Renewable Energy 2021

A practical cross-border insight into renewable energy law

First Edition

Featuring contributions from:

Bracewell (UK) LLP Gómez-Acebo & Pombo Abogados POSSER SPIETH WOLFERS & PARTNERS Cliffe Dekker Hofmeyr Inc (CDH) Gonzalez Calvillo The Law Firm of Wael A. Alissa in Dentons & Co. Jones Day association with Dentons & Co. Doulah & Doulah Mazghouny & Co UMBRA – Strategic Legal Solutions DS Avocats Nishimura & Asahi Wintertons European Investment Bank Pillsbury Winthrop Shaw Pittman LLP ISBN 978-1-83918-069-9 ISSN 2634-4300

Published by

59 Tanner Street London SE1 3PL United Kingdom Renewable Energy 2021 +44 207 3 67 0720 [email protected] www.iclg.com First Edition

Consulting Group Publisher Rory Smith

Publisher Blanca Alza Reguera

Sub Editor Contributing Editor: Matthew Day Mhairi Main Garcia Senior Editor Sam Friend Dentons & Co.

Head of Production Suzie Levy

Chief Media Officer Fraser Allan

CEO Jason Byles

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Disclaimer This publication is for general information purposes only. It does not purport to provide comprehensive full legal or other advice. Global Legal Group Ltd. and the contributors accept no responsibility for losses that may arise from reliance upon information contained in this publication. This publication is intended to give an indication of legal issues upon which you may need advice. Full legal advice should be taken from a qualified professional when dealing with specific situations. Table of Contents

Expert Chapters

Renewable Energy Fuelling a Green Recovery 1 Mhairi Main Garcia, Dentons & Co.

Trends and Developments in the European Renewable Energy Sector 5 from a Public Promotional Banking Perspective Roland Schulze & Matthias Löwenbourg-Brzezinski, European Investment Bank

Q&A Chapters

Australia Saudi Arabia 11 Jones Day: Darren Murphy, Adam Conway & 76 The Law Firm of Wael A. Alissa in association with Prudence Smith Dentons & Co.: Mahmoud Abdel-Baky & Mhairi Main Garcia Bangladesh 19 Doulah & Doulah: A.B.M. Nasirud Doulah & South Africa Dr. Amina Khatoon 83 Cliffe Dekker Hofmeyr Inc (CDH): Jay Govender, Emma Dempster, Tessa Brewis & Alecia Pienaar Egypt 26 Mazghouny & Co: Donia El-Mazghouny Spain 91 Gómez-Acebo & Pombo Abogados: Luis Gil Bueno & Ignacio Soria Petit France 33 DS Avocats: Véronique Fröding & Stéphane Gasne United Arab Emirates 99 Dentons & Co.: Mhairi Main Garcia & Germany Stephanie Hawes 41 POSSER SPIETH WOLFERS & PARTNERS: Dr. Wolf Friedrich Spieth, Niclas Hellermann, Sebastian Lutz-Bachmann & Jakob von Nordheim United Kingdom 109 Bracewell (UK) LLP: Oliver Irwin, Kirsty Delaney, Nicholas Neuberger & Robert Meade Indonesia 48 UMBRA – Strategic Legal Solutions: Kirana D. Sastrawijaya, Amelia Rohana Sonang, USA Melati Siregar & Junianto James Losari 117 Pillsbury Winthrop Shaw Pittman LLP: Mona E. Dajani Japan 56 Nishimura & Asahi: Sadayuki Matsudaira Zimbabwe 121 Wintertons: Nikita Madya Mexico 62 Gonzalez Calvillo: Jorge Cervantes, Hernando Becerra & Pedro Lladó Camarillo

Oman 70 Dentons & Co., Oman Branch: Mhairi Main Garcia & Yasser Taqi Welcome

From the Publisher

Dear Reader, Welcome to the first edition of ICLG – Renewable Energ y, published by Global Legal Group. This publication provides corporate counsel and international practitioners with comprehensive jurisdiction-by-jurisdiction guidance to renewable energy laws and regulations around the world, and is also available at www.iclg.com. This year, two expert chapters cover renewable energy fuelling a green recovery, as well as trends and developments in the European renewable energy sector from a public promotional banking perspective. The question and answer chapters, which in this edition cover 16 jurisdictions, provide detailed answers to common questions raised by professionals dealing with renewable energy laws and regulations. As always, this publication has been written by leading renewable energy lawyers and industry specialists, for whose invaluable contributions the editors and publishers are extremely grateful. Global Legal Group would also like to extend special thanks to contributing editor Mhairi Main Garcia of Dentons & Co. for her leadership, support and expertise in bringing this project to fruition.

Rory Smith Consulting Group Publisher Global Legal Group Welcome Chapter 1 1

Renewable Energy Fuelling a Green Recovery

Dentons & Co. Mhairi Main Garcia

Introduction supply problems coupled with, in some cases, issues around payment and debt restructuring, operational projects may benefit At the beginning of 2020, renewable energy contributed to just from fixed or guaranteed tariffs or revenue support schemes. over a quarter of total global electricity generation. There is Therefore, to some degree, operational renewable energy projects clearly the potential to increase this contribution and to diver- have been less impacted by the COVID-19 pandemic. sify further the different types of renewable energy. That potential has been exemplified by the novel coronavirus or COVID-19 Contractual and Statutory Protections pandemic, which has led to a new energy paradigm, with energy demand declining by unparalleled levels and, at the same time, In the short-term, for future and existing renewable energy many countries reaching new highs in terms of consumption of projects, in the absence of performance relief, the impact of electricity generated from renewable energy sources. COVID-19 restrictions may lead to suspension or termination As part of the response to the COVID-19 pandemic, govern- of contracts. Contracting parties must understand what relief is ments have the opportunity to adopt economic stimulus plans available; for example, relief in the form of contractual or stat- and long-term policies to encourage the growth of renewable utory force majeure protection. The scope of such relief is crit- energy and support the energy transition. ical too. Does it provide for relief from performance only? Or is there cost relief? If there is no cost relief, can the project Impact of COVID-19 benefit from any protection through insurance or government assistance? The COVID-19 pandemic has resulted in an unprecedented Another area which contracting parties need to consider is global economic crisis with an impact on all economic sectors, whether there are any stabilisation or change in law provisions including the energy sector, with production, output and employ- which may apply, especially when considering the impact of ment levels all being (and continuing to be) negatively impacted. movement restrictions, local lockdowns and measures curbing As economies locked down in the face of the COVID-19 supply chains. Contracting parties may have the benefit of pandemic and have entered subsequent phases of lockdowns, contractual stabilisation or change in law protection, which there was a dramatic fall in energy demand that has still not could restore the economic balance of the contract or provide returned to pre-COVID-19 levels. cost and/or time relief to the affected party where a new or The renewable energy sector has suffered a decline, both in amended law (in the jurisdiction of the relevant project) has terms of existing and new investments. Movement restrictions been issued after the date of the contract. The extent of any such have been imposed in an effort to stem the tide of COVID-19, relief will depend on the scope of the contractual stabilisation or impinging on day-to-day business practices, limiting availa- change in law provision in the contract and the specific factual bility of personnel and disrupting supply chains. Even coun- circumstances. Unfortunately, the COVID-19 restrictions may tries which have eased restrictions are continuing to see a lasting not always rise to the level of an amendment to, or change in, law impact of the measures. benefiting from contractual protection. In the renewable energy sector, projects under development In addition, even where the contracting parties can rely on have been particularly impacted, given the global nature of supply force majeure, stabilisation or change in law protection, there are a chains, for example, when considering availability of solar panels number of procedural conditions, which have to be met before and wind turbines. Delays in the completion and/or connec- relief can be claimed, including detailed requirements in relation tion of new projects may lead to projects being in distress or even to causation, notification, mitigation and resumption of perfor- terminated, in the absence of extensions of time. The disruption mance. Future restrictions being imposed by governments due of supply chains and potential for further lockdowns may addi- to COVID-19 may run the risk of failing to satisfy contractual tionally have an impact on the cost of projects. Developers and requirements that the circumstances for which relief is being contractors may have to factor in supply-chain issues, increased claimed are unforeseeable, given that continued measures to site risk (with limitations regarding site inspections) and limited combat COVID-19 and in particular lockdowns, even if on a availability of personnel, which may drive up costs. Nonetheless, local rather than countrywide basis, appear foreseeable. new renewable energy projects are still coming to the market and are continuing to attract investors and raise financing, even Fuelling a Green and Sustainable Recovery if projects may be more challenging and are taking longer to successfully close. Despite the economic, financial and logistical challenges, While operational renewable energy projects may have renewable energy projects, which are less capital intensive than suffered (and may continue to suffer from) employment and conventional energy projects, have the potential to fuel a green

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and sustainable recovery. Notwithstanding the drop in energy To date, while several governments have committed to demand, during the COVID-19 pandemic a number of countries promoting green policies as part of recovery plans, stimulus have witnessed record highs in terms of consumption of elec- packages have – understandably, in the short-term – mainly tricity generated from renewable energy sources when compared focused on emergency financial and economic measures to with conventional energy sources. While the pre-COVID-19 support healthcare systems, support for vulnerable businesses generation balance is likely to return to normal as full economic and social protection measures, in order to stem the flow of the activity returns, the ability to be able to manage grids with crisis. Although measures vary greatly from country to country, high percentages of renewable energy has demonstrated that it governments have been slow to introduce tangible measures is possible to utilise greater levels of renewable energy without to promote a green recovery. Nonetheless, with the proper destabilising the grid. support, the renewable energy sector can play a significant role Developers of small and large-scale renewable energy projects in stimulating economies. may benefit from a renewed emphasis on sustainability by lenders. While some governments have confirmed or extended their The challenge of funding conventional fuel-based projects was support for renewable energy projects, there remains massive already apparent pre-COVID-19 and is now more apparent, scope for governments to prioritise existing and new policies given the increased pressure on banks to pursue sustainable and that promote the renewable energy sector and place sustaina- environmentally friendly practices. The COVID-19 pandemic bility and renewable energy at the heart of stimulus packages. and the decline in demand for energy have had a greater, negative Such priorities could have the ability to promote sustained impact on the funding of oil and gas projects than on renewable economic recovery through financial incentives, with the aim energy projects. Still, there is a difference in renewable energy of mobilising private investment in the renewable energy sector, projects that benefit from fixed or guaranteed tariffs, which will reducing greenhouse gas emissions and decreasing dependency more readily attract funding; as compared with financing renew- on fossil fuels, including measures that tackle emissions from able energy projects that have merchant exposure and which are continued hydrocarbon production and consumption, creating more likely to attract a smaller pool of lenders. increased competition and access to energy for end-users. The environmental impact of the COVID-19 pandemic has This is a chance to introduce effective policies to accel- been largely positive, with radically reduced air pollution levels erate the use of low-carbon electricity generation coupled with around the world. There have been fewer cars on the road, requirements for emissions reductions. Such a commitment by fewer planes in the sky and reduced greenhouse gas emissions. governments will need to look at the renewable energy sector The reduction in greenhouse gas emissions is primarily due to in the broader sense, though; in other words, including but not diminished economic activity rather than structural reorienta- limiting support to the expansion of utility-scale renewable tion of the global electricity generation sector. Accordingly, as energy projects, in particular wind and solar photovoltaic. Any industrial activities and traffic flows have increased, many of increase in variable, utility-scale renewable energy generation the environmental advantages, including the reduction in green- will need to take into account support needed for grid upgrades house gas emissions, have dissipated. There is a risk that the and similarly encourage cost-effective and technological solu- positive environmental impact may be short-lived. But socie- tions for energy storage in order to balance the energy system ty’s adaptation to the so-called ‘new normal’ and an increased going forward. consciousness of the environmental impact of fossil fuels are Moreover, countries can support investment in new renew- a chance to advance sustainability and clean energy, with busi- able technologies and stimulate an inclusive energy transition nesses being more environmentally conscious and generally to facilitate a green recovery and improve electricity security, more open to change. improve efficiencies and reduce losses and operating costs. The momentum around climate change action, which started Policies can be developed to support distributed energy, tech- before the COVID-19 pandemic took hold, continues to reso- nology integration, energy storage, modernising and expanding nate with the public at large. Even oil and gas companies, existing grids (including through digitalisation and smart grids), many of which were already committed to participating in the decentralisation and micro-grids, increasing energy efficiency energy transition, for example, through investment in smart incentives and supporting investment in electric vehicles and infrastructure, green hydrogen, energy storage and electric charging infrastructure. Deployment of renewable energy tech- vehicles, are considering concrete plans for decarbonising the nology can be expanded so there is greater use in heating and energy system. There is thus an opportunity for governments cooling, as well as transportation. to put in place regulations that promote the environment, and to make green recovery and tackling the climate crisis an inte- Long-Term Priorities gral part of recovery and stimulus packages while, at the same time, avoid an unsustainable rebound in air pollution and green- New regulations and economic stimulus plans can provide a house emissions. better platform for countries to be better prepared and more resilient in the event of future pandemics or crises. Creating Policy and Regulatory Changes the right investment conditions will be critical for the survival of operational renewable energy projects and to mobilise The long-term impact of the COVID-19 pandemic will not just continued and new investment in the sector. This would need to depend on the course and longevity of the virus, but also on the be combined with investment in more efficient electricity grids measures which governments impose and the priorities which to reduce the risk of outages and improve electricity security. governments set through their economic policies and stimulus Further, countries where conventional, fossil fuels are subsi- plans. Effective policy responses are needed to address both dised could use the COVID-19 pandemic as an opportunity to the immediate challenges of the COVID-19 pandemic and its reduce and ultimately phase out these subsides. Fossil fuel subsi- long-term impact. The economic, social and environmental dies are used to reduce the price of fossil fuels or fossil fuel- challenges emanating from the COVID-19 pandemic have the sourced electricity for end-users. These subsidies inevitably can potential to provide a catalyst for regulatory change in a number lead to increased greenhouse gas emissions since they encourage of respects. more (and sometimes wasteful) consumption. Particularly in

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hydrocarbon producing countries, such subsidies are an oppor- lockdowns and a renewed emphasis on health and safety have tunity cost for governments. The savings from any subsidy led to new working practices evolving across the globe. For the reforms can be reallocated towards funding essential public renewables sector, this could be an opportunity to boost invest- services (including mitigating possible social ramifications as ment in renewables technology and digitalisation. a result of reducing or eliminating such subsidies) or towards the advancement of the renewable energy sector and the energy Conclusions transition. International cooperation will, furthermore, be crucial to The economic and social consequences of the COVID-19 accelerate renewable energy deployment in accordance with pandemic continue to evolve and change. At the time of writing, global climate and sustainability objectives, to promote secure, it remains unclear how long the pandemic will last and how it global supply chains and attract international investors. will ultimately affect the energy sector but also more generally businesses, consumer behaviour and investor confidence. The Employment pandemic has demonstrated that governments across the globe have the ability, to varying degrees, to take expedient and deci- Employment has been one of the greatest casualties of the sive action when faced with a global healthcare emergency and COVID-19 pandemic, with unemployment reaching record economic and financial crisis. Governments have been able to levels in many countries around the globe. The renewable make urgent decisions, including enacting extraordinary meas- energy sector has not been immune from the devastation of the ures that have suppressed movement and economic activity. pandemic on the employment market. While those working For the renewable energy sector, though there are of course in the operation and maintenance of renewable energy power challenges facing the sector, it continues to attract new invest- plants may be in a more secure position, the renewable energy ment and financing. And while both the public and private workforce across the globe has seen job cuts and furloughs sectors adapt to the challenges of the new dynamic, there is imposed in a sector that until this year has recently been one of an opportunity to expand on that investment. Indeed, invest- the fastest-growing employment sectors. ment in the renewable energy sector is needed if there is to be a Creating sustainable employment is critical to economic structural change that enables countries to meet their long-term recovery. As part of the recovery, the renewable energy sector and commitments on greenhouse gas emissions, climate change and the energy transition offer the potential for employment growth sustainability. Governments have the chance to continue this in new, emerging sectors, particularly if backed by regulatory and momentum and take measures to support the renewable energy policy support. Jobs will not be limited to utility-scale projects sector and the energy transition, while at the same time act deci- and will also extend to energy efficiency, retrofitting of buildings, sively to effectively address the climate crisis. grid upgrades, digitalisation, electric vehicles, and so on. Changes brought on by the COVID-19 pandemic have shifted However, while there are clear possibilities for employment the global energy mix and have the potential to accelerate a creation in the renewable energy sector, there is a risk that less move towards renewable energy and the energy transition, and labour-intensive jobs will not be prioritised. If governments for there to be permanent transformation in favour of lower- are to focus on a green recovery, policies to encourage job crea- carbon fuels. Regulatory, policy and economic decisions aimed tion across the renewable energy spectrum will need to be put at long-term recovery are likely to have a lasting impact on econ- in place, and not limited to areas where there are large-scale, omies, energy policies and the structure of the electricity gener- labour-intensive projects. ation sector. Governments can use this opportunity to design Finally, the COVID-19 pandemic has led to increased under- economic stimulus plans and policies to promote a green and standing of flexible working practices, by government and sustainable recovery, to fuel economic growth, create employ- employers, as well as society at large. Movement restrictions, ment and reduce greenhouse gas emissions.

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Mhairi Main Garcia is a partner in the global energy team of Dentons, specialising in project development and M&A in the energy and infrastructure sectors. Mhairi’s expertise includes advising on utilities projects (including solar (CSP and PV), wind, hydropower and waste-to- energy projects), many of which are first-of-a-kind projects, as well as advising on distributed energy projects and the regulation of power and water projects. Mhairi is a member of the Board and Vice-Chair of the Clean Energy Council, a non-profit organisation providing a forum for both private and public sector organisations participating in the clean energy sector across the Middle East and North Africa.

Dentons & Co. Tel: +971 4 402 0859 Level 18, Boulevard Plaza 2 Fax: +971 4 325 3350 Burj Khalifa District Email: [email protected] PO Box 1756 URL: www.dentons.com Dubai United Arab Emirates

Dentons is the world’s largest law firm, delivering quality and value to clients around the globe. Dentons’ polycentric approach and world-class talent challenge the status quo to advance client interests in the communities in which we live and work. Dentons offers vast experience across the world’s energy markets. The Dentons energy team is comprised of more than 1,200 lawyers offering tailored advice across the energy spectrum, including in project development, acquisitions and disposals, regulatory, financing, intellectual property and dispute resolution. Dentons is a trusted adviser to developers, contractors, governments and financiers operating in the renewable energy sector. Clients throughout the renewable energy value chain rely on Dentons’ strategic support for legal advice that is commercially astute and delivers innovative solutions. www.dentons.com

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Trends and Developments in the European Renewable Energy Sector from a Public Promotional Roland Schulze Banking Perspective

European Investment Bank Matthias Löwenbourg-Brzezinski

12 Introduction have typically been extended to investment-grade sponsors, and in some cases, such as for offshore wind, have been enhanced The following chapter outlines selected individuals’1 perspec- by guarantee or insurance cover of export credit agencies. In tives from within the projects and legal teams2 of the European non-recourse financing structures, Special Purpose Vehicles Investment Bank (EIB) on current trends and developments in (SPVs) act as borrowers, increasing the direct credit risk expo- the European renewable energy sector. First, we describe the sure. Hybrid structures may foresee initial full recourse to EIB’s role as a pioneer of renewable energy finance based on a strong corporate entity – e.g. a sponsor or Engineering, recent examples. Subsequently, we provide an overview of the Procurement, Construction (EPC) provider – to protect the EIB’s contribution to meeting the Paris Agreement goals, before lenders against the most acute risks during the construction dealing with challenges and changes in connection with energy phase, to be converted into a traditional non-recourse struc- markets in transit. Finally, we touch upon recent developments ture conditional on completion of construction and successful in international investment protection, of which lenders, as well operation for a specified time. The loan structuring considers, as borrowers, should be aware. amongst other factors, standby funding to cover cost over- runs and the impact of delays, power production assumptions 22 The EIB Group: A Pioneer in Renewable that are expected to be exceeded with a certain likelihood, Energy Finance minimum Debt Service Cover Ratios (DSCR), and the requirement for a full loan repayment within the economic life of the assets, taking into account, inter alia, terms of applicable Power Origins and mandate Purchase Agreements (PPA) or underlying national renewable energy support schemes. Established in 1958 under the Treaty of Rome, the EIB is the The EIB’s senior debt exposure to a non-recourse financing AAA-rated lending arm of the European Union (EU), owned typically ranges between EUR 75 million and EUR 500 million, by the EU Member States, and one of the largest providers covering ranges from 25% to 50% of total project costs to of climate finance worldwide. The cornerstone of the EIB’s reflect prudential thresholds, depending on the specific transac- mandate is set out in Articles 308 and 309 of the Treaty on the tion’s risk profile. While EIB loans normally should not exceed Functioning of the European Union (TFEU) as well as the EIB 50% of total project costs, the EIB’s governing bodies have Statute, which is laid down in a protocol annexed to the EU approved a set of exceptions to this rule. One such exception treaties. The main task of the EIB is to contribute, by having allows under certain conditions for the financing of up to 75% recourse to the capital market and utilising its own resources, of project costs in relation to projects that develop renewable to the balanced and steady development of the internal market energy or that result in significant improvements in energy effi- in the interest of the EU. For this purpose, the EIB, oper- ciency. On this basis, the EIB has engaged heavily in the renew- ating on a non-profit-making basis, grants loans and gives guar- able energy sector, including on- and offshore wind, solar, and antees which facilitate the financing of various projects in all other sources of renewable energy, as outlined below. sectors of the economy, including renewable energy. The EIB has been a pioneer in financing the renewable energy EIB support to offshore wind sector, including placing the world’s first Green Bond, labelled ‘Climate Awareness Bond’, issued in 2007. More recently, the EIB’s intrinsic lending capabilities have been enhanced by the Over the last two decades, the EIB has built up comprehensive European Fund for Strategic Investments (EFSI), a EUR 26 expertise in particular in the financing of offshore wind farms, billion guarantee from the EU budget backing the EIB’s invest- having financed almost 40% of all offshore wind projects in ments in various sectors of the economy, one focus area of Europe. By way of example, the EIB financed the approx. 600 which includes renewable energy. MW Beatrice windfarm in northeast Scotland, the 309 MW Rentel wind farm, one of the largest offshore farms in Belgian territorial waters, consisting of 42 wind turbines with blades as long as Some key characteristics of EIB renewable energy the wingspan of an Airbus A380, and the Norther offshore wind financing park 22 km from the Belgian coast, with an estimated capacity of up to 370 MW. Most recently, amid the COVID-19 crisis, Several distinct financing structures are available for the EIB’s the EIB signed a EUR 450 million loan for the construction of renewable energy investments, with significantly different credit one of Europe’s largest-ever wind farm projects, and the EIB’s risk implications. Loans for renewable energy technologies first offshore wind project in France. The EUR 2 billion project

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involves the construction of 71 wind turbines located over 13 been designed to support the objectives of the overarching EU km off the Normandy coast. It is scheduled to be brought into energy policy framework. The core components of the ELP are service in 2023 and will have a capacity of 497 MW, equivalent to structured around four themes: (i) unlocking energy efficiency; the annual electricity consumption of up to 770,000 households. (ii) decarbonising the supply of energy; (iii) supporting innovative technologies and new types of energy infrastructure; and (iv) securing the enabling infrastructure. EIB support to onshore wind and solar power The ELP reflects several important EU policy developments over the last five to seven years and fully incorporates the frame- EIB support has also been key to realising other project financ- work of the Paris Agreement. As such, the ELP guides the EIB’s ings in the onshore wind and solar sectors. Near the northern activities towards investing today in energy sector projects in Swedish city of Piteå, close to the Arctic Circle, the EIB has line with the nature and volume of investments as set out in the financed, with the backing of the EFSI guarantee, the construc- Paris agreement. This is of utmost importance, given that the tion and operation of the first phase of Markbygden 1101, the global pace towards meeting the long-term targets of the Paris largest onshore wind farm on European territory so far. The Agreement is slower than needed while the transport industry, the wind farm, with a capacity of up to 650 MW, consists of 179 wind heating sectors and the electricity production in some Member turbines with 137-metre rotor blades. The turbines, equipped States remain largely dependent on fossil fuels. The following with innovative ice mitigation systems, are ideally suited for sections give an overview of some of the EIB’s key contributions the project site’s extreme wind speeds and rough climate. This to the Paris Agreement, supported by the ELP. project has been a landmark transaction on many fronts, benefiting from what was understood to be the largest corporate wind energy PPA in the world. Strengthening EU support for clean energy Located in the southernmost parts of Europe and blessed with immense amounts of solar radiation, the EIB has recently In terms of clean energy, there are three areas where the EIB contributed to the 300 MWp Talayuela project, the largest photo- aims to provide particular added value. First, by funding those voltaic project in Spain. However, the fact that size does not types of investments which are currently at a lower level than is always matter is evident in the EIB’s equal support for smaller- needed to achieve EU policy objectives. Further, the EIB (as a scale onshore wind farms across Europe, in cooperation with long-term lender) is particularly suited to financing energy infra- local partners. Examples of such projects include the Austrian structure projects which are, by nature, very long-term invest- Hof/Seibersdorf wind farm project with a total capacity of 36 MW, ments. This is particularly relevant for energy grids and infra- or most recently the windfarms Prinzendorf III and Powi V with a structure enabling sector integration and innovation. Finally, total capacity of 80 MW, also located in Austria. renewable energy investments are increasingly characterised by market mechanisms such as auctions, in order to attribute revenues. In these mechanisms, revenues are volatile depending EIB support to innovation in the renewable energy sector on periods of production surplus or shortage, and there is a need to provide for system flexibility such as storage, intercon- Fundamentally, success in energy transition is about innovation. nection, etc. These developments and new regulatory frame- The EIB has a long history of contributing to the most inno- works within the EU will require new approaches to raising vative energy projects. It has provided funding to renewable finance, for example by using the risk-sharing capacities avail- energy technologies, such as offshore wind turbines or concen- able through the InvestEU Programme or by exploring jointly trated solar power plants, at times when these technologies were with the European Commission how the emerging market for still well before their actual competitive market entry points. corporate PPAs could be developed. Moreover, the EIB has provided technical and financial advisory services to the European Commission’s EUR 2 billion NER300 funding programme, which supports the demonstration of first- Acceleration of clean energy innovation, energy efficiency and renewables of-a-kind, innovative low-carbon technologies on a commercial scale. This approach has continued ever since. Located 20 km off the Viana do Castelo coast in Portugal, the EIB As noted in the Paris Agreement, significant innovation and has provided a EUR 60 million loan to install one of Europe’s deployment will be required to enable an effective long-term first floating wind farms. This project aims at speeding up the response to climate change. The EU Strategic Energy Technology commercial roll-out of a novel technology called ‘WindFloat’ Plan outlines detailed implementation steps to help deliver such that enables the harvesting of abundant wind resources in deep innovation, and the EIB supports the plan in investing in alterna- waters, where the mounting of foundations on the sea floor tive energy carriers, including hydrogen, and new types of energy would not be possible. The loan has been supported by the infrastructure and storage. ‘Energy Demonstration Projects facility’, a thematic investment programme under ‘InnovFin – EU Finance for Innovators’, a Ensuring a just energy transition joint initiative by the EIB Group and the European Commission under Horizon 2020. Traditional energy industries such as coal mining are impor- 32 The EIB’s Contributions to the EU Energy tant economic activities in many regions throughout the EU, providing significant local employment. Some Member States, Policy Framework therefore, will need to increase investment in clean energy types The EU has adopted ambitious energy and climate objectives more than others to meet the 2030 targets. These issues touch for 2030: to reduce greenhouse gases by 40% of 1990 levels; to upon questions of social justice and solidarity. To underpin achieve at least a 32% share of energy consumption from renew- its commitment to the success of the transformation, the ables; and to achieve energy savings of at least 32.5%. Against EIB is considering a dedicated Energy Transition Package, by this background, the EIB’s Energy Lending Policy (ELP) has which it intends to support the implementation of the EU’s

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Just Transition Initiative in the energy sector. The EIB’s role mechanisms are expected to be required for renewable energy in developing integrated development strategies is currently investments as a core element of applicable regulatory frame- evolving in the context of the EIB’s new climate roadmap. works. Capital-intensive renewable energy technologies, in particular, need such support as they are more exposed to electricity market risk than conventional energy generation. As elec- New ambition for climate action and environmental sustainability tricity generation from renewable energy is by nature resource- and not demand-based, renewable energy generators will typically capture (with an increasing tendency) electricity prices The EIB is one of the world’s largest multilateral financiers of that are below the average market prices as they cannot optimise climate action projects. It adopted a climate strategy in 2015, their dispatch profile to benefit from peak electricity prices. An setting out its ambition as regards the impact of EIB climate increasing market penetration of renewables will lead to longer financing, increasing resilience to climate change, and further periods in which renewables produce, shifting electricity prices integrating climate change considerations across all the EIB’s lower than the high marginal generation costs of (conventional) activities. This will now be taken to a new level of commitment, generators. The higher the capacity of renewables in the market by a significant increase of the EIB’s share of financial resources becomes, the more revenue streams can deteriorate. This could dedicated to climate action and environmental sustainability become even more pronounced for renewable energy invest- from 2025 and beyond, in support of the EU’s Green Deal. ments implemented early, as these are likely to be, on average, These efforts will follow and will need to be aligned with the more costly, suffering from potential revenue cannibalisation. so-called development of an EU Taxonomy. The EU Taxonomy will establish a unified classification system for sustainable activities as part of the EU’s Action Plan on Financing Sustainable Cost factors resulting from the withdrawal of subsidies Growth. The classification system will include the underlying principles, classification, and scope of the environmental objec- Commercial lenders financing on a non-recourse basis will typi- tives and technical criteria related to determining a substantial cally identify and mitigate risks through the tenor of the loan contribution and doing no significant harm (DNSH). DNSH derived from the residual exposure to wholesale prices. A principles must reflect minimum social safeguards, aligned potential non-alignment of a PPA with the subsidy scheme, in with international standards (OECD, UN, ILO). The relevant the form of base risk, could be captured through the treatment legislative framework for the EU Taxonomy is expected to be of balancing costs or floor price arrangements. If the project’s adopted over the next few years. financial structure primarily rests upon the floor price of the PPA, the adequacy of termination arrangements needs to be 42 Energy Markets in Transit assessed by debt providers for cases of capture prices below the floor. Placing wholesale price risk and implicitly the risk of Enhancing the capabilities of energy markets changes in market design onto the private sector is likely to raise risk pricing and increase due diligence costs. The EU’s Renewable Energy Directive (RED II) emphasises the priority of integrating renewable energy investments into Trends and challenges that are increasing merchant risk wider electricity markets to increase market efficiency. The EIB has supported such market integration by financing projects that Even with potentially favourable, legally sound support schemes, benefit from public support schemes as well as those that are renewable energy investments face a variety of investment exposed to the volatility of electricity markets. barriers. Up until the recent past, the EIB has observed that Electricity generated from photovoltaic systems and onshore such investments are exposed in some Member States to lengthy wind has become economically competitive due to the signif- and complex development processes to obtain concessions and icant decrease in capital cost relative to conventional technol- permitting. These processes require extensive knowledge of the ogies over the last few years. In the medium term, a similar national legislative frameworks, and it appears that local inves- trend is expected for other renewable energy technologies as tors could much more easily navigate those than can non-na- well. However, increasing shares of solar and wind production tional developers. This effectively creates an investment barrier. mean that electricity markets will be characterised by frequent Situations of opposition by civil society have, in some Member switching between periods of relative production surplus and States, given rise to strict regulations restricting minimum periods with relative shortage. The transition in various Member distances from human habitation and wind turbine heights. States from previous support schemes based on fixed feed-in Further, constraints in electricity grids have led to consider- tariffs towards a system of competitive auctions should help able decreases in investment in the short term. In addition to to lead to lower prices for renewable electricity and reduce the these ‘completion risks’, recent auctions for subsidies saw strong need for governmental support. However, auctions also require competition, an effect possibly intended by regulators. However, careful design so that investors are incentivised to deliver and in some cases, the awarded support from such auctions resulted implement the project. There remains a risk that some winning in low to zero subsidies to the project. Against such context of bids may decide not to invest – the winner’s curse phenomenon. wholesale price risk, profiling and regulatory risk, various investment proposals struggle to secure long-term finance. Functioning of the energy market and risk of distortion Revenue stabilisation through long-term PPAs with energy util- from public interventions ities or corporate off-takers would allow the hedging of projects’ electricity market risk over a significant part of the project’s lifetime. PPAs are a very recent phenomenon in the EU, albeit Electricity markets in most Member States are currently over- growing. However, it seems that for the time being PPAs will supplied with generation capacity. At the same time, the only be able to cover a relatively small share of renewable energy track-record of incentivising investments in electricity gener- investments due to the currently high transaction costs, lack of ation (conventional as well as renewable) is generally less large, creditworthy off-takers, and long business cycles. Initiatives successful. However, financial support and revenue stabilisation

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to reduce the PPA transaction costs would be welcome: such international arbitration as a more ‘neutral’ forum for resolving initiatives could help to broaden the market from large corpo- disputes resulting from changes to renewable energy support rates, which could carry such risks, to smaller industrial players, schemes than the otherwise competent court of the host state. including energy service companies (ESCOs). This would likely increase investors’ confidence, as energy investments that would The Energy Charter Treaty as a primary source of otherwise be excessively exposed to market-determined electricity investment protection prices would face enduring insolvency risks. The main sources of substantive standards of protection for The COVID-19 crisis and falling energy prices non-national investors seeking relief vis-à-vis a host state are derived from bilateral investment treaties (BITs) or multilat- The prevailing health crisis since the beginning of 2020 has eral investment treaties (MITs), concluded between two or more affected the movement of people and goods connected with states. Protection is granted to entities having a ‘nationality’ renewable energy projects including, inter alia, the manu- of the parties to such treaties. The primary choice of various facturing and transportation of components, and access to non-national investors in seeking relief against changes to construction sites and facilities. Further, health-protecting renewable energy support schemes by Member States has been restrictions of Member States have led to a decline of energy/ invoking the standards of protection under the Energy Charter electricity demand and a reduction of energy and carbon prices, Treaty (ECT), a plurilateral investment treaty initiated by the with cascading effects on wholesale electricity prices and thus EU to stimulate investments in the energy sector. The ECT revenue generation from renewable energy. The severity of the entered into force in April 1998 and its original aim was to create impact of the health crisis on renewable energy investments a forum for East-West policy cooperation on energy, investment differs between those under development and those already protection, trade and transit. To date the ECT has been acceded operating. Being exposed to market prices or enjoying stable to by more than 50 states, as well as the EU and EURATOM. revenues might also have different effects. Renewable energy investments based on a solid balance sheet compared to those Fair and equitable treatment (FET) as the most financed on a non-recourse basis might also experience different commonly invoked remedy impacts. Delays, cancellations, cost increases, force majeure events and potential defaults are, however, unavoidable to some extent. Foreign international investors have predominantly relied on two It is difficult to predict when and how energy prices may recover. substantive standards of protection against adverse regulatory Determining factors will be, amongst others, the intensity and changes of renewable energy support policies: (i) the protection length of the restrictions and whether such restrictions might based on fair and equitable treatment (FET); and (ii) the protection damage economic activity severely, e.g. through a recession and against expropriation. The concept of FET is the most frequently fall in industrial production in electricity-intensive sectors. invoked standard in investment disputes, and it is also the standard with the highest practical relevance. The majority of 52 Observations on International successful claims pursued in international arbitration are based Investment Protection in Renewable Energy on a violation of the FET standard. Article 10(1) of the ECT Following the 2008 financial crisis, various Member States, such contains elaborate language around the requirement of FET; as the Czech Republic, Italy, and Spain, re-evaluated their renew- however, it does not define what fair and equitable treatment able energy support schemes, including by adopting retroactive is. While available case law does not yet include an all-inclu- changes to their respective support schemes. Various investor sive interpretation of the ECT-specific FET standard, tribunals groups have alleged that these measures might have negatively have predominantly exercised a ‘balancing test’ between (on the affected investors’ returns from ongoing projects or might one hand) a state’s right to regulate in the public interest, and to have prevented investors from achieving anticipated returns. amend existing regulations accordingly, and (on the other hand) Consequentially, a substantial number of attempts to challenge the investor’s expectations that a favourable investment environ- such measures before national and international courts of law ment must be preserved for the duration of the investment. In have been made. These actions have resulted in a mass of deci- balancing those two opposing interests, an arbitral tribunal’s task sions, predominantly international arbitral awards, which allow is, therefore, to arrive at a ‘fair and equitable’ result. us to make some observations about the structuring of an invest- An investor will enjoy the strongest protection under the FET ment in light of such ‘political risk’, a project risk which is regu- standard where a host state has committed itself vis-à-vis the larly considered by investors as well as the financing banks from investor not to amend its legislation at all. This can be achieved a bankability point of view. through entering into a ‘stabilisation clause’ which can, for example, be included in an investment or any other direct agreement between the investor and the host state. Otherwise, an International arbitration as a forum of choice for investor will generally not benefit from a guarantee of regula- investor-state disputes tory stability per se. In the absence of such stabilisation commitment, a state may generally effect changes to renewable energy While national legislation provides legal avenues under constitu- support policies as long as their ‘essential characteristics’ are tional or administrative law to assess the validity of re-evaluations preserved. Such changes must comply with the criteria of propor- of national renewable energy support schemes, non-national tionality, reasonableness and equitableness. An argument according investors have regularly preferred to submit investment disputes to which changes to renewable energy support policies have not to international arbitration. Arbitration is a private form of complied with the criteria of proportionality, reasonableness binding dispute resolution. It allows claimants to avoid the and equitableness, may be successful, for instance, where a host national courts of the state where the investment has been made state has amended legislation which applies to a broad range of (often referred to as the ‘host state’) and whose support schemes investments, without taking (objectively) specific financial and have been adjusted. It seems that non-national investors perceive operating characteristics of the respective renewable energy

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investment(s) into consideration, or where the criteria for the In May 2020, the EU proposed to modernise the ECT, inter amendment of renewable energy support policies have not been alia, by aligning the ECT’s provisions on investment protection applied transparently. International tribunals have held that an with those of trade agreements recently concluded by the EU investor may claim breach of FET in the case of a substantial and its Member States. However, those reforms are independent diminution of value of the investment (i.e. at least 25–30% of from the EU’s view expressed on 19 July 2018 that the ECT the original investment value) or where a host state has infringed cannot contain, due to the nature of the EU internal legal order, on the investor’s right to a reasonable return on the investment. an investor-state arbitration mechanism applicable to investors Cases of direct expropriation are rare in international invest- from one Member State investing in another. From the fore- ment law, as states are reluctant to jeopardise their investment going, it appears that only amending the ECT would eliminate climate by taking the drastic and conspicuous step of openly this legal uncertainty for the EU, the Member States as well as expropriating foreign property. However, what have been for the investors. Developments in this direction will need to asserted regularly by investors in renewable energy cases were be monitored. allegations of indirect expropriation under Article 13(1) ECT. Modernisation of the ECT could provide the parties with an Indirect expropriation can take the form of a loss of control over excellent opportunity to bring the treaty in line with 21st century the investment and/or of a substantial diminution of value of policy views and to support global climate change and broader the investment – e.g. the value of the (indirect) shareholding in sustainability goals. In its current form, the ECT is technology the project company (SPV) holding the assets of the renewable agnostic in its offer to protect investments, as if all technolo- energy project. To argue a claim based on indirect expropriation gies were equally desirable. Arguably, the ECT in its current successfully, a diminution in value of generally at least 90–95% form hinders the ECT parties from effectively promoting their of the initial investment value has been required by international own climate change objectives. By contrast, a modernised tribunals. Where a tribunal determines that indirect expropri- ECT could encourage low-carbon, sustainable energy invest- ation has occurred under the ECT from regulatory changes of ments, discourage carbon-intensive, unsustainable investments a host state, the chances are high that a breach of the obligation and effectively support government measures to promote a to grant FET has also occurred, as the threshold for a breach just energy transition. Thus, the list of topics for modernisa- of FET under Article 10(1) ECT is substantially lower than the tion must be significantly expanded beyond minor adjustments threshold for indirect expropriation under Article 13(1) ECT. in existing provisions, so as to lead to an overhaul of the ECT rationale and framework, bringing it in line with ECT member states’ international commitments regarding climate change and The Achmea decision and reshaping the EU’s investment law regime sustainable development. 62 Conclusions In the landmark judgment in Slovak Republic v. Achmea B.V. (Case C-284/16), the Court of Justice of the European Union The EIB is one of the largest providers of climate finance world- (CJEU) held, inter alia, that investor-state arbitration clauses wide and has been a pioneer in renewable energy finance. The in BITs entered between Member States (‘intra-EU BITs’) are EIB aims at helping to overcome market gaps, to finance long- incompatible with the EU Treaties. In the Achmea judgment, term as well as innovative energy investments and is set to play the CJEU ruled that the investor-state arbitration clauses laid a major role in the EU’s larger Green Deal package. The EIB’s down in intra-EU BITs undermine the system of legal reme- ELP has been designed to support the objectives of the EU dies provided for in the EU Treaties and thus jeopardise the energy policy framework, which frames the ambitious goals set autonomy, effectiveness, primacy and direct effect of Union law under the Paris Agreement. Member States are in the process and the principle of mutual trust between Member States. As a of transitioning from support schemes based on fixed feed-in consequence of the Achmea judgment, on 5 May 2020 the vast tariffs towards a system of competitive auctions. This trans- majority of Member States signed an agreement for the termi- formation will require revenue stabilisation, an increase in the nation of intra-EU BITs. The termination treaty has been a key PPAs and a reduction of PPA transaction costs. Falling energy milestone in the reshaping of the EU’s investment law regime. prices following the COVID-19 pandemic have provided addi- The substantive protections of intra-EU investments, therefore, tional challenges to energy markets. The re-evaluation of have been put into the hands of EU law. support schemes led to claims from foreign investors before international tribunals, producing decisions that allow observers The EU’s proposal to modernise the Energy Charter to draw some general conclusions about the structuring of a Treaty foreign investment. Broadly supported legislative changes are necessary to stabilise the current foreign investment law regime and to effectively support government measures to promote a However, with regards to claims raised under the ECT, legal just energy transition. certainty has not been achieved so far. Various respondent host states engaged in renewable energy arbitrations under the ECT have relied on the Achmea judgment to support their argument Endnotes of an alleged incompatibility of the ECT with EU law (regularly 1. Matthias Löwenbourg-Brzezinski, Legal Department, Legal referred to as the ‘Achmea Objection’). It seems that so far inter- Counsel – Central Europe (e-mail: [email protected]); national tribunals have not followed such argument; however, Roland Schulze, Energy Department, Managerial Advisor intra-EU investors are still facing substantial obstacles in liti- – Low Carbon Energy Technology (e-mail: r.schulze@eib. gating their claims, as well as when seeking enforcement of arbi- org). tral awards that they have successfully obtained, often after 2. Any views expressed in this article are the personal views many years of dispute. More legal clarity is required to stabilise of the authors and do not necessarily reflect the views and the legal environment for investors. opinions of the EIB.

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Roland Schulze has more than 25 years of professional experience in the energy sector. He holds a Master’s Degree in Mechanical Engineering/ Thermodynamics, a post-graduate Master’s degree in national and international Environmental Law and Environmental Management, and a Master’s degree in European Legal Studies – EU Law. Mr. Schulze started his career in the conventional energy sector, and expanded his professional profile via international engineering consulting. For more than a decade now, he has been providing technical advisory and project appraisal services at the European Investment Bank (EIB), covering due diligence activities of energy sector projects (conventional, renewables) comprising various project sizes and financing structures. He managed the assessment of project applications for innovative low carbon energy technologies submitted under the NER300 Initiative. Mr. Schulze was a member of the Advisory Board of the SET-Plan’s Strategic Initiative for Ocean Technology (SI OCEAN), is an Advisory Board member of GEORISK (implementation of de-risking schemes for geothermal), is a regular speaker at the EU’s High-Level Roundtables on Low-Carbon Innovation, and participated in the preparatory conferences for the Innovation Fund (“Finance for Innovation: Towards the ETS Innovation Fund”). Currently he is the EIB’s representative at the EU’s Innovation Fund Expert Group, contributing to the preparations of this successor programme to NER300.

European Investment Bank Tel: +352 4379 82609 98–100, boulevard Konrad Adenauer Email: [email protected] L-2950 Luxembourg URL: www.eib.org

Matthias Löwenbourg-Brzezinski is a dual-qualified lawyer (Austria, England & Wales) and has close to 10 years of practical experience in advising investors, financial sponsors, banks, and international financial institutions on a broad range of corporate and finance transactions. Mr. Löwenbourg-Brzezinski has advised the European Investment Bank (EIB) as in-house legal counsel for Central Europe in 50+ financing transactions with a focus on complex project finance (in particular in the renewable energy sector), public infrastructure finance, corporate lending, and SME and mid-caps support through various intermediated lending transactions, including through credit guarantees, synthetic securitisations, and investments in asset-backed securities. Prior to moving in-house, Mr. Löwenbourg-Brzezinski spent more than five years working for international law firms in the fields of finance, M&A, international arbitration and public international law. His dispute resolution experience includes the representation of international organisations, corporations, state entities and states in a broad range of international arbitration proceedings in the fields of infrastructure, finance, energy, M&A, IT, telecommunications, and international trade under various rules of arbitral institutions, including VIAC, ICC, UNCITRAL and ICSID arbitration rules. Mr. Löwenbourg-Brzezinski holds law degrees from the University of Vienna and the University of St. Gallen (summa cum laude).

European Investment Bank Tel: +352 4379 88230 98–100, boulevard Konrad Adenauer Email: [email protected] L-2950 Luxembourg URL: www.eib.org

The European Investment Bank is the lending arm of the European Union. It is the biggest multilateral financial institution in the world and one of the largest providers of climate finance. The EIB helps the economy, creates jobs, promotes equality and improves lives for EU citizens and for people in developing countries. Its priority areas are: climate and environment; development; innovation and skills; small businesses; infrastructure; and cohesion. The EIB Group has two parts: the European Investment Bank; and the European Investment Fund. The EIF specialises in finance for small businesses and mid-caps. The EIB has more than 60 years’ experience and expertise in project financing. Headquartered in Luxembourg, it has a network of local and regional offices in Europe and beyond. www.eib.org

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Australia Australia

Darren Murphy

Adam Conway

Jones Day Prudence Smith

12 Overview of the Renewable Energy Sector ■ The Australian Government Department of Industry, Science, Energy and Resources – develops and administers energy- and energy efficiency-related policies, programmes 1.1 What is the basis of renewable energy policy and and regulations. regulation in your jurisdiction and is there a statutory ■ The Clean Energy Regulator (CER) – oversees the admin- definition of ‘renewable energy’, ‘clean energy’ or equivalent terminology? istration of the RET scheme. ■ The Australian Energy Regulator (AER) – regulates wholesale electricity markets in Australia. Australia has three levels of government, Federal, State (and ■ The Australian Energy Market Operator (AEMO) – Territory) and Local, all of which have laws and regulations that manages various electricity markets across Australia. impact renewable energy. ■ Energy retailers – acquire LGCs to surrender to the CER. The primary regulatory mechanism for renewable energy at ■ Private sector companies – participate as sponsors, devel- a Federal level in Australia is the Renewable Energy Target (or opers, service providers and power purchasers. RET) scheme, which is implemented through the Renewable Energ y (Electricity) Act 2000 (Cth). The RET is made up of two schemes – the Large-scale Renewable Energy Target (LRET) and the Small- 1.3 Describe the government’s role in the ownership scale Renewable Energy Scheme (SRES). The LRET encourages and development of renewable energy and any policy investment in renewable power stations through financial incen- commitments towards renewable energy, including tives in the form of tradable certificates; the SRES encourages applicable renewable energy targets. small users to install small-scale systems. In addition, there are a range of State and Territory schemes regulating renewable energy. With some notable exceptions, the various Federal, State (and The RET scheme requires high-energy users such as energy Territory) and Local Governments in Australia tend not to retailers and large industrial users to acquire a proportion of their own renewable projects directly, and rather provide support to electricity from renewable sources. Under the scheme, certifi- markets for their development. In some cases, Federal, State cates known as ‘large-scale generation certificates’ or ‘LGCs’ are (and Territory) and Local Governments will enter into contracts issued for electricity generation from eligible renewable energy to procure renewable energy, underpinning the development of sources and then sold to high-energy users who surrender them projects. to meet their scheme obligations. The Australian Federal government created a generally Eligible renewable energy sources under the RET scheme supportive environment for investment in renewable energy include hydro, wind, solar, food waste and wave amongst other through its RET scheme. The RET scheme had a target of having sources, with fossil fuels and materials or waste products derived 23.5% of Australia’s total power (33,000 gigawatt-hours) coming from fossil fuels specifically excluded. from renewable energy by 2020. This objective was achieved in Various State and Territory Governments of the Commonwealth September 2019 and the policy has been extended until 2030. of Australia have also implemented their own renewable energy However, future Federal government policy is unclear. targets. 22 Renewable Energy Market 1.2 Describe the main participants in the renewable energy sector and the roles which they each perform. 2.1 Describe the market for renewable energy in your jurisdiction. What are the main types of renewable Participants in the Australian renewable energy sector include energy deployed and what are the trends in terms of the following: technology preference and size of facility? ■ Federal, State (and Territory) and Local Governments – develop policy initiatives encouraging the use of renewable The market for renewable energy in Australia has grown steadily, energy and otherwise regulate activity. as renewable energy projects have become more cost-competitive

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and local demand has increased. In 2019, 24% of Australia’s Western Australia and the Northern Territory have separate total electricity generation was from renewable energy sources, electricity grids. In Western Australia, the Wholesale Electricity which was an increase of 2.7 percentage points from 2018. Of Market (WEM) is operated by AEMO. The WEM is a gross this renewable generation, approximately 35.4% was from wind, pool electricity market that incorporates a mechanism to pay for 32.9% from solar, 25.7% from hydro and 6.0% from bioenergy. capacity with price caps, and a hybrid constrained–unconstrained In terms of projects, 2019 saw the addition of eight new wind network access model. A constrained network model, similar to farms in Australia with an aggregate 837MW of capacity and 27 the model currently used in the NEM, may roll out in the WEM large-scale solar farms with an aggregate 1,416MW of capacity. in the future. In addition to the wind and solar projects, Australia has two In Western Australia, prices have risen as a number of mega-projects at early development stages, ‘Snowy 2.0’ and the (primarily coal-fired) generation plants have been retired, ‘Battery of the Nation’. ‘Snowy 2.0’ is a 2,000MW pumped hydro coupled with the rise in the prices of key inputs like gas and project proposed in New South Wales, requiring the construction black coal encouraging large-scale investments in renewable of 27km of tunnels to connect two existing reservoirs as well as an energy. Scheduled generators and non-scheduled generators underground power station and pumping facilities. The ‘Battery (such as wind and solar) can provide capacity when required of the Nation’ is a proposed 1,500MW cable between Tasmania under the Reserve Capacity Mechanism with the effect of and mainland Australia allowing the export of excess hydro increasing capacity and reducing prices. The Reserve Capacity power from Tasmania. Concepts have also been discussed for Mechanism incorporates pricing arrangements in the WEM and projects allowing the export of renewable energy from Australia it is proposed that an auction may be introduced to determine to parts of Asia, although they are at a very early stage. prices. The hydrogen industry is making progress in Australia. In In both the NEM and the WEM, the anticipated effect of 2019, the COAG Energy Council agreed to support initial increased renewables is increased capacity and security of supply projects. South Australia and Western Australia have also as well as a downwards pressure on price. created their own hydrogen strategies. Government climate change-related policies have also encour- Distributed or ‘behind the meter’ renewable energy is also aged investment in renewable energy. The RET’s aim for 33,000 developing rapidly in Australia. Common examples include gigawatt hours of additional large-scale renewable electricity rooftop solar, batteries, thermal energy storage, electric vehicles generation by 2020 was achieved in September 2019, and the and energy management systems. scheme has been extended until 2030. This policy requires elec- Renewable energy investment has supported business activity tricity retailers and large users to source an annually increasing and employment in Australia, particularly in regional areas proportion of their electricity requirements from renewable where large-scale renewable generators tend to be located. generation. Whilst most components associated with renewable energy The costs of wind and solar electricity generation have signif- generation are still imported into Australia (e.g. solar panels and icantly decreased in the last decade. The levelised cost of elec- wind turbines), renewable energy projects also generate domestic tricity for new renewable power plants has fallen significantly economic activity. The Reserve Bank of Australia suggests that and is estimated to be between 40–60% of the cost of a new 25–40% of the costs of renewable energy projects are associ- fossil fuel plant. ated with domestic service providers, being mainly engineering, Developers of renewable generation power plants now have construction and installation services. improved access to finance, as the market for financing such At the time of writing, the future direction of the renew- projects has developed in the last five years in Australia. able energy sector in Australia is uncertain due to the potential impacts of COVID-19. 2.3 What role, if any, has civil society played in the promotion of renewable energy? 2.2 What role does the energy transition have in the level of commitment to, and investment in, renewables? What are the main drivers for change? Australia has a vibrant democracy, and civil society plays an important part in it. There are a number of groups advocating the cause of renewable energy. A number of factors have driven commitment to, and invest- Community engagement is an essential component of any ment in, renewables including elevated wholesale electricity renewable energy development. prices, government policy incentives, declining technology costs and improved access to finance. Wholesale electricity prices have significantly increased in the 2.4 What is the legal and regulatory framework for the National Electricity Market (NEM) since 2015. The NEM is generation, transmission and distribution of renewable the electricity grid that covers the east coast and southern States energy? of Australia. The NEM provides a ‘gross pool’ market for electricity. In the NEM, all transmission-connected generation is Renewable energy is regulated in many respects under the same dispatched in each five-minute period based on the results of laws and regulations as other forms of power. a security and transmission-constrained auction. The auction The legal and regulatory framework for energy in Australia is sets a marginal price for each five-minute period, it has a price in part governed by the Australian Energy Market Agreement cap of A$14,200/MWh, and is adjusted annually for infla- (as amended in December 2013), which is an agreement tion. Generation facilities can connect to the network in the between the Federal government and the States and Territories NEM on a ‘constrained-access’ basis which provides that the of Australia. The agreement aims to streamline and improve total amount of generation capacity is not restricted to network the quality of regulation and governance of Australia’s energy capacity, but only the cheapest generators are dispatched to meet market. This agreement creates two institutions which oversee system requirements. Most renewable generators are classed Australia’s energy market: the AER; and the Australian Energy as ‘semi-scheduled’ meaning that they can normally generate Market Commission (AEMC). unconstrained; however, AEMO can direct them to operate below certain output limits.

