take The issuance of an electricity production license place in accordance with the license including a is divided into two stages: (i) provisional license comprehensive production plan and an which enables the holder to develop and extensive time table for the construction of the construct the power plant; and (ii) permanent power plant; (vi) demonstrate previous production license which enables the holder to international experience; and (vii) deliver a by a government-owned entity, exceeded 10% of also be exempt from the requirement of a the annual total consumption. provisional license as a precondition for the receipt 19 Section 30 of the Electricity Sector Law. of a permanent production license. 20 According to EA hearing dated 20 July 2017, PV power plants with a net capacity above 10MW will 140 GLOBAL RENEWABLE ENERGY GUIDE 2017 ISRAEL EBN & CO business plan and provide certain warranties tariff for the power plant (at least 90 days prior with respect to the development of the project to the financial close); (iv) presentation of a and the financial ability to provide equity building permit for the construction of the capital. power plant; (v) presentation of documents demonstrating the financial close; (vi) Once the application is approved by the presentation of IEC's approval for the opening Electricity Authority, the applicant, subject to of a connection file; (vii) presentation of the provision of an autonomous unconditional documents demonstrating the completion of bank guarantee, will be granted with a the power plants' foundations and the arrival of provisional electricity production license and the main equipment to the site; (viii) will then have to abide by the milestones set presentation of all the approvals required for forth therein, until granted with the permanent the commercial operation of the power plant production license. following its connection to the grid and the completion of the acceptance tests and its In order to obtain a permanent production synchronization to the grid. license, the provisional license holder must provide equity capital for the benefit of the The period for completing the abovementioned project. It may do so in two different ways – the milestones varies in accordance with the first includes providing the full amount of renewable energy technology's type. equity capital required by law, by the financial close, while the second includes providing the Once the provisional production holder has equity capital in installments as of financial close timely completed all the milestones, then it is and until the receipt of the permanent eligible to receive the permanent production production license. In addition, the provisional license from the Electricity Authority, subject to license holder has to complete the following the provision of an autonomous unconditional main milestones: (i) provide the relevant bank guarantee, and in a power plant with net documentation demonstrating that the facility capacity above 10MW, also to the proof of construction plan has been submitted to the "financial capability".21 relevant planning agency; (ii) presentation of a positive connection survey prepared by IEC The permanent production license is granted indicating the connection feasibility at the for a period of 20 years,22 in which the holder location, the timetable for connection, the may sell, subject to a signed power purchase required net capacity, the plant's configuration agreement ("PPA") with the IEC, part or all of and the operation regime in accordance with the the electricity to the IEC and receive the provisional license; (iii) apply for the Electricity relevant tariff as determined by the Electricity Authority's approval of the expected electricity Authority or it may sell the electricity to third 21 According to Section 20 of the Electricity Market production unit or the power plant used for the Regulations (Terms and Procedures for Granting a activity under the license. According to Section License and Duties of a License Holder), 5758- 20A, after 3 years commencing on the issuance of 1997, "financial capability" may be proven as the permanent production license, the holder is follows: (i) company with capital stock – the equity entitled to reduce the equity or the bank guarantee of the company shall be no less than 20% of the (as applicable) to 15% of the value of the value of the production unit or the power plant used production unit or the power plant. for the activity under the license; (ii) company 22 For power plant based on PV technology with net without capital stock, individual, partnership, capacity between 5-10MW, the period has been cooperative society – the applicant has to provide extended to 23 years which commences on the to the Electricity Authority a bank guarantee for the commercial operation date. entire permanent production license's term, in an amount not less than 20% of the value of the GLOBAL RENEWABLE ENERGY GUIDE 2017 141 EBN & CO ISRAEL parties in accordance with the arm's length license, in order to avoid a plausible scenario, in principle. which the construction permits will only be granted after the time limit for the completion According to Section 9(a) of the Electricity of the milestone has passed. Sector Law, the Electricity Authority may at any time cancel the permanent production license 5.3 Supply of Electricity or make it provisional and may add conditions, In order to sell renewable energy to consumers, rules or obligations or change them, if it finds 23 that any of the license's terms have been one must also obtain a supply license. breached, that any of the reservations for However, a supply license is only needed for the obtaining the license exist, or that the suitability sale to third parties and not for the sale to the of the holder required under the Electricity IEC. Sector Law has ceased to exist. 5.4 Environmental Permits 5.2 Statutory Planning Process The environmental legislation requires the Following the receipt of a provisional issuance of permits as a means to regulate and production license, and for the purpose of being supervise power plants’ potential impacts on granted with a permanent production license, the environment. As such, an owner of a the provisional license holder needs to adhere renewable energy power plant may be required, to the statutory planning process requirements subject to the technology's type, to obtain of obtaining construction permits. permits such as: construction and operation permits in accordance with the Non-Ionizing The Israeli government has approved two Radiation Law, 2006; emissions permit in national outline plans which regulate the accordance with the Clean Air Law, 2008; statutory planning process: (i) National Outline poisons permit in accordance with the Plan ("NOP") No. 10/D/10 for PV power Hazardous Substances Law, 1993; and a plants; and (ii) NOP No. 10/D/12 for wind business license in accordance with the turbines. Licensing of Business Law, 1968. Both NOPs set out, among others: (i) the 6. Is there a category of “license-exempt restrictions on the power plants’ layout and generation”? If so, does it cover some areas in which it can be constructed; (ii) the types of renewable energy based preconditions for filing a construction plan, generation? such as the required documents and authorities' approval; (iii) environmental impact assessment Pursuant to Section 3(b) of the Electricity requirements; and (iv) the approval process by Sector Law, energy facilities, including the local planning agency. renewable energy, with a net capacity under 5MW, that consume all the generated electricity It should be noted that although the submission or only sell electricity to holders of an essential of a construction plan and the receipt of a provider license, do not require licenses. construction permit are milestones in receiving However, it should be noted, that such power a permanent production license, applicants plants are still required to abide by the relevant generally commence the statutory process prior statutory process requirements and obtain to the receipt of the provisional production construction permits. 23 Section 4(a) of the Electricity Sector Law. 142 GLOBAL RENEWABLE ENERGY GUIDE 2017 ISRAEL EBN & CO 7. Has there been any reform related to Authority, it will remain unchanged (subject to renewable energy regulations since an indexation formula) and shall be paid over a 2016? Do you expect any period of 23 years starting on the power plant's reform/change in the near future? commercial operation date. On December 19, 2016, the Electricity According to the booklet that was published Authority published a decision which set the pursuant to the decision outlined above, there principles of a competitive procedure for are two types of bonds: (i) the bid bond to be determining a rate for electricity production provided by a bidder ("Bid Bond"); and using PV technology with respect to power (ii) the performance bond to be provided by the plants with a net capacity under 10MW.24 This winner ("Performance Bond"). procedure, as further detailed below, is considered to be a reform in the energy sector, The purpose of the Bid Bond is to assure the as it cancelled, in effect, the two-stage license bidder's proposal's fulfillment, and it has to be procedure with respect to PV power plants with an autonomous, unconditional, irrevocable a net capacity between 5-10MW. The main guarantee and in an amount of NIS 100, USD rationale for this reform was that the PV market 27, or EUR 25 per kilowatt per each proposed is already well developed and as such, it does kilowatt. The Bid Bond may be forfeited by the not require ongoing regulation and supervision Electricity Authority in part or in its entirety as by the Electricity Authority during the follows: (i) if a bidder has submitted a proposal development and construction phases. Thus, or proposals with a total suggested capacity once a bidder has won the competitive exceeding 70MW; (ii) if a bidder withdraws or procedure, it bears all the risks involved in the cancels its proposal during the period in which achievement of commercial operation and has the proposal is irrevocable; (iii) if the Electricity to apply for a permanent production license Authority has disregarded a bidder's within the required timeframe.25 reservations in its proposal, and the bidder has refused to abide by its proposal; (iv) if a bidder The decision stated that for a quota between has abstained from providing the Electricity 150-300MW, a rate will be determined by the Authority with the required information or has "clearing price" method. According to this submitted inaccurate information; or (v) if the method, a bidder may submit one or more winner has not submitted to the Electricity proposals for a total amount of up to 70MW. Authority's satisfaction a proper Performance All proposals submitted in the competitive Bond. procedure will be ranked from the lowest Once a bidder is declared by the Electricity quotation in kWh to the highest quotation in Authority as a candidate for winning, then as a kWh. The lowest proposals down to the condition to being declared as a winner, it has minimum amount shall be announced as the to replace the Bid Bond with the Performance winners, and the bidders of those proposals Bond. The bidder has to deliver to the shall be entitled to construct power plants in Electricity Authority, within 7 business days accordance with their winning. The rate from the notice of its candidacy, a Performance determined for all winning proposals shall be at Bond in an amount of NIS 300, USD 80, or the rate of the lowest proposal not chosen. EUR 75 per kilowatt per each winning kilowatt From the date the rate is set by the Electricity in order to secure the construction of the power 24 Electricity Authority Decision No. 1 (1109) meeting winner has to achieve the connection of the power No. 506, dated 19 December 2016. plant to the grid within 21 (23 months subject to the 25 Electricity Authority Decision No. 2 (1132) meeting forfeit of whole or part of a performance bond) No. 511, dated 13 February 2017, states that a following the announcement of the wining rate. GLOBAL RENEWABLE ENERGY GUIDE 2017 143 EBN & CO ISRAEL plant(s). The Performance Bond may be A transaction for the purchase of electricity has to forfeited by the Electricity Authority in part or be in accordance with a contract executed in its entirety, if the winner is unable to achieve between the essential service provider and the commercial operation within the required license holder.27 Therefore, the execution of a timeframe. PPA with the IEC is a precondition for the receipt of a permanent production license. It should be On 20 March 2017, the Electricity Authority mentioned that the PPA form is preapproved by published a decision with the results of the first the Electricity Authority. competitive procedure. The rate was set on NIS 0.199 per kWh for a total of 234.94MW.26 10. Is there a minimum price guarantee given by the relevant legislation for the The Electricity Authority is expected to publish electricity generated by renewable similar competitive procedure (including energy companies? designated competitive procedure for PV power plants with a net capacity above 10MW), There is a guarantee rate for electricity during 2017-2018, with a total capacity between generated by renewable energy power plants. 700-1,100MW. The Electricity Authority determines the rate for each type of technology (except for PV INCENTIVES technology for which the rate is determined in accordance with the competitive procedure) 8. Are tax advantages available to based, among others, on the costs of the renewable energy generation construction and operation of the power plant, companies? and the rates are published in the "Rate Book". According to the Income Tax Regulations The guaranteed rate is for the whole term of the (Depreciation) 1941, PV and thermo solar permanent production license, and is indexed facilities are entitled to an accelerated 100% to the Israeli consumer price index or in depreciation mechanism of 25% of the facility's case of a competitive procedure to an cost (i.e., depreciation within four years). indexation formula which has been chosen by each winner. 9. Is there a purchase guarantee given by the relevant legislation for the 11. Has the Paris Agreement under the electricity generated by renewable United Nations Framework energy companies? Convention on Climate Change been ratified? If yes, what are the Pursuant to Section 2(a) of the Electricity undertakings of your Country in the Market Rules (Transactions with an Essential NDC (national determined Service Provider) 2000, the IEC, as an essential contributions) submitted for the first service provider, is obligated to purchase the five year period? entire generated electricity from permanent production license holders, including electricity In September 2015, an inter-ministerial produced from renewable energy power plants. committee submitted a recommendation to the Israeli government for the approval of a program to reduce 25% of the GHG emissions by 2030. 26 Electricity Authority Decision No. 5 (1145) meeting 27 Section 5 of the Electricity Market Rules No. 514, dated 20 March 2017. (Transactions with an Essential Service Provider), 2000. 144 GLOBAL RENEWABLE ENERGY GUIDE 2017 ISRAEL EBN & CO In accordance with a government resolution 14. Is there an incentive for domestic dated September 2015, 28 Israel has committed (local) manufacturing of equipment or to reduce GHG emissions per capita to 7.7 materials used in the construction of tCO2e (tonnes of carbon dioxide equivalent) by renewable energy based power plants? 2030. This constitutes a reduction of 25% below the 2005 GHG emissions level of 10.4 Under Israeli law, there is no specific incentive tCO2e per capita. An interim target of 8.8 available to manufactures of equipment or tCO2e is expected by 2025. In addition the materials used in the construction of renewable resolution determined specific sector targets for energy based power plants. 2030: 15. What are the other incentives available to 17% reduction in electricity consumption renewable energy generation relative to the expected business as usual companies? scenario; Please refer to our comments in Section 8 At least 17% of the electricity consumed above. will be generated from renewable energy sources; and STATISTICS 20% reduction in private transportation by shifting to public transportation. 16. What is the percentage of electricity generated based on each type of On September 29, 2015, the Israeli government renewable energy source in the total submitted its official GHG reduction target to generation of electricity on a country- the United Nations Framework Convention on wide scale? Climate Change ("UNFCCC"). Gross Electricity Generation in 2016 67.3 On April 22, 2016, Israel ratified the Paris (TWh) Agreement under the UNFCCC. Electricity from renewable sources (%) 2.6% 12. Is there a carbon market or carbon (Source: EA Annual Report - 2016) credits mechanism in your jurisdiction? Gross Electricity Generation There is no carbon market or carbon credits from renewable sources in 2016 mechanism in Israel. (in TWh) Total 1.75 13. Do renewable energy based power (Source: EA Annual Report - 2016) plants have priority for connection to the grid? OTHER Renewable energy based power plants do not have priority for connection to the grid in Israel. 17. Is there anything else you wish to add? No. 28 Government Resolution No. 542 dated 20 September 2015. GLOBAL RENEWABLE ENERGY GUIDE 2017 145 EBN & CO ISRAEL EBN & CO Uri Noy Yaron Cohen 4 Berkowitz St. 4 Berkowitz St. 6423806 Tel-Aviv, Israel 6423806 Tel-Aviv, Israel T + 972 3 7770160 T + 972 3 7770160 F +972 3 7770101 F +972 3 7770101 E [email protected] E [email protected] 146 GLOBAL RENEWABLE ENERGY GUIDE 2017 JAPAN Toshio Dokei Michael Richter Yuka Nakanishi WHITE & CASE LLP, Tokyo In accordance with this policy shift, the GENERAL government enacted the Energy Conservation Act2 in 1979 to promote technological 1. What is the nature and importance of development to improve energy efficiency. As a renewable energy in your country? result of continued efforts by both the government and the private sector, Japan has To ensure a stable energy supply Japan’s energy 1 improved its energy consumption efficiency self-sufficiency ratio has historically been very and has become a global leader in the field of low due to a lack of domestic natural resources. energy efficiency. Indeed, in a ranking of the In 2014, it stood at a mere 6%. In other words, energy-efficiency of countries in The 2016 around 94% of energy resources used in Japan International Energy Efficiency Scorecard3 announced for generating “primary energy” (including in July 2016, Japan claimed the second spot, tied uranium for nuclear power) were imported with Italy, with a score of 68.5 out of 100, while from overseas. In light of this heavy Germany claimed the top spot with a score of dependence on imports and the temporary 73.5. However, recent figures suggest the gap in suspension of Japan’s domestic nuclear power efficiency between Japan and other major stations, renewable energy plays, and will countries is slowly closing. continue to play, a crucial part in Japan’s energy portfolio. The Japanese government adopted a policy of reducing oil dependence through the enactment Following the 1973 and 1979 oil crises, the of the Promotion of Alternative Energy Act in Japanese government recognized the 1980.4 Although dependence on oil declined importance of improving energy conservation from 75.5% in 1973 to 41.4% in 2014 in respect and reducing its dependency on oil by of primary energy supply, this percentage is still promoting new non-fossil fuel energy sources. 1 The “energy self-sufficiency ratio” refers to the ratio examines the energy efficiency policies and between domestic production and primary energy performance of 23 of the world’s top energy- supply in Japan - Energy Balance Report of Japan consuming countries. 2013 (Agency for Natural Resources and Energy, 4 The full English title of this law is the Act on the Ministry of Economy, Trade and Industry of Japan). Promotion of Development and Introduction of 2 The full English title of this law is the Act Alternative Energy (Act No. 71 of 1980) (hikaseki concerning the Rational Use of Energy (Act No. 49 enerugi no kaihatsu oyobi dounyuu no sokushin ni kansuru of 1979) (enerugi no shiyou no gourika ni kansuru houritsu). houritsu). 3 The 2016 International Energy Efficiency Scorecard GLOBAL RENEWABLE ENERGY GUIDE 2017 147 WHITE & CASE LLP, Tokyo JAPAN high in comparison with other countries. The zero-emission power generation to account for total percentage of Japan’s dependence on fossil 70% of Japan’s energy supply by 2030. fuel energy (including oil, natural gas, LPG and However, the government was forced to coal) in respect of primary energy supply was reconsider the plan after the nuclear accident in around 91.6% in 2015. Fukushima (precipitated by the March 2011 East Japan Earthquake) given that it had In light of the trends in global economic assumed that 50% of electricity power would be development, and the expected growth of generated by nuclear energy. In revising the plan countries such as China and India, it is in April 2014, the Japanese government anticipated that the demand for oil, gas and announced its policy to decrease dependency on power will continue to increase in the long- nuclear energy as much as possible by term. However, exploitable natural fossil fuel introducing energy conservation measures, reserves are limited. In addition, oil reserves are increasing the use of renewable energy and disproportionately located in distant areas such 5 promoting efficiency in thermal power. The as the Middle East. Since the Asian economic Japanese government also announced that it crisis in 1999, the price of crude oil continues to will endeavor to accelerate the introduction of remain high, and the natural resource market renewable energy by as much as possible for a remains unstable. As a result, Japan’s energy 3-year period starting from 2013, and commit supply (which, as noted above, is heavily reliant to continuing to actively promote its on imports) is considered fragile. Renewable development thereafter. energy has a key role to play in enhancing the stability of Japan’s energy market. 2. What are the definition and coverage of renewable energy under the relevant To reduce the environmental burden legislation? Increased use of renewable energy is critical for The Renewable Energy Act7, which governs the cutting Japan’s greenhouse gas emissions. Japanese Feed-in Tariff (“FIT”) program, Under the Kyoto Protocol, Japan committed to defines “renewable energy resources” as reducing its greenhouse gas emissions by 6% follows:8 from 2008 to 2012. Japan’s fulfillment of commitments under the first commitment photovoltaic (PV) power; period was officially announced by the United Nations on March 31, 2016. The Japanese wind power; government set a further target of reducing emissions by 26% from the 2013 level by 2030. hydro power; Furthermore, the Japanese government floated geothermal power; a long-term target of reducing emissions in 6 Japan to 80% of the current level by 2050. biomass (i.e. organic substances derived To reduce the dependency on nuclear energy from plants and animals which can be used as a source of energy, excluding crude oil, The “Master Plan of Energy” adopted by the Japanese government in June 2010 required 5 Over 80% of crude oil imported into Japan is from Measures concerning Procurement of Renewable the Middle East - Annual Report of Energy 2014. Energy by Operators of Electric Utilities (Act No. 6 The Fourth Basic Environmental Plan (Cabinet 108 of 2011) (denki jigyousha ni yoru saisei kanou enerugi Decision on 27 April 2012). denki no choutatsu ni kansuru tokubetsu sochi hou). 7 The full English title of this law is the Act on Special 8 Article 2(4) of the Renewable Energy Act. 148 GLOBAL RENEWABLE ENERGY GUIDE 2017 JAPAN WHITE & CASE LLP, Tokyo petroleum gas, combustible natural gas and renewable energy sources for certain periods at coal and their by-products); and fixed prices designated by the Ministry of Economy, Trade and Industry (“METI”). other resources to be designated by ordinance, which can be permanently used On 3 June 2016, an amendment to the as electrical energy resources.9 Renewable Energy Act was announced. The amendment was designed to achieve the The Act on Promotion of Use of Non-Fossil 10 government’s plan to have approximately 22% Fuel Energy by Energy Suppliers contains a to 24% of all electricity production in Japan similar definition of renewable energy. It derived from renewable sources by 2030. defines “renewable energy resources” as photovoltaic power, wind power and other The amendment includes the following major non-fossil energy resources that can be used features13: permanently as energy resources and that are designated by the relevant enforcement 1. creation of a new authorization system: ordinance.11 The enforcement ordinance designates the resources of renewable energy as 1.1. suppliers of electricity must submit to follows: (i) photovoltaic power; (ii) wind power; METI their business plan in respect of the (iii) hydro power; (iv) geothermal heat; (v) solar Generation of Electricity from Renewable thermal power; (vi) heat in the atmosphere; and Sources. METI certifies each supplier whose (vii) biomass (except for fossil fuels).12 Plan is confirmed to be feasible and the date on which the utility is expected to be able to REGULATION operate the business appropriately; 2. revised method of setting purchase prices: 3. How is the renewable energy sector regulated? What are the principal laws 2.1. a reverse auction system was introduced to and regulations? determine the electricity tariff. This auction system is permitted in the case where METI The Renewable Energy Act was passed by the considers an auction to be effective for reducing Japanese Diet in August 2011 to promote the the burden of electricity consumers. The use of electric energy generated by renewable bidding system initially applies only to solar energy and to encourage renewable energy projects of 2,000 kW or more. Bids are accepted business. The Act came into force on in ascending order, starting with the lowest bid, 1 July 2012. Under the Act, utilities are obligated until the capacity available at the auction is fully to purchase all electricity generated from allocated;14 9 There is no ordinance which designates other Non-Fossil Fuel Energy by Energy Suppliers. renewable energy resources at the time of writing. 12 Article 4 of the Enforcement Ordinance of the Act 10 The full English title of this law is the Act on on Promotion of Use of Non-Fossil Fuel Energy by Promotion of Use of Non-Fossil Fuel Energy Energy Suppliers. Resources and Efficient Use of Fossil Fuel Energy 13 Announcement by METI on “Promulgation of the Resources by Energy Suppliers (Act No. 72 of 2009) Partial Revision of the Act on Special Measures Concerning (enerugi kyoukyuu jigyousha niyoru hikaseki enerugi gen no Procurement of Electricity from Renewable Energy Sources riyou oyobi kaseki enerugi genryou no yuukouna riyou no by Electricity Utilities”: http://www.meti.go.jp/ sokushin ni kansuru houritsu). english/press/2016/0603_06.html. 11 Article 2(3) of the Act on Promotion of Use of 14 Renewable Energy Special Measures Act, Article 4. GLOBAL RENEWABLE ENERGY GUIDE 2017 149 WHITE & CASE LLP, Tokyo JAPAN 3. revision of businesses obliged to purchase known as “setsubi-nintei”). However, since a renewable energy and other regulations: developer was permitted to enter into an interconnection agreement with the relevant 3.1. the definition of businesses obliged to utility after obtaining the Certification of purchase renewable energy was amended from Facilities from METI, there were many inactive “electricity retail businesses” to “electricity projects as a result.16 transmission and distribution businesses”; and To address this issue, the Renewable Energy 4. revision of the arrangement for reducing Act was amended so that a developer of a surcharges on electricity rates: renewable energy project is now eligible for facility certification only after examination of 4.1. approval of a business that has applied for the feasibility of the project (for example, the arrangement is considered in light of its entering into an interconnection agreement engagement in energy saving efforts and its with the relevant utility company is required in current state of international competition. order to obtain certification). Under the These changes took effect on April 1, 2017. amendments, the facility certification system was replaced by a business plan certification The renewable energy procured by utilities system (“jigyo keikaku nintei”). through their grid system is broadly distributed to end-consumers who bear the procurement Business Plan Certification cost as a “renewable energy surcharge”15 which 1. For projects that METI certified under the is automatically incorporated into their previous Act: electricity bills on a monthly basis. A reserve auction system was introduced in order to 1.1. Each project with a valid METI reduce the applicable purchase price to end- certification under the Renewable Energy Act is consumers by promoting competition among deemed recertified under the new certification developers. system if the project meets the requirements mentioned below (“Deemed Certificate”). 4. What are the principal regulatory bodies in the renewable energy sector? 1.2. Requirements of Deemed Certificate: METI and the Ministry of Environment are the 1.2.1. Projects that METI certified on or prior principal regulatory bodies. to 30 June 2016: 5. What are the main permits/licenses The developer is required to have entered into required for renewable energy projects? an interconnection agreement with the relevant utility by March 31, 2017. Failure to enter into Under the previous certification system, to an interconnection agreement by such date will participate in the FIT program, a renewable result in the revocation of the METI energy project must have obtained approval certification. from METI in respect of its facilities (“Certification of Facilities”, commonly 15 The renewable energy surcharge from May 2017 is surcharge from May 2014. 2.64 yen/kWh. There used to be a photovoltaic 16 For example, 30% of the projects which obtained power surcharge (0.03 – 0.05 yen/kWh, depending the certification in the year of 2012 to 2013 were on each area) but this surcharge was terminated in inactivated. September 2014 and a photovoltaic power surcharge was integrated into the renewable energy 150 GLOBAL RENEWABLE ENERGY GUIDE 2017 JAPAN WHITE & CASE LLP, Tokyo Each developer will be required to submit to Natural Resources and Energy, METI.17 For a METI a business plan for renewable energy project less than 50 kW in size, a developer will power generation by 30 September 2017. need to upload documents and register with an agency designated by METI. 1.2.2. Projects that METI certified between July 1, 2016 and March 31, 2017: For a project equal to or greater than 50 kW in size, a developer needs to print out the The developer is required to have entered into registration screen and send it to METI with the an interconnection agreement with the relevant required attachments. utility within nine months of the certification date. Failure to enter into an interconnection Other Permits agreement by the deadline will result in the revocation of the METI certification. Other permits may be needed depending on the land classification of the project site (such Each developer is required to submit to METI classifications being ultimately determined at a business plan for renewable energy power the local level in accordance with local laws and generation within nine months of the regulations). As a typical example, the certification date. Agricultural Land Act18 prohibits using “agricultural land” for any purpose other than 1.2.3. It should be noted that a project that “agriculture”. To enable renewable energy obtains a Deemed Certificate must commence projects to be carried out on such land, power production within three years of April 1, “conversion” under the Agricultural Land Act 2017 (i.e., no later than March 31, 2020). For will be required (“conversion” for certain types projects equal to or greater than 10 kW in size, of agricultural land is difficult to obtain). Other failure to commence power production within laws that are often important for renewable the three-year period will result in a reduction in energy projects in Japan are the Nature the purchase period by the number of months Conservation Act19, the Natural Parks Act20, the between the date of the certification and the Landscape Act21, the National Land Use date on which the affected project actually Planning Act22, the Soil Contamination commences power production (monthly base). Countermeasures Act23 and the Forest Act24. For projects that are less than 10 kW in size, Applicable laws will, however, be ultimately failure to commence power production within a determined on a case-by-case basis, at the local one-year period will result in a lapse of the rather than national level. Thorough due certification. diligence and consultation with the relevant authority using projection of the construction 2. For projects that make application for and blue print of the project are therefore certification under the amended Act: strongly recommended. 2.1. A developer needs to register necessary information on the website of the Agency for 17 Please find below the website for application: 21 The Landscape Act (Act No. 110 of June 18, 2004) https://www.fit-portal.go.jp/mypage/UserLogin. (keikan hou). 18 The Agricultural Land Act (Act No. 229 of 1952) 22 The National Land Use Planning Act (Act No. 92 (nouchi hou). of June 25, 1974) (kokudo riyo keikaku hou). 19 The Nature Conservation Act (Act No. 85 of 1972) 23 The Soil Contamination Countermeasures Act (Act (shizen kankyou hozen hou). No. 53 of May 29, 2002) (dojyo osen taisaku hou). 20 The Natural Parks Act (Act No. 161 of 1957) (shizen 24 The Forest Act (Act No. 249 of 1951) (shinrin hou). kouen hou). GLOBAL RENEWABLE ENERGY GUIDE 2017 151 WHITE & CASE LLP, Tokyo JAPAN 6. Is there a category of “license-exempt However, they are not entitled to the 7% generation”? If so, does it cover some corporate tax deduction applicable to small and types of renewable energy based medium-sized operators. generation? This deduction applies for the period beginning A wholesale supplier (“Independent Power from April 1, 2016 through March 31, 2018. Producer” or “IPP”) used to be exempt from license requirements under Japanese law. Most Owners of renewable energy facilities that have business operators of renewable energy acquired FIT authorization can also discount generation in Japan are IPPs. However, with the the value of their real-estate by 33.3% for the amendment to the Electricity Business Act, this purposes of the calculation of their real-estate exemption was abolished and an IPP now needs tax for three years. to obtain a license. 9. Is there a purchase guarantee given by the relevant legislation for electricity 7. Has there been any reform related to generated by renewable energy renewable energy regulations since companies? 2016? Do you expect any reform/change in the near future? The Renewable Energy Act requires that utilities enter into a power purchase agreement As mentioned in the Regulation section above, with all renewable energy producers that have the Renewable Energy Act was amended on received METI certification (“Specified June 3, 2016 and became effective on April 1, Supplier”) at fixed prices for certain periods 2017. Please see the Regulation section for designated by METI. METI will determine the more information. fixed purchase price and purchase period every year for projects, which are then locked-in for INCENTIVES that year26, after taking into consideration the opinion of a “Price Calculation Committee” 8. Are tax advantages available to which consists of five independent renewable energy generation commissioners. The calculation of the fixed companies? purchase price is based on: (i) the normative cost assuming the supply of renewable energy A small or medium-sized private business derived electricity is carried out in an efficient operator who establishes a facility that is used 25 manner; and (ii) the estimated amount of supply for “new energy” can apply to have 7% of the of renewable energy electricity, after taking into costs of the facility deducted from its corporate consideration the following factors: tax liability. Alternatively, up to 30% of any facility’s set-up costs can be immediately written the current amount of renewable energy- off as depreciation. derived electricity supplied in Japan; Large-sized operators of solar or wind power the appropriate profit which the operator facilities can choose to do this as well. 25 “New energy” refers to all forms of electricity developer who obtained a Deemed Certificate, FIT generation that do not use fossil fuels and that prices are locked-in pursuant to the previous rules; for require government support due to their present example, taking PV power as an example, locked-in high cost. timing shall be decided on the earlier of (i) the day a 26 FIT prices are “locked-in” by an operator on the day a developer entered into an interconnection agreement developer entered into an interconnection agreement with the relevant utility or (ii) 270 days from the with the relevant utility for the year 2017. For a application for grid connection. 152 GLOBAL RENEWABLE ENERGY GUIDE 2017 JAPAN WHITE & CASE LLP, Tokyo should earn (METI will give special conducted by the applicant developer; and consideration to the operator’s profit for (ii) whether the developer’s initiatives toward the initial three years to encourage the use improvement of the consumption rate meet the of renewable energy); standard. the cost of supply of renewable energy- A clearing institution manages the cost of derived electricity which existing operators renewable energy so as to average the burden have incurred prior to the enactment of the shared among utilities throughout the country.27 Renewable Energy Act; and It should be noted that, among other changes, the amended Renewable Energy Act introduced the need to ensure that the cost of a certification regime for renewable energy renewable energy is not excessive for end operators and a new pricing methodology. users. 10. Is there a minimum price guarantee Utilities can recover the cost of using renewable given by the relevant legislation for energy sources by applying a surcharge to end- electricity generated by renewable users in proportion to their power energy companies? consumption. However, a particularly large business operator whose annual electricity The following table shows: (i) the procurement usage amount exceeds 1,000,000 kWh and price (per 1kWh) at which utilities are obliged to whose ratio of electricity usage to sales volume purchase electricity derived from renewable (per 1,000 yen) exceeds 5.6 kWh can apply for a sources; and (ii) the minimum period during special reduction of the surcharge. The which utilities are required to purchase reduction rate is decided considering the renewable energy derived electricity under FIT following items: (i) the type of business prices locked-in within the period from 2017 to 201928. Procurement Price (per 1kWh) Power Source Division 2016 2017 2018 2019 (for reference) (output control compliant equipment 31 yen 28 yen 26 yen 24 yen Less than 10kW installation obligation) Photovoltaic (none) 33 yen 30 yen 28 yen 26 yen power (output control compliant equipment Less than 10kW 25 yen 25 yen 24 yen (double installation generation) obligation) (none) 27 yen 27 yen 26 yen 10kW or more 24 yen+tax 21 yen+tax Less than 2,000kW 21 yen+tax (22 yen+tax by 20kW or more (on land) 22 yen+tax 20 yen+tax 19 yen+tax the end of Wind power September) 20kW or more (on land) (for replaced* - 18 yen+tax 17 yen+tax 16 yen+tax wind power) 27 For example, there are a large number of consumers in March 31, 2017 (i.e., the 2016 Japanese Financial Year). Tokyo and Osaka paying surcharges to their respective It should be noted that the procurement price does not utilities. However, such regions do not have many include consumption tax, unless otherwise stated. renewable energy facilities compared to other areas where the situation is reversed. 28 This is the period on or after April 1, 2016 and before GLOBAL RENEWABLE ENERGY GUIDE 2017 153 WHITE & CASE LLP, Tokyo JAPAN Procurement Price (per 1kWh) Power Source Division 2016 2017 2018 2019 (for reference) Geothermal 15,000kW or more 26 yen+tax 26 yen+tax power Less than 15,000kW 40 yen+tax 40 yen+tax 15,000kW or more All facility renewal - 20 yen+tax type 15,000kW or more Geothermal Underground facility - 12 yen+tax For replaced* power diversion type geothermal Less than 15,000kW power All facility renewal - 30 yen+tax type Less than 15,000kW Underground facility - 19 yen+tax diversion type 5,000kW or more (until end of September, 24 yen+tax will apply) Less than 30,000kW 20 yen+tax Water power 24 yen+tax 1,000kW or more 27 yen+tax Less than 5,000kW Water power 5,000kW or more 12 yen+tax (existing water Less than 30,000kW 14 yen+tax conduit 1,000kW or more 15 yen+tax utilization type) Less than 5,000kW General wood (until end of September, 24 yen+tax will apply) Biomass etc. combustion 20,000kW or more 24 yen+tax 21 yen+tax power generation * “Replaced” means power generated by replacing an existing but deprecated facility 11. Has the Paris Agreement under the compared to fiscal year 2013 (25.4% reduction United Nations Framework compared to fiscal year 2005). Convention on Climate Change been ratified? If yes, what are the 12. Is there a carbon market or carbon undertakings of your Country in the credits mechanism in your jurisdiction? NDC (national determined Although a number of voluntary-based carbon contributions) submitted for the first credit systems have been introduced in Japan as five-year period? pilot projects29219, no national statutory carbon Japan signed the Paris Agreement under the credit system has been established thus far. On United Nations Framework Convention on the other hand, some local governments, such Climate Change in 22 April 2016. The as Tokyo (since 2010) and Saitama Prefecture agreement was ratified on 8 November 2016. (since 2011), have adopted their own independent carbon credit systems under which Japan’s Intended National Determined they impose CO2 emission restrictions on Contribution towards post-2020 global businesses of certain sizes and allow them to use greenhouse emission reductions is at the level carbon credits. of a reduction of 26.0% by fiscal year 2010 29219 On April 2013, the J-Credit Scheme was reduced or removed by sinks through efforts to administered by the central government. J-Credit is introduce energy-saving devices and manage a scheme in which the Domestic Credit Scheme and forests, as “credit.” This credit may be used for the Offset Credit (J-VER; Japan's verified emissions various purposes, including carbon offset. reduction) Scheme are integrated. Under the J- Ministry of Economy, Trade and Industry, website Credit Scheme, the government certifies the on the J-Credit Scheme: amount of greenhouse gas emissions (such as CO2) https://japancredit.go.jp/english/ 154 GLOBAL RENEWABLE ENERGY GUIDE 2017 JAPAN WHITE & CASE LLP, Tokyo 13. Do renewable energy-based power by Japanese law and subject to the plants have priority for connection to jurisdiction of the Japanese courts; or the grid? the estimated electricity supply by the The Renewable Energy Act obligates utilities to operator will exceed the capacity of connect their substation, transmission and transmission or acceptance by the utility, distribution facilities with renewable energy- even if it takes reasonable measures to based power plants upon the request of the accommodate the new supply. operator of such facilities. However, utilities can refuse connection in the following cases: 14. Is there an incentive for domestic (local) manufacturing of equipment or the operator does not provide necessary materials used in the construction of information to the utility for the renewable energy based power plants? connection; The Rural Areas Renewable Energy Act30220 was the relevant connection agreement includes enacted in late 2013 in order to: (i) promote misrepresentations, illegal provisions or an renewable energy projects in rural areas; and excessive compensation provision; (ii) harmonize the promotion of such projects with the adequate protection of agricultural and the operator does not agree to contractual forest land, fishing ports and other rural areas provisions under which: (i) the utility can in which the projects are located. Under the Act, require the operator to reduce electricity a renewable energy business operator who will output when electricity supply exceeds contribute to the development of rural areas demand (without compensation in certain may enjoy the benefits of: (i) a “one stop” cases); (ii) the utility will not be liable to the procedure with respect to specific approvals operator if its facilities become out of order such as “conversion” under the Agricultural due to a natural disaster or to prevent injury Land Act; and (ii) a favorable position by which or death; (iii) the operator is not entitled to the operator may obtain expedited approval. make a claim against the utility for its loss in respect of the utility’s temporary The Japanese government expects suspension of business when it undertakes “contributions” to rural areas by renewable a regular or extraordinary investigation or energy projects to include, for example, an construction for connection purposes; or operator: (i) using part of its profit for (iv) the operator agrees to take measures improvement of agricultural land surrounding when necessary to reduce output; the proposed facility; (ii) establishing and operating a farmers’ market and providing the operator does not: (i) permit financial support; (iii) regularly purchasing investigation of its facilities by the utility; wood chips from the owners of local forest land (ii) warrant that it has no relationship with for use in its biomass plant; or (iv) using anti-social forces; or (iii) enter into an livestock manure from local farmers and selling agreement in Japanese which is governed environmentally-friendly compost as a byproduct of its biomass plant. 30220 The full English translation of this law is the Act on 2013) (nourin gyogyou no kenzenna hatten to cyouwa no Promotion of Generating Renewable Energy toreta saisei kanou enerugi denki no hatsuden no sokushin Harmonized with Healthy Development of ni kansuru houritsu). Agriculture, Forestry and Fishery (Act No. 81 of GLOBAL RENEWABLE ENERGY GUIDE 2017 155 WHITE & CASE LLP, Tokyo JAPAN 15. What other incentives are available to Loans for Environment and Energy renewable energy generation companies? The Japanese government also provides an assistance program to make available low- The Japanese government has established interest loans for acquiring non-fossil energy assistance programs for local governments and facilities, including renewable energy facilities. companies that use renewable energy facilities.25 The loans are provided by the Japan Finance Local governments and companies must apply Corporation, which is a wholly-owned for an assistance program by submitting a “use subsidiary of the Japanese government. The plan”. If METI approves such plan, the local energy sources to which this assistance program government or company will be granted is applicable are photovoltaic power, using subsidies for up to 2/3 (in case of a local geothermal heat, solar thermal, wind, thermal government) or up to 1/3 (in case of a difference energy, biomass, snow and ice, company) of the necessary costs of the facilities. geothermal power, and hydroelectric sources. The scope of “renewable energy” under the assistance program is limited to: STATISTICS (i) facilities that generate electricity by means of photovoltaic power, wind power, biomass, hydro power or geothermal power; or (ii) 16. What is the percentage of electricity industrial facilities that make use of solar generated based on each type of thermal, thermal difference energy, biomass renewable energy source as a heat energy, biomass fuel production, heat from proportion of the total generation of snow or ice, or geothermal heat in operation. electricity on a country-wide scale? April 2014 – March 2015 Percentage to the total country (1,000kWh) generation of electricity Thermal Power 717,763,968 90.801% Nuclear Power - - Renewable Water Power 70,171,429 8.877% Energy Wind Power 34,348 0.004% Photovoltaic Power 88,941 0.011% 9.199% Geothermal Heat 2,418,946 0.306% (9.478%) Biomass (1,972,288) (0.25%) Waste (233,207) (0.03%) TOTAL 790,477,632 100% Note (1): The reference to Thermal Power includes Biomass and Waste. Note (2): The statistics are based on “Actual generation of electricity in 2014” (Agency for Natural Resources and Energy, METI). OTHER 17. Is there anything else you wish to add? No. 156 GLOBAL RENEWABLE ENERGY GUIDE 2017 JAPAN WHITE & CASE LLP, Tokyo WHITE & CASE LLP, Tokyo Toshio Dokei Michael Richter Yuka Nakanishi Marunouchi Trust Tower Marunouchi Trust Tower Marunouchi Trust Tower Main 26th Floor, Main 26th Floor, Main 26th Floor, 1-8-3 Marunouchi, Chiyoda-ku, 1-8-3 Marunouchi, Chiyoda-ku, 1-8-3 Marunouchi, Chiyoda-ku, Tokyo 100-0005 Tokyo 100-0005 Tokyo 100-0005 Japan Japan Japan T +81 3 6384 3231 T +81 3 6384 3291 T +81 3 6384 3169 F +81 3 3211 5252 F +81 3 3211 5252 F +81 3 3211 5252 E [email protected] E [email protected] E [email protected] GLOBAL RENEWABLE ENERGY GUIDE 2017 157 KAZAKHSTAN Pavel Kornilov Arman Bigazin WHITE & CASE KAZAKHSTAN LLP potential of its wind power resources per capita, GENERAL which, undoubtedly, affects the nature of RES projects currently implemented in the country. 1. What is the nature and importance of Moreover, despite the geographic position of renewable energy in your country? Kazakhstan, solar energy resources in the country are stable and acceptable thanks to its As the most significant among those for favorable climatic conditions. Studies show that Kazakhstan’s economy are oil and gas, coal and the solar energy potential in the southern other ore minerals, the legal framework in these regions of the country is 2,500 – 3,000 sunny economic sectors is very well-developed and hours per year. historically the government has been less focused on the development of alternative In 2013, Kazakhstan’s President approved the energy sources. For instance, at present the Concept of the Transition of the Republic of majority of power stations in Kazakhstan run Kazakhstan to a “green economy”, which on coal, and, in a much less degree, natural gas stipulates that the development of renewable or oil derivatives. power engineering in Kazakhstan should proceed via the construction of wind and solar However, during the last decade the country has power stations with the share of such power started to actively focus on the creation of stations in total electric power generation to favorable conditions for the use of renewable reach 3% in 2020 and 10% in 2030. energy sources (“RES”). In 2009 the country adopted the Law on Support of the Use of RES As of today, there are relatively few alternative (“RES Law”). Further, in 2010 Kazakhstan energy projects, which are mostly implemented approved the State Program of Boosted in the area of wind and water power. In 2010 – Industrial and Innovative Development of the 2011, the Merke Hydroelectric Power Station Republic of Kazakhstan in 2010-2014 and the first and the only wind power station (“Program”). The Program confirmed the were put into operation, and in 2012 the only significant potential of RES, such as water, wind power plant which operates on solar energy and solar power in Kazakhstan in the short- started functioning. Following the construction term and medium-term perspective. In of the first large wind power station (“WPS”) in particular, according to the Yerementau, Akmola region, in 2014, several Kazselenergoproject Research Institute, dozen WPSs will be constructed in the southern Kazakhstan is the global leader in terms of the and central regions of Kazakhstan. 