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The Council of Australian Governments Energy Council 2.7 To what extent is your jurisdiction’s energy demand drives energy reform in Australia, including the harmonisation met through domestic renewable power generation? of regulatory arrangements. However, there remains a degree of difference between different States within Australia and their Approximately 24% of Australia’s energy demand for electricity regulation of renewable energy. generation is met through domestic renewable power generation. The NEM (all States and Territories other than Western Australia and the Northern Territory) is established and governed by the following key legislative instruments: 32 Sale of Renewable Energy and Financial 1. National Electricity Law (NEL), which codifies the obli- Incentives gations of participants in the NEM, establishes AEMO and sets out the processes for the implementation, adop- 3.1 What is the legal and regulatory framework for the tion and amendment of the National Electricity Rules. sale of utility-scale renewable power? 2. National Electricity Rules (NER), which are made under the NEL and carry the force of law and detail the opera- Utility-scale renewable power is sold through the NEM, which tion of the NEM. operates in all States and Territories except Western Australia 3. National Energy Retail Law (NERL), which applies nation- (WEM) and the Northern Territory (I-NTEM), which have ally except in Victoria (which has the Energy Retail Code) their own wholesale markets. Electricity generators, including and regulates the supply and sale of energy (including elec- those producing renewable power, bid into the market pool in tricity and gas) to retail customers. real-time. A market floor and cap are reviewed every four years. In addition to the above legislative framework, Australian Renewable energy is regulated under the same instruments as States and Territories have their own electricity regulations to the general power supply. deal with matters within their jurisdiction. These additional ■ EL The N codifies the obligations of the NEM, establishes requirements are governed by separate State- or Territory- AEMO, and sets out the use of the NER. AEMO over- specific legislation. sees the day-to-day management and security of the NEM, Electricity in Western Australia is supplied through the WEM. and manages the planning and development of the trans- AEMO is responsible for the operation of the WEM and the mission network, including long-term forecasting. Economic Regulation Authority enforces compliance with the ■ The NERL implements the national energy customer Wholesale Electricity Market Rules and related WEM market framework, within which the AER regulates retail procedures. licensing. Victoria has not adopted the NERL and uses A wholesale market also exists in the Northern Territory called the jurisdictional Energy Retail Code instead. the Interim Northern Territory Electricity Market (I-NTEM). ■ The AEMC is responsible for amending the NER, The Power and Water Corporation is both the market operator reviewing energy markets and providing policy advice to and system controller of the I-NTEM. The Power and Water the government. Corporation is responsible for operating the I-NTEM in accord- The Corporations Act 2001 (Cth) requires a person to hold an ance with the System Control Technical Code. Australian Financial Services Licence if they carry on a financial services business. This can sometimes apply to dealing in electricity-related financial products. 2.5 What are the main challenges that limit investment in, and development of, renewable energy projects? Other regulators and agencies include the CER, the Energy Security Board, the Australian Securities and Investments Commission (ASIC), the Australian Tax Office (ATO), envi- The challenges for renewable energy projects in Australia include ronmental protection agencies and workplace health and safety the lack of long-term and consistent energy policies. In particular, authorities. Australia has sophisticated privacy, anti-bribery and there is no policy as yet to replace the Federal government’s RET corruption and other laws that will need to be complied with. scheme which expires in 2030. Physical connection and infrastructure constraints are also presenting challenges, with recent examples of projects facing 3.2 Are there financial or regulatory incentives available to promote investment in/sale of utility-scale delays in being connected to the grid and others being required renewable power? to cut output to manage instability issues. A report found that investment in new large-scale renewable energy projects fell by around 60% in 2019. The RET scheme is the primary regulatory incentive scheme Another challenge in Australia has been the limited develop- for utility-scale renewable power. As discussed above, it oper- ment of battery storage and the relatively high cost per unit of ates by certificates known as LGCs being issued for electricity storage. generation from eligible renewable energy sources and then sold to high-energy users (energy retailers and large industrial users) who surrender them to meet their scheme obligations. 2.6 How are large utility-scale renewable power projects typically tendered? 3.3 What are the main sources of financing for the development of utility-scale renewable power projects? Both government and private sector sponsors utilise formal tender processes for large-scale projects. Large-scale renewable power projects typically involve a formal tender period, where Investments in renewable energy plants tend to be supported competing parties are asked to submit a project proposal with by significant borrowing. Often this borrowing will be from indicative costs and plans ahead of signing binding contracts. domestic Australian banks, but projects can also be project Due to the scale and cost of development, sponsors may choose financed with involvement of foreign debt. to form joint ventures or consortia in order to build utility-scale Another source of financing is long-term secure power renewable power projects. purchase agreements. Historically, these were entered into only with energy retailers; however, power purchase agreements with

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corporate buyers are becoming more prevalent. This includes 42 Consents and Permits individual corporates with sufficient power needs as well as buyer groups. Due to physical power being sold through the NEM, corpo- 4.1 What are the primary consents and permits rate power purchase arrangements are often structured as deriv- required to construct, commission and operate utility- scale renewable energy facilities? atives in Australia. The corporate customer will continue to buy energy through the market, but will have a fixed term price hedge with the generator matching that load in whole or part. Consent requirements vary from State to State and will depend Government agencies also support the financing of renewa- on the impact of an activity on the environment among other bles projects. The Clean Energy Finance Corporation (CEFC) factors. State and local development approval or planning and the Australian Renewable Energy Agency (ARENA) have permits will be required to construct facilities and networks. directly invested around A$8.5 billion in clean energy-related State-owned transmission network service providers (TNSPs) projects. This investment is aimed at encouraging parallel may be exempt. Approval under the Environmental Protection private investment in the relevant projects. and Biodiversity Conservation Act 1999 (Cth) may also be required where there is significant environmental impact, for example when clearing native vegetation, where there is impact on 3.4 What is the legal and regulatory framework applicable to distributed renewable energy? native animals, where hazardous materials are used or when constructing on contaminated land. Virtually all forms of development, including all building Distributed renewable energy is governed by the same regulation and land uses, require planning approval in Australia. As part as large-scale renewable energy, discussed above. As this sector of this, major projects require detailed environmental impact is evolving, a need to evaluate this approach has been recognised. assessment and regulatory agency and public consultation. There is a myriad of overlapping environmental-related laws 3.5 Are there financial or regulatory incentives at State and Federal government level, making it very difficult available to promote investment in distributed renewable to obtain approvals for environmentally complex activities in energy facilities? Australia. The difficulty is compounded by the fact that, in addition to State and Federal environmental protection authorities, The RET (discussed above) also has a scheme to incentivise each State has a separate court system for environment, planning small-scale renewable energy, namely the SRES. The SRES uses and land use matters which can overrule government agencies ‘small-scale technology certificates’ to incentivise homeowners, and authorities. In addition, any person can generally commence small businesses and community groups to install renewable proceedings in these courts to challenge decisions of govern- energy systems such as rooftop solar, solar water heaters and ments on project approvals or compliance with planning laws. heat pumps. Large energy users are required to purchase small- To operate grid-connected electricity generation plants, a scale technology certificates and surrender them under the generation authorisation is required from AEMO as either a scheme. In practice, installers discount the installation price in scheduled, a semi-scheduled or a non-scheduled generating return for rights under these certificates. unit. Grid-connected generators must also generally register as a market or non-market generator. Some States also require generators to apply for a generation authorisation, as well as the 3.6 What are the main sources of financing for the NEM authorisation. development of distributed renewable energy facilities? The NER set out the connection process framework in the NEM. Generally, that process involves the generator making A customer-ownership model is available through the CEFC, a connection enquiry to a TNSP as to the information it must which provides funding to major retailers to offer purchase provide and the application fees payable. Parties negotiate and agreements to customers. enter into a final connection agreement for the technical and Leasing is also available, whereby solar companies design, commercial conditions of the connection services. install, own, operate and maintain the systems they lease to The common law in Australia recognises native title interests customers. Monthly lease payments can be lower than average of Aboriginal and Torres Strait Islander peoples, with the inter- monthly power bills. action of those interests and other rights governed by the Native Financial institutions also provide finance leases, commercial Title Act 1993 (Cth). Separate laws also exist to protect aborig- loans or commercial hire purchase arrangements for renewable inal cultural heritage. Native title and cultural heritage can be energy systems. important issues for any land-based development. Operation is regulated by, amongst other instruments, the 3.7 What is the legal and regulatory framework that various energy supply acts in each State. A generation authori- applies for clean energy certificates/environmental sation is required from AEMO and the NEM. This authorisa- attributes from renewable energy projects? tion also places conditions on the operator regarding technical and prudential compliance, reliability and performance stand- The Renewable Energ y (Electricity) Act 2000 (Cth) creates and regu- ards and reporting and fees. lates the tradable certificate scheme for large- and small-scale projects under the RET, which is administered by the CER. 4.2 What are the primary consents and permits required to construct, commission and operate distributed renewable energy facilities? 3.8 Are there financial or regulatory incentives or mechanisms in place to promote the purchase of renewable energy by the private sector? The installation of distributed renewable energy facilities will be governed by the same planning and environmental laws The RET, discussed above, applies to the purchase of renewable discussed above; however, requirements may be less burden- energy by the private sector. some for domestic installation.

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4.3 What are the requirements for renewable energy New South An interest-free loan to install solar and home facilities to be connected to and access the transmission Wales battery storage solutions is now available to network(s)? owner-occupier households in the Hunter Region earning less than A$180,000 per year. A renewable energy project in Australia will generally require: Up to A$14,000 towards a solar PV and battery ■ registration with AEMO under the NEL; system, or A$9,000 towards retrofitting a ■ an electricity generation licence in the relevant State; and battery system to an existing solar PV system, ■ registration with the CER in order to create LGCs. is offered. Northern NT homeowners, businesses, and not-for- 4.4 What are the requirements for renewable energy Territory profit organisations can apply for a A$6,000 facilities to be connected to and access the distribution grant for battery installations. New installa- network(s)? tions will receive the standard Jacana Energy feed-in-tariff. The rate is 8.3 cents per kilo- Please see above. The NEM comprises transmission and watt hour. distribution. Queensland A former programme closed on 30 June 2019: no-interest loans of up to A$6,000 and grants 4.5 Are microgrids able to operate? If so, what is of A$3,000 for battery storage to eligible home- the legislative basis and are there any financial or owners and small businesses. regulatory incentives available to promote investment in South South Australia’s Home Battery Scheme gives microgrids? Australia all grid-connected homes access to State government subsidies and low-interest loans. There has been recent funding by Australian State govern- The subsidy is calculated on the kilowatt ments in conjunction with energy companies and universi- hour capacity of the battery purchased (the ties to research and install pilot-project microgrids, primarily maximum subsidy being A$4,000). in regional areas. The AEMC is in the process of developing Victoria Point of sale discounts on solar batteries are reforms to regulatory and financial incentive frameworks in available to owner-occupier households in preparation for new microgrid projects. eligible postcodes earning less than A$180,000 a year. The property must already have solar 52 Storage PV panels with a capacity equal to or greater than 5kW. 5.1 What is the legal and regulatory framework which applies to energy storage and specifically the storage of renewable energy? 62 Foreign Investment and International Obligations Whilst providers and users of energy storage will need to comply with existing laws, specific regulation, in particular for elec- 6.1 Are there any special requirements or limitations tricity, is relatively undeveloped in Australia. on foreign investors investing in renewable energy Recognising the increasing importance of storage, the Clean projects? Energy Council has identified the need for market reforms, which it summarises under the following categories: Australia has a foreign investment approval regime. It regulates ■ level the playing field; certain investments and other transactions by foreign persons ■ remove regulatory barriers to storage behind the meter; (as defined) in relation to Australian entities, business and real ■ recognise and reward the value of storage behind the property investments. The regime is not specific to renewable meter; and energy, but will apply to renewable energy transactions. ■ establish standards and protect consumers. Under the Foreign Acquisition and Takeovers Act 1975 (Cth), Further regulatory development is expected in this area. foreign persons must give notice to the Federal Treasurer before acquiring interests in certain Australian entities or assets. The ultimate decision-making power in relation to foreign invest- 5.2 Are there any financial or regulatory incentives available to promote the storage of renewable energy? ments sits with the Treasurer, who is advised by the Foreign Investment Review Board which examines proposals including having regard to Australia’s national interest. State and Territory government schemes are the primary driver A number of factors may be considered in determining for growth in the renewable energy storage sector. Examples of whether an investment would be contrary to Australia’s national incentives include the following: interest. These include but are not limited to the impact of the foreign investment on national security, competition, the State / Incentive economy, the community, the environment, data security and Territory tax and also the character of the investor. Australian The A$25 million Next Generation Energy There are some areas of investment that the government Capital Storage programme aims to provide 5,000 examines more closely and for which special rules apply, Territory subsidised solar battery storage systems for although renewable energy is not currently one of those areas. ACT homes and businesses. Generally, there have been a range of monetary thresholds applying to certain transactions, with transactions below those thresholds being automatically allowed under the regime.

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However, on 29 March 2020, all monetary thresholds were 7.3 What are the key criteria applied by the relevant temporarily reduced to A$0 in light of COVID-19, so any governmental authority or regulator to determine foreign investment in Australia is currently subject to examina- whether a practice is anti-competitive? tion by the Treasurer regardless of value. In 2017, changes were made to the treatment of wind and Part IV of the CCA prohibits anti-competitive practices including solar farms. For the purposes of the Foreign Acquisitions and cartel conduct, exclusionary conduct, misuse of market power, Takeovers Regulation 2015 (Cth), land which contains a compo- exclusive dealing, resale price maintenance and anti-competitive nent of a wind or solar power station on the surface of the mergers. The key test that the ACCC applies in relation to land will be considered developed commercial land rather than anti-competitive practices is whether the conduct would have the possibly vacant or agricultural land, which impacts the ways in effect, or be likely to have the effect, of substantially lessening which the rules apply to that land. competition in a market or markets in Australia. Part XICA of the CCA contains additional protections against 6.2 Are there any currency exchange restrictions prohibited conduct in the energy market. Part XICA is particu- or restrictions on the transfer of funds derived from larly concerned with prohibiting certain conduct involving retail investment in renewable energy projects? price fixing, financial contract markets and electricity spot markets. The key criterion that the regulator applies under Part No, although general banking laws will apply. XICA is whether the conduct, if engaged in by certain participants in electricity markets, can be detrimental to competition or to consumer welfare. 6.3 Are there any employment limitations or requirements which may impact on foreign investment in renewable energy projects? 82 Dispute Resolution

No, although general employment laws will apply. The primary 8.1 Provide a short summary of the dispute resolution framework (statutory or contractual) that typically source of employment law in Australia is the Fair Work Act 2009 applies in the renewable energy sector, including (Cth). procedures applying in the context of disputes between any applicable government authority/regulator and the private sector. 6.4 Are there any limitations or requirements related to equipment and materials which may impact on foreign investment in renewable energy projects? Under the statutory framework, the AER oversees a range of disputes including: No, other than generally applicable laws such as import ■ distribution and transmission pipeline access disputes; restrictions. ■ disputes about the application of the regulatory investment test for transmission and distribution network businesses; 72 Competition and Antitrust ■ wholesale energy market disputes, including certification; and ■ disputes with distribution businesses including customer 7.1 Which governmental authority or regulator is connection disputes and licence conditions. responsible for the regulation of competition and antitrust in the renewable energy sector? The NEL and the National Gas Law (NGL) provide for commercial arbitration of these disputes. Disputes arising between renewable power market partici- The Australian Competition & Consumer Commission (ACCC) pants are otherwise governed by their relevant contract terms is responsible for enforcing competition and consumer protec- and the laws applicable in Australia. tion provisions in all energy markets (including renewable energy) Australia has a well-developed legal system underpinned by the and assessing mergers and authorisations. The AER is Australia’s rule of law, with significant protections for businesses and other national energy market regulator. It has an independent board participants. Investors can have a degree of certainty in enforcing and shares staff, resources and facilities with the ACCC. contractual, intellectual property and other associated rights. The ACCC and AER share common objectives to protect, strengthen and supplement competitive market practices in the energy sector. 8.2 Are alternative dispute resolution or tiered dispute resolution clauses common in the renewable energy sector? 7.2 What power or authority does the relevant governmental authority or regulator have to prohibit or take action in relation to anti-competitive practices? Contracts between private sector parties in Australia often include alternative dispute resolution mechanisms, for example, expert determination, mediation or arbitration. Sometimes The ACCC’s role is to administer and enforce the Competition these processes will apply only after negotiations are held and Consumer Act 2010 (CCA) and a range of additional legisla- between senior representatives of the parties, and they may be tion. The ACCC has enforcement and investigation powers, as tiered in other ways. Sometimes they will be binding, and some- well as the power to authorise (affording statutory immunity) times there will still be scope for a subsequent court hearing. conduct that may otherwise contravene the CCA on net public Perceived benefits of alternative dispute resolution processes benefit grounds. Remedies in relation to anti-competitive prac- include a more flexible approach than courts provide, as well as tices include public warning notices, infringement notices, confidential processes and outcomes. court enforceable undertakings and the institution of proceed- Even where contracts do not specify alternative dispute reso- ings seeking pecuniary penalties, declarations, divestiture (for lution, courts in Australia will often require mediation to be mergers) and injunctions. undertaken prior to progressing to a trial.

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As a general observation, commercial parties are able to litigate and enforce awards against government agencies in Australia. Sovereign immunity does not generally apply and there is a well-developed system of judicial review of government action in Australia.

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Darren Murphy is an energy partner based in Jones Day’s Melbourne office. He has acted on major M&A, projects, and transactions in Australia and the wider Asia Pacific region for more than two decades. His experience extends across oil and gas, mining, power, and renewables. He has recently represented project sponsors, foreign investors, customers and suppliers in relation to a range of Australian wind and solar projects.

Jones Day Tel: +61 3 9101 6822 Rialto Towers, Level 48 Email: [email protected] 525 Collins Street URL: www.jonesday.com Melbourne VIC 3000 Australia

Adam Conway is an energy and resources partner based in Jones Day’s Perth office. He advises clients on major energy and resources projects throughout Australia and the broader Asia Pacific region. He has more than 20 years of experience in a range of sectors, including upstream and downstream energy, mining, project and field development, infrastructure, and mergers and acquisitions. Adam has assisted clients throughout the whole life cycle of energy and mining projects, including advising on all aspects of energy supply. This has included advising on a solar gas hybrid power project, large-scale wind farms, hydrogen supply based on solar energy and waste- to-energy arrangements.

Jones Day Tel: +61 8 6214 5719 Central Park Building, Level 51 Email: [email protected] 152–158 St Georges Terrace URL: www.jonesday.com Perth WA 6000 Australia

Prudence Smith is based in Jones Day’s Sydney office. Prudence is a highly experienced competition law practitioner who advises clients on a full range of competition regulatory law issues. Prudence’s background includes more than 14 years at the Australian competition regulator (the ACCC), much of the time as a senior ACCC internal lawyer. She has extensive experience in merger clearance (having also served as a mergers project officer and lawyer at the ACCC for 10+ years), cartel and anti-competitive conduct investigations and litigation, ACCC immunities, authorisations and notifications of contracts affecting competition.

Jones Day Tel: +61 2 8272 0593 Level 41, Aurora Place Email: [email protected] 88 Phillip Street URL: www.jonesday.com Sydney NSW 2000 Australia

Jones Day is a global law firm with more than 2,500 lawyers in 43 offices across five continents. The Firm is distinguished by: a singular tradition of client service; the mutual commitment to, and the seamless collaboration of, a true partnership; formidable legal talent across multiple disciplines and jurisdictions; and shared professional values that focus on client needs. Jones Day has long recognised the growing role of Australia in the global economy. The Firm expanded to Australia in 1998 with its first office in Sydney and opened offices in: Perth in 2014; Brisbane in 2016; and Melbourne in 2018. There are now more than 100 Jones Day lawyers practising Australian law and providing market-leading capabilities on a wide range of services for clients. www.jonesday.com

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Bangladesh Bangladesh

A.B.M. Nasirud Doulah

Doulah & Doulah Dr. Amina Khatoon

12 Overview of the Renewable Energy ■ SREDA: SREDA is an agency under MPEMR acting for sustainable energy development and promotion comprising Sector renewable energy and energy efficiency and for monitoring the implementation of the Energy Efficiency and 1.1 What is the basis of renewable energy policy and Conservation Master Plan up to 2030. regulation in your jurisdiction and is there a statutory ■ Bangladesh Power Development Board (BPDB): definition of ‘renewable energy’, ‘clean energy’ or Incorporated under the Bangladesh Power Development equivalent terminology? Boards Order, 1972, BPDB is a board under the administration of MPEMR and is responsible for a major portion The Bangladesh Sustainable and Renewable Energy Development of the generation and distribution of electricity mainly in Authority (SREDA) Act, 2012 defines “renewable energy” as urban areas. It also acts as the statutory off-taker of gener- biomass (fire wood, paddy husk, sugar cane bagasse, waste, etc.), ated power. biofuel, biogas, hydro power, solar energy, wind energy, hydrogen ■ Power Grid Company of Bangladesh (PGCB): PGCB cell, geothermal, low and high tide energy and energy derived has been formed under the restructuring process of the from any other source as may be declared by the Government. power sector in Bangladesh and has been entrusted with The Renewable Energy Policy of Bangladesh (REPB), 2008 the responsibility to own the national power grid and read with the Private Sector Power Generation Policy, 2004 (the to operate and expand the same with efficiency. PGCB Policy) and the Policy Guidelines For Enhancement of Private acts as the interconnection stakeholder to all independent Participation in the Power Sector, 2008 (the SPP) altogether power plants (IPPs). form the renewable energy landscape of Bangladesh. ■ Bangladesh Energy Regulatory Commission (BERC): The Policy was adopted by the Ministry of Power, Energy & BERC regulates and issues licences to power and energy Mineral Resources (MPEMR) in 1996 and was revised in 2004. sector stakeholders. The Policy regulates private investment in the power industry in Bangladesh and sets out, among others, the procedures of 1.3 Describe the government’s role in the ownership procuring power from privately invested power projects as and development of renewable energy and any policy well as the financial arrangements and incentives that will be commitments towards renewable energy, including provided to the privately invested power projects. The SPP is applicable renewable energy targets. an extension to the Policy with enhanced scope, allowing joint ventures between public and private entities and other aspects of The Bangladeshi economy has been growing very fast, but the private sector power generation. lack of infrastructure including the deficit in power supply has Framed in 2008 as an add-on over the Policy, REPB further been a major bottleneck for its development to its full poten- provides additional institutional arrangements, resource, tech- tial. The Bangladesh Government took a pragmatic approach nology and programme development, investment and fiscal to meet this demand, developed a Power System Master Plan incentives and regulatory policy for renewable energy under and so far could facilitate rapid development in power gener- private participation. ation and distribution. However, it has always been lagging to some extent in meeting its roadmap developed under the Power 1.2 Describe the main participants in the renewable System Master Plan. energy sector and the roles which they each perform. The Government has released the revised Power System Master Plan 2016 (PSMP2016), which provides a vision, targets The following are the major participants in this sector: and a roadmap to attain its ambition of power sufficiency in ■ Power Division: The Power Division, which is a divi- steps up to 2040. As per PSMP2016, Bangladesh’s renewable sion under MPEMR, is responsible for all policies and generation capacity share target has been 5% by 2015 and 10% matters relating to electricity generation, transmission and by 2021. Although the 2015 target was not met, the pipeline distribution. projects seem to make the 2021 target achievable. Other targets ■ Power Cell: The Power Cell facilitates all stages of the include domestic renewable energy power generation (cumula- promotion, development, implementation, commissioning tive) of 2,470MW by 2021 and 3,864MW by 2041. and operations of private power generation projects and The Policy streamlines the procedures for the procurement addresses the concerns of project sponsors. of privately generated electricity, the security package for investors, off-taking, interconnection/dispatch, and incentives for

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the private sector power in generating projects. REPB provides of renewable energy, especially by facilitating public and social further facilitation and incentives for renewable power projects awareness, publicising environmental impacts, and lobbying at overlaid on the Policy. the regulatory level.

22 Renewable Energy Market 2.4 What is the legal and regulatory framework for the generation, transmission and distribution of renewable 2.1 Describe the market for renewable energy in your energy? jurisdiction. What are the main types of renewable energy deployed and what are the trends in terms of The Power Division under MPEMR exercises a monopoly in technology preference and size of facility? the power transmission and distribution sector. Since the incep- tion of Bangladesh, the operation of the power sector was With a monopoly in power transmission and distribution, primarily the responsibility of BPDB. Since the mid-1990s, the MPEMR purchases electricity from the public and private Bangladesh Government has unbundled the power sector by sectors, including renewable energy, through BPDB acting as the establishing several state-owned public entities for the genera- off-taker under long-term power purchase agreements (PPAs). tion, transmission and distribution of electricity. Currently, the So far, solar energy has been the most popular technology Power Division of MPEMR regulates the generation, transmis- preference for developing renewable power plants in Bangladesh. sion and distribution of electricity in Bangladesh: Although the Government failed to meet its 5% renewable Generation: Along with a number of state-owned autono- power target by 2015, there are a number of solar IPPs and mous enterprises, BPDB is responsible for the generation and state-owned solar power projects under development by the distribution of electricity in urban areas except Dhaka and the Government itself to meet the target of 10% renewable power west zone of Bangladesh. Further, BPDB also functions as a by 2021. Initially, a number of solar IPPs between 200MWp and single buyer by purchasing electricity from IPPs and several 300MWp were undertaken for development, but failed mostly public sector power generation companies. Private sector power due to a lack of available land. At present, the maximum size generators need to enter into a long-term PPA with BPDB under of the utility-scale power plants that have achieved commer- solicited and unsolicited proposals. cial operation is 35MWp in Bangladesh. However, a number of Transmission: PGCB owns the entire national grid system solar IPPs between 50MWp and 100MWp are currently under and manages electricity transmission to the whole of Bangladesh. construction and are on track. PGCB acts as the interconnection stakeholder to all IPPs. Under In addition, a number of wind power IPPs between 50MW and the Policy, the developer of the IPP is required to build intercon- 100MW are currently under development and are undergoing a nection up to a PGCB-specified point in the relevant sub-station feasibility study. The Government also tendered a few waste-to- at its own cost, and after the commercial operation date (COD) energy (WTE) IPPs, but those were short of being commercially needs to transfer such interconnection facility up to the genera- feasible. One 34MW WTE project near Dhaka, which is to run tion plant connection point to PGCB. on waste collected by Dhaka North City Corporation, has been Distribution: As stated above, MPEMR enjoys a monopoly found feasible and is currently under development. The lone in the distribution of electricity. After purchasing electricity, 230MW hydropower project is owned by the Government, and BPDB sells bulk electricity to all the distributing entities, which there is no future forecast for additional hydropower plants due are autonomous state-owned enterprises. to the lack of tide strengths and land shortage. Currently, the following are the processes under which BPDB awards PPAs in favour of private sector power generators. A 2.2 What role does the energy transition have in the project is awarded in the form of a Letter of Intent (LoI) issued level of commitment to, and investment in, renewables? by BPDB, which is required to be accepted by the awardee by way What are the main drivers for change? of submitting a security in the form of an irrevocable and uncon- ditional bank guarantee, and acceptance of the LoI. Thereafter, The Government has an ambitious plan to meet the forecasted the project company is required to enter a PPA with BPDB and power demand by consumers and so it has developed PSMP2016. an implementation agreement (IA) with the Government. The The initial IPPs in Bangladesh were gas-based, but the gas purchase and payment obligations of the off-taker under the PPA resource has been forecasted to be exhausted very soon making and the interconnection related obligations of PGCB are guar- them costly while running on imported liquefied natural gas anteed by the Government by executing a guarantee agreement: (LNG). BPDB also procured electricity through rental power ■ Public Procurement Act, 2006 (PPA2006) read with producers running on heavy fuel oil (HFO), but those were not the Policy: Under this, a public tender is floated to procure sustainable in the long term and the price was very high. The development proposals to supply power. Generally, a Government also has a good number of coal fired IPPs under two-stage method (request for qualification (RFQ) followed development, but considering the environment, public protests by request for proposal (RFP)) is adopted, but one-stage and related concerns, it has planned no further coal fired IPPs proposals are also followed sometimes. A Technical to meet its future demand. Evaluation Committee (TEC) is formed, which ranks the On the contrary, the cost of solar and wind power genera- proposals based on a predefined matrix and awards the tion has drastically fallen in recent years making it sufficiently tender to the top bidder subject to approval from MPEMR competitive. This has made the Government commit to renew- and the Cabinet Committee of Government Procurement able energy and develop the REPB to encourage investments in (CCGP). renewable power through various incentives. ■ Power and Energy Fast Supply Enhancement (Special Provision) Act (PEFSE): Under this, once MPEMR 2.3 What role, if any, has civil society played in the receives an unsolicited proposal, it sends MPEMR’s rele- promotion of renewable energy? vant requirements, if any, to be approved by the Planning Ministry. Once approved, a Technical Evaluation Committee is formed to check the proposal, and upon completion of Civil society has also played a significant role in the promotion its evaluation, the proposal is sent to MPEMR for approval

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and then for approval from CCGP. Upon their approval, 32 Sale of Renewable Energy and Financial the project is awarded to the unsolicited bidder. ■ PPA2006 with PEFSE Application: Under this, the Incentives PPA2006 procedure and rules are followed, but the TEC can pick any bidder irrespective of ranking to negotiate 3.1 What is the legal and regulatory framework for the with such bidder, and after such negotiation the TEC can sale of utility-scale renewable power? recommend the award to any such bidder. The proposal is then sent to MPEMR for approval and then for approval So far, an open electricity exchange has not yet been estab- from CCGP. Upon their approval, the project is awarded lished in Bangladesh although it is in the Government roadmap. to the TEC-recommended bidder. BPDB functions as a single buyer by purchasing electricity from IPPs, each of which are required to enter into a long-term PPA 2.5 What are the main challenges that limit investment with BPDB. in, and development of, renewable energy projects? 3.2 Are there financial or regulatory incentives The main challenges that limit investment in, and development available to promote investment in/sale of utility-scale of, renewable energy projects are as follows: renewable power? ■ Land Procurement & Aggregation: This is a major challenge given that land is scarce and agricultural land cannot The following are the incentives available to promote invest- be used for power generation purposes. Land acquisition ment in/sale of utility-scale renewable power: sometimes becomes very problematic for land savvy IPPs ■ For renewable IPPs commencing production before such as solar plants. For such acquisition, the actual price December 31, 2022, a tax exemption on income tax is comes much higher than the market value. In addition, available for 15 years. Commencing production thereafter land procurement itself is a complex task. Especially at a grants a 100% tax exemption during the first five years, later phase, potential multilateral lenders require details of a 50% exemption during the next three years and a 25% the deficit between the purchase price and market price, exemption during the next two years. rehabilitation, etc. ■ For power projects, no value-added tax (VAT) is charged ■ Environment & Rehabilitation: Environmental issues over earnings against the supply of power. are critical for the development phase, and the project ■ Three years’ tax exemption on income of expatriate company needs to prepare a proper Environmental Impact employees. Assessment (EIA) and Environmental Management Plan ■ Tax exemption on interest earned by foreign lenders. for clearance from the Department of Environment. ■ Tax exemption on technical knowhow, royalty and tech- Rehabilitation is also a very sensitive issue and sometimes nical assistance fees. becomes a showstopper during lender due diligence. ■ Tax exemption on capital gain earned from transfer of ■ Interconnection & Dispatch: Interconnection facility shares. construction sometimes becomes challenging due to delays ■ The companies will be allowed to import plant and equip- in securing right of way for placing electricity poles for line ment and spare parts up to a maximum of 10% of the orig- construction. inal value of the total plant and equipment within a period ■ Lock in for investors: The lead shareholder is in general of 12 years of commercial operation without the payment not allowed to dilute its shareholding in the project company of customs duties, VAT or any other surcharges. beyond 51% until the COD and beyond 40% until the sixth ■ The Instruments and Deeds required to be registered anniversary of the COD. The Lock in for the operating under local regulations will be exempted from stamp duty shareholder is 20% and 11%, respectively. This means that and registration fee payments. investors need to commit to long-term investment. 3.3 What are the main sources of financing for the 2.6 How are large utility-scale renewable power development of utility-scale renewable power projects? projects typically tendered? No recourse project financing is the main source of financing for Large utility-scale renewable power projects are typically tendered such development. Multilateral development banks, commer- by public advertisement in prominent media, for example the cial banks and climate funds are the major financiers acting BPDB website, major newspapers, Dgmarket and United Nations with or without export credit agency (ECA) coverage. Project Development Business Online. In most cases, a two-stage open financing is also allowed from shareholders to some extent for tendering method is adopted. A single RFP may also be floated power projects. For state participation in such development, the under a one-stage method in selective cases especially for engi- Government is allowed to issue sovereign guarantee up to its neering, procurement and construction (EPC) contracts. Under equity shareholding. a two-stage method, a RFQ is floated first and then only quali- Foreign borrowing may be availed subject to the below fied shortlisted bidders are invited to submit technical and finan- conditions for IPPs and subject to approval from the relevant cial proposals. regulator: ■ The borrowing must be for an industrial project (includes power projects) with good financials and sufficient cash 2.7 To what extent is your jurisdiction’s energy demand met through domestic renewable power generation? flow projections to repay the loan. ■ Maximum 80:20 debt to equity ratio. ■ The recommended interest ratio is LIBOR+4% consid- At the moment, renewable energy makes up 2.95% of the entire ering the all in cost ceiling (including all annualised fees energy sector in Bangladesh, which includes the off-grid share and expenses). (286.72MW) of renewable energy.

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Unless the borrower has production for a minimum of three 3.8 Are there financial or regulatory incentives or years, financing for working capital from local banks is also not mechanisms in place to promote the purchase of allowed. For local borrowing, the maximum debt to equity ratio renewable energy by the private sector? is 50:50. Currently, no such incentives have been granted. 3.4 What is the legal and regulatory framework applicable to distributed renewable energy? 42 Consents and Permits

In addition, the following regulatory framework is applicable to 4.1 What are the primary consents and permits distributed renewable energy: required to construct, commission and operate utility- Captive Power Plant: Under the Captive Power Plant Policy scale renewable energy facilities? (CPPP), Captive Power Plants have been defined as power projects that produce power as per their own use or for the use Below are the primary consents and permits: of a group. Such power produced may be sold at a predefined rate not exceeding the rate at which BPDB sells power to distrib- After LoI issue until PPA execution: utors excluding the wheeling charge. The producer is required ■ Certificate of Incorporation. to enter into a PPA as per the template incorporated in CPPP. ■ Tax Identification Number (TIN) Certificate. Connection to the grid is possible at its own expense and PGCB ■ Trade Licence. ■ Business Identification Number Registration. may charge a wheeling fee. A licence for power generation is also required to be procured from BERC. To connect to the After PPA execution until financial close: grid, its capacity must be higher than 20MW. ■ No Objection Certificate from Local Government. Small Power Plant: Small Power Plants are defined as power ■ Industrial Project Registration. plants with a capacity of less than 10MW. Such power produced ■ Location Clearance Certificate. may be sold to anyone at a predefined rate where BPDB, ■ Approval for foreign borrowing. DESA (Dhaka Electric Supply Company) and REB (Rural ■ Approval for opening accounts denominated in foreign Electrification Board) are present, and for other areas the price exchange. may be mutually negotiated. Connection to the grid is possible at ■ Approval for foreign insurance or reinsurance. its own expense and PGCB may charge a wheeling fee. A licence ■ Registration of the executed financing documents. for power generation is also required to be procured from BERC. ■ EIA Approval. Small Power Plants may sell electricity to BPDB distributors or to ■ Approval from the Department of Forestry large consumers which include Export Processing Zones, Special ■ Relevant approval for construction of electrical intercon- Economic Zones, Private Economic Zones, High Tech Parks, nection facility. Large Real Estate, etc. meeting the following voltage level and ■ Easement/licence for use of any land or acquisition of any load characteristics: (a) consumers connected to the national grid land. through transmission lines of 33KV and above having connected From financial close until start of construction: load of not less than 5MW; (b) consumers connected at 33KV or ■ Import permit with approval for exemption from import 11KV lines of distribution utilities having connected load of not duty and VAT. less than 1MW; and (c) consumers connected at 11KV or 0.4KV ■ Exemption from registration duty of relevant instruments. lines of distribution utilities having connected load of not less ■ Exemption from stamp duty of relevant instruments. than 1KW in case of renewable energy projects. ■ Import Registration Certificate. ■ No Objection Certificate for shoreline work, jetty, intake 3.5 Are there financial or regulatory incentives and outfall structures, etc. available to promote investment in distributed renewable ■ Approval for use of deep tube well/river water. energy facilities? ■ Approval for connecting electric line to earth. ■ Relevant approval for construction of electrical intercon- Same incentives as discussed in question 3.2 apply. nection facility. During construction period until commissioning: 3.6 What are the main sources of financing for the ■ Issue and renewal of the Environmental Clearance Certificate development of distributed renewable energy facilities? (ECC). ■ Establishment Licence. The main sources of finance include local bank financing, ECA ■ Fire Licence. financing, ECA-backed commercial/export bank financing and ■ Electricity Generation Licence. local Investment Promotion Financing Facility (IPFF) funds granted by the International Development Association (IDA), etc. 4.2 What are the primary consents and permits required to construct, commission and operate distributed renewable energy facilities? 3.7 What is the legal and regulatory framework that applies for clean energy certificates/environmental attributes from renewable energy projects? The primary consents and permits and the same as above.

At present, no such clean energy certificates have been issued. 4.3 What are the requirements for renewable energy As to environmental attributes, it is required to adopt one of facilities to be connected to and access the transmission the renewable energy sources as referred to in the Policy and to network(s)? obtain the relevant power generation licence from BERC and environmental clearance from the Department of Environment. Under the Policy, the developer of the IPP is required to build

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interconnection up to a PGCB-specified point in the relevant investors investing in renewable energy projects. However, it is sub-station at its own cost, and after the COD needs to transfer important to note that unlike for local shareholders for which such interconnection facility to PGCB. The required voltage an in kind contribution is allowed as capital, a foreign capital depends on the rating of the substation where the interconnec- contribution can only be made in the form of cash or capital tion is carried out. The required frequency is 50 Hz. machinery. Variations of frequency and voltage shall be in accordance with the Grid Code of Bangladesh. Grid-connected power 6.2 Are there any currency exchange restrictions projects shall be operated under the control of the National or restrictions on the transfer of funds derived from Load Despatch Centre (NLDC). To ensure grid operation, investment in renewable energy projects? there must be arrangements for the operation of the plant in Primary Frequency Control (FGMO), Secondary Frequency No such restrictions have been imposed. The Foreign Private Control (LFC) and maintaining system frequency within oper- Investment Promotion and Protection Act, 1980 grants foreign ating range. The Power Factor of the power delivered by the investors equal treatment, the same rights against expropriation power plant shall normally be 0.8 (Lagging). Appropriate and the right to repatriate profit earnings and residual proceeds. protection and synchronisation must be ensured.

6.3 Are there any employment limitations or 4.4 What are the requirements for renewable energy requirements which may impact on foreign investment in facilities to be connected to and access the distribution renewable energy projects? network(s)?

The maximum foreign to local employee ratio permitted is 1:5 Once the power plant is connected to the grid, it shall access for the service sector (O&M contractor) and 1:20 for the indus- the interconnection to existing distributors through the grid to trial sector (EPC contractor and project company). distribute the electricity produced. There is no other way for renewable energy facilities to be connected to and to access the distribution network. 6.4 Are there any limitations or requirements related to equipment and materials which may impact on foreign investment in renewable energy projects? 4.5 Are microgrids able to operate? If so, what is the legislative basis and are there any financial or regulatory incentives available to promote investment in As per the Policy, import duty and VAT on the importation of microgrids? plant or supplies forming the permanent works of a renewable energy plant are duty free, but those must be directly involved in power generation. No tax waiver is granted on the import of There is no legislative basis or financial or regulatory incentives construction materials, vehicles or consumable items, including available to promote investment in microgrids. However, the pre-fabricated buildings, MS rods, dredgers and distribution Government has allowed a few private microgrids on an ad hoc type transformers, which are not directly involved in power basis tagged with distributed renewable energy plants. Regulations generation. for such investments in microgrids are anticipated soon. 72 Competition and Antitrust 52 Storage

7.1 Which governmental authority or regulator is 5.1 What is the legal and regulatory framework which responsible for the regulation of competition and applies to energy storage and specifically the storage of antitrust in the renewable energy sector? renewable energy?

The BERC is the primary regulator to ensure competition At present, there is no legal and regulatory framework which in the energy sector. At the national level, the Bangladesh applies to energy storage or specifically to the storage of renew- Competition Council is the authority to ensure competition as able energy. The Government under its PSMP2016 has proposed per the Competition Act, 2012. to set a demonstrative renewable energy storage scheme, but is yet to finalise the framework of such implementation. 7.2 What power or authority does the relevant governmental authority or regulator have to prohibit or 5.2 Are there any financial or regulatory incentives take action in relation to anti-competitive practices? available to promote the storage of renewable energy? The authorities can impose a maximum and minimum tariff/ No financial or regulatory incentives have been granted at rate for competition, disallow any activity/practice or combina- present. tion thereof that may hinder competition, disallow a contractual arrangement and declare a player as a significant market power 62 Foreign Investment and International for stricter regulation. Obligations 7.3 What are the key criteria applied by the relevant 6.1 Are there any special requirements or limitations governmental authority or regulator to determine on foreign investors investing in renewable energy whether a practice is anti-competitive? projects? Any anti-competitive behaviour limiting competition is prohib- There are no such special requirements or limitations on foreign ited. Any act shall be deemed to have an adverse affect on

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competition in the market if it: (a) directly or indirectly (i) deter- 8.3 What interim or emergency relief can the courts mines abnormal purchase or sale prices, or (ii) determines a grant? deceptive price in all processes including bid rigging; (b) limits or controls production, supply, markets, technical development, The courts may grant interim injunctions to preserve a subject investment or provision of services; or (c) divides the market on matter until final adjudication or where there is a risk that one of the basis of types of goods or services, sources of production or the parties may dispose of its assets to defeat justice. provision of services, the geographical area of the market, or the number of customers in the market or any other similar basis. In addition, the Competition Act, 2012 specifically declares 8.4 Is your jurisdiction a party to and has it ratified the following practices as anti-competitive: (a) tie-in arrange- the New York Convention on the Recognition and ment; (b) exclusive supply agreement; (c) exclusive distribution Enforcement of Foreign Arbitral Awards and/or the Convention on the Settlement of Investment Disputes agreement; (d) refusal to deal; and (e) resale price maintenance. between States and Nationals of Other States and/or any significant regional treaty for the recognition and 82 Dispute Resolution enforcement of judgments and/or arbitral awards?

8.1 Provide a short summary of the dispute resolution Bangladesh has ratified the New York Convention on the framework (statutory or contractual) that typically Recognition and Enforcement of Foreign Arbitral Awards applies in the renewable energy sector, including and the Convention on the Settlement of Investment Disputes procedures applying in the context of disputes between (ICSID). All of the bilateral investment treaties that Bangladesh any applicable government authority/regulator and the private sector. has entered into allow ICSID arbitration to resolve investment disputes. The model PPA and IA generally contain a tiered dispute resolution mechanism. Good faith negotiation is always the first 8.5 Are there any specific difficulties (whether as a dispute resolution mechanism. Thereafter, parties may resort to matter of law or practice) in litigating, or seeking to a mediator under a mediator which is a technical expert. If no enforce judgments or awards, against government authorities or the state? solution is available, then the model IA and PPA resort to international arbitration. Common arbitral tribunals considered are SIAC, ICC, LCIA and UNCITRAL. There are no specific difficulties (whether as a matter of law Foreign arbitral awards are enforceable in Bangladesh. The or practice) in litigating, or seeking to enforce judgments or court in which the recognition or execution of the foreign arbi- awards, against government authorities or the state. tral award is sought may refuse to enforce such foreign arbitral award: 8.6 Are there examples where foreign investors in the ■ if the party against whom it is invoked furnishes proof to renewable energy sector have successfully obtained the court that: domestic judgments or arbitral awards seated in your ■ a party to the arbitration agreement was under some jurisdiction against government authorities or the state? incapacity; ■ the arbitration agreement is not valid under the law to With renewable energy sector being a comparatively new arena, which the parties have subjected it; there has been one recent case, i.e. Southern Solar Power Ltd. And ■ the party against whom the award is invoked was not another vs. BPDB and Others 2019(2) LNJ, where the High Court given proper notice of the appointment of the arbitrator of Bangladesh granted an injunction over the termination of or of the arbitral proceedings or was otherwise unable the PPA in favour of the developer against the Government due to some reasonable causes to present his case; until a dispute over the PPA is resolved through international ■ the foreign arbitral award contains decisions on matters arbitration. beyond the scope of the submission to arbitration; ■ the composition of the arbitral tribunal or the arbitral 92 Updates and Recent Developments procedure was not in accordance with the agreement of the parties or alternatively the law of the country where the arbitration took place; or 9.1 Please provide a summary of any recent cases, new legislation and regulations, policy announcements, ■ the award has not yet become binding on the parties, trends and developments in renewables in your or has been set aside or suspended; or jurisdiction. ■ the court finds that: ■ the subject matter of the dispute is not capable of settlement by arbitration under the law for the time The Bangladesh Economic Zone Authority (BEZA) is planning being in force in Bangladesh; or to set up a solar power special zone in Baher Char (Chandpur ■ the recognition and execution of the foreign arbitral district) with a target capacity of at least 1GW. It has already award conflict with the public policy of Bangladesh. acquired 4,000 acres (16 km²) of land in Baher Char. A number of investors have expressed their interest in taking part in the development of the project. BEZA also intends to develop 8.2 Are alternative dispute resolution or tiered dispute another 600MW solar park on the Mirersharai Economic Zone resolution clauses common in the renewable energy territory in Chittagong. Bangladesh aims to generate 24,000MW sector? of power by 2021 and 60,000MW by 2041 in order to meet the ever-growing demand, of which at least 10% is expected to be Both alternative dispute resolution and tiered dispute resolution met from renewable sources including solar PV. clauses are common in the renewable energy sector.

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A.B.M. Nasirud Doulah is a partner at a leading Dhaka-based law firm, Doulah & Doulah. He is a leading personality for infrastructure and power project development and project finance matters in Bangladesh. He has been working as a financial law specialist for the last 15 years. He is not only reputed in the context of Bangladesh, but also holds a strong reputation internationally among overseas clients and law firms. Mr. Doulah is a consultant to World Bank on local corporate governance matters in Bangladesh. His recent clients include GE Capital, IFC, ICICI, Export Development Canada, EIB, Finnfund, CEXIM, CDB, ICBC, etc. in project finance transactions, and Vestas, General Electric, Blackstone, Powerchina, CMEC, Total, CREC, Orsted, Jinko, Hetat, Sun Edisun and Scatec in renewable energy developments. Mr. Doulah is a member of the Thomas Jefferson School of Law Foreign Tax and Trade Research team and an accredited Lexis author.

Doulah & Doulah Tel: +880 1 711 506 015 Doulah House Email: [email protected] Plot-153/2, Road-2/2, Mirpur-12A URL: www.doulah.net Dhaka 1216 Bangladesh

Dr. Amina Khatoon is a partner at a leading Dhaka-based law firm, Doulah & Doulah. Her expertise in the areas of corporate law, M&A and restructuring is considered to be one of the finest in the area. She is very much active in the areas of corporate finance and project finance. A number of multinational clients rely on Dr. Khatoon and have entrusted her with their legal issues in Bangladesh. Dr. Khatoon is a consultant to the Asian Development Bank (ADB). Dr. Khatoon has a leading practice in Bangladesh in developing renewable energy projects especially in the arena of solar power. Her major clients include IFC, EIB, Finnfund, FMO, CEXIM, CDB, ICBC, etc. in project finance matters, and Jinko, Hetat, Sub Edisun and Scatec in renewable energy developments.

Doulah & Doulah Tel: +880 1 711 027 377 Doulah House Email: [email protected] Plot-153/2, Road-2/2, Mirpur-12A URL: www.doulah.net Dhaka 1216 Bangladesh

Doulah & Doulah is a partnership law firm established in 1965. The firm possesses a leading commercial and infrastructure practice in Bangladesh representing the world’s largest business houses in Bangladesh and working with the biggest international law firms. The firm has top-ranked transactional capabilities complemented by a strong litigation practice. The firm offers market-leading practices in M&A, infrastructure and power project development and project finance as well as comprehensive tax and real estate capability. It has been involved in most of the major power and infrastructure projects in Bangladesh and major gas, oil and mineral resource deals representing clients such as IFC, EIB, ADB, Finnfund, FMO, CEXIM, CDB, ICBC, etc. in project finance matters, and Vestas, General Electric, Blackstone, Powerchina, CMEC, Total, CREC, Orsted, Jinko, Hetat, Sub Edisun and Scatec in renewable energy developments. Details about other transactions are located at: www.doulah.net

Renewable Energy 2021 © Published and reproduced with kind permission by Global Legal Group Ltd, London 26 Chapter 5 Egypt Egypt

Mazghouny & Co Donia El-Mazghouny

12 Overview of the Renewable Energy ‘Renewable energy resources’ are defined in the Renewable Energy Law as ‘natural sources of energy, which are non-deplet- Sector able, and which may be used to produce electricity’.

1.1 What is the basis of renewable energy policy and 1.2 Describe the main participants in the renewable regulation in your jurisdiction and is there a statutory energy sector and the roles which they each perform. definition of ‘renewable energy’, ‘clean energy’ or equivalent terminology? Egypt has a single-buyer electricity market, with the Egyptian In Egypt, renewable energy policy and regulations are estab- Electricity Holding Company (EEHC) being the main player lished by several pieces of legislation: and owner of the transmission system and almost all of the a. The Renewable Energy Law no. 203/2014 (published on 21 distribution assets. Under this model, the Egyptian Electricity December 2014) identifies four main mechanisms for the Transmission Company (EETC), a state-owned company, development of renewable energy projects: (i) state-owned purchases electricity from all public and private generation projects with competitive bidding for engineering, procure- companies and sells it to nine main distribution companies, and ment and construction (EPC) contracts; (ii) competi- other private electricity distribution companies. It also directly tive bidding for build-own-operate (BOO) contracts; (iii) sells electricity to a number of consumers connected to the feed-in tariffs; and (iv) a merchant scheme according to extra-high-voltage and high-voltage networks. EETC is also which independent power producers can enter into bilat- responsible for power exchanges with neighbouring countries eral contracts to sell power directly to consumers using over the present interconnections. the national grid against wheeling and grid-access charges The New and Renewable Energy Authority (NREA), estab- payable to the grid operator. lished in 1986, is the arm of the Egyptian Ministry of Electricity b. The Electricity Law no. 87/2015 (published on 8 July and Renewable Energy (MOERE) tasked with developing renew- 2015) and its Executive Regulations issued by Decree no. able energy programmes in Egypt on a commercial scale, as well 230/2016 of the Minister of Electricity and Renewable as implementing related energy conservation programmes. Energy (published on 23 May 2016) encourage energy effi- EgyptERA, established in 2000, is the independent legal entity ciency and the generation of electricity from renewable that grants licences for the generation, transmission and distribu- sources, and provide for the complete independence of tion of electricity, and is responsible for overseeing compliance the activities of generation, distribution and transmission with the existing rules and regulations in the electricity sector. of electricity to achieve a liberalised and competitive elec- Egypt aims to gradually replace the current model with a tricity market. competitive market, based on bilateral contracts, together with c. Prime Ministerial Decrees no. 1947/2014 (published on 27 spot, balancing and ancillary services’ markets. The Electricity October 2014) and 2532/2016 (published on 29 September Law no. 87/2015 and its executive regulations set the ground for 2016) established the offtake tariffs applicable to the first this transformation, with EETC separating from EEHC and and second regulatory periods of the equally split 4 GW becoming independent from all electricity companies and electric Egyptian solar and wind feed-in tariff programme, in addi- utility parties and establishing third-party access to its network. tion to 300 MW of small-scale distributed solar projects. d. Circular no. 2/2020 of the Egyptian Electric Utility and 1.3 Describe the government’s role in the ownership Consumer Protection Regulatory Agency (EgyptERA) and development of renewable energy and any policy (published on 19 May 2020) restructures the net-metering commitments towards renewable energy, including system for solar power generation. applicable renewable energy targets. e. Prime Ministerial Decree of October 2019 determining the feed-in tariff for electricity generated from biomass. The Egyptian government has a long-term plan for the diver- f. The Investment Law no. 72/2017 (published on 31 May 2017) sification of the energy mix and the reduction of dependence and its Executive Regulations issued by Prime Ministerial on fossil fuels, which predates the large Zohr offshore gas Decree no. 2310/2017 (published on 28 October 2017) set discovery. The government typically develops renewable energy out the legal framework for the establishment of renewable generation projects through NREA, although the authority has energy projects and provide incentives for investment in this the right to establish subsidiaries either alone or in conjunction sector.

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with private sector entities as of October 2014 by virtue of 2.5 What are the main challenges that limit investment Presidential Decree no. 135/2014 (published on 22 October in, and development of, renewable energy projects? 2014). The targeted renewables capacity is 20 per cent of the energy mix by 2022 (12 per cent wind, six per cent hydro, and The generation capacity achieved so far in Egypt is thought to two per cent solar) and 42 per cent by 2035 (22 per cent solar be slowing down the development of new large-scale renewa- photovoltaics (PV), 14 per cent wind, four per cent concentrated bles projects. Also, for in-front-of-the-meter projects, power solar power (CSP), and two per cent hydro). banking on the national grid could be problematic. 22 Renewable Energy Market 2.6 How are large utility-scale renewable power projects typically tendered? 2.1 Describe the market for renewable energy in your jurisdiction. What are the main types of renewable energy deployed and what are the trends in terms of Utility-scale renewable power projects are typically tendered technology preference and size of facility? eitheryREA b N on an EPC or EPC+ finance basis, or by EETC on a BOO or auction basis. The government has recently been Since the launch of its feed-in tariff programme in 2014, Egypt shifting towards the latter model to drive offtake prices down. has seen a boost in its renewable generation capacity, especially with respect to solar PV and wind power generation. As of late 2.7 To what extent is your jurisdiction’s energy demand 2019, the installed renewable energy capacities in Egypt are met through domestic renewable power generation? 2,832 MW hydropower, 1,491 MW solar PV, 1,375 MW wind power, 140 MW CSP, and 11.5 MW biomass. According to the latest data made available by the International Renewable Energy Agency (IRENA), until late 2018, Egypt’s 2.2 What role does the energy transition have in the total installed capacity of renewables amounted to 3.7 GW, level of commitment to, and investment in, renewables? including 2.8 GW of hydropower and around 0.9 GW of solar What are the main drivers for change? and wind power, out of a total installed capacity of around 50 GW. As of the end of 2019, renewable energy in Egypt totalled It is believed that the initial surge in the renewable energy capac- 5955.5 MW of installed capacity, equivalent to 20,782 million ities in Egypt was part of the response to the blackouts in the kWh of total energy produced, with a fuel saving of 4.3 MTOE, summers following the 2011 events. The developments which and a CO2 emissions reduction of 11.4 million tonnes of CO2. followed were part of the plan for the diversification of the energy mix adopted by the country, which has led to an expansion in the 32 Sale of Renewable Energy and Financial installed capacity from solar PV and wind in particular. It is Incentives currently expected that the next revolution in the power sector, which will substantially expand the use of renewable energy in 3.1 What is the legal and regulatory framework for the Egypt, will be the wave of transformation to electric mobility sale of utility-scale renewable power? and green hydrogen, as well as integrating renewable generation in water treatment and desalination plants. Power-to-X, in general, has the potential of preventing potential setbacks due to Large-scale 20 MW to 50 MW renewable energy projects are the COVID-19 pandemic or the existence of unused capacity on found under the feed-in tariff programme. Furthermore, certain the national grid. 100 MW to 600 MW projects are also found in the competitive bidding scheme in the wind and PV power sectors. Both types of projects, including auctions, find their basis in the Renewable 2.3 What role, if any, has civil society played in the Energy Law. It is worth noting that the sale of electricity activity promotion of renewable energy? is not subject to value-added tax in Egypt.

Private businesses, especially small renewable energy developers, 3.2 Are there financial or regulatory incentives have played a bigger role than civil society in the promotion of available to promote investment in/sale of utility-scale renewable energy in Egypt. Their business development work renewable power? has created an appetite in the market, especially with commercial and industrial offtakers, for renewable energy. The government of Egypt offers a number of incentives and is putting in place favourable policies to promote the development 2.4 What is the legal and regulatory framework for the of renewable energy projects in the country. Investment Law generation, transmission and distribution of renewable no. 72/2017, published on 31 May 2017, granted a special invest- energy? ment incentive to new projects generating renewable energy or depending on it, or expansions of projects by the addition As previously highlighted, the Renewable Energy Law identi- of new assets increasing the production capacity. The incen- fies the different mechanisms for the generation of renewable tive consists of a deduction of 30 per cent of the net taxable energy. The Electricity Law defines the legal framework for the profits for the first seven years of the life of the project, subject generation, distribution or sale of electricity more explicitly, and to certain conditions such as the incentive value not exceeding requires any company set up to develop these activities to be 80 per cent of the paid-in capital until the start of the project’s incorporated in the form of an Egyptian joint stock company. operations. The Investment Law also creates a two per cent Such a company must generally seek a preliminary and then a unified rate of customs duties for all equipment and machinery final licence from EgyptERA in order to be allowed to carry necessary for the establishment of the project (down from five out its activities. per cent). Land may be allocated free of charge if the project

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company’s activity is deemed to be of a strategic interest; other- MW); the installed capacity of the met-metering facility must wise, two per cent of the production is generally payable yearly not exceed the maximum load of the consumer during the year for land lease (based on the Renewable Energy Law). preceding the commercial operation date of the facility; and a balancing charge must be payable, among other requirements. 3.3 What are the main sources of financing for the development of utility-scale renewable power projects? 3.6 What are the main sources of financing for the development of distributed renewable energy facilities? The construction of renewables projects is largely financed by international finance institutions (IFIs) for private sector projects, Smaller renewable energy projects and distributed renewables or through grants from international donors for NREA projects. facilities are typically financed through commercial loans. A Most utility-scale renewable energy projects in the country are few local banks have recently allocated certain funding for small funded mainly through non-recourse project finance and a smaller green projects, and this is helping distributed renewable gener- equity portion (in the range of 75:25 or 80:20). Loans are typically ation. Also, some DFIs are allocating grants and concessional sourced from IFIs and development finance institutions (DFIs), financing for small- and medium-scale distributed generation in such as the International Finance Corporation, European Bank for the Middle East and North Africa region. Reconstruction and Development, European Investment Bank, Japan Bank for International Cooperation, Japan International 3.7 What is the legal and regulatory framework that Cooperation Agency or the African Development Bank for 12- applies for clean energy certificates/environmental to 18-year tenures. Where EETC is the offtaker, senior lenders attributes from renewable energy projects? now generally require a sovereign guarantee from the Egyptian Ministry of Finance or Central Bank of Egypt for the payments An Egyptian Designated National Authority is subordinated to by the transmission company to the seller, as well as a seat of the Egyptian Environmental Affairs Agency, and includes two arbitration outside Egypt for the power purchase agreement. A branches: an executive branch, consisting of the Egyptian Council very limited portion of the funding and part of the bonding are for the Clean Development Mechanism (CDM) (comprising sourced from local commercial banks, given that most of the representatives of certain ministries); and a technical branch, the project components are sourced from outside Egypt in foreign Egyptian Bureau for CDM (comprising experts providing tech- currency, and local banks are legally required to lend in foreign nical recommendations to the Council), which plays a role in currency only where the projects’ profits are generated in foreign deciding on the issuance of certified emission reduction credits. currency (while most of the utility-scale projects in which EETC The board of EgyptERA is ultimately responsible for ratifying is the offtaker are paid in local currency, in the equivalent of the the rules, conditions and processes related to the issuance and tariff priced in USD). trading of all renewable energy certificates.

3.4 What is the legal and regulatory framework applicable to distributed renewable energy? 3.8 Are there financial or regulatory incentives or mechanisms in place to promote the purchase of renewable energy by the private sector? In addition to the utility-scale solar projects, the feed-in tariff programme also proposed tariffs for distributed PV ranging The merchant or independent power producer model provided from EGP 0.848/kWh for residential systems below 10 kW up for in the Renewable Energy Law allows private offtakers to to EGP 0.973/kWh for systems between 200 kW and 500 kW. enter into agreements with private power generation companies to secure the purchase of electricity from renewable energy 3.5 Are there financial or regulatory incentives sources. This does not grant any special incentive other than the available to promote investment in distributed renewable offtaker possibly securing a fixed price for electricity in the long energy facilities? term. On the other hand, net-metering provides for compensation in EGP against any excess electricity fed by the offtaker In 2013, Egypt introduced a net-metering scheme to promote into the grid. The maximum capacity per net-metering facility distributed solar power. The scheme allowed small-scale renew- is capped at 20 MW. able energy projects in the residential and the industrial and commercial sectors (with a maximum capacity recently increased 42 Consents and Permits from 5 MW to 20 MW) to feed electricity into the low-voltage grid. Under the scheme, solar PV generation is credited against 4.1 What are the primary consents and permits the user’s bill for consumption from the grid using a calcula- required to construct, commission and operate utility- tion method that credits surplus electricity in the consumers’ scale renewable energy facilities? highest tariff bracket. In May 2020, EgyptERA revamped the net-metering scheme by virtue of Circular no. 2/2020, intro- Electricity generation projects, including from renewable sources, ducing a number of limitations for the projects established must be established in the form of an Egyptian joint stock thereunder, including the following requirements: the genera- company under the Investment Law. The companies must then tion facility must be located within the premises of the elec- obtain a licence from EgyptERA for power generation, and tricity consumer; the total capacity of net-metering solar power a building permit for the construction of any concrete or fixed projects connected to any single distribution company must not installations. An environmental impact assessment, approved exceed 1.5 per cent of the peak load of the distribution compa- by the Egyptian Environmental Affairs Agency (EEAA), is also nies registered during the financial year preceding the contract; required. The generation licence and approval of the EEAA must the total capacity generated from solar net-metering projects be maintained as valid and effective for the entire duration of the must not exceed 300 MW (125 MW for capacities up to 500 kW project. and 100 MW for capacities greater than 500 kW and up to 20

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The EPC contractors of renewables plants are typically required 62 Foreign Investment and International to register with the Egyptian Federation for Construction and Building Contractors under the relevant work categories. Also, Obligations the operation and maintenance (O&M) contractors of renewables plants are typically required to register with the Egyptian 6.1 Are there any special requirements or limitations Federation for Construction and Building Contractors under on foreign investors investing in renewable energy the relevant work category. projects?

Foreign investors are encouraged to invest in renewable energy 4.2 What are the primary consents and permits required to construct, commission and operate projects in Egypt. They are required to set up a project company distributed renewable energy facilities? in Egypt to develop their projects, without any nationality requirements with respect to either shareholding or management. In effect, most private players in the Egyptian renewables The same licences apply for distributed renewable energy facil- market are ultimately foreign investors. ities, except for those small-scale facilities owned and built directly by the offtaker for self-consumption. 6.2 Are there any currency exchange restrictions or restrictions on the transfer of funds derived from 4.3 What are the requirements for renewable energy investment in renewable energy projects? facilities to be connected to and access the transmission network(s)? There are no currency exchange restrictions in Egypt, or restrictions on the transfer of funds derived from investment in renew- A grid study must be carried out by EETC ahead of any renewa- able energy projects in the country. On the contrary, both are bles project being connected to the transmission network. protected under the Investment Law. In practice, however, investors may at times be challenged by short-term limitations 4.4 What are the requirements for renewable energy related to liquidity shortages. facilities to be connected to and access the distribution network(s)? 6.3 Are there any employment limitations or requirements which may impact on foreign investment in Similarly, a grid study must be carried out by the relevant renewable energy projects? distribution company ahead of any renewables project being connected to the distribution network, or an independent study Foreign nationals may only be employed in Egypt if they are issued approved by EgyptERA. a work and residence permit (article 28 Labour Law and article 1 Decree no. 146/2019). By way of exception, an employee on short 4.5 Are microgrids able to operate? If so, what is assignments in Egypt (one to a few days at most) may obtain a the legislative basis and are there any financial or written permission for work from the Ministry of Manpower regulatory incentives available to promote investment in and Immigration (MOM) in consideration for a fee equivalent microgrids? to 10 per cent of the remuneration received in exchange for the work performed (article 4 Decree no. 146/2019). The fee paid Microgrids are able to operate in Egypt. They are essentially will increase depending on the number of assignments that the found in remote areas not connected to the grid, or in some employee will be carrying out. In general, the number of foreign tourist resorts, etc. employees may not exceed 10 per cent of the total number of employees hired by an employer (article 5 Decree no. 146/2019). 52 Storage This threshold may only be increased by virtue of a discretionary decision of a special committee within the MOM upon a justi- 5.1 What is the legal and regulatory framework which fied request of the employer. Additional criteria are taken into applies to energy storage and specifically the storage of account by the MOM when requested to issue a work permit renewable energy? (article 6 Decree no. 146/2019), including, among others: (i) that the foreign employee must have at least three years of relevant experience; (ii) that the foreign employee must have all licences There is no dedicated legislation regulating energy storage or required under the applicable laws and regulations to undertake specifically renewable energy storage in Egypt. the intended scope of work (if any); (iii) the country’s economic need for foreign expertise and the employer’s actual need of such 5.2 Are there any financial or regulatory incentives expertise; (iv) the non-competition of local labour with equiv- available to promote the storage of renewable energy? alent expertise; (v) the possibility of employing two local assis- tants with adequate qualifications for foreign technicians; and There are no financial or regulatory incentives available to (vi) whether the foreign employee is a permanent resident or was especially promote the storage of renewable energy. However, born in Egypt, since priority is given to these individuals. tenders for CSP projects with storage are being launched by the Egyptian government for limited capacities, most recently for 6.4 Are there any limitations or requirements related to development in the West Nile area in Minya, southern Egypt. equipment and materials which may impact on foreign The process is currently pending. The installed CSP capacity in investment in renewable energy projects? Egypt as of March 2020 was 140 MW. With the exception of mounting structures and cables in the solar power plants field, and high-voltage electric equipment

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and switchgear, Egypt is not considered to be a producer of establishment of a committee within EgyptERA for the settle- main electricity generation plant equipment. For this reason, ment of disputes arising between the electric utility parties in the government encourages the import of renewable energy relation to the utility’s activities. The committee is chaired by a equipment at a discounted unified customs rate of two per cent state councillor and comprises technical, financial, commercial (compared with the typical rate of five per cent) and a reduced and legal members, as nominated by Prime Ministerial Decree value-added tax of five per cent (compared with the typical rate for a one-time renewable term of one year. The committee’s of 14 per cent) applied to all equipment and machinery required decisions must be succinctly justified and issued within a period for setting up the plants. Also, EUR1 certificates allow renew- not exceeding 60 days from the date of the substantiated claim. able energy generation companies to import certain equip- The decision is then presented to the board of EgyptERA for ment, such as solar panels, manufactured in the EU at nil rate ratification and notified to the parties. of import duty. On the other hand, the country generally also Typical power purchase agreements entered into with EETC requires a certain percentage of local components in the projects as offtaker would, however, provide for international arbitra- that it tenders (typically around 30 per cent). tion clauses referring disputes to arbitral tribunals constituted in accordance with the Rules of the Cairo Regional Centre 72 Competition and Antitrust for International Commercial Arbitration and seated outside Egypt. According to the Egyptian Arbitration Law no. 27/1994 7.1 Which governmental authority or regulator is (published on 21 April 1994) applicable to most such agree- responsible for the regulation of competition and ments, the consent of the MOERE on the arbitration clause is antitrust in the renewable energy sector? required for it to be valid.

EgyptERA is the main authority responsible for the regulation 8.2 Are alternative dispute resolution or tiered dispute of competition and antitrust in the renewable energy sector. resolution clauses common in the renewable energy sector?

7.2 What power or authority does the relevant governmental authority or regulator have to prohibit or A form of amicable settlement would typically be provided for take action in relation to anti-competitive practices? before arbitration proceedings could be initiated.

According to the Electricity Law, EgyptERA is tasked with laying 8.3 What interim or emergency relief can the courts down the rules to be followed by all electricity utility stakeholders grant? which guarantee fair competition, the principles of the determination of electricity tariffs, and the rules protecting offtakers’ rights. The Egyptian Arbitration Law grants an arbitral tribunal the It also determines the tariffs applicable to unqualified offtakers right to award interim relief or a provisional measure only if and grid users to ensure free market access and fair competition. the parties have agreed to confer such power upon the arbitral In the event of a violation of these principles and rules, EgyptERA tribunal. The same power could also be conferred upon the arbi- may, pursuant to articles 4(10) and 23 of the Electricity Law, (i) tral tribunal by agreeing to the application of institutional rules issue written warnings to the violator for the suspension or cancel- that provide for such default power. However, the law does not lation of their licence, (ii) order the removal of the violation at the list the types of relief available to arbitrators; but, subject to the expense of the violator, (iii) suspend the licence for a maximum of parties’ agreement, the arbitral tribunal will have the discretion one year, or (iv) cancel the licence and proceed with the operation to order any type of interim relief or provisional measures that of the facility at the expense of the violator. are warranted under the applicable law. Alternatively, a party may seek to obtain such interim relief or provisional measure 7.3 What are the key criteria applied by the relevant directly from the competent Egyptian court, without this being governmental authority or regulator to determine considered a waiver of the arbitration agreement. whether a practice is anti-competitive? 8.4 Is your jurisdiction a party to and has it ratified EgyptERA’s role is to encourage investment in electricity gener- the New York Convention on the Recognition and ation, distribution and transmission (including from renewable Enforcement of Foreign Arbitral Awards and/or the sources) within a framework characterised by fair competition, Convention on the Settlement of Investment Disputes to safeguard the interests of the offtakers and the electricity between States and Nationals of Other States and/or any significant regional treaty for the recognition and utility stakeholders, as well as to make information about the enforcement of judgments and/or arbitral awards? sector available in a transparent and fair manner without any discrimination. Any act or omission violating these principles may be censored by the regulator. Egypt consented to joining the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 82 Dispute Resolution of 1958 on 2 February 1959, and ratified it on 9 March 1959, with the convention entering into force as part of the Egyptian legal system on 7 June 1959 without any reservation or decla- 8.1 Provide a short summary of the dispute resolution ration. Egypt also ratified the Washington Convention on framework (statutory or contractual) that typically the Settlement of Investment Disputes between States and applies in the renewable energy sector, including procedures applying in the context of disputes between Nationals of Other States of 1965 (the ICSID Convention) on 3 any applicable government authority/regulator and the May 1972. Egypt is also a party to several multilateral and bilat- private sector. eral treaties on arbitration and investment.

The Executive Regulations of the Electricity Law provide for the

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8.5 Are there any specific difficulties (whether as a 92 Updates and Recent Developments matter of law or practice) in litigating, or seeking to enforce judgments or awards, against government authorities or the state? 9.1 Please provide a summary of any recent cases, new legislation and regulations, policy announcements, trends and developments in renewables in your There is no difficulty in litigating or seeking to enforce judg- jurisdiction. ments or awards against Egyptian governmental authorities or the state. It must be noted, however, that the arbitration clause in Because of the existing renewables capacity and the recent reduc- an administrative agreement involving public authorities must be tion of electricity prices for the industrial sector, it is expected specifically approved and signed by the competent Minister for that the development of the renewable energy generation process the arbitration clause to be valid, and delegation in this regard is may slow down in the next couple of years. However, it is antic- prohibited. This requirement is a matter of public policy. ipated that new developments will continue to grow in diverse renewables applications, such as electric mobility, solar irriga- 8.6 Are there examples where foreign investors in the tion and renewable-powered water projects. We are currently renewable energy sector have successfully obtained awaiting the complete unbundling of the Egyptian electricity domestic judgments or arbitral awards seated in your market and the full separation of EETC from EEHC. The jurisdiction against government authorities or the state? revamp of the legislation governing small- and medium-scale renewable generation and the electricity pricing mechanism is There are no such examples in the renewable energy sector. also overdue.

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Donia El-Mazghouny is the founder of Mazghouny & Co. Prior to launching the practice, she was a partner with a tier 1 law firm in Cairo, where she headed the Energy & Projects team. She specialises in energy law, with a focus on energy and power agreements, and regularly advises clients on the development, financing and acquisition of energy and infrastructure projects in Egypt. She further advises on transactional matters, corporate and commercial agreements, joint ventures, corporate structuring, and labour matters notably in the energy and power, manufacturing and services fields. She has recently advised sponsors on the financing of nine solar projects under the Egyptian feed-in tariff programme, with a total capacity of 425 MW, including best financing and solar award-winning projects. Donia is identified as an “Energy Expert” by Who’s Who Legal and recommended by The Legal 500 for Energy and Projects & Infrastructure.

Mazghouny & Co Tel: +20 227 352 678 / +20 227 352 682 15 Abou El-Feda Street, Zamalek Email: [email protected] Floor 5, Unit 18 URL: www.mazghouny.com 11211 Cairo Egypt

Mazghouny & Co is a boutique law firm based in Cairo, specialising in projects and infrastructure, energy and power, construction and real estate, financing, and corporate matters. The team is young, dynamic, and creative. It set out to build a different type of law firm, one that operates not just as a legal services provider, but a business partner. It pushes the bounda- ries of what is possible and works proactively with clients not only to overcome challenges but also to maximise potential opportunities. The firm provides top client service through a dedicated, innovative, and commercially oriented team. It utilises the latest legal technology in the delivery of its services and achieves time and cost efficiency for the benefit of clients. The team has been privileged to support some of the largest multinational companies, funds, development, commercial and private lenders, and governments in the world. Having advised on Egyptian-based projects for many years, all the firm’s lawyers have developed a wealth of experience and contacts within various industries, particularly renewable energy. www.mazghouny.com

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France France

Véronique Fröding

DS Avocats Stéphane Gasne

12 Overview of the Renewable Energy and territorial balance (SRADDET) and the Local Climate Air Energy Plans (PCAET), regions and inter-municipal authori- Sector ties are invited to define their energy mix evolution until 2050, taking into account the objectives of the PPE, and to commit to 1.1 What is the basis of renewable energy policy and short-term actions to achieve it. regulation in your jurisdiction and is there a statutory The implementation of the French renewable energy policy definition of ‘renewable energy’, ‘clean energy’ or is also driven by the Environment and Energy Management equivalent terminology? Agency (ADEME), which is a public agency reporting to the MTE. The ADEME acts both upstream of the value chain Renewable Energy is mainly regulated by the Energy Code, as (support for research programmes) and downstream (support well as by the Environmental Code, the Town Planning Code for the roll-out phase). and the General Code on Public Property. France must comply with the “Clean energy for all Europeans” package, which Regulatory bodies consists of four directives and three regulations adopted in May The Energy Regulatory Commission (CRE) is an independent 2018, December 2018 and June 2019. public body regulating French energy markets, including energy The basis of the French renewable energy policy is the fulfill- derived from renewable sources. ment of the Multiannual Energy Program (PPE), a binding The French Competition Authority (FCA) is an inde- operational tool for public authorities created by the 2015 Law pendent public body in charge of supervising anti-competitive No. 2015-992 on energy transition and green growth (LTECV). practices and controlling mergers in any economic sector, This law sets out ambitious national energy objectives, which including energy. were adjusted by the 2019 Law No. 2019-1147 on Energy and Climate (LEC). Transmission and distribution The purpose of the PPE, which was last amended by Decree Transmission and distribution are public service activities super- No. 2020-456 of 21 April 2020, is to map out the French vised by the CRE. Government’s course of action regarding energy in the next Réseau de Transport d’Electricité (RTE), the only power 10 years, with the objective of making France a carbon neutral transmission system operator in France, is responsible for trans- country by 2050. The PPE covers two five-year periods, 2019– porting electricity to customers on behalf of suppliers and devel- 2023 and 2024–2028, with a key target to attain 50% renewable oping the networks. energy by 2035. Enedis is the main distribution network operator for France. The PPE applies to mainland France and the so-called non- Most of the renewable energy installations are connected to the interconnected zones (ZNI), which include Corsica and over- Enedis network. The rest are managed by local distribution seas territories. companies (ELD). The ZNIs, including overseas territories Although there is no statutory definition of renewable or clean (except Mayotte) and Corsica, benefit from a special distribu- energy in France, Article L 211-2 of the Energy Code states that tion network provided by EDF SEI. In Mayotte, Electricité de “renewable energ y sources include wind, solar, geothermal, aerothermal, Mayotte (EDM) controls energy production and distribution. hydrothermal, marine and hydropower”. Developers and producers 1.2 Describe the main participants in the renewable The main green energy developers and producers in France and energy sector and the roles which they each perform. French overseas territories are EDF EN, ENGIE and TOTAL QUADRAN. Other key players are French and foreign companies such as Akuo Energy, Axpo, Baywa, Boralex, CNR, EDP The key governmental institution is the Ministry for the Renovaveis, EnBW (Valeco), NEOEN, RES, RWE, Valorem, Ecological Transition (MTE), supported by the Directorate Vattenfall or Voltalia. General of Energy and Climate (DGEC). The MTE is represented in each region by Regional Directorates for Environment, Trading platforms and aggregators Planning and Housing (DREAL), which aim to promote With the introduction of the direct marketing scheme, EDF as sustainable economic development at the regional level. well as actors of the wholesale market, namely trading platforms The local authorities are in charge of turning the national (Epex Spot and Nord Pool for spot transactions and EEX for objectives into concrete action and taking various local actions. derivatives) and aggregators (Agregia, ENGIE, Gazel Energie Through the regional schemes for spatial planning, sustainable

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(previously Uniper), Statkraft, Vattenfall, etc.), are the main The size of wind and solar projects is increasing following participants in the purchase and sale market. The risk manage- technological improvements and the removal of several regu- ment is in particular delegated to aggregators. latory pressures. The offshore deployment of wind projects as well as repowering will also contribute to increasing the installed Renewable energy suppliers capacity. Apart from EDF, various alternative suppliers provide energy from renewable sources such as Total Direct Energie, ekWateur, 2.2 What role does the energy transition have in the Enercoop, ilek or Planete Oui. level of commitment to, and investment in, renewables? What are the main drivers for change? Other participants Various non-profit associations are also playing a key role in the The PPE aims to increase the share of renewable energy and to promotion of renewable energy, such as the Renewable Energy reduce nuclear power from 75% to 50% by 2035. Technological Association (SER), the Wind Energy association (FEE), improvements have contributed to making solar and wind power the Solar Association (Enerplan), the Network for Energy installations more competitive compared to nuclear energy. The Transition (CLER) and the French German Office for Energy National Low-Carbon Strategy (SNBC) also aims at reducing Transition (OFATE). greenhouse gas emissions and diversifying the energy mix in order to ensure security of supply and reduce dependence on 1.3 Describe the government’s role in the ownership imports. and development of renewable energy and any policy commitments towards renewable energy, including applicable renewable energy targets. 2.3 What role, if any, has civil society played in the promotion of renewable energy? The PPE plays a crucial role in the development of renewable energy. Its implementation decrees set objectives for the The PPE and SNBC have been subject to a prior consultation launching of calls for tenders to be achieved by 2023 and 2028: process, including a public debate organised by the National ■ For solar energy: 20.1GW for 2023; and 35.1 to 44GW for Commission for Public Debate (CNPD). Public debates are 2028. also launched for offshore wind projects. ■ For onshore wind energy: 24.1GW for 2023; and 33.2 to The citizen involvement in the energy transition is encouraged 34.7GW for 2028. by crowdfunding. Several platforms (such as Lumo, Enerfip, ■ For offshore wind energy (including floating offshore ENGIE Green, Lendopolis, etc.) are collecting funds for the wind): 2.4GW for 2023; and 5.2 to 6.2GW for 2028. financing of renewable energy projects. Moreover, several ■ For hydroelectricity (including tidal energy): 25.7GW for tender procedures allow the candidates a crowdfunding bonus. 2023; and 26.4 to 26.7GW for 2028. Local renewable energy project initiatives are also promoted ■ For biomass: 145TWh for 2023; and 157 to 169TWh for through “renewable energy communities”, which is defined as 2028. the economic and operational participation and/or ownership ■ For geothermal energy: 2.9TWh for 2023; and 4 to by citizens or members of a defined community in a renewable 5.2TWh for 2028. energy project pursuant to Article L 211-3-2 of the Energy Code. ■ The PPE also aims to promote alternative sources, with a focus on hydrogen and power-to-gas, including a target of 2.4 What is the legal and regulatory framework for the 660,000 electrical cars by 2023 and 3,000,000 by 2028. generation, transmission and distribution of renewable Most of the renewable energy facilities are owned by private energy? developers. However, hydropower generation facilities greater than 4.5MW in capacity are operated under concessions awarded The generation, transmission and distribution of renewable energy by the French State. Among these plants, more than 80% are are notably regulated by the Energy Code, the Environmental operated by EDF and 15% by ENGIE. Around 150 concessions Code and the Town Planning Code (please see question 4.1). out of 400 will reach their term in 2023.

22 Renewable Energy Market 2.5 What are the main challenges that limit investment in, and development of, renewable energy projects?

2.1 Describe the market for renewable energy in your jurisdiction. What are the main types of renewable Supremacy of nuclear energy energy deployed and what are the trends in terms of The main obstacle to the development of renewable energy is technology preference and size of facility? the competitive price of electricity produced via nuclear plants.

With more than 25.7GW installed in France, hydropower Length of the administrative process remains the leading renewable source of electricity in France. Another obstacle is the complexity and length of the adminis- While the installed hydropower capacity remains stable, wind trative process to obtain the required construction and environ- and solar power capacity has been steadily growing. In 2020, mental permits. The new single Environmental Authorisation is 48.6% of renewable energy production capacity is of wind or intended to give more visibility to operators as to the upstream solar origin. As of 31 March 2020, the wind and solar parks phase of the projects. capacity exceeded 27GW (17GW from wind power and 10GW The scarcity of large-scale onshore wind projects is also due to from solar power). The bioenergy power generation fleet regulatory barriers, and especially to the size constraints related exceeds 2.1GW. All sectors combined, the growth in the renew- to civil and military aviation and distance constraints related to able energy generation portfolio reached 468MW over the military radar. quarter, bringing its capacity to 54.2GW on 31 March 2020.

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Grid connection The tender procedure launched in May 2017 was to run on To facilitate the grid connection procedure, RTE has put in six periods until November 2020, with a cumulative capacity of place the Regional Renewable Energy Grid Connection Scheme 3.382GW. The price per MWh was the sole selection criterion, (S3REnR) which allows the connection of renewable energy to the limit being set at 74.8€/MWh. Successful bidders will sign the grid in a coordinated and cost-effective way for each region. a CfD with EDF. The average proposed tariff of the successful candidates of the fifth period was 62.9€/MWh. Litigation and recourse Compared to other forms of renewable energy, wind farms draw Offshore wind most of the criticism and opposition from the public. In case A first call for tender was launched in 2011 on four areas: of litigation against an onshore wind project, to simplify and ■ Fécamp (498MW), Courseulles-sur-Mer (450MW) and speed up the process, the Administrative Courts of Appeal Saint-Nazaire (480MW), awarded to the consortium Eolien rule at first and last instance. For offshore wind projects, the Maritime France (EMF), led by EDF Energies Nouvelles, Administrative Court of Appeal of Nantes has exclusive juris- together with Canadian energy infrastructure company diction to settle litigations. Enbridge and wpd. The shareholders of EMF are now EDF Renouvelables and Enbridge. ■ Saint-Brieuc (500MW), awarded to Ailes Marines consor- 2.6 How are large utility-scale renewable power tium, comprising Iberdrola, Eole-RES and Caisse des projects typically tendered? dépôts et consignations (CDC). Round 2 (2013) led to the award of two projects: Renewable energy tenders are used for wind, solar, biomass, ■ Yeu and Noirmoutier (496MW) to the Eoliennes en Mer biogas and hydropower projects, in compliance with Articles consortium, led by ENGIE, together with EDP Renewables L 311-10 and R 311-13 of the Energy Code. The PPE foresees and CDC. provisional timetables for calls for tenders. The CRE is in charge ■ Treport (496MW), also awarded to the Eoliennes en Mer of drawing up the tendering documentation and organising the consortium. tender procedure. The specifications are published on the CRE The third round (2019) led to the award of the 600MW website and a request for qualification is published in the Official Dunkirk offshore wind farm to the Eoliennes en Mer de Journal of the European Union. Candidates’ questions and their Dunkerque consortium, made up of EDF Renouvelables, related answers are available on the CRE website to ensure that Innogy SE and Enbridge. all candidates are put on an equal footing in terms of available Legal procedures against the projects slowed things down, information. The CRE makes a first selection of candidates and and only one of the projects of the first call (Saint-Nazaire) is the final selection is made by the Ministry of Energy. Candidates ready for a final investment decision in 2020. France’s first can request to access their instruction file and are informed about fixed-bottom offshore wind farm is expected to be connected to the reason of their rejection or acceptance. the grid in 2020–2022. Winning candidates receive their operation permit, but also On the floating offshore wind front, French key players and have to obtain the other required authorisations. their partners are also active with four 24MW projects already Depending on the technology and size of the installation, the awarded, including those to consortiums led by: tender procedure may be implemented in two different ways: ■ ENGIE, together with EDPR and CDC (Eolien Flottant ■ The classic tender procedure: The tender specifications Golfe du Lyon). will include a description of the characteristics of the call ■ EDF Renouvelables (Provence Grand Large). for tender, the foreseen output, technical, economic and financial conditions, including, inter alia, the duration and Solar energy financial terms of the Contract for Difference (CfD). Tendering procedures are mandatory for PV installations on ■ The competitive dialogue procedure: The competitive buildings with a peak power greater than 100kW, as well as for dialogue procedure was used, for instance, in the context all ground-mounted PV plants. Several tendering procedures of the third offshore wind farm tender, for the selection of have been launched since 2011. the Dunkirk offshore wind farm developer. By enabling Special tenders with fixed tariffs are planned for innovative discussion between the candidates and the administra- solar projects, for example agrophotovoltaics, carport schemes tion, it has led to a better allocation of the risks and to or building-integrated PV. lower prices. At the end of the dialogue phase, the MTE For 2020, some 88 large-scale PV projects were awarded, with invites the pre-selected candidates to submit their best a total generation capacity of 649MW. and final offers within the deadline set out in the tender specifications. 2.7 To what extent is your jurisdiction’s energy demand Neither tender procedure is subject to the French public met through domestic renewable power generation? procurement code as the energy is not generated for the needs of the French State and the tender will not result in the conclu- Renewable energy produced in France covers 25% of the elec- sion of one global and single agreement with the French State. tricity consumed year-to-year. This rate has reached 26.5% in Therefore, although the administrative authority is bound by the first quarter of 2020. non-discrimination and transparency principles, the procedure is not governed by European and national legislation on public procurement. 32 Sale of Renewable Energy and Financial By way of examples, the following calls for tenders have been Incentives issued: 3.1 What is the legal and regulatory framework for the Onshore wind sale of utility-scale renewable power? The call for tender is mandatory for wind farms having at least seven wind turbines or one wind turbine exceeding 3MW. The French legal framework consists mainly in Articles L 314-1

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to L 314-27 of the Energy Code. The sale of renewable energy 3.4 What is the legal and regulatory framework was initially based on the power purchase obligation (PPA) applicable to distributed renewable energy? mechanism with feed-in-tariff (FIT) by which the eligible producer concluded a PPA with EDF (or an ELD). The Energy Code contains specific provisions for the construc- Since the LTECV law, the Energy Code sets forth a market- tion of direct lines (Article L 343-1 et seq.), closed distribution based premium mechanism whereby a CfD is signed with EDF, networks (Article L 344-1) and building integrated networks which includes a market-based premium that gradually replaced (Article L 345-1). Those provisions are favourable to the devel- the FIT mechanism. opment of local Corporate PPAs and self-consumption. The premium mechanism is an ex post calculation equal to the Articles L 315-1 et seq. of the Energy Code regulate indi- difference between the target tariffs per kWh, and a reference vidual self-consumption (electricity produced and consumed tariff to which a management premium is added. The reference in a given location by one person) and collective self-consump- tariff is published by the CRE on a monthly basis. tion (electricity produced and consumed by several consumers Installations benefiting from a FIT PPA contract at the time and producers located on the same low voltage grid and linked of the entry into force of the premium mechanism will remain together through a legal entity). subject to the FIT PPA. Grid operators have the obligation to facilitate self-con- The sale of power is to be undertaken either on the EPEX sumption subject to the payment of the Tariff for Use of Public Spot market through an aggregator, or under a sales contract entered into with an industrial purchaser for a pre-agreed Electricity Grid (TURPE), which is reduced for self-consump- period of time at a pre-agreed price, i.e. a Corporate PPA. In tion with an installed capacity of less than 100kW per producer. the first case, a contract is to be concluded with the aggregator, There is a distinction between partial self-consumption (the pursuant to which the aggregator purchases all kWh delivered surplus output injected into the grid can be sold at a FIT) and total self-consumption (the surplus output injected into the grid at the delivery substation (PDL) as measured by a power meter controlled by Enedis. In the second case, all the power meas- cannot be valorised). There is no system of set-off against the ured at the PDL by Enedis is to be acquired by the offtaker. power received from the grid (net metering).

3.2 Are there financial or regulatory incentives 3.5 Are there financial or regulatory incentives available to promote investment in/sale of utility-scale available to promote investment in distributed renewable renewable power? energy facilities?

There are no financial or regulatory incentives, other than The development of distributed renewable facilities is largely through the above-mentioned support mechanisms. Since 2017, based on public support mechanisms (FIT and calls for tender). the main support mechanism is the market-based premium Self-consumption projects of up to 100kW may also be eligible granted through an open window procedure or a competitive for an investment premium. tender procedure. The open window market premium procedure is notably applicable to: 3.6 What are the main sources of financing for the ■ Hydraulic plants with installed capacity under 1MW. development of distributed renewable energy facilities? ■ Biogas plants with installed capacity between 500kW and 12MW. Renewable distributed energy facilities are mainly financed by ■ Wind power plants with maximum of six wind turbine commercial banks. generators and an individual limit of 3MW per turbine. For other types of plants, the signature of a CfD with EDF is only possible through the tender procedure, whereby the tariff 3.7 What is the legal and regulatory framework that for each winner results from the tender process. applies for clean energy certificates/environmental The significant reduction in the production costs of wind and attributes from renewable energy projects? photovoltaic technologies will facilitate their development at a lower cost for the public budget. The results of recent tenders French Guarantees of Origin (GO) (Articles R 314-24 and gave strike prices for guaranteed contracts close to 60€/MWh following of the Energy Code) are the only recognised system for ground-based photovoltaic plants, 62.2€/MWh for onshore in France for the tracking of energy production from renewable wind power and the Dunkirk offshore wind tender reached a sources. This system ensures that end consumers can verify the record level of 44€/MWh. origin of the electricity they consume. Renewable energy with a production capacity of above 100kW must be registered on the 3.3 What are the main sources of financing for the French GO registry, which is managed by EEX upon appoint- development of utility-scale renewable power projects? ment by the Minister in charge of Energy. However, pursuant to Article L 314-14 of the Energy Code, GOs cannot be issued by a renewable energy producer having The development of utility-scale renewable power projects is concluded a FIT or CfD with EDF. mainly financed by long-term bank debt granted notably by BNP Paribas, Crédit Agricole, Crédit Coopératif, Crédit Mutuel, BPCE Energeco, HSBC, Natixis, Société Générale, Unifergie, 3.8 Are there financial or regulatory incentives or Nord LB, Saar LB, etc. mechanisms in place to promote the purchase of Specialised infrastructure funds are also key players in the renewable energy by the private sector? financing of renewable energy projects such as Mirova or Omnes. French public financial institutions Bpifrance (BPI), notably There is no specific incentive for private individuals to purchase through its fund France Investissement Energie Environnement electricity from renewable energy production. (FIEE), and CDC, in particular through Banque des Territoires, are also highly involved in financing renewable power projects.

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42 Consents and Permits of the Energy Code. The energy producer must, however, enter into several agreements with the grid operator, as part of the grid connection procedure. 4.1 What are the primary consents and permits Following the acceptance of the Technical and Financial required to construct, commission and operate utility- Proposal (PTF) issued by the grid operator, the parties sign the scale renewable energy facilities? grid connection agreement setting out the technical conditions, final costs and timing for connection. Operation permit Thereafter, the producer and the grid operator enter into An operation permit issued by the MTE is required only for several agreements: utility-scale renewable energy facilities above 50MW. ■ A grid access agreement establishing the injection capacity The operation permit is automatically granted to the successful and disconnection limitations, as well as the related liabil- bidder of a tender procedure. ities of each of the parties. ■ An operation agreement, which contains the operation Construction permit rules of the power plant. Depending on the size and capacity of the project, the construc- ■ An agreement for the identification of the balance respon- tion of renewable energy facilities may require a prior decla- sible entity, which will aim at ensuring that the electricity ration (solar plants under 250kW) or a construction permit injected on the public grid is balanced with the consump- (ground-mounted PV plants above 250kWp) issued by the rele- tion of electricity consumers. vant public authorities. A simplified procedure is applicable to small projects under When applicable, construction permits are merged into the 36kVA, with the signature of a Connection, Access and Operation Environmental Authorisation. Contract (CRAE) with Enedis. With respect to offshore wind, a set of agreements, including Environmental Authorisation the connection agreement, must be executed between the Since 1 March 2017, the Single Environmental Authorisation has producer and RTE: a grid access agreement; an operation agree- merged a dozen authorisations governed by the Environmental ment; a testing agreement; and a performance agreement (which Code (one authorisation for environmentally classified facilities determines the technical, legal and financial conditions relating (ICPE) and others for installations, plants, works and activities to the technical performance of the installation). (IOTA)), the Forestry Code (land cleaning authorisation) and the Energy Code (operation permit). The Single Environmental Authorisation is notably required 4.4 What are the requirements for renewable energy facilities to be connected to and access the distribution for onshore and offshore fixed and floating wind farm projects, network(s)? and for biomass projects, together with an impact and hazard study assessing the effects of the project on the environment. The Environmental Authorisation issued by the Prefect may The applicable laws and regulations are the same as those for set additional compensatory requirements in addition to the utility-scale renewable energy facilities (please see question 4.3). national regulatory requirements. For offshore wind farm projects, in addition to the 4.5 Are microgrids able to operate? If so, what is Environmental Authorisation, a specific authorisation for the the legislative basis and are there any financial or use of the maritime public domain needs to be obtained from regulatory incentives available to promote investment in the Prefect by means of the conclusion of a lease of the seabed microgrids? with the State (“concession d’utilisation du domaine public maritime”). According to the 2018 law creating the envelop permit (as A number of microgrids operate in France, particularly in enacted in Article L 181-28-1 of the Environmental Code) to overseas areas where connection to the main grid is not avail- ease the feasibility of fixed and floating offshore wind projects, able. This type of technology enables the powering of isolated the Environmental Authorisation and the authorisation for the communities and the incorporation of renewable energy into the use of the maritime public domain can define variable features energy mix of ZNIs in a sustainable way. for the concerned projects: number, size and installed capacity of Given their special features, island energy systems are a good wind turbines; or their organisation in the dedicated area. The testing ground for smart grids. EDF is involved in research operator may change a project within the limits set in advance to programmes and concrete projects to develop smart grids in benefit from the latest technological developments, but it must island territories. stay within the limits of the authorisations granted. Furthermore, smart grid projects have recently multiplied in the wake of the “smart electric grids” plan published by the 4.2 What are the primary consents and permits Government in 2013 as part of a global plan for reindustrialisa- required to construct, commission and operate tion called “Nouvelle France Industrielle”. This plan aims to consol- distributed renewable energy facilities? idate the French electrical and IT sectors in new high-growth, job-creating markets. The applicable laws and regulations are the same as those for utility-scale renewable energy facilities (please see question 4.1). 52 Storage

5.1 What is the legal and regulatory framework which 4.3 What are the requirements for renewable energy applies to energy storage and specifically the storage of facilities to be connected to and access the transmission renewable energy? network(s)?

Access by private power production sites to the public transport According to Articles D 141-12-5, D 142-9-2, D 142-9-3 and D and distribution grids is guaranteed by virtue of Article L 111-91 142-9-5 of the Energy Code, an electrical energy storage facility

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is defined as “a set of stationary electricity storage equipment enabling 6.2 Are there any currency exchange restrictions electrical energ y to be stored in another form and then returned as electrical or restrictions on the transfer of funds derived from energ y while being coupled to the public electricity grid. The technologies investment in renewable energy projects? used in this equipment include pumped energ y transfer stations, compressed air storage, storage by converting electricity into hydrogen, electrochemical There are no currency exchange restrictions or restrictions on batteries and flywheels”. the transfer of funds derived from investment in renewable The operators of certain types of storage facilities are consid- energy projects. ered as “dual users” of the grid with regard to the TURPE. Article D 315-5 of the Energy Code states that an electricity storage unit produced in the context of a self-consumption oper- 6.3 Are there any employment limitations or ation alternately qualifies the operator of the infrastructure as a requirements which may impact on foreign investment in renewable energy projects? producer and a consumer, which implies that he is twice subject to the TURPE. This double taxation does not apply to electro-intensive There are no employment limitations or requirements which consumers. In this respect, sites with high electricity consump- may impact on foreign investment in renewable energy projects. tion can benefit from a reduction going up to 50% of the TURPE that must normally be paid if they allow electricity storage with a 6.4 Are there any limitations or requirements related to view to its subsequent dispatch to the grid. equipment and materials which may impact on foreign For electricity storage facilities in ZNIs, the costs of storage investment in renewable energy projects? facilities managed by the grid operator are compensated through the contribution to the public electricity service ( ). The CSPE There are no limitations or requirements related to equipment PPE has not set any targets for electric storage until 2023, except and materials which may impact on foreign investment in renew- for hydroelectric storage. able energy projects. With regard to hydroelectricity, the PPE only plans to take steps by 2023 to allow the development of electricity pumping stations (STEPs) for a potential of 1.5GW, identified with a 72 Competition and Antitrust view to commissioning the installations between 2030 and 2035. This would be in addition to the 4.3GW of STEPs already in 7.1 Which governmental authority or regulator is operation and 13GW of existing hydraulic dams. responsible for the regulation of competition and antitrust in the renewable energy sector?