158 GLOBAL RENEWABLE ENERGY GUIDE 2017 KAZAKHSTAN WHITE & CASE KAZAKHSTAN LLP The main hydropower potential is in the Almaty Certain matters in the area of the use of RES are region. Eleven hydropower stations (“HPS”) regulated by other legislative acts, such as the are planned to be built there by 2020. In Land Code, the Water Code and the Natural addition, HPSs will be constructed in the East Monopolies Law. Kazakhstan, Zhambyl and South Kazakhstan regions. Issues arising in the area of biofuel production and turnover are regulated by a special law - 2. What are the definition and coverage of Law “On the state regulation of biofuel renewable energy under the relevant production and turnover”, № 351-IV ZRK legislation? dated 15 November 2010 (as amended). Under the RES Law, RES means sources of In addition, there are a number of by-laws energy which are continuously renewable regulating certain matters related to the use of through natural processes, including: RES. ● solar radiation energy; For the purposes of further development of RES and exchange of experience with the world ● wind energy; community, Kazakhstan has acceded to the International Renewable Energy Agency ● hydrodynamic energy of water; and (IRENA) and ratified its charter made in Bonn ● geothermal energy (the heat of soil, on 26 January 2009 (ratified by Law “On the underground water, rivers and water ratification of the Charter of the International bodies), Renewable Energy Agency (IRENA)”, № 82-V ZRK dated 22 March 2013). as well as man-made sources of primary energy resources, such as biomass, biogas and other In July 2013, the RES Law and some other fuels from organic waste used in electric and/or legislative acts were amended to modify the thermal power generation. system of procurement of electric power from RES-using producers. These amendments came into effect on 12 January 2014. REGULATION 4. What are the principle regulatory 3. How is the renewable energy sector bodies in the renewable energy sector? regulated? What are the principal laws and regulations? Historically, the Ministry of Energy and Mineral Resources was responsible for the issues of In general, matters related to electric and renewable energy. In 2010, its functions in the thermal power transmission and consumption area of state support for the use of RES were are regulated by Law “On Electric Power”, № transferred to the Ministry of Industry and New 588-II dated 9 July 2004 (as amended) Technologies (currently, the Ministry for (“Electric Power Law”). Investments and Development), which was also responsible for the implementation of state The principles of relations in the area of support policy and supervision of the power sector for the use of RES were first set out in the RES (except for oil and gas) as a whole. Law (Law “On support of the use of renewable energy sources”, № 165-IV ZRK dated 4 July Pursuant to the decisions of the president of 2009 (as amended)). Kazakhstan, the functions of the Competent GLOBAL RENEWABLE ENERGY GUIDE 2017 159 WHITE & CASE KAZAKHSTAN LLP KAZAKHSTAN Authority for RES issues were first transferred 7. Has there been any reform related to to the Ministry of Environment and Water renewable energy regulations since Resources in October 2013 and then, following 2016? Do you expect any the large-scale reorganization of the Kazakhstan reform/change in the near future? Government in August 2014, to the newly created Ministry of Energy (“ME”). The ME is On July 11, 2017 the President of Kazakhstan now the competent authority for the electric signed the law amending a number of legislative and heat power spheres, environmental acts in the power sector, including the RES protection and energy efficiency issues as well. Law. A new mechanism was introduced to determine the prices for energy produced using Local executive authorities are responsible for the RES. The amended RES Law now provides certain functions in the area of the use of RES, for two different schemes to set the price for including the approval of construction projects the purchase of energy by the FSC (as defined in respect of facilities using RES for the below): (i) fixed tariffs approved by the generation of thermal energy to be delivered to Government and (ii) marginal price determined the centralized heat supply systems, and the as a result of an auction to be held by the reservation and allocation of land for the relevant auctioning authority (which is yet to be construction of RES-using facilities. determined) and subsequently approved by the Ministry of Energy. According to the Minister 5. What are the main permits/licenses of Energy1, the auction will allow a transparent required for renewable energy projects? and fair process of selection of RES projects and determining the price for energy to be Starting from 2012, the generation, produced by future RES plants and, as result, a transmission and distribution of electric and/or lower price for energy compared to the current thermal power, as well as the operation of levels. The relevant by-laws and regulations on electric stations, electric grids and substations implementation of the auction mechanism are and the use of RES power, are not licensed yet to be developed and adopted. activities. However, the purchase of electric power for the purpose of power supply requires a license. Also, designing and construction of a INCENTIVES power plant shall require a construction license in accordance with Kazakhstan Law “On 8. Are tax advantages available to Permits and Notifications”, No. 202-V ZRK renewable energy generation dated 16 May 2014. companies? 6. Is there a category of “license-exempt The Tax Code does not provide any special tax generation”? If so, does it cover some treatment or additional benefits for activities types of renewable energy based related to the use of RES. However, from 1 generation? January 2014 R&D conducted in the area of RES is included on the list of types of activities There is no licensing for generation of all types which meet the goals of creating a special of energy (except nuclear energy). economic zone, the “Innovative Technology Park”, where special tax, customs and land use regimes apply. 1 https://renewablesnow.com/news/kazakhstan- plans-renewable-auctions-527033/ 160 GLOBAL RENEWABLE ENERGY GUIDE 2017 KAZAKHSTAN WHITE & CASE KAZAKHSTAN LLP 9. Is there a purchase guarantee given by ● to customers at negotiable prices in the relevant legislation for the accordance with general provisions of the electricity generated by renewable Electric Power Law. energy companies? Suppliers selling power to customers at Yes. If previously regional electric grid negotiable prices are not allowed to sell companies to whose electric grids RES-using generated power through the first option. facilities were directly connected were required to purchase the full amount of electricity 11. Has the Paris Agreement under the directly from qualified power generating United Nations Framework organizations using RES (“Suppliers”), from Convention on Climate Change been January 2014 power is purchased from such ratified? If yes, what are the Suppliers by a special financial settlement center undertakings of your Country in the (“FSC”). In accordance with the RES Law, a NDC (national determined power purchase contract with the FSC must be contributions) submitted for the first valid for 15 years. five year period? The FSC sells generated power to so-called Kazakhstan signed the Paris Agreement on 2 “conventional customers”, which are: August 2016 without any reservations and ratified it on 4 November 2016. ● power generating organizations using coal, 12. Is there a carbon market or carbon gas, sulphur-containing raw materials, oil credits mechanism in your jurisdiction? products and nuclear fuel; A legal framework for a carbon market is ● electric market participants acquiring currently under development in Kazakhstan. A electricity outside the Republic of carbon credits mechanism was introduced in Kazakhstan; or the Environmental Code of the Republic of Kazakhstan, but operation of the relevant ● hydro-electric power stations located in provisions has been suspended until one hydro-electric power complex with 1 January 2018. capacity of over 35 MW (except those commissioned after 1 January 2016). 13. Do renewable energy based power plants have priority for connection to 10. Is there a minimum price guarantee the grid? given by the relevant legislation for electricity generated by renewable New and reconstructed RES-using facilities energy companies? have a right to free and indiscriminate access to the nearest outlet of the electric or thermal grids Suppliers may, at their discretion, sell generated of power transmitting organizations. electric power using one of the following options: Power transmitting organizations are required to provide the Suppliers with free access to the ● to the FSC at fixed tariffs (and following transmission of electric and thermal power the July 2017 amendments to the RES Law, through the grids and the Suppliers are exempt the marginal auction price) indexed for from payments of fees for the transmission of inflation; or electric and thermal power to the power transmitting organizations. GLOBAL RENEWABLE ENERGY GUIDE 2017 161 WHITE & CASE KAZAKHSTAN LLP KAZAKHSTAN Energy produced using RES is given priority for Investments and Development) and are transmission during restrictions of throughput available for certain types of activities in capacity (except for periods of mitigation by the accordance with the list of priority activities system operator of unified energy system approved by the Government of the Republic contingencies). of Kazakhstan. Priority types of activities qualifying for investment preferences currently 14. Is there an incentive for domestic include, inter alia, the generation, transmission (local) manufacturing of equipment or and distribution of electricity and materials used in the construction of manufacturing of electric equipment. renewable energy based power plants? Under an investment contract, an investor may Governmental Resolution No. 644 dated be eligible for the following types of investment 12 June 2014 approved an increased fixed tariff preferences: exemption from customs duties; (70 tenge/kWh as compared to a common fixed provision of state in-kind grants. In addition, tariff of 34.61 tenge/kWh) for solar plants the following preferences will be available for which use photovoltaic modules based on priority investment projects: (i) exemption from Kazakhstan origin silicon with total capacity of corporate income tax; (ii) exemption from land 37 mW. tax; (iii) exemption from property tax; and (iv) investment subsidy. 15. What the other incentives are available to renewable energy generation companies? STATISTICS Thermal Power 16. What is the percentage of electricity Sale and purchase contracts in respect of generated based on each type of thermal power generated from RES are renewable energy source as a concluded for a period not shorter than the pay- proportion of the total generation of back period of a project for the construction of electricity on a country-wide scale? a RES-using facility. According to public sources, in 2016 the All thermal power generated from RES to be percentage of electricity generated based on delivered to a centralized thermal supply system RES in the total generation of electricity in of a populated locality is acquired by the power Kazakhstan was as follows: supply organizations of such locality. Costs of thermal power generated from RES are ● Hydro – 12.2%; included in the tariff of the power supply ● Wind – 0.28%; and organization. Suppliers selling thermal power are exempt from paying the thermal power ● Solar – 0.1%. transmission fees of the power transmitting organizations. OTHER Investment Preferences 17. Is there anything else you wish to add? In accordance with the Entrepreneurial Code of No. the Republic of Kazakhstan, investment preferences are granted via an investment contract concluded with the competent authority (currently the Ministry for 162 GLOBAL RENEWABLE ENERGY GUIDE 2017 WHITE & CASE KAZAKHSTAN LLP KAZAKHSTAN WHITE & CASE KAZAKHSTAN LLP Pavel Kornilov Arman Bigazin 11th floor Talan Towers Business Center 11th floor Talan Towers Business Center 16, Dostyk Street 16, Dostyk Street Astana, 010000 Astana, 010000 Kazakhstan Kazakhstan T + 7 7172 55 28 68 T + 7 7172 55 28 68 E [email protected] E [email protected] GLOBAL RENEWABLE ENERGY GUIDE 2017 163 KYRGYZSTAN Magomed Saaduev KALIKOVA & ASSOCIATES GENERAL The electric power sector produces approximately 3.9% of the gross domestic product (GDP), 16% of the industrial 1. What are the nature and importance of production volume, and 10% of the national renewable energy in your country? budget revenues. Thus, the electric energy In Kyrgyzstan, hydropower is the most sector has a material impact on the economy common renewable energy source. of the country. More than 80% of all energy in the country is 2. What are the definition and coverage of produced by the Toktogul cascade of renewable energy under the relevant hydropower plants (“HPPs”), built during legislation? the Soviet era. Kyrgyzstan’s hydropower sector has the capacity to produce The definition of renewable energy is given in approximately 140 billion kWh peryear. the Law of the Kyrgyz Republic “On However, today it produces not more than Renewable Energy Sources” of 31 December 10% of this amount. By the amount of electric 2008 No. 283 (“Law on Renewable Energy”). power which can be produced by hydropower rd According to Article 3 of this Law, renewable plants, Kyrgyzstan is ranked 3 among CIS energy is ecologically clean energy produced by countries after Russia and Tajikistan. Other renewable energy sources including renewable renewable energy sources (solar power, wind fuel. power, etc.) are practically not used in the republic. Renewable energy sources include: The Kyrgyz electric power grid consists of 15 energy of the sun, earth, vacuum, wind, and HPPs with a total capacity of 2,950 MW. Also, water;1 there are 2 thermal power plants, thus, the total power capacity of the energy sector is energy of non-mineral and non-carbonic 3,680 МW. origin, energy of decomposition 1 Hydro power plants are considered renewable Renewable Energy, traditional energy is the energy provided that the established capacity of HPP is less gained from non-renewable energy sources, than 30 megawatts (MW). HPPs with the established particularly from hydrocarbons (coal, oil, gas) and capacity of 30 and more MW are considered traditional hydroelectric power stations with the established sources of energy. According to the Law on capacity of 30 and more megawatts. 164 GLOBAL RENEWABLE ENERGY GUIDE 2017 KYRGYZSTAN KALIKOVA & ASSOCIATES (fermentation) of biomass of any organic No. 650 of November 14, 2014; (viii) the KR waste and/or materials; and Government Resolution No. 4 of January 6, 2016 “On formation of the Open Joint-stock energy of secondary heat (graduation company ‘National Energy Holding Company’”; towers, transformation substations, other (ix) the Regulation on the Directorate of the industrial installations and aggregates, project on development of small and medium operation of which results in generation of scale energy in the KR approved by Presidential secondary thermal energy). Edict No. 155 of May 2, 2008; and (x) Regulation on tenders for construction of small However, as the Law on Renewable Energy hydroelectric power plants in the Kyrgyz Sources states, the list of the above sources of Republic approved by the Government renewable energy and equipment is not final Resolution No. 175 of 24 March 2017. and can be extended with the development of science and technologies related to renewable 4. What are the principal regulatory energy and energy efficiency. bodies in the renewable energy sector? REGULATION The principal regulatory bodies in the renewable energy sector are: (i) the Government; (ii) the National Energy Holding Company, which is 3. How is the renewable energy sector fully owned by the KR Government and regulated? What are the principal laws authorized to manage and develop the Kyrgyz and regulations? energy sector2; (iii) the State Committee on The energy sector is regulated by the Industry, Energy and Mineral Resources of the Government of the Kyrgyz Republic and the Kyrgyz Republic, which is a special authorized body for the development of state policy on special authorized state body for energy. The 3 principal laws and regulations governing energy, including renewable energy; (iv) the renewable energy are: (i) the Law on Renewable State Agency for regulation of the fuel and Energy of 31 December 2008 No. 283; (ii) the energy sector under the Government as a body Law “On Energy” of 30 October 1996 No. 56; responsible for licensing, establishing tariffs for (iii) the Law “On Electric Energy” of 28 January electricity and simultaneously acting as the 1997 No. 8; (iv) the Law “On Energy Saving” of antimonopoly body in the field of energy; and 7 July 1998 No. 88; (v) the Strategy of (v) the Directorate of the project on development of fuel and energy infrastructure development of small and medium scale energy until 2025, approved by Resolution of the in the Kyrgyz Republic (“Directorate”) formed Parliament of the Kyrgyz Republic of 24 April by Presidential Edict of 2 May 2008 UP No. 2008 No. 346-IV; (vi) the Concept development 155. The Directorate is controlled by the of small hydropower of the Kyrgyz Republic Government, but it is not a state body. The until 2017 approved by the KR Government Directorate is vested with the authority to Resolution No. 507 of July 20, 2015; (vii) the attract investments to new generating capacities Regulation on the State Agency for Fuel and and to develop non-traditional and alternative Energy Sector under the KR Government, energy sources. approved by the KR Government Resolution 2 The National Energy Holding Company was 3 The State Committee on Industry, Energy and formed on the basis of the Ministry of Energy and Mineral Resources was authorized to develop state Industry which was liquidated in November 2015 policy on energy and industry after liquidation of according to the KR Government Resolution No. the Ministry of Energy and Industry in July 2016. 768 of 16 November 2015. GLOBAL RENEWABLE ENERGY GUIDE 2017 165 KALIKOVA & ASSOCIATES KYRGYZSTAN 5. What are the main permits/licenses 7. Has there been any reform related to required for renewable energy projects? renewable energy regulations since 2016? Do you expect any Under the Law on Electric Energy, licenses for reform/change in the near future? generation of electric energy from the renewable energy sources are no longer N/a. required. However, under the Law on Electric Energy, INCENTIVES the implementation of the renewable energy project requires certain licenses and permits, in 8. Are tax advantages available to particular: renewable energy generation companies? the license to sell electricity; Kyrgyz law allows the granting to companies generating electric and thermal power using the license to export/import electricity; renewable energy sources, of incentives and privileges in the form of tax reduction; the license to transmit electricity; and exemption from customs duties upon import and export of the equipment, installations and the license to distribute electricity.4 parts for renewable energy generation Licenses are issued by the State Agency for companies; and the offering of favorable regulation of the fuel and energy sector under government loans. the Government. 9. Is there a purchase guarantee given by the relevant legislation for the 6. Is there a category of “license-exempt electricity generated by renewable generation”? If so, does it cover some energy companies? types of renewable energy based generation? Kyrgyz law provides that energy generated by renewable energy sources is subject to As noted above, at the moment, the generation mandatory purchase by energy companies. of electricity from renewable energy sources According to the most recent amendments to does not require any license. the Law on Renewable Energy, electricity Apart from that, under the Law on Electric generated from Renewable Energy Sources Energy, no license is required to generate (“RES”) and not consumed by the plant owner electricity from any sources of energy provided for its own purposes or not sold to other that it is generated for personal use and its consumers on a contractual basis must be capacity does not exceed 1,000 kW. acquired by the largest power distribution company operating in the administrative territorial unit where the RES plant is located, irrespective of to which company’s power networks this RES plant is connected. 4 The transmission and distribution of electricity are not (National Electrical Grid of Kyrgyzstan, Severelectro, necessarily carried out by the generating company. As Vostokelectro, Jalalabadelectro, Oshelectro), which a rule, the transmission and distribution of electricity own corresponding high voltage power transmission are carried out by the state joint stock companies and distribution lines. 166 GLOBAL RENEWABLE ENERGY GUIDE 2017 KYRGYZSTAN KALIKOVA & ASSOCIATES Thus, there is a legislative guarantee of purchase according to the procedure defined by Kyrgyz of energy generated. In Kyrgyzstan, there are 4 law. energy companies: Severelectro OJCS, Vostokelectro OJSC, Oshelectro OJSC, and Compensation for additional costs incurred by Jalalabadelectro OJSC. In all companies the electric power companies when purchasing majority shareholding is owned by the state. RES-generated electricity is taken into account Energy companies not meeting their obligations by the State Agency for regulation of the fuel to mandatorily purchase the electric power and energy sector under the Government when generated by renewable energy sources shall pay calculating and determining traditional compensation to electric power producing electricity tariffs for electric power companies. companies for lost profit. Tariffs for electric and thermal power are set by 10. Is there a minimum price guarantee the State Agency for regulation of the fuel and given by the relevant legislation for the energy sector under the Government. As of July electricity generated by renewable 22, 2015, the following tariffs for electricity are energy companies? effective: Under Kyrgyz law, the state sets tariffs for (i) for household consumers: energy generated by renewable energy sources (а) 0.7 KGS/kWh if the monthly power in the amount ensuring recoupment of consumption is below 700 kWh; renewable energy projects within up to 8 years. According to the most recent (b) 1.82 KGS/kWh if the monthly power amendments to the Law on Renewable Energy consumption is above 700 kWh. during the payback period, tariffs for RES electricity should be determined by multiplying (ii) for non-household consumers (including the maximum tariff for end consumers by a industry): 1.97 KGS/kWh. respective coefficient as specified below: However, from August 1, 2015, tariffs will be for water power plants this coefficient is 2.1; raised and will be as follows: for sun power plants this coefficient is 6.0; (i) for household consumers: for biomass power plants this coefficient is (а) 0.77 KGS/kWh if the monthly power 2.75; consumption is below 700 kWh; (b) 2.16 KGS/kWh if the monthly power for wind power plants this coefficient is 2.5; consumption is above 700 kWh. and (ii) for non-household consumers, the tariff for land power energy this coefficient is 3.35. will be 2.24 KGS/kWh. Upon expiration of the payback period, tariffs 11. Has the Paris Agreement under the for RES electricity are determined by United Nations Framework the State Agency for regulation of the fuel and Convention on Climate Change been energy sector under the Government for each ratified? Is there a carbon market or plant individually based on calculations taking carbon credits mechanism in your into account the costs of electricity generation jurisdiction? and fair profit. The newly determined tariffs for RES electricity are subject to annual indexation The Paris Agreement under the United Nations GLOBAL RENEWABLE ENERGY GUIDE 2017 167 KALIKOVA & ASSOCIATES KYRGYZSTAN Framework Convention on Climate Change is 14. Is there an incentive for domestic (local) not signed by the Kyrgyz Republic. However manufacturing of equipment or according to local mass media the President and materials used in the construction of the KR Government confirmed that renewable energy based power plants? Kyrgyzstan generally agrees with the Paris Agreement and it will be signed a bit later but Kyrgyz law provides that the state economically any exact date was not mentioned. supports the development and application of renewable energy sources. In particular, under In the meantime the Kyoto Protocol was duly the Law on Renewable Energy Sources: ratified by the Kyrgyz Republic. The law on the ratification of the Kyoto Protocol was adopted on individuals and legal entities producing or 15 January 2003. Enterprises are required to re-equipping renewable energy facilities and obtain permits for carbon credits from the State devices are granted preferences; and Agency on Environmental Safety. Carbon credits are also subject to a charge. The opportunity of import and export of renewable energy emission trading prescribed by the Kyoto equipment, systems and components are Protocol has not been adopted by the Kyrgyz exempt from customs duties. Republic due to underdevelopment of the relevant market. The Law on Renewable Energy Sources provides that scientific and technical research aimed at the 12. Is there a carbon market or carbon development and use of renewable energy credits mechanism in your jurisdiction? sources can be funded with the money from the republican budget to the extent of the funds N/a. provided for by the Law on republican budget for the corresponding year. 13. Do renewable energy based power plants have priority for connection to 15. What are the other incentives available the grid? to renewable energy generation companies? Kyrgyz law envisages the guaranteed connection of small and medium HPPs to the grid. All power Kyrgyz law sets additional privileges for companies must ensure non-discriminatory companies generating electric and thermal power access to their networks for electric power using renewable energy sources by providing producers using RES to supply power generated beneficial and targeted credits. by them to the power network, provided that it meets the required standards. All costs of The Government of the Kyrgyz Republic constructing the power transmission lines up to promotes the use of renewable energy sources the point of interconnection to the electric power by: company’s network are borne by the RES plant owner. identifying priorities in the development of RES; The RES plant must be connected to the networks of the power company offering the ensuring the functioning of economic lowest cost of connection. National electric mechanisms and incentives provided by station networks and power distribution the laws on development and introduction companies must secure unimpeded transit of of ecologically friendly technologies or electric power from the RES producers to technologies with a low and safe level of consumers. 168 GLOBAL RENEWABLE ENERGY GUIDE 2017 KYRGYZSTAN KALIKOVA & ASSOCIATES waste in the process of RES development, of other types of non-traditional renewable including wells, disposal of substances energy sources is insignificant and makes up polluting the environment during the only 0.7% of the energy balance of the country. production and use of renewable fuel; OTHER supporting the construction of independent renewable energy systems in cities and in rural areas to ensure adequate 17. Is there anything else you wish to add? power supply and local participation, and to improve living conditions of the Other qualifying requirements for renewable energy population; projects in the Kyrgyz Republic promoting the activities related to the On March 24, 2017, the Government of the installation and use of a solar system Kyrgyz Republic approved the Regulation on equipment for hot water supply, heating, tenders for construction of small hydroelectric cooling and power generation; power plants in the Kyrgyz Republic. According to the law, small hydroelectric power plants promoting the activities related to the refer to renewable energy facilities. installation and establishment of networks According to the Regulation, mandatory of biogas installations for rational use of selection criteria for small HPP construction organic waste in agricultural production projects include the following: past and processing industries; and performance, amount of capacity installed, number of successfully completed projects, supporting the establishment of service local hiring requirements and proportion of centers providing repair and maintenance local and foreign workforce, etc. services for renewable energy facilities and established systems. Among other selection criteria are: STATISTICS Contribution to social infrastructure development by investing in the construction and repair of schools, 16. What is the percentage of electricity kindergartens, hospitals and other social generated based on each type of institutions; and renewable energy source in the total generation of electricity on a country- Contribution to energy infrastructure wide scale? development, except renewable energy facilities. As mentioned above, more than 80% of all electricity in the country is produced by the The above two criteria are optional but those Toktogul HPPs cascade. The share of the small who meet them will be given preference for the and medium energy sector in the total volume award, all other factors being equal. of production does not exceed 0.5%. The use GLOBAL RENEWABLE ENERGY GUIDE 2017 169 KALIKOVA & ASSOCIATES KYRGYZSTAN KALIKOVA & ASSOCIATES Magomed Saaduev 71 Erkindik Boulevard, Bishkek, 720040, Kyrgyz Republic T +996 (312) 66-60-60 F +996 (312) 66-27-88 E [email protected] 170 GLOBAL RENEWABLE ENERGY GUIDE 2017 LUXEMBOURG Marianne Rau Gilles Dauphin ARENDT & MEDERNACH SA, Luxembourg energy deriving from renewable resources in the GENERAL transport sector. 1. What are the nature and importance of In 2015, the overall share of renewable energy renewable energy in your country? in Luxembourg’s final consumption amounted to 4.99%.2 Luxembourg is dependent on imports for almost all its energy needs.1 The imports derive In 2016, 11.7% of Luxembourg’s national from a broad range of sources enabling to electricity consumption was nationally ensure sufficient energy security within the produced, out of which 7.1% was produced country. from renewable energy sources including hydroelectricity, wind energy, biogas, Up until recently, Luxembourg seemed to be photovoltaic energy, biomass and waste showing little devotion towards developing and incineration. The remaining 88.3% derived increasing its national production and from net imports.3 consumption of renewable energy and at meeting its 2020 renewable energy target set out Regarding natural gas, Luxembourg does not by the EU Directive 2009/28/EC dated 23 have any natural reserves and is therefore not April 2009 promoting the use of energy able to extract or produce any natural gas. produced from renewable resources (“EU Consequently, Luxembourg is dependent on Directive 2009/28/EC”). The EU Directive the import of natural gas from other countries. 2009/28/EC requires by 2020 Luxembourg to However, Luxembourg produces biogas, by achieve an 11% share of energy deriving from means of three power plants. In 2016, an renewable sources in its gross final energy amount of 60.6 GWh of biogas was injected consumption, as well as a 10% share of fuel into the natural gas networks and an amount of 114-704 t of biomass was consumed.4 1 http://www.chronicle.lu/categoriesbusiness under the European semester 2017, page 31. energy/item/20006-79-5-of-luxembourg-s-energy- 3 ILR publication, Chiffres clés du marché de l’électricité imported. (Key figures of the electricity market), year 2016, 2 National plan for smart, sustainable and inclusive Luxembourg 24 July 2017, page 6. growth Luxembourg 2020, National Reform 4 ILR publication, Chiffres clés du marché du gaz naturel Programme of the Grand Duchy of Luxembourg (Key figures of the natural gas market), year 2016, GLOBAL RENEWABLE ENERGY GUIDE 2017 171 ARENDT & MEDERNACH SA LUXEMBOURG In order to comply with the EU Directive fuels for domestic use as well as developing 2009/28/EC and to attain the objective of 10% public and private electric mobility; and of fuel energy deriving from renewable resources in the transport sector, the minimum 3) The use of cooperation mechanisms, rate of biofuels added into petrol or diesel for primarily through statistical transfers and transportation use has, since 2010, been joint projects with other Member States 9 annually increased.5 For 2017, the mandatory and third countries. mix of biofuels in gasoline and diesel fuel was Luxembourg is currently preparing its third set at 5.15%, out of which at least 15% must Action Plan to reduce Co2 emissions, creating originate from waste, residue, non-food new targets and objectives to be achieved by cellulosic material or from lingo-cellulosic 2030 and 2050, with a view of fully de- material.6 carbonising the Luxembourg economy. This new Action Plan shall be finalised by the end of Despite electricity deriving from renewable 10 sources forming a significant part of 2017. Luxembourg’s overall electricity production, Since 2015, Luxembourg experienced an the Grand-Duchy is still far from its 2020 increased production of renewable energy11. In targets. addition, many regulatory initiatives have been taken during the last year, aiming at promoting The reason for this low share was up until the development of renewable energy within recently not only due to limited capacities and the country. Numerous measures are being geographical constraints7 but also due to 8 actively implemented which shall potentially insufficient policies being put into place. enable the Grand-Duchy to attain its national Luxembourg’s current National Action Plan in targets by 2020. the area of renewable energy sets out three 2. What are the definition and coverage of objectives in order for the national renewable renewable energy under the relevant energy target to be achieved: legislation? 1) The (increased) production of electricity The grand-ducal regulation of 1 August 2014 on and heat/cooling from renewable sources; the generation of electricity based on renewable energy sources, as amended12 (“2014 2) The (increased) adding of biofuels into Luxembourg 24 July 2017, page 6. installations or energy crop production. 5 Law of 17 December 2010 laying down the excise 8 European Commission, Towards an Energy Union- rights and taxes assimilated on energy products, Luxembourg, Assessment of country performance and electricity, manufactured tobacco products, alcohol opportunities from the Energy Union, and alcoholic beverages, as amended. https://ec.europa.eu/commission/sites/beta- 6 Biofuels originating from waste, residue, non-food political/files/luxembourg-benefits_of_the_ cellulosic material or from lingo-cellulosic material energy_union_en.pdf. shall be counted twice (worth twice their amount) 9 National plan for smart, sustainable and inclusive when verifying whether the percentage of 5.15% growth Luxembourg 2020, National Reform has been respected. Programme of the Grand Duchy of Luxembourg 7 This is notably due to the inaccessibility to major under the European semester 2017, page 30. water resources and the lack of geothermal energy 10 Ibid, page 28. resources. Solar, wind and hydro energy are 11 Ibid, page 30. constrained due to unfavorable meteorological conditions and the lack of land available for 12 The grand-ducal regulation of 1st August 2014 on 172 GLOBAL RENEWABLE ENERGY GUIDE 2017 LUXEMBOURG ARENDT & MEDERNACH SA Regulation on Electricity from RES”) commercialisation of electricity deriving from provides in article 2, paragraph n), that renewable energy sources is subject to the renewable energy sources shall mean renewable amended Law of 1st August 2007 on the non-fossil energy sources, such as wind, solar, organisation of the electricity market (“2007 aerothermal, geothermal, hydrothermal, marine Electricity Law”). This law transposes the and hydroelectric, biomass, landfill gas, gas Directive 2003/54/EC of the European produced from wastewater treatment plants and Parliament and of the Council of 26 June 2003 biogas. concerning common rules for the internal market in electricity and repealing Directive Paragraph a) of the same article further defines 96/92/EC. Since the implementation of the biogas as gas produced exclusively from Electricity Law, access to the electricity market biomass in a process of methanisation, except has been open to all electricity suppliers, gas produced from wastewater treatment plants including those producing renewable energy, and landfill gas. Furthermore, paragraph b) of ensuring a fully competitive market for all article 2 provides that biomass shall mean the electricity suppliers. biodegradable fraction of products, waste and residues from agriculture (including vegetable Since almost 20 years, Luxembourg’s and animal products), forestry and related remuneration system for electricity deriving industries, as well as the biodegradable fraction from renewable sources is based on feed-in of industrial and municipal waste.13 tariffs. The feed-in tariff remuneration system is currently regulated by the 2014 Regulation on REGULATION Electricity from RES. However, in order for Luxembourg to align with the new EU Guidelines on State aid for environmental 3. How is the renewable energy sector protection and energy 2014-2020, a new regulated? What are the principal laws remuneration system based on market and regulations? premiums (prime de marché) was introduced in 2016, thereby amending the 2014 Regulation on The financial incentives and measures Electricity from RES.15 promoting energy from renewable sources have their legal basis notably in the amended Law of From the 1 January 2016, new electricity plants 5 August 1993 on the rational use of energy. producing electricity from renewable energy Furthermore, the renewable energy sector is and producing nominal electrical power in regulated by the general legislation governing excess of 500 kW, or greater than 3 MW or 3 the electricity and natural gas markets.14 Hence, wind power production units no longer receive the production, distribution and the feed-in tariff, as they did before, but are the generation of electricity based on renewable amended Law of 1st August 2007 on the energy sources and amending: 1. the grand-ducal organisation of the natural gas market. regulation of 31 March 2010 on the compensation 15 Grand-ducal regulation of 23 July 2016 amending mechanism in the framework of the organisation of the grand-ducal regulation of the 1st August 2014 on the Electricity market; 2. the grand-ducal regulation the generation of electricity based on renewable of 15 December 2011 on the production, energy sources and the amended grand-ducal remuneration and marketing of biogas. regulation of 31 March 2010 on the compensation 13 Further definitions are also given on other types of mechanism relating to the organisation of the renewable energy sources. electricity market, as amended (“2016 Regulation 14 The amended Law of 1st August 2007 on the on Electricity from RES”). organisation of the electricity market and the GLOBAL RENEWABLE ENERGY GUIDE 2017 173 ARENDT & MEDERNACH SA LUXEMBOURG granted a market premium which is added to biogas producers over a period of 15 years. their market sales price. Electricity plants which Financial support has been increased in 2016 were built before the 1st January 2016 and those for facilities producing biogas and the injection which have a production capacity less than 500 of such into the grids, enabling increased kW, or less than 3 MW or 3 wind power remuneration for existing plants.20 production units, remain subject to receiving the feed-in tariff remuneration. 4. What are the principal regulatory bodies in the renewable energy sector? Luxembourg provides a compensation mechanism that aims at distributing equitably The Institut Luxembourgeois de Régulation the additional costs which arise from the (“ILR”) is the national regulatory authority of production of renewable energies between the natural gas and electricity markets, which network operators and end-customers. This includes the renewable energy sector. The ILR compensation mechanism which is regulated by notably manages the compensation system the grand-ducal regulation of 31 March 2010 on implemented by the grand-ducal regulation of the compensation mechanism in the framework 31 March 2010 on the compensation of the organisation of the electricity market, as mechanism in the framework of the amended16, constitutes State aid compatible organisation of the electricity market, as with the common market rules and authorised amended. by the European Commission.17 The Ministry of Economy coordinates the The natural gas sector, which includes biogas, is country's energy policy through the regulated by the amended Law of 1st August Directorate-General for Energy (la direction 2007 on the organisation of the natural gas générale énergie), who is responsible for market (“2007 Natural Gas Law”).18 The monitoring the security of electricity supply in production of biogas is additionally subject to the country, guaranteeing the competitiveness the grand-ducal regulation of 15 December of energy prices and ensuring a sustainable 2011 on the production, remuneration and energy supply. The Directorate-General also commercialisation of biogas, as amended19 coordinates the country’s energy policy in the (“2011 Regulation on Biogas”), which aims to field of renewable energy, including the promote the production and injection of biogas country’s respective national action plans, into the networks, providing a stable and regulations, information, awareness-raising, continuous remuneration via feed-in tariffs to promotion, training and advice.21 16 This regulation has been amended in 2014, in 2016 2016 amending the amended grand-ducal regulation and recently by the grand-ducal regulation of 24 of 15 December 2011 on the production, April 2017. remuneration and marketing of biogas. 17 Commission Decision of 28 January 2009, on aid 20 Grand-ducal regulation of 4 March 2016 amending implemented by Luxembourg in the form of the the amended grand-ducal regulation of 15 creation of a compensation fund for the December 2011 on the production, remuneration organisation of the electricity market (C 43/02 (ex and marketing of biogas. NN 75/01)). 21 Official webpage of the government, Ministry of 18 Directive 2003/55/EC of the European Parliament Economy, Energy, and of the Council of 26 June 2003 concerning 174 GLOBAL RENEWABLE ENERGY GUIDE 2017 LUXEMBOURG ARENDT & MEDERNACH SA 5. What are the main permits/licenses Development and Infrastructure but must be required for renewable energy projects? submitted to the Environment Administration. In Luxembourg, most renewable energy plants, Furthermore, according to article 15 of the 2007 depending on their size, need to obtain the same Electricity Law, the construction of electricity permits as regular energy installations before plants is subject to an authorisation of the being constructed and producing energy. Minister of Economy. This equally applies to plants producing electricity deriving from The construction of a renewable energy renewable energy. installation of a certain size is subject to an operation permit, which must be requested at Article 20 of the 2007 Natural Gas Law the Environment Administration provides that before the initial operation or any (l’Administration de l’Environnement). The grand- modification or cessation of an installation ducal regulation of 10 May 2012 on the producing biogas or any other type of gas classification of classified establishments22 deriving from renewable sources, a declaration determines what type of class an establishment must be made to the Ministry of Economy. belongs to (referring to its energy production capacity), thereby determining its respective 6. Is there a category of “license-exempt authorisation procedure. The so-called generation”? If so, does it cover some commodo/incommodo operation permit lays down types of renewable energy based the specific terms and conditions for any generation? development and operation, thereby ensuring the protection of the environment and the Depending on the characteristics of a renewable safety of workers, the public and the energy plant in terms of peak power and height, neighborhood in general. an installation may not fall within the scope of the grand-ducal regulation of 10 May 2012 on A construction permit is also required before the classification of classified establishments building a new energy plant. An application for and therefore may not require an operation such an authorisation must be submitted to the permit. As an exception, photovoltaic mayor of the municipality concerned. installations do not have to apply for an Depending on the envisaged location for the operation permit, considering their limited activity/ construction works, an operator may impact on the environment. The operator also have to apply for a "nature protection" therefore only has to report to the Environment authorisation (autorisation "protection de la nature") Administration his intention to install such an if the installation is located in an area classified installation. as a "green zone".23 Such an authorisation is obtainable from the Ministry of Sustainable According to article 15 of the 2007 Electricity Law, the construction of electricity plants is subject to an authorisation of the Minister of 22 The grand-ducal regulation of 10 May 2012 on new and natural resources; amending the amended law nomenclature and classification of classified of 12 June 1937 on the development of towns and establishments and amending the amended grand- other important agglomerations; supplementing the ducal regulation of 14 September 2000 on risk amended law of 31 May 1999 on the establishment studies and safety reports; and the amended grand- of an environmental protection fund; The ducal regulation of 7 March 2003 on the assessment legislation concerning the protection of nature and of the effects of some public and private projects natural resources in relation to urban planning was on the environment. recently amended by the so-called "Omnibus" Law 23 Law of 19 January 2004 on the protection of nature of 3 March 2017. GLOBAL RENEWABLE ENERGY GUIDE 2017 175 ARENDT & MEDERNACH SA LUXEMBOURG Economy. This equally applies to plants remain subject to the initial feed-in tariff producing electricity deriving from renewable remuneration system provided by the 2014 energy. However, paragraph 4 of article 15 of Regulation on Electricity from RES. the 2007 Electricity Law provides that installations producing electricity from The 2014 Regulation on Electricity from RES renewable sources having a nominal electrical was subsequently amended in 2017 by the power less than 10 MW are exempted from grand-ducal regulation of 24 April 2017,27 which having to apply for an authorisation. aims to open the subsidy regime to producers of renewable energy who are established in 7. Has there been any reform related to other Member States of the European Union. A renewable energy regulations since competitive tendering procedure will enable 2016? Do you expect any producers of renewable energy produced in reform/change in the near future? other Member States to qualify for the receiving of subsidies in Luxembourg. As mentioned above24, in 2016 Luxembourg amended the 2014 Regulation on Electricity With regards to biogas, the government also from RES in order to introduce a new adopted a new grand-ducal regulation in 2016, remuneration system for electricity produced modifying the regulation dated 15 December from renewable energy.25 The introduction of 2011 on the production, remuneration and the new legislation enables Luxembourg to fully marketing of biogas, which provides for align with the requirements laid down in the increased remuneration for facilities producing Guidelines on State aid for environmental protection and biogas and the injection of such into the grids.28 energy for the period 2014-2020.26 From the 1st January 2016 onwards, new electricity plants INCENTIVES using renewable energy and producing nominal electrical power in excess of 500 kW, or greater than 3 MW or 3 wind power production units 8. Are tax advantages available to no longer receive the feed-in tariff renewable energy generation remuneration, as they did before, but receive a companies? market premium (prime de marché) which is added to their market sales price. Private individuals operating small solar installations are entitled to tax benefits. The Plants which were established before the income from photovoltaic installations with a 1 January 2016 and those having a production capacity from 1 to 4 kW is exempt from income capacity lower than 500 kW, or lower than tax.29 3 MW or 3 wind power production units, 24 Question 3. 2014 on the production of electricity based on 25 2016 Regulation on Electricity from RES amending renewable energy sources; 2. the amended grand- the 2014 Regulation on Electricity from RES. ducal regulation of 31 March 2010 relating to the compensation mechanism in connection with the 26 Communication from the Commission, Guidelines on organisation of the electricity market. State aid for environmental protection and energy 2014- 28 2020, (2014/C 200/01), http://eur- Grand-ducal regulation of 4 March 2016 amending lex.europa.eu/legal- the amended grand-ducal regulation of 15 content/EN/TXT/PDF/ ?uri=CELEX:52014XC December 2011 on the production, remuneration 0628(01)&from=EN. and marketing of biogas. 29 27 Grand-ducal regulation of 24 April 2017, amending Paragraph 4.1.1 Circulaire of 23 May 2003. 1. the amended grand-ducal regulation of 1st August 176 GLOBAL RENEWABLE ENERGY GUIDE 2017 LUXEMBOURG ARENDT & MEDERNACH SA The income from the sale of electricity producer has to sell the electricity produced generated by small photovoltaic installations is from renewable energy sources by himself deemed to be non-commercial and therefore according to the standard market conditions, not subject to tax. However, investments in which shall encourage him to avoid producing such installations are deemed to be private electricity when market prices are low. investments and are thus not tax-deductible.30 10. Is there a minimum price guarantee 9. Is there a purchase guarantee given by given by the relevant legislation for the the relevant legislation for the electricity generated by renewable electricity generated by renewable energy companies? energy companies? As mentioned above,32 power plants producing According to the 2014 Regulation on Electricity electricity from renewable energy sources, from RES, all power plants producing electricity which have been built before the 1st January from renewable energy sources, which have 2016, are entitled to receive a guaranteed been built before the 1st January 2016, are remuneration. This remuneration system, called ensured a guaranteed purchase of their feed-in tariff, represents a price guarantee for produced electricity at a fixed feed-in tariff. the electricity producer that is calculated according to a formula, laid down by the 2014 Provided that the technical requirements for the Regulation on Electricity from RES. connection of the electricity plant to the network are satisfied, the network operator is In order to benefit from the feed-in tariff, the obliged to enter into a purchase agreement with producer has to comply with the technical the producer of electricity deriving from requirements for the connection to the network renewable sources (article 4(4) of the 2014 and enter into a purchase agreement with the Regulation on Electricity from RES). network operator. The duration of such a purchase agreement is generally limited to 15 or However, since the amendment in 2016 of the 20 years. Once the duration of the agreement 2014 Regulation on Electricity from RES, comes to an end, the producer is no longer power plants producing electricity from subject to the regulated remuneration system, renewable energy sources, which are built from which implies that the producer is obliged to sell the 1st January 2016 onwards and which the produced electricity at standard market produce nominal electrical power higher than conditions. However, if the electricity producer 500 kW, or higher than 3 MW or 3 power is not able to find satisfaction within the production units, no longer benefit from the liberalised market, the 2014 Regulation on purchase guarantee, as described above. In Electricity from RES provides that the regards to these plants, the network operator producer may still be compensated on the basis remains solely obliged to enter into a so called of the wholesale market price of kWh, which “market premium contract”,31 which entitles the thereby equally constitutes a type of guaranteed electricity producer to simply benefit from a minimum remuneration. market premium which is added to the market sales price of the electricity produced from Furthermore, power plants producing renewable energy sources. Consequently, the electricity from renewable energy sources, 30 Paragraph 4.1. Circulaire of 23 May 2003. are satisfied. 