5.2 Are there any financial or regulatory incentives available to promote the storage of renewable energy? The CRE has a market regulation mission, allowing the development of free and fair competition for the benefit of the final consumer. The long-term call for tenders (AOLT), launched by the MTE The FCA is in charge of supervising anti-competitive practices. on 12 June 2019, organised by the transmission system operator The General Directorate for Competition Policy, Consumer RTE with respect to the French capacity mechanism and open Affairs and Fraud Control (DGCCRF) is a department of the to all non-carbon technologies, is focused on storage. Ministry of Economy which investigates anti-competitive practices. The aim of this AOLT is to enable the development of capac- Among other duties, it ensures that electricity and gas suppliers ities to secure electricity supply in the long term. The successful comply with the requirements regarding contractual terms. bidders will be ensured revenue stability over seven-year periods starting in 2020, 2021, 2022 and 2023, respectively, with guaranteed prices during such periods under the capacity mechanism. 7.2 What power or authority does the relevant Voltalis, BHC, INNERGEX and ZE Energy are among the governmental authority or regulator have to prohibit or take action in relation to anti-competitive practices? successful bidders of the 2021–2027 and 2022–2028 AOLT.

62 Foreign Investment and International In case of infringements, the FCA may impose sanctions and issue injunctions. Each financial penalty imposed by the FCA Obligations shall be determined on the basis of the particulars of the case and the individual circumstances of each offender. 6.1 Are there any special requirements or limitations The law on restrictive competitive practices enables the on foreign investors investing in renewable energy Minister of Economy to act in defence of public economic projects? policy and have practices or contractual clauses affecting the fairness of commercial relations punished by the courts. The French Monetary and Financial Code (Article L 151-3) has established a foreign direct investment screening regime under 7.3 What are the key criteria applied by the relevant which any foreign investor who wants to invest in sensitive busi- governmental authority or regulator to determine ness sectors in France must obtain the prior approval of the whether a practice is anti-competitive? French Ministry of Economy and Finance. The list of sensitive business sectors includes, inter alia, the integrity, security or continuity of the supply of energy. Anti-competitive practices can be classified into two main Renewable energy is, therefore, among the sectors in which categories: investors need a Government approval to reach a specific ■ Cartels, when their purpose is to freeze the market, raise threshold: a majority stake for EU investors; and one-third of prices or share customers, in particular practices consisting the equity for non-EU investors. of fixing prices with competitors or imposing a resale price on distributors.

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■ Abuses of dominant position, with three criteria to deter- 8.5 Are there any specific difficulties (whether as a mine whether the practice is anti-competitive: (i) the exist- matter of law or practice) in litigating, or seeking to ence of a dominant position; (ii) the abusive use of this enforce judgments or awards, against government position; and (iii) a restrictive object or effect on competi- authorities or the state? tion on the market. There are no specific difficulties in litigating or seeking to 82 Dispute Resolution enforce judgments or awards against government authorities or the State. 8.1 Provide a short summary of the dispute resolution framework (statutory or contractual) that typically 8.6 Are there examples where foreign investors in the applies in the renewable energy sector, including renewable energy sector have successfully obtained procedures applying in the context of disputes between domestic judgments or arbitral awards seated in your any applicable government authority/regulator and the jurisdiction against government authorities or the state? private sector.

We are unaware of any instances where a foreign investor was The CoRDiS committee is an independent body of the CRE. able to successfully obtain domestic judgments or arbitral awards It has the power to impose sanctions on those in breach of against government authorities or the State in the context of the Energy Code provisions and to settle disputes related to renewable energy projects, but there are famous examples in the the access and use of public electricity grids and natural gas infrastructure sector. networks. The National Energy Mediator (MNE) is an independent public body which offers resolutions to conflicts between energy 92 Updates and Recent Developments companies and consumers. The Administrative Courts of Appeal are competent for 9.1 Please provide a summary of any recent cases, disputes relating to authorisations or refusals relating to onshore new legislation and regulations, policy announcements, wind facilities. The decisions of these courts can be appealed trends and developments in renewables in your jurisdiction. before the State Council. The Administrative Court of Appeal of Nantes settles disputes in relation to offshore renewable energy facilities. Its The 2019 LEC law and the 2020 PPE reaffirm France’s ambi- decisions can also be appealed before the State Council. tions on climate change and renewable energy targets. France is positioning itself in a growing European offshore wind market. The first awarded wind farm will be operational in 8.2 Are alternative dispute resolution or tiered dispute 2021 and RTE is adapting its network to the challenges of marine resolution clauses common in the renewable energy sector? energy. As first generation PPAs expire, onshore wind could be boosted by repowering, with estimated potential of between 0.8–1GW annually by 2025. The first project launched in July For disputes between operators, depending on the nation- 2020 by Boralex will repower a wind farm from 18MW to 35MW. ality, either the Commercial Courts will be competent, or an Solar projects of the 2020 tenders are notably to be built on arbitration clause may be inserted in the contract. Arbitration industrial sites. Twelve solar projects with a global capacity of clauses are frequent in contracts where a party is not French. 94.2MWp were selected to be built at the Fessenheim nuclear Alternative dispute resolution clauses are common in the power station, to be decommissioned. A 50 MWp solar project context of Corporate PPA. awarded to Total will be built on its former refinery site in Valenciennes. 8.3 What interim or emergency relief can the courts The trend for Corporate PPAs is visible with several deals grant? signed in 2020: ■ PPA between airport group ADP and Urbasolar for The Administrative Court may grant interim injunction and 47GWh per year from three solar parks. suspensions as an accelerated procedure which results in a rapid ■ PPA between Voltalia and Auchan Retail with a total but provisional decision pending a judgment. capacity of 61MW. ■ Fifteen to 20-year PPA between SNCF and RES. ■ PPA between Orange and Boralex for 67 GWh/year of 8.4 Is your jurisdiction a party to and has it ratified renewable electricity produced by 26 wind turbines. the New York Convention on the Recognition and COVID-19 will undoubtedly affect renewable energy invest- Enforcement of Foreign Arbitral Awards and/or the ment levels in 2020. However, large energy utility companies Convention on the Settlement of Investment Disputes between States and Nationals of Other States and/or have continued to secure their position on the French market, any significant regional treaty for the recognition and such as Iberdrola acquiring Aalto Power with an 118MW enforcement of judgments and/or arbitral awards? installed wind onshore capacity and a pipeline of 63MW. After Quadran in 2017 and Vents d’Oc in 2019, Total acquired in 2020 Global Wind Power France and its 1GW wind onshore portfolio. Yes, France has ratified the New York Convention and the The French renewable energy market has become one of the ICSID Convention. most attractive in Europe.

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Véronique Fröding has been advising clients for more than 20 years in cross-border investment, notably for German companies and in the energy sector. She started her career at GIDE and joined DS Avocats as of mid-2017. She regularly advises investors, banks and developers in the development, acquisition and financing of power plant production as well as on construction, operation and maintenance contracts. Her expertise covers regulatory issues, contract law and M&A relevant to the energy sector (electricity, gas, onshore and offshore wind projects, solar and biomass). Recent highlights include her work with ADEME, E.ON, Enercon, Innogy, NRW Bank, Ralos New Energy, Searenergy, STEAG and RWE. In 2019, Véronique was elected as a member of the Steering Committee of OFATE (French German Office for Energy Transition).

DS Avocats Tel: +33 1 53 67 61 48 6, rue Duret Email: [email protected] 75116 Paris URL: www.dsavocats.com France

Stéphane Gasne advises clients on the development, financing, acquisition and disposal of energy assets. After years of experience as a partner with Pinsent Masons, he joined DS Avocats in 2020. Recent highlights include his work with EDF, RTE, Sonatrel, ENGIE, Siemens Gamesa Renewable Energy, Deme, Suez, Vinci Construction Grands Projets, Bouygues Bâtiment International, Dreev, Urbanomy, John Laing, the Africa Legal Support Facility (part of the African Development Bank), GuarantCo (part of the Private Infrastructure Development Group) and the International Finance Corporation. Stéphane is the Head of the Export Finance Working Group of the French Renewable Energy Federation (Syndicat des énergies renouvelables). This official role leads him to deliver notes, views and analysis to the renewable energy community in France, including developers, financiers and industrial equipment producers. He is currently designing new support schemes with the French Treasury, export credit agency (BPI) and development banks (AFD and Proparco). The Legal 500 ranks Stéphane in Project Finance, Construction and Energy, and has also singled him out as a leading individual in Energy.

DS Avocats Tel: +33 1 53 67 61 06 6, rue Duret Email: [email protected] 75116 Paris URL: www.dsavocats.com France

Founded in 1972 in Paris, DS Avocats has 22 offices on four continents. Our 400 legal professionals provide legal and tax advice, as well as litigation services, in all key areas of business law, including in particular projects development, corporate, finance, construction, competition and regulatory expertise in the energy sector. We have a long track-record advising on innovative conventional, nuclear and renewable energy projects. The size of our energy team, with 15 experts in Paris alone, allows us to cover the full range of expertise needed for energy projects development, finance, acquisition and disposal. Thanks to our long-standing market presence and breadth of knowledge, we are active on most of the key transactions in France. Beyond France, our teams regularly advise leading French and international utilities, developers, investors and State entities on their energy projects in Europe, Asia, Africa and Latin America, where DS offices are active in the energy sector. We also participate in the renewable energy business development through active membership in professional renewable energy organisations, both in France and internationally. www.dsavocats.com

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Germany Germany

Dr. Wolf Friedrich Niclas Spieth Hellermann

Sebastian Jakob POSSER SPIETH WOLFERS & PARTNERS Lutz-Bachmann von Nordheim

12 Overview of the Renewable Energy well as approval of the network operators’ plans for electricity network expansion, including the connection of Sector offshore wind projects to the grid. Regarding the planning, permitting and operation of offshore 1.1 What is the basis of renewable energy policy and wind facilities in the Exclusive Economic Zone, the responsible regulation in your jurisdiction and is there a statutory authority is the Federal Maritime and Hydrographic Agency definition of ‘renewable energy’, ‘clean energy’ or (Bundesamt für Seeschifffahrt und Hydrographie, BSH). Regarding equivalent terminology? consents and permits for renewable energy facilities, please see questions 4.1 and 4.2. Renewable energy policy and regulation in Germany is primarily governed by federal law and defined by the Federal Government. 1.3 Describe the government’s role in the ownership The term “renewable energy” covers hydropower (including and development of renewable energy and any policy wave, tidal, salinity gradient and marine current energy), wind commitments towards renewable energy, including energy, solar energy, geothermal energy as well as energy from applicable renewable energy targets. biomass (including biogas, biomethane, landfill and sewage treatment gas and gas from biologically degradable waste), The Federal Government plays an active role in the develop- pursuant to the German Renewable Energy Act (Erneuerbare- ment of renewable energy projects in Germany, and seeks to Energien-Gesetz, EEG). provide incentives for the generation of electricity from renewable energy sources (please see question 3.2). The Federal 1.2 Describe the main participants in the renewable Government also sets specific goals for the uptake and devel- energy sector and the roles which they each perform. opment of renewable energy. The Germany-wide goal, codified in the Renewable Energy Act, is to increase the amount of The main participants in the renewable energy sector are electricity generated from renewable energy sources in the gross private entities, i.e. the operators of renewable energy facili- electricity consumption to 40–45% by 2025, 55–60% by 2035, ties (Anlagenbetreiber) – both utility-scale and distribution-scale and to at least 80% by 2050. – electricity network operators (Netzbetreiber) and electricity With the withdrawal from nuclear energy already well suppliers (Elektrizitätsversorgungsunternehmen). underway, Germany has also decided to phase out coal plant The regulatory framework for the renewable energy sector is capacities, and to end coal-fired power generation completely by mainly determined on the federal level, especially by the Federal 2038. It is, therefore, a fundamental political aim to increase the Ministry for Economic Affairs and Energy (Bundesministerium amount of renewable energy. für Wirtschaft und Energie) which defines the political agenda and Energy targets for Germany are also defined by the EU: drafts the relevant legislation in the field of renewables. The Germany is likely to meet the EU target for 2020 of 18% of main regulatory actors in the sector of renewable energy are the renewables in its annual gross energy consumption (it achieved federal authorities. 17.1% by 2019). The EU target for 2030 for Germany amounts The Federal Network Agency (Bundesnetzagentur, BNetzA) is to 30%. The Federal Government adopted the Integrated the primary authority responsible for the regulation of the elec- National Energy and Climate Plan (Nationaler Energie und Klima tricity (and gas) networks in Germany. Its main tasks regarding Plan) to comply with the 30% target; additionally, it plans to renewable energy projects include: increase the target for renewable energy sources in the gross ■ monitoring the development of renewable energy in electricity consumption by 2030 to 65% pursuant to the Federal Germany; Climate Action Programme 2030 (Klimaschutzprogramm 2030). ■ conducting tendering procedures for new renewable Further energy targets are defined by: the Federal Climate energy projects (please see question 2.6); Action Plan 2050 (Klimaschutz plan 2050), which aims to reduce ■ identification and designation of suitable areas for offshore greenhouse gas emissions and seeks to fully decarbonise the wind projects; and energy supply in Germany by 2050; and the Federal Climate ■ overseeing the electricity network operators, especially Protection Act (Bundes-Klimaschutzgesetz), enacted in December regarding the conditions for connection and access to the 2019, which enshrines a greenhouse gas reduction of 55% electricity networks (please see questions 4.3 and 4.4), as compared to 1990 by 2030.

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22 Renewable Energy Market are set out in the Offshore Wind Energy Act (Windenergie-auf-See- Gesetz ). Further regulation covers specific aspects of the renewable energy sector, e.g. generation, transmission and remunera- 2.1 Describe the market for renewable energy in your tion of electricity from renewable energy sources. jurisdiction. What are the main types of renewable energy deployed and what are the trends in terms of technology preference and size of facility? 2.5 What are the main challenges that limit investment in, and development of, renewable energy projects? Renewable energy is at the core of the German energy transition (Energiewende). The share of renewables in the gross electric A major challenge for the development of renewable energy power generation in 2019 was 40.1%: onshore wind accounted projects is the fact that the expansion of the transmission for 16.8%; solar power for 7.7%; biomass for 7.4%; offshore network capacity required to accommodate the feed-in of wind for 4.1%; and hydropower for 3.1%. In recent years, wind increasing amounts of renewable energy does not currently power has become the dominant source of growth in renewable keep up with the realisation of renewable energy facilities. This energy production in Germany. In 2019, onshore and offshore applies most notably regarding the transportation of electricity wind power together contributed more than 50% of Germany’s generated in the north to the industrial consumption centres in electricity production from renewables. the south of Germany. Accordingly, this increases the need for The main focus is currently on the development of offshore costly network management measures by the network operators, wind, and the Federal Government has recently proposed to e.g. to avoid congestion. substantially increase the expansion target from 15 GW by 2030 The realisation of renewable energy facilities and the required to 20 GW, and to 40 GW by 2040. network can also be hampered by lawsuits from affected residents, municipalities or environmental associations, which can 2.2 What role does the energy transition have in the hinder or prolong the permit and construction process. level of commitment to, and investment in, renewables? What are the main drivers for change? 2.6 How are large utility-scale renewable power projects typically tendered? Germany has been an “early starter” in the adoption of renewable energy sources ever since the adoption of the Renewable With the exception of offshore wind facilities, there are no oblig- Energy Act in 2000. Today, the main drivers for renewables are atory tendering mechanisms for the construction and operation political climate targets, public opinion and the need to close the of renewable energy projects, provided that the relevant regula- electricity supply gap, which stems from the nuclear phase-out tory requirements are met (please see question 4.1). by 2022 and the coal phase-out by 2038. However, tendering procedures apply regarding the remuneration of electricity generated from renewable energy sources. 2.3 What role, if any, has civil society played in the Annually, a pre-determined amount of new generation capacity promotion of renewable energy? is put out to tender pursuant to the Renewable Energy Act, to determine the size of the subsidies which are granted in ct/ Civil society and public environmental awareness have played a KWh for the feed-in of electricity into the network. The tender major role in shaping German energy policy, from the protests is awarded to the party who submits a bid for the lowest amount against the use of nuclear energy in the 1980s to the recent Friday of subsidy. for Future rallies, thus keeping the pressure on the government Additional requirements apply to the right to construct and constantly high. operate offshore wind projects in the Exclusive Economic Zone. As prefaced above, the Offshore Wind Energy Act introduced a mandatory tendering system for the right to develop and 2.4 What is the legal and regulatory framework for the realise an offshore wind project. In this case, the award in the generation, transmission and distribution of renewable tender procedure described above entails the exclusive right to energy? construct and operate an offshore wind facility in the tendered area of the Exclusive Economic Zone. Only operators who have The Renewable Energy Act defines specific national policy been awarded the contract in the tender procedure may imple- targets for the share of electricity from renewable energy sources ment their project. In the past, this has led to fierce competi- in annual gross electricity consumption. It further stipulates: tion with regard to the areas and generation capacities put out the integration of renewable energy into the electricity supply to tender, resulting in 0-cent bids in which operators waived any system; the direct selling (Direktvermarktung) of electricity from kind of additional state subsidies in order to obtain the right to renewable energy sources by the producers; and the tendering realise their project. procedures (Ausschreibungen) by which funding for electricity from renewable energy sources is determined. The Renewable Energy Act also provides specific regulation regarding the 2.7 To what extent is your jurisdiction’s energy demand feed-in and remuneration of electricity from renewable energy met through domestic renewable power generation? sources, as well as their connection to the electricity network. The general regulatory framework for the energy sector, In 2019, 14.8% of gross energy consumption in Germany was including electricity from renewable sources, is set out in the fuelled by renewable sources. The main energy sources in Energy Industry Act (Energiewirtschaftsgesetz). This covers access 2019 were mineral oil (35.3%) and natural gas (24.9%); further and connection to the electricity networks, network charges, and sources included lignite (9.1%), hard coal (8.8%) and nuclear rules for the operation, planning and expansion of the electricity power (6.4%). 72.0% of Germany’s gross energy demand in network. For offshore wind facilities in the Exclusive Economic 2019 was met through imports, mostly of mineral oil, natural Zone of Germany, the planning, construction, operation, and gas, and hard coal. remuneration of, and tendering procedure for, offshore projects

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32 Sale of Renewable Energy and Financial remuneration for electricity fed into the distribution network. Self-supply facilities (Eigenanlagen), which are operated to meet Incentives personal energy demand, can also benefit from a reduction of statutory charges. 3.1 What is the legal and regulatory framework for the sale of utility-scale renewable power? 3.5 Are there financial or regulatory incentives available to promote investment in distributed renewable The sale of utility-scale renewable power is subject to the regula- energy facilities? tory framework under the Energy Industry Act, which governs the rules for the use of the electricity network as well as network Generally, the incentives for renewable energy facilities apply to access. The sale of electricity is subject to agreements under distributed renewable energy facilities and utility facilities indis- private law. Generally, electricity from renewable energy sources criminately (please see question 3.2). is sold directly to a consumer or an electricity supplier, or at the electricity exchange. The sale and purchase of electricity is subject to certain levies, 3.6 What are the main sources of financing for the such as the electricity tax based on the Electricity Tax Act development of distributed renewable energy facilities? (Stromsteuergesetz ). If electricity is transported through the energy network, additional statutory charges and levies apply which are The sources of financing for distributed renewable energy facili- generally payable by the end-consumer. ties are generally the same as for utility facilities (please see question 3.3). 3.2 Are there financial or regulatory incentives available to promote investment in/sale of utility-scale 3.7 What is the legal and regulatory framework that renewable power? applies for clean energy certificates/environmental attributes from renewable energy projects? The Renewable Energy Act is the main instrument to promote the investment in and sale of electricity from renewable sources. Energy suppliers are required to disclose (to the end-consumer) In particular, it provides for a remuneration system for electricity the composition of the electricity mix, in particular the use of generated from renewable energy. Further regulatory incentives “green energy” (Stromkennzeichnung). apply regarding network connection and access (please see ques- Facility operators which sell electricity directly and without tions 4.3 and 4.4). relying on remuneration under the Renewable Energy Act are also Renewable energy systems can be remunerated by a so-called entitled to Guarantees of Origin certificates (Herkunftsnachweise) market premium (Marktprämie) for electricity fed into the grid. for the electricity which they feed into the grid. These certifi- The operators of the plants must continue to sell the electricity cates can be sold freely, e.g. for the purpose of an energy supplier directly on the electricity market, but the market premium will to relabel the electricity purchased on the electricity exchange as compensate the operator for the difference between the market “green energy”. price of electricity and the nominal value of the market premium. Both the nominal value of the market premium and the renew- 3.8 Are there financial or regulatory incentives or able energy eligible for remuneration are determined by tendering mechanisms in place to promote the purchase of procedures (please see question 2.6). The market premium will be renewable energy by the private sector? paid for a period of 20 years, starting at the date of the commissioning of the individual facility. Only in exceptional circumstances, i.e. for small or older facilities, can statutory fixed feed-in Incentives for the purchase of renewable energy are contained tariffs (Einspeisevergütung) apply. Operators may decide to forego in the Renewable Heat Act (Erneuerbare-Energien-Wärmegesetz ), subsidies and sell electricity exclusively by means of direct selling. which provides subsidies for heating systems using renewable The remuneration of renewable energy facilities is financed by energy. Further incentives apply in the transport sector, which the so-called Renewable Energy Surcharge (EEG-Umlage), which sets a binding minimum quota regarding the consumption of is levied on every KW/h of electricity taken out of the electricity fuel from renewable energy sources. network and which is usually paid by the end-consumer. 42 Consents and Permits

3.3 What are the main sources of financing for the development of utility-scale renewable power projects? 4.1 What are the primary consents and permits required to construct, commission and operate utility- scale renewable energy facilities? The main sources of financing for renewable energy projects are private funds, as well as remuneration for electricity generation The requirements for the construction, commission and opera- (please see question 3.2). tion of utility-scale renewable energy facilities vary, based on the generation technology and the renewable energy source. 3.4 What is the legal and regulatory framework The construction and operation of onshore wind facilities applicable to distributed renewable energy? primarily require a permit pursuant to the Federal Immission Control Act (Bundesimmissionsschutzgesetz, BImSchG). An extensive In principle, distributed renewable energy projects are subject to environmental impact assessment (Umweltverträglichkeitsprüfung), the same legal and regulatory framework as utility-scale renew- as well as a public participation procedure, are generally required able power (please see question 3.1). However, decentralised for projects of 20 or more wind turbines. generation facilities (dezentrale Erzeugungsanlage) can benefit from Offshore wind facilities are subject to a plan approval a reduced Renewable Energy Surcharge and additional means of (Planfeststellungsbeschluss) pursuant to the Offshore Wind Energy

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Act. Only projects granted a tender in the tendering procedures renewable energy facilities to the distribution network conform for offshore wind projects (please see question 2.6) are eligible with the requirements regarding transmission networks (please for the plan approval procedure (Planfeststellungsverfahren), which see question 4.3). requires documentation regarding construction planning, safety measures and environmental studies. 4.5 Are microgrids able to operate? If so, what is Solar power facilities require a construction permit the legislative basis and are there any financial or (Baugenehmigung) pursuant to the Federal Building Code regulatory incentives available to promote investment in (Baugesetzbuch, BauGB) and the Building Codes of the Federal microgrids? States (Bauordnungen). In particular, they must comply with regional planning and land-use planning (Bebauungsplan). Generally, all energy networks are subject to the requirements The construction and operation of hydropower facilities require of the Energy Industry Act. Federal legislation does not provide a construction permit and are subject to a permit pursuant to for particular incentives for microgrids; only specific types of the Federal Water Act (Wasserhaushaltsgesetz ), which relates to the microgrids are available, such as self-supplying facilities, closed impounding of the respective waterbody as well as the discharge distribution systems or customer facilities which must comply and then reintroduction of water used for energy generation. The with additional specific regulation. permit usually requires an environmental impact assessment as well as a public participation procedure. Geothermal facilities require a construction permit and a 52 Storage water law permit, as well as a permit under the Federal Mining Act (Bundesberggesetz ); the permit procedure can necessitate a 5.1 What is the legal and regulatory framework which formal plan approval procedure including public participation applies to energy storage and specifically the storage of and an environmental impact assessment. renewable energy? Utility-scale biomass facilities require a permit pursuant to the Federal Immission Control Act, and can also necessitate an The regulatory framework varies depending on the storage environmental impact assessment. technology used, e.g. battery storage, power-to-gas storage, compressed air storage (Druckluftspeicher) and pumped storage (Pumpspeicher). 4.2 What are the primary consents and permits required to construct, commission and operate Generally, the construction of a battery storage facility requires distributed renewable energy facilities? a construction permit, while a power-to-gas storage facility requires a permit under the Federal Immission Control Act. Compressed air storage facilities can require a permit pursuant Generally, the same permitting requirements that apply to utility to the Federal Mining Act, and pumped storage facilities usually facilities also apply to distributed renewable energy facilities require a plan approval procedure under the Water Act, including (please see question 4.1). an environmental impact assessment. The operation of an energy storage facility is governed by 4.3 What are the requirements for renewable energy energy regulation, most notably the Energy Industry Act. facilities to be connected to and access the transmission Regarding electricity taken out of the network for storage network(s)? purposes, the storage facility is regarded as an end-consumer. When energy stored in the storage facility is transformed Electricity network operators are obliged to connect renewable back into electricity and fed into the grid, the storage operator energy facilities to their network with priority; the facility oper- assumes the role of an energy producer and must comply with ator bears the cost for the grid connection. Should network the regulatory framework for facility operators. Storage facil- capacity be insufficient, the network operator must expand ities which solely store energy from renewable energy sources capacity to allow feed-in by the renewable energy facility. A are considered renewable energy facilities; these are eligible for network operator must further grant priority access to the remuneration and enjoy priority treatment regarding feed-in, network regarding the take-in, transmission and distribution of transmission and distribution (please see question 3.2). electricity from a renewable energy facility. Specific regulation applies regarding offshore wind facili- 5.2 Are there any financial or regulatory incentives ties; such facilities are connected to the network according to available to promote the storage of renewable energy? the binding schedule set out in the Network Development Plan (Offshore-Netzentwicklungsplan) of the electricity network opera- Operators of storage facilities commissioned between 2011 and tors, which specifies the timeline for the network connection 2026 are exempted from grid access fees for 20 years if they of the respective offshore wind projects. If the network oper- feed the stored electricity back into the same grid from which it ator fails to provide the grid connection as specified, the facility was taken. This exemption also applies to power-to-gas storage operator is entitled to compensation. facilities that produce hydrogen or biogas. Power-to-gas facil- The further requirements of network connection and access ities are also exempt from fees for feeding power into the gas are governed by the general provisions of the Energy Industry grid. In addition, operators of energy storage facilities are Act, and are subject to compulsory agreements between the eligible for a reduction of the Renewable Energy Surcharge. facility operator and the network operator. The Climate Package 2030 envisages exempting storage facilities from all charges and levies, and promotes research and 4.4 What are the requirements for renewable energy development projects regarding storage technologies. Further, facilities to be connected to and access the distribution the National Hydrogen Strategy of the German Government network(s)? (Nationale Wasserstoff Strategie) envisages regulatory changes to promote the utility-scale roll-out of power-to-gas facilities for The general requirements for the connection and access of hydrogen production by 2030.

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62 Foreign Investment and International Under the Energy Industry Act, specific regulation applies regarding the unbundling of the activities of energy transmis- Obligations sion on the one hand, and energy generation or supply on the other hand. Further, network operators are regulated to prevent 6.1 Are there any special requirements or limitations an abuse of their monopolies. The responsible authority is the on foreign investors investing in renewable energy Federal Network Agency. projects?

7.2 What power or authority does the relevant No particular requirements or limitations on foreign invest- governmental authority or regulator have to prohibit or ments in renewable energy projects apply. However, the acqui- take action in relation to anti-competitive practices? sition by non-EU entities of companies or assets that are considered “critical infrastructure”, such as facilities for the In the field of merger control, the Federal Cartel Office may generation, transmission or storage of electricity, can generally prohibit a transaction if the concerned companies exceed certain be subject to a federal audit procedure under the Foreign Trade revenue thresholds and if the transaction is expected to create Regulation (Außenwirtschaftsverordnung). If certain thresholds are or perpetuate a market-dominating position. The European reached, the Federal Ministry for Economic Affairs and Energy Commission may impose conditions or prohibit transactions may consider that national security interests are concerned and that might restrain competition in the EU. prohibit the transaction. Concerning an abuse of market power, the Federal Cartel Office Act may prohibit any abusive behaviour and take correc- 6.2 Are there any currency exchange restrictions tive measures to ensure compliance. or restrictions on the transfer of funds derived from The Federal Network Agency possesses specific competences investment in renewable energy projects? to ensure network access, e.g. by imposing revenue caps for network tariffs or by specifying cost components. Apart from tax provisions that apply indiscriminately, there is no specific regulation concerning funds derived from renew- 7.3 What are the key criteria applied by the relevant able energy projects. governmental authority or regulator to determine whether a practice is anti-competitive? 6.3 Are there any employment limitations or requirements which may impact on foreign investment in If a company holds a dominant market position (e.g. no compet- renewable energy projects? itor, paramount market position of 40% of market shares), its practices are considered abusive if they deny access to facilities No specific employment limitations or requirements apply essential for competition, seek to squeeze a competitor out of regarding foreign investment in renewable energy projects. the market, or demand unreasonable prices or conditions. Germany and the EU common market generally provide for Under the Energy Industry Act, there is deemed to be an a sufficient and skilled work force; however, shortages cannot abuse of market power if network connection and access are fully be ruled out due to an increase of demand for workers in denied or in the case of discrimination against certain compa- the renewable sector. Non-EU citizens require a work permit/ nies compared to their competitors. visa to work in Germany. No specific quota requirements apply regarding workers from Germany. 82 Dispute Resolution

6.4 Are there any limitations or requirements related to 8.1 Provide a short summary of the dispute resolution equipment and materials which may impact on foreign framework (statutory or contractual) that typically investment in renewable energy projects? applies in the renewable energy sector, including procedures applying in the context of disputes between any applicable government authority/regulator and the Equipment and materials used in renewable energy projects private sector. must comply indiscriminately with general safety requirements as well as additional project-related requirements under German and EU law. Non-compliance with such standards can hinder Disputes between participants in the energy market are regarded the use of specific products or equipment. as civil law matters. This includes disputes regarding remuneration under the Renewable Energy Act. Disputes regarding decisions by regulatory agencies in energy-related matters under the 72 Competition and Antitrust Energy Industry Act are heard by the cartel senates of the higher regional courts. 7.1 Which governmental authority or regulator is responsible for the regulation of competition and antitrust in the renewable energy sector? 8.2 Are alternative dispute resolution or tiered dispute resolution clauses common in the renewable energy sector? The primary authority regarding competition, antitrust and merger control is the Federal Cartel Office (Bundeskartellamt). This applies equally for the renewable energy sector. Regarding The Renewable Energy Act provides for an alternative dispute merger control with EU-wide implications, the European resolution mechanism (Clearingstelle), which is responsible, e.g., Commission is directly responsible. for disputes between network operators and facility operators. The Clearingstelle also provides general advice on the application of the Renewable Energy Act.

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8.3 What interim or emergency relief can the courts 8.6 Are there examples where foreign investors in the grant? renewable energy sector have successfully obtained domestic judgments or arbitral awards seated in your jurisdiction against government authorities or the state? German Civil or Administrative Courts can provide interim relief or grant pre-judgment seizures and interim injunctions. Similar provisions also exist with regard to decisions by regula- Based on the Energy Charter Treaty, the Swedish state-owned tory agencies under the Energy Industry Act. power company Vattenfall AB filed two cases against Germany Under the Renewable Energy Act, courts can issue manda- under the ICSID rules. The first case (ICSID Case No. ARB/09/6) tory injunctive relief, e.g. requiring the grid operator to connect concerned the imposition of environmental restrictions on the a facility to the network or to provide remuneration. construction of a coal-fired power plant (Kohlekraftwerk Moorburg) in Hamburg, for which Vattenfall already held an authorisation. Vattenfall initiated an investor-state dispute settlement, pleading 8.4 Is your jurisdiction a party to and has it ratified violations of the principle of fair and equitable treatment and the New York Convention on the Recognition and the prohibition of indirect expropriation. The case was resolved Enforcement of Foreign Arbitral Awards and/or the Convention on the Settlement of Investment Disputes through a settlement in which the government of Hamburg between States and Nationals of Other States and/or agreed to waive certain of its restrictions. any significant regional treaty for the recognition and The second case filed by Vattenfall against Germany on the enforcement of judgments and/or arbitral awards? basis of the Energy Charter Treaty concerns the re-accelerated phase-out of commercial nuclear power which was imple- Germany has signed and ratified both the New York Convention mented by the German Federal Government following the on the Recognition and Enforcement of Foreign Arbitral Awards Fukushima disaster in 2011. The case was initiated by Vattenfall (New York Convention) and the Convention on the Settlement of in May 2012 before an ICSID arbitral tribunal (ICSID Case No. Investment Disputes between States and Nationals of Other ARB/12/12). This case is still pending. States (ICSID Convention). Moreover, Germany also applies the European Union’s system 92 Updates and Recent Developments on the mutual recognition and enforcement of foreign judgments. Under this regime, a judgment handed down in any Member State 9.1 Please provide a summary of any recent cases, shall, subject to certain conditions, be recognised and enforce- new legislation and regulations, policy announcements, able in all other Member States without any special procedure of trends and developments in renewables in your recognition or declaration of enforceability being required. jurisdiction. Germany is also a party to the Energy Charter Treaty, which provides for the protection of foreign investments in the energy In the recent past, most notably in 2019 and 2020, the Federal sector, based on the extension of national treatment, or most- Government has undertaken ambitious steps to promote the favoured-nation treatment and protection against key non- development of renewables in Germany. The 2019 climate commercial risks such as expropriation or unreasonable and package with the Climate Action Programme 2030 and the discriminatory measures or measures that infringe the principle Federal Climate Protection Act enshrines the target to decar- of fair and equitable treatment. The Energy Charter Treaty also bonise the economy. In June 2020, the National Hydrogen provides for Investor-State Dispute Settlement under the arbi- Strategy was published, which establishes hydrogen produced tral rules of ICSID, UNCITRAL or the Stockholm Chamber of from renewable sources as a significant factor in Germany’s Commerce. decarbonisation strategy and aims at industrial scale generation capacities for green hydrogen with 5 GW to be installed by 8.5 Are there any specific difficulties (whether as a 2030 and 10 GW by 2035. In July 2020, the Federal Parliament matter of law or practice) in litigating, or seeking to (Bundestag) passed the coal phase-out act, which will end energy enforce judgments or awards, against government generation from coal by 2038. authorities or the state? These drivers will increase the demand for renewable energy facilities, energy transmission systems and energy storage facil- In principle, actions against decisions by governmental agencies ities in Germany for the foreseeable future. Due to the coal or regulators may only be brought by persons who can claim to phase-out and the nuclear phase-out (the latter of which is be “injured”, i.e. where they can show that they suffer a legal already well under way), it is a crucial and fundamental political detriment from the allegedly unlawful act. Third parties must aim to increase the amount of renewable energy. demonstrate that the legal provisions which are alleged to have To transpose the political aims into action, several amendments been breached by the act (also) serve the purpose of protecting with regard to the regulatory framework will be required. These their legal interests. Exceptions exist, for instance, with respect include, for example, the recent changes to the Offshore Wind to certain authorisations alleged to violate provisions relating Energy Act to increase the expansion targets for offshore wind to the environment; in this regard, environmental organisa- energy from 15 GW to 20 GW by 2030 and to define a new target tions can bring cases without having to demonstrate their own for generation capacities for offshore wind of 40 GW by 2040. legal interest in the decision. This is based on legislation imple- Another step has been the abolition of the previous cap for menting the Aarhus Convention, which applies throughout the the funding of generation capacity for solar power from max. European Union. 52 GW. Further regulatory changes are already underway, such as changes to the tendering procedures for offshore wind and a decrease of the Renewable Energy Surcharge to cap the further increase of electricity prices. The implementation of the National Hydrogen Strategy is also a key project.

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Dr. Wolf Friedrich Spieth is a Founding Partner at pswp. Previously, he led Freshfields’ global Low-Carbon Energy Group as well as their Environmental and Regulatory Team for many years. From offshore wind, power-to-X, refineries and power plants to chemical industry and large infrastructure projects, Wolf brings decades of hands-on expertise to the table. Wolf and his team are at the forefront of developments in energy projects and all matters relating to the carbon economy and environmental law, especially the renewable sector. Wolf receives top ratings in national and international rankings for low-carbon energy and environmental and public law.

POSSER SPIETH WOLFERS & PARTNERS Tel: +49 30 814 542 501 Palais Holler, Kurfürstendamm 170 Email: [email protected] 10707 Berlin URL: www.pswp.de Germany

Niclas Hellermann is a Founding Partner at pswp. Previously, he was part of Freshfields’ Environment Planning and Regulatory Group with a particular focus on renewable energy. Niclas advises national and international companies as well as governments on a wide range of environmental law and regulatory questions. His work focusses on the regulatory framework and approval procedures for major energy, industrial and infrastructure projects (including M&A transactions) as well as on advising industries in transition.

POSSER SPIETH WOLFERS & PARTNERS Tel: +49 30 814 542 504 Palais Holler, Kurfürstendamm 170 Email: [email protected] 10707 Berlin URL: www.pswp.de Germany

Sebastian Lutz-Bachmann is a Principal Associate at pswp. He advises on administrative, constitutional, European and international law, focussing on regulatory, planning and energy law, especially in complex infrastructure projects. Sebastian has extensive experience of the energy and raw-material sectors, especially renewable energy and hydrogen. He represents clients in civil, administrative and constitutional proceedings as well as in arbitration proceedings. Sebastian is the co-author of a widely recognised reference guide on German Offshore Wind regulation.

POSSER SPIETH WOLFERS & PARTNERS Tel: +49 30 814 542 507 Palais Holler, Kurfürstendamm 170 Email: [email protected] 10707 Berlin URL: www.pswp.de Germany

Jakob von Nordheim is an Associate at pswp. He advises national and international companies, associations and the public sector on German and European environmental, planning and regulatory law with a special focus on energy law. He supports in legal disputes with public authorities in and outside courts. His focuses are energy, climate, industry and infrastructure, in particular the renewable energy sector as well as the hydrogen sector. His doctoral thesis examines the European regulation of the energy grid sector.

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POSSER SPIETH WOLFERS & PARTNERS was founded in 2018 by leading members of the Environment Planning and Regulatory Group of Freshfields, a team of highly experienced partners and lawyers. Our team of five Partners and 16 Associates with offices in Berlin and Düsseldorf has more than 20 years’ exceptional experience and knowledge of regulatory and environmental law projects that have broken new ground in the legal and economic development of Germany and Europe. We advise in a number of sectors, in particular in the sectors of energy and climate regulation, industry and environment, mining, water and raw materials. Our firm has already shaped the national nuclear phase-out and we are now at the forefront of the coal phase-out, as well as the energy transition to renewable energy, green hydrogen, and a low-carbon economy. www.pswp.de

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Kirana D. Amelia Rohana Sastrawijaya Sonang

Junianto James UMBRA – Strategic Legal Solutions Melati Siregar Losari

12 Overview of the Renewable Energy coordination of policies and services in the field of investment based on the provisions of regulations. BKPM also Sector has various other functions, one of which is to provide licensing services and investment facilities. 1.1 What is the basis of renewable energy policy and 5. Minister of Finance (MOF): The MOF approves the tax regulation in your jurisdiction and is there a statutory incentives that might be offered by the Government for an definition of ‘renewable energy’, ‘clean energy’ or electricity project, as well as any Government guarantees. equivalent terminology? 6. Indonesian Infrastructure Guarantee Fund (IIGF): IIGF was established to provide guarantees for infrastruc- Law No. 30 of 2007 on Energy (Energy Law) serves as the ture projects. IIGF also acts as a strategic advisor to the basis for renewable energy policy in Indonesia. Based on Article Government and the main transaction manager/arranger 1(7) of the Energy Law, renewable energy is defined as energy for infrastructure projects. sourced from renewable energy sources. Meanwhile, renew- 7. MSOE: The MSOE supervises the management of PLN able energy sources are defined as energy sources which are as a state-owned enterprise, decides the company’s perfor- produced from sustainable energy resources if managed well, mance targets and approves the annual budget and evalu- including, among others, thermal, wind, bio-energy, solar, water ates the achievement of these targets. flow and waterfall as well as the movement and difference of sea 8. PT Sarana Multi Infrastruktur (PT SMI) and PT Indonesia layer temperature. Infrastructure Finance (PT IIF): PT SMI and PT IIF Aside from the Energy Law, there are also other bases for were both established to help investors obtain domestic the development of renewable energy in Indonesia, including, financing for debt and equity funding from infrastructure among others, Law No. 21 of 2014 on Geothermal, Law No. development including electricity projects. 30 of 2008 on Electricity (Electricity Law), Presidential Regulation No. 35 of 2018 on Waste to Energy, and Minister 1.3 Describe the government’s role in the ownership of Energy and Mineral Resources ( ) Regulation No. MEMR and development of renewable energy and any policy 50 of 2017 on the Utilization of Renewable Energy Sources for commitments towards renewable energy, including Electric Supply, last amended by MEMR Regulation No. 4 of applicable renewable energy targets. 2020 (MEMR 50/2017). The Indonesian Government has set targets for renewable 1.2 Describe the main participants in the renewable energy to account for 23% of the energy mix by 2025 as set out energy sector and the roles which they each perform. by Government Regulation No. 79 of 2014 on National Energy Policy/Kebijakan Energi Nasional (KEN) (GR 79/2014) and 50% There are various stakeholders who contribute to the develop- by 2050 as set out under Presidential Regulation No. 22 of 2017 ment and utilisation of renewable energy in Indonesia, among on General Plans of National Energy (PR 22/2017). These others, as follows: targets are fuelled by three factors. First, the country’s current 1. MEMR: responsible for formulating and implementing energy mix is heavily reliant on coal, which currently accounts for Indonesia’s energy policy, including the National Electrical 56% of total energy supply and is projected to increase two-fold General Plan, and regulating the electricity sector through by 2025. Second, Indonesia’s energy sector has the highest emis- the Directorate General of Electricity (DGE) and the sions intensity among all the country’s sectors, generating 755.13 Director General of New Renewable Energy and Energy g CO2/kWh. Third, promoting the development of renewable Conservation. energy is important to meet Indonesia’s energy needs and also to 2. PLN: a state-owned electricity company that is responsible fulfil the Government’s commitments as a ratifying party to the for most of Indonesia’s power generation and has exclusive Paris Agreement through Law No. 16 of 2016 on Ratification of power over the transmission, distribution, and supply of Paris Agreement to the United Nations Framework Convention electricity to the public. PLN is supervised by the MEMR on Climate Change (Law 16/2016). This regulation embodies and the Minister of State-Owned Enterprises (MSOE). the Government of Indonesia (GOI)’s commitments to reduce 3. DPR: House of Representatives, a legislative body in its greenhouse gas (GHG) emissions in 2030 by 29% under a Indonesia. business-as-usual scheme or by up to 41% with international 4. Investment Coordinating Board (BKPM): BKPM is the assistance. authority responsible for implementation regarding the

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22 Renewable Energy Market 2.4 What is the legal and regulatory framework for the generation, transmission and distribution of renewable energy? 2.1 Describe the market for renewable energy in your jurisdiction. What are the main types of renewable energy deployed and what are the trends in terms of The current regulatory framework on electricity in Indonesia technology preference and size of facility? is provided under the Electricity Law and its implementing regulations, namely Government Regulation No. 14 of 2012 Indonesia’s renewable energy market is heavily regulated and (as amended by Government Regulation No. 23 of 2014) on dominated by a few players. Private participation is allowed, but Electricity Business Provision (GR 14/2012), Government state-owned companies maintain a dominant position. Regulation No. 62 of 2012 on Electricity Support Business With ambitious targets to increase the use of renewable (GR 62/2012), and other implementing regulations issued by energy, one of the GOI’s efforts to attract more investors in the the MEMR, and other ministers with relevant responsibilities renewable energy market is enacting MEMR 50/2017, which relating to the electricity sector. requires PLN to purchase electricity pursuant to the procure- The supply and utilisation of electricity in Indonesia are ment and pricing principles provided therein, from renew- based on electricity master plans. Unlike the 1985 Electricity able energy projects including solar PV, wind, hydro, biomass, Law, which stipulated that there would only be a single national biogas, municipal waste, geothermal and tidal wave. Renewable Master Plan determined by the MEMR, the 2009 Electricity energy still plays a very small role in the national energy supply, Law stipulates that there will be a national Master Plan and accounting for only around 13% of the total final energy multiple regional Master Plans. The MEMR is responsible supply. Most renewable energy comes from geothermal, hydro for developing the National Electricity Master Plan (Rencana and biomass power (International Institute for Sustainable Umum Ketenagalistrikan Nasional/RUKN). Based on RUKN, the procurement route for independent power producers ( ) to Development (IISD), Getting to 23 Per Cent: Strategies to scale up IPPs renewable in Indonesia, 2019). build power plants is planned on an Electricity Supply Business Plan (RUPTL), which is reviewed annually. As such, the RUPTL is a very important document for all investors in the 2.2 What role does the energy transition have in the Indonesian renewable energy power sector. level of commitment to, and investment in, renewables? What are the main drivers for change? 2.5 What are the main challenges that limit investment in, and development of, renewable energy projects? The energy transition is vital for the achievement of the GOI’s commitment to reduce GHG emissions in Indonesia, as mentioned in question 1.3 above. The GOI has to ensure long- The main challenges in the development of renewable energy term energy security, achieve climate change targets, anticipate projects in Indonesia, among others, are as follows: potential stranded assets from fossil power plants, and calcu- (a) The electricity tariff scheme for renewable energy projects, late and maintain the potential gross domestic regional income which refers to the average generation cost of production from the fossil energy sources at the national and regional level. (biaya pokok penyediaan/BPP), is considered a challenge Following the issuance of the GOI’s KEN through PR 22/2017, because it is deemed too low to incentivise the robust the GOI issued MEMR 50/2017 which requires PLN to priori- development of renewable energy. tise the purchase of electricity generated from renewable energy (b) The Build-own-operate-transfer (BOOT) scheme that on a “must-run” basis, which means that PLN must priori- was required under MEMR 50/2017 was also seen as a tise the dispatch of such plants against available capacity from challenge, since it required the investor to evaluate their conventional/thermal plants. investment cost and ways to make their investment return in a limited period with the assumption that the land acquisition costs would be included as part of their investment 2.3 What role, if any, has civil society played in the and would be repaid by PLN through the payment of the promotion of renewable energy? electricity tariff. However, recently, the newest amendment of MEMR 50/2017 removes the BOOT requirement. The level of engagement of development partners and civil It is hoped that the removal of the BOOT requirement society (e.g. Indonesian Renewable Energy Society/Masyarakat may help to boost and attract more investors to participate Energi Terbarukan Indonesia (METI), Indonesian Electrical Power in the development of renewable energy in Indonesia. Society/Masyarakat Kelistrikan Indonesia (MKI), Indonesian Independent Power Producer Association/Asosiasi Perusahaan 2.6 How are large utility-scale renewable power Listrik Swasta Indonesia (APLSI), Indonesian Geothermal projects typically tendered? Association (INAGA)) with renewable energy is relatively high, since an important part of their role is to support Indonesia in meeting the Sustainable Development Goals and Indonesia’s In accordance with MEMR 50/2017, renewable power (both Nationally Determined Contribution to the Paris Agreement. large- and small-scale) projects are procured through direct selec- Civil society groups are active in building knowledge and tion method. The most recent amendment to MEMR 50/2017, capacity in the renewable energy sector. However, the influence namely MEMR 4/2020, allows the possibility of using direct of these players is low, given that the total financing from devel- appointment method for certain types of projects, such as: opment partners is a tiny proportion of all financing and the (a) projects which fulfil certain criteria (e.g. if the local elec- evidence suggests that policy often deviates substantially from tricity system is in a condition of electricity supply emer- the recommendations of such partners and civil society (IISD, gency or crisis or if there is only one prospective electricity GSI Report, 2018). supplier); and (b) assignment projects for: (i) hydropower built by the selected business entity utilising state-owned water resources;

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(ii) renewable projects partly or wholly developed by the 3.3 What are the main sources of financing for the Government, including those funded with a grant; and (iii) development of utility-scale renewable power projects? municipal waste projects; and (c) hydropower projects that have obtained a permit related The main sources commonly used for the project financing to the location of the regional government and/or agen- of renewable energy projects come from international banks. cies/institutions, prior to the entry into force of MEMR For smaller renewable projects, local financial institutions in 4/2020. Indonesia, such as PT Sarana Multi Infrastructure (Persero) and PT Indonesia Infrastructure, also offer financing. However, we 2.7 To what extent is your jurisdiction’s energy demand understand that there are fewer projects funded by local banks met through domestic renewable power generation? because they still perceive renewables projects as high-risk projects and hence charge renewables developers with high interest rates One of the most common types of domestic renewable power (more than 10%) (Institute for Essential Services Reform (IESR), generation in Indonesia is solar rooftop power generation. Up Igniting a Rapid Deployment of Renewable Energ y in Indonesia, 2018). to September 2019, the MEMR reported that there are 1,435 Other sources such as investment grants are also available for solar rooftop power generation customers in Indonesia with a renewable energy projects. These funds are typically injected by total capacity of 4.92 MW across Indonesia. This is a signifi- the World Bank, International Finance Corporation (IFC), Asian cant increase since January 2018, when Indonesia only had 351 Development Bank (ADB) and Japan International Cooperation customers for solar rooftop power generation; however, if it is Agency (JICA), and injected into trust funds such as, among compared to Indonesian energy demand in general, the total others, Indonesia Climate Change Trust Fund (ICCTF), Green capacity of solar rooftop power generation is very little, since Climate Fund (GCF) or Climate Investment Funds (CIF). in 2018 only, Indonesia’s electricity demand was 254.6 TWh (MEMR, Press Release “Pengguna PLTS Atap Meningkat 181%”, 3.4 What is the legal and regulatory framework November 29th 2019). applicable to distributed renewable energy?

32 Sale of Renewable Energy and Financial In Indonesia, conceptually, distributed renewable energy gener- Incentives ation is similar to off grid generation, as both types of generation are close to the end users of power. Off grid generation is 3.1 What is the legal and regulatory framework for the open to private entities, but it requires the developers to obtain sale of utility-scale renewable power? a concession area in the form of a WU.