31 Provided that the technical requirements for the 32 Question 9. connection of the electricity plant to the network GLOBAL RENEWABLE ENERGY GUIDE 2017 177 ARENDT & MEDERNACH SA LUXEMBOURG which have been built from the 1st January 2016 On the 6 March 2015, during the Latvian onwards and which produce nominal electrical Presidency of the Council of the European power higher than 500 kW, or higher than 3 Union, Latvia together with the European MW or 3 power production units, are subject to Commission submitted, on behalf of the the new remuneration system based on market European Union and its Member States its premiums (prime de marché), which implies that “Intended Nationally Determined Contribution of the they no longer receive the same type of price EU and its Member States” (“NDC”).35 The NDC guarantee, since they are forced to sell their provides that “the EU and its Member States are electricity according the market price, with the committed to a binding target of an at least 40% possibility of obtaining a premium on top of the domestic reduction in greenhouse gas emissions by 2030 agreed price. This new system avoids that compared to 1990, to be fulfilled jointly, as set out in the electricity producers have the incentive to conclusions by the European Council of October 2014.” produce electricity during periods of negative The ambitious target represents a significant market prices.33 progression in comparison to the EU’s commitments for 2020, aiming for a 20% cut in 11. Has the Paris Agreement under the greenhouse gas (“GHG”) emissions; a share of United Nations Framework 20% of EU energy deriving from renewables; Convention on Climate Change been and a 20% improvement in energy efficiency ratified? If yes, what are the compared to 1990.36 undertakings of your Country in the NDC (national determined In the NDC, the EU states that the EU and its contributions) submitted for the first Member States have already managed to reduce five-year period? their GHG emissions by around 19% compared to 1990 levels, while during the same period of The Paris Agreement was adopted on the 12 time, GDP has grown by more than 44%.37 As December 2015 by the United Nations a consequence, average capita emissions have Framework Convention on Climate Change fallen from 12 tons Co2 eq. in 1990 to 9 tons of (UNFCCC) and entered into force on the 4 Co2 eq. in 2012 and are expected to fall to November 2016. So far 148 out of 197 Parties around 6 tons Co2 eq. in 2030. Luxembourg’s to the Convention have ratified the Agreement, emissions have decreased with respect to 2005, including Luxembourg, which ratified the by 2.69 million tons of Co2 equivalent, which Agreement on the 11 October 2016, allowing it constitutes a drop of 20.8%, bringing to enter into force on the 4 December 2016.34 Luxembourg to its lowest level since 2001. Despite overall progress, in 2014, Luxembourg 33 Projet de règlement n°6882, Exposé des motifs, 36 Official Web page of the European Commission, page 3; Draft Regulation No. 6882, Explanatory 2020 climate & energy package, Memorandum, page 3. https://ec.europa.eu/clima/policies/strategies/ 34 https://www.wort.lu/fr/politique/a-la-chambre- 2020_en. des-deputes-nouvelle-rentree-parlementaire-apres- 37 Submission by Latvia and the European une-annee-chargee-57fcc57f5061e01abe83a254 Commission on behalf of the European Union and 35 Submission by Latvia and the European its Member States, Intended Nationally Determined Commission on behalf of the European Union and Contribution of the EU and its Member States, 6 March its Member States, Intended Nationally Determined 2015, page 3, http://www4.unfccc.int/ Contribution of the EU and its Member States, 6 March ndcregistry/Published 2015, page 1, http://www4.unfccc.int/ndcregistry/ Documents/European%20Union%20First/LV- PublishedDocuments/European%20Union%20Fir 03-06-EU%20INDC.pdf. st/LV-03-06-EU%20INDC.pdf. 178 GLOBAL RENEWABLE ENERGY GUIDE 2017 LUXEMBOURG ARENDT & MEDERNACH SA was held to have emitted the most GHG new buildings must meet the AA energy class emissions per capita in the EU.38 standard, which means a close to zero energy usage building standard.42 Many new laws and In order to meet the targets set out by the Paris regulations were adopted in 2016, amending Agreement and also attain the European set previous legislation, forming together the climate goals,39 a broad range of measures are Climate Bank and Sustainable Housing being put into place, relating to transportation, Package, which aims to promote sustainable buildings, energy efficiency and renewable construction, energy-efficient renovation of energies.40 residential buildings and the usage of renewable energies within the housing sector.43 Luxembourg is currently implementing a sustainable mobility strategy, aiming to develop In June 2015, the 2007 Electricity Law and the sustainability within the transport area. The 2007 Natural Gas Law were amended in order current development of the public transport to implement the provisions of article 7 of the sector, such as the construction of the new EU Energy Efficiency Directive (2012/27/EU, tramway system together with the promotion of “EED”) regarding the energy efficiency electric-based mobility and ecological mobility obligation schemes. Despite criticism from labels for companies, aims to help reduce GHG environmental organisations,44 so far the emissions within the country.41 Luxembourg legislator has decided to impose energy savings obligations (as provided by the Many efforts are being made within the housing aforementioned article 7 of the EED) sector in Luxembourg, such as the development and improvement of the energy performance of new buildings and residencies. Since 2017, all 38 http://ec.europa.eu/eurostat/statistics- amended Law of 23 December 2004 establishing an explained/index.php/Europe_2020_indicators_- allowance trading system of greenhouse gas _climate_change_and_energy emissions; b) The grand-ducal regulation of 23 39 Climate and Energy Package of March 2007, which December 2016 laying down implementing provides a reduction in greenhouse gas emissions measures for the Law of 23 December 2016 for Luxembourg at 20% by 2020 in relation to 2005 establishing an aid scheme for the promotion of in the sectors not covered by the EU Emissions sustainability, the efficient use of energy and Tading System (ETS), which will be discussed in the renewable energy in the field of housing; c) The Law following question. of 23 December 2016 introducing the certification of the sustainability of housing and amending the 40 National plan for smart, sustainable and inclusive amended Act of 25 February 1979 on housing growth Luxembourg 2020, National Reform subsidies; d) The grand-ducal regulation of 23 Programme of the Grand Duchy of Luxembourg December 2016 on the certification of the under the European semester 2017, page 28-29. sustainability of housing; e) The Law of 23 41 National plan for smart, sustainable and inclusive December 2016 on the collection, seizure and growth Luxembourg 2020, National Reform control of files regarding housing subsidies; f) The Programme of the Grand Duchy of Luxembourg grand-ducal regulation of 23 December 2016 laying under the European semester 2017, page 29. down implementing measures for the 23 December 42 National plan for smart, sustainable and inclusive 2016 on the collection, seizure and control of files growth Luxembourg 2020, National Reform relating to housing subsidies. Programme of the Grand Duchy of Luxembourg 44 Pressemitteilung 11.03.2015, Mouvement écologique: under the European semester 2017, page 29. Umsetzung der Effizienz-Richtlinie in Luxemburg – Von 43 a) The Law of 23 December 2016 (1) establishing wegen Vorreiterrolle (Press Release 11.03.2015, an aid scheme for the promotion of sustainability Ecological Mouvement: Implementation of the and efficient use of energy and renewable energies Efficiency Directive in Luxembourg - No in the field of housing; and (2) amending the pioneering role). GLOBAL RENEWABLE ENERGY GUIDE 2017 179 ARENDT & MEDERNACH SA LUXEMBOURG exclusively on electricity and natural gas also designed a new financing platform which suppliers.45 shall provide financial support for large-scale projects seeking to combat climate change. Other initiatives have been taken with regards These projects aim to attract the participation to the Paris Agreement and towards combatting of private investors and inspire other projects climate change. One of such is the trading of abroad.51 green bonds at the Luxembourg Stock Exchange, which began on the 27 September 12. Is there a carbon market or carbon 2016. The Luxembourg Green Exchange credits mechanism in your jurisdiction? (LGX) lists 114 green bonds from 25 issuers in 19 different currencies, representing a total The European Emissions Trading System (EU value of more than 45 billion USD. In 2016, the ETS), which is regulated by the Directive Climate Bond Initiative46 estimated the value of the 2003/87/EC of 13 October 2003, was green bonds at 100 billion USD.47 The LGX is transposed into national law by the amended described as “the world’s leading platform dedicated Law of 23 December 2004 on the trading of exclusively to securities that are 100% green, social or greenhouse gas emission allowances (the 2004 sustainable”.48 Emissions Trading Law). The 2004 Emissions Trading Law provides that prior to the Luxembourg’s Minister of Environment, operating of an installation used for an activity Carole Dieschbourg, has facilitated in which is likely to produce greenhouse gases collaboration with Austria, Finland and Sweden (GHG), a GHG permit must be acquired. The the setting up of an indigenous peoples activities which require such a permit are listed platform, provided in the Paris Agreement, in Annex I of the above mentioned Law. The which aims to address and mitigate the problem competent authority for the granting of such of the displacement of indigenous communities permits is the Ministry of Sustainable due to climate change.49 Development and Infrastructure (Ministère du Développement durable et des Infrastructures) and all In order to contribute towards achieving the applications are processed by the Environment targets defined in the Paris Agreement, Administration (Administration de Luxembourg has promised to contribute 5 l'Environnement). The GHG permit authorises a million euros per year to the Climate Fund which company operating an installation to emit a can be used to finance projects contributing specific volume of GHG emissions. If the towards minimising the negative effects of company operating the installation exceeds its climate change.50 In collaboration with the allowance, it has to purchase additional GHG European Investment Bank, Luxembourg has allowances. If however the operator does not 45 Article 12bis of the law of 19 June 2015 modifying praised for its efforts, 19/11/2016, the modified law of 1 August 2007 on the http://www.luxembourg.public.lu/en/actualites/2 organisation of the natural gas market and article 016/11/19-cop22/index.html. 48bis law of 19 June 2015 modifying the modified 48 https://www.bourse.lu/lgx. law of 1 August 2007 on the organisation of the electricity market. 49 Ibid. 50 46 Climate Bonds Initiative is an international, The Official Portal of the Grand-Duchy of investor-focused not-for-profit organisation Luxembourg, An enthusiastic COP22, Grand-Duchy working solely on mobilising the $100 trillion bond praised for its efforts, 19/11/2016, market for climate change solutions. http://www.luxembourg.public.lu/en/actualites/2 016/11/19-cop22/index.html. 47 The Official Portal of the Grand-Duchy of Luxembourg, An enthusiastic COP22, Grand Duchy 51 Ibid. 180 GLOBAL RENEWABLE ENERGY GUIDE 2017 LUXEMBOURG ARENDT & MEDERNACH SA emit the maximum amount determined by its priority access to the grid. However, access shall permit, all unused allowances can be sold. In be granted according to the principle of non- order for an operator to sell and buy allowances, discrimination.54 The 2007 Electricity Law the operator must open an operator holding provides that all plants shall be connected to the account with the European Emissions Trading grid according to objective, transparent and Registry (“Registry”). The Registry is an non-discriminatory criteria,55 which should be electronic data base which enables the operator surveilled and ensured by the ILR.56 The ILR to consult his allocated allowances, to trade must take into account all advantages of the them and also to manage his account which renewable energy plant but also the additional allows the operator to transfer, return or cancel costs when monitoring and reviewing the them. The Registry also enables the compliance of the grid operator's conditions, Environment Administration to monitor fees and tariffs with the principle of non- whether operators are meeting their discrimination.57 environmental obligations. The amount of allowances which may be allocated is The grid operator must aim to minimise the determined on the basis of harmonised curtailment of electricity produced by Community rules.52 renewable energy sourced installations. However, the grid operator is also obliged to 13. Do renewable energy-based power ensure the security of the grid, which might plants have priority for connection to imply, if necessary, undertaking measures which the grid? entail curtailing the production of renewable energy. In this case, the grid operator shall According to Article 5 of the 2007 Electricity inform the ILR and propose alternative Law, all transmission or distribution operators measures aiming at preventing inappropriate are required to connect to their grid any final curtailments.58 customer or producer, who requests so, who is located in the transport or distribution area and 14. Is there an incentive for domestic who is able to meet the technical requirements (local) manufacturing of equipment or determined by the grid operator.53 This ensures materials used in the construction of guaranteed connection to the grid for renewable energy based power plants? companies generating electricity from renewable sources, as long as they can meet the For the moment, Luxembourg does not enable set technical criteria. the allocation of any particular subsidy for local manufacturers producing equipment or Given that this guaranteed connection applies materials for the construction of renewable to all types of operators, one cannot consider energy plants. renewable energy-based power plants to have 52 http://www.guichet.public.lu/entreprises/en/ 55 Article 54 of the 2007 Electricity Law. urbanisme-environnement/commodo- 56 Article 54 of the 2007 Electricity Law. incommodo/autorisations-commodo/ autorisation-gaz-effet-serre/index.html 57 Article 54 of the 2007 Electricity Law. 58 53 Articles 5 and 19 of the 2007 Electricity Law. Article 19 of the Law of 7 August 2012 amending the 2007 Electricity Law. 54 http://www.res-legal.eu/search-by-country/ luxembourg/ GLOBAL RENEWABLE ENERGY GUIDE 2017 181 ARENDT & MEDERNACH SA LUXEMBOURG 15. What are the other incentives available la protection de l’environnement et à l’utilisation to renewable energy generation rationnelle des ressources naturelles).62 The subsidy is companies? regulated by the Law of 18 February 201063 and enables the granting of subsidies to companies Luxembourg provides four different subsidy that invest in electricity produced from regimes, which apply to companies investing in renewable sources such as wind energy, solar the generation of electricity produced from energy, geothermal energy, biogas, hydro- renewable energy and to natural persons, non- power and biomass. These grants cover up to profit associations and real estate developers 45% of the additional costs arising from the use when investing in the production of solar of renewable energy as compared to non- energy. renewable sources. The grant may be increased by 20 percentage points for small enterprises The first subsidy regime is called the subsidy and by 10 percentage points for medium-size regime for the promotion of the rational use of enterprises.64 energy and the development of renewable energy (régime d'aides pour la promotion de The third regime is the subsidy regime in favor l'utilisation rationnelle de l'énergie et la mise en valeur of the small and medium-sized enterprise sector des énergies renouvelables).59 This type of subsidy is (régime d'aides en faveur du secteur des classes available to natural persons, non-profit moyennes),65 which aims to encourage associations, private and public real estate environmental protection and the efficient use developers other than the State who invest in of energy. Subsidies are available to companies photovoltaic installations having a capacity less who invest in the production of electricity from than 30k Wp. This subsidy regime is governed renewable sources. There is no restriction by the grand-ducal regulation of 12 December regarding the eligible renewable energy 2012.60 Applications for subsidies shall be technology, however, investments shall be submitted to the Environment Administration strictly necessary in order to comply with (Administration de l’Environnment).61 environmental requirements or in order to adapt production methods with the aim of The second regime is called the subsidy regime protecting the environment. The subsidy for the protection of the environment and the regime is governed by the law of 30 June 200466 rational use of natural resources (régime d’aides à and provides a grant which covers up to 40% of 59 Grand-ducal regulation of 18 December 2015 multiple times). amending the amended grand ducal regulation of 20 63 Law of 18 February 2010 on a system of aid for the April 2009 establishing an aid scheme for the protection of the environment and the rational use promotion of the rational use of energy and the of natural resources development of renewable energies. 64 http://www.res-legal.eu/search-by- 60 Grand-ducal regulation of 12 December 2012 country/luxembourg/single/s/res- establishing an aid scheme for the promotion of the e/t/promotion/aid/subsidy-ii-regime-daide-a-la- rational use of energy and the development of protection-de-lenvironnement-et-a-lutilisation- renewable energies in the housing sector. rationnelle-des/lastp/163/. 61 http://www.res-legal.eu/search-by- 65 Law of 30 June 2004 establishing a general country/luxembourg/single/s/res- framework for aid schemes for the middle-class e/t/promotion/aid/subsidy-i-regime-daides-pour- sector (has been amended multiple times). la-promotion-de-lutilisation-rationelle-de-lenergie- et-la-mise-en/lastp/163/. 66 Law of 30 June 2004 establishing a general framework for aid schemes for the middle-class 62 The Law of 18 February 2010 on a system of aid for sector. the protection of the environment and the rational use of natural resources (has been amended 182 GLOBAL RENEWABLE ENERGY GUIDE 2017 LUXEMBOURG ARENDT & MEDERNACH SA the eligible investment cost and may be In 2016, 11.7% of Luxembourg’s national increased by 20 percentage points for small electricity consumption was nationally enterprises and by 10 percentage points for produced, out of which 7.1% was produced medium-size enterprises.67 from renewable energy sources including hydroelectricity, wind energy, biogas, The fourth subsidy regime is the Fund for photovoltaic energy, biomass and waste Environmental Protection (fonds pour la protection incineration. The remaining 88,3% derived de l´environnement)68 and is governed by the Law from net imports.72 of 31 May 199969 and the circulaire n°3178, which introduced a fund which aims to support the In 2016, the production of electricity deriving Luxembourg municipalities in their investments from renewable energy amounted to for environmental protection. The fund is 461,299,686 kWh, out of which 13.4% was eligible to municipal administrations, produced from biogas, 21.7% from confederation of municipalities and public photovoltaic energy, 22.0% from wind energy, institutions under the supervision of 24.2% from hydroelectricity, 10.8% from municipalities. This subsidy is available for biologically degradable components, 5.2% from investments in photovoltaic installations and waste wood materials, 2.4% from gas from supports up to 50% of the whole investment waste water treatment plants, 0.3% from solid costs, including equipment and installation biomass and 0.03% from landfill gas.73 costs.70 All companies operating a renewable energy OTHER sourced plant or installation should be eligible for at least one of the subsidy regimes.71 17. Is there anything else you wish to add? Several other policies aim at promoting the STATISTICS development, installation and usage of renewable energy sourced installations, such as 16. What is the percentage of electricity a training programme for renewable energy generated based on each type of sourced-installers and operators, a general renewable energy source in the total research, development and demonstration generation of electricity on a country- programme and also a subsidy scheme for wide scale? renewable energy sourced housing infrastructures.74 67 http://www.res-legal.eu/search-by- 71 http://www.res-legal.eu/search-by-country/ country/luxembourg/single/s/res- luxembourg/. e/t/promotion/aid/subsidy-iii-regime-daide-en- 72 ILR publication, Chiffres clés du marché de l’électricité (Key faveur-des-classes-moyennes/lastp/163/. figures of the electricity market), year 2016, 68 Law of 31 May 1999 on the establishment of a fund Luxembourg 24 July 2017, page 6. for the protection of the environment (has been 73 ILR publication, Electricity Sector, Electric power amended multiple times). produced from renewable energy sources in 2016, 24 69 Law of 31 May 1999 on the establishment of an July 2017 ; ILR publication, Secteur Electricité, Energie environmental protection fund. électrique produite à partir de sources d’énergies renouvelables en 70 http://www.res-legal.eu/search-by-country/ 2016, 24 juillet 2017. luxembourg/single/s/res- 74 http://www.res-legal.eu/search-by-country/ e/t/promotion/aid/subsidy-iv-fonds-pour-la- luxembourg/. protection-de-lenvironnement/lastp/163/. GLOBAL RENEWABLE ENERGY GUIDE 2017 183 ARENDT & MEDERNACH SA LUXEMBOURG ARENDT & MEDERNACH SA Marianne Rau Gilles Dauphin 41A, avenue J.F. Kennedy 41A, avenue J.F. Kennedy L-2082 Luxembourg L-2082 Luxembourg T +352 40 78 78 318 T +352 40 78 78 268 F +352 40 78 04 711 F +352 40 78 04 962 E [email protected] E [email protected] 184 GLOBAL RENEWABLE ENERGY GUIDE 2017 MACEDONIA Dori Kimova KIMOVA LAW OFFICE Every two years the Ministry prepares a GENERAL Report on the implementation of the Action Plan for Renewable Energy Sources in the 1. What are the nature and importance of past period. If, based on the findings of the renewable energy in your country? report, it is found that the planned annual dynamics have not been realized, the Ministry has The importance of renewable energy in the to propose to the Government of the Republic of Republic of Macedonia is expressed through Macedonia additional actions and adequate the fact that the promotion of the modifications to the Action Plan. consumption of Renewable Energy Sources is set out as one of the key targets that must be The Government of the Republic of Macedonia ensured by the Energy Law. According to this passes a decision which provides the goals and Law, the Government of the Republic of the annual dynamics of the growth of the share Macedonia is obligated to create a policy of of the energy from the renewable sources in the consumption of the Renewable Energy final energy consumption, in accordance with the Sources by establishing a Strategy on Action Plan for the Renewable Energy Sources Renewable Energy Sources. This Strategy is and the obligations undertaken by the Republic proposed by the Ministry of Economy of Macedonia upon the ratified international (“Ministry”) and enacted by the Government agreements. of the Republic of Macedonia every 5 years, and it refers to the period of the next 10 years. The Energy Agency is the body which provides The drafting of this Strategy on Renewable support to the Ministry in the preparation of the Energy Sources is financed by the State. Strategy on the Renewable Energy Sources and the Action Plan for renewable energy sources. For the purpose of the implementation of the Strategy for Renewable Energy Sources, the The importance of exploitation of renewable Government of the Republic of Macedonia, energy sources in the generation of electricity is upon the proposal of the Ministry, passes an being increasingly recognized by the State, which Action Plan for the renewable energy for a has specified its current goals and projects period of ten years. This Action Plan defines regarding this issue in the Action Plan for the action for improvement of the Renewable Energy Sources in the Republic of consumption of the renewable energy Macedonia until 2025 with vision until 2030. sources. GLOBAL RENEWABLE ENERGY GUIDE 2017 185 KIMOVA LAW OFFICE MACEDONIA 2. What are the definition and coverage of (Energy Department), the Energy Agency and renewable energy under the relevant the Energy Regulatory Commission. legislation? 5. What are the main permits/licenses The matter of the Renewable Energy Sources is required for renewable energy projects? covered by the Energy Law in a special chapter titled “Renewable energy sources”. The main permits/licenses required for the production of electricity from renewable energy Definition: Renewable Energy Sources are non- sources are: License for the production of fossil energy sources, i.e. hydropower, wind, electric energy and Certificate for privileged solar, aero thermal, hydrothermal and producer of electric energy from renewable geothermal energy, biofuel, landfill gas, biogas energy sources. and gas obtained from sewage treatment plants, and biomass. 6. Is there a category of “license-exempt generation”? If so, does it cover some types of renewable energy based REGULATIONS generation? 3. How is the renewable energy sector The generation of electricity solely for the regulated? What are the principal laws purposes of the producer of electricity is and regulations? exempt from licensing on the condition it is not transferred through the electric distribution The renewable energy sector is regulated within system. the framework of the integral energy sector. The principal provisions and regulations could be 7. Has there been any reform related to found in the Energy Law. renewable energy regulations since 2016? Do you expect any The implementation of the Law is ensured by the reform/change in the near future? regulation which includes: Rulebook for Renewable energy sources; Rulebook on the There has been no reform related to renewable guarantee of origin of the electricity produced energy regulations since 2016. However, after from Renewable Energy Sources; Rulebook for the Paris Agreement under the United Nations acquiring of status of preferential/privileged Framework Convention on Climate Change is producer of electricity from Renewable Energy ratified by the Macedonian Parliament, we Sources; Regulation for connection for the expect changes in the legislation in order to national grid; Manual for construction and reflect the obligations undertaken with the operation of wind mills and the Rulebook on the ratification of the Paris Agreement. method and procedure for establishing and approving the use of feed-in tariffs for electricity INCENTIVES produced from biomass, small hydro power plants, wind power plants and photovoltaic systems. 8. Are tax advantages available to renewable energy generation 4. What are the principal regulatory bodies companies? in the renewable energy sector? According to the Energy Law, it is predicted that The principal regulatory bodies in the Renewable the tax advantages should present one of the Energy Sector are the Government, the Ministry measures for supporting the implementation of 186 GLOBAL RENEWABLE ENERGY GUIDE 2017 MACEDONIA KIMOVA LAW OFFICE the Strategy on Renewable Energy Sources, and 13. Do renewable energy based power plants the preferential VAT tax rate of 5% is have priority for connection to the grid? determined (compared to the general one of 18%) for trading and importing thermal solar The Energy Regulatory Commission of the systems and their components. No other tax Republic of Macedonia may request that the advantages are determined so far in respective relevant Operator cover the expenses for legislation. connection to the grid of the producers that require it, and the latter will be able to return these 9. Is there a purchase guarantee given by costs through the price of services. the relevant legislation for the electricity generated by renewable energy 14. Is there an incentive for domestic (local) companies? manufacturing of equipment or materials used in the construction of Yes, the operator of electricity, which is a state- renewable energy based power plants? owned company, is obliged to purchase the total quantity of electricity generated by Renewable No, there is no incentive for domestic (local) Energy Sources which is delivered by privileged manufacturing of equipment or materials used in producers. the construction of renewable energy based power plants. 10. Is there a minimum price guarantee given by the relevant legislation for the 15. What are the other incentives available to electricity generated by renewable renewable energy generation energy companies? companies? Yes, in Macedonia there are guaranteed feed-in Pursuant to the Energy Law, it is set out that tariffs for electricity production from Renewable certain measures for supporting the Energy Sources determined by the Regulatory implementation of the Strategy on Renewable Commission for Energy. Energy Sources could apply, especially: 11. Has the Paris Agreement under the investment financial support; tax advantages; United Nations Framework guaranteed purchase of the total quantity of Convention on Climate Change been electricity delivered by the privileged producer ratified? If yes, what are the and an obligatory sale of the mixture of fossil fuels undertakings of your Country in the and bio fuels; issuance of guarantees of origin of NDC (national determined the electricity produced from Renewable Energy contributions) submitted for the first Sources; Feed-in tariffs for the electricity five-year period? generated by Renewable Energy Sources; and an increase of the prices which consumers are paying The Paris Agreement was signed by the Republic for consumption of the Renewable Energy of Macedonia on April 26, 2016, but has not yet Sources. been ratified by the Parliament of the Republic of Macedonia. The Energy Law also provides that the implementation of these measures could be 12. Is there a carbon market or carbon financially supported by the State. credits mechanism in your jurisdiction? At the moment, there is no functioning carbon market or carbon credits mechanism in the Republic of Macedonia. GLOBAL RENEWABLE ENERGY GUIDE 2017 187 KIMOVA LAW OFFICE MACEDONIA the total electricity production is 31.18%, which is STATISTICS a significant increase, compared to 2013 and 2014, when it added up to 26.1% and 24%, respectively. 16. What is the percentage of electricity Hydroelectricity participates with 12.59% and generated based on each type of biomass with 16.70% in the total generation of renewable energy source in the total electricity in Macedonia. Wind electricity accounts generation of electricity on a country- for 0.81% and geothermal heat accounts for wide scale? 0.63% of the total electricity production, while the participation of biofuel, biogas and solar energy in In the Republic of Macedonia, the actual the total generation of electricity for 2015 is production of renewable energy covers hydro minimal. energy, solar energy, wind energy, geothermal energy, biomass and biofuel, and as of 2015, biogas. OTHER According to the State Statistical Office 17. Is there anything else you wish to add? preliminary data for 2015, the percentage of electricity generated from renewable sources in No. KIMOVA LAW OFFICE Dori Kimova Vasil Glavinov 3/1-1 1000 Skopje Republic of Macedonia T +389 2 3 132 114 F +389 2 3211 383 E [email protected] 188 GLOBAL RENEWABLE ENERGY GUIDE 2017 POLAND Tomasz Chmal Mateusz Zawistowski WHITE & CASE, Warszawa increasing the deployment of second GENERAL generation biofuels; and 1. What are the nature and importance of Protecting forests from excessive renewable energy in your country? exploitation for the purposes of production of biomass as well as the The importance of renewable energy in Poland sustainable use of agricultural areas as has increased during the past few years in line renewable energy sources in order to with the recent European legislation and in prevent competition between renewable particular due to the adoption of Directive No. energy and agriculture. 2009/28/EC of the European Parliament and the Council of 23 April 2009 on the promotion Currently, the Council of Ministers is working of the use of energy from renewable resources. on a new policy document, the Polish Energy Policy until 2050, which modifies the above- The Polish Energy Policy, adopted by the mentioned approach to the development of Council of Ministers on 10 November 2009, renewable energy sources. It states in particular follows the principles enshrined in the that the increase of the share of renewable European legislation. One of its main objectives energy in final energy consumption beyond is to increase the use of renewable energy 15%, which Poland is obligated to achieve by sources, including biofuels. The Polish Energy 2020 under EU legislation, will be subject to Policy is furthermore based on the approach renewable technologies becoming economically that the use of renewable energy sources will be sustainable and should be based on the use of a stabilizing factor for national energy security. national resources. The new energy policy stresses that the support systems for renewables The main objectives in the field of renewable should not distort the market and cause energy energy sources include: prices to increase. It also states that state support for the development of renewable Increasing the share of renewable energy in energy sources should promote technologies final energy consumption up to 15% by allowing for energy storage in periods of high 2020 and further increasing it in the supply and with minimum impact on the following years; stability of the grid. It is assumed that any kind of support for renewable energy sources should Achieving a 10% share of biofuels in the not extend beyond 2030. transport fuel market by 2020 and GLOBAL RENEWABLE ENERGY GUIDE 2017 189 WHITE & CASE, Warszawa POLAND In line with these policy changes, the renewable energy production from renewable sources are energy support scheme was substantially set out in the RES Act. modified on July 1, 2016 (please see Sections 8 and 9 below for more information). The new These regulations are supplemented by renewable energy support scheme provides for subordinate legislation issued by the competent preferential support mechanisms for renewable authorities on the basis of delegations included technologies using local resources (biomass) in the Energy Law and in the RES Act. These and ensuring the stability of the grid (especially subordinate acts regulate, for example, technical co-combustion of biomass and coal in so-called requirements for grid connections and the “dedicated co-firing installations”, i.e., terms of operation of enterprises using installations in which more than 15% of energy renewable energy sources (the Ordinance of the is generated from biomass, biogas, agricultural Minister of Economy of May 4, 20073, “System biogas and bio liquids) to the detriment of the Ordinance”). development of certain other technologies (such as wind and solar energy technologies). 4. What are the principal regulatory bodies in the renewable energy sector? 2. What are the definition and coverage of renewable energy under the relevant The President of the Energy Regulatory Authority legislation? (“President of the ERA”), a central body of government administration, is the regulator of the According to the Act on Renewable Energy fuel and energy sector, including the renewable Sources1 (“RES Act”), renewable sources of energy sector. The President of the ERA regulates energy are renewable, non-fossil energy sources the activity of energy enterprises aiming to balance that include wind power, solar power, the interests of energy enterprises and customers. aerothermal, geothermal, hydrothermal and The President of the ERA is also the concession- hydro energy, sea waves and tidal energy, granting authority. biomass, biogas, agricultural biogas and bio liquids. Thus, renewable energy is energy The Ministry of Energy is responsible for generated from the above listed renewable shaping the national policy with regard to energy sources. renewable energy sources. 5. What are the main permits/licenses REGULATION required for renewable energy projects? 3. How is the renewable energy sector The development of a renewable energy project regulated? What are the principal laws would generally require obtaining a number of and regulations? administrative decisions, including the main administrative decisions in a typical investment Energy production from renewable sources is process, i.e., an environmental permit regulated by general provisions on the (determining environmental conditions for the functioning and access to energy generation development of the project), a planning activities set forth in the Energy Law2 decision (setting land development conditions (“Energy Law”). Specific regulations on for the project), and a building permit (granting 1 The Act of February 20, 2015, on Renewable of Laws of 2017, item 220, as amended). Energy Sources (Journal of Laws of 2015, item 478). 3 Journal of Laws of 2007, No. 93, item 623, as 2 The Act of April 10, 1997, the Energy Law (Journal amended. 190 GLOBAL RENEWABLE ENERGY GUIDE 2017 POLAND WHITE & CASE, Warszawa permission to commence construction works voltage lower than 110 kV, or thermal and approving a building design). capacity in cogeneration of no more than 120 kW); Location of wind power plants has recently been made subject to severe restrictions in small installations (i.e., installations of provided in the Act on Investments in Wind total installed capacity of more than 40 kW Energy Projects.4 According to its provisions a and up to 200 kW, interconnected to a grid wind power plant cannot be located in a of the rated voltage lower than 110 kV, or distance shorter than tenfold its height thermal capacity in cogeneration of more (including the rotor and blades) from the than 120 kW and up to 600 kW); nearest residential building. Given the dispersed mode of settlement of a Polish countryside, it is from agricultural biogas; and feared that the introduction of such minimal distance requirement will make the location of from bio liquids (as the sole fuel) new wind power plants practically impossible. do not require a concession. Economic activity in the field of generation of energy (including the generation of electricity However, all these activities, except for energy from renewable energy sources) is also subject generation in micro installations, are regulated to obtaining a concession. Concessions are activities. Prior to the commencement of such granted by the President of the ERA for a activities, they should be registered in the definite period of no less than 10 years and no relevant register held by the President of the more than 50 years, except where the ERA (in the case of energy production in small entrepreneur has requested that the concession installations) or by the President of the be granted for a shorter period. Energy Agricultural Market Agency (in the case of enterprises that are granted a concession must energy generation from agricultural biogas and pay an annual fee to the state budget, which is bio liquids). treated as a cost of their activity and is calculated according to the following formula: the 7. Has there been any reform related to enterprise’s annual revenues (only those renewable energy regulations since revenues connected with the activity covered by 2016? Do you expect any the concession) multiplied by 0.0006. reform/change in the near future? 6. Is there a category of “license-exempt In order to adjust the RES Act to the guidelines generation”? If so, does it cover some on State aid determined by the European types of renewable energy based Commission, the reform of this Act is expected generation? in the near future. The generation of electricity: One of the most important changes that are being currently discussed is the significant in micro installations (i.e., installations of modification of the current structure of the total installed capacity of no more than 40 auction mechanism which is expected to be kW, interconnected to a grid of the rated based on the following assumptions: 4 The Act of May 20, 2016, on Investments in Wind Energy Projects (Journal of Laws of 2016, item 961). GLOBAL RENEWABLE ENERGY GUIDE 2017 191 WHITE & CASE, Warszawa POLAND (i) introduction of six auction baskets (instead decrease of the agricultural tax due for land of the previously applicable ones) including situated in the community where the among others: geothermal, offshore wind, investment was undertaken in the amount of biomass, wind and solar energy; 25% of the properly documented investment expenditure. The relief for the same investment (ii) removal of the auction system for clusters cannot be applied for a period longer than 15 and energy cooperatives; years. (iii) introduction of separate auctions for 9. Is there a purchase guarantee given by combustion plants and hybrid installations; the relevant legislation for the electricity generated by renewable (iv) introduction of the feed-in tariffs for energy companies? biogas and water projects smaller than 500 kW; and Until July 1, 2016, under the former renewable energy support scheme, all renewable energy (v) increase by 100% of the auction deposit. installations used to benefit from a purchase guarantee of renewable energy generated in Furthermore, the reform is expected to provide such installations. Mandatory purchases of restructuring solutions regarding wind farms energy produced in renewable energy and modify the definitions of micro and small installations were performed by certain energy installations. enterprises called “obligated suppliers” at an average price of energy on a competitive market INCENTIVES published by the President of the ERA on a yearly basis. This obligation to buy energy generated in renewable energy installations was 8. Are tax advantages available to unlimited in volume and in time. renewable energy generation companies? The current support scheme foresees a gradual departure from the support system based on Electric energy generated from renewable tradable certificates of origin (so-called green energy sources is exempt from excise tax on the certificates) and the obligation of certain market basis of documents confirming the cancellation participants to either purchase green certificates of a certificate of origin (i.e., a certificate in amounts corresponding to a given percentage confirming that energy was generated from a of their energy sales, consumption or trading, or renewable energy source). Renewable energy to pay a substitute fee (“Quota Obligation”) generated outside of the support system of and a switch to the auctioning system in which certificates of origin (including energy generated renewable energy installations bid to receive in the auctioning regime) will not be exempted support in the form of guaranteed prices for from excise tax. pre-determined amounts of energy generated Payers of agricultural taxes enjoy investment each year. relief if expenses were incurred for the purchase Under the regime applicable from July 1, 2016, and installation of devices for the use of natural the mandatory purchase obligation applies to energy sources (wind, biogas, solar power and (i) producers entitled to remain in the green water) for production purposes if such expenses certificate regime who do not exercise the were not fully or partially financed from public option for voluntary transition to the auctioning means. The investment relief is granted after the regime (however, starting from January 1, 2018, investment’s completion and consists of a 192 GLOBAL RENEWABLE ENERGY GUIDE 2017 POLAND WHITE & CASE, Warszawa the mandatory purchase obligation with respect negative balance (if any) resulting from the to installations which remain in the green difference between average energy prices certificate regime will be limited only to on the market (determined based on energy installations of a capacity below 500 kW); (ii) prices on the Polish commodity exchange) micro installations; and (iii) installations of a and prices of energy established in the bids capacity below 500 kW that have won auctions. of the auction winners. Its term is, however, limited to 15 years from the date energy was produced in a renewable With respect to renewable energy installations energy installation for the first time. Other operated by prosumers, the RES Act provides renewable energy producers do not benefit for certain energy settlement advantages from the purchase guarantee. They sell energy enabling such prosumers to benefit from lower on the market according to the same principles energy prices in periods in which their own as other (conventional) energy producers. production does not cover their energy consumption. 10. Is there a minimum price guarantee given by the relevant legislation for the 11. Has the Paris Agreement under the electricity generated by renewable United Nations Framework energy companies? Convention on Climate Change been ratified? Is there a carbon market or Under the former regime applicable until July 1, carbon credits mechanism in your 2016, there was no guarantee of minimum jurisdiction? prices for renewable energy; the “obligated suppliers” had to purchase energy produced Poland signed the Paris Agreement on April 22, from renewable energy installations at an 2016; it has been in force since November 6, average price of energy on a competitive market 2016. published by the President of the ERA on a yearly basis. Prices of green certificates were The Polish regime for carbon credits is part of determined by the market as well. the EU European Trading System (“EU ETS”), which works on the “cap and trade” Under the current regime auction winners principle. The system covers around 45% of the benefit from guaranteed energy prices in the EU’s greenhouse gas emissions and, as far as amounts declared in their winning bids. The individual sectors are concerned, includes term of this support is to be determined in a power plants, a range of energy-intensive notice of an auction and cannot be longer than industry sectors and civil aviation. The system is 15 years from the date on which a renewable currently in its third phase (2013-2020), which energy installation generated energy for the first differs significantly from the two previous ones time. The support is granted in the form of: by introducing auctions as the main method of allocating allowances, with free allowances for installations of a capacity below 500 kW becoming an exception to the auctioning rule. – guaranteed energy prices in offtake During the third phase of the EU ETS, free contracts concluded with obligated allowances are, however, still allocated to suppliers; or certain energy-intensive industries deemed to be exposed to a significant risk of “carbon for other auction winners – payments to a leakage.” Poland is also one of the countries special purpose vehicle established by the benefiting from a derogation on the basis of state to manage the support for renewable which free allowances are also granted to energy installations in the auctioning existing power plants. system. These payments will cover the GLOBAL RENEWABLE ENERGY GUIDE 2017 193 WHITE & CASE, Warszawa POLAND On February 28, 2017, the Council of the EU on which the interconnection will be technically agreed its general approach for the review of the possible following the necessary expansion or EU ETS. The review will contribute to the EU's modernization of the grid. If such energy goal of cutting its emissions by at least 40% by company possesses certain capacities which do 2030, as committed under the Paris Agreement. not satisfy the needs of the interested producer The proposal for a directive amending the entirely, it is nevertheless obligated to offer to Directive 2003/87/EC will be now discussed perform the interconnection at least partially with the European Parliament in order to reach (up to the current limits of the capacity of its an agreement of the final text. grid). The principles of the EU ETS have been If a given energy company refuses to execute an implemented in Poland in the Act on the interconnection agreement, it is obligated to Greenhouse Gas Allowances Trading System5 inform the President of the ERA of the refusal and the Act on the Greenhouse Gas Emissions in writing, giving grounds for such refusal. Management System.6 Moreover, renewable energy power plants enjoy 12. Is there a carbon market or carbon priority in transmission and distribution of credits mechanism in your jurisdiction? electric energy. Pursuant to the Energy Law, the electricity system operator is obligated to grant N/a. priority in transmission and distribution to electric energy generated from renewable 13. Do renewable energy based power energy sources. plants have priority for connection to the grid? 14. Is there an incentive for domestic (local) manufacturing of equipment or Renewable energy power plants are granted materials used in the construction of priority in connection to the grid. Energy renewable energy based power plants? companies engaged in the transmission or Investment aid can be granted for the distribution of energy are obligated to development of renewable energy projects interconnect renewable energy installations to within the framework of the EU grants awarded their grids with priority over other installations, under the Operational Program Infrastructure provided that they fulfill the interconnection and Environment 2014-2020 and regional conditions, and provided that the operational programs. Investors planning to interconnection is technically and economically implement renewable energy related projects feasible. can also apply for financial support from Furthermore, if, due to the lack of technical or national funds for environmental protection. In economic conditions, the interconnection particular, the National Fund for cannot be performed in accordance with the Environmental Protection and Water motion submitted by the interested renewable Management offers (i) loans for the energy producer at the time of the submission development of distributed renewable energy of such motion, the energy company which production and (ii) loans or subsidies for the operates the grid to which the producer intends purchase and installation of new facilities for to be interconnected, when refusing the the production of energy (and heat) from interconnection, is obligated to indicate a date renewable energy sources in residential buildings. These support mechanisms are, 5 Journal of Laws of 2017, item 568, as amended. 6 Journal of Laws of 2017, item 286, as amended. 194 GLOBAL RENEWABLE ENERGY GUIDE 2017 POLAND WHITE & CASE, Warszawa however, not specifically aimed at the that during each year a specified minimum share development of domestic technologies. of bio components and other renewable fuels in the fuels and liquid biofuels sold, traded or used As regards incentives for the development of by it in road and rail transport has been met. renewable technologies using locally available The obligation to fulfill the National Indicative resources, the RES Act introduces a mechanism Target requirement applies to the entrepreneurs based on which support for biomass conducting business activity in the scope of combustion plants (including co-firing plants) production, import or intra-community may be granted subject to the use of a given purchase of liquid fuels or liquid biofuels that share of “local” biomass (produced a maximum sell or dispose of it in any other way, or use such of 300 km away from the installation in which it fuels for their own purposes, on the territory of is used) in the total amount of biomass used in the Republic of Poland. The National Indicative such plants. Target for 2017 is 7.10% (and 7.50% in 2018). 15. What are the other incentives available to renewable energy generation STATISTICS companies? 16. What is the percentage of electricity Polish law provides incentives in particular for generated based on each type of smaller renewable energy based power plants. renewable energy source in the total Power plants of a capacity not exceeding 5 MW generation of electricity on a country- are exempted from concession fees and enjoy wide scale? reduced fees for interconnection to the grid in the amount of 50% of the interconnection fee The table below presents the generation of (the interconnection fee is calculated on the basis electricity (MWh) by each type of renewable of the actual costs incurred for performing the energy source in Poland in 2005-2016 (based on grid connection). Interconnection of micro green certificates issued) based on data installations is performed free of charge. published by the Energy Regulatory Authority. Furthermore, a specific support scheme is established in the Act on Biofuels7 for the promotion of biofuels. It is called the National Indicative Target. An entity implementing the National Indicative Target is obligated to ensure 7 Journal of Laws of 2017, item 285, as amended. GLOBAL RENEWABLE ENERGY GUIDE 2017 195 WHITE & CASE, Warszawa POLAND Type of renewable 2005 2006 2007 2008 2009 2010 energy source Biogas 104,465.281 116,691.863 161,767.939 220,882.924 295,311.796 363,595.743 Solar 0 0 0 0 1.328 1.672 Biomass 467,975.678 503,846.206 545,764.936 560,967.435 601,088.244 635,634.844 Wind 135,291.628 257,037.412 472,116.429 806,318.563 1,045,166.230 1,823,297.061 Water 2,175,559.099 2,029,635.604 2,252,659.312 2,152,943.187 2,375,767.238 2,922,051.638 Co-firing 877,009.321 1,314,336.612 1,797,217.058 2,751,954.127 4,287,815.430 5,243,251.417 Total 3,760,301.007 4,221,547.697 5,229,525.674 6,493,066.236 8,605,161.802 10,987,832.375 Type of renewable 2011 2012 2013 2014 2015 2016 energy source Biogas 430,537.322 529,384.449 665,143.194 803,125.465 873,269.913 881,007.810 Solar 177.805 1,177.532 1,418.771 4,514.874 40,897.867 54,004.516 Biomass 1,101,188.962 2,208,508.115 3,846,121.796 4,615,077.438 4,490,125.286 4,172,484.955 Wind 3,128,672.517 4,612,893.792 6,078,433.878 7,640,802.091 10,536,563.669 11,700,582.659 Water 2,316,833.384 2,031,724.612 2,439,274.973 2,181,135.795 1,828,417.274 690,954.433 Co-firing 5,999,582.057 6,714,155.690 3,751,860.243 4,462,167.696 4,120,825.586 1,075,521.674 Total 12,976,992.047 16,097,844.190 16,782,252.855 19,706,823.359 21,890,099.595 18,584,556.047 As estimated based on the data gathered by of green certificates submitted for the President of the ERA as of June 30, 2016, cancellation.81 the amount of energy sold to final customers in 2015 was 124,000,000 MWh. Electricity OTHER generated from renewable energy sources amounted to: (i) 17.65% of the aggregate amounts of energy sold to final consumers, 17. Is there anything else you wish to calculated based on the number of green add? certificates issued; and (ii) 13.52% of the aggregate amounts of energy sold to final No. consumers, calculated based on the number WHITE & CASE, Warszawa Tomasz Chmal Mateusz Zawistowski Kancelaria Prawna sp.k. Kancelaria Prawna sp.k. ul. Marszalkowska 142 ul. Marszalkowska 142 Warszawa Poland Warszawa Poland T +48-22-5050-187 T +48-22-5050-116 F +48-22-5050-400 F +48-22-5050-400 E [email protected] E [email protected] 81 Source: Energy Regulatory Authority. 196 GLOBAL RENEWABLE ENERGY GUIDE 2017 RUSSIA Adam Smith WHITE & CASE LLC, Moscow promoting investment. They include a system GENERAL of long-term capacity supply agreements under which a number of projects (in particular solar 1. What are the nature and importance of and wind) have been implemented. Over 2GW renewable energy in your country? of capacity has been commissioned under this system in the years 2013-2016. As Russia has abundant reserves of traditional energy resources, with the exception of Renewables are also increasingly being used to hydroelectric power, renewables play a meet the power needs of Russia’s isolated relatively small role in the country’s energy mix. communities in Arctic regions and the Far However, a small but growing renewables East, which have traditionally relied on off-grid sector has established itself. diesel generators. The high cost of transporting fuel to remote settlements and often abundant In 2009 the Russian Government approved a solar and wind resources in these areas mean set of Guidelines for State Policy in Increasing that small-scale renewable projects are the Effectiveness of Use of Renewable Energy economically attractive. These include the Sources for the period until 2024 World’s most northerly solar power station in (“Guidelines”).1 The Guidelines have been the Arctic village of Bagatai, Yakutia. updated a number of times, most recently in February 2017. Under the Guidelines, it is The Ministry of Energy has reported that in planned that Russia will achieve 4.5% of power 2015 57 MW of renewable capacity was generation using renewables (excluding large- commissioned, in 2016 approximately 70 MW scale hydroelectric) by 2024. The government’s and it is estimated that approximately 100 MW draft energy strategy to 20352 forecasts that it is will be commissioned in 2017. possible for power generation based on renewables to grow by a factor of 20 from 2015 Hydropower potential (2.3 billion kWh) to 29-46 billion kWh by 2035. Hydropower is one of Russia’s greatest energy Regulatory renewables support mechanisms resources. Nine percent of the world’s have been in place in the power market since hydropower resources are located within the 2013, and have been reasonably successful in territory of Russia, mostly in Central and 2 1 Government Decree No. 1-r, dated 8 January 2009. Available at https://minenergo.gov.ru/ node/1920 GLOBAL RENEWABLE ENERGY GUIDE 2017 197 WHITE & CASE LLC, Moscow RUSSIA Eastern Siberia and in the Russian Far East. The The national territorial power development North Caucasus and western Urals also have plan up to 2030 includes 15 wind stations of considerable hydropower potential. over 100 MW, including ones in Adygeya and the Orenburg, Murmansk, Arkhangelsk, Russia currently has in operation over 100 Kaliningrad and Krasnodar Regions.10 hydroelectric plants with a capacity of over 100 MW. The total installed capacity of A notable current wind energy project is the 35 hydroelectric stations as at January 2017 was MW windfarm being constructed by Fortum in about 48,000 MW, representing over 20% of all the Ulyanovsk Region6. The project is being generation capacity in the Unified Power built under the program of long-term capacity System (“UPS”).3 In addition, the current agreements. national scheme for the development of the power sector by territory until 2030 envisages Also, a number of small wind projects have the construction or expansion of a significant been installed in isolated systems, including the number of large-scale hydroelectric plants.4 200 kW windfarm at Amderma in the Arctic Nenets Autonomous Region, launched in 2016. The investment program for 2016-2020 of RusHydro, the state-controlled hydropower Biofuels potential generator, reflects the country’s continued investment in hydropower generation. The Russia has approximately 24% of the world’s program provides for commissioning of an forests located on its territory. Forests cover additional 915.48 MW of capacity in various approximately 45% of the entire landmass of 7 regions of Russia, including the Nizhne- Russia, and Russia is the world’s fifth largest Bureiskaya and Nizhne-Zeiskaya projects in the producer of wood pellets. Amur Region, Ust-Srednekanskaya in the Magadan Region, Gotsatlinksaya in Dagestan However, as at July 2015 biofuels had an and the 3 GW Boguchanskaya station in insignificant share in the overall energy Krasnoyarsk Region.5 production matrix of Russia, estimated at 1.2%, with biomass accounting for only 0.5%.8 Wind power potential The Russian Government is making efforts to Russia is estimated to have the largest wind promote bioenergy. In April 2012, it approved resources of any country. A lot of this is a Complex Program for the Development of concentrated along the remote Pacific and Biotechnologies for the period until 2020, Arctic coasts, although there is also significant which is intended to establish a basis for the wind potential in the southern steppes and development of bioenergy and support for other coastal areas. 3 System Operator Report on the Functioning of the 10 Government Decree No. 2084-r, dated 11 UPS in 2016. The UPS is the single interconnected November 2013. power system that covers the more populous parts 6 https://www.fortum.com/countries/ru/press/ of Russia. It excludes a number of isolated regional news/Pages/News_455.aspx systems. 7 http://lesa-rossii.ru/ 4 Government Decree No. 2084-r, dated 11 November 2013. 8 http://gain.fas.usda.gov/Recent%20GAIN%20 Publications/Biofuels%20Annual_Moscow_Russia 5 http://www.eng.rushydro.ru/press/news/ n%20Federation_7-1-2015.pdf 99722 .html 198 GLOBAL RENEWABLE ENERGY GUIDE 2017 RUSSIA WHITE & CASE LLC, Moscow regional projects for the production of energy regions) and the southern parts of Siberia and and heat from biofuel.9 the Far East. In addition, Russia has large potential to Solar power projects predominated in the develop peat as a biofuel. (The country has up tenders for new renewable generation projects to 47% of the world's peat resources.) In 2016 on the wholesale power market conducted in the Electricity Law was amended such that peat- 2014-2015. In 2014, 33 solar projects were fired generation can in principle also benefit selected for construction under capacity supply from the regulatory support systems for agreements and a further 14 were selected in renewables.10 2015. The projects selected in 2015 include projects sponsored by Solar Systems, Avelar A handful of biogas projects are in operation, Solar Technology and T Plus that, once including one in the Kaluga region using biogas completed, will represent 280 MW of capacity.13 from agricultural waste and a number of pilot projects in Tatarstan. In 2015, Hevel, the largest integrated solar power company in Russia (a joint venture Geothermal power potential between Renova and Rusnano), launched the country’s first full-cycle plant for the Geothermal energy is used in Russia both for manufacture of solar cells. Located in heat supply and for power generation. Russia’s Novocheboksarsk, Chuvash Republic, it will geothermal resources are located primarily in have the capacity to manufacture 160 MW of Kamchatka, the Kuril Islands, the North thin-film solar modules annually from 2017. In Caucasus and the Kaliningrad Region. As at the 2017, Hevel commissioned the Grachevsk and end of 2015 there was approximately 86 MW of Pleshanovsk solar stations in Orenburg Region geothermal power generation capacity in and the second and third phases of the 11 operation. The approved geothermal roadmap Buribayevsk and Bugulchansk stations in for the period up to 2020 provides for the Bashkortostan, bringing the company’s total construction of geothermal power and heat operational capacity to 75 MW. plants with 336 MW (power) and 552 MW (heat) of installed capacity.12 RusHydro has a Other notable recently completed solar projects number of other plans for geothermal energy, include EvroSibEnergo’s 5.2 MW station in including a project to increase the installed Abakan, Khakassia and T Plus’s 25 MW project capacity of the Mutnovskaya geothermal power at Orsk, Orenburg Region. plant in Kamchatka. 2. What are the definition and coverage of Solar energy potential renewable energy under the relevant legislation? Russia’s solar energy potential is greatest in the South-West of the country (the North The definition of renewable energy sources for Caucasus, and the Black and Caspian Sea regulatory purposes is to be found in the 9 VP-P8-2322. Complex Program for the 11 IRENA. REMAP 2030 Renewable Energy Development of Biotechnologies in the Russian Prospects for the Russian Federation. Federation for the period until 2020 approved by 12 Report on Geothermal Energy Projects in Russia the Russian Government on 24 April 2012. published in the Bulletin of Russian Academy of 10 Electricity Law Art. 21. Physical Science, No. 1 2009. 13 http://www.atsenergo.ru/vie/proresults/ GLOBAL RENEWABLE ENERGY GUIDE 2017 199 WHITE & CASE LLC, Moscow RUSSIA principal law governing the Russian power the main principles for the trade in power and sector, Federal Law of the Russian Federation capacity derived from renewable energy “On Electric Power Industry”, dated 26 March sources. Further provisions are contained in 2003 No. 35-FZ (“Electricity Law”)14. The resolutions of the Russian Government, definition includes: decrees of the Russian President and orders of the Ministry of Energy. More detailed solar energy; procedural rules are set out in instruments adopted by the governing body of the wholesale wind energy; and retail electricity markets, the Market Council.15 water energy (including energy from waste water), excluding use of such energy at Apart from the Electricity Law, the following pumped storage hydroelectric plants; are the principal laws and regulations concerning renewable energy sources: tidal energy; Federal Law No. 261-FZ “On Energy wave energy; Saving and Increasing Energy Efficiency and on Amendments to Certain Legislative geothermal energy using natural Acts”, dated 23 November 2009. This law underground heat carriers; establishes a legal framework for activities supporting and promoting energy saving low heat energy of earth, air and water with and increasing energy efficiency by, among the use of special coolants; other things, using renewable sources. biomass, including plants specially grown The Guidelines for State Policy in for energy generation and trees, as well as Increasing the Effectiveness of Use of industrial and consumer wastes (excluding Renewable Energy Sources for the period wastes from the use of hydrocarbon until 2024, adopted by Government material and fuel), biogas, gas separated Decree No. 1-r, dated 8 January 2009. The from industrial and domestic refuse Guidelines outline proposed steps by state dumps; and authorities to promote a greater use of renewables, establish targets for power gas from coal workings. generation using renewable energy sources and lay down various pricing and other parameters to be applied in the operation REGULATION of the regulatory support mechanisms. 3. How is the renewable energy sector Government Decree No. 1715-r, regulated? What are the principal laws approving the Energy Strategy of the and regulations? Russian Federation for the period until 2030, dated 13 November 2009 (“Energy The renewable energy sector is governed in Strategy”). The Energy Strategy particular by the Electricity Law, which sets out 14 Article 3 of the Electricity Law. wholesale and retail trade in power and capacity” 15 Non-Commercial Partnership “Council of the (“Market Council”). Market for maintaining an effective system for the 200 GLOBAL RENEWABLE ENERGY GUIDE 2017 RUSSIA WHITE & CASE LLC, Moscow establishes the main principles, goals and dated 4 May 2012) (“Retail Market priorities of the state’s long-term energy Rules”), which contain a procedure for the policy, including in relation to renewable compulsory acquisition of power produced energy sources. from renewable sources by the distribution network operators in order to compensate Government Resolution No. 426, for network losses. approving the rules for qualifying generating facilities as operating using 4. What are the principal regulatory bodies renewable energy sources, dated 3 June in the renewable energy sector? 2008 (“Qualification Rules”). The Qualification Rules establish the criteria The Russian power market has a number of and procedure for the official recognition regulatory and coordinating bodies exercising of generating facilities as operating using different functions, but the principal regulatory renewable energy sources. body having immediate responsibility for the administration of incentives for renewable Government Resolution No. 850, generators is the Market Council. In particular, approving the criteria for granting the Market Council is responsible for certifying subsidies from the federal budget to generating facilities using renewable energy compensate for the costs of technological sources as qualifying generating facilities and for connection of qualifying renewable maintaining the register of certificates generating facilities with a capacity not confirming the volumes of power generated by exceeding 25 MW, dated 20 October 2010. them. Other relevant regulatory bodies include Pursuant to this Resolution, Ministry of the Federal Antimonopoly Service and regional Energy Order No. 380 dated 22 July 2013 (Federation Subject) authorities having approves the rules for granting subsidies responsibility for the power sector, which from the federal budget for renewable together administer retail market power tariffs. projects to benefit from the compensation scheme. The Ministry of Energy and the Russian Government have joint responsibility for The rules for maintaining the register of developing and adopting applicable subordinate issuance and cancelation of certificates legislation under the Electricity Law, with the confirming volumes of power generated by adoption of detailed market rules being further generating facilities based on renewable delegated to the Market Council. energy sources, adopted by Government 5. What are the main permits/licenses Resolution No. 117 dated 17 February 2014. required for renewable energy projects? Parts XV and XIX of the Rules of the In order to implement a renewable power Wholesale Power and Capacity Market project, a generating company must obtain a (Government Resolution No. 1172 dated number of permits and approvals as required by 27 December 2010), concerning the system Russian law. of tenders for renewable generation projects to qualify for long-term In principle, it is possible for generating agreements for the delivery of renewable companies to operate on either the wholesale or capacity. the retail power market. The wholesale market is open to generators whose installed capacity is The rules of the retail power and capacity equal to or exceeds 5 MW. Subject to limited market (Government Resolution No. 442 GLOBAL RENEWABLE ENERGY GUIDE 2017 201 WHITE & CASE LLC, Moscow RUSSIA exceptions, any generating object connected to scheme and program is on the basis of the UPS having a capacity of 25 MW or more can tender.) only sell its power and capacity on the wholesale market. Also, participation in the tender system In addition, power generating facilities can be to enter into agreements for the delivery of treated as hazardous industrial facilities, the renewable capacity is only open to registered operation of which may require additional wholesale market participants. In order to be permits, including environmental approvals.16 able to operate on the wholesale power market, a generator must be registered as a market 6. Is there a category of “license-exempt participant, enter into the accession agreement generation”? If so, does it cover some governing participation in the trading system and types of renewable energy based a number of other standard form agreements generation? covering grid connection, dispatch and various No special licenses as such are required to aspects of the trade in power and capacity, and generate power in Russia although, as we fulfil certain technical requirements. The describe above, access to the wholesale power requirements for participating as a generator in market is subject to a number of formal the retail market are less extensive. requirements. There is no general exemption In order for a renewable project to benefit from from these requirements for renewable the various forms of support available under the generation. However, as noted, any generating regulatory regime, the operator must obtain facilities with a capacity of less than 25 MW can from the Market Council a certificate operate on the retail market, which is more confirming that the project meets the criteria to lightly regulated. be a qualifying renewable facility. In order to 7. Has there been any reform related to qualify, the facility must: renewable energy regulations since 2016? Do you expect any use only renewable energy sources or a reform/change in the near future? combination of renewable and other energy sources for generating purposes; A number of minor changes have been made to the regulatory system in the last year, including: be in operation; The extension of the system of long-term be connected to the grid and equipped with capacity agreements for renewables to metering equipment as required by Russian waste incineration projects (currently law; and limited to a one-off tender to be performed in 2017 for the Moscow Region and be included in the general scheme and Tatarstan only). program for the long-term development of the power sector of the region of the Technical changes to the localization Russian Federation in which it is located. standards for solar generation. (In the case of projects whose power is to be sold on the retail market, inclusion in the 16 Federal law No. 174-FZ “On Ecological Expert Protection” dated 4 May 1999; Federal Law No. Review” dated 23 November 1995; Federal law No. 116-FZ “On Industrial Safety of Hazardous 7-FZ “On Environmental Protection” dated 10 Industrial Facilities” dated 21 July 1997. January 2002; Federal Law No. 96-FZ “On Air 202 GLOBAL RENEWABLE ENERGY GUIDE 2017 RUSSIA WHITE & CASE LLC, Moscow A system of sanctions for project sponsors 9. Is there a purchase guarantee given by who have defaulted under renewable the relevant legislation for electricity capacity agreements, including provision generated by renewable energy for them and their affiliates to be excluded companies? from future tender rounds. There is no general purchase guarantee as such. Some adjustments to the quotas of renewal However, the Electricity Law provides for the generation projects to be selected under the following support mechanisms: annual tender system, including provision for unused quotas to be carried forward to On the wholesale market, either (a) the future years. addition of a premium to the wholesale market price for power or (b) preferential In February 2017, the Government has initiated treatment of renewable generators in the a legislative program for the support of capacity market.18 In practice, the microgeneration.17 Government has chosen to implement the latter, as further described below. INCENTIVES A requirement for network companies to buy power for the purposes of 8. Are tax advantages available to compensating for network losses primarily 19 renewable energy generation from renewable energy sources. This companies? mechanism has been implemented on the retail power market. Taxpayers who invest in the creation of renewable energy facilities are permitted to The wholesale capacity market support system apply for investment tax credit. The credit is is open to solar, wind, small-scale (less than 25 given in the form of an interest-bearing deferral MW) hydroelectric and (in 2017 only) waste- of profit tax and regional and local taxes fueled projects. A certain volume of renewable (including property tax) for a term of 1 to 5 generation projects of each type is selected years. The interest rate applicable to the through an annual tender process. (The first deferred tax is set on a case-by-case basis within such tenders were held in 2013.) As of 2017, the the range of one half to three quarters of the tenders are performed to procure capacity for Russian Central Bank’s key rate (being, with delivery in each of the 5 following years. effect from 2 May 2017, 9.25%). Successful bidders qualify to enter into long- term agreements for the delivery of renewable R&D activities connected with renewable capacity (“ADRCs”)20, analogous to similar sources of energy qualify for special tax agreements that exist to support investment in deductibility rules that permit deduction conventional thermal generation. The contract applying an increased ratio of 1.5. entitles the operator of the project to receive capacity payments from wholesale market power buyers over a fifteen-year pay-back 17 http://government.ru/orders/selection/401/26 20 The full name is “agreements for the delivery of capacity of 467/ qualifying generating objects functioning on the basis of 18 Article 21(1) of the Electricity Law. renewable energy sources”. 19 Article 32(3) of the Electricity Law. Government Decree No. 47 dated 23 January 2015. GLOBAL RENEWABLE ENERGY GUIDE 2017 203 WHITE & CASE LLC, Moscow RUSSIA period. The payments are calculated on a basis process). Further, renewables are supported on that is intended to allow for recovery of capital the retail power market by the renewable invested (subject to certain limits) and a fixed purchase obligation imposed on the distribution rate of return (in principle 14% for projects network operators, power sold under which is selected before 1 January 2016 and 12% for subject to tariff regulation.21 projects selected thereafter). The capacity payments actually received are subject to a Renewable power is also supplied at regulated number of adjustments, including by reference tariffs in the isolated regions, where there is a to the degree of localization achieved by the single-tier market structure and the power project and its capacity utilization factor. market has not been liberalized more generally. Separately, a regulation was adopted in January 11. Has the Paris Agreement under the 2015 to provide the detailed legislative basis for United Nations Framework the renewables purchase obligation imposed on Convention on Climate Change been network operators on the retail market, ratified? If yes, what are the including the methodology for calculation of undertakings of your Country in the the applicable tariffs. In order to limit the cost NDC (national determined burden imposed by this system on local power contributions) submitted for the first systems, certified renewable generation five-year period? operating on the retail market in any given region is restricted to 5% of projected network Russia signed the Paris Agreement on 22 April losses in that region, with the inclusion of 2016, the first day the document was open for 22 renewable projects in the local generation plan signature. However, the agreement has yet to being on the basis of tender. It is reported that be ratified in Russia - ratification will require a this system has so far had limited success in federal law to be passed by the Russian attracting investment. Parliament and signed by the President. On 3 November 2016, the Government adopted 10. Is there a minimum price guarantee Resolution No. 2344-r approving measures for given by the relevant legislation for the improvement of state regulation of electricity generated by renewable greenhouse gas (“GHG”) emissions and energy companies? preparation for ratification of the Paris Agreement. According to the Resolution, a Russian law does not provide for any minimum report to the President regarding feasibility of price guarantee for renewables as such but, as such ratification is to be prepared by the first noted above, makes general provision for an quarter of 2019. incentive mechanism through either the addition of a premium to the wholesale market The Paris Agreement requires each signatory price or preferential treatment in the capacity state to set its intended “nationally determined market, and the Russian Government has contribution” with respect to targets for the chosen the latter option (which provides reduction in GHG emissions and to pursue assurance of a certain level of capacity payment domestic measures to achieve them. In 2015 for projects that are successful in the tender Russia submitted an intended national 21 Article 3(2) of Regulation No. 1178, dated 22 http://www.mid.ru/en/web/guest/vsemirnaa- 29 December 2011, On Price Formation in the meteorologiceskaa-organizacia-vmo-/- Sphere of Regulated Prices (Tariffs) in Electrical /asset_publisher/xBdCUCbW9A2i/content/id/2 Power. 248604 204 GLOBAL RENEWABLE ENERGY GUIDE 2017 RUSSIA WHITE & CASE LLC, Moscow contribution indicating a reduction in emissions 2018.25 Projects that do not achieve the by 2030 to 70-75% of 1990 levels.23 applicable target level receive significantly reduced capacity payments or power tariffs, as 12. Is there a carbon market or carbon applicable. credits mechanism in your jurisdiction? 15. What are the other incentives available Currently there is no emissions trading system to renewable energy generation in Russia, although the possibility of companies? introducing one has been raised. In addition to the measures already mentioned, 13. Do renewable energy based power the Policy Guidelines and Energy Strategy26 plants have priority for connection to envisage in general terms that further initiatives the grid? may be adopted by the Russian state aimed at promoting the renewable power sector and Power plants using renewable energy do not encouraging investment in it, but does not give enjoy priority in connection. However, there is further details. a system of state subsidies applied towards the network connection costs of renewable energy projects with an installed capacity of not more STATISTICS than 25 MW.24 16. What is the percentage of electricity 14. Is there an incentive for domestic generated based on each type of (local) manufacturing of equipment or renewable energy source in the total materials used in the construction of generation of electricity on a country- renewable energy based power plants? wide scale? Promotion of the use of locally manufactured According to the Ministry of Energy27, in 2016 equipment is a central policy objective of the the proportion of power generated in the UPS regulations for the support of renewable by solar stations was 0.045%, and by wind generation. For this purpose, the Government stations only 0.013%. In contrast, hydroelectric has introduced a numerical measure of generation was significant, at 17% of the total. localization (expressed as a percentage), and published target levels for the degree of localization of renewable generating facilities of OTHER the principal types. These are: (i) for wind projects, 25% for 2016, rising to 65% from 17. Is there anything else you wish to add? 2019; (ii) for solar projects, 70%; and (iii) for hydroelectric projects (with capacity less than No. 25 MW), 45% for 2017, rising to 65% from 23 http://www4.unfccc.int/submissions/INDC/ 26 Part III of the Policy Guidelines, Article 10 of the Submission%20Pages/submissions.aspx Energy Strategy. 24 Article 21(1) of the Electricity Law. 27 https://minenergo.gov.ru/node/1161 25 Government Decree No. 1-r, dated 8 January 2009. GLOBAL RENEWABLE ENERGY GUIDE 2017 205 WHITE & CASE LLC, Moscow RUSSIA WHITE & CASE LLC Adam Smith 4 Romanov Pereulok 125009 Moscow, Russia T +7 495 787 3002 F +7 495 787 3001 E [email protected] 206 GLOBAL RENEWABLE ENERGY GUIDE 2017 SOUTH AFRICA Joz Coetzer Matthew Richards Brenda Migwalla Yolanda Dladla WHITE & CASE generation by 2013. By 2010, however, it GENERAL became self-evident that this target would not be achieved and it has since then come under 1. What is the nature and importance of review by the Department of Energy (the renewable energy in your country? successor to the Department of Minerals and Energy) in its integrated resource planning for South Africa has a gross installed electricity the entire electricity generation industry. generation capacity of about 44 GW. Coal-fired electricity generation facilities currently supply In May 2011, the Minister of Energy released 83% of the total load. Due to its dependence on the first iteration of South Africa’s Integrated energy generated from coal, South Africa has Resource Plan in respect of South Africa’s one of the highest per capita greenhouse gas forecast electricity demand for the period 2010 emission rates in the world. to 2030 (“IRP 2010-2030”). IRP 2010-2030 estimates that the increase in electricity demand South Africa has ratified the United Nations by 2030 will require an increase in generation Framework Convention on Climate Change, capacity at over 46GW, of which 23.6GW is to 1992 (“UNFCCC”) and is classified as a Non- be sourced from renewable energy. This Annex-I developing country in terms of the represents 26% of the renewable energy sources Kyoto Protocol. Accordingly, South Africa is towards the total energy sources planned for not bound by any mandatory targets for 2030. A revised draft of the IRP setting out reducing greenhouse gas emissions. updated demand forecasts and supply source Nevertheless, South Africa has committed to targets was published by the Minister of Energy reducing its greenhouse gas emissions by 34% for public comment in November 2016 and the by 2020 and by 42% by 2025. Minister of Energy has announced publicly that the revised IRP will be finalized in February or The first official domestic policy formulation March 2018. on renewable energy, the White Paper on Renewable Energy (“Renewable Energy In August 2011, the Department of Energy White Paper”) was published in 2003 by the (“DoE”) issued a request for qualification and then Department of Minerals and Energy. The proposals for new generation capacity under a Renewable Energy White Paper sets a target of procurement programme for 3,725 MW 10,000 GWh (approximately 4% of the total renewable energy generating capacity from electrical energy demand) for renewable energy independent power producers (“IPPs”) using GLOBAL RENEWABLE ENERGY GUIDE 2017 207 WHITE & CASE SOUTH AFRICA onshore wind, solar photovoltaic, concentrated conclusion of the power purchase solar power (“CSP”), biomass, biogas, landfill agreements and other agreements to be gas and small hydro technologies (collectively, awarded by the DoE for these bids was the “RE-IPP Procurement Programme”). 22-26 April 2013 and most of these bids The RE-IPP Procurement Programme has been have now entered their prescribed expanded through three additional Ministerial construction phase; Determinations: by a further 3,200 MW on 12 December 2012, 6,300 MW on 15 August 2015 19 bids with a total target installed capacity and 1,500 MW in May 2016 which were of 1,657 MW were awarded for the third allocated exclusively to solar parks. At the bidding round comprising 787 MW for present time, the total renewable energy onshore wind, 435 MW for solar PV, 400 allocation is for 14,725 MW (of which 6,360 MW for CSP, 18 MW for landfill gas, and MW has been allocated to onshore wind and 17 MW for biomass. The target date for 6,225 MW has been allocated to solar financial close of these projects was 30 July photovoltaic (“solar PV”)). Only 6,376 MW 2014, although not all closed on that date; (roughly 43% of the total allocation) have been and procured as at the date of writing, of which 2,370 MW has been procured but not yet 26 bids with a total target installed capacity signed. A further 1,825 MW has been bid but of 2,205 MW were awarded for the fourth not yet announced. bidding round comprising 1,362 MW for onshore wind, 813 MW for solar PV, 25 The RE-IPP Procurement Programme is MW for biomass and 5 MW for small staggered into to a maximum of six planned hydro. bidding rounds. The first four bidding rounds have been completed (in reality, six separate In November 2016, the DoE released the draft bidding rounds have been completed, although Integrated Energy Plan (“IEP”) for public two of these rounds are regarded as being an comment. The IEP is the Government’s extension of earlier bidding rounds). strategic plan for the energy system that enables alignment and optimization across the 28 bids with a total target installed capacity respective energy sectors. The IEP reflects an of 1,415.2 MW were awarded for the first energy development framework focusing on bidding round comprising 633.99 MW for energy security, cost of energy, access to energy, onshore wind, 631.53 MW for solar PV diversification of supply sources, minimisation and 150 MW for CSP. The power of emissions, promotion of localization and purchase agreements and other agreements technology transfer, water consumption and awarded by the DoE for these bids were promotion of energy efficiency. concluded on 5 November 2012 and almost all of these bids have produced or 2. What is the definition and coverage of are on the verge of producing electricity for renewable energy under the relevant the national grid; legislation? 19 bids with a total target installed capacity Renewable energy is defined in the Renewable of 1,043.9 MW were awarded for the Energy White Paper as electricity, gaseous and second bidding round comprising 562.5 liquid fuels, heat or a combination of these MW for onshore wind, 417.1 MW for solar deriving from naturally-occurring, cyclical and PV, 50 MW for CSP and 14.3 MW for non-depleting sources of energy such as solar, small hydro. The target date for the wind, biomass, hydro, tidal, wave, ocean current and geothermal energy. 208 GLOBAL RENEWABLE ENERGY GUIDE 2017 SOUTH AFRICA WHITE & CASE Under the National Energy Act, 2008, which is The principal laws and regulations governing mainly concerned with the establishment of South Africa’s renewable energy sector are: mechanisms for the collection, collation and analysis of energy data and integrated energy the Electricity Regulation Act, 2006 planning, “renewable energy” is defined as (“ERA”), which empowers the Minister of energy generated from natural, non-depleting Energy, acting in consultation with the resources including solar energy, wind energy, NERSA, to determine whether any new biomass energy, biological waste energy, hydro generation capacity is needed from time to energy, geothermal energy and ocean and tidal time, the types of technology and primary energy. energy sources to be utilised for such new generation capacity, whether such capacity REGULATION should be developed by Eskom or any other any state-owned utilities or by IPPs, and whether such new generation capacity 3. How is the renewable energy sector and electricity deriving therefrom will be regulated? What are the principal laws subject to any “must buy” power purchase and regulations? arrangement on the part of any state- owned utility; South Africa’s regulatory framework governing the electricity sector is evolving to reflect the the National Energy Regulator Act, 2004, government’s policy on the managed which is the NERSA’s enabling legislation; liberalisation of the electricity supply sector to provide for the staged introduction of IPPs the IRP 2010-2030 (and the draft update); within a single buyer market. The key role players in this regulatory the draft IEP 2016; restructuring are: the Biofuels Industrial Strategy 2007, the Minister of Energy, who is responsible which approved the financial support for a for coordinating national energy policy and national biofuels programme with a planning; strategy of 2% penetration level of biofuels in the national liquid fuel supply. This the National Energy Regulator of South programme has not yet been implemented Africa (“NERSA”), which performs the as the regulatory legislation is not yet in role of the economic and technical place; regulator in the electricity supply industry and is responsible for giving effect to the Eskom Conversion Act, 2001, which national energy policy and planning and provides for Eskom’s status as a public approving electricity tariffs; and company generally subject to company laws, under 100% state ownership the national electricity supply utility, (currently through the Ministry of Public Eskom Holdings SOC Limited Enterprises) and liable for the payment of (“Eskom”), which is currently the de facto dividends and taxes; and single buyer of electricity supplied by IPPs, as well as the monopoly transmission the National Energy Act, 2008. service provider and the dominant Other laws and regulations applicable to the distribution service provider to loads and renewable energy sector include laws and generators. regulations relating to environment, water use, GLOBAL RENEWABLE ENERGY GUIDE 2017 209 WHITE & CASE SOUTH AFRICA wastewater management and disposal, solid generation and distribution portfolio. It also waste management and disposal, biodiversity, proposes that the ISMO will be exclusively protection of endangered plant and animal empowered as the single wholesale buyer and species, atmospheric emissions, protection of re-seller of electricity. If this draft bill is enacted heritage resources, occupational health and and brought into effect, the ISMO will replace safety, mine health and safety, hazardous Eskom as the single buyer of electricity and materials, fire prevention, building and become a key role player in the renewable construction, land zoning and use, labour and energy market. All three Draft Bills have lapsed employment, aviation aspects, taxation, foreign in terms of the National Assembly Rules and exchange control, protected fundamental have not been tabled or scheduled for further human rights, consumer protection, companies, debate since 2015. It is unclear whether any or and procurement by government agencies or all of these Draft Bills will be introduced as law instrumentalities. in South Africa. Certain legislative amendments were previously 4. What are the principal regulatory proposed for consideration by the National bodies in the renewable energy sector? Assembly which were anticipated to significantly overhaul the current legislative The key role players in the renewable energy position in South Africa. These included: sector are: the Electricity Regulation Second the Minister of Energy, who is responsible Amendment Bill, 2011 (“ERA for coordinating national energy policy, Amendment Bill”); and integrated resource planning and determining whether new generation the National Energy Regulator capacity may be procured, the type of Amendment Bill, 2011 (“NERSA generations technologies and primary fuel Amendment Bill”); and sources to be used in generation, and whether such generation capacity will be the Independent System and Market developed and owned by the state or by Operator Bill, 2012 (“ISMO Bill”). IPPs; The ERA Amendment Bill and the NERSA the DoE, which is the procuring authority Amendment Bill proposed to restructure how for new generation capacity from IPPs the electricity supply industry will be regulated including the RE-IPP Procurement including the shifting over of certain technical Programme; and economic regulatory functions from the NERSA to the Minister of Energy and the the NERSA which is responsible for giving substitution of the NERSA nine-member board effect to national energy policy and with a single Commissioner (or “energy tsar”) planning, the IRP and approving electricity and the establishment of a separate Appeals tariffs; Board for the hearing of appeals on certain NERSA decisions. the Minister of Finance, whose concurrence is required in respect of any The ISMO Bill proposed the establishment of guarantees or financial commitments as an independent system and market operator may be provided by the Minister of Energy (“ISMO”) and that the transmission business in respect of any new generation capacity within Eskom and related assets be transferred programmes procured by it; to the ISMO, leaving Eskom with its existing 210 GLOBAL RENEWABLE ENERGY GUIDE 2017 SOUTH AFRICA WHITE & CASE Eskom in its capacity as the single buyer of can be quite complicated but the most electricity, the transmission system and commonly relevant pieces of legislation are the service provider, and the main distribution Town-Planning and Townships Ordinance - system owner and service provider; Ordinance 15 of 1986 and the Spatial Planning and Land Use Management Act, 2013. local authorities which own and operate distribution facilities, and provide 5. Consent from the Minister of Agriculture distribution services within their respective in terms of the Subdivision of Agricultural Land local boundaries; and Act, 1970 for the subdivision of farm land and/or the dual use of farm land, where subject to the enactment and coming into required. effect of the ISMO Bill, the ISMO, which will replace Eskom as the single buyer of 6. Consent from the Minister of Mineral electricity, the transmission system and Resources is required by any person who service provider, and take over certain IPP intends to use the surface of any land in a way procurement functions from the DoE. which is contrary to any object of the Minerals and Petroleum Resources Development Act, 5. What are the main permits/licenses 2008 (“MPRDA”) or which is likely to impede required for renewable energy projects? such object in terms of Section 53 of the MPRDA (typically whenever the intended land Although the specific licences, permits and use will restrict or impede the utilization or approvals required for a particular project can extraction of mineral resources). only be fully assessed on a case-by-case, the following are typically required to conduct a 7. Consent from the Civil Aviation Authority renewable energy project: to erect a potential obstacle to aviation or confirmation from the CAA that no such 1. An electricity generation licence from consent is required in terms of the Civil NERSA in terms of the Electricity Regulation Aviation Act, 2009. Act, 2006. 8. An integrated Water Use Licence in terms 2. An Environmental Authorisation issued by of the National Water Act, 1998. the Department of Environmental Affairs following either a Basic Assessment or a full 9. A waste management and atmospheric Environmental Impact Assessment Report to licence is required for high impact projects in be conducted in respect of the proposed Project terms of the Waste Act, 2008. Site in terms of Section 24 of the National Environmental Management Act, 1998. 10. The Petroleum Products Act prohibits the manufacturing of petroleum products, 3. Biodiversity authorization where including, biofuels, without a manufacturing endangered fauna and flora are impacted. licence. 4. Consent must be obtained from the local 11. Although not strictly a legal requirement, municipality for rezoning of the project site to the RFP requires any prospective project permit project-related activities to be conducted company to obtain either a written on a designated portion of land (which will also confirmation of water allocation from a Water entail obtaining building plan approval once Services Provider (which will be either the conditional approval to rezoning has been relevant local municipality or a Water Board granted). The regulatory umbrella in this regard created in terms of the Water Services Act, GLOBAL RENEWABLE ENERGY GUIDE 2017 211 WHITE & CASE SOUTH AFRICA 1997) or a non-binding confirmation of water 3. Non-grid connected supply of electricity availability from the Department of Water except for commercial use. Affairs. A number of mines and other businesses have 12. The Occupational Health and Safety Act, taken steps to construct and operate renewable 1993 prescribes the standards applicable to energy power generation facilities for their own safety during construction and in the workplace use in South Africa although none of the generally in South Africa. exemptions are specific to renewable energy based generation. In addition to these requirements, it should be noted that the RE-IPP Procurement 7. Has there been any reform related to Programme is subject to a fairly complicated renewable energy regulations since local content regime requiring bidders to 2016? Do you expect any commit to minimum economic development reform/change in the near future? obligations which include black economic empowerment requirements prescribed by the No. The electricity generation sector in South Broad-Based Black Economic Empowerment Africa is currently in a state of general legislative Act, 2003. This Act was subject to significant uncertainty and previous proposed amendments in 2013. amendments have stalled. Investors are required to make commitments INCENTIVES on seven broad measures: job creation; local content; ownership by black people and local communities; black top management; 8. Are tax advantages available to preferential procurement; local enterprise renewable energy generation development; and socio-economic companies? development. South Africa’s taxation legislation provides the 6. Is there a category of “license-exempt following mechanisms to encourage the uptake generation”? If so, does it cover some of electricity generated from renewable energy types of renewable energy based sources: generation? a carbon tax referred to as an The ERA makes it a requirement for any person “environmental levy” of 3.5 South African operating a generation facility, importing or cents per kWh (expressed in Rand or exporting electricity or involved in trading to “ZAR”), which is imposed on non- obtain a licence from NERSA. The only renewable energy generators. This levy is exemptions to the requirement to hold a licence anticipated to be phased out following the are contained in Schedule 2 of the Act: introduction of the carbon emissions tax referred to below; 1. Any generation plant constructed and operated for demonstration purposes only and the cost of machinery and equipment used not connected to an interconnected power to produce bio-diesel or bio-ethanol or to supply; generate electricity from wind, sunlight or gravitational water forces is deductible 2. Any generation plant constructed and from the tax-payer’s taxable income over a operated for own use; and three-year period with 50% of the cost being deductible in the year in which the 212 GLOBAL RENEWABLE ENERGY GUIDE 2017 SOUTH AFRICA WHITE & CASE equipment is brought into use, 30% in year case of the RE-IPP Procurement Programme, two and 20% in year three; provided that successful bidders are awarded power purchase the machinery and equipment are affixed agreements pursuant to which the single buyer or mounted to a foundation or other designated by the Minister of Energy is obliged supporting structure brought into use from to purchase electrical energy supplied by the 1 January 2013; IPPs established by the successful bidders. The tariffs for such electrical energy are fixed by the proceeds received on the disposal of reference to the bid prices as tendered by the the carbon credits derived from projects successful bidders, subject to any permitted that qualify as Clean Development adjustments, e.g. for movements in the rate of Mechanism projects in terms of the Kyoto foreign currency (to the South African Rand) Protocol (commonly referred to as used by and the base interest rates applied by “CERs”) are exempt from normal tax and the successful bidders up to financial close and capital gains tax until 31 December 2020; permitted local inflation index adjustments over and the term of the power purchase agreements. an additional tax deduction is allowed in 10. Is there a minimum price guarantee respect of roads and fences used in the given by the relevant legislation for the production of renewable energy as of electricity generated by renewable 1 April 2016. energy companies? In addition, as a part of its response to climate In early 2011, the DoE shifted its policy change, the government intends to introduce a preference from feed-in tariffs to competitive carbon emissions tax of R120/t (one hundred tariffs, i.e. tariffs to be set pursuant to and twenty South African rand per ton) of competitive tender proceedings, based on value carbon dioxide equivalent on a phased basis for money considerations. Accordingly, pre-set during the course of 2017 or early 2018 (no date tariffs are not available under the RE-IPP has yet been fixed for implementation) with Procurement Programme and the programme annual increases of 10% for the initial further sets price caps on the tariffs that bidders implementation period. This will replace the are permitted to propose. These price caps may general environmental levy. potentially be lowered for each bidding round under the RE-IPP Procurement Programme 9. Is there a purchase guarantee given by depending on, amongst other things, the rate of the relevant legislation for the subscription and competitiveness of the pricing electricity generated by renewable proposals received in each bidding round. energy companies? 11. Has the Paris Agreement under the Under the ERA read with the New Generation United Nations Framework Regulations, the Minister of Energy may issue a Convention on Climate Change been determination for the procurement of new ratified? If yes, what are the generation capacity from IPPs and designate the undertakings of your Country in the buyer of the electricity generated from such new NDC (national determined generation capacity. Such determination is contributions) submitted for the first expressed in the ERA to be binding on the seller five-year period? and buyer of the electricity of the procured new generation capacity. South Africa has ratified the Paris Agreement. South Africa submitted its Intended Nationally The provision of a purchase guarantee is within Determined Contributions (INDCs) on 25 the discretion of the procuring authority. In the GLOBAL RENEWABLE ENERGY GUIDE 2017 213 WHITE & CASE SOUTH AFRICA September 2015. The commitment made is that certified emission reduction (CERs)/carbon South Africa’s carbon emissions by 2025 and credits. 2030 will be in a range of between 398 and 614 MT and South Africa has committed to a 13. Do the renewable energy based power carbon budget of between 3.98 and 6.08 Gt plants have priority for connection to between 2020 and 2030. the grid? 12. Is there a carbon market or carbon There is no legislated provision for renewable credits mechanism in your jurisdiction? energy generators to have priority on grid connection over non-renewable energy options. South Africa acceded to the Kyoto Protocol on Currently, under the ERA, any transmission and 31 July 2002 and the Kyoto Protocol came into distribution licensee must to the extent force in South Africa on 16 February 2005 provided for in its licence provide through a regulation published by the Minister non-discriminatory access to the transmission of what was then the Department of and distribution networks to third parties. This Environmental Affairs and Tourism under ensures that network owners cannot prioritise Section 25 of the National Environmental related generators over independent generators Management Act, 1998. but does not ensure a preference for any class of generators such as renewable energy The Section 25 regulation establishes the generators. What may discourage investment in Department of Minerals and Energy (now the the renewable energy sector are commercially Department of Energy) as the Designated prohibitive connection and use of system costs National Authority contemplated in the Kyoto if and to the extent that these costs cannot be Protocol to oversee the Clean Development passed through to the buyer under power Mechanism (“CDM”) in South Africa. This purchase arrangements. means that it is tasked with, inter alia, reviewing applications for projects of developers who Eskom is currently faced with grid constraints wish to participate in the CDM and approving and renewable energy IPPs are required to take projects for further evaluation and verification these constraints into account when bidding by the Designated Operational Entities their projects under the RE-IPP Procurement established under the UNFCCC. Programme. Qualifying projects are registered with the 14. Is there an incentive for domestic CDM Executive Board, which will also issue (local) manufacturing of equipment or CERs to them. Such CERs can then be traded. materials used in the construction of South Africa has no domestic market for renewable energy based power plants? trading carbon emissions and South Africa itself faces no compulsory cap on its emission levels There are no direct incentives at this time. under the Kyoto Protocol. All participation in Instead, the procurement programmes for IPP the CDM in South Africa is therefore on an development may include domestic entirely voluntary basis. South Africa’s manufacturing targets as a bid evaluation Department of Energy reports that a total of criterion. 