The current regulatory framework on electricity in Indonesia 3.5 Are there financial or regulatory incentives is provided under the Electricity Law. Furthermore, it should available to promote investment in distributed renewable be noted that in Indonesia, the business activities of transmis- energy facilities? sion and distribution have a natural monopoly character where PLN acts as the main off-taker in Indonesia’s electricity busi- Yes, please refer to question 3.2 since the incentives also apply to ness sector. However, with the fulfilment of certain require- distributed renewable energy facilities. ments, the Government can grant a concession area in the form of a Business Area or Wilayah Usaha (WU) to private entities to directly sell the electricity to end customers. It is, however, not 3.6 What are the main sources of financing for the development of distributed renewable energy facilities? easy for private entities to get a WU in practice.

Please refer to question 3.3. 3.2 Are there financial or regulatory incentives available to promote investment in/sale of utility-scale renewable power? 3.7 What is the legal and regulatory framework that applies for clean energy certificates/environmental attributes from renewable energy projects? Yes, there are a number of fiscal incentives available for renewable power generation projects. These include: (a) Government Regulation No. 18/2015 (as amended by Generally, Indonesia does not have specific regulation for clean Government Regulation No. 9/2016) on Income Tax. This energy certificates. However, in the forestry sector specifically regulation reduces taxable income by up to 30% of quali- for holders of forestry licences, for example, with regards to the fying expenditure on the fixed assets (including land) of a licence for the utilisation of timber in natural forest, Ministry power plant; of Forestry Regulation No. 50 of 2014 regulates the Indonesia (b) MOF Regulation No. 177/2007 which provides an exemp- Certified Emission Reductions (ICER), which are documents tion from Import Duty on the import of goods used in of acknowledgment for a project developer who holds a licence “geothermal business activities”. This is subject to the to conduct absorption and/or storage, as well as carbon emission business entity having received a geothermal work area, reduction and other benefits that result from conservation and preliminary survey data or a Mining Licence (Izin Usaha afforestation, or prevention from deforestation and forest degra- Pertambangan/IUP); dation. They can be traded through an Emission Reduction (c) MOF Regulation No. 142/2015 which provides an Import Purchase Agreement, an agreement from two parties, either two VAT exemption facility for geothermal projects in both states or one state with a major company, in the carbon certifi- the exploration and exploitation phases; and cate trade. (d) MOF Regulation No. 21/2010 which provides an Article Moreover, Indonesia through the Ministry of Environment 22 exemption for imports by IPPs involved in renewable and Forestry (MoEF) of Indonesia also adopts the Nusantara energy. Carbon Scheme (Skema Karbon Nusantara/SKN) programme, a

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domestic carbon market, in which if a project has successfully the relevant developer must comply with the applicable grid reduced GHG, it will obtain a certification of recognition and code (e.g. for Java, Madura, and Bali Area, the grid code is set guarantee that the activity has successfully reduced GHG and out under MEMR Regulation No. 3 of 2007 on the Grid Code contributed to sustainable development. Every SKN certifica- of Java-Madura-Bali Electricity System) or operating procedure tion is called a Nusantara Carbon Unit (Unit Karbon Nusantara/ and/or technical limits set by PLN. The relevant developer will UKN), and one UKN is equal to one ton of carbon dioxide. also be required to prepare an interconnection study for PLN. Every UKN will be registered and can be used to replace the Upon completion of the construction phase, all required GHG offset of the UKN owner. UKN ownership can be trans- commissioning testing must be carried out to ensure that the ferred between the registry owners leading to a carbon trading; facility is synchronised and meets good utility practice and however, up to now this programme has not yet had a specific safety standards, as can be evidenced with the obtainment of a underlying legal basis other than MoEF Regulation No. 46 of Sertifikat Laik Operasi. 2017 on REDD+ Implementation Guideline, which actually specialises in international carbon trading. (Partnership for 4.4 What are the requirements for renewable energy Market Readiness, Mekanisme Kredit Karbon: Pembelajaran dari facilities to be connected to and access the distribution Skema Karbon Nusantara, 2017.) network(s)?

3.8 Are there financial or regulatory incentives or Similar to question 4.3, to connect a renewable energy facility mechanisms in place to promote the purchase of to a distribution network/grid, an IUPTL holder must first renewable energy by the private sector? carry out all required commissioning testing in the presence of PLN to ensure that the facility is synchronised and meets good Yes. Please refer to question 3.2. utility practice and safety standards (determined by the MEMR and the DGE), as can be evidenced with the obtainment of a 42 Consents and Permits Sertifikat Laik Operasi.

4.1 What are the primary consents and permits 4.5 Are microgrids able to operate? If so, what is required to construct, commission and operate utility- the legislative basis and are there any financial or scale renewable energy facilities? regulatory incentives available to promote investment in microgrids? Essentially, the primary consent and permit to construct and operate a renewable energy plant is an electricity supply busi- It is possible but considering the requirements to have a WU, it ness licence/Izin Usaha Pembangkitan Tenaga Listrik (IUPTL). An is considered challenging. IUPTL can cover the following activities: electricity (a) gener- MEMR Regulation No. 38 of 2016 on the Acceleration ation; (b) transmission; (c) distribution; (d) sales; (e) distri- of Electrification in the Least Developed Rural, Isolated, bution and sales; and (f) integrated activities from elec- Border and Populated Small Island Areas through Small-Scale tricity generation to sales. Other licences may be also be Electricity Supply Businesses (MEMR 38/2016) opens oppor- required depending on the project. tunities to business entities to operate small-scale electricity An application for an IUPTL is processed through Electronic businesses for the improvement of electrification in rural and Integrated Business Licensing or the Online Single Submission remote areas by managing a WU. (OSS) System. The OSS System is essentially an online platform Remote island electrification is open for the following sources which integrates all business-licensing activities and allows the of renewable energy: nuclear; coal methane gas; liquefied coal; simultaneous issuance of permits from both central and regional geothermal; wind; bioenergy; solar; hydro; and different tidal government levels. It is regulated in Government Regulation waves. Rural electrification may be conducted in two schemes No. 24 of 2018 on Online Single Submission Services. based on how the tariff is determined, namely: (i) with subsidy (following PLN’s average tariff for the 450 VA household 4.2 What are the primary consents and permits customers); and (ii) without subsidy (i.e. the business entity required to construct, commission and operate may propose subsidy funds based on certain criteria subject to distributed renewable energy facilities? the evaluation and determination by (i) the MEMR or the relevant governor based on their authority on the basis of a busi- As previously explained in question 4.1 above, an integrated ness-to-business agreement, or (ii) by using PLN’s electricity tariff IUPTL (which covers the activity of generation, transmission, rates if the local government is unable to determine the tariff). distribution and sales) would be required as the main permit. In addition, a WU would also be required to carry out distribution 52 Storage business activities. This is because PLN is currently the only business entity involved in transmitting and distributing elec- 5.1 What is the legal and regulatory framework which trical power in Indonesia, except for certain cases where a WU is applies to energy storage and specifically the storage of given to private entities. Therefore, an integrated IUPTL holder renewable energy? must also obtain a WU to be able to construct, commission and operate distributed renewable energy facilities. To date, there is no specific regulatory framework in relation to energy storage or for the storage of IPP renewable energy in 4.3 What are the requirements for renewable energy Indonesia. facilities to be connected to and access the transmission However, in 2019, the GOI issued Presidential Regulation No. network(s)? 55 of 2019 on the Acceleration of Battery Electric Vehicles (EV) Program for Road Transportation (PR 55/2019), which covers To connect a renewable energy facility to a transmission network, a number of matters including the production of batteries, the

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use of local components, charging stations and tax incentives for 6.2 Are there any currency exchange restrictions the production of EVs. or restrictions on the transfer of funds derived from investment in renewable energy projects? 5.2 Are there any financial or regulatory incentives available to promote the storage of renewable energy? Under Indonesian Law, a person may freely hold and use foreign currency in Indonesia subject to the mandatory use of Rupiah Please refer to question 5.1 above. The GOI has not issued a regulations. With regards to this, Bank of Indonesia Regulation regulatory framework that specifically applies to the storage of No. 17/3/PBI 2015 stipulates that all domestic transactions renewable energy. must be conducted in Rupiah, with special exceptions granted for certain business sectors. The transfer of foreign exchange to countries abroad is subject to disclosure and reporting obli- 62 Foreign Investment and International gations every two months, for customers that have a transaction Obligations for the transfer of more than USD 10,000, and each transaction must be reported and detailed individually. 6.1 Are there any special requirements or limitations There is no prohibition against the transfer of funds offshore, on foreign investors investing in renewable energy especially in renewable energy projects. The Investment Law projects? provides that investors have the rights to conduct transfer and repatriation in foreign currency, for categories as such as capital, profits, Based on Law No. 25 of 2007 on Investment (Investment Law), bank interest, funds for repayment of loans, the proceeds of sale or applying to all foreign investors, a foreign legal entity seeking liquidation of the company, etc. However, a reporting obligation to invest in the power market in Indonesia must establish a would be applied to business entities who carry out transfers of limited liability company/perseroan terbatas (PT). When a PT is funds offshore for anti-money laundering purposes based on the comprised of foreign capital from foreign investors, it will be Regulation of Chief of Indonesian Financial Transaction Reports considered as a foreign investment company (PMA company) and Analysis Centre. Additionally, Bank Indonesia also obliges which is subjected to Presidential Regulation No. 44 of 2016 Indonesian banks to report on their foreign exchange traffic. concerning the List of Business Fields that Are Closed to and Business Fields that are Open with Conditions to Investment 6.3 Are there any employment limitations or (Negative List). The Negative List contains certain fields of requirements which may impact on foreign investment in business in which foreign ownerships are (i) open, (ii) closed and renewable energy projects? (iii) open with certain conditions for foreign investments. The Negative List is updated from time to time. The following are Yes, there are certain limitations and requirements for foreign the limitations of foreign shareholding under the Negative List investment in general in Indonesia (which includes renewable for each line of business in the power sector: energy projects), as follows: (a) Under the Indonesian Standard Classification of Positions Line of Business Maximum Foreign (Klasifikasi Baku Jabatan Indonesia/KBJI), every employer Shareholding is prohibited from employing foreign workers in posi- Micro power plant 100% local shareholding tions that are closed to foreign workers. Attachment 1 of (< 1 MW) (closed for foreign investment) Minister of Manpower (MOM) Decree 228/2019 stipu- Small power plant Max. 49% lates the types of positions that are allowed to be occupied (1–10 MW) by foreign employees. The positions that may be occupied by expatriates under MOM Decree 228/2019 are classified Geothermal power plant Max. 67% under specific sectors by reference to the International ≤ 10 MW Standard Classification of Occupation issued by the Power plant Max. 95% International Labour Organisation (ISCO). > 10 MW (Open for 100% foreign share- (b) Additionally, employers must obtain a Foreign Manpower holding in case of Public Utilization Plan (Rencana Penggunaan Tenaga Kerja Asing/ Private Partnership (PPP)) RPTKA) before employing foreign workers. Electricity transmission & Max. 95% distribution (Open for 100% foreign share- 6.4 Are there any limitations or requirements related to holding in case of PPP) equipment and materials which may impact on foreign Power supply construc- Max. 95% investment in renewable energy projects? tion and installation (including consultancy) There are limitations and requirements related to the equip- projects and the Operation ment and materials in Indonesia called TKDN. The Electricity and Management (O&M) Law requires holders of an IUPTL, Izin Operasi and Electricity of electrical power Supporting Services Business Licence (Izin Usaha Jasa Penunjang installations Tenaga Listrik/IUJPTL) to prioritise the use of domestic products and services. In this regard, the relevant local content In addition, as an implementation of direct selection method for requirements for power projects are regulated under Ministry of renewable power procurement under MEMR 50/2017, a devel- Industry (MOI) Regulation Number 54/M-IND/PER/03/2012 oper/sponsor must first be qualified and listed on PLN’s List of regarding Guidelines as to the Utilization of Local Products for Selected Providers (DPT) before participating in power project Development of Electricity Infrastructure, as amended by MOI tenders. To be listed on DPT, the developer/sponsor must pass Regulation Number 05/M-IND/PER/2/2017 (MOI 54/2012) the Pre-qualification process (PQ) by participating as applicants which stipulates the minimum percentage of local content. MOI and meeting the criteria specified on the PQ document. 54/2012 also requires that the obligation to use local content

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must be stipulated in a tender document and the implementing contract is settled through mediation, conciliation, and arbitra- contract of the project (i.e. power purchase agreement (PPA), tion. This is regulated under Law No. 2 of 2017 on Construction energy performance certificate (EPC), etc.). Services (Construction Law) and its implementing regulation, i.e. Government Regulation No. 22 of 2020 on Implementing 72 Competition and Antitrust Regulation of the Construction Law (GR 22/2020).

7.1 Which governmental authority or regulator is 8.2 Are alternative dispute resolution or tiered dispute responsible for the regulation of competition and resolution clauses common in the renewable energy antitrust in the renewable energy sector? sector?

The governmental authority responsible for the regulation of Yes, as mentioned in question 8.1 above, alternative and tiered competition in Indonesia (including in the renewable energy sector) dispute resolution clauses are common in the renewable energy is the Commission for the Supervision of Business Competition sector because the nature of renewable energy projects is strategic (KPPU). KPPU was introduced with the issuance of Law No. 5 and long-term. Further, it involves many parties, domestically of 1999 concerning the Prohibition of Monopolistic Practices and and internationally. Thus, maintaining the sustainability of the Unfair Business Competition (Anti-Monopoly Law). project and preventing it from being postponed or suspended (in Indonesia, this is commonly known as proyek mangkrak) are crit- 7.2 What power or authority does the relevant ical. Tiered dispute resolution is a method to answer such criti- governmental authority or regulator have to prohibit or cality. A tiered dispute resolution is even set out clearly under the take action in relation to anti-competitive practices? Construction Law and GR 22/2020 with the purpose to prevent the dispute being escalated to become more serious. As for PPAs, In principle, KPPU is the authorised body to receive reports, PPAs typically stipulate that in the event that a dispute arises conduct investigations and make decisions with regard to viola- from a PPA, the parties (seller and buyer) shall settle the dispute tions of the Anti-Monopoly Law. In addition, district courts and amicably. If the dispute cannot be settled amicably, it shall be the Supreme Court also have enforcement authority over appeal submitted to an appointed expert. If the parties do not accept the and/or cassation cases that are filed by parties involved in a KPPU decision made by the appointed expert, the parties shall refer the investigation to the district court and/or the Supreme Court. decision to an arbitration forum as mutually agreed in the PPA.

7.3 What are the key criteria applied by the relevant 8.3 What interim or emergency relief can the courts governmental authority or regulator to determine grant? whether a practice is anti-competitive? In most jurisdictions, courts have the authority to grant interim There are three categories of prohibitions under the Anti- measures in exceptional cases in support of arbitration (even Monopoly Law, namely: (a) prohibited contracts (e.g. oligopoly, before such case is officially commenced) to preserve the status price-fixing, dividing territory, boycotting, cartels, trusts, oligop- quo or prevent the other party from continuing the breach in ques- sony, vertical integration, or exclusive dealing); (b) prohibited tion before a final resolution of the dispute is decided. Indonesian activities which have the elements of monopoly, monopsony, law generally does not recognise such concept before an official market dominance, and conspiracy; and (c) prohibition against registration of a claim, except for a claim relating to violation of the abuse of a market dominant position (i.e. if any one business rights over industrial designs, patents, trademarks and copyrights actor, or one group of business actors, controls at least 50% of (see Supreme Court Regulation No. 5 of 2012 on Provisional the relevant market share, or if two or three business actors, or Order). However, after the claim has been officially registered, groups of business actors, control at least 75%). the Indonesian courts have the authority to grant what is called a provisional or an interlocutory award (“putusan sela” or “putusan 82 Dispute Resolution provisional ”), which may be granted to protect the claimant’s interests. For example, penetapan sita jaminan (attachment of assets) or conservatoir beslag may be granted to secure the defendant’s assets or 8.1 Provide a short summary of the dispute resolution framework (statutory or contractual) that typically goods if there is a reasonable doubt that the defendant will transfer applies in the renewable energy sector, including the disputed assets to other parties during the proceedings. procedures applying in the context of disputes between any applicable government authority/regulator and the 8.4 Is your jurisdiction a party to and has it ratified private sector. the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and/or the There is no statutory dispute resolution framework that applies Convention on the Settlement of Investment Disputes to the renewable energy sector. Based on precedents, projects between States and Nationals of Other States and/or with a capacity of more than 10 MW typically use international any significant regional treaty for the recognition and enforcement of judgments and/or arbitral awards? arbitration (e.g. International Chamber of Commerce/ICC). Meanwhile, projects with a capacity of less than 10 MW typically use the Indonesian National Board of Arbitration (BANI) as Yes. Indonesia has ratified the Convention on the Recognition the dispute resolution forum. Nevertheless, prior to arbitration, and Enforcement of Foreign Arbitral Awards of 1958 by virtue the disputing parties commonly agree to settle a dispute through of Presidential Decree No. 34 of 1981 with certain reservations. deliberation for consensus (musyawarah untuk mufakat) and/or Indonesia has also ratified the 1965 Convention on the Settlement mediation. From a financial perspective, the two dispute resolu- of Investment Disputes between States and Nationals of Other tion methods are deemed more efficient than going to arbitration. States by virtue of Law No. 5 of 1968 regarding Settlement of However, in relation to construction, there is a provision Disputes between the State and Nationals of Other States on which clearly sets out that a dispute arising out of a construction Capital Investment.

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8.5 Are there any specific difficulties (whether as a renewable projects. The procurement mechanism will use matter of law or practice) in litigating, or seeking to direct selection or direct appointment, and PR RE will enforce judgments or awards, against government distinguish between the specific type of power plant in authorities or the state? relation to the procurement method. Further, while the existing regulation uses BPP for tariffs, the PR RE will We understand that there are views that the Indonesian courts use four types of tariff, which are feed in tariff (FIT), are biased towards Indonesian parties and reluctant to enforce the lowest bid price, the highest benchmark price, and an awards against Indonesian Government authorities, especially agreed price between the parties. Especially regarding when they have lost to foreign parties in the arbitration (Suyud FIT, it will apply to hydro, solar and wind power plants Margono, Harmonization Arbitration Law: A Discourse for Investor– with a capacity of up to 20 MW; meanwhile, for biomass State Arbitration in the ASEAN Economic Community, 2019). and biogas power plants, it will apply to those with a However, we have also seen where the Indonesian courts can capacity of up to 10 MW. FIT price does not require be neutral in adjudicating a litigation case against the State. As MEMR approval. In addition, the draft of PR RE also illustrated in the forest fire case in Central Borneo, a group of revokes the provisions on BOOT, which is in line with citizens filed a civil lawsuit to the District Court of Palangkaraya MEMR 4/2020 (Jakarta Post, Government Issues Regulation to th against the Government of Indonesia (including the President Jumpstart Stalled Renewable Energ y Project, March 18 2020). of Indonesia and his cabinet ministers) for failing to control the ■ Moreover, in early 2020, a renewable energy bill has forest fire in Sumatera and Kalimantan in 2015. The District been included in the House of Representatives’ National Court ruled in favour of the citizens, and the decision was Legislation Program. The main reason for this bill is to also upheld by the High Court of Palangkaraya as well as the provide certainty as Indonesian renewable energy regu- Supreme Court. lation is currently still scattered across different pieces of legislation and the ministerial regulations keep on changing. The planned renewable energy bill will cover 8.6 Are there examples where foreign investors in the issues related to the pricing scheme, renewable energy renewable energy sector have successfully obtained certification and the obligations for companies developing domestic judgments or arbitral awards seated in your jurisdiction against government authorities or the state? green power plants in regard to funding, incentives, and permits. Specifically on the pricing scheme, the planned bill is to adopt FIT for the renewable energy projects tariff One example of an arbitration case in the renewable energy (Jakarta Post, Renewable energ y bill set to remove legal uncertainty sector against Government authorities is Karaha Bodas Company in green projects, February 3rd 2020). LLC (KB) v. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara (Pertamina) and PT. PLN (Persero) (PLN). The case concerns the investment of KB in the development of a geothermal power Acknowledgment plant. From the available public information, we understand that The authors would like to thank Davin Rizky Abdurahman for in 1998, KB commenced an arbitration seated in Geneva under his invaluable contribution to the chapter. the UNCITRAL Rules, alleging that PLN and Pertamina had Davin Rizky Abdurahman is an Associate at UMBRA – breached their contractual obligations under the Joint Operation Strategic Legal Solutions. He has been involved in research, Contract and the Energy Sales Contract. KB sought the termi- drafting of agreements, legal memos and due diligences mainly nation of the relevant contracts and damages. The tribunal even- related to power, infrastructure, and energy. Davin has repre- tually found that Pertamina and PLN breached the contracts and sented major international and local clients in various power and awarded approximately USD 261 million in damages to KB. infrastructure deals and has extensive experience in assisting with advices relating to general corporate matters and transac- 92 Updates and Recent Developments tions relating to energy, mainly related to power. Address: UMBRA – Strategic Legal Solutions, Telkom th 9.1 Please provide a summary of any recent cases, Landmark Tower, Tower 2, 49 Floor, Jl. Jend. Gatot Subroto new legislation and regulations, policy announcements, Kav. 52, Jakarta 12710, Indonesia trends and developments in renewables in your Tel: +62 812 2860 9420 / Email: [email protected] jurisdiction. Disclaimer ■ In February 2020, the MEMR issued MEMR 4/2020. This This publication is intended for providing general information amendment covers new areas which were not previously on the latest legal and/or regulatory issues. We have no inten- covered by MEMR 50/2017, among other things: tion to and do not (i) provide any legal services to, and (ii) estab- (a) Additional provisions on: (i) direct appointment for lish any client-attorney relationship with, anyone through this certain conditions; (ii) direct appointment through publication. We do not guarantee the completeness of all opin- assignment for: (a) hydropower built by the selected ions stated in the publication and we shall not be liable in any business entity utilising state-owned water resources; way to you for using any materials contained in the publication. and (b) renewable projects partly or wholly developed If you wish to follow up on any legal matter that is discussed in by the Government, including those funded with a this publication, please kindly contact lawyers that are qualified grant; and (iii) clarification on direct appointment for to practise in Indonesia. municipal waste. No-one may use or reproduce, by any means, any media and (b) Removal of the requirement to use the BOOT scheme. materials contained in this publication without prior approval ■ Aside from MEMR 4/2020, President Joko Widodo is soon from UMBRA – Strategic Legal Solutions. expected to sign the long-awaited Presidential Regulation By reading this publication or disclaimer, you acknowledge on Renewable Energy by PLN ( ). There are two PR RE and entirely agree with the content of this disclaimer. main changes in the draft which are: (i) the procurement mechanism for renewable projects; and (ii) the tariff for

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Kirana D. Sastrawijaya is a Senior Partner of UMBRA – Strategic Legal Solutions and is one of the best power lawyers in Indonesia with more than 13 years of practical experience in the fields of power, energy, construction and infrastructure. She has represented major international and local clients (including PT Perusahaan Listrik Negara (Persero) and its major subsidiaries (PT Pembangkitan Jawa Bali and PT Indonesia Power)) in various high-profile power and infrastructure deals (having a combined capacity of more than 10,000 MW) and has extensive experience in drafting and negotiating all types of projects documents including power purchase agreements (covering all types of PPAs for different power plants), EPC contracts, O&M contracts and fuel supply contracts.

UMBRA – Strategic Legal Solutions Tel: +62 819 3246 4089 Telkom Landmark Tower, Tower 2, 49th Floor Email: [email protected] Jl. Jend. Gatot Subroto Kav. 52, Jakarta 12710 URL: www.umbra.law Indonesia

Amelia Rohana Sonang is an Associate of UMBRA – Strategic Legal Solutions. She has been involved in research, drafting of agreements, legal memos, due diligences, and transactions mainly related to power, infrastructure, and energy. She has represented major international and local clients in various power and infrastructure deals and has extensive experience in assisting the drafting and negotiation of projects documents.

Melati Siregar is a Partner of UMBRA – Strategic Legal Solutions. She has more than 15 years of work experience in the legal field, during which she not only practised as a lawyer in reputable law firms, but also as legal counsel in multinational companies. With the condition in hand, Melati’s point of view as a lawyer is enriched, especially in relation to client services, because she always strives for accessibility, accuracy, and promptness when providing legal services to her clients. During her years of experience, Melati handled various legal matters, including banking, real estate, capital markets, oil and gas, labour or industrial relations, litigation, and alternative dispute resolutions.

Junianto James Losari is a Counsel at UMBRA – Strategic Legal Solutions and the go-to lawyer for dispute resolution issues requiring advanced and comprehensive legal analysis, either advisory or contentious. He is experienced in handling disputes relating to cross-border transactions and always provides commercial and pragmatic solutions for his clients. James is a dual-qualified practitioner in both civil law (an advocate in Indonesia) and common law legal systems (a solicitor in England & Wales). In his career, he has practised with the largest law firm (with an international affiliation) in Indonesia and one of the magic circle law firms in Singapore, with a stint at the firm’s headquarters in London, United Kingdom. He has represented major multinational companies in commercial and investor-state disputes, and has advised States on international investment law.

UMBRA – Strategic Legal Solutions Tel: +62 817 5169 400 Telkom Landmark Tower, Tower 2, 49th Floor Email: [email protected] Jl. Jend. Gatot Subroto Kav. 52, Jakarta 12710 URL: www.umbra.law Indonesia

UMBRA – Strategic Legal Solutions (UMBRA) is an independent law firm extensive experience in the Indonesian power sector having represented established by lawyers from one of the largest and leading law firms in over 10,000 MW of combined capacity in a wide variety of power, energy, Indonesia. Having spent more than a decade serving major local and and infrastructure projects. international clients, we reach a genuine understanding of what our clients www.umbra.law expect from their lawyers. Derived from classical Latin, UMBRA is a highly versatile word associated with multiple meanings including, among others, shadow, secure, safety, and care, reflecting the core philosophy of our firm, namely, to work relentlessly behind the scenes in securing our clients’ best interests with due care. Power has always been at the core of our firm’s practice and we’ve embraced the dynamic and multifaceted nature of the industry by growing our experience to encompass almost all kinds of power projects. We have

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Nishimura & Asahi Sadayuki Matsudaira

12 Overview of the Renewable Energy renewable power producers are entitled to sell electricity to the transmission and distribution utilities at a fixed price for a fixed Sector term, there has been some further legislation for the development of renewable energy. For example, the Act on the Rational 1.1 What is the basis of renewable energy policy and Use of Energy requires power generators to satisfy certain energy regulation in your jurisdiction and is there a statutory efficiency requirements. The Act on Sophisticated Methods definition of ‘renewable energy’, ‘clean energy’ or of Energy Supply Structures requires all electricity retailers to equivalent terminology? procure at least 44% of their electricity from non-carbon power generation by 2030. The Act on Promotion of Global warming Under the Renewable Energy Act (Act on Special Measures Countermeasures requires large-scale electricity consumers to Concerning the Procurement of Renewable Electric Energy report the volume of their carbon emissions to the government by Operators of Electric Utilities), the definition of ‘renewable annually. energy’ includes solar, wind, hydro, geothermal, biomass, and any other resource which may be designated by a cabinet order 22 Renewable Energy Market in the future. Under the Act on Sophisticated Methods of Energy Supply 2.1 Describe the market for renewable energy in your Structures, the renewable energy resources include solar (sunlight), jurisdiction. What are the main types of renewable wind, hydro, geothermal, heat from nature (including solar heat) energy deployed and what are the trends in terms of and biomass. technology preference and size of facility?

1.2 Describe the main participants in the renewable Since the introduction of the FIT in 2012, solar PV projects energy sector and the roles which they each perform. (both utility-scale and households) have developed significantly. Onshore wind projects and biomass projects have also devel- Since the introduction of the Feed-in Tariff (FIT) under the oped. Although offshore wind projects have not yet developed Renewable Energy Act in 2012, a variety of newcomers have due to the absence of a legal framework, the Japanese govern- participated in the renewable energy sector, such as trading ment has enacted a new law to entitle a selected developer to companies, financial companies, real estate companies, venture occupy a certain ocean area for 30 years. Thus, offshore wind companies specialised in renewable power, and their affiliates. projects are expected to develop in the future. Also, a significant number of foreign investors and developers who have experience of developing renewable power projects 2.2 What role does the energy transition have in the in other countries have participated in the Japanese renewable level of commitment to, and investment in, renewables? power market. In addition, recently, the traditional electricity What are the main drivers for change? utilities and their affiliates have also been participating enthu- siastically in the renewable energy sector, especially since 2016, Under the Paris Agreement, Japan has announced its target when the retail of electricity was fully deregulated, and the elec- to reduce carbon emissions by 26.3% by 2030 in comparison tricity retail market became competitive. Japanese banks are with 2013, and by 80% by 2050. To achieve this purpose, the proactively providing finance to those projects, through both Japanese government has introduced and/or enhanced the FIT project finance schemes and corporate finance schemes. mechanism, a new law to make offshore wind projects feasible, and regulations requiring electricity retail companies to procure 1.3 Describe the government’s role in the ownership electricity from non-carbon resources. In addition, the govern- and development of renewable energy and any policy ment has made efforts for the restarting and new development commitments towards renewable energy, including of nuclear power plants, as well as for the reduction of energy applicable renewable energy targets. use on the consumers’ side. Recently, the Japanese government has also started the discussion to prohibit old and inefficient Japan ratified the Paris Agreement in 2017, and the target is coal power plants from operating by 2030. As such, the energy to reduce carbon emissions by 26.3% by 2030 in comparison transition is one of the largest drivers for change. with 2013, and by 80% by 2050. In addition to the FIT under the Renewable Energy Act introduced in 2012, through which

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2.3 What role, if any, has civil society played in the each category, and the maximum purchase price. The appli- promotion of renewable energy? cants which propose the lower purchase prices are selected until the total generation capacity of the selected applicants reaches the maximum capacity in the tender process. For offshore Except for some industries (such as manufacturing industries wind projects, the tender process is held for a project site in a consuming a lot of electricity) and local communities which certain ocean area designated by the government, and although suffer the nuisance arising from renewable energy projects (such the purchase price proposed by the applicants is an important as changes in the landscape, noise from wind projects, etc.), civil factor in the selection, other factors such as the experience of society is generally supportive of the development of the renew- the developer, the development plan and the contribution to the able energy sector. The introduction of the FIT in 2012 was local community are also evaluated in the process. carried out by the Japanese Democratic Party (left wing) soon after the huge earthquake in the northwest of Japan and the Fukushima nuclear accident. Even after the change of cabinet 2.7 To what extent is your jurisdiction’s energy demand to the Liberal Democratic Party (right wing), the FIT has been met through domestic renewable power generation? continued and new policies to further develop the sector (such as the introduction of a new law to promote offshore wind In 2017, renewable energy accounted for only 16% of the total projects) have been adopted. electricity demand in Japan. 8% was from hydro projects, and the other 8% was from geothermal and other renewable projects 2.4 What is the legal and regulatory framework for the including solar PV, wind and biomass projects. 40% was from generation, transmission and distribution of renewable gas thermal power, 32% was from coal thermal power, 9% was energy? from oil thermal power, and 3% was from nuclear power in 2017.

The Electricity Business Act provides the regulatory frame- 32 Sale of Renewable Energy and Financial work for the generation, transmission and distribution of elec- Incentives tricity including renewable energy electricity. A renewable power producer of which total generation capacity exceeds 3.1 What is the legal and regulatory framework for the 10MW is required to make a notification as a power generator to sale of utility-scale renewable power? the Ministry of Economy, Industry and Trade (METI), and to comply with certain rules to make the grid stable. The transmis- Under the FIT, renewable power producers are entitled to sell sion and distribution of renewable power projects are generally the electricity generated from renewable power generators carried out by 10 large transmission and distribution utilities. (certified by METI) to local general transmission and distribu- These utilities are required to provide the grid service to renew- tion utilities at a fixed price for a fixed term (generally 20 years). able power producers, as long as they satisfy certain requirements to maintain grid stability. Recently, local grid providers have been emerging, and they provide the grid service to renew- 3.2 Are there financial or regulatory incentives able power producers by obtaining a transmission licence under available to promote investment in/sale of utility-scale the Act. renewable power?

2.5 What are the main challenges that limit investment As mentioned in question 3.1, under the FIT, renewable power in, and development of, renewable energy projects? producers are entitled to sell the electricity generated from certified renewable power projects at a fixed price for a fixed period, and this is the largest financial incentive available to promote There are a number of challenges. The first challenge is frequent investment. changes of policy and the difficulty of predicting future policy. One example is the introduction of a deadline on the commercial operation date (COD) for certain types of renewable power 3.3 What are the main sources of financing for the projects (including utility-scale solar PV projects) which had development of utility-scale renewable power projects? already obtained certification from METI without any requirement regarding a deadline on COD. The relevant project devel- Japanese banks (especially the four major Japanese banks, opers faced a situation where they would lose the high FIT MUFG, SMBC, Mizuho and DBJ) are main sources of project purchase price unless they reached commercial operation by financing for utility-scale renewable power projects. Other a certain deadline. The second challenge is grid connection financial institutions such as trust banks, lease companies and issues. In particular, large-scale wind power projects have diffi- securities companies are also sources of finance for utility-scale culty with grid connection, due to scarce grid capacity in rural renewable projects. Foreign financial institutions also provide areas in Japan. The enhanced curtailment risk in certain areas financing for such projects, especially when the sponsors are in Japan is also challenge. foreign companies.

2.6 How are large utility-scale renewable power 3.4 What is the legal and regulatory framework projects typically tendered? applicable to distributed renewable energy?

A tender process is applicable to mega solar PV projects (2MW Distributed renewable power projects are also entitled to enjoy or larger), certain biomass power projects and offshore wind the FIT. An electricity retail licence is not required if the power projects. For mega solar PV projects and certain biomass power generator supplies electricity within a certain site or neigh- projects, the tender process is generally held twice per year. The bouring sites, without using the transmission line. government decides the maximum capacity to be certified for

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3.5 Are there financial or regulatory incentives Act, etc. Also, an environmental impact assessment is required available to promote investment in distributed renewable for certain large-scale hydro, wind, biomass and solar projects. energy facilities? Smaller projects might be subject to an environmental impact assessment under the local law. Recently, more local rules have In addition to the FIT, which facilitates the development of been enacted due to criticisms against the disordered develop- renewable power projects, the wheeling service fee mechanism ment of solar projects, etc. also provides incentives to promote investment in distributed renewable energy facilities. If a power project is developed on 4.2 What are the primary consents and permits a particular site, and the generated electricity is supplied to a required to construct, commission and operate consumer on the same site or a neighbouring site without using distributed renewable energy facilities? the transmission line operated by a transmission utility, it will not cost the wheeling service fee. Also, if the generated elec- Depending on the area where the facility will be developed, the tricity is supplied to a consumer within a local distribution line permission of the local governor will be necessary under the and without using a high voltage transmission line, a lower Agricultural Act, Forest Act, etc. Recently, more local rules wheeling service fee will apply. have been enacted due to criticisms against solar projects, etc.

3.6 What are the main sources of financing for the 4.3 What are the requirements for renewable energy development of distributed renewable energy facilities? facilities to be connected to and access the transmission network(s)? Banks (including local banks) and other financial institutions are sources of financing. The payment of a certain potion of the construction fees has recently become a necessary requirement for grid connection. Also, certain requirements for maintaining grid stability must 3.7 What is the legal and regulatory framework that applies for clean energy certificates/environmental be satisfied, including a project entity’s consent to curtailment attributes from renewable energy projects? without compensation. The maximum hours of curtailment without compensation differ depending on the area and the timing of the development. Non-fossil fuel value certificates can be issued for the generation of electricity from renewable power projects. Under the FIT, the Green Investment Promotion Organization (GIO), 4.4 What are the requirements for renewable energy which provides funds for transmission utilities to pay the facilities to be connected to and access the distribution network(s)? purchase price to renewable power generators, issues and sells the certificates to the market through the Japan Electric Power Exchange (JEPX). Renewable power projects which do not The requirements for distribution networks are the same as enjoy the FIT can issue the certificates, by obtaining confirma- those for transmission networks. Please refer to question 4.3. tion of the organisation designated by the Japanese government. These certificates can be traded on the market (JEPX) and indi- 4.5 Are microgrids able to operate? If so, what is vidually (outside the market). the legislative basis and are there any financial or regulatory incentives available to promote investment in microgrids? 3.8 Are there financial or regulatory incentives or mechanisms in place to promote the purchase of renewable energy by the private sector? The Japanese government enacted an amendment of the Electricity Business Act in 2020. According to this amendment, Electricity retail companies are obligated to procure at least 44% after 2022, distribution licences will be separate from trans- of their total procurement from non-fossil fuel sources by 2030, mission licences, and by obtaining a distribution licence from which means that it is necessary for these companies to procure METI, microgrids business will be possible. non-fossil fuel value certificates from the market or individually of an amount corresponding to 44% of their total electricity 52 Storage procurement. Certain large electricity consumers are obligated to report the volume of carbon emissions annually to the govern- 5.1 What is the legal and regulatory framework which ment, and this information becomes publicly available. In order applies to energy storage and specifically the storage of to enhance their reputation, large consumers are incentivised to renewable energy? procure electricity with a lower figure of carbon emissions. There is no clear legal framework which applies to energy storage. 42 Consents and Permits However, recently, based on a request from general transmission and distribution utilities, and to facilitate grid connection, some 4.1 What are the primary consents and permits utility-scale renewable power projects have introduced behind required to construct, commission and operate utility- the meter storage facilities. scale renewable energy facilities? 5.2 Are there any financial or regulatory incentives Depending on the area where the facility will be developed, the available to promote the storage of renewable energy? permissions of the local governor and/or other governmental authority will be necessary under the Agricultural Act, Forest Yes, there are subsidies for storage facilities prepared by certain Act, Natural Parks Act, Landscape Act, and/or City Planning local governments.

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62 Foreign Investment and International 7.3 What are the key criteria applied by the relevant governmental authority or regulator to determine Obligations whether a practice is anti-competitive?

6.1 Are there any special requirements or limitations Grid connection is a typical anti-competitive issue for renewable on foreign investors investing in renewable energy projects. If a general transmission and distribution utility prior- projects? itises a renewable power producer in its group over a renewable power producer outside its group without any justifiable reason Under the inbound investment regulation, a prior notification regarding grid connection, the Fair Trade Commission and to the Ministry of Finance and METI regarding the inbound METI will decide that such utility violates the antitrust regula- investment in a renewable energy project is required. The tion and the Electricity Business Act, and will issue a correction waiting period for clearance is generally 30 days. order or other administrative order. A foreign entity cannot be an applicant for a bid process for offshore wind projects. Therefore, foreign investors must set up 82 Dispute Resolution a subsidiary in Japan or otherwise invest in a Japanese entity, in order to participate in offshore wind projects in Japan. 8.1 Provide a short summary of the dispute resolution framework (statutory or contractual) that typically 6.2 Are there any currency exchange restrictions applies in the renewable energy sector, including or restrictions on the transfer of funds derived from procedures applying in the context of disputes between investment in renewable energy projects? any applicable government authority/regulator and the private sector. No. Please note that for certain renewable power projects such as solar projects, project companies are required to pool a certain Typically, the first instance of dispute resolution in the renew- percentage of the sales amount for decommissioning, and the able energy sector is a district court, as in other sectors. companies are not permitted to distribute that amount. For certain disputes related to grid connection, arbitration and mediation led by the Electricity and Gas Market Surveillance Commission can be used under the Electricity Business Act. 6.3 Are there any employment limitations or For foreign investors, it may be possible to use international requirements which may impact on foreign investment in arbitration under the Energy Charter Treaty to protect their renewable energy projects? investment in Japan, by claiming a breach of the Treaty by the Japanese government. Generally, no. For offshore wind projects, however, the number of local employees who would be employed by a project is one of 8.2 Are alternative dispute resolution or tiered dispute the items to be evaluated in the bid process. resolution clauses common in the renewable energy sector? 6.4 Are there any limitations or requirements related to equipment and materials which may impact on foreign In many agreements in renewable power projects, the first instance investment in renewable energy projects? of dispute resolution is a district court, as in other sectors. In relation to biofuel supply agreements for biomass projects, it is some- Generally, no. For offshore wind projects, however, the extent times seen that the dispute resolution mechanism is arbitration. to which a project will contribute to the creation of business and employment in Japan is one of the items to be evaluated in the 8.3 What interim or emergency relief can the courts bid process. grant? 72 Competition and Antitrust A preliminary injunction might be available at a court, if a court determines that damages (which will not be recovered easily) 7.1 Which governmental authority or regulator is will occur on a plaintiff without a preliminary injunction. responsible for the regulation of competition and antitrust in the renewable energy sector? 8.4 Is your jurisdiction a party to and has it ratified the New York Convention on the Recognition and In addition to the Fair Trade Commission, which is the regula- Enforcement of Foreign Arbitral Awards and/or the tory body on general antitrust matters, METI and its Agency for Convention on the Settlement of Investment Disputes Natural Resources and Energy, as well as the Electricity and Gas between States and Nationals of Other States and/or Market Surveillance Commission, are responsible for the regula- any significant regional treaty for the recognition and tion of competition and antitrust in the renewable energy sector. enforcement of judgments and/or arbitral awards?

7.2 What power or authority does the relevant Yes, Japan is a party to and has ratified the New York Convention. governmental authority or regulator have to prohibit or take action in relation to anti-competitive practices? 8.5 Are there any specific difficulties (whether as a matter of law or practice) in litigating, or seeking to The relevant governmental authorities have the authority to enforce judgments or awards, against government issue a correction order, or to impose an administrative mone- authorities or the state? tary penalty. The Japanese courts tend to respect the broad discretionary

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decision of the government authorities, especially in regard to 92 Updates and Recent Developments economic rights. Plaintiffs must provide clear arguments that their rights have been infringed by the government’s action and that the government’s action does not have any reasonable 9.1 Please provide a summary of any recent cases, grounds. new legislation and regulations, policy announcements, trends and developments in renewables in your jurisdiction. 8.6 Are there examples where foreign investors in the renewable energy sector have successfully obtained In 2020, the Japanese government enacted the amendment of domestic judgments or arbitral awards seated in your the Renewable Energy Act (which will become effective in April jurisdiction against government authorities or the state? 2022), by which a feed-in premium (FIP) instead of the FIT will be introduced for certain types of renewable power projects There have not yet been examples so far. Although multiple (typically large-scale solar and wind projects). Under the FIP, foreign investors have made claims against the government renewable power projects will be entitled to receive the fixed regarding the reduction of the applicable purchase price for premium amount plus the wholesale market price, which is vola- certain solar projects which have not started commercial oper- tile. The FIP aims to integrate these renewable energy projects ation within a certain number of years from the issuance of into the general electricity market. METI’s certification, there have not been any court decisions In 2018, the Japanese government enacted a new act which or arbitral awards in which such investors have successfully provides a legal framework for an offshore wind project to exclu- obtained a decision favourable for them. sively use a certain ocean area for 30 years. Through this law, the government expects to facilitate the development of offshore wind projects in Japan, and the first bid process to determine an offshore wind project developer started in June 2020.

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Sadayuki Matsudaira’s main practice areas are M&As, joint ventures, business alliances, compliance and regulations, corporate governance and corporate litigation. He has recently focused on the energy sector including the electricity, gas and heat-supply businesses, providing legal advice for international and domestic clients on a variety of energy-related areas such as power plants (including renewable power plants under the Feed-in Tariff system since 2012), LNG terminals, networks, and the energy wholesale and retail businesses. He also advises on the development of projects, acquisitions, alliances and reorganisations, the development of new businesses, compliance with the new regulations after the reform of the energy retail market, consumer protection, cooperation with governmental bodies, disputes and so on.

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Jorge Cervantes

Hernando Becerra

Gonzalez Calvillo Pedro Lladó Camarillo

12 Overview of the Renewable Energy 1.2 Describe the main participants in the renewable energy sector and the roles which they each perform. Sector

As a result of the energy reform of 2013 (Energy Reform), by 1.1 What is the basis of renewable energy policy and regulation in your jurisdiction and is there a statutory which the Mexican Constitution was amended to open most definition of ‘renewable energy’, ‘clean energy’ or of the energy industry to private investment, private participa- equivalent terminology? tion in the renewable sector has considerably increased in the past few years. However, considering that, until 2013, the State maintained a monopoly over the energy industry, including Clean energy is defined under the Electricity Industry Law (LIE) power supply, to this day (August 2020), the State-owned Federal as the energy sources and electricity generation processes with Electricity Commission (CFE) still plays a key role in the power emissions or waste below the thresholds set forth under the appli- sector as a whole. cable regulations. Sources of clean energy include, among others: To avoid CFE’s market power preventing the newly opened ■ Wind. energy sector from fully developing, the Energy Reform granted ■ Solar radiation, in all its forms. private participants access to the grid under a non-discriminatory ■ Ocean energy, including (i) tidal, (ii) thermal, (iii) waves, basis. To guarantee such access, the operation of the national grid (iv) sea currents, and (v) salinity gradient. was transferred from CFE – which was fully vertically integrated ■ Geothermal reservoirs. at that time – to the National Energy Control Center (CENACE), ■ Bioenergy sources, as determined by the Law for the which now acts as an independent system operator (ISO). Promotion and Development of Bioenergy. Also, the Energy Reform created the Wholesale Electricity ■ Hydropower. Market (WEM). This market was designated to be operated ■ Nuclear power. by CENACE in its capacity as the sole ISO in Mexico, while ■ Efficient cogeneration plants that meet the efficiency and maintaining CFE as the exclusive provider of transmission and emissions thresholds set forth by the Energy Regulatory distribution services, but in any case, subject to open access obli- Commission (CRE) and the Ministry of Environment gations. As a result of the creation of the WEM, private gener- (SEMARNAT), respectively. ators, suppliers, and final industrial users may now interact in a ■ Thermal power plants that meet the minimum efficiency fully competitive open market based on international standards and emissions thresholds set forth by the requirement set by for this type of market. CRE and the emissions criteria established by SEMARNAT. Furthermore, CRE, which acted as the primary regulator in the ■ Technologies considered as low-carbon technologies under electricity industry sector, was given autonomy from the executive international standards. branch, to oversee the general development of the power industry. ■ Other technologies, as determined by the Ministry of Energy As a result of the open market principles created under the (SENER) and SEMARNAT, based on the parameters and Energy Reform, private participation is mainly focused on: (i) standards for energy and water efficiency, emissions and power generation (both renewable and conventional); (ii) indus- waste generation, direct or indirect, or life-cycle analysis. trial qualified power supply, as no private company has sought On the other hand, the Energy Transition Law (LTE) defines so far to act as a power supplier for residential users; (iii) power renewable energy as those types of energy that meet the following marketers at the WEM (different from qualified suppliers); and criteria: (i) their base resources reside in natural phenomena, (iv) qualified off-takers. processes or materials susceptible to being transformed into Before the enactment of the Energy Reform, private partici- energy for human consumption; (ii) their base resources natu- pation in power generation was allowed to the extent that such rally regenerate so they are available either continuously or generation was either committed to (i) be sold to CFE, or (ii) periodically; and (iii) when generated, they do not release any be used for self-supply purposes of the power generator and its polluting agents. affiliates. However, these generation regimes did not create a

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market per se, as power generation projects were built either as Among such programmes and plans, PRONASE sets forth a result of a public bid called by CFE in its capacity as a public several measures that shall be considered to achieve the optimal utility (IPP regime) or under a self-supply regime. use of energy by increasing energy efficiency as much as Notwithstanding, to this day (August 2020), the largest share possible. Under the forecast of energy consumption provided by of private power generation still encompasses the above-men- PRONASE, efficiency saving may reach up to 40,500 GWh by tioned projects developed before the Energy Reform, as permits the year 2025. Furthermore, the LTE promotes the use of clean granted for those facilities were grandfathered by law and still and renewable energy and the reduction of polluting emissions. remain in full force and effect. The main governmental authorities and regulators in the 22 Renewable Energy Market renewable sector include: (i) SENER, which is in charge of the public policy applicable 2.1 Describe the market for renewable energy in your to the renewable industry. jurisdiction. What are the main types of renewable (ii) CRE, which acts as the primary regulator in the sector, in energy deployed and what are the trends in terms of charge of, among others, issuing relevant secondary regu- technology preference and size of facility? lations and permits to industry players. (iii) CENACE, which is the only ISO in Mexico and is in charge of the operation of the national grid. There are no Mexico has some of the largest photovoltaic resources in the world with an estimated daily production capacity of 5 kw/ regional transmission organisations (RTOs) in Mexico. 2 (iv) COFECE, which is in charge of enforcing competition m , almost 5,000% of the domestic energy demand. However, policy across the Mexican economy. wind energy is winning the race with a more significant share of Energy policy in Mexico is regulated at a federal level, as the renewable power in Mexico, followed by solar. Considering the Mexican States do not have the authority to regulate this matter. rapid growth of the energy sector in the past few years – mostly However, within the scope of their powers, some local govern- derived from the Energy Reform – new renewable projects are ments may issue zoning ordinances, municipal licences, State tax spawning all across the country. and other similar requirements that may have an impact on the However, considering the massive solar resources in Mexico, renewable sector. as well as the reduction in technology prices, not surprisingly photovoltaic projects are growing faster than wind, with yearly increments exceeding 1,000% in comparison with previous years. 1.3 Describe the government’s role in the ownership According to SENER, for this year 2020, 31% of the energy and development of renewable energy and any policy produced in Mexico came from clean energy, a percentage that commitments towards renewable energy, including applicable renewable energy targets. reflects a share of 16% from hydropower generation. Most of the renewable energy mentioned above is produced from large-scale power generation facilities. However, distrib- Under the LIE, SENER shall determine the minimum percentage uted energy is also growing rapidly, where solar power takes the of clean energy that obligated entities (mainly final users other lead with more than 97% of the distributed energy market share. than residential) shall consume as part of their regular power demand. In this regard, to comply with such requirements, final users shall either acquire clean energy or Clean Energy 2.2 What role does the energy transition have in the Certificates (CELs). This minimum requirement of clean energy level of commitment to, and investment in, renewables? What are the main drivers for change? supply – which is 7.4% for 2020 – is in line with international emission reduction goals ratified by Mexico through different arrangements, including the Paris Agreement. The primary goal of the LTE, as the name already implies, is Moreover, the LIE further provides that CFE may only to regulate and promote the energy transition. International acquire energy for utility supply purposes through public commitments ratified by Mexico in connection with climate bidding procedures to be called by CENACE. As of August change, such as the Paris Agreement or the Kyoto Protocol, may 2020, CENACE has called for four different long-term auctions have been one of the main drivers to promote the energy transi- for CFE to acquire clean energy and CELs exclusively. Except tion. Please see question 1.3 above. for the fourth auction, which was cancelled as a result of the change in the federal administration back in 2018, the first three 2.3 What role, if any, has civil society played in the auctions were highly successful in incentivising the development promotion of renewable energy? of new renewable and clean power plants. The long-term and take-or-pay nature of the power purchase agreements (PPAs) awarded as part of such auctions worked as a As part of the scope of the LTE, a consultation council known booster for new renewable projects. As a result of the first three as the Advisory Council for Energy Transition (the Council), auctions called by CENACE, 65 new power plants will be devel- which is comprised by both public officials and civil society oped – mostly photovoltaic – with an investment of over US$8 members, was created to provide SENER with relevant feed- billion. As an example, in the second auction only, more than 9 back in connection with the achievement of the goals provided million CELs were awarded. As of this date, no future auctions for under the LTE, including but not limited to the promotion are expected in the near future. of renewables and clean energy. The LTE also provides several guidelines for the federal Furthermore, any new regulation – other than laws enacted government to follow in the design of the national energy policy, by Congress – shall be submitted before public consultations with the purpose of incentivising the use of clean and renewable before the same may be passed as a final and binding regulation. energy as well as increasing energy efficiency. As a result, the This public consultation process is conducted by the National LTE mandated the creation of various programmes and plans, Regulatory Improvement Commission (CONAMER). As part including the (i) Transition Strategy to Promote the Use of Cleaner of such public consultation process, civil society frequently Technologies and Fuels (Transition Strategy), (ii) the Special submits relevant comments and opinions in connection with Program for Energy Transition (PETE), and (iii) the National any proposed regulation, which should be considered by the Program for the Sustainable Use of Energy (PRONASE). authority before issuing the final rule. This process has been

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highly effective in providing feedback to energy regulators in for 2020, the clean energy mix is as follows: geothermal, 1.2%; Mexico, as interested parties may express their opinion on the nuclear, 2.0%; solar, 4.3%; wind, 7.5%; and hydropower, 16%. regulation before the same is enacted. Please note that nuclear energy is considered clean energy under Furthermore, the LIE provides that all new renewable projects the LIE. The vast majority of the remaining 70% of domestic shall perform a Social Impact Evaluation to be filed with and consumption is generated from gas-fired combined cycle power authorised by SENER. The main purpose of such consultation plants, followed by conventional thermal facilities and coal-fired is to identify all impacts that the development of the renewable power plants. project may have on existing communities, as well as any avail- Most of the energy consumed in Mexico is domestically able mitigants. Also, public consultation of indigenous commu- generated. However, the Baja California peninsula (northern nities may be necessary in some cases. Mexico) imports a relevant amount of power – mainly during summer – from San Diego, California. Also, there are other power plants located in the US with international interconnec- 2.4 What is the legal and regulatory framework for the tions with Mexico, including a single power plant located in generation, transmission and distribution of renewable energy? Texas which imported 3,801.3 GWh into Mexico. 32 Sale of Renewable Energy and Financial Although most of the activities of the energy sector were opened to private investment under the Energy Reform, including power Incentives generation in all its forms (except nuclear), transmission and distribution activities were kept as public monopolistic activi- 3.1 What is the legal and regulatory framework for the ties. As such, they may only be rendered by the State through sale of utility-scale renewable power? CFE’s subsidiary companies expressly incorporated to provide such activities, namely CFE Transmisión and CFE Distribución. Currently, CFE is the only public power utility operating nation- Despite this, private investment may still participate as part- wide. As mentioned before, CFE may only acquire power ners of CFE in order to build, improve or expand the grid through power bids called by CENACE, on which renewable through PPP (public-private partnership) structures, as well as projects may submit bids to sell power and CELs to CFE. Also, to carry out other related services that may be needed in connec- there are no specific regulations exclusively applicable to utility- tion with such activities. scale projects, either conventional or renewable.