360 CDM Projects have been submitted to the 15. What are the other incentives available Designated National Authority for approval by to renewable energy generation the CDM Executive Board. Of the 140 Project companies? Design Documents, 90 of these have been registered and 15 have actually been issued with See the taxation incentives mentioned in paragraph 5 above. 214 GLOBAL RENEWABLE ENERGY GUIDE 2017 SOUTH AFRICA WHITE & CASE the balance of its electricity consumption STATISTICS requirements mainly from the Cahora Bassa hydro power plant in Mozambique and 16. What is the percentage of electricity otherwise through the regional power exchange generated based on each type of amongst members of the Southern African renewable energy source in the total Power Pool. generation of electricity at country scale? Current statistics from Eskom and the DoE show that the following renewable energy South Africa has a gross installed electricity projects are currently generating electricity: generation capacity of about 44,084 MW, of which approximately 83% is provided by Renewable Total MW Estimated coal-fired electricity generation facilities. Energy Percentage of Electricity production from hydro, natural gas source Total Generation and oil sources located in South Africa is Capacity nominal, comprising a little over 1%. Nuclear Onshore 1,274 MW (of 2.9% electricity production from the Koeberg power wind 3,357 MW station, South Africa’s only nuclear power procured) station, is estimated at 4%. South Africa imports Solar PV 1,250 MW (of 2.8% 2,292 procured) CSP 200 MW (of 0.4% 600 MW procured) Hydro and 14 MW (of 79 0.0% other MW procured) Total 2,738 MW (of 5.4% 6,377 MW procured) OTHER 17. Is there anything else you wish to add? No. GLOBAL RENEWABLE ENERGY GUIDE 2017 215 WHITE & CASE SOUTH AFRICA WHITE & CASE Joz Coetzer Matthew Richards 4th Floor, Tower B 4th Floor, Tower B 102 Rivonia Road, Sandton 2196 102 Rivonia Road, Sandton 2196 South Africa South Africa T +27 (11) 341 4000 T +27 (11) 341 4000 F +27 (11) 341 1900 F +27 (11) 341 1900 E [email protected] E [email protected] Brenda Migwalla Yolanda Dladla 4th Floor, Tower B 4th Floor, Tower B 102 Rivonia Road, Sandton 2196 102 Rivonia Road, Sandton 2196 South Africa South Africa T +27 (11) 341 4000 T +27 (11) 341 4000 F +27 (11) 341 1900 F +27 (11) 341 1900 E [email protected] E [email protected] 216 GLOBAL RENEWABLE ENERGY GUIDE 2017 TURKEY Av. Özlem Kızıl Av. Erdem Başgül Av. Doğa Usluel Voyvoda ÇAKMAK AVUKATLIK ORTAKLIĞI Installed capacity for renewable energy GENERAL resources as of November 2017 are as below2: 1. What is the nature and importance of Table 2: Current Installed Capacity renewable energy in your country? Type Installed Capacity (MW) Hydro 27,211.7 Considering the constant increase in electricity demand and dependence on energy imports, the Wind 6,479.4 promotion of renewable energy resources in Solar 2,245.7 electricity generation is crucial for Turkey to Geothermal 1,019.7 secure energy supply, protect the environment, Biomass 562.7 and create job opportunities. Turkey has a great potential for renewable Targets of the Ministry of Energy and Natural energy. TEİAŞ, the state-owned electricity Resources (“MENR”) envisage that Turkey transmission system operator, estimates the will generate one-third of its electricity through below renewable energy potential for Turkey1: renewable energy resources, and achieve the following figures, by 20233: Table 1: Renewable Energy Potential Table 3: Installed Capacity Targets Type Installed Capacity (MW) Type Installed Capacity (MW) Hydro 433,000 Hydro 34,000 MW Wind 88,000 Wind 20,000 MW Solar 189,000 Solar 5,000 MW Geothermal 31,500 Geothermal 1,000 MW Biomass 100,018 Biomass 1,000 MW 1 TEİAŞ Capacity Report, 2016. 3 MENR, Renewable Energy Action Plan 2023, 2014. 2 TEİAŞ Report on Installed Capacity in Terms of Fuel Types, 2017. GLOBAL RENEWABLE ENERGY GUIDE 2017 217 ÇAKMAK AVUKATLIK ORTAKLIĞI TURKEY Turkey, as one of the signatories of the Paris In principle, renewable electricity generation Agreement, declared, as part of its requires a generation license which is issued by commitments, that it aims to increase its solar the Energy Market Regulatory Authority capacity to 10,000 MW and wind capacity to (“EMRA”). Such license-based electricity 16,000 MW by 2030. generation activities are mainly regulated under the Electricity Market Law, No. 64465 Turkey has recently taken significant steps to (“Electricity Market Law”), and the achieve these goals. The most vivid example of Electricity Market License Regulation6 this is the newly introduced renewable energy (“Licensing Regulation”). This legislation resource area (“RERA”) model, which can also provides certain provisions for the basically be defined as an investment package promotion of renewable energy. composed of (i) the construction and operation of a major-scale renewable power plant as well License exempt electricity generation by using as a domestic component production plant; and renewable resources is also possible if the (ii) conducting research and development for installed capacity is less than 1 MW. Hence, the such purposes. So far, MENR has tendered two License-Exempt Electricity Generation 1,000 MW RERA projects, one wind power Regulation7 also includes several renewable project and one solar power project. energy related provisions. 2. What are the definition and coverage of In addition to the general law and regulations, renewable energy under the relevant the main pieces of legislation specifically legislation? governing the renewable energy resource based electricity generation are the Renewable Energy Renewable energy resources covered by the Law and the Regulation on Documentation and Renewable Energy Law No. 53464 (“Renewable Promotion of Renewable Energy Resources.8 Energy Law”) are wind, solar, geothermal, RERAs, on the other hand, are subject to a biomass, biogas (including landfill gas), wave, more specific legislation, which is the stream, tidal, river and arc type hydroelectric Renewable Resource Areas Regulation9. generation facilities, and hydroelectric generation facilities with a reservoir area of less than 15 Other material renewable energy specific square kilometers. legislation includes (i) the Regulation on Promotion of Domestic Production in REGULATION Renewable Energy Electricity Generation Facilities10, which sets out the details of the incentives for domestic components; and 3. How is the renewable energy sector (ii) the Tender Regulation on Preliminary regulated? What are the principal laws License Applications for Wind and Solar Power and regulations? Plants11, which stipulates the rules and 4 Published in the Official Gazette No. 25819 dated 8 Published in the Official Gazette No. 28782 dated 18 May 2005. 1 October 2013. 5 Published in the Official Gazette No. 28603 dated 9 Published in the Official Gazette No. 29852 dated 30 March 2013. 9 October 2016. 6 Published in the Official Gazette No. 28890 dated 10 Published in the Official Gazette No. 29752 dated 2 November 2013. 24 June 2016. 7 Published in the Official Gazette No. 28783 dated 11 Published in the Official Gazette No. 30065 dated 2 October 2013. 13 May 2017. 218 GLOBAL RENEWABLE ENERGY GUIDE 2017 TURKEY ÇAKMAK AVUKATLIK ORTAKLIĞI procedures for solar and wind power tenders. practice, this opinion is not sought for license- exempt power projects. 4. What are the principal regulatory bodies in the renewable energy sector? Environmental Impact Assessment (“EIA”) Decision EMRA is the competent administrative The EIA procedure aims to minimize the authority that is responsible for the regulation adverse impacts of the projects on the and supervision of the electricity market. It is environment. EIA requirements are governed authorized to take the necessary measures to by the Environmental Impact Regulation12 promote the utilization of renewable energy (“EIA Regulation”). Other than certain resources. license-exempt projects, all renewable energy projects are subject to the EIA requirements, MENR also has certain authority in the and a relevant EIA decision should be obtained renewable energy sector, particularly in for such projects during the preliminary determining the long-term strategy and licensing period. planning of the renewable sector. Projects that are listed under Appendix-1 of the 5. What are the main permits/licenses EIA Regulation are presumed to have a more required for renewable energy projects? severe impact on the environment. For those projects, an “EIA Affirmative Approval” The material permits and licenses regarding decision must be obtained. On the other hand, renewable energy projects are as follows: if a project is listed under Appendix-2 of the Development Stage: EIA Regulation, then an “EIA Is Not Required Decision” would be sufficient. Compared to Preliminary License the EIA Affirmative Approval, an EIA Is Not Required Decision can be obtained through a A preliminary license is granted by EMRA for a more expedited procedure. period of a maximum of 36 months to enable the completion of development stage Below are the thresholds applicable for the formalities, and it is replaced by a license upon different types of renewable energy projects: commencement of construction. The duration of the preliminary license may be extended in Table 4: EIA Requirements for Renewable case of force majeure events, and may differ in Projects EIA Is Not RERA projects. The preliminary license EIA Affirmative Type Required applicants must submit a performance bond, Approval Decision the amount of which depends on the size of the investment. However, in any case it cannot Hydro ≥ 10 MWm 1 – 10 MWm exceed 5% of the investment amount. Wind ≥ 20 turbines; or 5 – 20 turbines; ≥ 50 MWm or 10 – 50 MWm Affirmative Opinion of the Chief of Staff Solar ≥ 20 hectares; or 2 – 20 hectares; ≥ 10 MWe or 1 – 10 MWe. An affirmative opinion of the Chief of Staff is Geothermal ≥ 20 MWe 5 MWe – 20 required for the design and location of the MWe projects. The construction of a power plant Biomass ≥ 300 MWt 20 MWt – 300 cannot start in the absence of such opinion. In MWt 12 Published in the Official Gazette No. 29186 dated 25 November 2014. GLOBAL RENEWABLE ENERGY GUIDE 2017 219 ÇAKMAK AVUKATLIK ORTAKLIĞI TURKEY In principle, license-exempt power plants are MENR. Approved projects cannot be amended not subject to the EIA requirements. However, without the consent of the approving authority, an EIA decision may be required when the same and the construction of electricity generation investor develops more than one license- facilities cannot be commenced without the exempt project in the same area. project approval. Zoning Plan Hydropower specific permits An existing zoning plan for a project site must An agreement with the General Directorate of be revised to introduce the power plant to such the State Hydraulic Affairs must be signed to zoning plan. After obtaining the required determine the payment methods as well as water clearances from the relevant authorities, the usage rights of a hydropower plant. competent authority (e.g., Ministry of Environment and Urbanization, municipalities, While it is not an independent permit, it is still special provincial administrations, etc.) may noteworthy that in hydropower projects, a approve this revision. gateway for water species to pass through dams and hydraulic regulators must be established. After the approval, the revised zoning plan is Failing to do so may lead to administrative fines announced, and will become final if no and suspension of the activities until such objection is raised against it within one month passage is in use. following the announcement. In case of an objection, however, the approving authority Wind farm specific permits revisits its former decision, and if it decides to confirm its approval decision the zoning plan is A technical interaction permit aims to prevent once again announced. negative impacts of wind farm projects on the military, intelligence communication, and radar Construction License systems. For this purpose, wind farm projects must be presented to the Scientific and A construction license is a pre-requisite for Technological Research Council starting the construction works. The validity (“TÜBİTAK”) for a technical interaction term of the construction license is five years, analysis on the project. TÜBİTAK sends the and construction must start within two years of results of its analysis to the Chief of Staff and issuance of the license. The absence of a the National Intelligence Service, and they issue construction license may lead to the suspension their opinions based on TÜBİTAK’s technical of construction and/or the demolition of the interaction analysis. MENR would not conduct relevant structures. the process for acceptance of the plant unless the Chief of Staff and the National Intelligence Power plants established by public entities are Service issue positive opinions for the project. exempt from the construction license requirement. In practice, power plants In addition, the Civil Aviation Authority and the developed by private investors on state-owned General Directorate of State Airports Authority lands also enjoy this exemption. clearances, which aim to ensure aviation security, would be required. Project Approval Geothermal power plant specific permits Electricity projects are reviewed and approved by MENR or the institutions authorized by Under the Geothermal Resources and Natural 220 GLOBAL RENEWABLE ENERGY GUIDE 2017 TURKEY ÇAKMAK AVUKATLIK ORTAKLIĞI Mineral Waters Law No. 568613 and its generation ceiling are listed in the generation Implementation Regulation14, an exploration licenses of renewable power plants. license must be obtained from the General Directorate of Mining Affairs (“MİGEM”) for Environmental permit and license research, evaluation, drilling and trial The environmental permit and license production activities in respect of the relevant requirements are regulated by the Environmental geothermal resource. This permit is valid for Permits and Licenses Regulation.15 The three years, and can be extended by MİGEM environmental permits and licenses cover the for one more year. Please note that investors activities resulting in air emissions, environmental can conduct such research activities in noise, waste water discharge, deep sea discharge, collaboration with the General Directorate of noise control, and disposal of dangerous waste. Mineral Research and Exploration (“MTA”). Investors obtaining an environmental permit and In such case, MTA will be entitled to at least license do not need to obtain separate licenses or 20% of the operation revenues. permits in relation to these issues. Before the expiry of the exploration license, Projects listed in the appendices of the investors must apply to MİGEM for an Environmental Permits and Licenses Regulation operation license. Upon the issuance of the must obtain the environmental permit and license operation license, the developer is required to that include the permits for the relevant activities. file applications for other licenses and permits Among renewable energy resources, only biomass that are necessary for the development of the power plants are listed in these appendices, and project. If such licenses and permits are not therefore these power plants are directly subject obtained within three years, MİGEM cancels to the environmental permit and license the operation license. requirements. On the other hand, as explained Construction and Operation Stage: below, other power plants may need to obtain an environmental permit covering activities leading Generation License to waste water discharge into the surrounding environment, as these activities require waste Generation companies must obtain a water discharge permits in the form of an generation license from EMRA for each environmental permit, even if the relevant facility generation facility to start construction and is not listed in the appendices of the regulation. operation. Applicants must submit a performance bond depending on the size of Successful applicants are initially granted a one- their investment. However, in no case shall year temporary activity certificate prior to performance bonds exceed 10% of the obtaining the relevant environmental permit investment amount. and license. The temporary activity certificate must be in place at the time of initiation of the A generation license is granted for a maximum commercial operation. Failure to comply with period of 49 years, and EMRA may renew it this requirement leads to certain administrative after the expiry of this period. The construction fines and suspension of the operations until this period, installed capacity, and annual electricity certificate is obtained. 13 Published in the Official Gazette No. 26551 dated 15 Published in the Official Gazette No. 29115 dated 13 June 2007. 10 September 2014. 14 Published in the Official Gazette No. 26727 dated 11 December 2007. GLOBAL RENEWABLE ENERGY GUIDE 2017 221 ÇAKMAK AVUKATLIK ORTAKLIĞI TURKEY Water Discharge the acceptance of the General Directorate of the State Hydraulic Affairs. Discharge of waste water into the surrounding environment requires a waste water discharge 6. Is there a category of “license-exempt permit in the form of an environmental permit. If generation”? If so, does it cover some the waste water is not discharged into the types of renewable energy based surrounding environment, a sewage connection generation? certificate must be obtained from the relevant municipality for connection to the existing sewage Yes. Certain power plants, including those system. based on renewable energy sources, may be exempt from EMRA’s licensing requirements. Building use permit The main requirement for this is that the installed capacity of the power plant be less than The construction license must be replaced with 1 MW. the building use permit after completion of the construction. License-exempt generation, and particularly solar power based license-exempt generation, Work place opening and operating permit has been subject to widespread application in Turkey. As of November 2017, there are 2,782 This permit is issued by the relevant municipality, license-exempt electricity generation facilities in and is a pre-requisite for starting the operation. Turkey with a total installed capacity of 2,463.9 MW, and 2,668 of them (with a total installed Acceptance of the power plant capacity of 2,231.8 MW) are based on solar power.17 Power plants can start their operations after MENR’s acceptance. The Electricity Generation 16 Electricity generated in excess of the needs of a Facilities Acceptance Regulation provides a two- consumer is purchased by the authorized supply stage acceptance procedure for the power plants. companies in the related distribution region First, control firms authorized by MENR over the applicable feed-in tariff for the first 10 conduct a technical capability test, and then years of operation. However, after the changes issue a preliminary acceptance certificate for the introduced to the License-Exempt Electricity generation facilities that pass the test. With this Generation Regulation on 22 October 2016, certificate, generation facilities can start their license-exempt generation facilities can no operations. longer benefit from domestic production incentives. Please see our answers to Questions Within six months following the issuance of the 10 and 14 for our explanations about the feed- preliminary acceptance certificate, power plants in tariff and domestic production incentives. must obtain a temporary acceptance certificate by MENR or the authorized institutions, which On 23 March 2016, EMRA introduced certain involves more comprehensive technical and restrictions to license-exempt electricity permit-related pre-requisites. generation. EMRA’s main purpose was to prevent multiple license-exempt investments by Please also note that, in addition to MENR’s the same investor in the same area through acceptance, hydropower plants are subject to different investment vehicles, and to require 16 Published in the Official Gazette No. 29524 dated 17 TEİAŞ, Installed Capacity in Terms of Fuel Types, 6 November 2015. 2017. 222 GLOBAL RENEWABLE ENERGY GUIDE 2017 TURKEY ÇAKMAK AVUKATLIK ORTAKLIĞI such investments to obtain a license from scale renewable power plant as well as a EMRA. Those restrictions are mainly the domestic component production plant; and following: (ii) the conducting of research and development for such purposes. At least 1/30 of the generation must be consumed at the consumption facility that In a RERA tender, bidders compete to offer the is associated with the generation facility. lowest purchase price. The winning bidder is entitled to a purchase guarantee over its bidding A maximum of 1 MW capacity can be price for a period stipulated in the tender allocated to any individual or legal entity specification. However, domestic production together with (i) legal entities in which such incentives are not available in RERA projects. individual or legal entity is a direct or indirect shareholder; and (ii) legal entities So far, MENR has tendered two 1,000 MW that are controlled by such legal entities. RERA projects, one wind power project and one solar power project. The winning bidder Share transfer is not permitted until the for the solar tender submitted a USD 6.99 operation stage. cent/kWh offer (whereas the feed-in tariff is USD 13.3 cent/kWh for solar projects); and the The License-Exempt Electricity Generation winning bidder for the wind tender submitted a Regulation protects the vested rights USD 3.48 cent/kWh offer (whereas the feed-in of investors against these restrictions, if tariff is USD 7.3 cent/kWh for wind farm the relevant facility became entitled to connect projects). to the distribution system before 23 March 2016. On the other hand, EMRA Change in feed-in tariff payment mechanism decided that it will impose higher connection fees on investors who fail to obtain a letter from This development stemmed from the on-going the network operator before 31 December 2017 low market prices and the higher guaranteed certifying that the facility is ready for temporary feed-in tariffs in the recent years in Turkey. acceptance.18 In practical terms, investors Prior to these changes, YEKDEM, the having vested rights may not be able to feasibly renewable energy support mechanism, was realize their projects if the projects are not ready operated by way of sales to the “YEKDEM for operation by the end of 2017. portfolio” operated by the market operator, EPİAŞ. In this mechanism, each YEKDEM 7. Has there been any reform related to participant was required to sell its electricity renewable energy regulations since output only to this portfolio. But now the 2016? Do you expect any practice is that YEKDEM participants are reform/change in the near future? required to sell the electricity they generated in the day-ahead or intraday markets, or sign There have been three very significant bilateral energy sale/purchase agreements, and developments in the Turkish renewable energy in case of a difference between the market price sector in 2016 and 2017: and the feed-in tariff which is not in favor of the YEKDEM participant, EPİAŞ pays such RERAs difference. These changes aim to decrease the A RERA is an investment package comprising financial burden on the YEKDEM mechanism. (i) the construction and operation of a major- 18 EMRA decision No. 7070, dated 11 May 2017. GLOBAL RENEWABLE ENERGY GUIDE 2017 223 ÇAKMAK AVUKATLIK ORTAKLIĞI TURKEY Liability for Imbalancing Costs “Negative offer” method: Previously, renewable energy based power In this alternative, the bidder submits a negative plants were not subject to strict balancing bid (such as “-2” USD cent/kWh). The absolute requirements. But now they are liable for any value of the bid will be multiplied with the cost resulting from their imbalance to the monthly electricity generation, and this will system due to their poor supply projections. form the contribution fee payable to EPİAŞ for the first 10 years of operation. And, if the As a mitigating factor, some YEKDEM winning bidder opts for participating in participants prefer to join a syndication for YEKDEM, the absolute value of this bid will be balancing purposes. This portfolio consists of deducted from the applicable feed-in tariff power plants and consumption units, and can under YEKDEM to establish the applicable minimize imbalance internally. YEKDEM price (e.g., in an -2 offer, the guaranteed price will be 7.3 - 2 = 5.3 USD With a view to achieving a fairer imbalance cent/kWh for wind farms.) calculation for each resource type, EMRA published a decision on 20 December 2017, The winning bidder may or may not opt to differentiating the tolerance coefficients for participate in YEKDEM. If it does, it may also each renewable energy resource type. benefit from the domestic production incentives but, at the same time, it may be Wind and Solar Preliminary License Tenders exposed to a low feed-in tariff, depending on its offer. On the other hand, the bidder opting not Under the old regime, the bidders that wished to participate in YEKDEM would sell its to develop a wind or solar power plant in the output in the market at the market prices, but same connection area were competing based on will not be able to benefit from domestic their offers for the highest contribution fee production incentives. payable to TEİAŞ. The new rules introduced on 13 May 2017, however, provide the following bidding alternatives: INCENTIVES “Feed-in tariff minus” method: 8. Are tax advantages available to renewable energy generation In this method, bidders place offers that are companies? lower than the applicable feed-in tariff. The winning bidder will be able to benefit from the Renewable energy generation companies may YEKDEM purchase mechanism, based on its benefit from the following tax advantages: bid amount. It can also benefit from the domestic production incentives under Investment period transactions of power YEKDEM, in addition to its exemption from plants that are commissioned by 31 paying a contribution fee to EPİAŞ. December 2020 are exempt from stamp tax and duties. It should also be noted that irrespective of the amount of the offers, a “feed-in tariff minus” Custom duty and VAT exemptions are offer may be successful in the tender only if no available for the goods within the scope of other bidder places a “negative offer”. the investment incentive certificates. 224 GLOBAL RENEWABLE ENERGY GUIDE 2017 TURKEY ÇAKMAK AVUKATLIK ORTAKLIĞI For hydropower projects, documents and 10. Is there a minimum price guarantee transactions that (i) are related to given by the relevant legislation for the agreements on water usage and operation electricity generated by renewable principles; (ii) do not require joint facility energy companies? investment amount repayment; and (iii) were executed after 26 June 2003, are The Renewable Energy Law provides the below exempt from stamp tax and duties. feed-in tariff for the first 10 years of operation of the renewable projects that will be 9. Is there a purchase guarantee given by commissioned by 31 December 202019: the relevant legislation for the electricity generated by renewable energy Table 5: Feed-in Tariff (US dollar companies? Type cents/KWh) The primary electricity sale mechanism for Hydropower 7.3 renewable energy projects is YEKDEM, which Wind 7.3 covers the (i) purchase guarantee; (ii) minimum Geothermal 10.5 purchase price; and (iii) domestic production incentive. Solar 13.3 Biomass 13.3 The Renewable Energy Law, stating that electricity suppliers (supplying electricity to end The current operation of YEKDEM in respect users) must purchase a certain percentage of the of the minimum price guarantee can be amount of electricity that they sold in the previous summarized as follows: year from renewable energy companies participating in YEKDEM, provides a purchase The electricity output is sold over the guarantee for electricity generated by renewable market prices (i) in spot markets (such as energy companies. the day-ahead or intraday markets); or (ii) under bilateral agreements (to supply The purchase obligation ratio of each supplier is companies or eligible consumers). determined by EPİAŞ taking into consideration the ratio of the amount of energy supplied to the In spot market sales, EPİAŞ makes an end consumers by such suppliers. Such purchase advance payment in the amount of the guarantee is applicable for the first 10 years of market price on the day following the operation of renewable energy companies. electricity sale. At the end of each month, Renewable energy companies are eligible to EPİAŞ calculates the amount payable to participate in this mechanism on an annual basis, the relevant YEKDEM participant over at the beginning of each calendar year, and they the guaranteed price. Following the cannot leave the program during the same year. settlement, EPİAŞ or the YEKDEM participant (whichever has a receivable Please also see our answers to Question 10 about from the other party in the given month) the minimum purchase price guarantee and issues an invoice to the counterparty. Question 14 about the domestic production incentives. In respect of sales through bilateral energy sales agreements, EPİAŞ assumes that such 19 Berat Albayrak, the Minister of MENR, noted in November 2017 that Turkey is not considering extending the YEKDEM mechanism after 2020. GLOBAL RENEWABLE ENERGY GUIDE 2017 225 ÇAKMAK AVUKATLIK ORTAKLIĞI TURKEY sales have been made over the market to the responsibilities applicable to the price. After the settlement, at the end of countries under this list such as economy-wide each month, EPİAŞ pays the difference absolute emission reduction targets. Yet, between such price and the guaranteed Turkey is subject to common liabilities purchase price if the market price is lower applicable to all contracting parties, such as the than the feed-in tariff. If the market price preparation of an intended NDC. is higher, the market participant pays the difference to EPİAŞ (though this has been Turkey submitted its intended NDC on 30 a rare situation in recent years due to the September 2015. Under this, Turkey declared low electricity prices in the market). that it aims to reduce greenhouse gas emissions by 21% by 2030, and increase its solar power Such operation of YEKDEM was introduced in capacity to 10,000 MW; and wind power 2016. Prior to that, each YEKDEM participant capacity to 16,000 MW. could sell its electricity output only to the “YEKDEM portfolio”. Under this structure, 12. Is there a carbon market or carbon generation companies were not entitled to sell credits mechanism in your jurisdiction? electricity on the open market or sign bilateral As a matter of the Kyoto Protocol, Turkey is energy sale/purchase agreements during the not required to participate in the mandatory year for which they elected to participate in the carbon market. However, Turkey is involved in YEKDEM mechanism. a voluntary carbon credit mechanism, and While under both structures YEKDEM adopted the Communiqué on Voluntary 20 participants are entitled to the guaranteed Carbon Market Project Registration in 2013 to minimum price, in the new structure, generation adopt domestic rules for such market. companies shoulder the default, insolvency and maturity mismatch risks in bilateral sales Turkey is the largest seller of voluntary carbon agreements. credits in Europe. It transacted around 35 million tons of CO2 valued at over USD 200 11. Has the Paris Agreement under the million between 2007 and 2015, which is United Nations Framework equivalent to approximately 70% of the total Convention on Climate Change been voluntary carbon market volume in Europe ratified? If yes, what are the during this period.21 undertakings of your Country in the NDC (national determined 13. Do renewable energy based power contributions) submitted for the first plants have priority for connection to five-year period? the grid? Turkey entered into the Framework Convention Yes, Article 6/C of the Renewable Energy Law in 2004, and became a signatory to the Paris provides that EMRA shall give priority to the Agreement on 22 April 2016. However, it has not facilities generating electricity from renewable yet been ratified in Turkey. energy resources for their connection to the transmission and/or distribution systems. Regardless of its being listed among the developed countries under Annex-I of the Framework Convention, Turkey is not subject 21 20 Published in the Official Gazette No. 28790 dated http://turkishcarbonmarket.com/carbon-markets 9 October 2013. 226 GLOBAL RENEWABLE ENERGY GUIDE 2017 TURKEY ÇAKMAK AVUKATLIK ORTAKLIĞI 14. Is there an incentive for domestic capacities. To mitigate the leakages during (local) manufacturing of equipment or delivery to the transmission system, power materials used in the construction of plants can build additional capacities. renewable energy based power plants? Renewable energy projects can be In addition to the purchase guarantees, developed in national parks, natural parks, YEKDEM provides a domestic production natural protection zones, forests, natural incentive for projects that are commissioned by sites, etc. on the condition of receiving an 31 December 2020, and that use mechanical affirmative opinion of the relevant and/or electromechanical components produced authority. in Turkey. The level of additional incentives depends on the domestically produced An 85% discount is applied to the usage components used in the plant and meeting the fees for the state-owned lands during the requirement that a relevant component must investment period and the first 10 years of contain at least 55% of domestically produced the operation, provided that the renewable sub-components. project is commissioned by the end of 2020. Domestic production incentives are included in In principle, power plants holding a the guaranteed minimum purchase price during usufruct right over a state-owned land must the first five years of the operation. pay 1% of their revenues to the Turkish Treasury. However, renewable energy Domestic component incentives are not based power plants are not subject to this available in either RERA or license-exempt revenue sharing requirement. projects. General incentives: 15. What are the other incentives available to renewable energy generation If the transmission system requires an companies? expansion of the existing transmission lines Renewable energy projects may benefit from or a new investment due to inadequate various incentives available under Turkish capacity for system usage, and where legislation. Some of these are provided sufficient financing is not available, such specifically for renewable energy projects, investment can be made by the generation whereas others are applicable to all power license holders on behalf of TEİAŞ. In projects. The relevant incentives can be listed such case, a license holder will be as follows: reimbursed by TEİAŞ within a period no longer than 10 years by way of monthly Renewable energy specific incentives: equal installments. Renewable energy projects are exempt The following incentives will apply to the from 90% of the preliminary license and power plants that will be commissioned by generation license application fees. They 31 December 2020: are also exempt from annual license fee payments to EMRA for eight years after o A 50% discount in transmission the completion of construction. system usage fees for the first five-year period of operation. The Renewable Energy Law aims for power plants to fully realize their installed GLOBAL RENEWABLE ENERGY GUIDE 2017 227 ÇAKMAK AVUKATLIK ORTAKLIĞI TURKEY o Any transaction or agreement to be Electricity generation in Turkey was made during the investment period of approximately 274.7 billion kWh in 2016 while the power plant will be exempt from electricity consumption was 278.3 billion kWh stamp tax. in the same year.23 Under the investment incentives legislation, Turkey is divided into 6 main regions and OTHER different incentives are provided for each region. The most common type of incentives 17. Is there anything else you wish to add? under this regime are the customs duty and the VAT exemption in respect of the goods within An amendment introduced to the zoning the scope of the investment certificate. legislation on 3 July 2017 is expected to revitalize Turkey’s roof-top solar power panel market. Prior to these changes, it was difficult STATISTICS to obtain a construction license for such panels. Now, the amended legislation envisages an 16. What is the percentage of electricity exemption from the construction license generated based on each type of requirement. renewable energy source in the total generation of electricity on a country- wide scale? The installed capacity of Turkey as of November 2017 is 83.138,9 MW. The breakdown of such installed capacity is as follows22: 22 TEİAŞ Report on Installed Capacity in Terms of 23 TEİAŞ Report on Installed Capacity in Terms of Fuel Types, 2017. Fuel Types, 2017. 228 GLOBAL RENEWABLE ENERGY GUIDE 2017 TURKEY ÇAKMAK AVUKATLIK ORTAKLIĞI ÇAKMAK AVUKATLIK ORTAKLIĞI Av. Özlem Kızıl Voyvoda Av. Erdem Başgül Av. Doğa Usluel Piyade Sokak Portakal Çiçeği Piyade Sokak Portakal Piyade Sokak Portakal Çiçeği Apt. No:18/3 Çankaya, Çiçeği Apt. No:18/3 Apt. No:18/3 Çankaya, Ankara, Türkiye Çankaya, Ankara, Türkiye Ankara, Türkiye T +90 312 442 46 80 T +90 312 442 46 80 T +90 312 442 46 80 F +90 312 442 46 90 F +90 312 442 46 90 F +90 312 442 46 90 E: [email protected] E: [email protected] E: [email protected] GLOBAL RENEWABLE ENERGY GUIDE 2017 229 UKRAINE Glib Bondar Dmytro Symbiryov AVELLUM of Renewable Energy Industry of the National GENERAL Academy of Science, the technically feasible potential for renewable energy sources in 1. What are the nature and importance of Ukraine amounts to approximately 50% of the the renewable energy in your country? overall energy consumption. Ukraine currently experiences a deficit of 2. What are the definition and coverage of energy and, thus, is a major importer of energy renewable energy under the relevant resources (especially natural gas and lately legislation? energy coal). At the same time, energy intensity of Ukraine’s economy is astonishing (3 – 4 The Law of Ukraine “On Alternative Energy times higher than in developed countries). Sources” defines renewable energy sources as: Development of renewable energy industry in solar energy; Ukraine helps to address numerous issues, namely to (1) save conventional energy wind energy; resources and (2) reduce negative anthropogenic impact on the environment. geothermal energy; Growth in the installed capacity and output of wave and tidal energy; electricity from renewable energy sources would help to further diversify energy resources and hydro energy; strengthen Ukraine’s energy security, which became a priority for the state. biomass energy; According to the State Agency of Ukraine for organic waste gas; Energy Efficiency and Energy Saving, as of 1 April 2017, energy producers who enjoy the gas from sewage treatment plants; and “green” (feed-in) tariff, operate over 300 power biogas. plants with the total capacity of 1,111.7 MW. However, energy generating from renewable The law determines that all renewable energy energy sources still make up an insignificant sources are also considered as alternative energy portion in Ukraine’s energy balance (almost sources. The latter, being a broader term, also 2%). According to calculations of the Institute includes secondary energy resources, such as 230 GLOBAL RENEWABLE ENERGY GUIDE 2017 UKRAINE AVELLUM blast-furnace and coking plant gas, methane Power Facilities, Including the Commissioned from coal deposits and dump energy potential Construction Phases (Start-Up Complexes) that of technological processes. Produce Electricity from Alternative Energy Sources (Except for Blast Furnace and Coking REGULATION Gases, and for Hydro – Only Micro- Mini- and Small Hydro Power Plants) and Establishing the Respective Premium to the ‘Green’ Tariff”; and 3. How is the renewable energy sector regulated? What are the principal laws Regulation of the NEURC “On Approval of and regulations? the Rules for Connection of Power Units to Power Grid”. The renewable energy sector of Ukraine is regulated by a number of special laws adopted Important policy documents are: by the Ukrainian Parliament and implementing regulations adopted by the relevant regulatory Instruction of the Cabinet of Ministers of bodies, mainly by the National Energy and Ukraine “On Approval of Energy Strategy of Utilities Regulation Commission (“NEURC”). Ukraine until 2035”; The legislative framework includes the following key laws and regulations: Instruction of the Cabinet of Ministers of Ukraine “On the National Action Plan For Law of Ukraine “On Alternative Energy Renewable Energy until 2020”; Sources”; Resolution of the Cabinet of Ministers of Law of Ukraine “On Electricity Industry” Ukraine “On Approval of the State Targeted (only Articles 9, 12(2)(1), 12(2)(2), 15, 151 Economic Program for Energy Efficiency and and 17 remain effective until the launch of Development of the Production of Energy from a new electricity market); Renewable Energy Sources and Alternative Types of Fuel for 2010-2017”; and Law of Ukraine “On Electricity Market”; Instruction of the Cabinet of Ministers of Law of Ukraine “On Lands for Energy Sector Ukraine “On Approval of the Concept for and the Legal Regime of Special Zones for Energy Implementation of the State Policy on Heat Objects”; Supply”. Law of Ukraine “On Heat Supply”; 4. What are the principal regulatory bodies in the renewable energy sector? Regulation of the NEURC “On Approval of Procedure for the Establishment, Revision and The principal regulatory body in the Ukrainian Termination of the ‘Green’ Tariff for Business renewable sector is the NEURC. The recently Entities and Private Households”; adopted Law of Ukraine “On National Energy and Utilities Regulation Commission” has established Regulation of the NEURC “On Approval of institutional and financial independence of this the Licensing Conditions for Electricity regulatory body by (1) affirming its status as a Generation”; permanent independent state collegial body (previously the NEURC could be liquidated Regulation of the NEURC “On Approval of upon the decision of the President of Ukraine) the Procedure for Determining the Level of Use of and (2) amending the method of the NEURC’s the Ukrainian Produced Equipment at Electric financing and formation. The principal state GLOBAL RENEWABLE ENERGY GUIDE 2017 231 AVELLUM UKRAINE authority responsible for state policy and power purchase agreement with the State governance in the energy industry is the Enterprise “Energorynok”, the operator of Ministry of Energy and Coal Industry of the wholesale electricity market of Ukraine. Ukraine. As soon as the new electricity market is Certain aspects of the renewable energy sector launched (reportedly on 1 July 2019), an existing are regulated by the Ministry of Regional single-buyer wholesale electricity market will be Development, Construction, Housing and replaced with a new model. A liberalised Public Utilities of Ukraine; the Ministry of electricity market will consist of the following Ecology and Natural Resources of Ukraine; and sub-markets: (1) balancing market, (2) “day the State Agency of Ukraine for Energy ahead” market, (3) intraday market, (4) retail Efficiency and Energy Saving. market and (5) market of bilateral contracts. The key terms of sub-markets operation, as well 5. What are the main permits/ licenses as activity of their participants, will be envisaged required for renewable energy projects? in relevant market rules and codes (e.g., codes The key license necessary for renewable energy of transmission and distribution of electricity). projects in Ukraine is a license for electricity The renewable power producers will be obliged generation issued by the NEURC (except for to sell the electricity to the guaranteed buyer (a license-exempt generation outlined in item 6 state enterprise that will need to be determined below). On top of that, in order to benefit from by the Cabinet of Ministers of Ukraine) under the “green” (feed-in) tariff, an alternative energy bilateral contracts at the feed-in tariff. The producer must make a separate application to guaranteed buyer then will re-sell the purchased the NEURC for the “green” (feed-in) tariff. In electricity at the day-ahead and intraday addition, a number of other permits, consents markets. and agreements may need to be obtained/concluded for renewable energy 6. Is there a category of “license-exempt projects including, without limitation: generation”? If so, does it cover some types of renewable energy based permits, approvals, agreements and/or generation? consents for obtaining ownership or lease rights to the land plot; Yes. Electricity generation from alternative energy sources (except for blast furnace and certificates, declarations and other coking gases) using generating equipment with approvals in relation to construction and installed capacity of up to 5 MW is exempt from commissioning of the facilities; licensing by the NEURC if such electricity is produced for own consumption (i.e., not for agreements with the system operator sale on the wholesale electricity market of (depending on the capacity of the Ukraine). generating facility this may be the transmission system operator or the 7. Has there been any reform related to distribution system operator) on renewable energy regulations since connection to the grid; 2016? Do you expect any reform/change in the near future? accession agreement to the Agreement among the Members of the Wholesale The most significant reform is the adoption of Electricity Market of Ukraine; and the Law of Ukraine “On Electricity Market”, which provides for a new model of a liberalised 232 GLOBAL RENEWABLE ENERGY GUIDE 2017 UKRAINE AVELLUM electricity market and moves away from the supply capacity of the wind, solar and hydro previously existed “single-buyer” model. A new power plants from the hourly supply schedule liberalised electricity market is expected to be by more than 20, 10 and 5 per cent respectively. launched on 1 July 2019. The reimbursement rate for imbalances on the Improvement of renewable energy projects bankability wind, solar and hydro power plants commissioned before 11 June 2017 amounts to The law improved the bankability of renewable 0 per cent. energy projects. Another notable reform is the adoption of the The guaranteed buyer must enter into a power Law of Ukraine “On Amendments to the Law of purchase agreement (“PPA”) with an investor Ukraine ‘On Heat Supply’ on Stimulation of Heat upon its request even prior to the Energy Production from Alternative Energy Sources”, commencement of construction and/or which encourages investments in gas commission of the power plant and obtaining a substitution projects by establishing the “green” tariff. competitive level of tariffs for heat energy produced from alternative energy sources. Execution of the PPA is subject to the provision by the investor of the following Moreover, the law provides local authorities documents to the guaranteed buyer: with the power to set heat energy tariffs for all types of consumers, as well as to review tariffs title document for the land plot designated for heat energy that was produced from for the construction of the power plant; alternative energy sources on their own initiative and/or heat energy producer’s request a copy of the registered declaration or (but only once a quarter). permit on the commencement of construction works; and The new tariff for production of heat from alternative energy sources for the needs of the a copy of the executed agreement on the population and organisations financed by the connection to the grid. state and municipal budgets will be set at the The PPA terminates automatically if the level of 90% of the existing tariff for heat that investor fails to commission the power plant was produced from natural gas. within three years from the date of registration If the heat energy producer does not have an of declaration on the commencement of established tariff, it will be set at the level of construction works or the receipt of the 90% of the average tariff for heat produced construction permit. from natural gas calculated pursuant to the Liability for imbalances special methodology. Until 31 December 2029 producers of wind, The NEURC also introduced amendments to solar and hydro renewable energy that sell the Rules for Connecting to the Grids of electricity at “green” tariff and are also members Electricity Facilities, approved by Resolution of of balancing groups must compensate the the NEURC No. 32, dated 17 January 2013, imbalances (deviation from established value of aimed to reduce the number of formal electricity supply) on the “day ahead” market. procedures and make it more transparent. The introduced amendments, among others, The obligation to compensate the imbalances is (1) provide clear terms for provision of services triggered in case of deviation of factual hourly on connection of electricity facilities to electric GLOBAL RENEWABLE ENERGY GUIDE 2017 233 AVELLUM UKRAINE grids (including non-standard connections) by to the price of such electric energy (exclusive of electricity transmission organisations, and (2) the VAT). However, the Tax Code of Ukraine enable the clients to monitor on-line the status exempts supplies of electricity produced from of services provision by the relevant electricity renewable energy sources from the excise tax. transmission organisations. 9. Is there a purchase guarantee given by the relevant legislation for the INCENTIVES electricity generated by renewable energy companies? 8. Are tax advantages available to renewable energy generation Yes. There is a purchase guarantee for companies? producers of electricity who enjoy the “green” (feed-in) tariff. Under article 65 of the Law of Companies involved in renewable energy Ukraine “On Electricity Market”, a guaranteed generation benefit from certain tax incentives. buyer must purchase all electricity generated from renewable energy sources by a producer (i) Generally, import of goods to Ukraine is subject who enjoys the “green” tariff (decreased by the to value added tax (“VAT”) at the 20 per cent volume of the electricity consumed by the rate. However, the Tax Code of Ukraine generating facility) and (ii) is a member of the exempts import of the following goods from balancing group of renewable energy producers the VAT: who enjoy the “green” (feed-in) tariff. The equipment powered by renewable energy purchase guarantee applies irrespective of the sources; size of the installed capacity of the generating facility or the volume of the output. Such equipment and materials for generation of electricity is purchased at the “green” tariff. energy from renewable energy sources; and The state guarantees that this mechanism will be materials, equipment, and components available and set forth in a law until expiration used to manufacture equipment powered of the “green” tariff on 1 January 2030. by renewable energy sources, materials, raw 10. Is there a minimum price guarantee materials, equipment and components, given by the relevant legislation for the which will be used for generation of energy electricity generated by renewable from renewable energy sources. energy companies? Such goods are also exempt from customs According to article 91 of the Final and duties under the Customs Code of Ukraine. Transitional provisions of the Law of Ukraine The exemption from the VAT and customs “On Electricity Market”, producers of electricity duties applies only if the taxpayer uses such from alternative energy sources (except for blast goods in production for personal needs and if furnace and coke gas) are eligible to sell such identical goods of equivalent quality are not electricity at a special price, the “green” (feed- manufactured in Ukraine. The Cabinet of in) tariff. The “green” tariff varies for each type Ministers of Ukraine approves the list of goods of alternative energy and depends on when the eligible for exemption from the VAT and relevant generating facility is commissioned. customs duties. The later it has been commissioned, the lower is the “green” tariff. The regulator approves Generally, supply of electric energy is subject to “green” tariffs individually for each producer excise tax in Ukraine at 3.2 per cent applicable (only households have their “green” tariffs 234 GLOBAL RENEWABLE ENERGY GUIDE 2017 UKRAINE AVELLUM approved generally without linking the tariff to (UAH0.5846) and the “green” tariff index each individual producer). The “green” tariff is determined by the law. The “green” tariff set to expire on 1 January 2030. indices are as follows: The green tariff is calculated by multiplying the January 2009 retail tariff for Class 2 consumers Generating facilities “Green” tariff index entitled to green tariff depending on the date of commissioning of the generating facility Until 31.03.2013 31.12.2014 30.06.2015 31.12.2015 31.12.2016 31.12.2019 31.12.2024 31.12.2029 01.01.2015- 01.04.2013- 01.07.2015- 01.01.2016- 01.01.2017- 01.01.2020- 01.01.2025- wind energy facilities with capacity below 600 1.20 - - - - - kW wind energy facilities with capacity from 600 1.40 - - - - - kW to 2,000 kW wind energy facilities with capacity over 2,000 2.10 - - - - - kW wind energy facilities with each wind turbine - 1.20 1.08 1.08 0.96 0.84 having capacity below 600 kW wind energy facilities with each wind turbine - 1.40 1.26 1.26 1.12 0.98 having capacity from 600 kW to 2,000 kW wind energy facilities with each wind turbine - 2.10 1.89 1.89 1.68 1.47 having capacity over 2,000 kW biofuel energy facilities 2.30 2.30 2.07 2.30 2.07 1.84 biogas energy facilities - 2.30 2.07 2.30 2.07 1.84 ground-mounted solar energy facilities with 8.64 6.30 5.67 3.15 2.97 2.79 2.51 2.23 capacity below 10MW ground-mounted solar energy facilities with 4.80 3.50 3.15 2.97 2.79 2.51 2.23 capacity over 10MW roof-top solar energy facilities with capacity 8.28 6.48 5.83 - - - over 100 kW roof-top solar energy facilities with capacity 7.92 6.66 5.99 - - - below 100 kW roof-top solar energy facilities - - - 3.35 3.20 3.04 2.74 2.43 household roof-top solar energy facilities with - 6.66 5.99 3.72 3.53 3.36 3.02 2.69 capacity below 30 kW household wind energy facilities with capacity - - - 2.16 1.94 1.73 below 30 kW micro hydro energy facilities 2.16 3.60 3.24 3.24 2.92 2.59 mini hydro energy facilities 2.16 2.88 2.59 2.59 2.33 2.07 small hydro energy facilities 2.16 2.16 1.94 1.94 1.75 1.55 geothermal energy facilities - - - 2.79 2.51 2.23 GLOBAL RENEWABLE ENERGY GUIDE 2017 235 AVELLUM UKRAINE The “green” tariffs are linked to the official ministers of Ukraine on 7 December 2016 UAH/EUR exchange rate determined by the (“Concept”), aims to, among others, National Bank of Ukraine as at 1 January 2009 (1) establish a system for monitoring, reporting (specifically UAH10.85546/EUR1.00). On the and verification of greenhouse gas emissions quarterly basis, the NEURC, the energy and a national emissions trading system in regulator, adjusts the “green” tariffs based on compliance with Directive 2003/87/EC, (2) the average official UAH/EUR exchange rate develop a national allocation plan to distribute determined by the National Bank of Ukraine for allowances to installations and (3) establish a the 30 calendar day period preceding the date of system for issuing greenhouse gas emissions the session of the regulator. permits and issuance of allowances to be traded domestically among installations in Ukraine. The generating facility is eligible for an increase of its “green” tariff (additional 5% or 10%), if The Concept also envisages the development of the facility has been commissioned between 1 the Strategy for low-carbon development, July 2015 and 31 December 2024 and the which, however, has not been developed yet. qualifying level of equipment of Ukrainian origin was used in its construction (see details in 13. Do the renewable energy based power item 12 below). plants have priority for connection to the grid? 11. Has the Paris Agreement under the United Nations Framework Under article 21 of the Law of Ukraine “On Convention on Climate Change been Electricity Market” operators of transmission and ratified? If yes, what are the distribution systems may not refuse the access undertakings of your Country in the to transmission or distribution system NDC (national determined respectively to the customer (irrespective to the contributions) submitted for the first type of generating power) provided that the five year period? customer complies with the codes of transmission and distribution systems. Ukraine has signed the Paris Agreement on 22 April 2016 and ratified it on 14 July 2016. 