2.5 What are the main challenges that limit investment 3.2 Are there financial or regulatory incentives in, and development of, renewable energy projects? available to promote investment in/sale of utility-scale renewable power? As a result of the recent changes in the energy policy by the federal government, renewable projects are facing legal uncer- As mentioned before, CELs, together with minimum clean tainties regarding their development and operation. Such energy requirements provided by SENER on qualified users, changes in policy include: (i) the cancellation of auctions called have worked as one of the main incentives for the develop- by CENACE; (ii) relevant changes in the rules for issuing CELs, ment of new renewable power generation projects. Also, the basically allowing CFE to receive CELs from power plants that fact that CENACE has only allowed clean energy generators to would not otherwise be entitled to receive them; and (iii) several participate in the auctions called to execute PPAs with CFE has restrictions to the pre-operation testing of plants and the inter- boosted new renewables projects. connection of intermittent renewable projects into the grid. In connection with tax incentives, the applicable tax laws Additionally, other factors may hinder the ability of sponsors provide generators with the ability to apply accelerated depreci- to develop renewable projects, such as the lack of transmission ation rules in connection with those assets used for renewable- infrastructure in some of the areas with high renewable poten- based power generation facilities. Other tax incentives include tial, and the incipient growth of the WEM. This lack of matu- preferential duties for the importation of renewable equipment rity in the WEM may in most cases limit the financing sources such as solar panels, and preferential treatment for dividend of a merchant project, as there are not enough records of Local distribution under the Tax Profit Account (CUFIN) for invest- Marginal Prices (PML) to comfort lenders in connection with ments in renewable energy. the cash flows of the project. 3.3 What are the main sources of financing for the 2.6 How are large utility-scale renewable power development of utility-scale renewable power projects? projects typically tendered? Renewable energy projects are typically financed through a CFE, as the sole utility supplier to this day, may only acquire combination of private equity investment and limited-to-no- power to be supplied to final users through power auctions recourse project finance. Usually, both domestic and interna- called by CENACE, except for extraordinary imbalances, where tional financing institutions work either together or separately CFE may acquire energy directly from the market. However, to finance this kind of project. the current cancellation of new auctions may jeopardise CFE’s However, as mentioned in question 2.5 above, merchant power ability to supply energy consumers. Please refer to question 1.3 plants may have difficulties in accessing typical limited-recourse above. project finance, as the lack of maturity in the WEM may not provide enough certainty about the revenues of the project. Also, strong industry players may have access to corporate 2.7 To what extent is your jurisdiction’s energy demand loans from affiliated or parent companies. met through domestic renewable power generation? Finally, companies with portfolios of these types of projects have been looking for financing through exchange markets. According to the most recent information published by SENER

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3.4 What is the legal and regulatory framework amendment to the rules was judicially challenged and is still applicable to distributed renewable energy? subject to judicial review. A final ruling on this constitutional claim is expected to be issued shortly. In early 2017, CRE published new rules for distributed energy that boosted the development of distributed energy projects 3.8 Are there financial or regulatory incentives or throughout the country. Such new rules allowed for net mechanisms in place to promote the purchase of metering with bidirectional meters or net billing, as the relevant renewable energy by the private sector? user may require. Under the net metering scheme, energy in excess of the local Please refer to question 3.7 above regarding the purchase of consumption uploaded to the distribution grid shall be paid for CELs to promote renewable energy. by CFE using PML. In order to be considered distributed energy, the relevant generation facility shall (i) have a generation capacity 42 Consents and Permits smaller than 0.5 MW, (ii) be interconnected to a distribution network with a high concentration of load centres, and (iii) have 4.1 What are the primary consents and permits the energy generated and consumed at the same location. required to construct, commission and operate utility- The most common distributed energy scheme is through scale renewable energy facilities? rooftop solar technology. However, there are other industrial projects, such as industrial parks, that are currently using energy distribution schemes. Utility-scale renewable energy facilities are subject to the same No generation permit from CRE is required to operate a regulatory regime applicable to any other power generation distributed energy project. facilities with a generation capacity above 0.5 MW. The specific authorisations, permits, and governmental approvals that are required for the development and opera- 3.5 Are there financial or regulatory incentives tion of each renewable generation facility may be affected by available to promote investment in distributed renewable the desired sitting location of the facility and the type of tech- energy facilities? nology to be used. However, the main permits and authorisations needed for all projects are: So far, there are no financial incentives specifically designed to ■ Generation permit from CRE. promote distributed renewable energy facilities. ■ Interconnection Agreement with CFE (authorised by CENACE). 3.6 What are the main sources of financing for the ■ Social Impact Assessment Authorisation from SENER. development of distributed renewable energy facilities? ■ Environmental Impact Authorisation from SEMARNAT. Other authorisations that may be needed on a case-by-case basis are as follows: Given the small scale of distributed energy generation facilities ■ Change of forest land use authorisation. (i.e., generation facilities may not be larger than 0.5 MW), distrib- ■ Clearance from the National Institute of Anthropology uted projects are commonly equity financed by the off-taker. and History. ■ Authorisation from the Civil Aviation Department. 3.7 What is the legal and regulatory framework that ■ Local land use and construction licences. applies for clean energy certificates/environmental ■ Water concessions. attributes from renewable energy projects? ■ Water discharge permits. Also, hydropower projects may need additional permits as the Under the LIE, energy generated from clean sources – including same are usually developed on national water bodies and using renewables – is eligible to receive CELs from CRE under a 1 land subject to public domain. MW/1 CEL ratio. Such CELs may be traded under the WEM at free-market prices. 4.2 What are the primary consents and permits CELs were primarily conceived as a way for qualified users required to construct, commission and operate (as well as other entities obliged under the LIE) to comply with distributed renewable energy facilities? clean energy requirements under the LIE. Please remember that SENER periodically issues the minimum requirements of clean No specific permits are required for distributed projects other energy, which shall be met by obliged entities for each year and than an interconnection agreement with CFE (if applicable). which are annually increased. The current goal is to achieve 35% Please refer to question 3.4 above. by 2024 and a 50% minimum clean energy requirement by 2050. CELs also provide renewable projects with an additional cost- free revenue source, which may be a competitive advantage 4.3 What are the requirements for renewable energy vis-à-vis conventional technologies. facilities to be connected to and access the transmission The following statutes contain the main regulatory framework network(s)? applicable to the CELs: (i) the LIE and its Regulations; (ii) the LTE; (iii) the Wholesale Electricity Market Rules and Manuals As mentioned above, the National Grid is subject to open access (together Market Rules); (iv) Guidelines for the issuance and obligations under a non-unduly discriminatory basis. However, acquisition of CELs; and (v) other secondary regulations that for any power generator to be able to interconnect any gener- may be issued by regulatory agencies from time to time. ation facility to the grid, it would be necessary to execute an During 2019, CRE approved relevant changes to the rules interconnection agreement with CFE. Although such agree- for CELs, allowing CFE to receive CELs from power plants ment is executed with CFE, the execution of such interconnec- that would not otherwise be entitled to receive them. Such tion agreement must previously be authorised by CENACE.

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To obtain CENACE’s authorisation to execute the intercon- relevant restrictions applicable exclusively to foreign entities in nection agreement, the applicant must meet several requirements connection with the development and operation of renewable provided for under the Interconnection Manual. The specific energy projects, regardless of their size. studies and conditions required to execute such interconnection agreement highly depend on (i) the size of the project, and (ii) the 6.2 Are there any currency exchange restrictions type of generation facility. However, the most common require- or restrictions on the transfer of funds derived from ments that must be met include the execution by CENACE of investment in renewable energy projects? three different interconnection studies (such as the Indicative Study, Impact Study, and Facilities Study), under which CENACE No, there are no such restrictions. will determine if the connection is feasible or will set out the additional infrastructure that the power generator would need to develop, at its own cost, to execute the physical interconnection. 6.3 Are there any employment limitations or Once the studies are ready, and if the applicant agrees with requirements which may impact on foreign investment in their content, the power generator may request CENACE to renewable energy projects? authorise the execution of the interconnection agreement, provided that the generator posts a relevant financial guarantee No. However, any foreign individual who wishes to work in – usually a letter of credit – to secure its obligations under the Mexico would need to obtain an employment authorisation or interconnection agreement. work permit from the Mexican government.

4.4 What are the requirements for renewable energy 6.4 Are there any limitations or requirements related to facilities to be connected to and access the distribution equipment and materials which may impact on foreign network(s)? investment in renewable energy projects?

Please refer to question 4.3 above. No, there are no limitations regarding the origin of materials to be used in renewable projects. However, any materials imported into the country may be subject to relevant import duties depending 4.5 Are microgrids able to operate? If so, what is on their origin. In this regard, Mexico has executed several free the legislative basis and are there any financial or trade agreements with different countries. Thus, imports from regulatory incentives available to promote investment in microgrids? specific countries may be subject to lower duties than others. 72 Competition and Antitrust Microgrids are not specifically regulated under Mexican law. However, there are no limitations targeted explicitly to prevent the execution of this kind of grid. However, as a result of the 7.1 Which governmental authority or regulator is responsible for the regulation of competition and lack of comprehensive regulations in connection to microgrids, antitrust in the renewable energy sector? legal requirements and other details regarding their operation are uncertain. The Federal Antitrust Commission (COFECE) is the Mexican regulator in charge of enforcing competition policy across the 52 Storage Mexican economy, including in relation to the renewable energy sector. 5.1 What is the legal and regulatory framework which applies to energy storage and specifically the storage of renewable energy? 7.2 What power or authority does the relevant governmental authority or regulator have to prohibit or take action in relation to anti-competitive practices? Energy storage is allowed under the Market Rules, but the same have minimal detail about the operation of storage infrastructure. Therefore, the legal framework applicable to other types of The Federal Competition Statute (LFCE) prohibits economic agents in any industry from taking part in anti-competitive storage, including molten salt and pumped hydropower, is uncer- actions, proscribed as absolute and relative monopolistic prac- tain. Secondary regulation on this issue seems to be pending. tices, the former being horizontal agreements and the latter abuses of dominance. There is yet to be an investigation for 5.2 Are there any financial or regulatory incentives monopolistic practices in the renewables market. However, available to promote the storage of renewable energy? there has been a recent fine imposed upon players in the industry for failure to notify a reportable transaction under the merger No, there are no financial or regulatory incentives designed control provisions also in the LFCE. The merger control provi- explicitly to promote the storage of renewable energy. sions under the LFCE provide that certain transactions should be subject to a pre-merger review from COFECE, including 62 Foreign Investment and International those related to the acquisition of assets or M&A transactions meeting or exceeding the monetary thresholds provided for Obligations under the LFCE. The LFCE also proscribed illicit concentrations as anti-com- 6.1 Are there any special requirements or limitations petitive practices, these being mergers and/or acquisitions on foreign investors investing in renewable energy between market players that are notified before COFECE projects? and have anti-competitive effects in a relevant market. For all analytical purposes, such conduct is substantially assessed in the Currently, there are no limitations to foreign investment or form of a relative monopolistic practice.

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7.3 What are the key criteria applied by the relevant However, considering the costs associated with arbitrations held governmental authority or regulator to determine under international rules (such as ICC or LCIA), such dispute whether a practice is anti-competitive? resolution mechanism may be too expensive for small projects or contracts. Absolute monopolistic practices are proscribed in article 53 Local arbitration under local bodies of arbitration is quite of the LFCE as agreements among competing firms that have uncommon. Parties tend to subject their disputes to local or the purpose or effect of price fixing, market allocation, output federal courts when international arbitration is not available. restriction, bid rigging and information exchanges for any of the aforementioned items. These are per se violations to the LFCE, 8.3 What interim or emergency relief can the courts and so the criteria applied by COFECE are stringent in the grant? sense that the mere existence and evidence of an agreement is sufficient to prosecute a case, regardless of the actual damage or Mexican courts can grant interim and definitive injunctions potential claims towards efficiency. (suspensiones) against governmental actions or rulings that may With regard to relative monopolistic practices, these are irreparably harm any individual. Interim injunctions are granted proscribed by articles 54–56 of the LFCE as unilateral conduct shortly after the claim is filed with the court to immediately or agreements by a firm(s) with dominance in a relevant market suspend the effect of the challenged governmental action to with the purpose or effect of unduly displacing competitors prevent any imminent damage. Such injunction, if granted, will or denying access to a relevant market. The specific crite- remain in full force and effect until the time when the relevant rion applied by COFECE is substantial lessening of competi- court decides on the definitive injunction. tion insofar that relative monopolistic practices are premised On the other hand, a definitive injunction may be granted upon the existence of anti-competitive effects in a market, and once the relevant court has properly assessed if the grounds of so a case brought by COFECE is necessarily contingent upon the claim require such injunction to be in place. If granted, the proving these effects. definitive injunction will remain in full force and effect until the time when the relevant claim is resolved. 82 Dispute Resolution Recently, SENER issued a highly controversial policy in connection with the reliability of the grid, the effects of which 8.1 Provide a short summary of the dispute resolution are currently suspended by virtue of definitive injunctions framework (statutory or contractual) that typically granted as a result of several constitutional claims. applies in the renewable energy sector, including procedures applying in the context of disputes between any applicable government authority/regulator and the 8.4 Is your jurisdiction a party to and has it ratified private sector. the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and/or the Convention on the Settlement of Investment Disputes The dispute resolution mechanism applicable to disputes between States and Nationals of Other States and/or between industry players in the energy sector depends on the any significant regional treaty for the recognition and parties involved and the type of relationship between them (i.e., enforcement of judgments and/or arbitral awards? contractual, regulatory, etc.). For example, if the relevant dispute arises between industry Yes, Mexico ratified the New York Convention in 1971 with players and CENACE or with CFE in connection with trans- no reservations. Therefore, Mexico will recognise arbitral mission or distribution services, the dispute resolution mech- awards awarded even in those countries that are not part of the anism under the Market Rules shall apply. Under this mecha- Convention. nism, the dispute may be ultimately resolved by CRE. On the other hand, if the dispute arises from a private contractual relationship between industry players, the relevant dispute 8.5 Are there any specific difficulties (whether as a shall be resolved under the dispute resolution mechanism previ- matter of law or practice) in litigating, or seeking to enforce judgments or awards, against government ously agreed by the parties. If no previous dispute resolution authorities or the state? mechanism was agreed, then local or federal courts shall apply, as the case may be. Furthermore, industry players may also agree to subject their The Mexican government has historically honoured arbi- energy-related disputes to the Market Rules. tral awards, whether favourable or not, as long as such awards Also, Mexico has entered into several international agreements have been issued in compliance with the applicable rules. As that protect foreign investment, including free trade agreements an example, in 2013, Mexico lost an arbitration claim filed with executed with different countries and regions, such as NAFTA ICSID by an affiliate of Abengoa in connection with the cancel- (now USMCA) and FTA EU-MX. Foreign investors protected lation of a project in Mexico. Shortly after the arbitral award was under those agreements may submit claims against the Mexican notified to Mexico, the Mexican government publicly stated that government, which would be resolved under the specific dispute it would honour the award and pay the relevant sum to Abengoa. resolution mechanisms provided for under such agreement. 8.6 Are there examples where foreign investors in the renewable energy sector have successfully obtained 8.2 Are alternative dispute resolution or tiered dispute domestic judgments or arbitral awards seated in your resolution clauses common in the renewable energy jurisdiction against government authorities or the state? sector?

Yes. Both PPAs and financing documents executed in connec- We are not aware of any relevant claims submitted by a foreign tion with renewable power generation projects usually provide investor against the Mexican state in connection with renew- for arbitration as the preferred dispute resolution mechanism. able projects. However, there are examples of judicial resolution

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in connection with renewable projects, where relevant govern- ongoing and future auctions called by CENACE were cancelled, mental authorisations have been upheld against claims filed by (ii) CENACE imposed new restrictions to interconnect and reach third parties. Commercial Operation Date on ongoing renewable projects, In this regard, a 396 MW wind farm project identified as (iii) SENER changed the dispatch preference, substantially “Mareña”, which was originally sponsored by the Spanish increasing the risk of curtailment of renewable projects, (iv) CRE company Prenal, won a constitutional claim filed by various allowed CFE and other grandfathered projects to receive CELs members of indigenous communities near the project influence in contravention of existing policies, and (v) CFE has intended to area. As part of the claim, the indigenous communities consid- renegotiate existing take-or-pay agreements. ered that the indigenous consultation was not executed according As a response to such governmental actions, industry players to the applicable law. In the end, the Mexican Supreme Court together with NGOs, COFECE and State governors have filed denied the petition filed by those indigenous communities. To constitutional claims in federal courts and the Supreme Court this day (August 2020), the project is operating normally. against the above-mentioned actions. To this day (August 2020), the effects of those secondary regulations are suspended 92 Updates and Recent Developments through judicial injunctions resulting from those constitutional claims, considering that the relevant laws resulting from 9.1 Please provide a summary of any recent cases, the Energy Reform are still in full force and effect. Therefore, new legislation and regulations, policy announcements, secondary regulation issued by agencies and other governmental trends and developments in renewables in your bodies may not contradict the legal principles laid out under the jurisdiction. Energy Reform. Finally, there has been a leak of an unofficial document alleg- As a result of the election of Andres Manuel López Obrador edly issued by AMLO, which considers legislative measures to (AMLO) as the new Mexican president in 2018, the existing counteract the Energy Reform to strengthen CFE’s position. energy policy in Mexico has been under heavy scrutiny by the However, AMLO’s lack of a qualified majority in both Federal federal government. There have been controversial speeches and State Congresses – required to amend the Constitution – and actions by the Mexican government – and AMLO himself – together with judicial review, plays a critical role as checks and targeting the renewable sector in particular. balances against AMLO’s new policies. As part of such new policies, governmental agencies and CFE commenced a frontal attack against renewables, primarily based Note on alleged reliability issues for the grid (as a result of the intermit- Please note that the Mexican energy sector is currently changing tent nature of renewables), and alleged economic losses suffered rapidly, and regulations may change at any time. This chapter by CFE by the acquisition of renewable power and CELs during was drafted in August 2020, and provides the regulatory situa- the auctions called by CENACE. As a result, among others, (i) tion at that date.

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Jorge Cervantes is a member of the Executive Committee of the Firm and he specialises in energy, projects, infrastructure finance, M&A and private equity transactions. He has extensive experience advising parties in a wide range of complex cross-border and national transactions in Mexico, representing sponsors, developers, private equity investors, financial institutions, banks, lenders and governments on different acquisitions, dispositions, joint ventures, and financings. His experience encompasses a range of transactional and regulatory work and has included some very relevant transactions involving power plants, renewable energy, oil & gas, petrochemicals, LNG, pipelines, telecommunications, real estate, hotels and infrastructure projects in general. Jorge Cervantes’ practice has been recognised by prominent international publications such as Chambers and Partners, Latin Lawyer, Euromoney’s Expert Guides, Who’s Who Legal, IFLR1000, Best Lawyers and LACCA Approved. He constantly participates as a speaker in national and international project finance and energy forums.

Gonzalez Calvillo Tel: +52 55 5202 7622 Montes Urales 632 Email: [email protected] Lomas de Chapultepec URL: www.gcsc.com.mx 11000, Mexico City Mexico

Hernando Becerra has over 15 years of professional experience and has oriented his legal practice to cross-border M&A, private equity, and financing transactions, mainly focused in the energy, power, agriculture, and infrastructure sectors. His practice includes advising developers and banks in infrastructure financing transactions. In addition, he has participated in mergers and acquisitions advising local and foreign investors in their investments in Mexico. Also, his experience includes working as an international associate at the New York office of Milbank, Tweed, Hadley & McCloy, LLP from October 2011 to August 2014. He is admitted to practise both in Mexico and New York. Hernando Becerra has been recognised in the Project Finance and Development practice by prominent international publications including Best Lawyers, as an Expert in the Project Finance field by Who’s Who Legal and as a highly regarded lawyer in M&A by IFLR1000.

Gonzalez Calvillo Tel: +52 55 5202 7622 Montes Urales 632 Email: [email protected] Lomas de Chapultepec URL: www.gcsc.com.mx 11000, Mexico City Mexico

Pedro Lladó Camarillo has experience advising national and international clients in the power generation and electricity markets as well as the oil & gas industry, with an emphasis on the regulatory and financing components that are involved in such kinds of transactions. His work in the energy field includes representation of clients across the Upstream, Midstream and Downstream hydrocarbon industry sector, including challenges in the restructured energy fuels market. He has developed significant experience in energy regulatory work, PPAs, and EPCs, among other types of contracts. He has also actively participated in several project finance transactions in the energy sector. He obtained a Master of Laws with a concentration in Global Energy (LL.M.) from the University of Texas at Austin, United States, and a law degree (J.D. equivalent) with a cum laude distinction from Universidad de las Américas Puebla (UDLAP).

Gonzalez Calvillo Tel: +52 55 5202 7622 Montes Urales 632 Email: [email protected] Lomas de Chapultepec URL: www.gcsc.com.mx 11000, Mexico City Mexico

Gonzalez Calvillo is a full-service firm with a solution-centred approach. development, financing, acquisition and disposition of renewable projects We are a recognised leader in the energy and power sectors and are consid- and the sale and purchase of power and other associated products, such ered as one of the preeminent firms in Mexico with significant experience as clean energy certificates, under PPAs and in the Mexican wholesale in the development and financing of greenfield and brownfield renewable power market. energy projects. www.gcsc.com.mx The depth and breadth of our energy team’s expertise and deep understanding of the commercial issues that drive our clients’ business, coupled with the support of our specialised complementary practice areas, allow us to cover all legal aspects of renewable projects, including regulatory matters, permitting, financing, M&A, real estate, EPC, O&M and PPAs, procurement, environmental and social matters, circular economy, sustainability, IP, labour, compliance and other relevant aspects for the

Renewable Energy 2021 © Published and reproduced with kind permission by Global Legal Group Ltd, London 70 Chapter 11 Oman Oman

Mhairi Main Garcia

Dentons & Co., Oman Branch Yasser Taqi

12 Overview of the Renewable Energy 1.3 Describe the government’s role in the ownership and development of renewable energy and any policy Sector commitments towards renewable energy, including applicable renewable energy targets. 1.1 What is the basis of renewable energy policy and regulation in your jurisdiction and is there a statutory Under the Sector Law, the government, through OPWP, definition of ‘renewable energy’, ‘clean energy’ or equivalent terminology? procures the development of new capacity, renewable or otherwise, through a competitive process in which local and foreign developers/sponsors participate. The government does not The Law for the Regulation and Privatisation of the Electricity currently own any renewable energy facilities. Generation facil- and Related Water Sector promulgated by Royal Decree 78/2004 ities, including those using renewable energy sources, are wholly (the “Sector Law”) forms the basis for regulations applying to, owned by private developers. among other things, renewable energy in the Sultanate of Oman The government’s renewable energy policy is issued by the (“Oman”). The Authority for Public Utilities Regulation (the APUR and implemented primarily by OPWP through floating “APUR”), pursuant to the Sector Law, issues policies it deems tenders for projects using renewable energy. The APUR has, for appropriate in relation to electricity regulation, including renew- example, announced a number of initiatives to promote the use able energy. of renewable energy in Oman, the latest of which is SAHIM – an There is no statutory definition for renewable or clean energy initiative that allows households and businesses to install rooftop in Oman. The Sector Law does not include a specific regime PV solar systems on their premises and to be compensated for for solar plants. It defines Generation as “the production of solar photovoltaic (“PV”) generated electricity exported via the electricity by any manner”. The provisions of the Sector Law Bulk Supply Tariff. The aim is to install rooftop PV systems at relating to Generation therefore apply equally to all types of 30% of residential premises in Oman. generation plants, including solar plants. The government has announced that it aims to have 30% of Oman’s electricity demands produced through renewable means 1.2 Describe the main participants in the renewable by 2030. More than two-thirds of this will be met by solar energy sector and the roles which they each perform. energy, with the remainder met by wind and waste-to-energy.

The main participants in the renewable energy sector in Oman 22 Renewable Energy Market do not differ to those participating in the conventional power generation sector. These include: 2.1 Describe the market for renewable energy in your Sponsors: Local and international private sector developers jurisdiction. What are the main types of renewable competing, through a public tender, for the rights to develop, energy deployed and what are the trends in terms of own and operate a renewable energy facility in Oman. Sponsors technology preference and size of facility? would typically be responsible for financing and overseeing the development of the plant. Renewable energy projects remain relatively new in Oman. The Oman Power and Water Procurement Company SAOC main type of renewable energy source being utilised is solar, (“OPWP”): A wholly owned government company responsible followed by wind energy. for ensuring that there is sufficient electricity and water produc- The Dhofar Wind Power Project comprising 13 wind turbines tion capacity available at the lowest cost to meet the growing (developed by GE) with a total generating capacity of 50MW, demands in Oman. It is a member of Nama Group and it enjoys located in Harweel, began generating electricity in August 2019. a statutory monopoly over the purchase of bulk power and water The project is sponsored by the Rural Areas Electricity Company from all independent (water and) power projects (“I(W)PPs”) (“RAEC”) and the UAE’s Masdar. RAEC is responsible for the within the Sultanate of Oman. OPWP procures power and electrification of rural areas and secures electrification funding water through a public tender process. through a mechanism established by the Sector Law. APUR: The APUR is the independent regulator of the power Smaller wind-based schemes are envisioned in the Sharqiyah, and related water sector. The APUR’s responsibilities include Al Duqm and Dhofar zones and OPWP plans to procure wind issuing regulations to encourage the production and sale of elec- energy through IPPs. tricity using renewable energy sources. Until recently, there was only one pilot solar project in Oman, “Al Mazyounah”. The project emerged from the APUR’s

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renewable energy initiative (following a 2008 study) as one of remains an issue, technical developments and reduced costs in the first pilot projects and was implemented in a way designed relation to storage are expected to assist in addressing intermit- to establish a framework for subsequent power purchase agree- tency issues, just as they would elsewhere in the world. ment (“PPA”) based renewable energy projects. The importance of the Al Mazyounah project was in inverse proportion to 2.6 How are large utility-scale renewable power its size; the intention was always to build on Oman’s successful projects typically tendered? record of large utility-scale I(W)PPs by establishing a framework that would facilitate private sector investment in renewable energy projects. Renewable power projects are tendered through a competi- Since then, Petroleum Development Oman (“PDO”) has tive process under the Sector Law. Sponsors would compete procured a 100MW solar project, mainly for self-supply. through a public tendering process where the successful sponsor OPWP has awarded a 500MW solar PV IPP which reached is required to finance, construct and operate the production financial close in March 2020. OPWP has announced plans to facility. Sponsors are then remunerated under a long-term PPA. procure two further solar PV projects with a combined capacity exceeding 1,000MW. The list of qualified bidders for the two 2.7 To what extent is your jurisdiction’s energy demand projects was issued by OPWP in January 2020. met through domestic renewable power generation?

2.2 What role does the energy transition have in the Most of Oman’s energy demands are met through conventional level of commitment to, and investment in, renewables? energy sources. To date, the only operational large-scale renew- What are the main drivers for change? able energy utility projects are the Amin Solar PV IPP, which has a capacity of 100MW and was procured by PDO, mainly for self- The main drivers for the transition towards renewable energy supply, and the 50MW Dhofar Wind Power Project. OPWP has are: (i) to increase the use of environmentally friendly technol- awarded a 500MW solar PV IPP, the Ibri II Solar PV IPP, which ogies; and (ii) to diversify away from conventional fossil fuel reached financial close in March 2020 and is expected to become reliant energy. This has become increasingly important in recent live soon. Once fully operational, the Ibri II Solar PV IPP will years as the government expects the supply of domestic natural be the largest utility-scale renewable energy project in Oman. gas to reduce over the next decade due to the increased cost of gas production. 32 Sale of Renewable Energy and Financial Incentives 2.3 What role, if any, has civil society played in the promotion of renewable energy? 3.1 What is the legal and regulatory framework for the sale of utility-scale renewable power? Vision 2040, a strategy document, takes into account insight from civil society; it includes the environment as one of its prior- The sale of utility-scale renewable power is by way of a compet- ities. It envisages a future strategy, which will adopt a trans- itive tender process, under the Sector Law and purchased by formation towards a green economy manifested in renewable OPWP under a long-term PPA. energy sources to promote environmental sustainability, reduce financial constraints and support revenue from non-traditional natural resources. 3.2 Are there financial or regulatory incentives available to promote investment in/sale of utility-scale renewable power? 2.4 What is the legal and regulatory framework for the generation, transmission and distribution of renewable energy? At the moment, there are no financial or regulatory incentives for investment in or sale of utility-scale renewable power, other than through the SAHIM programme in relation to rooftop The Sector Law regulates the generation, transmission and solar (for further details, please see question 3.4 below). distribution of renewable energy, which is the same law that governs the generation, transmission and distribution of all types of electricity through conventional means. 3.3 What are the main sources of financing for the As mentioned above, the APUR has published policies and development of utility-scale renewable power projects? regulations for rooftop solar panels, which obviously apply to solar energy only. The main source of financing for the development of utility- scale renewable power projects is private funding through 2.5 What are the main challenges that limit investment commercial banks and export credit agencies. in, and development of, renewable energy projects? 3.4 What is the legal and regulatory framework The main historical challenges included: (i) the high costs applicable to distributed renewable energy? of renewable energy compared to the relatively low cost of gas-fuelled facilities; (ii) issues relating to the intermittency and Save in respect of the SAHIM net metering systems discussed low-volume output generated from renewable energy sources; below, currently, the distribution of electricity is limited to and (iii) low competition among developers. However, these licensed supply and distribution companies. There is, however, issues have diminished substantially in recent years; the cost of no effective distribution and supply competition, as there are solar power energy has reduced dramatically and the competi- three main licensed distribution and supply companies, each tion amongst developers participating in the sector in Oman and with geographical monopoly. Arrangements found in other the broader Gulf region has been intense. While intermittency jurisdictions such as wheeling and bilateral trading of electricity

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are not currently permitted in Oman. The APUR did, however, 3.7 What is the legal and regulatory framework that conclude in its 2018 annual report that the introduction of applies for clean energy certificates/environmental supply competition is feasible as the necessary building blocks attributes from renewable energy projects? are already in place and well established. Specific regulations apply to small-scale distributed solar in There is no market in Oman for the sale or trading of renewable Oman, namely SAHIM 1 and SAHIM 2. The APUR launched energy certificates and/or environmental attributes. SAHIM in 2017. SAHIM 1, the first phase of SAHIM, provided for large households and businesses to install small-scale grid connected PV solar systems at their own cost; such customers 3.8 Are there financial or regulatory incentives or were compensated for any excess solar PV generated electricity mechanisms in place to promote the purchase of renewable energy by the private sector? exported to a licensed system at the relevant approved tariff (the Bulk Supply Tariff). SAHIM 2 aims to facilitate large-scale deployment of small- The private sector does not directly purchase energy or elec- scale grid connected PV systems (3–5 kWp) for around 10% to tricity from generators and therefore there are no specific incen- 30% of residential premises in Oman. Unlike SAHIM 1, under tives in place. Arrangements found in other jurisdictions such SAHIM 2, the costs of procuring, installing, operating and as wheeling and bilateral trading of electricity are not currently maintaining residential solar PV systems will be met by private permitted in Oman. sector entities, rather than the customers. Such private sector entities should recover their investment and operating costs 42 Consents and Permits through long-term performance-based contracts with Licensed Suppliers. Customers will have no ownership right over the 4.1 What are the primary consents and permits solar PV systems but will benefit from lower electricity costs required to construct, commission and operate utility- during the life of the system. scale renewable energy facilities? In addition, the Sector Law permits self-consumption; the applicable licensing requirements and availability of exemptions The Sector Law defines the regulated activities, including the depend on the size and location/connectivity of the facility. generation, transmission, distribution, export, import or supply Under the Sector Law, there is the concept of “Autogenerator”: of electricity. The Sector Law requires anyone undertaking a where a customer establishes its own captive generation facilities regulated activity to be authorised by a licence or exemption. (renewable or otherwise). This autogeneration concept is based The APUR may grant an exemption to any Person under- around generation being for the benefit of the same person taking or applying to undertake any of the regulated activities which generates the electricity, namely a person generating elec- from obtaining a licence or from some of the licence condi- tricity for the purposes of “Self-Supply” (the Supply by a Person tions wherever the public interest requires. The requirements of electricity to himself, his employees or commercial business, regarding exemptions, including the requirement for a specific other than via a Transmission System or a Distribution System application to be made, the ability of the APUR to attach condi- of a Licensee). Autogeneration benefits from certain automatic tions to an exemption and the timing for an exemption applica- exemptions under the Sector Law: an exception from OPWP’s tion, are set out in the Sector Law. purchase monopoly (no capacity limit is stated in relation to the Prior to tendering any large utility-scale project, a preliminary size for the purposes of this exemption); and an exemption from environmental clearance must be obtained from the recently licensing (Autogenerators are exempt from obtaining a licence established Environment Authority. After going through a provided that the activity undertaken is for the purposes of Self- competitive process, the developer will need to obtain a final Supply). In order to benefit from an exemption, the System permit, a designation from the APUR that the developer is an of such Autogenerator or its Production Facilities must not be appropriate person to undertake this project and, finally, as connected to the System of any Licensee or, if connected, the referenced above, a licence to generate electricity using the rele- connection and the Production Facilities of such Autogenerator vant facility. In addition, the developer will need to obtain the or his System must (subject to certain exceptions) not deliver applicable construction permits from the municipality in charge electricity to the Licensee’s System to which it is connected. of the province where the facility is located.

3.5 Are there financial or regulatory incentives 4.2 What are the primary consents and permits available to promote investment in distributed renewable required to construct, commission and operate energy facilities? distributed renewable energy facilities?

No financial or regulatory incentives are currently available to These are largely the same as those required for the construc- promote investment in distributed renewable energy facilities. tion, commissioning and operation of a renewable energy facility. However, given the current status of the regulatory 3.6 What are the main sources of financing for the regime, it is not possible for private developers to develop distri- development of distributed renewable energy facilities? bution facilities.

As discussed in question 3.4 above, only three main distribu- 4.3 What are the requirements for renewable energy tion companies are licensed by the APUR and, in the absence facilities to be connected to and access the transmission of competition, there cannot be real incentives to finance the network(s)? development of distributed renewable energy facilities. Any competition barriers would need to be addressed before we can The requirements for renewable energy facilities to connect to start seeing any financing flowing in to develop the distributed and access the transmission network are set out in the Grid Code energy facilities. which is issued and updated by Oman Electricity Transmission

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Company (“OETC”). The Grid Code includes detailed opera- With regards to the SAHIM projects, there is a condition tional and technical provisions. For example, parties to the Grid included in the tender documents to contract with one of nine Code are required to share certain planning and forecasting data accredited local companies. However, the scale of these renew- to be with OETC. Operational tests and site investigations, able energy projects is small and therefore unlikely to attract as well as reporting of significant incidents, are also required, significant foreign investment. including numbering of high voltage plants. Also, please see question 3.4 above, in relation to the SAHIM 6.2 Are there any currency exchange restrictions net metering regime. or restrictions on the transfer of funds derived from investment in renewable energy projects? 4.4 What are the requirements for renewable energy facilities to be connected to and access the distribution There are no currency exchange restrictions on the transfer of network(s)? funds derived from investment in renewable energy projects.

These requirements are set out in the Distribution Code and 6.3 Are there any employment limitations or include a requirement to produce data, to share information requirements which may impact on foreign investment in updates and forecasts, and to report significant incidents. There renewable energy projects? is also a requirement to develop contingency plans for any emer- gencies, such as a system shutdown. All employers in Oman must comply with applicable requirements of Omanisation – a national policy that aims to promote 4.5 Are microgrids able to operate? If so, what is the training, development and employment of Omani nationals. the legislative basis and are there any financial or Omanisation requirements vary from one industry to another. regulatory incentives available to promote investment in They also vary depending on seniority levels within an organisation. microgrids?

6.4 Are there any limitations or requirements related to Microgrids are able to operate in Oman on an exception-only equipment and materials which may impact on foreign basis. For microgrids to operate, the APUR must issue a licence investment in renewable energy projects? exemption under the Sector Law allowing the microgrid owner and operator to carry out activities relating to the operation of There are no statutory limitations or requirements related to the microgrid subject to certain conditions. equipment and materials that may affect foreign investments (save for standard restrictions regarding sanctioned and embar- 52 Storage goed countries); however, OPWP typically includes minimum ICV/local content requirements in its PPAs. 5.1 What is the legal and regulatory framework which applies to energy storage and specifically the storage of 72 Competition and Antitrust renewable energy?

7.1 Which governmental authority or regulator is There is no legal or regulatory framework applying to energy responsible for the regulation of competition and storage although there is increased interest in energy storage by antitrust in the renewable energy sector? private companies. The Competition Protection and Monopoly Prevention Centre 5.2 Are there any financial or regulatory incentives is responsible for regulating competition and antitrust in Oman. available to promote the storage of renewable energy? However, the position is different in the electricity and related water sector as the APUR is the entity responsible for encour- There are no financial or regulatory incentives with the aim of aging and promoting fair competition. The APUR also has promoting the storage of renewable energy. powers to impose penalties on any persons that undermine, restrict or prevent competition. The APUR may also refer such 62 Foreign Investment and International incidents to the public prosecutor. Obligations 7.2 What power or authority does the relevant governmental authority or regulator have to prohibit or 6.1 Are there any special requirements or limitations take action in relation to anti-competitive practices? on foreign investors investing in renewable energy projects? Pursuant to article 132 of the Sector Law, it is an offence to undertake any action which may prevent or restrict competition There are no special requirements or limitations relating to in respect of any activities regulated by the Sector Law. Such foreign investment in large utility-scale projects. The Sector offence may be punishable by imprisonment for a period of up Law allows 100% foreign ownership in entities undertaking to three years and/or a fine of up to OMR50,000. activities that include, but are not limited to, the generation of electricity using renewable energy. Notwithstanding the foregoing, however, publicly tendered IPPs include an obligation to 7.3 What are the key criteria applied by the relevant list a minority shareholding in the project company (up to 40%) governmental authority or regulator to determine on the local securities exchange within a specified period after whether a practice is anti-competitive? the commercial operation date of the project, which applies to both conventional and renewable energy IPPs. There are no statutory criteria to determine whether a practice is

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anti-competitive. However, we understand that the APUR will 8.5 Are there any specific difficulties (whether as a determine whether a practice is anti-competitive by considering matter of law or practice) in litigating, or seeking to whether any damage was caused to the interest of customers and enforce judgments or awards, against government other participants in the electricity and related water sector. authorities or the state?

82 Dispute Resolution The law and process regarding enforcement of awards is the same whether enforcement is made against private or public enti- 8.1 Provide a short summary of the dispute resolution ties. State entities do not, in general, enjoy immunity from suit in framework (statutory or contractual) that typically Oman. The law does, however, prevent state assets from being applies in the renewable energy sector, including attached or enforced against. In most cases, this rule applies procedures applying in the context of disputes between to state agencies and government authorities, rather than state- any applicable government authority/regulator and the owned companies that are operating on a commercial basis. private sector.

8.6 Are there examples where foreign investors in the Typically, PPAs will include arbitration under ICC rules. For renewable energy sector have successfully obtained issues arising out of or in relation to a decision made by the domestic judgments or arbitral awards seated in your APUR, then it would typically be referred to the local courts, jurisdiction against government authorities or the state? although the Sector Law provides for certain disputes with the APUR to be referred to arbitration. We are unaware of any instances where a foreign investor was able to successfully obtain domestic judgments or arbitral awards 8.2 Are alternative dispute resolution or tiered dispute against government authorities or the state. As mentioned resolution clauses common in the renewable energy before, renewable energy projects in Oman are relatively new and sector? the only operational large utility-scale project has been developed by a private entity, PDO. The government’s first utility-scale Yes, alternative dispute resolution and tiered dispute resolution project is currently under development. clauses are common in the energy sector generally. 92 Updates and Recent Developments 8.3 What interim or emergency relief can the courts grant? 9.1 Please provide a summary of any recent cases, new legislation and regulations, policy announcements, trends and developments in renewables in your The Omani Courts have the power to issue injunctive relief on jurisdiction. an emergency basis. The application for injunctive relief must be sufficiently detailed so as to enable the judge to review the file and to make an informed determination on its merits. The appli- Oman’s journey on both large utility-scale solar IPPs and rooftop cation must be fully substantiated with evidence and must not be solar has only recently begun. Renewable energy provides a ex parte; however, a judge may issue an interim decision prior to platform for both energy and economic diversification. As the considering the respondent’s pleadings. country strives to diversify from an oil and gas-based economy and to achieve its commitment to 30% renewable energy sources by 2030, further tenders are expected in the coming years 8.4 Is your jurisdiction a party to and has it ratified following the success of the pathfinder projects. The majority the New York Convention on the Recognition and of these will focus on solar energy (expected to cover both solar Enforcement of Foreign Arbitral Awards and/or the PV and concentrated solar power); however, there will also be Convention on the Settlement of Investment Disputes between States and Nationals of Other States and/or opportunities in respect of wind and waste-to-energy. RAEC any significant regional treaty for the recognition and is also procuring projects which include significant levels of enforcement of judgments and/or arbitral awards? storage, which will further open up the potential for development of renewable energy in Oman. Finally, the Oman electricity sector is being liberalised and Yes. Oman is a party to both the New York Convention on this will provide new opportunities for private sector involve- the Recognition and Enforcement of Foreign Arbitral Awards ment at all levels, including, in relation to renewable energy, and the Convention on the Settlement of Investment Disputes generation, transmission and distribution. between States and Nationals of Other States (the “ICSID”). As part of a recent shake-up in Oman’s government institu- Oman acceded to the New York Convention on 25 February tions, the name of the authority responsible for the regulation 1999 without any reservations, declarations or notifications. of the electricity sector was changed in August 2020 from the Oman signed ICSID on 5 May 1995, with the ICSID entering Authority for Electricity Regulation (“ ”) to the Authority into force in Oman on 23 August 1995. AER for Public Utilities Regulation (“ ”). The name change Oman is also a party to the 1983 Riyadh-Arab Agreement APUR reflects the expansion of the authority’s mandate which now for Judicial Co-operation (the “Riyadh Convention”) and the covers regulating the natural gas transportation sector. It is also 1996 Gulf Co-operation Council Convention for the Execution expected that the APUR would be responsible for regulating the of Judgments, Delegations and Judicial Notifications (the “GCC water and wastewater sector once the ongoing restructuring of Convention”). The Riyadh and GCC Conventions provide, that sector is completed. among other things, for the recognition and enforcement of civil judgments amongst contracting parties.

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Mhairi Main Garcia is a partner in the Energy, Transport and Infrastructure practice. She is a corporate and commercial lawyer specialising in project development in the energy and infrastructure sectors. Mhairi focuses in particular on utilities projects (conventional power and water projects, wastewater and renewables, including solar (CSP and PV), wind and waste-to-energy). Mhairi has advised on a number of award-winning and ground-breaking renewable deals in the Middle East. In Oman, she has advised on the Ibri II PV solar project, a bid for the Amin Solar PV IPP, as well as conventional projects such as the Manah IPP, Musandam IPP, Barka 3 and Sohar 2 IPPs, Sur IPP and Salalah IWPP. Mhairi is a member of the Board and Vice-Chair of the Clean Energy Council, a non-profit organisation providing a forum for both private and public sector organisations participating in the clean energy sector across the MENA region.

Dentons & Co. Tel: +971 4 402 0859 Level 18, Boulevard Plaza 2 Fax: +971 4 325 3350 Burj Khalifa District Email: [email protected] PO Box 1756 URL: www.dentons.com Dubai United Arab Emirates

Yasser Taqi is an English qualified lawyer working with the Energy, Transport and Infrastructure team of Dentons’ Muscat office as a senior associate. Yasser’s legal work includes advising local and international companies operating in the power (including renewables), water, construction and real estate development sectors on a wide range of international and Omani laws, contracts and matters of practical implementation. Yasser was part of the local team advising ACWA Power on the landmark Ibri II Solar PV IPP which closed in April 2020. He was also part of the team advising OPWP on drafting the rules for the electricity spot market. Yasser’s experience has been gained working in Oman, the UK and the UAE. He is fluent in both Arabic and English.