14. Is there an incentive for domestic Ukraine’s intended NDC includes a target of (local) manufacturing of equipment or reducing greenhouse gas emissions by 60% materials used in the construction of below 1990 emission level by 2030. renewable energy based power plants? Ukraine has not yet defined which land use, The renewable energy facility is eligible for an land-use change and forestry (“LULUCF”) increase of its “green” (feed-in) tariff (additional accounting method it will adopt. Its intended 5% or 10%), if the facility has been NDC states that an approach to including commissioned between 1 July 2015 and 31 LULUCF in the climate change mitigation December 2024 and the qualifying level of structure “will be defined as soon as technical equipment of Ukrainian origin (local content) opportunities emerge, but no later than 2020.” has been used in its construction. 12. Is there a carbon market or carbon If the local content of the generating facility credits mechanism in your jurisdiction? exceeds 30%, such facility’s “green” tariff may be increased by 5%, and if the local content Currently, there is no carbon credits mechanism exceeds 50%, the “green” tariff may be in Ukraine. However, the Concept of state increased by 10%. policy implementation in the area of climate change until 2030, adopted by the Cabinet of The local content is calculated as a sum of 236 GLOBAL RENEWABLE ENERGY GUIDE 2017 UKRAINE AVELLUM weighted percentages of various elements of the STATISTICS generating facility. The law assigns specific weighted percentage to each major component 16. What is the percentage of electricity of a generating facility of a particular type. For generated based on each type of example, a wind energy generating facility has renewable energy source in the total the following principal components with generation of electricity on a country assigned weighted percentages: blades (30%), wide scale? tower (30%), nacelle (20%) and main frame (20%). According to the State Agency of Ukraine for The NEURC determines the level of the local Energy Efficiency and Energy Saving, content of a generating facility based on an 154,817.4 million kWh of electricity was application filed by the operator of the produced in 2016, while renewable energy generating facility. The application among other generation companies having the “green” (feed- things must include certificates of origin in in) tariff produced 1.775 million kWh of order to confirm Ukrainian origin of the electricity. This amount was split among major components of the generating facility. The types of renewable energy sources as follows: certificates of origin are issued by the Chamber of Trade and Industry of Ukraine (or its local branches). 15. What are the other incentives available to renewable energy generation companies? The main incentives available to renewable energy generation companies are “green” (feed- in) tariff, as well as the VAT and customs duties exemptions (see details in item 8 above). Another benefit is of a regulatory nature and is OTHER available to renewable energy companies as long as the single-buyer wholesale electricity market remains operational. While most generating 17. Is there anything else you wish to add? companies are obliged to sell their electricity in No. the wholesale electricity market (i.e., direct contracts are unavailable to them), renewable energy companies may sell electricity directly to consumers and energy suppliers. GLOBAL RENEWABLE ENERGY GUIDE 2017 237 AVELLUM UKRAINE AVELLUM Glib Bondar Dmytro Symbiryov 38 Volodymyrska St., 38 Volodymyrska St., 4th floor | 01030, Kyiv, 4th floor | 01030, Kyiv, Ukraine Ukraine T +380 44 591 3355 T +380 44 591 3355 F +380 44 591 3355 F +380 44 591 3355 E [email protected] E [email protected] 238 GLOBAL RENEWABLE ENERGY GUIDE 2017 UNITED ARAB EMIRATES Michael Watson Laleh Shahabi Khawla Al Atiyat WHITE & CASE LLP, Abu Dhabi The Emirate of Abu Dhabi has participated in GENERAL some of the most significant renewable energy projects in the region and the world, including 1. What are the nature and importance of Shams 1, the largest single-unit concentrated the renewable energy in your country? solar power plant in the Middle East, situated in Abu Dhabi4. Another recent project is the Over the past decade, the UAE has Sweihan solar power plant, due to be completed demonstrated an increased commitment to by 20195. Sweihan photovoltaic plant is a 1.17- focusing on climate change issues overall and gigawatt plant, expected to produce sufficient developing renewable energy projects. By way electricity to power about 200,000 homes6. of illustration, in January 2017 the UAE announced the “UAE Energy Plan 2050”, Every year, Abu Dhabi hosts the Abu Dhabi which aims to cut carbon dioxide emissions by Sustainability Week (“ADSW”), the largest 70%, increase clean energy use by 50% and sustainability gathering in the Middle East.7 improve energy efficiency by 40%, by the There are several events that take place as part middle of the century1. of ADSW, including the International Renewable Energy Agency General Assembly, The UAE’s commitment and leadership role in the World Future Energy Summit, and the Solar green economy and sustainability is also Expo. demonstrated by the ratification of the Paris Agreement in 20162, followed by expanding the One of the flagship projects in Abu Dhabi is the role of the Ministry of Environment and Water development of Masdar City, a US$22 billion and renaming it as the UAE Ministry of Climate development aimed at being one of the most Change and Environment.3 sustainable and carbon neutral cities in the world. Masdar City will host the research and 1 https://www.thenational.ae/uae/uae-energy-plan- 4 http://www.masdar.ae/en/energy/detail/ shams-1 aims-to-cut-co2-emissions-70-by-2020-1.51582 5 https://www.thenational.ae/business/ 2 http://usuaebusiness.org/wp- construction-begins-at-abu-dhabi-s-largest-solar- content/uploads/2017/01/Alternative-and- power-project-1.32040 Renewable-Energy-in-the-U.A.E.1.pdf 6 Ibid. 3 https://www.moccae.gov.ae/en/about- 7 http://abudhabisustainabilityweek.com/page/ ministry/about-the-ministry.aspx about-adsw GLOBAL RENEWABLE ENERGY GUIDE 2017 239 WHITE & CASE LLP, Abu Dhabi UNITED ARAB EMIRATES development activities of a number of the electric grid in exchange for credit toward international energy and materials companies utility bills, providing a significant incentive for (such as BASF, Siemens, GE and Schneider) as the installation of solar rooftops on residential well as the headquarters of the International and commercial establishments11. Renewable Energy Agency. 2. What are the definition and coverage of Increasingly, Dubai is also investing in renewable energy under the relevant renewables projects. The Dubai government is legislation? promoting investment pursuant to the “Dubai Clean Energy Strategy 2050” and the “Dubai Despite significant political and economic Integrated Energy Strategy 2030” aimed at support for renewable energy in the UAE and increasing the role of renewable energy in the its Emirates, the relevant statutory regimes UAE’s energy mix. regulating the electricity industry give very little attention to renewable energy and, as such, In January 2012, His Highness Sheikh renewable energy is largely an undefined Mohammed bin Rashid Al Maktoum launched concept under UAE law. the Mohammed bin Rashid Al Maktoum Solar Park, the largest single-site solar park in the REGULATION world based on the Independent Power Producer (“IPP”) model. The solar park is expected to have a total planned capacity of 3. How is the renewable energy sector 1,000MW by 2020, and 5,000MW by 2030, regulated? What are the principal laws which will reduce 6.5 million tonnes of carbon and regulations? emissions a year8. One of the project’s aims is to transform Dubai into an international hub There is no separate regulatory treatment for for clean energy and green economy, by renewable energy in the body of UAE and providing 7% of Dubai's total power output Emiri laws that regulate the electricity sector. As from clean resources by 2020, 25% by 2030, and a consequence, there are no legislative regimes 75% by 20509. expressly regulating the development of renewable energy projects. In 2015, the Dubai Electricity and Water Authority (“DEWA”) implemented an Under the UAE’s constitution, individual initiative, known as “Shams Dubai”. As part of Emirates have autonomy in management and 12 the initiative, DEWA has set up a net metering regulation of energy and resources . system allowing private home owners and Governments in the UAE implement businesses to install photovoltaic panels renewable energy policy via government-owned generating electricity equivalent to the amount utilities. of electricity consumed on average by the In Dubai, the relationship between DEWA as individual or company10. Any excess electricity operator of the electricity transmission system produced by such panels could then be fed into and IPPs is governed by an Independent Water 8 https://www.dewa.gov.ae/en/customer/ 10 http://usuaebusiness.org/wp-content/ innovation/renewable-energy/facts-about-the- uploads/2017/01/Alternative-and-Renewable- solar-park Energy-in-the-U.A.E.1.pdf 9 https://www.dewa.gov.ae/en/customer/ 11 Ibid. innovation/renewable-energy/mohammed-bin- 12 http://www.irena.org/remap/IRENA_ rashid-al-maktoum-solar-park REmap_UAE_report_2015.pdf 240 GLOBAL RENEWABLE ENERGY GUIDE 2017 UNITED ARAB EMIRATES WHITE & CASE LLP, Abu Dhabi and Power Producers’ Code (“IWPP Code”).13 responsible for implementing the electricity Renewable energy sources connected to the legal framework, including renewable energy, transmission network, mainly solar power, will and its authority includes the power to: be subject to regulation by Dubai Regulatory and Supervision Bureau (“Dubai-RSB”), and issue licences to conduct regulated need to meet technical standards and activities; connection requirements set out in Dubai- RSB’s Renewables Standards. In early 2017, monitor licences and ensure compliance Dubai-RSB published a revised IWPP Code with terms of licences issued; and addressing how certain requirements under the Code apply to generating units powered make regulations as it sees fit for the renewable power sources.14 regular, efficient and safe supply of electricity in the Emirate of Abu Dhabi. 4. What are the principal regulatory bodies in the renewable energy sector? AD-RSB is actively working to support the Abu Dhabi energy sector in increasing the renewable There are no regulatory bodies that have been energy output by facilitating the licensing separately established in the UAE to process, monitoring the performance of the independently regulate the renewable energy existing renewable projects, supporting the sector. testing and evaluation of performance and operating costs of new energy technologies, and This means electricity generated using introducing amendments to current regulatory renewable sources falls within the regulatory policies to accommodate the projected low scope of the relevant power and water carbon generation mix efficiently and authorities of each Emirate. effectively.15 Abu Dhabi and Dubai have established One of the key roles of the AD-RSB is to ensure regulatory bodies that function independently all power and water facilities are able to from the relevant authorities in connection with demonstrate an economic procurement process the electricity and water privatization schemes and appropriate tariff for a given technology.16 of those Emirates. In respect of renewables projects, the AD-RSB is actively involved in the due diligence review Abu Dhabi of project costs over the lifetime of a project to determine an agreed levelised cost of The Abu Dhabi Water and Electricity Authority 17 (ADWEA) owns (either wholly or as majority electricity. shareholder) and controls, either directly or Dubai indirectly, the entities responsible for the generation, transmission and distribution of The Supreme Energy Council (“SEC”) is electricity in the Emirate. responsible for all initiatives relating to the energy sector in Dubai, including generation, The Abu Dhabi Regulatory and Supervision Bureau (“AD-RSB”) is the regulatory body 13 https://www.rsbdubai.gov.ae/documents- 15 http://rsb.gov.ae/en/sector/renewable-energy- publications/publications/ our-remit-and-work-to-date 14 https://www.rsbdubai.gov.ae/iwpp/trade-codes/ 16 Ibid. 17 Ibid. GLOBAL RENEWABLE ENERGY GUIDE 2017 241 WHITE & CASE LLP, Abu Dhabi UNITED ARAB EMIRATES transmission and distribution of electricity from The ability to grant a licence for the generation renewable sources. of energy within the UAE lies with the relevant regulatory bodies associated with the power and The Dubai-RSB is authorized to regulate the water authorities of the given Emirate. electricity sector, including renewable energy, subject to supervision of the SEC, and it is Therefore, the ability to exempt a given entity responsible, among other things, for: from licence requirements is granted to the relevant regulatory bodies. Currently, both the issuing electricity generation licences; AD-RSB and the Dubai-RSB have promulgated processes by which an entity may apply for a proposing legislation governing the licence exemption. No such processes, electricity sector in Dubai; and however, explicitly define nor explicitly exempt renewable energy based generation. determining and establishing standards and controls for electricity generation in 7. Has there been any reform related to the Emirate. renewable energy regulations since 2016? Do you expect any As for the other Emirates, the essential and reform/change in the near future? main regulatory body in the Water and Electricity sector is the relevant Water and As mentioned earlier, there is no separate Electricity Authority. regulatory treatment for renewable energy in the UAE, as such, there has not been any reform 5. What are the main permits/ licenses related to renewable energy regulation. required for renewable energy projects? In the UAE, the same licences or permits However, in light of the recent announcement required for conventional power projects are of the UAE Energy Plan 2050, it is anticipated required for renewable energy projects. Any that some Emirates, such as Abu Dhabi and activity related to the generation, transmission Dubai, will adopt regulations giving specific and distribution of electricity category is treatment to renewable energy in the coming regulated and needs specific licences from the years. responsible regulatory body. INCENTIVES In Abu Dhabi, any person or entity intending to launch a project that falls under the generation, transmission and distribution of electricity 8. Are tax advantages available to category is required to be licenced by AD-RSB, renewable energy generation whereas in Dubai, any person or entity is companies? required to be licenced by Dubai-RSB.18 The UAE is largely tax free and so there are no 6. Is there a category of “license-exempt specific tax advantages for companies engaged generation”? If so, does it cover some in renewable energy generation. types of renewable energy based generation? However, project companies involved in key renewable energy projects in the UAE have 18 http://afridi-angell.com/items/limg/ n%20and%20Markets%20Review%202014%20U c_150TLR%20-%20The%20Energy %20Regulatio AE.pdf; https://www.rsbdubai.gov.ae/iwpp/ 242 GLOBAL RENEWABLE ENERGY GUIDE 2017 UNITED ARAB EMIRATES WHITE & CASE LLP, Abu Dhabi been contractually entitled to exemption from 11. Has the Paris Agreement under the paying duties and taxes on the importation of United Nations Framework plant, equipment and materials for those Convention on Climate Change been renewable energy projects. ratified? If yes, what are the undertakings of your Country in the This approach might change in light of the NDC (national determined introduction of the new VAT law in the UAE, contributions) submitted for the first which is expected to come into force on 1 five-year period? January 2018. The UAE ratified the Paris Agreement on 9. Is there a purchase guarantee given by 21 September 2016. The UAE’s undertakings in the relevant legislation for the the NDC are to pursue “a strategy of economic electricity generated by renewable diversification that will yield mitigation and energy companies? adaptation co-benefits” 19. The UAE specified that part of such efforts is increasing the share There is no legislative right to a purchase of renewable and nuclear energy in the total guarantee for electricity generated by renewable energy mix to 24% by 202120. energy companies. 12. Is there a carbon market or carbon However, some of the renewable energy credits mechanism in your jurisdiction? projects undertaken in the UAE have involved contractual rights for project companies that are In March 2017, the Dubai Carbon Centre of comparable to a legislative purchase guarantee. Excellence, in association with the Netherlands- based non-profit firm, I-REC Standard, became 10. Is there a minimum price guarantee an exclusive issuer of renewable energy given by the relevant legislation for the certificates (RECs) in the UAE.21 electricity generated by renewable energy companies? 13. Do the renewable energy based power plants have priority for connection to There is no legislative right to a minimum price the grid? guarantee for electricity generated by renewable energy companies. There is no legislative right to priority connection of renewable energy power projects However, a unique feature of key renewable to the electricity grid. energy projects planned and operating in Abu Dhabi is the Green Payment Agreement 14. Is there an incentive for domestic (“GPA”). Broadly, the GPA obliges the Abu (local) manufacturing of equipment or Dhabi government to pay the project company materials used in the construction of additional amounts of the electricity tariff. This renewable energy based power plants? mechanic essentially operates as a private right to a long-term feed-in-tariff. There is no legislative right to incentives for domestic manufacture of equipment or 19 http://climateactiontracker.org/countries/ 21 https://renewablesnow.com/news/dubai-carbon- uae.html brings-renewable-certificates-to-uae-563116/ and 20 Ibid. http://dcce.ae/news-home/dubai-carbon-signs- agreements-with-i-rec-standard-for-recs/ GLOBAL RENEWABLE ENERGY GUIDE 2017 243 WHITE & CASE LLP, Abu Dhabi UNITED ARAB EMIRATES materials used to construct renewable energy Abu Dhabi: target of 7% renewable power projects. energy generation capacity by 2020 (1,500 MW); and 15. What are the other incentives available to renewable energy generation Dubai: target of 15% renewable energy companies? generation capacity by 2030 (3,000 MW).22 Power projects in the UAE typically involve a government-related entity as a sponsor and Renewable energy projects in the UAE use therefore tend to benefit from advantages that direct and indirect solar (photovoltaic and are not available on other infrastructure projects concentrated) and wind for electricity (such as government guarantees, priority access generation (although the Abu Dhabi Future to land and streamlined permitting), although Energy Company, Masdar has explored these advantages are equally applicable to fossil alternatives, such as geothermal energy). These fuel power projects. projects represent a small percentage of the total installed capacity in the UAE. STATISTICS OTHER 16. What is the percentage of electricity generated based on each type of 17. Is there anything else you wish to add? renewable energy source in the total generation of electricity on a country No. wide scale? There are no official statistics published for renewable generation capacity installed in the UAE. However, the two Emirates of Abu Dhabi and Dubai have set the following nonbinding targets: WHITE & CASE LLP, Abu Dhabi Michael Watson Laleh Shahabi Khawla Al Atiyat 16th Floor, Al Sila Tower, 16th Floor, Al Sila Tower, 16th Floor, Al Sila Tower, Abu Dhabi Global Market Abu Dhabi Global Market Abu Dhabi Global Market Square Square Square Abu Dhabi, UAE Abu Dhabi, UAE Abu Dhabi, UAE T +971 2 611 3484 T +971 2 611 3456 T +971 2 611 3493 F +971 2 611 3499 F +971 2 611 3499 F +971 2 611 3499 E [email protected] E [email protected] E [email protected] 22 https://www.rsbdubai.gov.ae/renewables/ 244 GLOBAL RENEWABLE ENERGY GUIDE 2017 UNITED KINGDOM Tallat Hussain Hannah Nicholson WHITE & CASE LLP, London as of the date of Brexit.2 GENERAL The UK continues to aim to make the transition 1. What are the nature and importance of to a low carbon economy, while maintaining renewable energy in your country? energy security and minimizing costs. The Single Departmental plan 2015 to 2020 The use and generation of renewable energy is maintains four objectives: ensure the UK has a essential to the UK’s commitments to reduce secure and resilient energy system; keep energy carbon emissions, avert climate change and bills as low as possible for households and generally “green” the UK economy. businesses; secure ambitions on climate change and reduce carbon emissions cost-effectively at On 23 June 2016 the UK voted to leave the home; and manage the UK’s energy legacy 3 European Union (EU).1 This has significant safely and responsibly. implications for energy regulation frameworks, energy relationships with new non-EU partners By moving towards a more efficient, low carbon and shifting production balances for the mix of and sustainable economy, the UK is becoming energy demand. Brexit could have an impact on less reliant on imported fossil fuels and will be less exposed to higher and more volatile energy the trajectory that the UK will follow to achieve 4 its own environmental goals. However, political prices in the future. The challenge of shifting uncertainty is still rife and this trajectory is for to a low-carbon, “green economy” continues to the most part still unknown. A common require the adoption and implementation of viewpoint would suggest that key comprehensive environmental objectives and environmental principles relating to renewable effective policy measures supporting them. In power are so enshrined within UK legislation the UK this includes: that its sudden demise is unlikely, although there may be repercussions from the repeal and The Climate Change Act, which then implementation of all EU law into UK law established a legally binding target to 1 See https://www.gov.uk/government/topical-events/ eu- decc-single-departmental-plan-2015-to-2020/single-departme referendum ntal-plan-2015-to-2020 2 See http://www.europe-economics.com/userfiles/ 4 See https://www.gov.uk/government/uploads/system/ library/Brexit_and_the_Energy_Sector.pdf uploads/attachment_data/file/47613/3702-the-carbon- 3 See https://www.gov.uk/government/publications/ plan-delivering-our-low-carbon-future.pdf GLOBAL RENEWABLE ENERGY GUIDE 2017 245 WHITE & CASE LLP, London UNITED KINGDOM reduce the UK’s greenhouse gas emissions decided in 2014 to postpone or by at least 80% by 2050, with an interim “back-load” the auctioning of 900 million target of emissions reductions by 34% by allowances until 2019-2020. The 2020, compared with 1990. A 50% back-loading only affects the distribution reduction from 1990 levels must be of auction volumes during Phase III, not achieved by 2025 (for the period 2023– the overall volume of allowances. 2027). The Act introduced a system of Accordingly, the auction volume was carbon budgets which provide legally reduced by 400 million in 2014 to reflect binding limits on the amount of emissions the implementation of the back-loading that can be produced in successive five year measure. Phase III also broadens the periods5. The UK recently set a new scheme to include more industrial sectors ambitious fifth carbon budget (for the (e.g. aluminium production, bulk organic period 2028-2032) reducing carbon chemical processing and more greenhouse emissions 57% by 2030 on 1990 levels. gasses (nitrous oxide and This carbon budget is tougher than the perfluorocarbons)). In addition, the carbon emissions target the UK signed up monitoring and reporting requirements to as part of the EU and has subsequently have been updated to include, inter alia, the allayed fears that the UK’s leadership on need to undertake risk assessments and climate change would be watered down produce a monitoring plan.8 The updated after leaving the EU. monitoring and reporting requirements are set out in Commission Regulation (EU) The UK continues to support the EU No 601/2012 of 21 June 2012 on the Emissions Trading System (“EU ETS”), monitoring and reporting of greenhouse and has approximately 1,000 EU ETS gas emissions (as amended)9. In 2015 the participants. Phase III of the EU ETS runs European Commission revised Phase IV from 2013 to 2020 and brings significant of the EU ETS for the period after 2020. changes. It introduces an EU-wide cap on To achieve a 40% reduction in EU emissions, with the goal of reducing greenhouse gas emissions below 1990 emissions in 2020 by at least 21% below levels by 2030, the sectors covered by the their level in 2005.6 Auctioning, not free ETS have to reduce their emissions by 43% allocation, is now the default method for compared to 2005. To achieve this, the EU allocating allowances and in 2013 more cap will need to be lowered by 2.2% per than 40% of allowances were auctioned7. year from 2021, compared with 1.74% However, the ETS faces the challenge of currently10. an increasing surplus of allowances, largely attributable to the economic crisis which The Renewable Energy Target, under depressed emissions more than anticipated. which the UK has committed to deriving Any surplus of allowances risks 15% of all energy from renewable sources undermining the orderly functioning of the by 2020 and Europe’s target of 40% by carbon market and, as a preventative 2030 (in line with the EU Renewable measure, the European Commission Energy Directive). In 2016, renewable 5 See https://www.gov.uk/guidance/carbon-budgets ets/monitoring/docs/gd1_guidance_installations_en.pdf 6 See https://www.carbontrust.com/media/84896 9 See http://eur-lex.europa.eu/legal- content /ctc734-cutting-carbon-in-europe-2020-plans.pdf /EN/TXT/PDF/?uri=CELEX:02012R0601-2014 7 See https://ec.europa.eu/clima/policies/ets_en 0730&from=EN 10 8 See https://ec.europa.eu/clima/sites/clima/files/ See https://ec.europa.eu/clima/policies/ets_en 246 GLOBAL RENEWABLE ENERGY GUIDE 2017 UNITED KINGDOM WHITE & CASE LLP, London energy sources accounted for 24.4% of which White Rose received a EUR 300 total UK electricity generation, with wind million grant from the European and bioenergy being the main Commission.)15 In September 2015, due to contributors11. This represented a decrease reduced renewable subsidies, Drax of 0.2% on the 2015 record, mainly due to announced its withdrawal as a partner of less favourable weather conditions. Capture Power Ltd, the developer of the White Rose CCS Project. This withdrawal, A carbon price floor, which was together with the November 2015 UK implemented on 1 April 2013.12 This government announcement that the changed the previous Climate Change Levy £1 billion ring-fenced capital budget for (“CCL”) regime by applying carbon price the CCS Competition was no longer support rates of CCL to gas, fuels and available has had an unfortunate impact on liquefied petroleum gas used in electricity the UK’s CCS industry. In April 2016, the generation;13 The carbon price floor will be UK’s Energy Secretary announced a capped at £18 per ton of carbon dioxide Development Consent Order would not be from 2016-17 to 2019-2020.14 granted for the White Rose CCS project on the grounds that there is no funding Government support for carbon capture available and no prospect of sufficient and storage technology development. The funding being made available16. UK Carbon Capture and Storage (“CCS”) Commercialization Competition made On 28 November 2012, the UK became available £1 billion capital funding, the first country in the world to create a together with additional operational bank dedicated to the green economy with funding through the UK Electricity Market the launch of the Green Investment Bank Reforms, to support the construction and (“GIB”)17. With funding of £3.8 billion operation of the UK’s first commercial capital, the GIB aims to support green scale CCS projects. In March 2013, the infrastructure and the financing of projects Department of Energy and Climate designed to meet the UK’s legally binding Change (“DECC”) announced that it targets laid out in the Kyoto Protocol, the would take two preferred bidders out of Climate Change Act 2008 and the Energy four to the planning and design stage, the Act 2013. Such targets include a reduction Peterhead Project in Aberdeenshire (CCS in greenhouse gas emissions of 34% by at the existing gas-fired power station 202018. The GIB is designed to be a catalyst would be transported and stored in a gas to encourage private sector lenders and reservoir beneath the North Sea); and the investors, by partnering with those already White Rose Project in Yorkshire (storage in committed to the green economy and a saline aquifer beneath the North Sea for providing additional capital.19 Since its 11 See https://www.gov.uk/government/uploads/system/ carbon-price-floor-reform uploads/attachment_data/file/604105/Renewables.pdf 15 See https://www.parliament.uk/briefing-papers 12 See https://www.gov.uk/government/uploads/system/ 16 See https://sequestration.mit.edu/tools/projects/ uploads/attachment_data/file/81273/consult_carbon_price white_rose.html _support_condoc.pdf 17 See http://www.greeninvestmentbank.com/ 13 See https://www.gov.uk/climate-change-levy- application-rates-a 18 This target was set by the Committee on Climate nd-exemptions Change in 2008. 14 See https://www.gov.uk/government/publications/ 19 See https://www.gov.uk/government/uploads/system/ uploads/attachment_data/file/336552/green-investment-ba GLOBAL RENEWABLE ENERGY GUIDE 2017 247 WHITE & CASE LLP, London UNITED KINGDOM inception, the GIB has supported 75 green within the UK were owned by non-utility infrastructure projects, committing investors. approximately £2.6 billion to the UK’s green economy, into transactions worth In March 2016, the UK government launched approximately £10.6 billion20. the process to privatise the GIB, involving the sale of the UK government’s existing shares in In March 2016, the GIB announced further the GIB and the commitment of additional investments: capital from new investors23. On 19 April, the House of Lords passed the Enterprise Bill, GIB will help Stirling Council save required to proceed with the privatisation of the £31 million by financing an GIB. It is hoped that the privatisation will energy-efficient street lighting project. The enable the GIB to deliver a greater green council will borrow £9.87 million over four impact, driving further capital investment. A financial years using the GIB’s Green “Special Share” has been authorized by the UK Loan, and it is expected that power government to protect GIB’s green mission24. consumption will fall by 63% and The Enterprise Bill received Royal Assent on greenhouse gas emissions will fall by the 4 May 2016 and is now an Act of Parliament equivalent of 14,400 tonnes over the (the Enterprise Act 2016). Clause 29 of the project’s lifetime. The energy that will be Enterprise Bill 2015-2016 will have the saved per year is estimated to be following effects25: comparable to total electricity consumed by over 850 homes21. 1. Pursuant to the sale of shares in GIB, repeal the bulk of the Enterprise and GIB alongside Equitix committed Regulatory Reform Act 2013 (“ERRA £10 million to the expansion of the Wick 2013”); district heating scheme. Pursuant to this upgrade, it is expected the district heating 2. Retain the Secretary of State’s power to network will reach 150 new customers. provide funding to the GIB and the The investment also aims to reduce requirement for the government to provide greenhouse gas emissions by an additional a copy of GIB’s annual report before 3,000 tonnes of carbon dioxide per year22. Parliament each year (during the time period for which it is a shareholder in the Acquisition of GLID Wind Farms by GIB GIB); and (Offshore Wind Farm) and funds managed by BlackRock. The acquisition was the first 3. Necessitate the government to Parliament time that operating offshore wind farms and devolved administrations, stipulating nk-annual-report-2013.pdf 23 See 20 See http://www.greeninvestmentbank.com/ http://www.greeninvestmentbank.com/news- and-insight/20 16/uk-green-investment-bank-privatisation-process-to-launch 21 See http://www.greeninvestmentbank.com/news-and- / insights/2016/gib-will-help-stirling-council-save-31m-by- 24 financing-energy-efficient-streetlighting-project/ See http://www.greeninvestmentbank.com/news- and-insight/20 22 See http://www.greeninvestmentbank.com/news-and- 16/uk-green-investment-bank-to-establish-a-special-share/ insights/2016/gib-and-equitix-commit-10m-to-expansion-of- 25 wick-district-heating-scheme/ See http://uk.practicallaw.com/cs/Satellite/resource/ 7-621-1328 248 GLOBAL RENEWABLE ENERGY GUIDE 2017 UNITED KINGDOM WHITE & CASE LLP, London plans for the sale of GIB (prior to when the Those successful in the auction had a month to repeal of ERRA 2013 can come into sign their CfD and proceed with their project.29 effect)26. The current RO regime will be closed to all new generation from 31 March 2017, with In April 2017 Nick Hurd MP announced the developers offered a choice between CfD and Government’s agreement to sell GIB to a RO between 2014 and 2017.30 On 2 October Macquarie led consortium27. The decision was 2014, the government confirmed that from made to privatise GIB to attract new investors 1 April 2015 the RO would be closed to solar and secure the long-term future of the business. projects above 5MW which are not Although Macquarie has purchased the GIB, commissioned and accredited on or before the Government will retain £130m worth of 31 March 2015, and to additional capacity assets which the GIB will continue to manage. added to accredited stations from that date, Macquarie has committed to uphold GIB’s where the station would exceed 5MW. green investment principles and it will utilise the However, two “grace periods” have been expertise of the existing GIB team. announced: (i) “the significant financial commitment” grace period which will allow One of the most important pieces of reform in solar projects larger than 5MW which satisfy the UK energy market is the recent Electricity certain “significant financial commitment” tests Market Reform (“EMR”). This was as at May 2014 to remain eligible for 28 implemented through the Energy Act 2013 . accreditation under the RO for an additional The EMR is the transition from the current 12 months; and (ii) the “grid delay” grace Renewables Obligation (“RO”) regime, to period which will be available for large solar Contracts for Difference (“CfDs”). These are projects that were expected to deploy prior to long-term contracts which will be available to all the RO closure date, but were delayed.31 On low carbon generators and will replace the 16 May 2016, the RO closed to onshore wind current main support mechanism for large-scale operators, but solar operators and onshore renewable electricity generation. CfD applicants wind operators that meet certain criteria may be were able to submit a CfD Application Form to eligible for a grace period that could make them the Delivery Body from 16 October 2014. The eligible for RO accreditation until 31 January Delivery Body then determined which 201932. Electricity generation that is accredited qualifying applications are successful under the RO will continue to receive support applications. DECC published the outcome of until the scheme closes in 2037.33 the first CfD allocation round in February 2015. In May 2016 there was a Government consultation on changes to the CfD. The 26 See http://uk.practicallaw.com/cs/Satellite/resource/ 31 See https://www.gov.uk/government/uploads/system/ 7-621-1328 uploads/attachment_data/file/371384/Annual_Update_ 27 See www.greeninvestmentbankcom/news-and-insights Print.pdf /2017/giv-chairman-responds-to-government-statement-on-sa 32 See le/ https://www.ofgem.gov.uk/publications-and- updates/freque 28 Royal Assent was granted in December 2013. ntly-asked-questions-closure-renewables-obligation-ro-onshore- wind-great-britain 29 See https://www.gov.uk/government/collections/ 33 electricity-market-reform-contracts-for-difference See https://www.gov.uk/government/policies/ increasing-the-use-of-low-carbon-technologies/supporting-pages 30 See https://www.gov.uk/government/uploads/system/ /the-renewables-obligation-ro uploads/attachment_data/file/289076/Transition_and_G race_Periods_Government_Response_-_12_Mar_2014.pdf GLOBAL RENEWABLE ENERGY GUIDE 2017 249 WHITE & CASE LLP, London UNITED KINGDOM following responses were made to a number of greenhouse gas emissions. Potential resources proposed technical changes. include wind, biomass, biofuels and hydroelectric power. Preventing accumulation of state aid - the government invited responses regarding The UK is the world leader for offshore wind whether and how the Low Carbon power generation in terms of installed capacity. Contracts Company, the counterparty to It currently has the largest offshore wind the CfD, can be informed of any financial development pipeline up to 2020, including a support to a project from other project to develop the 4,000MW Hornsea programmes and the point from which the offshore wind farm off the Yorkshire coast. The restrictions on state aid apply; project was granted development consent in November 2016 which includes three wind Changing the definition of Foreseeable farms of up to 332 turbines. These are expected Change in Law – to clarify that a Qualifying to be operational by the year 2020 and will Change in Law can arise from any provide enough electricity to meet challenge having an adverse impact on the approximately 4% of the UK’s demand35. This Facility, including challenges against third translates into the equivalent of powering parties as well as those directly involving approximately 3 million homes36. The the Facility; government is attempting to increase the amount of onshore wind power produced in Energy storage – to clarify that energy order to make it a key component of the UK’s storage can be included in a Facility for the renewable energy mix by 2020.37 Wind energy is purposes of a CfD. currently the cheapest large-scale renewable energy source that can be deployed on a large This consultation follows the announcement in scale.38 the 2016 Budget that £730 million will be dedicated to the next wave of CfD auctions for In 2016, bioenergy accounted for 36% of offshore wind and “other less-established renewable energy fuel use and generation from technologies”.34 bioenergy increased to a record high of 29.6 TWh, an increase of 0.7% on 2015 figures. Promoting a diverse mix of renewable and low-carbon Generation from plant biomass increased from energy sources 18.6 TWh in 2015 to 18.8 TWh in 2016 (the small increase due to maintenance outages at Harnessing natural resources to reduce the Drax’s biomass units and the closure of the UK’s dependence on fossil fuels is considered Ironbridge power station in Shropshire in essential to ensure greater security of energy November 2015).)39. supply and development of technology for a cleaner environment, as well as reducing In the government response to the August 2013 follow-up RO consultation on biomass 34 See https://www.gov.uk/government/uploads/system/ https://www.gov.uk/onshore-wind-part-of-the- uks-energy-mi uploads/attachment_data/file/521976/May_2016_CFD x _Contract_Changes_Consultation.pdf 38 See https://www.gov.uk/government/uploads/system 35 See http://infrastructure.planningportal.gov.uk/ /uploads/attachment_data/file/42852/5936-renewables-o projects/yorkshire-and-the-humber/hornsea-offshore-wind-far bligation-consultation-the-government.pdf, page 46. m-zone-4-project-two/ 39 See https://www.gov.uk/government/uploads/system/ 36 See http://www.smartwind.co.uk/the-zone.aspx uploads/attachment_data/file/604105/Renewables.pdf 37 See 250 GLOBAL RENEWABLE ENERGY GUIDE 2017 UNITED KINGDOM WHITE & CASE LLP, London affordability, the government announced the Security Strategy (2012) and the updated UK introduction of a new dedicated biomass Renewables Energy Roadmap (2013) have capacity cap (set at 400MW) on new-build outlined the UK’s policy drivers. Climate dedicated biomass power generation. While Change Plans, such as Defra’s Climate Change biomass is expected to make a significant Plan 201043 and the Department of Culture, contribution to delivering the UK’s 15% Media & Sport (“DCMS”) Climate Change renewable energy target in 2020, the Plan 2010-201244 set out the actions specific Government aims to ensure this cap will bring government departments are taking to reduce new biomass projects into existence that are greenhouse gas emissions across their policy both cost and carbon effective.40 areas. Carbon budgets that place a restriction on the total amount of greenhouse gases the UK 41 Approximately 1.8% of the UK’s electricity is can emit over a 5-year period, providing derived from hydroelectric power, most of benchmarks towards the UK’s 2050 target, are which is in large-scale schemes in the Scottish a further measure the UK is taking to drive the Highlands. Whilst the potential for large-scale UK’s transition to a low-carbon economy. The development (hydro plants producing more Climate Change Act 2008 established the first than 5MW) is limited because of environmental four carbon budgets up to 2027. The first concerns and the reality that most economically carbon budget for the 2008-2012 period attractive sites for hydroelectric schemes have required greenhouse gas emissions to be previously been utilized, the UK’s remaining reduced by 23% as compared to 1990 levels by small-scale hydro resources (producing less 2012. The UK is currently in the second carbon than 5MW) are being exploited in a sustainable budget period (2013-2017) under which manner. The cumulative installed capacity of greenhouse gas emissions must be reduced by small scale hydro increased 23.1% from 29% as compared to 1990 baseline levels by 42 282MW in 2015 to 327MW in 2016. . 2017 and is on track to meet the first three carbon budgets. Renewable Energy Policy The Climate Change Act (2008) requires the Historically, the following major pieces of Secretary of State to set the level of the carbon policy have determined the UK government’s budget. The fifth carbon budget for the approach to renewable energy: the Stern Review 2028-2032 period was set in June 2016. The on the Economics of Climate Change (2006), advice of the Committee on Climate Change was the Energy White Paper: meeting the energy accepted45 and the target was set at reducing challenge (2007), the Renewable Energy carbon emissions 57% by 2030 on 1990 levels.46 Strategy (2009), the UK Low Carbon Transition This legally binding target is tougher than the Plan White Paper (2009), and “Smarter Grids: target the UK is signed up to as part of the EU The Opportunity” (2009). Recently, the which requires a 40% cut by 2030 on 1990 levels. Electricity Market Reform: Contracts for Differences policy paper (2014), the Energy 40 See https://www.gov.uk/government/publications/ 26/climate-change-plan-2010-pb13358/ the-400-mw-cap-on-new-build-dedicated-biomass-projects-rene 44 See https://www.gov.uk/government/uploads/system/ wables-obligation/the-400mw-cap-on-new-build-dedicated-bio uploads/attachment_data/file/78335/DCMS_Climate_C mass-projects-renewables-obligation hange_Plan2010_12.pdf 41 See https://www.gov.uk/government/uploads/system/ 45 See uploads/attachment_data/file/604105/Renewables.pdf https://www.theccc.org.uk/publication/the-fifth- carbon-bu 42 See https://www.gov.uk/harnessing-hydroelectric-power dget-the-next-step-towards-a-low-carbon-economy/ 43 See http://www.defra.gov.uk/publications/2011/03/ 46 The Carbon Budget Order 2016 GLOBAL RENEWABLE ENERGY GUIDE 2017 251 WHITE & CASE LLP, London UNITED KINGDOM With the backdrop of the 2006 Stern Review on Alongside the Renewable Energy Roadmap, the the Economics of Climate Change, in 2007 the EMR incorporates reforms to decarbonize UK government released its Energy White electricity in the UK. The key elements of this Paper on the UK’s international strategy to market reform will be delivered through the tackle climate change and energy security following measures: (i) CfDs to drive together, so as to ensure secure and affordable investment in low carbon electricity generation; energy supplies. (ii) Final Investment Decision Enabling for Renewables (FIDeR) to support projects facing Following on from this, the Renewable Energy investment hiatus; (iii) an Offtaker of Last 47 Strategy (2009) , which addresses the UK’s Resort to ensure independent renewable obligations toward the EU’s 20% renewables generators have access to the market; (iv) target by 2020, set a target of 15% of the UK’s Emissions Performance Standard to implement energy supply coming from renewable sources a regulatory backstop on the amount of carbon by 2020. emissions that new fossil fuel power stations are allowed to emit; (v) a pilot to incentivize The Low Carbon Transition Plan commits the Electricity Demand Reduction, to test the UK to greenhouse gas emission (“GHG”) cuts ability of energy efficiency reductions to of 18% on 2008 levels by 2020 by, amongst compete with generation capacity in providing other things, substantially increasing the security of supply; and (vi) the Capacity requirement for electricity suppliers to sell Market.52 The Capacity Market is designed to renewable electricity.48 The Transition Plan financially incentivize service providers to offer aims to ensure 40% of the UK’s electricity and reliable clean energy supplies. It offers all 10% of the UK’s transport fuels comes from capacity providers a steady, predictable revenue low carbon sources by 2020. The UK is said to stream (capacity payments) on which they can be on track to meet this target: in 2016, base their future investments, in return for renewables accounted for 24.4% of electricity which they must deliver the capacity demands, generation.49 or face penalties.53 In November 2013, the government updated the UK Renewable Energy Roadmap50, which The Energy and Climate Change Select analyses the progress which has been made in Committee reported in October 2016 on the upcoming challenges for energy and climate meeting the targets established under the EU 54 Renewable Energy Directive51 including the policy . The Committee recommended: UK’s 2020 renewable energy target. The investment in energy storage, changes to unlock Roadmap also provides an update on the the potential of demand-side management, deployment of renewables in the UK. increased digital engagement of energy consumers, nuclear innovations and driving 47 Directive 2009/28/EC of the European Parliament uk-renewable-energy-roadmap-second-update and of the Council of 23 April 2009 on the 51 2009/28/EC promotion of the use of energy from renewable sources and amending and subsequently repealing 52 See https://www.gov.uk/government/uploads/system/ Directives 2001/77/EC and 2003/30/EC. uploads/attachment_data/file/468337/EMR_Annual_ Update_2015_web_accessible_version.pdf 48 See https://www.gov.uk/government/uploads/system/ uploads/attachment_data/file/228752/9780108508394. 53 See https://www.gov.uk/government/collections/ pdf electricity-market-reform-capacity-market-2015 54 49 See https://www.gov.uk/government/uploads/system/ See https://www.publications.parliament.uk/pa/ uploads/attachment_data/file/604105/Renewables.pdf cm201617/cmselect/cmenergy/705/705.pdf 50 See https://www.gov.uk/government/publications/ 252 GLOBAL RENEWABLE ENERGY GUIDE 2017 UNITED KINGDOM WHITE & CASE LLP, London economic opportunities of the energy Act also implements provisions for the Energy revolution. Companies Obligation (“ECO”), the government’s new domestic energy efficiency Important Legislation program, which replaces pre-existing Carbon Emission Reduction Target (“CERT”) and Numerous pieces of legislation have come into Community Energy Saving (“CESP”)59 effect over the past decade to support these programs, both of which closed at the end of policies. 2012. The UK Climate Change Act 2008 mandates The ECO provides a legal obligation on energy the Secretary of State to ensure that the net UK suppliers to improve the energy efficiency of carbon emissions by 2050 are at least 80% lower households via three distinct targets: (i) the than the 1990 baseline (for the period 2023– Carbon Emissions Reduction Obligation; (ii) 55 2027). This act established the independent the Carbon Saving Community Obligation; and Commission on Climate Change and (iii) the Home Heating Cost Reduction introduced legally binding “carbon budgets” Obligation. The Office of the Gas and which restrict the total amount of greenhouse Electricity Markets (“Ofgem”) (discussed gasses the UK can emit over a 5-year period. further below) will administer the ECO for its The UK is the first country to set these legally duration. The first ECO period ran until 31 56 binding budgets. March 2015. The Electricity and Gas (ECO) (Amendment) (No. 2) Order 2014 which The UK Energy Act 2008, which came into entered into force on 5 December 2014 force in November 2008, implements the provides for a new ECO obligation period from legislative aspects of the Energy White Paper April 2015 to March 2017 (“ECO2”).60 The and updates energy regulation to protect the government has taken action to extend ECO2 environment, meet security of supply needs, until 2018 and has confirmed that a supplier and reflect on the availability of new obligation will run until 2021-22 at least. technologies (such as emerging renewable 57 technologies). The Energy Act 2013 introduces an Emissions Performance Standard which provides a The Energy Act 2011, which received Royal regulatory limit of 450 CO2/kWh on the Assent on 18 October 2011, establishes the amount of carbon dioxide new fossil fuel power framework to implement the Coalition 58 stations with a net capacity over 50MW are government’s “Green Deal” plan, and is a allowed to emit.61 This is intended to prevent flagship initiative designed to improve the the construction of high emission coal power energy efficiency of properties in the UK. The 55 Section 1(1), Climate Change Act 2008, Ch. 27 Part 1. bills subsequently. 