Dentons & Co., Oman Branch Tel: +968 2457 3000 Salam Square – South Fax: +968 2457 3097 Third Floor, Madinat Al Sultan Qaboos Email: [email protected] PO Box 3552 URL: www.dentons.com Muscat, Ruwi PC 112 Oman

Dentons is the premier international law firm operating in Oman for over 39 years, advising on both international and local law. They regularly draft and negotiate legal documents in both the Arabic and English languages. Their teams have vast experience on solar projects in the Sultanate, including recently advising ACWA Power on reaching financial close on the Ibri II Solar PV IPP, the largest solar project in Oman, as well as advising multiple bidders (or lenders to a bidder) on PDO’s Amin solar project. Dentons drafted the Sector Law and designed the market structure which established PAEW (Diam), OPWP, RAECO/Tanweer, APUR Oman, EHC and OETC, the key players in the Oman power sector, and have worked on nearly all I(W)PPs since 2000. They have previously advised the Government, acting through OPWP, on drafting the rules for the electricity spot market. www.dentons.com

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Mahmoud Abdel-Baky

The Law Firm of Wael A. Alissa in association with Dentons & Co. Mhairi Main Garcia

12 Overview of the Renewable Energy Since 2013, KACARE has been responsible for a renewable and resource-mapping programme focusing on monitoring Sector and mapping renewable energy sources in KSA, covering solar, wind, geothermal and waste-to-energy. KACARE has collab- 1.1 What is the basis of renewable energy policy and orated with academic institutions in KSA, which are active in regulation in your jurisdiction and is there a statutory renewables, including the King Abdullah University of Science definition of ‘renewable energy’, ‘clean energy’ or and Technology (“KAUST”). equivalent terminology? KAUST has developed a number of solar powered projects and was the first to complete large-scale rooftop solar instal- The basis of the renewable energy policy in the Kingdom of lations in KSA. A number of other entities have followed suit, Saudi Arabia (“KSA”) is the fulfilment and support of the coun- including Saudi Aramco. try’s Vision 2030. Vision 2030 is a strategic framework to reduce PIF is Saudi Arabia’s sovereign wealth fund, one of the largest Saudi Arabia’s dependence on oil, diversify its economy and sovereign wealth funds in the world. It is used to invest funds develop public service sectors such as health, education, infra- on behalf of the government, including in the renewables sector. structure, recreation and tourism. Finally, in 2020, KSA’s Council of Ministers formed a supreme The Renewable Energy Project Development Office committee, the Supreme Committee for Energy Mix Affairs (“REPDO”) aims to diversify the country’s energy sources for Electricity Production and Enabling Renewable Energy, through its National Renewable Energy Program (“NREP”), to enable the implementation of KSA’s renewable energy and which is overseen by the Ministry of Energy, Industry and localisation programmes. Given that renewable projects involve Mineral Resources (“MEIM”), in order to: reduce the depend- several government entities and sectors, the committee has been ence of KSA on its oil reserves; reduce greenhouse gas emis- established to ensure alignment on policy and decision-making. sions as part of the Paris Agreement; and create jobs and facilitate sustainable and long-term social development in line with 1.3 Describe the government’s role in the ownership KSA’s Vision 2030. and development of renewable energy and any policy There is no statutory definition of ‘renewable energy’. commitments towards renewable energy, including applicable renewable energy targets. 1.2 Describe the main participants in the renewable energy sector and the roles which they each perform. The government plays a key role in the development of renewable energy and policy commitments towards renewable energy In addition to local and international private sector participants, through MEIM, NREP, REPDO and PIF. the main participants in the renewable energy sector are REPDO Under Vision 2030, KSA aims to produce 58.7GW of renew- (under the supervision of MEIM), the King Abdullah City for able energy by 2030 (with an initial target of generating 27.3GW of renewable energy by 2024). The 2030 target is divided into Atomic and Renewable Energy (“KACARE”), the Electricity 40GW of solar photovoltaic (“PV”), 16GW of wind and 2.7GW and Cogeneration Regulatory Authority (“ECRA”), the Saudi of concentrated solar power (“CSP”). Electricity Company (“SEC”), the Saudi Power Procurement REPDO is tasked with procuring the development of 30% Company (“SPPC”) and the Public Investment Fund (“PIF”). of the 2030 target through competitive public tenders (the third ECRA is the regulator for the electricity and water desalina- round of which, as of the date of writing, is currently being tion industry in KSA, including electricity derived from renew- procured). The remaining 70% is set to be developed through able sources. In accordance with Royal Decree No. M56 dated PIF, by direct negotiations with developers. 20/10/1426H (the “Electricity Law”), ECRA oversees the performance of service providers within the regulatory framework in order to guarantee the provision of safe, reliable, reason- 22 Renewable Energy Market ably priced and efficient electric power and desalinated water to the consumers in KSA. ECRA is responsible for licensing enti- 2.1 Describe the market for renewable energy in your ties that carry on an “Electricity Activity” (see further details jurisdiction. What are the main types of renewable below). energy deployed and what are the trends in terms of technology preference and size of facility? SPPC is a limited liability company incorporated by the government to act as the principal purchaser of power under NREP and is 100% owned by SEC. The main types of renewable energy which KSA is seeking to

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deploy are solar energy (including solar PV and CSP), wind and issue a Request for Qualification, which will be used as a power, geothermal energy and waste-to-energy. basis to pre-qualify applicants, both local and international. To date, the emphasis has been on utility-scale projects using REPDO will then determine the pre-qualified applicants for solar PV energy and onshore wind power, with limited activity lead roles, and those applicants will then proceed to the Request in respect of solar rooftop projects. As stated above, KSA’s 2030 for Proposal (“RFP”) stage of the process. The proposals target includes solar PV, wind, waste-to-energy and CSP. include technical components and commercial components. In light of business and travel restrictions due to COVID- 2.2 What role does the energy transition have in the 19, MEIM extended the RFP timeframe on the latest round of level of commitment to, and investment in, renewables? projects, which took place earlier in 2020, and hosted online What are the main drivers for change? meetings to facilitate bidders’ conferences. Proposals from expected bidders were to be submitted online through MEIM’s NREP procurement portal. KSA is one of the most hydrocarbon-rich countries in the world. Once a project is awarded and successfully achieves commer- It holds almost a fifth of the world’s total proved oil reserves cial operation, the project company must sell its entire capacity and, according to the BP Statistical Review 2020, accounted for and output to SPPC as the sole offtaker under a 25-year power over 12% of global oil production in 2019. Notwithstanding purchase agreement. this, as described above, KSA has set ambitious renewable energy targets. The main drivers for change are to diversify local energy sources and free up hydrocarbons resources for 2.7 To what extent is your jurisdiction’s energy demand local industrial use or export, stimulate economic development met through domestic renewable power generation? within KSA and reduce carbon dioxide emissions. According to REPDO and the International Renewable Energy 2.3 What role, if any, has civil society played in the Agency (“IRENA”), KSA’s renewable energy sources make up promotion of renewable energy? less than 1% of the country’s total energy generation capacity; however, KSA aims to raise that percentage to at least 30%, and The promotion of renewable energy in KSA has, thus far, been has shown evidence in taking steps to do so. According to a primarily procured through the public sector and government- 2018 study, 1.45% of the households in KSA were reported to be owned entities. powered by solar energy and 48% of households in the country were reported to be open to using solar energy to power their houses. 2.4 What is the legal and regulatory framework for the generation, transmission and distribution of renewable energy? 32 Sale of Renewable Energy and Financial Incentives There is currently no regulatory framework in place that is specific to the generation, transmission and distribution of 3.1 What is the legal and regulatory framework for the renewable energy. The generation, transmission and distribu- sale of utility-scale renewable power? tion of electricity (regardless of whether it derives from renewable or conventional energy) is an “Electricity Activity” and is There is currently no regulatory framework in place that is therefore regulated by ECRA and governed by the Electricity specific to the sale of utility-scale renewable energy power. Law and its Implementing Regulations. “Trading” in electricity, including the sale, purchase, import or export of a product or services included in an “Electricity 2.5 What are the main challenges that limit investment Activity” (regardless of whether it derives from renewable or in, and development of, renewable energy projects? conventional energy), is regulated by ECRA and governed by the Electricity Law and its Implementing Regulations. Although KSA has developed many aspects of its renewable energy programme in order to attain its goals under Vision 2030, 3.2 Are there financial or regulatory incentives it has yet to formalise a law or regulations concerning renew- available to promote investment in/sale of utility-scale able energy. As mentioned above, the Electricity Law and its renewable power? Implementing Regulations, which apply to conventional power projects, also apply to renewable energy projects. Further There are a number of incentives available to promote invest- consideration is needed to adapt to the large amount of solar ment in renewable energy projects under NREP, including: PV power generation, which may lead to issues relating to inter- ■ 100% foreign direct ownership. mittency and challenges regarding management of the grids. ■ o Up t 15% (for male) and 20% (for female) of the monthly Linked to this, given the large scale of the solar PV projects, salaries of KSA national employees are paid by the Human developing storage and putting in place incentives to encourage Resources Development Fund. storage will be important going forward. ■ Customs duties exemptions may be available, on application, New regulation could also facilitate the deployment of distrib- for the import of primary raw materials, manufacturing uted energy in KSA and, at the date of writing, there are new equipment and spare parts, as well as refunds to importers/ regulations expected in this regard (see details below). exporters of raw material imports that are processed in KSA and re-exported as more finished products. 2.6 How are large utility-scale renewable power ■ Land incentives may also available, with subsidised leases projects typically tendered? for projects.

Through REPDO, MEIM will invite bids for the NREP projects

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3.3 What are the main sources of financing for the Halalah/kWh; for non-residential consumption, the amount is development of utility-scale renewable power projects? not specified in the Regulatory Framework and is to be specified by ECRA resolution. To date, the main sources of funding for utility-scale renewable power projects in KSA have been commercial banks as part of 3.6 What are the main sources of financing for the project-financed transactions falling under NREP. The Saudi development of distributed renewable energy facilities? Investment Development Fund will also reportedly make more than 100 billion Saudi Riyals available to fund the develop- The Regulatory Framework has only recently been introduced; ment of renewables projects and renewable energy component however, it provides for a leasing arrangement to be used by manufacturing. consumers.

3.4 What is the legal and regulatory framework 3.7 What is the legal and regulatory framework that applicable to distributed renewable energy? applies for clean energy certificates/environmental attributes from renewable energy projects? In 2017, KSA published a white paper for a draft regulation to introduce net metering; however, this regulation did not There is currently no legal and regulatory framework in place enter into force. ECRA has recently issued the Regulatory for clean energy certificates/environmental attributes from Framework for Small-Scale Solar PV Systems (the “Regulatory renewable energy projects. In practice, utility-scale projects Framework”), setting out a framework for connection of small- have required any such certificates to be for the account of the scale solar distribution systems to the grid. The Regulatory procurer. Framework, dated 29/04/1441H, evolved from the 2017 white paper. 3.8 Are there financial or regulatory incentives or The Regulatory Framework applies to a small-scale solar mechanisms in place to promote the purchase of system connected to the Distribution System with an installed renewable energy by the private sector? capacity ranging in size from 1kW–2MW in a single Premises (the “Small-Scale Solar PV System”). The aggregate capacity We are unaware of there being any promotional or regulatory installed in different Premises owned by the same Eligible incentives to promote the purchase of renewable energy by the Customer in a supply area related to one Electricity Department private sector. may not exceed 5MW. There are six Electricity Departments: Southern region; Eastern region; North Eastern region; North Western region; Western region; and Central region. In addi- 42 Consents and Permits tion, the total installed Small-Scale Solar PV System capacity may not exceed 15% of a substation’s transformer rated capacity. 4.1 What are the primary consents and permits Under the Regulatory Framework, consumers, as Eligible required to construct, commission and operate utility- Customers, are entitled via a lease or similar contract to build scale renewable energy facilities? and operate or be in possession of Premises on which the Small- Scale Solar PV System is to be installed. The system can only be According to the Electricity Law and its Implementing connected to one Exit Point at the Premises. Regulations, any entity undertaking “Electricity Activity” The Regulatory Framework provides for net metering through (namely electricity generation, co-generation, transmission, a Net Billing scheme. Any exported electricity is credited to distribution, supply and trading) must obtain and maintain a the monthly electricity bill at a fixed price per energy unit. valid licence from ECRA. Surplus credit can be rolled over into subsequent months. The In addition, a number of approvals are required, including Distribution Service Provider is obliged to provide the Net Billing an environmental and social impact assessment and, subject to arrangement to all Eligible Consumers, provided that the Small- the requirements of the local municipality where the project is Scale Solar PV System does not exceed in aggregate 3% of the located, a building or construction permit or licence. A number preceding year’s peak load of the power system within the distri- of approvals or no-objection certificates are also required, for bution operating area. example from Civil Defence and Saudi Telecoms. The Regulatory Framework includes a Form of Grid Companies must be licensed to operate with the correct activ- Connection Agreement for a Small-Scale Solar PV System ities and have a Ministry of Commerce and Investment commer- which is valid for a maximum period of 20 years. cial registration licence. International companies must typi- ECRA is the designated authority for dispute resolution, and cally obtain an investment licence issued by the Ministry of fee and price determination, among other responsibilities under Investment (“MoI”). the Regulatory Framework. Off-grid systems and solar systems with an installed capacity 4.2 What are the primary consents and permits above 2MW are excluded from the scope of the Regulatory required to construct, commission and operate Framework. distributed renewable energy facilities?

3.5 Are there financial or regulatory incentives Please see question 4.1 above. available to promote investment in distributed renewable energy facilities? 4.3 What are the requirements for renewable energy facilities to be connected to and access the transmission Under the Regulatory Framework, any exported electricity is network(s)? credited to the monthly electricity bill at a fixed price per energy unit. For residential consumption, this has been defined as 7 According to the Grid Code, power plants need to submit an

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application for interconnection with the national transmission 6.2 Are there any currency exchange restrictions system operator, National Grid SA, and thereafter enter into a or restrictions on the transfer of funds derived from connection agreement. Developers bear the costs for connec- investment in renewable energy projects? tion to the grid and the transmission system operator covers the grid upgrades beyond the connection point. Generally, except for the Israeli shekel, there are no currency exchange restrictions in KSA. 4.4 What are the requirements for renewable energy facilities to be connected to and access the distribution 6.3 Are there any employment limitations or network(s)? requirements which may impact on foreign investment in renewable energy projects? Part 4 (Connection Conditions) of the Distribution Code lists and outlines the requirements and conditions that define the The Saudi Nationalisation Scheme, or Nitaqat, as implemented minimum standards of connection to the distribution system by the Ministry of Human Resources and Social Development, and the technical, design and operational standards to which requires KSA companies and enterprises to employ a minimum users connecting to the distribution system must comply. The number of KSA nationals depending on various factors such as conditions listed aim to specify the minimum standards of industry and company size. In addition to these minimum require- connection to the distribution system. ments, as a matter of contract, publicly procured renewables projects will typically include robust Saudisation requirements. 4.5 Are microgrids able to operate? If so, what is the legislative basis and are there any financial or 6.4 Are there any limitations or requirements related to regulatory incentives available to promote investment in equipment and materials which may impact on foreign microgrids? investment in renewable energy projects?

A number of off-grid systems operate in Saudi Arabia, particu- The Local Content and Government Procurement Authority larly in remote areas where connection to the main grid is not is authorised to set local content requirements for individual available. These have traditionally been based on off-grid diesel contractors and RFPs are required to set a minimum require- generation. ment of local content that a bidder must meet in order to We are unaware of there being any financial or regulatory participate. incentives available to promote investment in microgrids. REPDO has developed a portal for local companies to present their products and services to international developers partici- 52 Storage pating in NREP, with an aim to give direct access to local products and services and facilitate compliance with NREP’s local 5.1 What is the legal and regulatory framework which content requirements. applies to energy storage and specifically the storage of renewable energy? 72 Competition and Antitrust

There is currently no legal and regulatory framework in place 7.1 Which governmental authority or regulator is which is specific to renewable energy storage. responsible for the regulation of competition and antitrust in the renewable energy sector? 5.2 Are there any financial or regulatory incentives available to promote the storage of renewable energy? According to the Competition Law and its Implementing Regulations (collectively, the “Competition Laws”), the General We are unaware of there being any promotional or regulatory Authority for Competition (the “Authority”) has primary juris- incentives to promote the storage of renewable energy. diction over any matters arising from the application of the Competition Laws and is responsible for protecting and encour- 62 Foreign Investment and International aging fair competition as well as maintaining justice and transparency within the domestic market. The Authority is vested with Obligations inherent jurisdiction, even when there is an overlap or conflict with other governmental authorities or regulators. 6.1 Are there any special requirements or limitations Further, under the Electricity Law, MEIM and ECRA are on foreign investors investing in renewable energy mandated to promote competition in the electricity sector, to projects? encourage the private sector to invest in the electricity sector and to ensure that consumers have the right choice in obtaining Foreign investors in KSA are typically required to obtain an electricity services. A licensee with a dominant position in the investment licence from MoI as well as a licence from the rele- electricity sector is prohibited from any undertaking that may vant authority depending on the activity. Corporate foreign restrict competition. entities seeking to invest in KSA are required to have been in operation for at least one year in their country of origin, and 7.2 What power or authority does the relevant foreign natural persons seeking to invest are required to have a governmental authority or regulator have to prohibit or Saudi Premium Residency Card. take action in relation to anti-competitive practices?

The Board of the Authority may initiate enquiries and investigations and may research and collect evidence regarding practices

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in violation of the Competition Laws. Officials of the Authority KSA, with the country having taken steps to make itself more are given the authority to enter into premises (within working arbitration friendly by opening the Saudi Centre for Commercial hours) to review and gain access to books and documents and Arbitration (the “SCCA”) in 2016 and adopting rules based make copies; they may also question managers, shareholders and upon international practices. Declining jurisdiction when faced employees. Along with some other penalties imposed on viola- with a valid arbitration clause is now an established practice in tors by the Competition Laws, the Competition Laws also state KSA courts. Mediation is also a recognised form of dispute that the Authority may close entities that violate the Competition resolution in KSA and is provided by SCCA. Laws for a period of 30 days should the violator fail to remedy Specifically in relation to renewables projects, as mentioned the violation within a designated period. above, alternative dispute resolution clauses are commonplace Under the Electricity Law, licensees are prohibited from in relation to the power purchase agreement. This will typi- entering into any agreement or arrangement that impedes or cally include a tiered process commencing with amicable dispute restricts competition in the electricity sector. Any such action resolution, then expert determination and finally arbitration. will be considered null and void. 8.3 What interim or emergency relief can the courts 7.3 What are the key criteria applied by the relevant grant? governmental authority or regulator to determine whether a practice is anti-competitive? SCCA stipulates that requests for emergency relief should be justified, and that the request should contain a statement of The Competition Laws illustrate what are considered as anti-com- the emergency relief sought, and the reasons why the applicant petitive practices among competing or potentially competing enti- needs urgent interim measures that cannot await the constitu- ties, including: (i) raising, lowering or fixing prices of commodi- tion of the tribunal. ties, terms of sale and purchase, and the like; (ii) depriving (wholly With respect to the KSA courts, a plaintiff may request that or partially) an entity or a group of entities from commodities the court issue an interim judgment on grounds of urgency, which are available in the market; (iii) dividing markets; (iv) which is enforceable, prior to judgment of the merits of the case. limiting the process of manufacturing, development, marketing and distribution; and (v) colluding in tenders or bids in government and non-government auctions and procurement, in any 8.4 Is your jurisdiction a party to and has it ratified the New York Convention on the Recognition and form whatsoever. However, entities may request from the Board Enforcement of Foreign Arbitral Awards and/or the an exemption from the application of anti-competitive practices, Convention on the Settlement of Investment Disputes and the Board may approve such an application if it considers that between States and Nationals of Other States and/or such exemption would lead to an improved market. any significant regional treaty for the recognition and Under the Electricity Law, licensees must obtain ECRA’s enforcement of judgments and/or arbitral awards? approval prior to undertaking any merger or acquisition of majority shares or assets of other licensees, and must inform ECRA of any Yes. KSA is a party to both the New York Convention on initial agreement reached on such a merger. Licensees must also the Recognition and Enforcement of Foreign Arbitral Awards obtain ECRA’s approval prior to purchasing 5% or more of the and the Convention on the Settlement of Investment Disputes shares, securities or any other form of ownership rights in another between States and Nationals of Other States (the “ICSID”). licensee, or purchasing a lesser percentage that may create a domi- KSA acceded to the New York Convention on 19 April 1994 nant position in any part of the electricity sector. on the basis of reciprocity and with a declaration that it shall restrict the application of the New York Convention to the 82 Dispute Resolution recognition and enforcement of arbitral awards made in the territory of New York Convention Contracting States. 8.1 Provide a short summary of the dispute resolution KSA signed ICSID on 28 September 1979, with the ICSID framework (statutory or contractual) that typically entering into force in KSA on 7 June 1980. applies in the renewable energy sector, including KSA is also a party to the 1983 Riyadh-Arab Agreement for procedures applying in the context of disputes between Judicial Co-operation (the “Riyadh Convention”) and the 1996 any applicable government authority/regulator and the Gulf Co-operation Council Convention for the Execution of private sector. Judgments, Delegations and Judicial Notifications (the “GCC Convention”). The Riyadh and GCC Conventions provide, Generally in KSA, unless the parties involved agree to refer among other things, for the recognition and enforcement of their disputes to arbitration, local courts will have jurisdiction. civil judgments among contracting parties. Power purchases agreements (whether for conventional or In addition, KSA has its own domestic arbitration law based renewable energy) will typically include dispute resolution provi- on the UNCITRAL Model Law, which ensures the parties’ sions, which set out a tiered procedure, culminating in arbitra- rights to agree on such things as the governing law, location and tion. However, a project will also typically involve land agree- language to be used as well as whether to use ad hoc or institu- ments, which will be subject to local court dispute resolution, and tional arbitration. The enforcement courts in KSA permit the financing documents, which may include reference of disputes enforcement of international awards (including judgments and to the Saudi Arabian Monetary Authority Banking Disputes awards obtained in foreign jurisdictions) in KSA. Committee. 8.5 Are there any specific difficulties (whether as a 8.2 Are alternative dispute resolution or tiered dispute matter of law or practice) in litigating, or seeking to resolution clauses common in the renewable energy enforce judgments or awards, against government sector? authorities or the state?

Alternative dispute resolution clauses are generally common in Litigating with government authorities is possible in KSA.

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According to the Civil Procedures Law, cases against govern- 92 Updates and Recent Developments ment administrative agencies can be filed with the court that has jurisdiction over the head office thereof. In addition, a lawsuit may be filed with the court that has jurisdiction over the branch 9.1 Please provide a summary of any recent cases, of a government agency in matters relating to that branch. new legislation and regulations, policy announcements, trends and developments in renewables in your jurisdiction. 8.6 Are there examples where foreign investors in the renewable energy sector have successfully obtained The REPDO tenders have been and continue to be a success, domestic judgments or arbitral awards seated in your even in the time of COVID-19. PIF-backed initiatives have also jurisdiction against government authorities or the state? been very successful in attracting developers for large-scale, multifaceted projects. Assuming this trend will continue, KSA KSA government authorities were only recently permitted to is well on its way to meet its ambitious renewable energy targets, enter into arbitration agreements (once they obtain approval even in the absence of specific laws and regulations to promote from the Minister of Finance) with the issuance of the new utility-scale renewables. Government Tenders and Procurement Law issued on The Framework is a milestone in relation to distributed renew- 13/11/1440H (corresponding to 16 July 2019), whereas previ- able energy in KSA and is expected to facilitate the growth of ously it was only on an exceptional basis; consequently there are the solar commercial and industrial sector in KSA. no publicly available examples on hand. In 2020, plans were announced for a green hydrogen plant in Saudi Arabia. The plant will be powered by 4GW of wind and solar power and, when completed, is expected to produce 650 tonnes of green hydrogen daily. The fuel will be shipped as ammonia to end markets globally, then converted back to hydrogen. Ammonia production is expected to start in 2025.

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Mahmoud Abdel-Baky is the managing partner of Dentons’ Saudi Arabia offices, which include Riyadh and Jeddah. He is part of our Middle East projects practice, with over 13 years’ experience. He is widely regarded as the go-to expert in project development, project finance, Islamic financing and sukuk issuances in Saudi Arabia. He has commanding expertise in advising on a wide range of projects, including but not limited to energy, infrastructure sectors and cross- border financings involving all types of assets. Over the past few years, Mahmoud has advised several high-profile ventures, namely two major infrastructure projects being developed by the Saudi Arabian government. In addition, Mahmoud has advised on some of the most significant project financings and restructurings in the market over the past decade. Mahmoud is fluent in Arabic and English.

The Law Firm of Wael A. Alissa Tel: +966 11 200 8678 ex. 213 in association with Dentons & Co. Fax: +966 11 200 8679 Tatweer Towers, Tower 1 Email: [email protected] Level 8, King Fahad Road URL: www.dentons.com PO Box 59490 Riyadh, 11525 Kingdom of Saudi Arabia

Mhairi Main Garcia is a partner in the Energy, Transport and Infrastructure practice. She is a corporate and commercial lawyer specialising in project development in the energy and infrastructure sectors. Mhairi focuses in particular on utilities projects (conventional power and water projects, wastewater and renewables, including solar (CSP and PV), wind and waste-to-energy). Mhairi has advised on a number of award-winning and ground-breaking renewable deals in the Middle East. In Saudi Arabia, she has advised on bids for REPDO Round 2, Sakaka Solar PV IPP, and the Al Jouf Solar and Al Rafha Solar PV IPPs, as well as the development of pilot solar energy projects. Mhairi is a member of the Board and Vice-Chair of the Clean Energy Council, a non-profit organisation providing a forum for both private and public sector organisations participating in the clean energy sector across the MENA region.

Dentons & Co. Tel: +971 4 402 0859 Level 18, Boulevard Plaza 2 Fax: +971 4 325 3350 Burj Khalifa District Email: [email protected] PO Box 1756 URL: www.dentons.com Dubai United Arab Emirates

Dentons is the world’s largest law firm, delivering quality and value to clients In Saudi Arabia, the Dentons projects and project finance team has exten- around the globe. Our polycentric approach and world-class talent chal- sive experience working on Saudi renewables transactions, whether on lenge the status quo to advance client interests in the communities in which behalf of the sponsors, lenders or the procurer, having advised on most of we live and work. the leading solar projects in Saudi Arabia, including bids for REPDO Round Dentons has two offices in Saudi Arabia, in Riyadh and Jeddah, and is one 2, Sakaka solar PV IPP, and the Al Jouf Solar and Al Rafha Solar PV IPPs, as of the few international law firms that can advise on both international and well as pilot solar projects in Saudi Arabia more than a decade ago. Saudi Arabian law, through its offices Dentons & Co. in association with www.dentons.com The Law Firm of Wael A. Alissa. Dentons’ Middle East energy practice is supported by one of the largest dedicated legal energy practices in the world. The team advises governments, multinational organisations, developers, utilities, banks, landowners and contractors on all aspects of solar project development and investments, enabling Dentons to view clients’ solar activities from a variety of different perspectives.

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South Africa South Africa

Jay Govender Emma Dempster

Cliffe Dekker Hofmeyr Inc (CDH) Tessa Brewis Alecia Pienaar

12 Overview of the Renewable Energy how generation capacity from renewable energy resources is to be developed and procured. Sector NERSA is the custodian and enforcer of the ERA. It is also empowered to issue licences for various activities. It regulates 1.1 What is the basis of renewable energy policy and electricity prices and tariffs. regulation in your jurisdiction and is there a statutory Eskom Holdings SOC Ltd (Eskom), the national utility, definition of ‘renewable energy’, ‘clean energy’ or has been designated as the offtaker in the Renewable Energy equivalent terminology? IPP Procurement Programme (REIPPP Programme). It also performs the functions of generator, national transmission The regulation of the electricity supply industry is governed by the company, distributor and system operator. Electricity Regulation Act 4 of 2006 (ERA). In terms of section IPPs have been licensed to undertake the generation and sale 34 of the ERA, the Minister of Mineral Resources and Energy of electricity produced from renewable energy plants. IPPs are (Minister), in consultation with the National Energy Regulator also allowed, subject to compliance with the law, to develop of South Africa (NERSA), may determine that new generation small-scale embedded generation projects (discussed below). capacity is needed to ensure the continued uninterrupted supply of electricity, the types of energy sources from which electricity 1.3 Describe the government’s role in the ownership must be generated and the percentages of electricity that must be and development of renewable energy and any policy generated from such sources, the buyer and seller of such elec- commitments towards renewable energy, including tricity and the procurement process to be followed. applicable renewable energy targets. On 6 May 2011, the then Department of Energy released the Integrated Resource Plan 2010–2030 (IRP2010) in respect of The IRP2010 contained capacity allocations for electricity gener- South Africa’s forecast energy demand for the 20-year period. ated from renewable technologies and it is against these alloca- The IRP2010 was intended to be a ‘living plan’ that would be tions that the then Minister of Energy issued section 34 determi- periodically and regularly revised. However, the IRP was only nations for renewable energy, which included the technologies updated and revised on 18 October 2019 (IRP2019). of solar PV, wind, solar CSP, landfill gas, biomass, biogas, small Electricity Regulations on New Generation Capacity (New hydro≤0 ( 4 MW) and small projects (≤ 5 MW). This was Gen Regulations) published under the ERA, which came into followed by the introduction of the REIPPP Programme. A effect from on 4 May 2011, have as their objectives: public competitive procurement process was undertaken which ■ the facilitation of planning for the establishment of new culminated in the conclusion of PPAs totalling 92 projects and generation capacity; 6,327 MW of renewable energy technology. ■ the regulation of entry by a buyer and a generator into a The most dominant renewable energy technologies in power purchase agreement (PPA); the IRP2019 are wind and solar PV technologies. There is a ■ the establishment of minimum standards or requirements consistent annual allocation of 1,600 MW for wind technology for PPAs; commencing in the year 2022 to 2030, totalling 14,400 MW. A ■ the facilitation of the full recovery by the buyer of all solar PV allocation of 1,000 MW per year is incremental over the costs efficiently incurred by it or in connection with a PPA period up to 2030, totalling 6,000 MW. Distributed generation, including a reasonable return based on the risks assumed biomass and landfill have also been given allocations under the by the buyer thereunder and to ensure both transparency IRP2019, with no allocation given to new generation capacity and cost reflectivity in the determination of electricity from solar CSP. tariffs; and On 7 July 2020, the Minister issued a section 34 determination ■ the provision of a framework for the implementation for the procurement of 2,000 MW from a range of technologies in of an independent power producer (IPP) procurement accordance with the short-term risk mitigation capacity allocated programme as well as the relevant agreements to be in the IRP2019. The procurement programme will target connec- concluded. tion to the grid as soon as reasonably possible but by no later than December 2021. The Department of Mineral Resources and 1.2 Describe the main participants in the renewable Energy (DMRE) has been specified as the procurer, with Eskom energy sector and the roles which they each perform. being the buyer purchasing energy from IPPs.

The Minister sets the energy policy in South Africa and directs

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22 Renewable Energy Market 2.4 What is the legal and regulatory framework for the generation, transmission and distribution of renewable energy? 2.1 Describe the market for renewable energy in your jurisdiction. What are the main types of renewable energy deployed and what are the trends in terms of Electricity may only be transmitted, distributed, sold or gener- technology preference and size of facility? ated under the authority of a licence granted by NERSA under the ERA. Section 7 of the ERA provides that, unless other- Of the 92 renewable energy projects which have reached wise exempt from having to hold a generation licence in terms of commercial close under the REIPPP Programme to date, the Schedule 2 to the ERA, no person may, without a licence issued technology and capacity allocations are as follows: by NERSA, operate any generation, transmission or distribution ■ onshore wind – 34 projects with a total capacity of 3,357 facility, import or export any electricity, or be involved in trading. MW; Various environmental laws are also of relevance which ■ solar PV – 45 projects with a total capacity of 2,292 MW; impose numerous permitting requirements (as discussed below) ■ solar CSP – seven projects with a total capacity of 600 and a general duty of care requiring project companies to take MW; reasonable measures to ensure that no significant pollution or ■ landfill gas – one project of 18 MW; environmental degradation is caused throughout the life of the ■ biomass – two projects totalling 42 MW; and project. This duty can also extend to shareholders, depending ■ small hydro – three projects totalling 19 MW. on the level of control exercised over the project company or In the distributed generation space, the dominant technology the project. is solar PV, either ground mounted or rooftop. 2.5 What are the main challenges that limit investment in, and development of, renewable energy projects? 2.2 What role does the energy transition have in the level of commitment to, and investment in, renewables? What are the main drivers for change? Whilst strong policy has created a stable foundation for the procurement and development of utility-scale renewable energy There is an aggressive drive by the South African government generation, the highly regulated legal framework has also created to not only include renewable energy technology in the energy constraints on the development of captive renewable energy mix, but also to direct the procurement and development of projects (where a private developer may seek to sell its energy to utility-scale renewable energy projects. The section 34 minis- a private offtaker). With the increase in electricity prices to the terial determinations under the REIPPP Programme allocated end consumer, repeated load shedding and the need for secu- the role of procurer to the then Department of Energy. The rity of supply by commercial and industrial customers, the C&I government has also created an enabling environment through: space holds immense development potential. However, there policy change; inter-governmental co-operation which enabled are various restrictions pertaining to the issue of a generation efficient consideration of all permits, authorisations, licences, licence to such projects (as discussed below). approvals, and the like; and by committing to an implemen- There are certain locations within South Africa that are tation agreement as a form of government support over each already congested, typically where optimal resources of solar project which concluded a PPA under the REIPPP Programme. or wind are available. However, congested locations face This enabling environment has led to South Africa procuring constraints with their grid connection and the costs of upstream some of the cheapest renewable energy technologies globally. strengthening can negatively impact the viability of projects. The main drivers behind supporting renewables are the continued downward price trends, the fairly short timelines 2.6 How are large utility-scale renewable power within which these projects can be developed and importantly, projects typically tendered? to reduce the carbon footprint of the country. Where the government or an organ of state is the procuring 2.3 What role, if any, has civil society played in the entity, it is obliged to follow an open, competitive, transparent promotion of renewable energy? and fair process in terms of the law. The government-procured REIPPP Programme was undertaken on a competitive public Corporations and government have faced increasing pressure tender basis with very prescriptive qualification and evaluation from civil society to divest from fossil fuels as an energy source, criteria. which has invariably placed a focus on renewables as a preferred energy alternative. Local non-governmental organisations are 2.7 To what extent is your jurisdiction’s energy demand particularly active in this space, often bringing legal challenges met through domestic renewable power generation? against the development of or investment in non-renewable energy infrastructure. According to the IRP2019, the South African power system Large financial institutions have also become more vocal in consists of the following installed capacity generation options: demanding greater transparency regarding climate-change risk ■ 38 GW from coal; exposure from fossil fuel lending. This has led to the publica- ■ 1.8 GW from nuclear; tion of various policies across the financial sector committed to ■ 2.7 GW from pumped storage; more sustainable funding. ■ 1.7 GW from hydro; As these pressures disrupt the existing thermal heavy energy ■ 3.8 GW from diesel; and landscape, the shift in focus to renewables as an energy source ■ 3.7 GW from renewable energy. continues to gain momentum. This translates to 7.2% of the energy demand being met through domestic renewable energy power generation.

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32 Sale of Renewable Energy and Financial finance projects on a corporate finance basis. Debt has been predominantly sourced from local banks. Incentives

3.4 What is the legal and regulatory framework 3.1 What is the legal and regulatory framework for the applicable to distributed renewable energy? sale of utility-scale renewable power?

Schedule 2 to the ERA sets out which activities are exempt The sale of utility-scale power requires a trading licence. from the requirement to apply for and hold certain licences Trading is defined in the ERA as the buying or selling of elec- under the ERA, and provides an indication as to what activities tricity as a commercial activity. are required to instead be registered with NERSA. Schedule 2 exempts the following activities relating to the operation of 3.2 Are there financial or regulatory incentives generation facilities from the licensing requirement in the ERA: available to promote investment in/sale of utility-scale ■ back-up generation; renewable power? ■ embedded generation where there is no point of interconnection with the national grid i.e. off grid; Several significant tax incentives are available to promote invest- ■ operation of a generation facility with a capacity of no ment in or sale of utility-scale renewable power: more than 100 kw where there is an existing point of inter- ■ Section 12B of the Income Tax Act 58 of 1962 (ITA) connection with the national grid; provides for an accelerated capital depreciation allow- ■ embedded generation where there is a point of intercon- ance in respect of solar (concentrated or PV up to or more nection with the national grid and a capacity of less than 1 than 1 MW), hydropower (up to 30 MW), wind (no cap) or MW; biomass (no cap) renewable energy generation assets owned ■ facilities used for demonstration purposes only; or acquired by the taxpayer in terms of an instalment credit ■ electricity produced by waste product or residual product agreement and brought into use for the first time. (no cap on installed capacity); and ■ As section 12B caters only for the actual plant and ■ continued operation of a generation facility which was machinery generating the renewable energy and improve- exempt prior the amended Schedule 2 commencement. ments thereon (including supporting structures like foun- Whilst Schedule 2 to the ERA permits the generation and dations), section 12U of the ITA was introduced in April sale of electricity from small-scale embedded generation (usually 2016 to allow a specific deduction in respect of expend- with a generation capacity of less than 1 MW) without having iture for other general supporting infrastructure such as to obtain a licence, there are restrictions on selling energy to roads, fences and the like. more than one customer (i.e. it is not permissible to sell elec- ■ In terms of section 12N of the ITA, improvements asso- tricity to multiple (unrelated) consumers, including the munici- ciated with certain public sector procurement like the pality, without a licence as the exemption will no longer apply in REIPPP Programme made to a property that is leased this instance). Further, there are no rules regulating the regis- and not owned by the taxpayer, qualify for a depreciation tration of such activities with NERSA (as required in terms of allowance on the value of the improvement. The allow- the ERA) nor is there any national legislation governing net-me- ance also applies to depreciation associated with section tering schemes. 12B of the ITA. A carbon tax became effective on 1 June 2019 with the promulgation of the Carbon Tax Act 15 of 2019 (CTA). The 3.5 Are there financial or regulatory incentives tax is being implemented in a phased manner, with various available to promote investment in distributed renewable energy facilities? tax-free allowances available during the first phase (June 2019 to December 2022). In terms of the Act, taxpayers may utilise credits generated through eligible carbon offset projects as a To the extent applicable, the tax incentives in terms of sections means of reducing their carbon tax liability up to a maximum 12B, 12N and 12U of the ITA referred to in question 3.2 will also of 5–10%. Certain Clean Development Mechanism (CDM), apply to distributed renewable energy facilities. Of particular Verified Carbon Standard or Gold Standard approved renew- interest is that section 12B provides for an accelerated write-off able energy projects are now eligible as carbon offsets under the of the asset of 100% in the first year, in respect of solar PV fairly new carbon tax regime. energy of less than 1 MW. Carbon offsets are more fully regulated under the Regulations Distributed renewable energy projects can also qualify as on Carbon Offsets that were promulgated in November 2019 carbon offsets in terms of the CTA referred to in question 3.2, and will be administered by the DMRE through the Carbon which serves as an incentive to invest in such projects. Offset Administration System, which went live on 23 July 2020. The system incentivises investment in or the uptake of, inter 3.6 What are the main sources of financing for the alia, qualifying renewable energy projects by both entities liable development of distributed renewable energy facilities? under the carbon tax and those looking to generate and sell carbon credits to carbon taxpayers. The main sources of financing are: ■ equity financing; 3.3 What are the main sources of financing for the ■ debt financing from local commercial banks; development of utility-scale renewable power projects? ■ consumer financing (consumer purchases the facility to own on credit); and The main sources of financing are equity and debt from local ■ lease financing (consumer leases the facility with an option commercial banks and development finance institutions. Most to purchase). projects under the REIPPP Programme have limited-recourse The lack of an electricity wholesale market and clear regula- financing, with some mature portfolio developers being able to tions to date have impacted the ability of IPPs to secure external

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debt funding from local commercial banks. Generally external dependence or impact on other natural resources, including debt funders will only provide debt funding once the distrib- permits for or relating to water use, effluent, heritage resources, uted renewable energy facility is fully licensed and operational, biodiversity, air emissions, waste, hazardous substances, elec- thereby avoiding construction and regulatory risk. tronic communication systems and civil aviation.

3.7 What is the legal and regulatory framework that 4.2 What are the primary consents and permits applies for clean energy certificates/environmental required to construct, commission and operate attributes from renewable energy projects? distributed renewable energy facilities?

In 1997, South Africa became a party to the United Nations In the event that the operation of the distributed renewable Framework Convention on Climate Change (1992) (Convention) energy facility qualifies for an exemption in terms of Schedule and ratified the Paris Agreement in November 2016, commit- 2 to the ERA, the owner of the facility will need to register the ting to a peak, plateau and decline greenhouse gas emissions generation facility with NERSA. trajectory under its Nationally Determined Contribution. At a If no exemption is granted, a generation and trading licence is country level, the South African government has introduced a required to generate and sell electricity. carbon tax, coupled with carbon offsets, to meet these emission Under the EIA Listing Notices, an EA is not required for reduction targets. the development of renewable energy generation facilities below The Kyoto Protocol (1997), adopted under the Convention, 10 MW, unless the physical footprint of such facility exceeds goes further and provides market-based mechanisms intended one hectare in extent. The development of solar PV installa- to assist parties in meeting emission reduction targets. It is a tions within urban areas or on existing infrastructure, however, requirement that participating countries must identify a desig- remains exempt from the requirement to obtain an EA unless nated national authority (DNA), which must consider appli- other activities under the EIA Listing Notices are triggered. cations for CDM projects and certify that they comply with Additional other land-use permits may also be required as national laws and the international law requirements as part of detailed in question 4.1. the process for issuing Certified Emissions Reductions (CERs). South Africa is classified as a developing country for the 4.3 What are the requirements for renewable energy purposes of the Convention and the Kyoto Protocol. South facilities to be connected to and access the transmission Africa designated the then Department of Energy as its network(s)? DNA in regulations made under the National Environmental Management Act 107 of 1998 (NEMA) in 2005. The national utility Eskom, through the National Transmission Company (NTC), is the only holder of a transmission licence. 3.8 Are there financial or regulatory incentives or The NTC has an obligation to provide non-discriminatory access mechanisms in place to promote the purchase of to the transmission system to customers, provided such access renewable energy by the private sector? complies with all technical, safety and commercial requirements as set out in the South African Grid Code and the Transmission There are no regulatory incentives to promote the purchase of Grid Code, as applicable. The right to access the transmission renewable energy by the private sector. There are currently also system required in order to connect the renewable energy gener- no government rebates or subsidies to promote the purchase of ation facility to the transmission system is subject to the IPP: renewable energy by the private sector. ■ making an application to the NTC to approve the connection of the renewable energy generation facility to the 42 Consents and Permits transmission system; ■ obtaining a generation and trading licence from NERSA; 4.1 What are the primary consents and permits ■ complying with the requirements of the Transmission required to construct, commission and operate utility- Grid Code and relevant technical requirements; scale renewable energy facilities? ■ entering into a connection and use of system agreement as required in terms of the South African Grid Code and the Transmission Grid Code; and A generation and trading licence is required to generate and sell ■ being liable to pay the relevant connection charge. electricity. NERSA has published the Grid Connection Code for In terms of environmental law, an environmental authori- Renewable Power Plants connected to the electricity transmis- sation (EA) is the primary permit required under the NEMA, sion system or the distribution system in South Africa (RPP Environmental Impact Assessment (EIA) Regulations and EIA Code) which sets out minimum technical and design grid Listing Notices for the construction of such facilities. An EA connection requirements for RPPs connected to or seeking must be obtained prior to commencing with: connection to the South African electricity transmission system ■ the development of renewable energy generation facilities or distribution system. above 10 MW, save for in relation to solar PV installations located within urban areas or on existing infrastructure; ■ the development of permanent electricity transmission 4.4 What are the requirements for renewable energy and distribution infrastructure above specified capacity facilities to be connected to and access the distribution thresholds; and network(s)? ■ other listed or specified activities triggered by the project under the EIA Listing Notices, for example indigenous Distribution licences are held by Eskom and various municipal- vegetation clearance or impacting on a watercourse. ities. A licensed distributor has an obligation to provide non- Additional environmental and other land-use permits may discriminatory access to the distribution system to customers, also be required depending on a project’s locality, design and provided such access complies with all technical, safety and

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commercial requirements as set out in the South African Grid companies operating in the renewable energy sector. Foreign Code and the Distribution Grid Code, as applicable. The right investors are allowed to own land and enter into long-term lease to access the distribution system required in order to connect agreements for renewable energy projects. the renewable energy generation facility to the distribution However, in order to achieve the economic development system is subject to the IPP: imperatives of the South African government such as increased ■ making an application to the relevant licensed distributor localisation, the creation of employment and the development to approve the connection of the renewable energy gener- of skills, the compulsory participation of South African entities ation facility to the distribution system; and individuals is required in the REIPPP Programme. ■ obtaining a licence from NERSA or qualifying for an exemption in terms of Schedule 2 to the ERA; 6.2 Are there any currency exchange restrictions ■ complying with the requirements of the Distribution Grid or restrictions on the transfer of funds derived from Code and relevant technical requirements; investment in renewable energy projects? ■ entering into a connection and use of system agreement as required in terms of the South African Grid Code and the Yes. South Africa currently has an exchange control regime Distribution Grid Code; and in place which regulates the flow of funds into and out of the ■ being liable to pay the relevant connection charge. country, with the outflow of funds being more strictly regulated. As noted in question 4.3 above, the RPP Code will also be The rules of the exchange control regime are also applicable applicable. to foreign investments into renewable energy projects. Some of the key principles applicable to foreign investments are the 4.5 Are microgrids able to operate? If so, what is following: the legislative basis and are there any financial or ■ Where an investment is made into a South African renew- regulatory incentives available to promote investment in able energy project in the form of a loan, there are limits microgrids? on the interest rate that can be imposed. ■ Where a foreign investor invests into a South African Yes; however, microgrid technology is in a developmental stage. project by acquiring shares in a South African company, it There is no specific legislation dealing with microgrids and must introduce foreign currency from abroad to purchase the ERA would apply to such projects. Some of the existing the shares, and to the extent that it wishes to obtain financial incentives for rural electrification may be applicable; funding from a local bank to finance the share purchase, however, there are no specific financial incentives for microg- certain limitations apply. The share certificates for such rids at this stage. shares must be endorsed non-resident for exchange control purposes. Without such endorsement, the foreign investor 52 Storage will not be entitled to repatriate any distributions or dividends declared by the South African company, or any 5.1 What is the legal and regulatory framework which sale proceeds from the disposal by the non-resident of its applies to energy storage and specifically the storage of shares in the South African company. renewable energy? ■ Where a foreign investor receives dividends from the shares held in a South African company, it may only receive and repatriate dividends commensurate with its shareholding. There is currently a limited regulatory framework for the adop- Where the foreign investor disposes of the shares held in tion of electricity storage in South Africa and this is yet to be a South African company, it may only receive and repat- developed. However, the IRP2019 includes an allocation of riate the amount that is commensurate with the value of 2,088 MW for storage. the shareholding sold. In addition to any other activities that may be triggered under It should be noted that South Africa’s current exchange the EIA Listing Notices, battery energy storage facilities may control regime is likely to be replaced in the next 12 months by require an EA insofar as the chemical electrolyte from the battery a capital risk flow management framework. cells constitutes dangerous goods as contemplated under the EIA Regarding the repatriation of dividends, South Africa has Listing Notices and the associated thresholds are met or exceeded. a dividends withholding tax of 20%, but where South Africa has concluded a double tax treaty with the country in which 5.2 Are there any financial or regulatory incentives the foreign investor resides, the withholding tax rate may be available to promote the storage of renewable energy? reduced, depending on the terms of the treaty.

Energy storage is in a developmental stage. Some of the existing 6.3 Are there any employment limitations or financial incentives for renewable energy may be applicable to requirements which may impact on foreign investment in storage. Further, a taxpayer may qualify for an additional deduc- renewable energy projects? tion for expenditure incurred in respect of scientific and technological research and development under section 11D of the ITA. Renewable energy projects that wish to employ foreign nationals require a work visa for the employee, except in a few limited 62 Foreign Investment and International circumstances. The three main types of visa are the general work Obligations visa, the critical skills visa and the intra-company work visa. It should be noted that certain designated employers (with at 6.1 Are there any special requirements or limitations least 50 employees or turnover above a certain threshold) have on foreign investors investing in renewable energy obligations relating to affirmative action under the Employment projects? Equity Act 55 of 1998, in particular with regards to redressing the underrepresentation of black people, women and people There are no general restrictions on foreign ownership of with disabilities.

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6.4 Are there any limitations or requirements related to Tribunal hearing for large mergers), the merger may be approved equipment and materials which may impact on foreign without conditions, subject to conditions, or prohibited. investment in renewable energy projects? 82 Dispute Resolution The Department of Trade, Industry and Competition (DTIC) has implemented a local content policy since 2011 through the 8.1 Provide a short summary of the dispute resolution Preferential Procurement Policy Framework Act 5 of 2000. The framework (statutory or contractual) that typically DTIC is able to designate industries, sectors and sub-sectors applies in the renewable energy sector, including for local production at a specified level of local content. Local procedures applying in the context of disputes between content thresholds in the solar PV industry have been set as indi- any applicable government authority/regulator and the private sector. cated below:

Solar PV Components Minimum The PPAs under the REIPPP Programme provide for certain Laminated PV Modules 15% limited matters to be dealt with on an expedited basis by way of an expert determination. The parties have agreed that all other Module Frame 65% disputes are to be referred to the High Court of South Africa, DC Combiner Boxes 65% which shall have exclusive jurisdiction in connection with the Mounting Structure 90% dispute. Inverter 40% In the small-scale embedded generation projects, it is typical for the parties to agree to an expert determination for certain technical matters and arbitration for all other disputes. The 72 Competition and Antitrust favoured forum is the Arbitration Foundation of Southern Africa (AFSA), using AFSA rules. 7.1 Which governmental authority or regulator is Where there is a contravention of a licensed activity, NERSA responsible for the regulation of competition and may sit as a tribunal to decide on the allegation. antitrust in the renewable energy sector? 8.2 Are alternative dispute resolution or tiered dispute The Competition Commission (Commission) and Competition resolution clauses common in the renewable energy Tribunal (Tribunal), as established under the Competition Act sector? 89 of 1998 (Competition Act), are the responsible regulatory entities. This is not the regime under the REIPPP Programme; however, it is common in captive power projects between two private 7.2 What power or authority does the relevant entities. governmental authority or regulator have to prohibit or take action in relation to anti-competitive practices? 8.3 What interim or emergency relief can the courts grant? The Commission is empowered to investigate, control and evaluate restrictive business practices, abuse of dominant positions The grant of urgent or interim relief falls within the discretion and mergers. The Tribunal is the adjudicative body established in of the presiding judge. An applicant must demonstrate urgency terms of the Competition Act and is responsible for the approval by showing that, if it were to wait and bring a matter in the of large mergers, the adjudication of conduct prohibited in terms normal course, it will not be afforded substantial redress at a of the Competition Act, and the imposition of penalties. hearing in due course. If a merger is implemented in contravention of the Competition Act, the Tribunal may: (i) impose a penalty of up to 10% of each firm’s annual turnover; (ii) order divestiture; or (iii) declare any 8.4 Is your jurisdiction a party to and has it ratified the New York Convention on the Recognition and provision of a merger agreement void. In the case of prohibited Enforcement of Foreign Arbitral Awards and/or the practices, the Tribunal may make an appropriate order as delin- Convention on the Settlement of Investment Disputes eated in the Competition Act, including, inter alia, interdicting between States and Nationals of Other States and/or the prohibited practice, making various declaratory orders to any significant regional treaty for the recognition and remedy such practice, or imposing administrative penalties. enforcement of judgments and/or arbitral awards?

7.3 What are the key criteria applied by the relevant South Africa is a signatory to the New York Convention and has governmental authority or regulator to determine codified the UNCITRAL Model Law by way of the International whether a practice is anti-competitive? Arbitration Act 15 of 2017.

The Competition Act prohibits agreements or practices between 8.5 Are there any specific difficulties (whether as a competitors that substantially prevent or lessen competition in matter of law or practice) in litigating, or seeking to a market, unless a party to the agreement or practice can prove enforce judgments or awards, against government that technological, efficiency or other pro-competitive gains authorities or the state? outweigh the anti-competitive effect. In evaluating a merger, the Commission considers whether the There are no legal preclusions in litigating or seeking to enforce merger is likely to substantially prevent or lessen competition, judgments or awards against the government. Depending on as well as the impact which the merger will have on the public the government entity involved and the applicable legislation, interest. Following an investigation by the Commission (or a there may be procedural requirements to follow.

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8.6 Are there examples where foreign investors in the renewable energy between 2022 and 2027, of which 6,800 MW renewable energy sector have successfully obtained is allocated to wind and solar PV, and 513 MW to capacity gener- domestic judgments or arbitral awards seated in your ated from storage. As at the date of this publication, NERSA jurisdiction against government authorities or the state? has not provided its concurrence over the determination and accordingly the determination has not been gazetted. There are no reports of successful court judgments in favour On 5 May 2020, the Minister issued draft regulations for of foreign investors. This may be due to the absent or nominal public comment, amending the New Gen Regulations. The key litigation against the government by the sellers who have amendments provide for a municipality that is of good finan- concluded PPAs in the REIPPP Programme. Arbitration is cial standing to apply to the Minister to establish new genera- typically undertaken under confidentiality restrictions and arbi- tion capacity. tral awards are not publicly available. On 24 August 2020, the DMRE issued the request for proposals (RFP) for the Risk Mitigation IPP Procurement Programme, 92 Updates and Recent Developments pursuant to the determination issued on 7 July 2020 as detailed in question 1.3. This programme seeks to procure 2,000 MW from different types of dispatchable power generation projects. The 9.1 Please provide a summary of any recent cases, current bid submission date is 24 November 2020. new legislation and regulations, policy announcements, trends and developments in renewables in your jurisdiction.