56 See https://www.gov.uk/government/policies/ 59 See reducing-the-uk-s-greenhouse-gas-emissions-by-80-by-2050/s https://www.ofgem.gov.uk/environmental- programmes/eco/ upporting-pages/carbon-budgets overview-previous-schemes 57 See http://www.legislation.gov.uk/ukpga/2008/32/ 60 See https://www.gov.uk/government/publications/ contents 2010-to-2015-government-policy-household-energy/2010-to- 58 This is a framework currently being established by 2015-government-policy-household-energy#appendix-7-energy the UK Government where companies can offer -company-obligation-eco their customers improvements to their homes, 61 Section 57 Energy Act 2013 communal areas and businesses at no initial cost, and then charge customers in installments on their energy GLOBAL RENEWABLE ENERGY GUIDE 2017 253 WHITE & CASE LLP, London UNITED KINGDOM plants, but still allow gas plants, albeit that these technologies and to minimize costs for may need to operate at a reduced capacity. consumers. As of May 2016, the government has published an array of guidance, regulations The UK RO regime, previously the main and legislation including the Electricity Market support for renewable power generation in the Reform Delivery Plan,65 the CfD standard terms UK,62 is being replaced by the EMR, as and conditions66, the Electricity Market Reform implemented by the Energy Act 2013. (General) Regulations 201467, the Capacity Market Rules68, and the Electricity Market Under the EMR, CfDs are intended to Reform Annual Update 201469. The final CfD encourage investment in low-carbon Allocation Framework was published on technologies by providing greater certainty of 1 September 201470, and updated on 2 October revenue, which will reduce risks to investors 2014.71 The final Allocation Framework sets out and make it easier and cheaper to secure the application and CfD offer processes, 63 finance. Certainty is provided because key including the eligibility and qualification terms cannot be altered, even in the event that assessment, auction rules and the valuation a future government seeks to change policy formula. The CfD (Allocation) Regulations objectives. The program for EMR has been which came into force on 1 August 2014 set out established to attract the £110 billion of capital the eligibility requirements an applicant must 64 investment which the UK electricity sector satisfy to be eligible for a CfD. The first CfD will need to replace and upgrade the UK’s contracts were allocated in February 2015; a electricity infrastructure. The electricity sector is total of 27 projects were awarded CfDs worth a critical part of the UK economy, an important £315 million.72 The first allocation round in driver of growth and key to meeting the UK’s 2014 was open to a wide range of renewable commitment to reduce its carbon dioxide energy technologies, which were split into two emissions. groups – “established technologies” and “less established technologies”. In March 2016, the The government’s objectives for the EMR are Government announced that it would make to ensure a secure electricity supply, ensure available up to £730 million of CfD funding for sufficient investment in sustainable low-carbon 62 The England & Wales and Scotland Renewables 68 See https://www.gov.uk/government/uploads/system/ Obligation Orders were introduced in April 2002. In uploads/attachment_data/file/340046/capacity_market_r Northern Ireland, it was introduced in April 2005. ules.pdf Northern Ireland Renewables Obligation (NIRO) is 69 See https://www.gov.uk/government/uploads/system/ administered by Ofgem on behalf of the Northern uploads/attachment_data/file/371384/Annual_Update_ Ireland Authority for Energy Regulation (NIAER). Print.pdf 63 See https://www.gov.uk/government/publications/ 70 See https://www.gov.uk/government/uploads/system/ electricity-market-reform-contracts-for-difference uploads/attachment_data/file/349370/Final_Allocation_ 64 See https://www.gov.uk/government/policies/ Framework.pdf maintaining-uk-energy-security--2/supporting-pages/electricity 71 See https://www.gov.uk/government/uploads/system/ -market-reform uploads/attachment_data/file/404405/Contract_for_Diffe 65 See https://www.gov.uk/government/publications/ rence_Final_Allocation_Framework_for_the_October_201 electricity-market-reform-delivery-plan 4_Allocation_Round.pdf 66 See https://www.gov.uk/government/uploads/system/ 72 See https://www.gov.uk/government/uploads/system/ uploads/attachment_data/file/348142/Generic_CfD_TC uploads/attachment_data/file/407059/Contracts_for_Diff s__29_August_2014_.pdf erence_-_Auction_Results_-_Official_Statistics.pdf 67 See http://www.legislation.gov.uk/ukdsi/2014/ 9780111116791/pdfs/ukdsi_9780111116791_en.pdf 254 GLOBAL RENEWABLE ENERGY GUIDE 2017 UNITED KINGDOM WHITE & CASE LLP, London up to 4GW of offshore wind and other “less the criteria for grace periods span from May established” renewables technologies, across 2017 - January 2019. three separate allocation rounds. The second CfD allocation round was launched in April Reference Price 2017.73 The draft budget notice confirms that £290 million of CfD funding will be available In December 2013, DECC produced the first for projects which are planning to commission EMR Delivery Plan which sets out strike prices 76 in the delivery years 2021/22 and 2022/23.74 for CfDs for the period 2014/15 – 2018/19. No “established technologies” are eligible to With these strike prices the government aims to participate in the second allocation round. This ensure 30% of electricity is generated from means that CfD funding will not be available in renewable sources by 2020, while keeping costs 77 the second allocation for onshore wind, solar as low as possible . The prices are designed to PV, energy from waste with CHP, hydro be broadly comparable to the support levels (>5MW and <50MW), landfill gas and sewage under the current RO regime and are designed gas technologies. to fall over the course of the decade, as the renewable energy technology costs decrease. The Energy Act 2016 received Royal Assent in Offshore wind projects, for example, will May 201675. The Act gives local communities a qualify for £155/MWh of support in 2014/15, say on new onshore wind farm planning which falls steadily over the next five years to decisions via local council planning authorities £140/MWh in 2018/19. Fourteen categories and removes the need for Secretary of State replace the thirty-five under the RO regime. consent for large onshore wind farms in CCS and nuclear projects do not have a England & Wales. It also brought forward published strike price. Instead, DECC will closure of the costly Renewable Obligations consider how best to price CfDs and the Subsidies Scheme for new onshore wind appropriate length of contracts for these developments. This closure took effect in projects on a case by case basis. The prices for March 2016 in relation to projects which do not renewables are intended to be comparable to qualify for any grace periods, however the the support levels currently available under the legislation does entitle developers to apply for RO, taking into account differences such as grace periods which, subject to fulfilling the contract length and inflation indexation criteria, allow additional time to commission the arrangements. The cost to consumers is project and obtain RO accreditation. controlled by the Levy Control Framework78, Developers can apply for one grace period or, if which ensures that the projected cost of the they fulfil all appropriate criteria, multiple or all RO, CfD and small-scale Feed-in Tariffs does grace periods in combination. The new not exceed £7.6 billion (2011/2012 prices) in accreditation deadlines for projects which meet 2020/21.79 The intention is that the new regime 73 See https://www.gov.uk/government/publications/ uploads/attachment_data/file/268221/181213_2013_E contracts-for-difference/contract-for-difference MR_Delivery_Plan_FINAL.pdf 74 See https://www.gov.uk/government/publications/ 78 See https://www.gov.uk/government/uploads/system/ draft-budget-notice-for-the-second-cfd-allocation-round uploads/attachment_data/file/209361/Levy_Control_Fra 75 Energy Act 2016 mework_and_Draft_CfD_Strike_Prices.pdf 79 76 See https://www.gov.uk/government/uploads/system/ See https://www.gov.uk/government/uploads/system/ uploads/attachment_data/file/268221/181213_2013_E uploads/attachment_data/file/263937/Final_Document_-_ MR_Delivery_Plan_FINAL.pdf Investing_in_renewable_technologies_-_CfD_contract_terms_a nd_strike_prices_UPDATED_6_DEC.pdf 77 See https://www.gov.uk/government/uploads/system/ GLOBAL RENEWABLE ENERGY GUIDE 2017 255 WHITE & CASE LLP, London UNITED KINGDOM will save consumers around £5 billion by because of the uncertainty associated with the 2030.80 transition to the CfD and because of concerns that there may not be sufficient levels of Other important provisions include competition in the long-term PPA market (i) change in law; (ii) the negotiability of CfDs; under CfDs.83 The government took powers in and (iii) offtaking (discussed further below). the Energy Act 2013 to establish an Offtaker of The change in law provisions are designed to Last Resort (“OLR”) mechanism to further provide the CfD Holder with an element of support independent renewable generators by protection so that the long-term price stability promoting the availability of PPAs and afforded to CfD holders is not undermined by encouraging competition in the PPA market. legislative and regulatory changes. The DECC published its consultation paper for the definition of a ‘Qualifying Change of Law’ is OLR mechanism in February 201484, and the wide enough to cover general changes in law government’s response was published in which have a discriminatory effect and lack September 201485, which confirmed the objective justification.81 Most significantly, government’s intention to implement the OLR compensation covers lost revenue, not just policy and clarified its high-level design. added costs. In respect of negotiability of the CfDs, the government intends to offer a The intention of the government is to require standard contract to generators, leaving the some suppliers to bid for backstop PPA’s in CfD Counterparty little discretion to negotiate order to ensure the mechanism is deemed terms. The government has specifically stated bankable and promotes sufficient competition. that no changes will be permitted which affect Backstop PPAs will be allocated to offtakers on the commercial substance of the agreement or a competitive basis, with Ofgem using a the allocation of risk.82 sealed-bid process to allocate generators to offtakers. DECC’s preferred approach is to Offtaker of Last Resort have one set of terms and conditions that would apply to all Backstop PPA contracts, with the Investment from independent generators will contract designed to be bankable, simple and play a key role in meeting the government’s balanced in terms of risk sharing. The standard decarbonisation and security of supply goals. terms of a Backstop PPA were issued on Independent generation developers typically 25 February 2015, forming the contract that will rely on long-term offtake contracts (Power be entered into between a licensed supplier and Purchase Agreements (“PPAs”) in order to an eligible generator under the OLR secure the finance, they need to participate in mechanism. The OLR scheme opened to the market. The government considers that eligible generators (being generators with a CfD independent renewable generators may initially or Investment Contract) on 1 October 201586. have difficulty developing projects under CfDs 80 See https://www.gov.uk/government/uploads/system/ offtaker+of+last+resort uploads/attachment_data/file/263937/Final_Document_-_ 84 See https://www.gov.uk/government/uploads/system/ Investing_in_renewable_technologies_-_CfD_contract_terms_a uploads/attachment_data/file/278893/OLR_Consultatio nd_strike_prices_UPDATED_6_DEC.pdf n__11_Feb.pdf 81 See https://www.gov.uk/government/uploads/system/ 85 See https://www.gov.uk/government/uploads/system/ uploads/attachment_data/file/267649/Generic_CfD_-_T uploads/attachment_data/file/324261/OLR_Government erms _and_Conditions__518596495_171_.pdf _Response.pdf 82 See https://www.gov.uk/government/uploads/system/ 86 See uploads/attachment_data/file/263169/FID_Update_3_ https://www.ofgem.gov.uk/publications-and- updates/introd Contract_Award_Process.pdf uction-offtaker-last-resort 83 See http://uk.practicallaw.com/5-557-406?q= 256 GLOBAL RENEWABLE ENERGY GUIDE 2017 UNITED KINGDOM WHITE & CASE LLP, London Since its launch there have been no applications As a result of the complexity of issues to the scheme and no Backstop PPAs have been surrounding the need for and implementation entered into. Supplier’s knowledge of the OLR of policies supporting clean technologies, process is kept up to date and each year Ofgem reduction of greenhouse gas emissions, energy determine which suppliers are to be mandatory. security and fuel poverty, the regulation of A supplier is determined as a mandatory renewable energy sources is equally complex in supplier if they, and any affiliates of theirs, the UK. The legislation governing various supplied 6% or more of all the electricity aspects of renewable power, such as taxation, supplied to customers in Great Britain in the planning, environmental protection and applicable OLR year.87 funding clean technologies, is administered by various governmental departments for which 2. What is the definition and coverage of new mandates have been created, and most renewable energy under the relevant regulatory infrastructure for renewable power is legislation? managed separately by the administrations in Generally, a renewable (or low-carbon) source England & Wales, Scotland and Northern of energy is defined in the Energy Act 2004 as: Ireland. biomass; biofuels; fuel cells; photovoltaics; The UK renewable energy sector is regulated water (including waves and tides); wind; solar generally by DECC, established in October power; geothermal sources; combined heat and 2008, to bring together energy and climate power systems; and other sources of energy and change policy in the UK. Following Theresa technologies for the generation of electricity or May’s appointment as Prime Minister in July the production of heat, the use of which would, 2016, the department was merged with the in the opinion of the Secretary of State, cut Department for Business, Innovation and Skills emissions of greenhouse gases in Great (BIS), to form the Department for Business, Britain88. Energy and Industrial Strategy (BEIS).90 Under the Utilities Act 2000, “renewable DECC’s priority objectives set out in its single sources” means sources of energy (other than departmental plan (2015-2020) are: fossil fuel or nuclear fuel), but includes waste of which not more than a specified proportion is 1. to ensure the UK has a secure and resilient waste which is, or is derived from, fossil fuel energy system; (i.e., “coal, substances produced directly or 2. to keep energy bills as low as possible for indirectly from coal, lignite, natural gas, crude households and businesses; liquid petroleum, or petroleum products”).89 3. to secure ambitious international action on REGULATION climate change and reduce carbon emissions cost-effectively at home; and 3. How is the renewable energy sector 4. to manage the UK’s energy legacy safely regulated? What are the principal laws and responsibly91. and regulations? 87 See https://www.ofgem.gov.uk/system/files/docs/ 90 See http://services.parliament.uk/bills/2014-15/ 2016/12/olr_annual_report_2015-16.pdf departmentofenergyandclimatechangeabolition.html 88 Section 82(7), Energy Act 2004 Part 2, Ch. 1. 91 See https://www.gov.uk/government/publications/ 89 Utilities Act 2000, Ch. 27, Part V (amending the decc-single-departmental-plan-2015-to-2020/single-departme Electricity Act 1989). ntal-plan-2015-to-2020 GLOBAL RENEWABLE ENERGY GUIDE 2017 257 WHITE & CASE LLP, London UNITED KINGDOM The principal UK laws and regulations relevant that the carbon intensity of electricity to the renewable energy sector are: generation is no greater than the maximum permitted level of the decarbonisation the Climate Change Act 200892, which sets target range. A range of EMR regulations an 80% target for the year 2050 for the were published in 2014 to complement the reduction of certain greenhouse gas EMR measures identified in the Energy emissions by supporting a system of Act 2013, including (i) the Electricity carbon budgeting (in the form of five-year Market Reform (General) Regulations commitments to reduce carbon emissions 2014; (ii) the Contracts for Difference and the means to achieve the targets). (Allocation) Regulations 2014; (iii) the Contracts for Difference (Definition of It also confers powers to establish trading Eligible Generator) Regulations 2014; schemes or activities for limiting or (iv) the Contracts for Difference (Standard reducing GHG emissions, and addresses Terms) Regulations; (v) the Contracts for adaptation to climate change impacts. Difference (Electricity Supplier These all rely greatly on the contribution of Obligations); (vi) the Electricity Capacity renewable power93; Regulations that all entered into force on 1 August 2014; and (vii) the Electricity the Energy Act 201194 has three principal Capacity (Supplier Payment) Regulations objectives: tackling barriers to investment 2014 that came into force on 18 December in energy efficiency, enhancing energy 2014; security and enabling investment in low carbon energy supplies. It encourages the the Energy Act 2016, which facilitates the use of new technologies (such as carbon planning process for onshore wind farms capture and storage and emerging in England & Wales and introduces a new renewable technologies) in order to independent Oil and Gas Authority increase the ways in which the UK (“OGA”)96. The legislation also brought an generates electricity. In addition, it end to costly Renewable Obligations regulates electricity generated from Subsidies and now entitles developers of renewable sources, electricity transmission, onshore wind farms to apply for grace payments to small-scale generators of periods to commission a project. The low-carbon electricity, and payments in OGA has new regulatory powers, respect of the renewable generation of including, the ability to participate in heat; meetings with operators, access to data, provide dispute resolution and to introduce the Energy Act 2013, which succeeds the a range of sanctions such as enforcement Energy Act 2010, introduces notices and fines of up to £1 million; decarbonisation targets95 and places the Secretary of State under a duty to ensure 92 Brought into force by the Climate Change Act 2008 Credit Limit and Definitions) Order 2009 (SI (2020 Target, Credit Limit and Definitions) Order 2009/1258). 2009 No. 1258. 94 Brought into force by the Energy Act 2011 93 Related legislation includes: CRC Energy Efficiency (Commencement No. 2 and Saving) Order 2013. Scheme (Amendment) Order 2011 (SI 2011/234); 95 Section 1(1) Energy Act 2013 Carbon Accounting (Amendment) Regulations 2009 (SI 2009/3146); Carbon Budgets Order 2009 (SI 96 Part 1 Energy Act 2016 2009/1259); Climate Change Act 2008 (2020 Target, 258 GLOBAL RENEWABLE ENERGY GUIDE 2017 UNITED KINGDOM WHITE & CASE LLP, London the Planning Act 200897, which makes 4. What are the principal regulatory provisions for infrastructure in Renewable bodies in the renewable energy sector? Energy Zones (being areas outside the UK’s territorial sea to be exploited for The principal regulatory body in respect of energy production)98; renewable power is Ofgem, an independent body which regulates the pricing, transmission the Planning and Energy Act 200899, which and production of energy in the UK. Ofgem allows local planning authorities to include administers the Renewables Obligation and its 104 policies imposing reasonable requirements role includes : for a proportion of energy used in regional development to be energy from renewable accrediting renewable source electricity sources in the locality of the development; generating stations; the Utilities Act 2000100, which requires a issuing and revoking ROCs as discussed certain level of renewable source energy further below; production and, amongst other things, empowers the Secretary of State to order maintaining the ROCs register; electricity suppliers to produce evidence that customers have been provided with a monitoring compliance with the certain amount of electricity generated requirements of Renewables Obligation through renewable sources101; and Orders; the Carbon Plan, published in December calculating the buy-out price; 2011, which sets out plans for achieving the emissions reductions up to 2027 pledged in receiving buy-out and late payments and previous carbon budgets, including the redistributing the funds; and intention to reduce UK emissions by 80% from 1990 levels in 2050.102 The first four reporting annually on the state of carbon budgets have been set into law for compliance with Renewables Obligation the period 2008-2027. According to the Orders and their operation. latest projections, the UK is on track to meet the first three legislated carbon In 2009, Ofgem established a new business unit, budgets, but there is an estimated shortfall Ofgem E-Serve, which runs government 103 schemes such as: of 181MtC02 over the fourth . 97 Brought into force by the Planning Act 2008 (Carbon Emissions Reduction) (Amendment) Order (Commencement No. 1) (England) Order 2009 No. 2010 (SI 2010/1958). 1303 (C. 70). 102 See https://www.gov.uk/government/publications/ 98 As defined in section 84(4), Energy Act 2004, Part 2, 2010-to-2015-government-policy-greenhouse-gas-emissions/2 Ch. 2. 010-to-2015-government-policy-greenhouse-gas-emissions 99 See www.opsi.gov.uk. 103 See https://www.gov.uk/government/uploads/system/ 100 Brought into force by the Utilities Act 2000 uploads/attachment_data/file/47614/3751-carbon-plan-e (Commencement No. 1 and Saving) Order 2000 No. xecutive-summary-dec-2011.pdf 2412 (C. 67). 104 Ofgem also administers the NIRO. 101 Related legislation includes the Electricity and Gas GLOBAL RENEWABLE ENERGY GUIDE 2017 259 WHITE & CASE LLP, London UNITED KINGDOM the Renewables Obligation Smart Assessment tool and the introduction of a new Meters105; tiered tariff applicable to producers of biomethane112. Ofgem has provided detailed Offshore Electricity Transmission for guidance on the changes113. renewable and non-renewable sources106; In January 2014, Ofgem brought into effect the administration of government new rules designed to simplify the domestic environmental programs (e.g., the energy market. The reforms include a ban on Renewables Obligation, Climate Change energy suppliers operating what Ofgem Levy exemptions and the Carbon Emission describes as “complex multi-tier tariffs” (where Reduction Target107, which obliges energy consumers are initially charged a higher rate, suppliers to provide grants and offers to which only falls if their consumption increases enable individuals to pay for energy above certain levels). Suppliers cannot offer efficiency measures and renewable energy more than four tariffs per fuel type, of which technologies in their homes); and one must be a standard variable rate tariff. Suppliers had until 30 June 2014 to transfer all the Renewable Heat Incentive (RHI)108. customers on existing tariffs onto their cheapest variable rate, unless they choose otherwise.114 Ofgem was restructured in 2009 to give greater These changes are intended to make it easier for focus on sustainability and the need to ensure customers to assess how competitive different that the UK’s high-voltage networks can meet tariffs are and to provide them with clear the challenge of connecting more renewable information on their energy usage and generation. It was further restructured in efficiency. However, there have been criticisms January 2016 to enable it to best meet the future that by restricting the number of tariffs to just challenges of energy regulation109. Since 2009, four, it could be harder for energy companies to Ofgem E-Serve has administered schemes offer a range of green energy.115 worth more than £6 billion a year for less than 0.5 per cent of their total value110. A number of In June 2014 Ofgem announced a Competition regulatory amendments to the RHI scheme and Markets Authority (“CMA”) investigation came into effect on 12 February 2015111, into the trading practices and competitiveness 116 including updating the Ofgem Heat Loss of the country’s major energy companies . The 105 See http://www.legislation.gov.uk/ukdsi/2015/978011112 https://www.ofgem.gov.uk/about-us/who-we-are/our-struc 4970/pdfs/ukdsi_9780111124970_en.pdf ture/ofgem-e-serve 112 See 106 See https://www.ofgem.gov.uk/publications-and-updates/chan https://www.ofgem.gov.uk/network-regulation-riio-model ges-non-domestic-rhi-regulations-february- 2015 107 See 113 See https://www.ofgem.gov.uk/about-us/how-we-work/promot https://www.ofgem.gov.uk/publications-and-updates/guida ing-sustainability/sustainability-reporting nce-volume-one-two-and-fuel-measurement-and-sampling-gui 108 See www.ofgem.gov.uk. dance 114 109 See See https://www.ofgem.gov.uk/publications-and-updates/new- https://www.ofgem.gov.uk/information-consumers/domesti ofgem-organisational-structure c-consumers/understanding-energy-bills 115 110 See See https://www.ofgem.gov.uk/environmental-programmes/e-se http://www.businessgreen.com/bg/analysis/2320773/goo rve/about-e-serve d-energy-warns-over-ofgem-restrictions-to-smarter-tariffs 116 111 See See https://www.ofgem.gov.uk/publications-and- 260 GLOBAL RENEWABLE ENERGY GUIDE 2017 UNITED KINGDOM WHITE & CASE LLP, London investigation took two years and aimed to giving importance to a strong planning address concerns that the “big six” suppliers system, supply chains and connection to were overcharging consumers in the UK. In the grid; June 2016 the CMA published its final report. Despite a sentiment that energy prices were providing the opportunity for local unnecessarily high, the CMA found that communities to have communal renewable competition was in fact working: 90% of UK energy schemes to share and benefit from; domestic energy customers were disengaged and either unable or unwilling to switch energy enabling the acceleration of technologies providers.117 Ofgem rejected calls for a price cap which will be important contributors in the and said it had not found evidence of energy future, such as marine energy, in which the companies using cartel-type behaviour to push UK has a strong presence as the innovator up prices. Ofgem said that it would implement of the world’s first full-scale devices to the CMA’s recommendation and that suppliers harness the power of waves and tides; and should be required to provide the details of customers who have been on expensive tariffs aiding a current project to encourage for three years or more to rival suppliers. manufacturers of wind turbines to use the Ofgem also said that it would impose an interim UK’s potential and another project to price cap on customers using pre-payment develop an offshore electricity grid.120 meters118. The statutory consultation published in January 2017 sets out Ofgem’s final 5. What are the main permits/licenses proposals to remove the majority of required for renewable energy projects? prescription from the sales and marketing licence condition and to enable consumers to When an application is made for development make informed choices through simpler consent for a nationally significant energy tariffs.119 infrastructure process, the following process applies: Another regulatory body is the Office for Renewable Energy Deployment (“ORED”), The Planning Inspectorate receives and launched by the government in 2009 to ensure considers the application under the that the UK meets its targets for renewable Planning Act 2008 (as amended by the energy. It is run under DECC, and is Localism Act 2011); responsible for taking forward the commitments in the UK Renewable Energy The Planning Inspectorate makes Strategy including: recommendations to ministers at DECC; and ensuring that renewable technologies can efficiently be deployed by supporting and DECC makes the final determination.121 updates/ofgem-has-decided-transfer-competition-act- acceptance-of-undertakings.pdf investigation-competition-and-markets-authority 119 See https://www.ofgem.gov.uk/gas/retail-market/ 117 See https://assets.publishing.service.gov.uk/media/ market-review-and-reform/implementation-cma-remedies 5773de34e5274a0da3000113/final-report-energy-market-i 120 See http://tools.decc.gov.uk/en/content/cms/meeting_ nvestigation.pdf energy/renewable_ener/ored/ored.aspx 118 See https://assets.publishing.service.gov.uk/media/ 121 See 58594ebee5274a13030000f2/emi-gas-tariff-codes-notice-of- https://www.gov.uk/guidance/consents-and- planning-applic GLOBAL RENEWABLE ENERGY GUIDE 2017 261 WHITE & CASE LLP, London UNITED KINGDOM Renewable energy projects which have an Marine and Fisheries Agency for depositing output of over 50MW for onshore projects and materials in the sea. This encompasses the 100MW for offshore projects must follow this placement of construction material, or disposal development consent process. Projects under of waste.123 In deciding whether to grant a 50MW will be determined by the relevant local licence the MMO will pay particular regard to planning authority under procedures set out in the environmental implications and other the Town and Country Planning Act 1990. effects of the work, including the potential hydrological effects, interference with other DECC is responsible for setting the framework marine activities, potential risk to fish and other for the regulation and licensing of electricity marine life and any adverse implications for plants. Ofgem considers these licences and designated marine conservation areas.124 The decides whether or not to grant a licence. Under MMO licenses approximately 300 projects a section 4(1) of the Electricity Act 1989, it is an year which allows industries using marine offence to generate, distribute or supply resources to bring significant and sustainable electricity unless authorised to do so by a social and economic benefit to the UK125. licence, or otherwise exempted. Wind farms, combined heat and power systems and other In addition to a marine licence, offshore forms of renewable technologies for the applications may also require consent under the generation of electricity are not exempt from Electricity Act 1989. Application fees for these these licensing obligations, since the generating consents range from £5,000 for a generating technology used is not directly part of the station with less than 200 megawatts capacity criteria used to assess a licensing application.122 up to £20,000 for a generating station with Required electricity licenses include a more than 500 megawatts capacity.126 transmission, distribution, interconnector and generation licence. 6. Is there a category of “license-exempt generation”? If so, does it cover some The Marine Management Organisation types of renewable energy based (“MMO”) is responsible for considering and generation? determining licensing applications for offshore windfarms, wave and tidal devices that have a There is no specific category of “licence exempt capacity up to 100 megawatts. The MMO generation” in the UK, but there are instances in carries out licensing and enforcement functions which a licence need not be applied for. under the Marine and Costal Access Act 2009 Exemptions may apply to individual cases or a class of activity and may be unconditional or on behalf of the Secretary of State. A licence subject to certain conditions including length of under the Food and Environmental Protection time.127 Exemptions have been granted to Act (Part II) 1985 is also required from the renewable energy generators. An exemption ations-for-national-energy-infrastructure-projects#history 2009 122 See 125 See https://www.gov.uk/government/uploads/system/ https://www.gov.uk/guidance/consents-and- planning-applic uploads/attachment_data/file/430632/corporate-plan14-1 ations-for-national-energy-infrastructure-projects 7_-_new.pdf 123 See https://www.gov.uk/government/uploads/system/ 126 Application fees for these consents are set out in the uploads/attachment_data/file/43573/Section_36_guidanc Electricity (Offshore Generating stations) e.pdf (Applications for Consent) Regulations 2006 124 See 127 See https://www.gov.uk/marine-licensing-impact- assessments https://www.ofgem.gov.uk/licences-codes-and- standards/lice See also Part 4 of the Marine and Costal Access Act nces/licence-exemptions-and-exceptions 262 GLOBAL RENEWABLE ENERGY GUIDE 2017 UNITED KINGDOM WHITE & CASE LLP, London Order was granted to RWE Npower Renewables role in underpinning UK policy and providing a (Markinch) Limited in respect of the Markinch backup to decarbonisation commitments. Biomass CHP facility in Scotland and to Baillie However, the UK’s departure from the EU is not Windfarm Limited in respect of the Baillie expected to change the general direction of UK onshore wind farm in Scotland in April 2013128129. renewable energy regulations, as they are driven More recently, an exemption Order was also by the Climate Change Act 2008 and domestic granted to Carbon Free Moy Limited in respect of concerns about security of supply and the 60MW Moy onshore wind farm in January affordability. The Commons Select Committee 2015. 130 issued a report in October 2016 on the implications of exiting the EU131. The Committee 7. Has there been any reform related to asserted that in the long term there are concerns renewable energy regulations since 2016? that the UK’s departure from the EU could end Do you expect any reform/change in the its involvement with coordinated actions and near future? processes, such as the EU’s proposed “solidarity principle” - a policy designed to ensure that The UK’s vote to leave the EU in June 2016 will Member States receive immediate assistance in result in reform related to renewable energy the event of a gas supply crisis. The Committee regulations in the near future. EU regulations are also heard from stakeholders that remaining directly applicable but they do need to be within the EU ETS and other European energy transposed into UK legislation. When the UK arrangements like the Internal Energy Market formally leaves the EU in March 2019 these could allow the UK to avoid costs and retain Regulations would cease to apply unless the UK benefits as the UK leaves the European Union. enacts domestic legislation replicating their provisions. EU-derived legislation retained in UK The EU ETS is seen as one of the most important law will need to be reviewed and amended in the policy instruments for the potential reduction of light of the UK’s relationship. There are also greenhouse gases in Europe132. Emissions trading questions about how relevant such laws will will account for 50% of the UK emissions remain once the UK is no longer in the EU, and reduction required by 2020 under the Climate how enforceable they will be when the directives Change Act, so leaving the EU ETS would be from which they are derived no longer apply and highly complex in terms of their carbon trading when there is no longer any recourse to the policies. Improvements in the ETS, such as European Court of Justice. Brexit could be a clearer price signals and improved governance are trigger for wholesale review of UK energy due to be introduced in Phase IV (from 2021 regulations, but this will depend on the nature of onwards). Decisions about the next phase, the Brexit package and the political willingness of applying from 2021 to 2030, will be made in 2017 UK governments. when the UK as an existing EU member can still play a full part in negotiations and decisions. The The reform so far has been limited. For the most Committee warned there would be complex part the vote to leave the EU has reduced investor challenges associated with alternative options. confidence in the energy sector. EU energy and These include the potentially costly and complex climate change policies have played an important option to establish a UK ETS linked to the EU 128 See https://www.gov.uk/government/uploads/system/ 131 See https://www.publications.parliament.uk/pa/ uploads/attachment_data/file/137875/markinch_baillie_l cm201617/cmselect/cmenergy/705/70506.htm#_idText icence_exemptions.pdf Anchor036 129 See http://www.legislation.gov.uk/uksi/2013/ 132 See https://www.parliament.uk/business/committees/ 1011/pdfs/uksi_20131011_en.pdf committees-a-z/commons-select/energy-and-climate-change-co 130 See https://www.gov.uk/government/uploads/system/ mmittee/news-parliament-2015/energy-revolution-report-publ uploads/attachment_data/file/397129/Moy.pdf ished-16-17/ GLOBAL RENEWABLE ENERGY GUIDE 2017 263 WHITE & CASE LLP, London UNITED KINGDOM System, or the politically difficult creation of a direct carbon tax. INCENTIVES There is further potential reform in renewable 8. Are tax advantages available to energy regulations following the UK election in renewable energy generation June. The Conservative party manifesto pledges companies? to cap prices for two-thirds of British households that are on standard dual fuel variable tariffs, with One major tax advantage for renewable energy Ofgem setting a maximum price for energy bills generation companies comes in the form of an in different regions. This follows a cap which was exemption from the requirement to pay the introduced in May 2017 on pre-payment metres Climate Change Levy, which is a specific energy for those who tend to be on low incomes. The tax on the supply of gas and electricity to current governing party has also previously sworn non-domestic users in the UK.134 Electricity to support the existing Climate Change Act 2008, that is generated from renewable sources is with a broad approach to improving air and water quality. Previous plans included investing over exempt from this tax, provided that the £3 billion to improve the environment, with renewable energy source qualifies under the conditions stipulated in the legislation to obtain further intent to shift cars and vans to 135 zero-emissions vehicles by 2050. The a Levy Exemption Certificate (“LEC”). Conservatives are encouraging off-shore LEC’s are issued to generators of renewable renewable energy generation by phasing out energy for each MWh of electricity produced. subsidies for new on-shore wind farms. Renewable generators are also exempt from the The Labour Party opposes the government on requirement to purchase carbon allowances in many issues, but shares some common ground order to generate electricity under the EU ETS, when it comes to supporting the Paris Agreement and receive long-term tariff support payments and combatting climate change.133 It seeks the for renewable heat generation under the RHI. reduction of carbon emissions from production of electricity to zero, targeting the year 2030 as its On 1 April 2010, the government introduced goal. It sees nuclear power and fracking for shale the concept of “FITs for micro-generation”. gas as viable methods for new energy production, These are payments to producers of renewable as long as robust regulations are in place, with electricity up to 5MW, whether used by the further research into the lasting environmental generator for its own purposes or exported to effects before agreeing to them. However, a key the national transmission system (National issue has been the economic impact on Grid). The tariffs are designed to incentivize the consumers, with promises of price freezes in an generation of renewable electricity on a small effort to tackle fuel poverty across the country. scale.136 The FITs scheme supports renewable energy projects which involve new anaerobic 133 See hmrc.gov.uk. http://www.tridentutilities.co.uk/election-2017- parties-addr 135 Part V, Sections 48 and 49 of the CCL. ess-energy-environment/ 136 Section 41, Energy Act 2008 gives the Secretary of 134 The aim of the CCL is to provide an incentive to State authority to introduce FITs. The Statutory increase energy efficiency and to reduce carbon Instrument to put the FITs into practice is the emissions. The Climate Change Levy (General) Feed-in Tariffs (Specified Maximum Capacity and Regulations 2001 (Statutory Instrument 2001 No. Functions) Order 2010 (S.I. 2010/678) as amended 838), subsequently amended by (most recently), The by the Feed-in Tariffs (Specified Maximum Capacity Climate Change Levy (General) (Amendment) and Functions) (Amendment) Order 2011 (S.I Regulations 2010 No. 643. See also www.customs. 2011/1181). 264 GLOBAL RENEWABLE ENERGY GUIDE 2017 UNITED KINGDOM WHITE & CASE LLP, London digestion, hydro, solar photovoltaic and wind and a preliminary accreditation mechanism,138 energy. A pilot program is also being set up, through changes that came into force on 1 whereby the first 30,000 micro combined heat December 2012.139 and power installations with an electrical capacity of 2kW or less are supported by FITs. On 27 August 2015, the UK government More than 21,000 installations, mostly launched a consultation on the future of the domestic, have been registered to date.137 FITs scheme which, inter alia, proposed a number of measures aimed at controlling the On 7 February 2011, the UK government cost of the FITs scheme to limit the impact on undertook a review of the FITs scheme to consumer bills. Subsequently in December determine how it could be improved in order to 2015, the UK government announced revised meet the target of 10% of savings in 2014/15, tariffs, including a new tariff for domestic-scale as committed in the 2010 Spending Review. solar of 4.39p/kwh.140 The new tariffs aim to This addressed issues such as tariff levels, provide a sustainable return for investors in eligible technologies and administrative and small-scale renewable technology without regulatory arrangements. imposing unnecessary burdens on the bill payers who subsidize the renewables industry. The review was separated into three phases, and On FITs, the government also announced that: included consideration of (i) linking small-scale solar photovoltaic (PV) tariffs to minimum deployment caps will be set to limit new energy efficiency requirements and introducing spending on the FITs scheme to new multi-installation tariff rates for aggregated £100 million up to the end of 2018/19; solar PV schemes; (ii) solar PV cost control mechanisms; and (iii) wind, anaerobic digestion the reintroduction of pre-accreditation for and micro-combined heat and power and solar PV and wind generators over 50kW scheme administration issues. and all hydro and anaerobic digestion generators; and On 24 May 2012, the government responded to the consultation on solar PV cost control measures to pause new applications to the mechanisms, which included setting out solar FITs scheme from 15 January to 8 PV tariffs for new installations from 1 August 2012. It also set tariffs on a quarterly basis based February 2016, to allow time for the on deployment during the year (through implementation of cost control modifications to the Standard Conditions of measures.141 Electricity Supply Licences). A new FIT scheme opened in February 2016, The government also addressed a broad range with different tariff rates and rules, including a of other issues, including tariffs for anaerobic limit on the number of installations digestion, hydro, micro CHP and wind, the treatment of community-owned installations 137 See https://www.gov.uk/combined-heat-and-power- incentives https://www.gov.uk/government/news/huhne- takes-action- 140 See on-solar-farm-threat https://www.gov.uk/government/news/changes- to-renewabl 138 See https://www.gov.uk/government/uploads/system/ es-subsidies uploads/attachment_data/file/42917/5905-government-res 141 See ponse-to-consultation-on-comprehensi.pdf https://www.gov.uk/government/news/changes- to-renewabl 139 See es-subsidies GLOBAL RENEWABLE ENERGY GUIDE 2017 265 WHITE & CASE LLP, London UNITED KINGDOM supported.142 The current export tariff is The UK ratified the Paris Agreement in 5.03 p/kWh for all installations with an November 2016144. The national determined eligibility date on or before 31 March 2018. contributions for the UK are encompassed in There has been a significant reduction in The Climate Change Act, which established a government incentives paid to legally binding target to reduce the UK’s householders - in February and March 2016 greenhouse gas emissions by at least 80% by there was 21MW of small solar installed 2050, with an interim target of emissions compared with 81MW in the same period in reductions by 34% by 2020 compared with 2015.143 1990. The Act introduced a system of carbon budgets which provide legally binding limits on 9. Is there a purchase guarantee given by the amount of emissions that can be produced the relevant legislation for the in successive five-year periods.145 Relative to the electricity generated by renewable rest of the world, the UK has a low share of energy companies? emissions from agriculture, an average share from industry and a high share from aviation. There is currently no legislation providing for Analysis of the fifth carbon budget146 found that the guaranteed purchase of electricity created by paths to at least 66% likelihood below 2 C imply renewable energy companies. a range for UK emissions in 2030 of 59-80% below 1990 levels. This would imply the UK 10. Is there a minimum price guarantee should reach net zero before the world overall given by the relevant legislation for the – by around 2030-55 for a 66% likelihood of electricity generated by renewable 2°C, and by around 2025-30 for a 50% energy companies? likelihood of 1.5 C.147 The FITs with CfDs mentioned above are long The UK ratified the Kyoto Protocol on 31 May term contracts allocated by the National Grid to 2002 and entered into force on 16 February developers of low carbon generation and which 2005. The Kyoto Protocol introduced the will guarantee a set price for the electricity concept of carbon emissions trading and produced over an extended period of time. enabled the UK, an Annex 1 country under the protocol, to use carbon credits to meet its 11. Has the Paris Agreement under the emission reduction commitments. United Nations Framework Convention on Climate Change been In an attempt to go beyond the reductions ratified? If yes, what are the required under the Kyoto Protocol, the UK undertakings of your Country in the Government launched the UK Emissions NDC (national determined Trading Scheme with an auction in March contributions) submitted for the first 2002148. Companies and other organisations five-year period? known as “Direct Participants” bid emission 142 See -agreement https://www.ofgem.gov.uk/environmental- programmes/fit/f 145 See https://www.gov.uk/guidance/carbon-budgets it-tariff-rates 146 CCC (2015) The scientific and international context for the 143 See fifth carbon budget. https://www.ofgem.gov.uk/publications-and- updates/feed-ta riff-fit-deployment-caps-reached-tariff-period-1-0 147 See https://www.theccc.org.uk/wp-content/uploads/ 2016/10/UK-climate-action-following-the-Paris-Agreement- 144 See Committee-on-Climate-Change-October-2016.pdf https://www.gov.uk/government/news/uk- ratifies-the-paris 148 See https://www.nao.org.uk/wp-content/uploads/ 266 GLOBAL RENEWABLE ENERGY GUIDE 2017 UNITED KINGDOM WHITE & CASE LLP, London reductions over the five-year period between efforts to reduce its carbon emissions by 80% 2002-2006 in return for a share of £215 million by 2050. However, the UK government incentive funding from Defra. The UK scheme confirmed in its 2016 budget that, following its did not involve allocation as usually defined review of energy efficiency taxes, it will abolish since allowances were distributed to the the CRC Energy Efficiency Scheme from the winning bidders. From April 2002, the Direct end of the 2018-2019 compliance year and Participants could trade their emission businesses will be required to surrender ‘allowances’ – the emissions allowed after the allowances for the final time in October 2019. promised reductions. Direct Participants were In doing so, the aim is for the business energy issued with allowances equal to their target tax landscape to become more streamlined in emissions each year, and at the end of each year, the UK, as the CRC Energy Efficiency Scheme must hold enough allowances to cover its actual will be replaced with an increase in the CCL. emissions for that year. Over the 2002-2006 period, Direct Participants were required to 12. Is there a carbon market or carbon deliver reductions from baseline levels totaling credits mechanism in your jurisdiction? 11.88 million tonnes. The UK Emissions Trading Scheme was the first in the world to The UK has a legally binding target to cut allow many companies (34 in total) to emissions of greenhouse gases by 80% from participate. The voluntary scheme ended in 1990 levels by 2050 under the EU’s Emission December 2006. Trading System (ETS), the world’s biggest carbon trading scheme150. The UK has around On 1 April 2010, the Carbon Reduction 1,000 EU ETS participants. The “traded sector” Commitment Energy (CRC) Efficiency covered by the EU ETS will account for over Scheme, a mandatory UK energy saving, and 50% of the emissions reductions needed to carbon emissions reduction scheme was meet UK targets between 2013 and 2020. The launched.149 The scheme applies to large EU ETS plays a key part in ensuring the UK energy-intensive businesses and public sector complies with its legally binding carbon organisations in the UK and is designed to budgets, which will in turn help to reduce UK target emissions not already covered by the EU emissions to at least 35% (below 1990 levels) in ETS or Climate Change Agreements. 2020 and 80% by 2050. These targets are set out Organisations that meet the qualification in the Climate Change Act 2008. Further, in the criteria for the scheme are required to UK there is a carbon price floor (“CPS”) which participate, and must buy allowances for every will be capped at £18 per tonne of carbon ton of carbon they emit. The scheme is dioxide (t/CO2) from 2016-17 to 2019-20151. currently in its Initial Phase (1 April 2014 – 31 This will have the effect of freezing the CPS March 2019). The scheme was projected to rates for each of the individual taxable reduce non-traded carbon emissions by 16 commodities across this period at around million tonnes by 2027, supporting the UK’s 2015-16 levels. 2004/04/0304517.pdf appendix-3-crc-energy-efficiency-scheme 149 See https://www.gov.uk/government/publications/ 150 See https://www.gov.uk/government/publications/ 2010-to-2015-government-policy-energy-demand- reduction-in 2010-to-2015-government-policy-greenhouse-gas-emissions/201 -industry-business-and-the-public-sector/ 0-to-2015-government-policy-greenhouse-gas-emissions 2010-to-2015-government-policy-energy-demand- reduction-in 151 See https://www.gov.uk/government/publications/ -industry-business-and-the-public-sector# carbon-price-floor-reform GLOBAL RENEWABLE ENERGY GUIDE 2017 267 WHITE & CASE LLP, London UNITED KINGDOM 13. Do renewable energy based power DECC’s Low Carbon Investment Fund has plants have priority for connection to provided a further £2.8 million for eight smaller the grid? smart grid demonstration projects.154 The National Grid is the UK’s electricity In 2016 the UK National Infrastructure transmission system. The Connection and Use Commission released its first report on Smart of System Code (CUSC) is the contractual Power for the UK Smart Grid155. The framework for connection to and use of the Commission’s central finding is that Smart National Grid’s system. Under this Code, there Power could save consumers up to is not, at this time, any priority of connection £8 billion a year by 2030, help the UK meet its for power generators using renewable energy 2050 carbon targets, and secure the UK’s energy sources. supply for generations. The UK is uniquely placed to benefit from three innovations which DECC released its policy ‘Smarter Grids: The could help fire a smart power revolution: Opportunity’ in 2009, which recognizes the need for an intelligent grid suited to managing Interconnection – connecting our the fluctuating input of energy from renewable electricity network to continental sources. Subsequently, DECC and Ofgem neighbours to bring down bills and created the DECC/Ofgem Smart Grid Forum increase green power supplies. in 2011. In February 2014, the Smart Grid Forum published the UK’s “Smart grid Vision Storage – making use of technologies, not and Routemap”,152 a formative aspect of which through subsidies, but by ensuring that is the Smart Metering Implementation better regulation creates a level playing field Program,153 ambitiously aiming to roll out 53 between generation and storage. million smart meters (as mentioned in question 4 above) to all domestic and smaller Demand flexibility – a new generation of non-domestic premises by 2020, with the aim of hi-tech systems so consumers can save installing smart meters in every home by 2050. money and cut emissions. Whilst the installation of a smart meter is not a legal obligation, the government has placed 14. Is there an incentive for domestic regulatory obligations on energy suppliers to (local) manufacturing of equipment or take ‘all reasonable steps’ to install such. A materials used in the construction of smart meter sends an electronic meter reading renewable energy based power plants? to an energy supplier in intervals of an hour or less for monitoring and billing, doing away with According to the UK Low Carbon Transition the need for manual meter readings and Plan, the government will help make the UK a estimated bills. Ofgem established the “centre of green industry” by supporting the £500 million Low Carbon Networks Fund in development and use of clean technologies. It August 2009 to support smart grid trials over promises to provide a supportive climate for the five-year period from April 2010 to 2015. investment in low carbon infrastructure, and is 152 See https://www.gov.uk/government/uploads/system/ 154 See https://www.gov.uk/government/publications/ uploads/attachment_data/file/285417/Smart_Grid_Visi 2010-to-2015-government-policy-uk-energy-security/2010-to on_and_RoutemapFINAL.pdf -2015-government-policy-uk-energy-security 153 See https://www.gov.uk/government/uploads/system/ 155 See https://www.gov.uk/government/uploads/system/ uploads/attachment_data/file/413712/Consultation_on_r uploads/attachment_data/file/505218/IC_Energy_Repor eview_of_Data_Access_and_Privacy_framework_final.pdf t_web.pdf 268 GLOBAL RENEWABLE ENERGY GUIDE 2017 UNITED KINGDOM WHITE & CASE LLP, London itself investing in research and development of and whether it will drive down costs for tidal new low carbon technologies. lagoon energy in the UK.158 In the 2010 UK Budget, DECC announced its The 2016 and 2017 UK budget did not include intention to provide up to £60 million of any additional incentives for domestic government funding to manufacturers of manufacturing of equipment or materials used offshore wind turbines looking to locate new in the construction of renewable energy based facilities in the UK in order to support power plants.159 infrastructure such as the development of ports.156 The government introduced the Enhanced Capital Allowances (“ECA”) scheme in 2001 to In the 2014 UK Budget, the government encourage businesses to invest in low carbon, announced it will provide £60 million energy-saving equipment160. The scheme investment for new low carbon innovation to provides a tax incentive to businesses that support CCS technologies that show significant invest in equipment that meets published potential to reduce the cost of low carbon energy-saving criteria. The ECA scheme allows generation in the UK.157 the full cost of an investment in designated energy-saving plant and machinery to be written In the 2015 UK Budget released on 18 March off against the taxable profits of the period in 2015, the government announced that it will which the investment is made. The Carbon support manufacturers by bringing forward the Trust published a guide to equipment eligible compensation for indirect costs of small-scale for Enhanced Capital Allowances in April 2015, FITs for energy intensive industries to the facilitating implementation of the ECA earliest point at which State Aid approval is scheme161. received in 2015-16. This is expected to save energy intensive industries £25 million in 15. What are the other incentives available 2015-2016. The 2015 Budget also outlines to renewable energy generation measures to strengthen the UK’s energy supply companies? in both the short and longer term, including the bringing forward of proposals for legislation in The RO was introduced in 2002 under the the next Parliament for competitive tendering Electricity Act 1989 to require all licensed of onshore electricity transmission electricity suppliers in England and Wales to infrastructure. The government also announced supply a specified proportion of their electricity 162 its decision to enter into the first phase of sales from renewable sources. Following the negotiations on a CfD for Swansea Bay Tidal implementation of the Energy Act 2013, FITs Lagoon, to determine whether the project is with CfDs will replace the existing subsidies and affordable and value for money for consumers, incentives such as the RO, with the RO expected to finally phase out in 2037. 156 See www.hmtreasury.gov.uk 160 See https://www.gov.uk/government/publications/ 157 See https://www.gov.uk/government/uploads enhanced-capital-allowance-scheme-for-energy-saving-technologi /system/uploads/attachment_data/file/293759/37630_B es udget_2014_Web_Accessible.pdf 161 See https://www.gov.uk/government/uploads 158 See www.hmtreasury.gov.uk 162 For ease of reference the dates for England and 159 See https://www.gov.uk/government/uploads/ Wales are used. The Renewables Obligation Orders system/uploads/attachment_data/file/508193/HMT_Bu for England & Wales and Scotland were introduced dget_2016_Web_Accessible.pdf in April 2002. In Northern Ireland, it was introduced in April 2005. GLOBAL RENEWABLE ENERGY GUIDE 2017 269 WHITE & CASE LLP, London UNITED KINGDOM Applications for RO can be made up to 31 scheme for Solar PV generating stations of March 2017. 5MW capacity and below166. The rationale behind the changes is that government The Renewables Obligation Order 2002 subsidies were only ever intended to be a (“ROO 2002”) was designed to incentivize the temporary measure, and that as the cost of deployment of large-scale renewable electricity renewable technologies has reduced, the cost to generation. Under the ROO 2002, UK generators is no longer as high. electricity suppliers were under an obligation to source an increasing proportion of their The RO closed to all new generating capacity in electricity from renewable sources and a March 2017. There have been early closures renewables obligation certificate (“ROC”) is under the RO for solar photovoltaic (PV) and issued for each MWh.163 Since the introduction onshore wind. Generators can gain entry to the of the ROO, growth in renewable electricity scheme after these closures for specified generation more than doubled in the UK, amounts of time, if they are eligible to apply for attributed to the financial benefit of trading a grace period. To continue to support ROCs.164 The buy-out price for the 2017-18 low-carbon electricity generation, the obligation period is £45.58 per Renewables government has introduced the Contracts for Obligation Certificate (ROC). This is the Difference (CFD) scheme.167 amount suppliers will need to pay for each ROC they do not present towards compliance with The new FIT regime introduces a long-term their 2017-18 obligation.165 contract set at a fixed price level, under which variable payments are made to top-up the level The Renewables Obligation (Amendment) of payment to the generator to the agreed tariff. Order 2013 specifies the amount of support The FIT payment will be made in addition to that individual technologies will receive under the generator’s revenues from selling electricity the RO for the period 2013-2017. The RO in the market.168 banding changes are estimated to deliver 11TWh more generation annually from To increase the proportion of heat produced 2016/2017 compared to the previous bands and from renewable sources, the UK government are estimated to cost the average household £6 launched the RHI in November 2011, which less in 2013/2014 than previously estimated. gives payments to entities that self-generate renewable heat and is the world’s first long-term In December 2015, the government announced financial support program for renewable heat.169 proposals for reduced support under the RO 163 The Renewables Obligation Order 2009 requires the https://www.ofgem.gov.uk/publications-and-updates/rene Secretary of State to publish the number of ROCs wables-obligation-ro-buy-out-price-and-mutualisation-ceiling that each electricity supplier is required to produce s-2017-18 for each MWh of electricity supplied by it to 166 See https://www.gov.uk/government/uploads/system/ customers in England and Wales (during the relevant uploads/attachment_data/file/486091/20151216_Small compliance period) in order to discharge its RO for _scale_solar_PV_government_response_FINAL.pdf that period., see www.decc.gov.uk/en/content/cms/what_we_do/ 167 See uk_supply/energy_mix/renewable. https://www.ofgem.gov.uk/environmental- programmes/ro/ about-ro/ro-closure 164 It has succeeded in bringing forward more economic technologies such as co-firing, landfill gas, onshore 168 See https://www.gov.uk/government/publications/ wind and sewage gas. See the UK Low Carbon planning-our-electric-future-a-white-paper-for-secure-affordable Industrial Strategy at “www.decc.gov.uk”. -and-low-carbon-energy 165 See 169 Section 100, Energy Act 2008 gives the Secretary of State authority to introduce the RHI. The Statutory 270 GLOBAL RENEWABLE ENERGY GUIDE 2017 UNITED KINGDOM WHITE & CASE LLP, London In March 2016 the Government published a the domestic RHI, and allowance for Registered consultation document which proposed Social Landlords to apply for domestic RHI considerable changes to the remuneration and without a Green Deal Assessment.173 Further operation of projects under the RHI scheme. changes to the Domestic RHI scheme came These include: amended degression triggers, into force on 24 March 2016, inter alia, removing budget caps in respect of both the domestic and the need for applications to have a Green Deal non-domestic RHI schemes, moving the tariff Assessment, which was perceived as an indexation index from the Retail Prices Index to unnecessary burden and indexing tariffs for the Consumer Price Index and the introduction applications accredited on or after 1 April to the of heat demand limits to prevent schemes being UK Consumer Price Index, as the Retail Price overcompensated. The Government Index previously used is no longer classified as announced its intention for spending on the a National Statistic174. RHI schemes to rise from £430 million in 170 2015/16 to £1.15 billion in 2020/21. STATISTICS The Renewable Heat Premium Payment (RHPP) voucher scheme in the UK closed on 16. What is the percentage of electricity 31 March 2014. Under this scheme, homes not generated based on each type of heated by mains gas were eligible to apply for renewable energy source in the total grants for air-to-water-source heat pumps, generation of electricity on a biomass boilers and solar thermal.171 The country-wide scale? scheme was replaced by the domestic Renewable Heat Incentive scheme which Renewables’ share of electricity generation in launched on 9 April 2014 and aims to help 2016 was 24.4%, a 0.2% decrease on the 2015 businesses, the public sector and non-profit record.175 Total electricity generated from organisations meet the cost of installing renewables in 2016 was down by renewable heat technologies. Biomass, heat 1% on 2015, from a record 83.6 TWh to 82.8 pumps, geothermal heating, solar thermal TWh. On the 2009 Renewable Energy Directive collectors and biomethane are all covered by the (“RED”) basis, the electricity share was 24.3%, scheme.172 In November 2014, DECC compared with 22.4% in 2015. The RED announced amendments to the Domestic RHI measure uses normalised wind and hydro scheme rules. These changes came into force on generation to account for variable generation 5 February 2015 and include clarification that due to weather conditions. Under this measure, heating systems that provide heat to properties wind and hydro generation were increased (due with more than one building can be eligible for to lower than average load factors in 2016), a Instrument to put them into practice is currently had been redeemed. being finalized. 172 See https://www.gov.uk/renewableheatincentive 170 See https://www.gov.uk/government/uploads/system/ 173 See uploads/attachment_data/file/505972/The_Renewable_ https://www.gov.uk/government/uploads/system/uploads/ Heat_Incentive_-_A_reformed_and_refocussed_scheme.pdf attachment_data/file/403636/2015_Dom-RHI_Regs_C 171 As of 18 February 2013, 5758 vouchers had been hanges_Info_Sheet-_5_February_2015.pdf issued under the scheme with a total value of 174 See https://www.gov.uk/government/publications/ £4,051,250. Of these, according to the Energy renewable-heat-incentive-amendments-to-scheme-eligibility/rene Saving Trust, 39% were for solar thermal, 35% for air wable-heat-incentive-amendments-to-scheme-eligibility source heat pumps, 14% for ground or water source heat pump and the remaining 12% for biomass 175 See https://www.gov.uk/government/uploads/system/ boilers. 3,488 vouchers of the total number issued uploads/attachment_data/file/604105/Renewables.pdf GLOBAL RENEWABLE ENERGY GUIDE 2017 271 WHITE & CASE LLP, London UNITED KINGDOM reversal of 2015. Throughout the year 36% of renewables generation was from bioenergy, OTHER 25% from onshore wind, 20% from offshore wind, 12% from solar PV, and 6.5% from 17. Is there anything else you wish to add? hydro. The increase in solar PV’s share (from 9%) was due to a large increase in capacity. No. WHITE & CASE LLP, London Tallat Hussain Hannah Nicholson 5 Old Broad Street 5 Old Broad Street London EC2N 1DW London EC2N 1DW United Kingdom United Kingdom T +44 20 7532 2376 T +44 20 7532 1320 F +44 20 7532 1001 F +44 20 7532 1001 E [email protected] E [email protected] 272 GLOBAL RENEWABLE ENERGY GUIDE 2017 UNITED STATES OF AMERICA James Hayden Daniel Hagan WHITE & CASE LLP, Washington, DC GENERAL 2. What are the definition and coverage of renewable energy under the relevant legislation? 1. What are the nature and importance of renewable energy in your country? The US Congress (the national legislative body) has at different times considered implementing The US is rich in many sources of renewable a federal renewable energy standard (“RES”) energy, including: wind; solar; geothermal; for electric power, but thus far has not done so. various types of hydropower such as However, 38 states and the District of conventional, pumped storage, tidal and kinetic; Columbia have implemented some type of RES biomass; and many developing forms, such as or renewable portfolio standard (“RPS”), also biofuels. In 2016, approximately 15% of the known as a certificate or quota policy. Most of electricity generated by utilities in the US came these programs enforce mandatory compliance from renewable resources, primarily (including 32 states and the District of hydropower and wind. The Energy Information Columbia), whereas 6 others have established Administration (“EIA”) estimates that an voluntary goals instead of binding targets. additional 19 billion kWh (or about 0.02 trillion Many states have also implemented different kWh) of electricity generation was from small- types of incentive programs, such as tax credits, scale solar photovoltaic systems only in 2016. rebates or renewable energy certificates (“REC”). The types of resources that qualify The US has multiple programs to promote the for the state-run programs vary by state. Wind, use of renewable power, but many are solar, and geothermal are generally included, but established by state governments or other mature technologies, such as conventional governmental subdivisions of the states and hydroelectric, are generally excluded (although therefore are geographically limited in their incremental output resulting from efficiency application. There are, however, some financial gains may qualify for some programs). The incentives available nationally through federal definition of “renewable” reflects the state’s programs and one federal mandatory purchase policy priorities and, often, the types of program, as described below. The information resources available to the state, given its below is current as of May 2017. geography. GLOBAL RENEWABLE ENERGY GUIDE 2017 273 WHITE & CASE LLP, Washington, DC UNITED STATES OF AMERICA jurisdiction does not extend to the States of REGULATION Hawaii or Alaska, nor to parts of the State of Texas within the Electric Reliability Council of 3. How is the renewable energy sector Texas (“ERCOT”), each of which does not (or regulated? What are the principal laws is deemed to not) connect to other states. In and regulations? these areas, all power transactions are instead regulated under state laws. Further, under the As a preliminary matter, it is important to FPA, a “public utility” is defined to exclude understand that the generation and federal and state governments or other political transmission facilities in the US are owned and subdivisions as well as certain sellers of power operated by a wide variety of entities. The that are organized as cooperatives and sell less majority of electric consumers are served by than four million megawatt hours of electricity private-sector companies (including those with per year or are subject to oversight by the US publicly traded shares), but assets are also Rural Utilities Service as a result of government owned and operated by a variety of federal, state loans that have been extended to them. These and local governments and by companies that types of organizations are either self-governing, are organized as cooperatives (member-owned or in the case of some cooperatives, subject to companies whose shareholders are also their regulation under state law. customers). There is no national grid company. The applicable laws and regulations differ However, even taking into account those depending on the nature of the entity that owns exclusions, FERC’s jurisdiction over public or operates the generation and transmission utilities reaches the organizations that deliver facilities. power to the vast majority of end-users in the US. It regulates, among others, large vertically Federal Power Act integrated, private-sector utilities; small companies and partnerships that own only one The Federal Power Act (“FPA”) grants the or a few generators; and six of the seven Federal Energy Regulatory Commission organized wholesale power markets (the (“FERC”) authority over the sale of power at seventh of which is in ERCOT and therefore wholesale and the transmission of electric outside of FERC’s jurisdiction). Even some power in interstate commerce by public utilities. exempt sellers come within FERC’s purview But, FERC does not establish rates on its own when they transact in markets that are regulated initiative. Each public utility (as defined below) by FERC. Transmission that is owned or must file with FERC the rates at which it operated by public utilities (as defined above) is proposes to sell power in advance of making also subject to economic regulation pursuant to sales, and FERC has the authority to review the the FPA. The FPA applies without regard to the rates proposed and determine whether they are fuel source by which the power was produced. just and reasonable. Other than those public utilities that are subject Although the FPA is the predominant law that to PURPA (defined and described below), a shapes the wholesale power industry in the US, public utility that wishes to sell power – FERC does not regulate all sellers of power. regardless of whether it sells renewable power – FERC’s FPA jurisdiction is limited to states or must file the tariff pursuant to which it will parts of states that are interconnected to other make such sales with FERC at least 60 days states (even if the transaction is wholly within a prior to its first sale. Many, if not most, single state, so long as the region is wholesale sales of power in the US are made interconnected). Thus, FERC’s FPA pursuant to “market-based rates” which are 274 GLOBAL RENEWABLE ENERGY GUIDE 2017 UNITED STATES OF AMERICA WHITE & CASE LLP, Washington, DC negotiated bilaterally or determined through an available throughout the continental US to organized market. If a seller wishes to sell at renewable power projects as well as others. market-based rates, the terms on which it may Some renewable power project owners also do so must be set forth in the tariff that it files own substantial transmission facilities, since with FERC. FERC will authorize market-based renewable resources may be located in areas sales by a seller only after evaluating market that are remote from the interconnected grid. In studies submitted by the seller to assure the such cases, the renewable power project owner seller cannot exercise market power. Once may also be subject to regulation as a authorization is granted, and a market-based transmission owner and/or provider under the tariff is on file, sales may be made pursuant to FPA in some respects. the tariff without prior FERC approval. However, the seller will be required to report its Public Utility Regulatory Policies Act transactions and must periodically demonstrate to FERC its continued inability to exercise Some small renewable power generators are market power. designated as “qualifying small power production facilities” (or “QFs”) under a Under the FPA, public utilities and certain other federal law, the Public Utility Regulatory sellers that are not public utilities but who Policies Act (“PURPA”).11 These QFs are participate in US markets are also subject to entitled (but not obligated) to sell their power to market behaviour rules intended to protect the utility to which they interconnect at an consumers and the integrity of the market; and “avoided cost” rate – that is, a rate that reflects to reliability standards intended to assure the the cost the utility avoids by taking the power stability of the bulk electric power system. from the QF rather than an alternative source. Owners and operators of renewable facilities Avoided cost rates are set by the state, and are subject to these aspects of the FPA as well. utilities often offer the avoided cost rate for small QFs by tariff. While in some cases the Transmission owners that are public utilities are rates a QF can negotiate for a bilateral market- required to offer “open access” transmission based sale may be better than the avoided cost service, meaning that any person willing and rate available under PURPA, the program able to meet the terms of their tariffs may remains popular because QFs, whether or not receive service. Transmission capacity is they sell power at the avoided cost rate, also awarded on a first-come, first-serve basis, but benefit from certain other regulatory transmission owners are also responsible for exemptions by maintaining QF status. expanding their systems to accommodate new users and are compensated for doing so. As PURPA applies in all fifty states, the District of noted above, there are some owners and Columbia and Puerto Rico. To be eligible for operators of transmission that are not public this program, (1) at least 75% of energy input utilities. FERC has no jurisdiction to order such for the QF must come from renewable transmission owners to provide open access; resources, geothermal resources, biomass (any however, it has authorized public utilities to organic material not derived from fossil fuels), deny service to any person that is a transmission waste (which is broadly defined as an input owner and does not provide reciprocal service. having little or no commercial value and which As a result, open access transmission is widely may include, among other things, used rubber tires, refinery off-gas, synthetic gas from coal, 1 There are two types of qualifying facilities under discussion below addresses only the former, and as PURPA: qualifying small power production used herein, “QF” refers only to a qualifying small facilities and qualifying cogeneration facilities. The power production facility. GLOBAL RENEWABLE ENERGY GUIDE 2017 275 WHITE & CASE LLP, Washington, DC UNITED STATES OF AMERICA and various types of low-BTU coal waste as set Thirty-eight states and the District of Columbia forth in the regulations), or some combination have implemented an RES or RPS program. of the foregoing; and (2) the use of oil, coal or The mandatory programs require the utilities natural gas (which may not exceed 25% of the serving load in the state to assure some portion total energy input) is limited to the minimum of the energy delivered is generated by a needed for ignition, start up, testing, flame renewable resource. Under such programs, a stabilization, control uses and certain renewable energy certificate (REC) is issued for emergency needs. With limited exceptions, QFs each megawatt hour of renewable energy cannot be more than 80 megawatts in size. generated, which the plant owner can then sell Certain of the benefits of PURPA are restricted either with the associated energy or, separately to a subset of smaller QFs. from the energy, as a tradable-REC or “TREC.” PURPA was enacted in 1978. Its availability was narrowed by the Energy Policy Act of 2005, Utilities may build, own and operate renewable which established conditions pursuant to which generation or purchase the output of renewable utilities are excused from purchasing QF power projects from third-parties to meet the RES at an avoided cost rate if the relevant market requirements. Generally speaking, but subject provides QFs with competitive options for the to the specific state’s rules, utilities demonstrate sale of their power. Notwithstanding these new achievement of their quota by acquiring the limitations, the program has been in continuous RECs associated with the renewable power they use for over three and a half decades and generate or purchase for resale, and if the utility remains important for some generators. In has not generated or purchased sufficient particular, sellers making sales from facilities renewable energy to meet its RES obligation, it that qualify as QFs under PURPA and are less must purchase TRECs equal to the shortfall (or than 20 megawatts are exempt from the make an alternative payment). obligation to have a tariff on file with FERC pursuant to the FPA, even if they choose to sell The State of California has one of the more at market-based rates rather than an avoided stringent requirements, compelling retail sellers cost rate. Further, all QFs that are 30 and publicly owned utilities to acquire 50% of megawatts or less (plus geothermal and biomass their electric power from renewables by 2030. QFs that are over 30 megawatts but less than 80 Only a limited portion of that can be generated megawatts and certain other QFs, the by out-of-state resources. Thus, California, construction of which began before 2000) are which is a very large state and has multiple exempt from state laws respecting the rates and renewable resources available, including good financial and organizational regulation of sources of wind, solar, hydro and geothermal electric utilities. PURPA will remain in effect energy, has seen a significant growth in unless and until repealed by the US Congress; it renewable power generation of all types. In has no expiration date. June 2016, the Public Service Board in Vermont issued an Order implementing the RES, which State Programs requires all retail electricity suppliers in the state to obtain 75% of their annual retail electricity All states have instituted some form of sales from eligible renewable sources by 2032. incentive programs specifically for renewable A rulemaking will follow in 2017 or 2018. In power. The form of the state programs varies, August 2016 the New York Public Service and many states have several different programs Commission adopted a Clean Energy Standard in place. The number of such state programs (“CES”), which requires that 50% of the state’s makes summarization here impossible. electricity is procured from eligible clean energy 276 GLOBAL RENEWABLE ENERGY GUIDE 2017 UNITED STATES OF AMERICA WHITE & CASE LLP, Washington, DC sources by 2030. In some states, however, the the coast of the State of Texas or the western standard is more of a policy objective, with no coast of the State of Florida) requires federal direct, adverse consequences to the state’s approval. Some larger, utility-scale renewable utilities if it is not achieved. For example, while power facilities are located on lands owned by the State of Utah established a renewable energy the federal government (in particular, the target of 20% of retail sales by 2025, utilities are federal government owns large tracts of land in obligated to procure renewable resources only the western part of the US), often administered to the extent they are cost-effective. Currently by the Department of Interior’s Bureau of Land 12 states have no RPS and 6 states’ policies Management or the US Forest Service. New provide for voluntary, and not mandatory, off-shore wind and experimental tidal or wave targets. projects may also be located on the outer continental shelf beyond 16.2 km from the 4. What are the principal regulatory coast of the State of Texas or the west coast of bodies in the renewable energy sector? the State of Florida or 5.6 km from any other state coast. To locate in these areas, the Rates. As noted above, FERC is the economic developer must secure approval from the regulator of the wholesale sale of power by federal agency with jurisdiction over the land public utilities, which covers many renewable and obtain rights to the site by lease. power generators. In the States of Hawaii and Alaska, and in ERCOT, jurisdiction lies with the Facilities that are placed in navigable rivers and state public utility regulator (which goes by streams must secure a license from FERC various names, depending on the state, but for pursuant to Part I of the FPA. simplicity, each state utility regulator will be referred to as a “public utility commission” or In addition, during siting, construction and “PUC” for the remainder of this chapter). The operation, the facility will need to comply with rates at which a utility must purchase a QF’s environmental laws administered by either a power pursuant to the mandatory purchase state agency or the US Environmental obligation under PURPA (in cases in which it is Protection Agency (“EPA”) and may also be applicable) are regulated by the state PUC required to comply with laws administered by (pursuant to federal law). Sales of power at retail the US Army Corps of Engineers (for rates, including to on-site users of a generator’s wetlands); the Federal Aviation Administration power, is also a matter of state law, although (for towers); the US Coast Guard; or the US some states have loosened their regulations to Fish and Wildlife Service, among others. promote distributed generation, including roof- top solar. A number of states implemented Other Regulations. States generally have regulations various types of financial incentives for governing many aspects of a utility’s existence renewable energy. The most common have and operations, including its organization been rebates for distributed PV (e.g., the (including mergers and ownership structures), California Solar Initiative). finances and certain safety issues. Many states have implemented broad exemptions for Siting. Siting for generation and transmission of companies that do not sell power at retail or electricity is generally a matter of state or local small distributed generation, but the rules vary law. The construction of generation or by state. In addition, as noted above, QFs are transmission facilities located more than 5.6 km exempt from rate, organizational and financial from the ocean coast (or more than 16.2 km of regulation by states as a matter of federal law. GLOBAL RENEWABLE ENERGY GUIDE 2017 277 WHITE & CASE LLP, Washington, DC UNITED STATES OF AMERICA 5. What are the main permits/licenses exemptions on both the state and federal level. required for renewable energy projects? Otherwise, there is no general category of “license-exempt generation.” As noted above, the process for siting and developing generation on land or within close 7. Has there been any reform related to proximity to shore varies, but typically renewable energy regulations since authorization is required from a local zoning 2016? Do you expect any authority and/or state agency. In some cases, reform/changes in the near future? states have made particular accommodations for renewable power; for example, some states Generally, most renewable regulations and have enacted laws to facilitate the installation of policies are brought forward at the state level. roof-top solar systems. Some states may reduce energy portfolio standard requirements and so forth, but Larger renewable power facilities located on “reform” of renewable energy regulations has lands owned by the federal government or on been uncommon. What has been more the outer continental shelf generally require common, and will be increasingly so under the approval from the federal agency with Trump administration is the reform of broad jurisdiction over the land and obtain rights to energy regulations (such as leasing for oil and the site by lease. The US Department of gas) that directly affects the renewable energy Interior’s Bureau of Land Management and landscape. Relevant regulatory reform does not Bureau of Ocean Energy Management, for need to necessarily address renewables directly. example, require developers to obtain In the Executive Order 13783 of March 28, authorization to commence exploratory 2017, Trump calls to revoke or rescind the activities, such as collecting geological and flagship Presidential actions undertaken under geophysical data, followed by more extensive the Obama administration addressing the review of the environmental impact of a climate change and carbon emissions. The proposed project under the National Executive Order will affect related regulations Environmental Policy Act once a developer in the energy sector through lowering the seeks to move forward with construction at a environmental protection standards. See the site. response to question 12 regarding the review of the Clean Power Plan by the EPA following the Facilities that are placed in navigable rivers and Presidential Executive Order dated March 28, streams must secure a license from FERC 2017. pursuant to Part I of the FPA. 6. Is there a category of “license-exempt INCENTIVES generation”? If so, does it cover some types of renewable energy based 8. Are tax advantages available to generation? renewable energy generation companies? As noted above, pursuant to PURPA, certain small renewable power generators that qualify Yes.2 Renewable energy projects may be eligible as QFs are eligible for certain regulatory to receive either a production tax credit 2 The following is a general description of the tax information of our clients and other interested provisions applicable to renewable power. It is persons. This information should not be acted provided for your convenience and does not upon in any specific situation without appropriate constitute legal advice. It is prepared for the general legal advice. 278 GLOBAL RENEWABLE ENERGY GUIDE 2017 UNITED STATES OF AMERICA WHITE & CASE LLP, Washington, DC (“PTC”) or an investment tax credit (“ITC”). before 1 January 2017. This guidance was The specific eligible projects are defined by clarified in September 2013 and again clarified statute. and modified in each of 2014, 2015, 2016 and 2017. First, construction of a qualified facility The PTC is generally available to the owner of is considered to have begun when "physical a qualified facility that sells electricity produced work of a significant nature" has started. in the US to an unrelated person. Wind, Alternatively, construction of a qualified facility geothermal facilities and biomass projects are is considered to have begun when 5% of the among the types of projects that may qualify for total cost of the facility has been incurred by the the PTC. As the name suggests, the tax credit taxpayer, and the taxpayer makes “continuous taken for any particular year is based on that efforts” to complete the facility thereafter. This year’s production. The amount of the credit is continuous effort test will be deemed met if the 1.5 cents per kilowatt hour of electricity, facility is placed in service by the later of (i) a adjusted for inflation, for certain technologies, calendar year that is no more than four years such as wind, geothermal and closed-loop after the calendar year in which construction of biomass. With the inflation adjustment, the rate the facility commenced, and (ii) December 31, for these facilities was 2.4 cents per kilowatt 2018. The guidance also provides that in certain hour for 2017. For certain other technologies, circumstances the evaluation can take place on including open-loop biomass and landfill gas, a project-wide basis rather than separately for the credit is reduced by half, and thus the 2017 each individual item of equipment. In addition, rate for these types of facilities was 1.2 cents per the PTC is now available for certain facilities kilowatt hour. that are comprised in part of used property, provided that the fair market value of such used The PTC is available for electricity produced property does not exceed 20% of a facility’s from a qualified facility over a 10-year period total fair market value. that begins on the date the facility is originally placed in service, provided the construction of The ITC is available for investments in solar, the facility commenced before 1 January 2017. geothermal and small wind energy facilities (that In December 2015, the relevant ITC and PTC otherwise meet the applicable requirements) and laws were amended to further extend the PTC certain other types of qualifying property. The for wind facilities to include those for which ITC applies in the year in which the qualifying construction begins before 1 January 2020, but property is placed in service and is a credit equal this extension was accompanied by a phase-out to a percentage of the taxpayer’s tax basis in of the PTC for wind facilities over a four-year certain qualifying investments. A 30% ITC is period. Where construction of a wind facility available for solar energy property where begins prior to 1 January 2017, the full PTC is construction commenced before 1 January 2022 available. For wind facilities where (but with the solar credit phasing out, with the construction is commenced after 2016 and credit at 26% for facilities where construction before 2020, the PTC available is reduced by commenced in 2020 and at 22% for facilities 20% for facilities with construction beginning where construction commenced in 2021). A solar in 2017, by 40% where construction is facility for which construction commences before commenced in 2018, and by 60% for facilities 1 January 2022 but which is not placed in service begun in 2019. In April 2013, the Internal prior to 1 January 2024 is eligible only for a 10% Revenue Service provided guidance establishing ITC. A 10% ITC is also available for geothermal two ways to meet the requirement that energy property regardless of when placed in construction of a qualified facility commence service. GLOBAL RENEWABLE ENERGY GUIDE 2017 279 WHITE & CASE LLP, Washington, DC UNITED STATES OF AMERICA A 30% ITC is also available for investments in Except for the avoided cost rate available to most types of qualified facilities that are eligible certain QFs under PURPA, there is no federally for the PTC, as described above. The owners of mandated purchase applicable to renewable such qualified facilities, described below, may power. elect to claim a 30% ITC with respect to such property in lieu of the PTC. Qualified facilities Feed-in tariffs for the purchase of power at that are eligible for the 30% ITC in lieu of the wholesale, which have been widely used in PTC (“qualified investment credit Europe, are available from some utilities. But, facilities”) are wind facilities, closed-loop and an entity that wishes to sell its power under a open-loop biomass facilities, geothermal feed-in tariff still has to comply with the federal facilities, municipal solid waste facilities (landfill laws applicable to it. However, since the FPA is facilities and trash facilities), qualified not applicable in the States of Alaska or Hawaii hydropower facilities, and marine and or within ERCOT, entities seeking to sell power hydrokinetic energy facilities the construction in those areas, under a feed-in tariff or of which commences before 1 January 2017 otherwise, are only obligated to comply with the with the deadline for the commencement of state’s laws. Hawaiian Electric Company, for construction extended to 1 January 2020 in the example, offers a feed-in tariff for generators case of wind facilities, but the wind credit is using certain renewable energy sources, reduced by 20% for facilities where including photovoltaic and on-shore wind construction commenced in 2017, by 40% in (pricing varies by technology type and size of 2018 and by 60% for facilities where the project). construction commenced in 2019. Utilities and large consumers of power often The 30% ITC in lieu of the PTC is allowed with also conduct competitive solicitations for long- respect to investments in qualified investment term supplies of renewable power. In some credit facilities regardless of whether cases, the projects seeking to sell power investments in such property otherwise would compete only on price and commit to deliver on not be eligible for the ITC or would be eligible a fixed set of terms and conditions and, in other for only a 10% ITC. For example, investments cases, have the ability to bid both the price and in qualified geothermal facilities, the the terms and conditions. The projects that are construction of which commences before 1 selected through the solicitation enter into January 2017, are eligible for the 30% ITC bilateral agreements with the purchaser that can regardless of when such facilities are placed in become the basis for financing. service. Many states have established net metering The US tax code depreciation rules include a programs to encourage on-site generation, Modified Accelerated Cost Recovery System including roof-top solar installations for (“MACRS”). Under MACRS, certain wind and residential or commercial customers. In these solar projects have a favourable five-year arrangements, the renewable project is located statutory recovery period. on or near the property of the end-user and supplies the end-user with power. The project 9. Is there a purchase guarantee given by may be owned by the end-user or by a third the relevant legislation for the party which sells the power, at retail, to the end- electricity generated by renewable user. The end-user is also (generally) connected energy companies? to the local utility and takes supplemental and back-up power from the utility when the project is unable to meet its entire load and delivers 280 GLOBAL RENEWABLE ENERGY GUIDE 2017 UNITED STATES OF AMERICA WHITE & CASE LLP, Washington, DC power to the utility during the hours in which 11. Has the Paris Agreement under the the project’s output exceeds its load. Under United Nations Framework some programs, the utility provides a credit for Convention on Climate Change been the excess energy, subject to a periodic true-up ratified? If yes, what are the payment, and in other cases, it purchases the undertakings of your Country in the excess energy. The end-user’s benefit is NDC (national determined primarily the difference between the retail price contribution) submitted for the first it would have paid to the utility and its cost for five-year period? the on-site renewable energy. On 22 April 2016, former US Secretary of State The US also has vibrant short-term sales John Kerry signed the Paris Agreement, which markets. There are seven organized regional aims to reduce carbon output and to keep the markets in which power may be sold, day-ahead global temperature rise to “well below” 2° and/or real-time, through a central market at a Celsius. As part of the agreement, the market-set clearing price or through bilateral administration pledged to reduce US transactions (although there are also large parts greenhouse gas emissions in 2025 by 26-28% of the country which are not served by an (from 2005 levels). organized market and where wholesale power sales are bilateral). Some of the organized The agreement remains controversial in the US. regional markets also offer a market for capacity Some have argued the agreement is unlawful or sales. Renewable generators may participate in that the next president could withdraw from or these markets (subject to complying with ignore the agreement. Others argue that the applicable market rules) but practically agreement is binding under the United Nations speaking, renewable power projects do not rely Framework Convention on Climate Change, on these short-term markets for the disposition which was ratified by the US Senate in 1992. of the majority of their energy and capacity. However, as of the date of publication, Short-term sales will not typically support President Trump has indicated his intention to financing for the project and a market-clearing withdraw the United States from the Paris price (the price paid for sales into the organized Agreement, despite pressures from countries markets) will not reflect the premium that green that are signatories to the Agreement and the power receives in bilateral deals. business community alike. The full impact of 10. Is there a minimum price guarantee President Trump’s decision remains unclear. At given by the relevant legislation for the this time, it appears the Trump administration electricity generated by renewable plans to invoke the Agreement’s formal energy companies? withdrawal mechanism, a process that will take four years to complete and lead to an official As explained above, the only federal minimum exit just after the next US presidential election. price guarantee is the avoided cost rate available A future administration could opt to rejoin the to QFs under PURPA, and that rate is Agreement at that time. determined by the applicable state PUC. States cannot “guarantee” a wholesale price because 12. Is there a carbon market or carbon they lack the ability to set rates, but practically credits mechanism in your jurisdiction? speaking, a feed-in tariff (which functions as an Although the development of national carbon offer to purchase) establishes a minimum offer emission limitations had been a priority under price in the areas in which one is available, for the prior administration, the Trump those projects that qualify to sell their power administration appears to have shifted course. pursuant to such a tariff. GLOBAL RENEWABLE ENERGY GUIDE 2017 281 WHITE & CASE LLP, Washington, DC UNITED STATES OF AMERICA The EPA has mandated carbon emissions must apply for interconnection, and their standards for new power plants constructed request is handled in the same manner as other after 23 October 2015. These standards vary by requests for interconnection, although some fuel source and technology employed. In smaller facilities benefit from a streamlined addition, in October 2015, the EPA issued the process. However, many renewable generators Clean Power Plan (“CPP”), rules targeting connect at a distribution voltage, which may be carbon emissions from existing power plants. regulated under state law, and the rules The Plan set carbon emissions targets by state; governing distribution voltage interconnections individual states then were to determine how to are varied. meet those targets. The Plan aimed to cut carbon pollution from the power sector by 30% 14. Is there an incentive for domestic from 2005 levels, by 2030. In February 2016, (local) manufacturing of equipment or the US Supreme Court issued a stay preventing materials used in the construction of the Clean Power Plan from going into effect. In renewable energy based power plants? an Executive Order dated March 28, 2017, President Trump requested the immediate A number of states have programs to attract review or withdrawal of the CPP with the and support industries that are engaged in objective of reducing the costs of the manufacturing the components of renewable development of domestic energy sources, with power plants. Often, these are tax-based particular attention to fossil fuels and nuclear programs, but some states offer grants and energy. Interestingly, the same Executive Order other forms of support. ordered that the review of the existing regulations should be based on the old set of 15. What are the other incentives available technical guidelines adopted under the Bush to renewable energy generation administration in 2003. President Trump also companies? disbanded the Interagency Working Group on Social Cost of Greenhouse Gases (“IWG”) and The US Department of Energy may provide all the technical guidelines issued by IWG on loan guarantees pursuant to Title XVII of the the social cost of carbon because they were “no Energy Policy Act of 2005 for innovative longer representative of governmental policy”. technologies. It periodically opens solicitations for new applications. Although states will continue to have the major responsibility for protecting air quality at the Title XVII loan guarantees are available to state level, the reduced federal standards may projects that avoid, reduce or sequester air inhibit the state level regulation aimed at carbon pollutants or anthropogenic emissions of footprint reduction. In parallel, the industry has greenhouse gases and employ new or already committed significant resources in significantly improved technologies as renewable energy investments, and will remain compared to commercial technologies in primarily interested in the green energy service in the US, including the following incentives. categories: biomass, hydrogen, solar, wind/hydropower, nuclear, advanced fossil 13. Do renewable energy-based power energy coal, carbon sequestration plants have priority for connection to practices/technologies, electricity delivery and the grid? energy reliability, alternative fuel vehicles, industrial energy efficiency projects, and There is no federal priority. Like other pollution control equipment. The project must generators seeking to connect to the interstate transmission grid, renewable power developers 282 GLOBAL RENEWABLE ENERGY GUIDE 2017 UNITED STATES OF AMERICA WHITE & CASE LLP, Washington, DC be located in the US, although foreign sponsors are eligible to apply. OTHER A guarantee may not be issued for a loan whose 17. Is there anything else you wish to add? principal exceeds 80% of the estimated project “Symbolic” nature of Trump Administration cost. The maximum term of the underlying loan energy platform—The Trump Administration is the lesser of 30 years or 90% of the projected has placed an emphasis on coal with a useful life of the facility. diminished focus on the environmental initiatives emphasized by President Obama. In STATISTICS practical terms, however, this policy may be largely symbolic because of the economics. Coal 16. What is the percentage of electricity quite simply cannot compete with natural gas generated based on each type of prices, which remain low given the abundant, renewable energy source in the total accessible domestic supply. generation of electricity on a country- Continued Regulation of Greenhouse Gases wide scale? by EPA—As noted above, even though President Trump signed an Executive Order Data from the US Energy Information directing the EPA to review the CPP, this Administration for net electric generation from Executive Order does not disturb the EPA’s all sources shows that for 2016, approximately initial finding that greenhouse gases are harmful 15% of the electric generation in the US came and therefore the EPA is required to regulate from renewable resources, including greenhouse gases under the Clean Air Act hydroelectric (compared to 30.4% for coal, (“CAA”). Thus, despite the uncertainty as to the 33.8% for natural gas, 19.7% for nuclear, and immediate future of the CPP, because the 1% for petroleum and other resources). original finding has been left in place, it is Approximately 6.5% was generated using expected that renewable generation investment hydropower and 5.6% using wind. Other will continue. Businesses may view the Trump renewable resources include biomass, 1.5%; policies as deviations along the general trend solar, 0.9%; and geothermal, 0.4%. In general, favoring investment in renewables—businesses in the past years we have seen a rapid growth of tend to invest on a 20-25-year horizon. In fact, renewable electricity generation. Utility-scale GE’s recent decision to commit $15 billion in solar installations grew at an average rate of renewable energy investments supports that 72% per year between 2010 and 2016, which trend. outpaced any other generating technologies. At the same time wind turbines provide 8% of US Methane Flaring—The methane waste generating capacity, which is more than any prevention rule issued earlier in November 2016 other renewable source. On March 23, wind by the Bureau of Land Management (“BLM”) output accounted for up to 50% of the was confirmed because the Senate failed to electricity generation mix on the ERCOT grid advance a resolution that would have voided the in Texas. rule. The methane waste prevention rule helps to curb the waste of methane from flaring, venting, and leaks from oil and gas production. The rule can still be challenged by the federal agencies. In his Executive Order dated 28 March 2017 President Trump ordered the review of this and similar climate-related rules. GLOBAL RENEWABLE ENERGY GUIDE 2017 283 WHITE & CASE LLP, Washington, DC UNITED STATES OF AMERICA WHITE & CASE LLP James Hayden Daniel Hagan 1155 Avenue of the Americas 701 Thirteenth Street, NW New York, NY Washington, DC 10036-2787 20005-3807 United States United States T +1 212 819 8722 T +1 202 626 6497 F + 1 212 354 8113 F +1 202 639 9355 E [email protected] E [email protected] 284 GLOBAL RENEWABLE ENERGY GUIDE 2017 with the support of Australia Japan Azerbaijan Kazakhstan Brazil Kyrgyzstan Chile Luxembourg Czech Republic Macedonia Denmark Poland Egypt Russia Finland South Africa Germany Turkey Hungary Ukraine Indonesia United Arab Emirates Ireland United Kingdom Israel United States of America 2017 Çakmak Yayınevi Piyade Sokak No: 18/8 Çankaya / Ankara Tel: +90 312 440 89 91