On 20 March 2020, the Minister issued a draft section 34 determination for the procurement of a further 11,813 MW of

Jay Govender is a director and head of CDH’s Energy sector group. She has extensive experience, both for the public and private sectors, and has led a number of energy projects across Africa. Her areas of speciality in the energy sector extend to all aspects of power procurement, generation, transmission, distribution, supply and connection. She has advised on power purchase agreements, cross-border transmission infrastructure, power pool issues, wheeling, IPP procurement, greenfield and brownfield project-financed power projects, sovereign support and security structures, regulatory, governance, and on technologies of coal, wind, solar CSP, solar PV, landfill gas, biomass, gas, nuclear, coal, steam, diesel, co-generation, hydro and battery storage.

Cliffe Dekker Hofmeyr Inc (CDH) Tel: +27 011 562 1387 1 Protea Place Email: [email protected] Sandton, Johannesburg, 2196 URL: www.cliffedekkerhofmeyr.com South Africa

Emma Dempster is a director in the Energy sector group. Her areas of specialty extend to energy (including technologies of coal, wind, solar CSP, solar PV, landfill, biomass, gas, thermal energy, hydro, nuclear and carbon capture), drafting/negotiating power purchase agreements, EPC and O&M contracts, feedstock/fuel supply, project development agreements, off take agreements and transmission and distribution connection and related agreements, IPP procurement, greenfield and brownfield project-financed power projects, and regulatory issues governing the electricity sector.

Cliffe Dekker Hofmeyr Inc (CDH) Tel: +27 011 562 1194 1 Protea Place Email: [email protected] Sandton, Johannesburg, 2196 URL: www.cliffedekkerhofmeyr.com South Africa

Tessa Brewis is a director in the corporate and commercial practice. Her areas of speciality include project development, financing transactions and mergers and acquisitions in the energy sector. She has extensive experience in the secondary market for renewable energy projects. She also advises on a range of transactional and general corporate matters, including local and cross-border mergers and acquisitions, private equity, joint ventures and the formation, structuring and restructuring of business entities and large due diligence investigations.

Cliffe Dekker Hofmeyr Inc (CDH) Tel: +27 021 481 6324 11 Buitengracht Street Email: [email protected] Cape Town, 8001 URL: www.cliffedekkerhofmeyr.com South Africa

Alecia Pienaar is an associate within the corporate and commercial practice advising on environmental, regulatory and mining law. She has extensive experience advising on the environmental permitting and management obligations of energy projects, including solar, wind, hydro, nuclear, thermal and LPG. Her experience in the energy sector extends to renewable energy projects in other sub-Saharan jurisdictions and offering specialised legal advice on environmental and regulatory aspects central to project development, including climate change, biodiversity offsets, land use conflicts, administrative appeals, water use and protected areas.

Cliffe Dekker Hofmeyr Inc (CDH) Tel: +27 011 562 1017 1 Protea Place Email: [email protected] Sandton, Johannesburg, 2196 URL: www.cliffedekkerhofmeyr.com South Africa

With a track record spanning over 167 years, Cliffe Dekker Hofmeyr (CDH) our experts are also the go-to legal counsel on complex cutting-edge distinguishes itself in the South African legal market by forging powerful areas of energy & natural resources, oil & gas, M&A, infrastructure, PPPs, and longstanding partnerships with clients. A full service corporate law construction and public procurement. firm, CDH’s experts gain an in-depth understanding of each client’s busi- www.cliffedekkerhofmeyr.com ness, working closely with industry thought-leaders to bring company, country and continent firsts to fruition. In 2020, South Africa’s premier M&A rankings publication, DealMakers, named CDH the M&A Legal DealMakers of the Decade 2010–2019 – an unprecedented achievement. Our energy and infrastructure experts are a key component of this award-winning corporate practice, ushering in a new wave of energy security in sub-Saharan Africa and across the rest of the Africa. Our renowned specialists have earned a strong reputation across the continent for leading high-profile energy sector mandates. Proven innovators,

Spain Spain

Luis Gil Bueno

Gómez-Acebo & Pombo Abogados Ignacio Soria Petit

12 Overview of the Renewable Energy (vi) The energy marketing companies, which, by accessing the transmission or distribution networks, purchase energy Sector for sale to consumers, to other subjects in the system, or to carry out international exchange operations under the 1.1 What is the basis of renewable energy policy and terms established under the law. regulation in your jurisdiction and is there a statutory (vii) Storage facility owners, which are companies that own definition of ‘renewable energy’, ‘clean energy’ or facilities in which the final use of electricity is deferred equivalent terminology? for a time after the generation thereof, or who carry out the conversion of electrical energy into a form of energy The basis of the legal regime for renewable energy in Spain is that can be stored for the subsequent reconversion of said essentially comprised of two main pieces of legislation: (i) Law energy into electrical energy. 24/2013, of 26 December, on the Electricity Sector; and (ii) Royal Decree 413/2014, of 6 June, which regulates the activity 1.3 Describe the government’s role in the ownership of electricity production from renewable energy sources, cogen- and development of renewable energy and any policy eration and waste. commitments towards renewable energy, including Although the rules currently in force do not include a specific applicable renewable energy targets. definition of renewable energy, in accordance with the various rules governing this matter, it can be defined as the clean energ y The development and implementation of renewable energy in from intermittent and unmanageable non-storable primary energ y sources Spain has been based on the existence of successive regulatory such as solar, wind, tidal, geothermal and other similar sources. support frameworks that have been passed with the aim of: (i) allowing the participation of these production facilities in 1.2 Describe the main participants in the renewable the market; energy sector and the roles which they each perform. (ii) increasing the technical requirements to allow the system operator to integrate them under safe conditions, increasing In the renewable energy sector, the role of the various partici- their contribution to the energy balance of the electricity pants depends on the specific activity which they carry out, from system; and energy generation through to the delivery to the final consumer. (iii) ensuring adequate and strict compliance with the principle Thus, we can distinguish between: of reasonable profitability of these facilities, while guaran- (i) Producers, whose function is to generate energy, as well as teeing the financial sustainability of the system. to construct, operate and maintain the production facilities. In relation to the latter, the government, through this frame- (ii) The market operator, which manages the system of elec- work, has been establishing economic incentives for electricity tric power purchase and sale bids in the daily electric production facilities from renewable energy. power market under the terms established by regulation. In particular, the regulations in force provide for the possi- In Spain, this role is assigned to OMI-POLO ESPAÑOL, bility that the government may establish: a specific remuneration S.A. (OMIE). regime additional to the compensation for the sale of the energy (iii) The system operator, whose main function is to guarantee generated, valued at the production market price, to promote the continuity and security of the electricity supply and production from renewable energy sources, through compet- the correct coordination of the production and transmis- itive procedures; as well as a remuneration framework, based sion system. The system operator will be the transmission on the long-term recognition of a fixed price for the energy, system operator. In Spain, this function is performed by through competitive bidding procedures in which the product Red Eléctrica de España (REE). to be auctioned will be electrical energy, installed power or a (iv) The transmission system operator (REE), which is respon- combination of both and the variable on which it will be offered sible for transporting electric power and for constructing, will be the remuneration price of said energy. maintaining and operating transmission facilities. In this context, the government approved the Renewable (v) The distributors, which are the companies responsible Energy Plan 2011–2020 (PER), which aims to achieve at least for the function of distributing electric power, as well as 20% of gross final energy consumption in Spain from renew- constructing, maintaining and operating the distribution able sources by 2020, and is processing a draft bill on climate facilities designed to supply power at consumption points. change, as well as the National Integrated Energy and Climate

Plan (PNIEC) 2021–2030, which will define the objectives, storage facilities for sale or purchase in the electricity production actions and measures aimed at reducing greenhouse gas emis- market), or renewable energy communities (which are autono- sions, and increasing the penetration of renewable energy and mous legal entities based on open and voluntary participation, energy efficiency, in which framework the promotion of renew- controlled by partners that are located in the vicinity of renewable energy will play a major role. able energy projects owned and developed by such legal entities, and whose primary purpose is to provide environmental, 22 Renewable Energy Market economic or social benefits to their partners or to the local areas where they operate, rather than financial gain). 2.1 Describe the market for renewable energy in your jurisdiction. What are the main types of renewable 2.4 What is the legal and regulatory framework for the energy deployed and what are the trends in terms of generation, transmission and distribution of renewable technology preference and size of facility? energy?

According to information published by the system operator The regulatory framework currently in force for the gener- (REE), the Spanish electricity generation industry is increasingly ation, transmission and distribution of renewable energy is renewable. In fact, renewable energy now represents 49.3% of essentially regulated by the Electricity Sector Act and Royal the generation capacity in Spain, which has more than 108,000 Decree 1955/2000, of 1 December, on the Distribution and MW in its 2019 closing forecast. Transmission of Electricity. During 2019, non-polluting installed power has grown by 10% The National Markets and Competition Commission (CNMC, with the entry into operation of almost 5,000 new “green” MW. for its Spanish acronym) has also drawn up and approved various In this regard, photovoltaic solar energy, which closes 2019 regulatory circulars on transmission, distribution and genera- with more than 7,800 MW of installed power, has been the tech- tion. Among others, the following are particularly noteworthy: nology that has seen the greatest growth this year in the Spanish (i) Circular 3/2020, of 15 January, establishing the method- generation park, with an increase of 66% with respect to 2018. ology for calculating electricity transmission and distribu- On the other hand, wind power, which has added more than tion tolls (amended by Circular 7/2020, of 22 July); 1,600 new MW to its generation park, will end the year with (ii) Circular 5/2019, of 5 December, establishing the method- more than 25,200 MW installed in our country. ology for calculating remuneration for the activity of electricity transportation; and 2.2 What role does the energy transition have in the (iii) Circular 6/2019, of 5 December, establishing the method- level of commitment to, and investment in, renewables? ology for calculating remuneration for the activity of elec- What are the main drivers for change? tricity distribution. Additionally, the government and the CNMC are currently The energy transition is going to play a relevant role in the processing new regulations on access and connection to the implementation of renewable energy in Spain. In this regard, transmission and distribution grids, which are expected to be and as indicated above, the PER 2011–2020, the draft bill on enacted in the next few weeks. climate change and the PNIEC 2021–2030 include very ambitious targets which call for the promotion of renewable energy. 2.5 What are the main challenges that limit investment Specifically, and in accordance with this regulation, the emis- in, and development of, renewable energy projects? sions of the Spanish economy as a whole must be reduced by at least 20% by 2030 compared to 1990, and climate neutrality is The main challenge faced in the investment in and develop- to be achieved by 2050 at the latest. Furthermore, by 2030, it ment of renewable energy projects has been the lack, over the should be possible to achieve (i) an energy penetration of at least years and after successive changes of government, of a regula- 35% of final energy consumption from renewable sources, (ii) tory system that has provided legal certainty and stability to the an electricity system with at least 70% of generation from renew- remuneration framework for renewable energy, as well as to the able sources, and (iii) improved energy efficiency by reducing future income that these facilities would receive. primary energy consumption by at least 35%. The above uncertainties have been solved, and the currently In order to achieve these goals, the government will imple- applicable framework provides legal certainty and stability for ment a series of tax and economic incentives, and new auctions investors. In this sense, reference should be made to the enact- of renewable energy are planned. To this end, the government ment of Royal Decree Law 17/2019, of 22 November, which sets: has begun processing a draft Royal Decree on renewable energy (i) the reasonable rate of return applicable in the second regu- auctions by opening a hearing and pleading procedure. latory period (i.e., 2020–2025) at 7.09%; (ii) a reasonable rate of return for production activity in non-peninsular electricity 2.3 What role, if any, has civil society played in the systems of 5.58%; and (iii) the maintenance of the reasonable promotion of renewable energy? rate of return for the facilities commissioned before July 2013 for 12 years (i.e., 2020–2031) at 7.398%, subject to compliance Civil society has played, and can play, a relevant role in the with certain conditions. promotion of renewable energy through the promotion of installation projects that use renewable energy. 2.6 How are large utility-scale renewable power In fact, new players have recently been created in the frame- projects typically tendered? work of production through renewable energy sources, such as independent aggregators (which are participants in the elec- Traditionally, legal and economic regimes were linked to the tricity production market that provide aggregation services, achievement of certain power capacity targets. However, which is the activity of combining the consumption or gener- after these targets were exceeded and following the regulatory ation of electricity from multiple consumers, producers or

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changes that this entailed, the decision was taken to hold energy on equal terms with other technologies and obtain a reason- auctions, in which the product to be awarded was power. This able return by reference to the standard installation applicable was carried out in auctions held in 2016 and 2017, in which the in each case. objective was to provide economic support to be able to boost the amount of installed power and not the energy generated. 3.3 What are the main sources of financing for the In this regard, a new regulation is currently being processed to development of utility-scale renewable power projects? regulate holding renewable energy auctions in Spain. According to the draft submitted to public information, the product auctioned will be a quota of capacity to be installed and/or the electricity The main sources of financing are private capital, attracted, to be fed into the grid (or a combination of both), and will be among other factors, by the benefits that the specific remu- awarded to the lowest bids until the established quota is reached. neration regime brings to these facilities. Additionally, green In addition, more demanding technical requirements may be loans and green bonds are increasingly common, which are lines included, as well as discrimination by production technology, and of financing (in some cases with preferential interest) that are additional criteria may be established so that certain projects with intended for projects whose purpose is to promote environ- specific characteristics (i.e. small size, demonstration projects mental sustainability. and energy communities) may compete on equal terms. Likewise, both in Spain and in Europe, there are subsidies and funds available for the promotion of these types of renewable power projects. 2.7 To what extent is your jurisdiction’s energy demand met through domestic renewable power generation? 3.4 What is the legal and regulatory framework applicable to distributed renewable energy? According to the latest data for 2019 published by the system operator (REE), renewables already represent 49.3% of the total electricity generation in Spain, which has allowed part of the The regulatory framework is, in general terms, the same as electricity demand to be covered by this type of energy, to the stated above: (i) the Electricity Sector Act; (ii) Royal Decree extent that over 70% of the instantaneous electricity demand is 1955/2000; and (iii) Royal Decree 413/2014. covered with electricity from renewable energy sources. 3.5 Are there financial or regulatory incentives 32 Sale of Renewable Energy and Financial available to promote investment in distributed renewable Incentives energy facilities?

Distributed renewable energy facilities do not have a specific 3.1 What is the legal and regulatory framework for the sale of utility-scale renewable power? incentives scheme (renewable energy incentives shall apply provided that the relevant facilities are eligible for said regime). Having said that, there are specific regulations – namely, The legal and regulatory framework is regulated, essentially, in Royal Decree 244/2019 regulating the administrative, tech- the following provisions: (i) Law 24/2013, of 26 December, on nical and economic conditions of the self-consumption of elec- the Electricity Sector; (ii) Royal Decree 413/2014, of 6 June, tric energy – which promote the self-consumption of energy by which regulates the activity of electricity production from easing the regulatory process for small-scale producers. renewable energy sources, cogeneration and waste; and (iii) Order TED/171/2020, of 24 February, updating the remuneration parameters for standard installations regarding the regula- 3.6 What are the main sources of financing for the tory period commencing on 1 January 2020. development of distributed renewable energy facilities?

The main sources of financing are private capital, attracted, 3.2 Are there financial or regulatory incentives available to promote investment in/sale of utility-scale among other factors, by the benefits that the specific remu- renewable power? neration regime brings to these facilities. Additionally, green loans and green bonds are increasingly common, which are lines of financing (in some cases with preferential interest) that are The main financial incentive is the specific remuneration regime. intended for projects whose purpose is to promote environ- Under this regimen, facilities using renewable energy are enti- mental sustainability. tled to receive during all their regulatory lifetime, in addition to Likewise, both in Spain and in Europe, there are subsidies the remuneration for the sale of energy valued at market prices, a and funds available for the promotion of these types of renew- specific remuneration composed of the following terms: able power projects. (i) A term per unit of installed power that covers, where appropriate, the investment costs for each standard installation that cannot be passed on through the sale of energy 3.7 What is the legal and regulatory framework that on the market, referred to as investment remuneration. applies for clean energy certificates/environmental (ii) A term for the operation that covers, where applicable, the attributes from renewable energy projects? difference between the operating costs and the operating income of the corresponding standard installation, which The legal and regulatory framework is regulated, essentially, is called the remuneration for the operation. by: Directive 2001/77/EC of the European Parliament and of The remuneration for the investment and, if applicable, the the Council of 27 September 2001; and Order ITC/1522/2007, remuneration for the operation will make it possible to cover of 24 May, which establishes the regulation of the guarantee of the higher costs incurred by facilities for the production of elec- origin of electricity from renewable energy sources and high tricity from renewable energy sources, so that they can compete efficiency cogeneration.

3.8 Are there financial or regulatory incentives or (iv) Technical Access Contract: to be signed with REE (the mechanisms in place to promote the purchase of transmission system operator) in order to regulate the renewable energy by the private sector? characteristics of the access and connection granted to the project. There are no financial or regulatory incentives or mechanisms in place. However, there are certain legal instruments that aim 4.4 What are the requirements for renewable energy to promote the purchase of renewable energy. facilities to be connected to and access the distribution These are, for example, PPAs (Power Purchase Agreements), network(s)? which are agreements for the long-term purchase and sale of clean energy at a fixed price between a renewable developer and The same procedure as in the access and connection to the a consumer – generally companies that need large amounts of transmission network must be followed. However, the different electricity – or between a developer and a marketer who will stages of the procedure will be carried out before the distri- resell the energy, and whose main advantage is a competitive, bution company (for installations or groups of installations of stable and predictable energy price. more than 10 MW with a planned connection to the distribution There are also guarantees of origin (GoOs), which are instru- grid, acceptance from REE is required concerning the trans- ments that prove that an amount of electricity has been produced mission grid). by renewable sources, and which have a high value in the market given their usefulness for benefiting from certain incentives (for the use of clean energy), as well as for providing an eco-friendly 4.5 Are microgrids able to operate? If so, what is the legislative basis and are there any financial or corporate image. This has led to the signing of contracts in which regulatory incentives available to promote investment in a producer sells GoOs to a third party (national or international). microgrids? The GoOs are then used by that buyer to benefit from these incentives or advantages or to enhance its corporate social image. Currently, there is no ruling that expressly regulates the develop- 42 Consents and Permits ment and implementation of micro networks. The closest regulations for these types of installations are those related to self-consumption facilities, regulated, essen- 4.1 What are the primary consents and permits tially, in Royal Decree 900/2015, of 9 October, and Royal required to construct, commission and operate utility- Decree 1699/2011, of 18 November. scale renewable energy facilities? 52 Storage For the construction and subsequent start-up of renewable energy facilities from the perspective of the electricity sector, 5.1 What is the legal and regulatory framework which the following authorisations are required in the electricity sector: applies to energy storage and specifically the storage of (i) Prior administrative authorisation, which grants the devel- renewable energy? oper the right to develop a specific facility under certain conditions. (ii) Administrative construction authorisation, which allows Currently, there is no ruling that specifically regulates energy the developer to carry out the construction of the facility storage. Only after the approval of Royal Decree-Law 23/2020, (the processing and resolution of this authorisation and the previous of 23 June, have the owners of storage facilities been incorpo- one may be carried out consecutively, concurrently or jointly). rated into the Electricity Sector Act as another subject of the (iii) Operating permit, which allows the facilities to be put into activities aimed at supplying electricity. operation. Nevertheless, a Storage Strategy is currently being processed (iv) Registration in the Administrative Register of Electricity (which has been submitted for public consultation), in order to Production Facilities. achieve the objectives established in the PNIEC with regard to the development of the regulatory framework and the promotion of storage. 4.2 What are the primary consents and permits required to construct, commission and operate distributed renewable energy facilities? 5.2 Are there any financial or regulatory incentives available to promote the storage of renewable energy? These are the same permits as indicated in question 4.1. Within the framework of the aforementioned Strategy, the role of storage facility owners and developers will be defined and, in 4.3 What are the requirements for renewable energy particular, the recognition of incentives for this activity. facilities to be connected to and access the transmission network(s)? 62 Foreign Investment and International In order to access and connect to the transmission grid, the Obligations following procedure must be completed: (i) Constitution of a guarantee, amounting to 40 €/kW 6.1 Are there any special requirements or limitations installed. on foreign investors investing in renewable energy (ii) Access procedure: to determine the existence of access projects? capacity at the requested point in the transportation grid. (iii) Connection procedure: to determine the technical condi- There are some limitations on certain foreign investments (from tions of connection and the works to be carried out, if residents of countries outside the European Union and the applicable, for connection to the grid. European Free Trade Association, or made by residents of these

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countries but which are actually owned by residents of countries (v) to supervise the regulatory proposals made by govern- outside the latter) in energy infrastructure. Specifically, prior ments to comply with the principles of competition and government authorisation will be required in the following cases: efficient regulation, with the capacity to challenge regula- (i) when the investor holds an interest of 10% or more of the tions ranking less than a law. share capital of the Spanish company, or where, as a result of the corporate transaction, act or legal transaction, the 7.3 What are the key criteria applied by the relevant investor has an effective interest in the management or governmental authority or regulator to determine control of the company; whether a practice is anti-competitive? (ii) when the foreign investor is directly or indirectly controlled by the government; In the context of operations involving generation facilities from (iii) when the foreign investor has made investments or partici- renewable energy sources, the key matters that the CNMC could pated in activities in sectors affecting security, public order monitor would be those related to the possible existence of: and public health in another Member State; or (i) concentrations of generating companies that may limit free (iv) if proceedings have been initiated, whether administrative competition in the market; as well as (ii) anti-competitive prac- or judicial, against the foreign investor in another Member tices, such as price fixing or production limitation. State, in their home State or in a third State for criminal or illegal activities. 82 Dispute Resolution

6.2 Are there any currency exchange restrictions 8.1 Provide a short summary of the dispute resolution or restrictions on the transfer of funds derived from framework (statutory or contractual) that typically investment in renewable energy projects? applies in the renewable energy sector, including procedures applying in the context of disputes between Currently, there are no currency exchange restrictions. any applicable government authority/regulator and the private sector.

6.3 Are there any employment limitations or requirements which may impact on foreign investment in Disputes that may arise in the renewable energy sector can be renewable energy projects? either with the public authorities or between private parties. As regards the former, disputes that may arise are: (i) Administrative procedures, which are resolved by the Currently, there are no limitations or requirements. administration itself, and which are usually linked to the existence of defects in the administrative process for 6.4 Are there any limitations or requirements related to processing the plants. equipment and materials which may impact on foreign (ii) Judicial procedures, which are resolved by the courts and investment in renewable energy projects? tribunals of the contentious administrative order. These procedures may be initiated as a result of the outcome of Currently, there are no limitations or requirements. the administrative proceedings or in connection with the appeal against the regulations approved by the government. 72 Competition and Antitrust (iii) Arbitration procedures, which are resolved by an arbitral tribunal. These proceedings are usually initiated against rulings of the ordinary courts. In recent years, several 7.1 Which governmental authority or regulator is proceedings have been initiated against changes made by responsible for the regulation of competition and the government to the special remuneration regime for elec- antitrust in the renewable energy sector? tricity production facilities from renewable energy sources. As regards the private sector, the disputes that may arise are: In Spain, this role is assumed by the CNMC, whose main objec- (i) Civil procedures, which are resolved by the courts and tive is to guarantee, preserve and promote the correct func- tribunals of the civil order, and that may be linked to tioning, transparency and existence of effective competition in conflicts in relation to the signing and execution of EPC all markets and productive sectors. (Engineering, Procurement and Construction), O&M (operation and maintenance), PPAs, and equipment supply 7.2 What power or authority does the relevant contracts, among others. governmental authority or regulator have to prohibit or (ii) Arbitration procedures, which are resolved by an arbitral take action in relation to anti-competitive practices? tribunal.

In accordance with Law 3/2013, of 4 June, the CNMC has been 8.2 Are alternative dispute resolution or tiered dispute assigned various functions, including: resolution clauses common in the renewable energy (i) to investigate and sanction anti-competitive practices; sector? (ii) to authorise concentrations or mergers of companies and monitor them; In general, all procedures related to public administration must (iii) to supervise the conduct of companies operating in regu- be resolved, at least initially, before the Spanish courts. lated markets, processing and resolving, where appro- As for private agreements and contracts, the choice of juris- priate, sanctioning procedures for practices that are diction depends on the will of the parties, and it is common contrary to the regulation of economic sectors; for disputes to be brought either before the courts of the place (iv) to supervise the application of regulations in the energy, where the company has its registered office or before arbitra- telecommunications, audiovisual, postal and transport tion tribunals. sectors; and

8.3 What interim or emergency relief can the courts ■ Spain must achieve climate neutrality no later than grant? 2050. ■ By 2050, Spain’s electricity system must be 100% renewable. Courts may adopt certain measures, known as precautionary ■ By 2030, at least 35% of final energy consumption measures, which, in general, seek to avoid the commission of must be of renewable origin. In the case of the elec- any damage or harm that is difficult to repair. tricity system, at least 70% must be renewable by 2030. In this regard, it is estimated that the ecological transi- 8.4 Is your jurisdiction a party to and has it ratified tion process is key to the country’s economic recovery and the New York Convention on the Recognition and could create between 250,000 and 300,000 jobs per year. Enforcement of Foreign Arbitral Awards and/or the (ii) PNIEC 2021–2030: The objectives of the Climate Change Convention on the Settlement of Investment Disputes and Energy Transition Bill will be implemented through between States and Nationals of Other States and/or any significant regional treaty for the recognition and successive National Integrated Energy and Climate Plans. enforcement of judgments and/or arbitral awards? This first Plan, which has been submitted to the European Commission for validation, pursues the following objectives: ■ Create between 250,000 and 364,000 jobs over the Spain has ratified the New York Convention, of 20 June 1977, decade (in the renewable energy sector, this accounts and the Washington Convention, of 2 September 1994. for between 102,000 and 182,000 jobs per year). It is also worth noting that Spain applies Regulation (EU) ■ To reduce energy dependence on foreign countries by No 1215/2012 of the European Parliament and of the Council, 15%, from the current 74% to 59%. of 12 December 2012, on jurisdiction and the recognition and ■ To boost renewable energy until it accounts for 42% enforcement of judgments in civil and commercial matters. of total energy and 74% in the case of electricity generation. 8.5 Are there any specific difficulties (whether as a ■ By 2050, the aim is for the electricity system to be matter of law or practice) in litigating, or seeking to based 100% on clean energy. enforce judgments or awards, against government (iii) Draft Royal Decree regulating the economic regime authorities or the state? for renewable energy for power generation facilities: In order to promote the introduction of renewables in the As regards the domestic claims, there are no difficulties in system, this Royal Decree has been drawn up to develop enforcing judgments against the government. a new remuneration framework for renewable generation, With regard to the enforcement of international awards or based on the long-term recognition of a fixed price for decisions passed against the government, there are more diffi- energy, thus offering predictability and stability in income culties, a priori, since all States (Spain is not an exception) usually to the sector. claim that their assets cannot be seized due to their public The new remuneration framework will be granted through nature. However, although this makes the execution process auctions in which the product to be auctioned will be elec- more difficult, in the end such decisions or awards are enforced trical energy, installed power or a combination of both, and (in fact, international awards are usually voluntarily fulfilled). the variable on which it will be offered will be the remuneration price of said energy. A distinction may be made between various generation technologies on the basis of 8.6 Are there examples where foreign investors in the renewable energy sector have successfully obtained their technical characteristics, manageability levels, loca- domestic judgments or arbitral awards seated in your tion criteria, technological maturity and those others that jurisdiction against government authorities or the state? guarantee the transition to a decarbonised economy. In addition, it is foreseen that the General State Budget will allocate to the promotion of renewable energy an Both at the domestic and international level, there are many amount equivalent to the sum of the estimated annual examples of rulings against government authorities or the State revenue derived from the taxes included in the Law on itself. fiscal measures for energy sustainability. (iv) Draft Royal Decree on access and connection to the 92 Updates and Recent Developments transmission and distribution networks: This Royal Decree, which is currently being processed, will estab- 9.1 Please provide a summary of any recent cases, lish the new process for granting access and connection new legislation and regulations, policy announcements, permits to the electricity transmission and distribution trends and developments in renewables in your networks, a prior and necessary step for the installation of jurisdiction. new renewable energy plants. According to the text set out in the draft, the general crite- Regulatory activity in Spain in the field of renewable energy has rion for the granting of access and connection rights is been very significant in recent months, with numerous regu- priority in time. The date of submission of the applica- lations undergoing parliamentary process for approval. With tion to the network operator or the date of rectification regard to this regulatory activity, it is worth highlighting the of the application, if necessary, will be used as an indi- following pieces of legislation: cator. However, three exceptions are established: installa- (i) Climate Change and Energy Transition Bill: This legis- tions awarded in possible capacity competitions; hybridisa- lation, currently being processed in the Spanish Parliament, tion of installations with requested access and connection aims to make the Spanish electricity system 100% renew- permits; and installations with expired permits, or whose able by 2050. To this end, the following objectives, among promoters have renounced them, and which submit an others, have been set:

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application within the first month after the approval of the ■ It introduces a new remuneration framework, in addi- Royal Decree by the government and the corresponding tion to the specific remuneration system in force, for Circular by the CNMC. renewable electricity generation and based on the The draft Royal Decree provides for the possibility of long-term recognition of a fixed price for energy (as holding capacity competitions on an optional basis and by set out above). Ministerial Order. These calls, which will not be made ■ It simplifies and speeds up the processing of renew- through auctions, can only be applied to new nodes that able projects and the associated electrical infrastruc- are introduced through a new planning process, or those ture. Among others, it regulates the cases in which the in which the installed capacity is released. Only renewable developer will not need to renew certain authorisations generation facilities, which may also include storage, may if it modifies the project in a non-substantial manner. participate. ■ New business models are incorporated into the Spanish This Royal Decree also aims to promote renewable legal system: storage; hybridisation; and independent hybridisation and expressly includes storage projects. aggregator. Renewable energy communities are regu- Specifically, storage facilities that can feed energy into the lated and the government is empowered to regu- grid will be treated as generation facilities for the purposes late a special authorisation procedure for R&D&I of processing access and connection permits, eliminating installations. the legal uncertainty that currently exists. ■ The use of surplus income is authorised to cover any Finally, together with this Royal Decree, the CNMC’s possible imbalances and deviations between revenues Circular on access and connection must be approved, and costs of the system in 2019 and 2020. which aims to unify the processing of access and connec- Finally, and regarding the cases and rulings, there has recently tion permits, with the operator of the network to which the been a proliferation of arbitration awards issued on energy connection is requested acting as the single point of contact, matters, in which the trend has been to estimate the claims and to eliminate the figure of the single node interlocutor, of investors in relation to the damages incurred as a result of which has generated quite a few inefficiencies and whose the cut in remuneration for renewable energy by the Spanish action is behind a large number of the access conflicts that government and Spain’s failure to comply with the Energy have been submitted in recent years to the CNMC. Charter Treaty. (v) Royal Decree-Law 23/2020, of 23 June, approving meas- This has meant that convictions against Spain for the damage ures in the field of energy and other areas for economic caused by the cut in energy premiums now exceed € 1 billion, recovery: This recently approved ruling has introduced including legal costs. measures in the field of energy, of which the following should be highlighted:

Luis Gil Bueno, Of Counsel of the Department of Administrative and Regulatory Law, holds a Law Degree (1995) from the Complutense University of Madrid. Additionally, he has completed an Advanced Course on Energy Law (Instituto de Empresa, 2001) and a Master’s in Competition Law (Universidad Juan Carlos I, 2004). Luis joined Gómez-Acebo & Pombo Abogados in 1998, where he was a member of the Financial Services Department until 2002. From 2002 to 2006, he served as a member of the legal team for liberalised activities (gas and electricity) for the Gas Natural Fenosa Group of companies. In 2006, Luis returned to Gómez-Acebo & Pombo Abogados, this time in the Public Law Department. Luis is fluent in Spanish, English and French.

Gómez-Acebo & Pombo Abogados Tel: +34 91 582 91 00 Paseo de la Castellana, nº 216 Email: [email protected] 28046, Madrid URL: www.ga-p.com Spain

Ignacio Soria Petit, an associate of the Department of Administrative and Regulatory Law, holds a Double Degree in Law (2013) and Business Administration (2014) at Pontificia Comillas University (ICADE), with a specialisation in Business Law. Additionally, he has completed an executive programme in Business Law at Centro de Estudios Garrigues. Ignacio was an associate lawyer in the Administrative Law, Urban Planning and Environment department of J&A Garrigues, S.L.P. from September 2014 to November 2019. In November 2019, he joined Gómez-Acebo & Pombo Abogados, where he is an associate attorney in the Department of Administrative and Regulatory Law and, in particular, on the energy team. Ignacio is fluent in Spanish and English.

Gómez-Acebo & Pombo Abogados Tel: +34 91 582 91 00 Paseo de la Castellana, nº 216 Email: [email protected] 28046, Madrid URL: www.ga-p.com Spain

Gómez-Acebo & Pombo Abogados is an international law firm whose aim ■ Operations for the purchase and sale of companies and all their vari- is to provide value to its clients through innovative, practical and successful ants, mergers and acquisitions, takeover bids and regulatory compe- legal strategies. tition issues. In particular, the Energy Group is made up of a multidisciplinary team of ■ Financing, refinancing and syndicated financing operations, specific lawyers to ensure that all the branches of law affected by the operations governmental and European portfolio funds. are covered with the maximum level of quality. We have the best specialists www.ga-p.com in the fields of procedural, regulatory, urban planning, competition, environment, mergers, acquisitions and financial sectors, all integrated to form a cohesive group capable of responding to the complexity of these projects. Our experience covers electricity and gas, water, oil and renewable energy. We are able to provide an answer to the complexity entailed in all types of projects and investments, thereby allowing the development of specific avenues in order to adapt to the problems and challenges of each case, such as: ■ Global or specific advice for the construction, acquisition, sale, operation and management of infrastructure that produces and distrib- utes electricity.

United Arab Emirates Emirates Arab United

Mhairi Main Garcia

Dentons & Co. Stephanie Hawes

12 Overview of the Renewable Energy The Ministry of Energy and Infrastructure is responsible for establishing policies for, among other things, the electricity Sector sector in the UAE and compliance with such policies. However, the Ministry of Energy and Infrastructure has limited influence 1.1 What is the basis of renewable energy policy and in directing policy and implementing projects in the Emirates regulation in your jurisdiction and is there a statutory of Abu Dhabi and Dubai and primarily focuses on addressing definition of ‘renewable energy’, ‘clean energy’ or the growing electricity demand in the Northern Emirates. The equivalent terminology? Ministry of Energy and Infrastructure works in conjunction with FEWA to implement the Federal Government’s electricity The United Arab Emirates (the “UAE”) was established in policy in the Northern Emirates. 1971 as a federation of emirates. There are seven emirates, each FEWA was established pursuant to Federal Decree No. 3 of with its own Ruler: Abu Dhabi; Ajman; Dubai; Fujairah; Ras 2004 (as amended) (the “FEWA Law”). FEWA is the entity Al Khaimah (“RAK”) (which joined the federation in 1972); responsible for the generation, transmission and distribution of Sharjah; and Umm Al Quwain. water and electricity, including renewable energy, in the Northern The UAE has both federal and emirate-level laws and regula- Emirates. FEWA is authorised to establish private power gener- tions, which govern its renewable energy regime. It has devel- ation plants in the Northern Emirates on condition of compli- oped policies as part of its strategy to diversify its economy away ance with environmental standards and legislations. A number from oil and gas. of such projects have been developed. Under the FEWA Law, The UAE launched its Energy Strategy 2050 in 2017, the the General Authority has sole responsibility for providing elec- first unified energy strategy in the UAE based on supply and tricity and water to citizens at prices achieving equality among demand, which aims to deliver clean, secure, affordable energy them throughout the state. FEWA accordingly acts as the single and reduce greenhouse gases. In addition, strategies have been point of sale for power generation in the Northern Emirates. set at emirate level; for example, Dubai has an Energy Strategy 2050, which includes even more ambitious targets than the UAE Abu Dhabi Energy Strategy 2050. The main participants in the renewable energy sector in Abu The UAE has no statutory definition of “renewable energy”, Dhabi are the Abu Dhabi DOE, EWEC and AD Power, as well or an equivalent. as private sector participants. The Department of Energy (“Abu Dhabi DOE”) was established in 2018 pursuant to Law No. 11 of 2018 (the “DOE Law”) 1.2 Describe the main participants in the renewable to control and supervise participants in the energy sector. In energy sector and the roles which they each perform. the same year, Law No. 20 of 2018 (the “EWEC Law”) established the Emirates Water and Electricity Company (“EWEC”) The main participants in the renewable energy sector in the as the provider of water and electricity. Abu Dhabi’s electricity UAE are generally the same entities which participate in the was thus restructured in 2018 such that the Abu Dhabi DOE conventional electricity generation, transmission and distribu- is the single regulator of the electricity and water sector in Abu tion sectors. Dhabi (in place of Abu Dhabi Water and Electricity Authority The Federal Ministry of Energy and Infrastructure regulates (“ADWEA”) and the Regulation and Supervision Bureau); Abu the sector at a federal level. Electricity services are expressly Dhabi Water and Electricity Company was replaced by EWEC; reserved to the Federal Government in accordance with article and the commercial participation of Abu Dhabi in the sector 120 of the UAE Constitution. However, notwithstanding such was transferred from ADWEA, a government authority, to Abu exclusive jurisdiction, there are different authorities across the Dhabi Power Corporation (“AD Power”). emirates in the UAE in the renewable energy sector which The Abu Dhabi DOE is the entity responsible for granting govern the process of generation, transmission and distribu- generation and production licences; its role includes the organ- tion of electricity. As the most significant emirates in terms of isation of the energy sector in all aspects through the develop- economic activities and development of renewables, this chapter ment of policies, standards, regulations, decisions and executive will primarily focus on the regimes applicable in the Emirates of and operational circulars, to control and supervise the energy Abu Dhabi and Dubai. sector and to license the energy sector. The “energy sector” is At a federal level, the main participants in the renewable defined broadly under the DOE Law to include the generation, energy sector are the Ministry of Energy and Infrastructure and storage, transportation, distribution, supply, sale and purchase the Federal Electricity and Water Authority (“FEWA”). of electricity of all kinds (clean, renewable, traditional).

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EWEC was established to replace the Abu Dhabi Water and initiate and manage projects related to electricity generation in Electricity Company and has the power to enter into contracts to order to meet public needs and the development requirements of produce and distribute water and electricity in Abu Dhabi. Under the Emirate of Dubai. the EWEC Law, EWEC is the sole provider of water and electricity within the geographical scope to be determined by Abu Northern Emirates Dhabi’s Executive Council and is responsible for ensuring the In the Emirate of Sharjah, Sharjah Electricity and Water supply of water and electricity to meet demand, unless the “Side Authority (“SEWA”) was established in 1995 pursuant to Decree Sales System” is implemented (as to which, please see question No. 1 of 1995 (as amended) and is responsible for the generation, 3.1 below). EWEC has an express obligation to adopt policies to transmission and distribution of electricity. SEWA is author- diversify the sources of water and electricity production capacity ised to set electricity tariffs and connection fees, subject to the to achieve economic, environmental and social sustainability, and approval of the Ruler. SEWA’s Vision 2025 includes the aim of encourage investment by, and partnership with, the private sector. transforming Sharjah into a “green giant” and ensuring carbon AD Power is a government corporation owned by Abu Dhabi neutrality in the emirate, including prioritising the synergy Development Holding Company, a government-owned company between energy efficiency and renewable energy. mandated to owning, overseeing and operating development- In the Northern Emirates of Fujairah, RAK and Umm Al related state-owned enterprises in a number of sectors, including Quwain, FEWA is responsible for the generation, transmission utilities. AD Power was established, among other things, to and distribution of electricity. invest in projects and establish subsidiaries. In addition, in RAK, RAK Electricity and Water Authority Abu Dhabi has also established the Abu Dhabi Future Energy (“RAK Authority”) was established in 2013 pursuant to RAK Company (“Masdar”) to assist the UAE “in the global energy Decree No. 4 of 2013 to regulate the ownership, management, sector, while supporting the diversification of both its economy operation and maintenance of power generation plants, desali- and energy sources for the benefit of future generations”. nation plants, water fields, and power transmission and distribu- Masdar set up a city in 2009, Masdar City, which includes the tion networks located in the Emirate of RAK. RAK Authority first grid-connected renewable energy project in the UAE. is responsible for ensuring that the electricity sold to consumers is sold on a fair and transparent basis. RAK Authority does not Dubai have detailed regulatory powers comparable with those held by The main participants in the renewable energy sector in Dubai the Abu Dhabi DOE or the Dubai RSB. While RAK Authority are the Dubai SCE, the Dubai RSB and DEWA, as well as must ensure fair and transparent pricing for consumers and private sector participants. references various standards, there are no express provisions The Supreme Council of Energy (the “Dubai SCE”) was relating to the regulation of generation entities and ensuring established in Dubai in 2009 pursuant to Dubai Law No. 19 of competition in the sector. 2009 to, among other things, ensure effective planning for the energy sector in the Emirate of Dubai and to regulate rights and 1.3 Describe the government’s role in the ownership duties of energy service providers, including any public or private and development of renewable energy and any policy entity licensed to generate, transmit and distribute electricity to commitments towards renewable energy, including consumers. The mandate of the Dubai SCE includes ensuring applicable renewable energy targets. compliance by energy service providers with the policies approved for the energy sector, amicable resolution of disputes Large, utility-scale renewable energy projects are procured that may arise between energy service providers, proposing the through government-owned entities. The government, whether required level of government support for the energy sector to at a federal or emirate level, has a controlling interest in utili- the Dubai Executive Council and ensuring an adequate and ty-scale projects. The private sector is permitted to partner with continuous supply of electricity at economical prices. government entities in order to generate electricity, typically The Regulatory and Supervisory Bureau (the “Dubai RSB”) holding an interest of 40% or 49%; however, this is currently was established in 2010 pursuant to Dubai Executive Council limited to generation only. Resolution No. 2 of 2010 (the “RSB Resolution”). The Dubai The key deliverable of the UAE Energy Strategy 2050 is for the RSB forms part of the Dubai SCE and is, among other things, UAE to produce 50% of its energy targets from “clean sources”. responsible for regulating the electricity sector in the Emirate The strategy divides the 2050 targets as follows: 44% renewable of Dubai, including setting out the economic, technical, envi- energy; 6% nuclear energy; 38% natural gas; and 12% from clean ronmental and safety standards, establishing quality standards, fossil energy. developing the tariff structure and supervising licensed entities In addition, some of the emirates have set targets. For example, to ensure that they are in compliance with the approved stand- Dubai has set targets under its Energy Strategy 2050, which ards. The Dubai RSB considers and approves licensing requests include 7% clean and renewable energy by 2020 (this target has in accordance with the approved standards and controls, and already been achieved), increasing to 25% by 2030 and 75% by supervises compliance of licensees in the Emirate of Dubai. 2050. RAK, under its Energy Efficiency and Renewables Strategy Dubai Electricity and Water Authority (“DEWA”) was estab- 2040, has set targets of 30% energy savings, 20% water savings lished in 1992 pursuant to Dubai Law No. 1 of 1992 (as amended). and 20% contribution from renewables by 2040, with a target of DEWA is a public authority wholly owned by the Government 44% renewables by 2050. of Dubai. It benefits from corporate status and is financially and administratively independent from the Government of Dubai. DEWA is responsible for setting up, managing, oper- 22 Renewable Energy Market ating and maintaining power generation and water desalination stations, water reservoirs, and power and water transportation 2.1 Describe the market for renewable energy in your and distribution networks and systems in the Emirate of Dubai. jurisdiction. What are the main types of renewable DEWA is the entity in the Emirate of Dubai which is exclusively energy deployed and what are the trends in terms of authorised, among other things, to establish, manage, operate, technology preference and size of facility? maintain and own electricity generation plants, power transmission and distribution networks in the Emirate of Dubai and to The main type of renewable energy deployed in the UAE is solar

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energy. In particular, Dubai and Abu Dhabi have pursued ambi- 2.3 What role, if any, has civil society played in the tious solar energy projects as part of their energy diversification promotion of renewable energy? strategies, with large utility-scale solar photovoltaic (“PV”) and concentrated solar power (“ ”) projects. CSP There are various non-profit organisations which are proactive In Dubai, after an initial foray into solar with a 13MW solar in liaising with both public and private sector stakeholders to PV plant which became operational in 2013, in 2014 Phase II facilitate the promotion of renewable energy in the UAE (and of Dubai’s Mohammed bin Rashid Al Maktoum Solar Park the region), including the Clean Energy Business Council, the was tendered as a 100MW solar PV power project; the project Middle East Solar Industry Association, the EU-GCC Clean achieved a record-breaking tariff in the absence of subsidies Energy Network and Emirates Environmental Group. and doubled its size to 200MW, becoming operational in 2017. Phase III followed in 2016, a massive 800MW of PV and another record-breaking tariff. This was followed in 2017 by Phase IV, 2.4 What is the legal and regulatory framework for the a 700MW CSP project upsized to 950MW (100MW CSP tower, generation, transmission and distribution of renewable 600MW CSP parabolic trough and 250MW solar PV), the largest energy? single-site CSP project in the world. In 2019, the 900MW Phase V was tendered, attracting (at that time) the lowest ever tariff bid The UAE has introduced a number of laws at a federal and for solar PV; with the project being awarded in 2020. emirate level to regulate the generation, transmission and distri- In Abu Dhabi, the Masdar City 10MW solar PV plant became bution of renewable energy. Details on the applicable laws are operational in 2009, the first grid-connected renewable energy set out in question 1.2. Please see also question 3.4 below in rela- project in the UAE. Another Masdar project, the Shams 1 solar tion to distributed solar energy/rooftop solar. power project, a 100MW CSP plant, using parabolic trough The transmission and distribution of electricity (including elec- technology, became operational in 2013. In 2019, the Sweihan tricity generated from renewables) in the UAE remains state- solar PV power project, which was tendered in 2016, became owned and controlled. In Abu Dhabi, the Abu Dhabi Transmission operational, having previously achieved a record tariff, and and Despatch Company (“Transco”) is responsible for operating the project was upsized from the initial 350MW to a colossal Abu Dhabi’s transmission networks and supplies electricity to 1,177MW. Most recently, EWEC tendered a 2GW solar plant in two distribution companies (Abu Dhabi Distribution Company Al Dhafra in 2019, which was awarded in 2020. (“ADDC”) and Al Ain Distribution Company (“AADC”)), both A number of the emirates are considering solar energy, both wholly owned by the Abu Dhabi DOE. solar PV and CSP, and are carrying out feasibility studies in rela- In Dubai and Sharjah respectively, DEWA and SEWA own tion to the feasibility of solar projects, such as floating solar PV, the transmission and distribution networks. In the Northern as well as considering other types of renewable energy, including Emirates, FEWA is responsible for the transmission and distri- wind energy and waste-to-energy, some of which are currently bution of electricity, although Transco is also involved in under procurement. the development and operation of some of the transmission networks in the Northern Emirates. Finally, the Emirates National Grid (“ ”) aims to inter- 2.2 What role does the energy transition have in the ENG level of commitment to, and investment in, renewables? connect the four main authorities in the UAE (Abu Dhabi DOE, What are the main drivers for change? DEWA, FEWA and SEWA) and therefore enable the sharing of power between the UAE’s seven emirates and the formation of an integrated power system. Renewable energy sources are The UAE ranks as one of the top jurisdictions in the world when increasingly contributing to the ENG; although nuclear power, it comes to proven oil and natural gas reserves. The economy which has been operational in the Emirate of Abu Dhabi since has been heavily dependent on its hydrocarbon resources, both 2020, will play an increasingly important role in contributing to as an energy resource and for revenue, although this dependence the ENG. has reduced significantly in recent years. Integral to the energy transition in the UAE, therefore, is the UAE’s Energy Strategy 2050, which ultimately aims to set a foundation for the UAE in 2.5 What are the main challenges that limit investment a post-oil world. in, and development of, renewable energy projects? The UAE Energy Strategy 2050 aims to diversify the UAE energy sector towards a low-carbon mix, with the aim of The UAE’s ambitious targets are encouraging widespread invest- producing 50% of its energy targets from “clean sources” by ment in renewable energy projects in the UAE. However, distrib- 2050, reducing energy demand and reducing emissions. Adding uted energy/rooftop solar investment is limited as a result of the more clean energy into the mix also means a decreased reli- applicable regulations (please see question 3.4 below for further ance on natural gas, which currently accounts for more than details); and foreign investment is limited by rules and regula- two-thirds of the UAE’s primary energy sources. tions governing how much an individual company can own The energy transition strategy takes into account the inter- (please see question 6.1 below for further details). national environmental commitments made by the UAE as well as economic planning for growth across different business 2.6 How are large utility-scale renewable power sectors. The strategy focuses on three key areas: increasing effi- projects typically tendered? ciency, diversification and security of energy; integration of new energy and transport solutions; and research and development and innovative sustainable solutions. The strategy is expected Large utility-scale renewable power projects are typically to build on the knowledge and expertise of its experienced oil tendered through a competitive bidding process run by the and gas sector and to complement, rather than compete with, Abu Dhabi DOE, DEWA, SEWA or FEWA, depending on the the oil and gas sector. emirate. The applicable municipality may also tender a project, for example, where it is a waste-to-energy project.

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In Abu Dhabi, projects are tendered under Abu Dhabi Law (subject to certain limitations and conditions) or political force No. 2 of 1998 (the “Abu Dhabi IPP Law”), which governs majeure/change in law scenarios. However, there are currently independent (water and) power projects (“IPPs”) in the Emirate no financial or regulatory incentives which are specific to utility- of Abu Dhabi. In Dubai, projects are tendered under Law No. scale renewable power. 6 of 2011 (the “Dubai IPP Law”), which governs IPPs in the Emirate of Dubai. Contracts are awarded based on a competi- 3.3 What are the main sources of financing for the tive bidding process leading to long-term power purchase agree- development of utility-scale renewable power projects? ments, where EWEC and DEWA are the respective (single buyer) offtakers. For utility-scale renewable power projects which are developed as IPPs, the applicable sponsors will secure long-term limited 2.7 To what extent is your jurisdiction’s energy demand or non-recourse project financing from local or international met through domestic renewable power generation? commercial banks and, in some cases, export credit agencies.

The majority of the UAE’s energy demand is met through natural 3.4 What is the legal and regulatory framework gas power generation. However, as stated above, central to the applicable to distributed renewable energy? UAE’s Energy Strategy 2050, the UAE is aiming to increase the amount of demand met through domestic renewable power generation and reduce the carbon footprint of its power gener- In Abu Dhabi, the Small-scale Solar PV Energy Netting ation processes. Regulation was issued in 2017. The regulation sets out an energy netting (net-metering) system, whereby owners are credited for 32 Sale of Renewable Energy and Financial any surplus electricity produced by their solar PV panels beyond what is used in their own premises. If the solar PV panels Incentives produce more energy than required, the owner can automatically feed any excess into the grid and the owner will be credited 3.1 What is the legal and regulatory framework for the to the value of what is fed into the grid. sale of utility-scale renewable power? The Small-scale Solar PV Energy Netting Regulation applies to distribution companies, owners, producers, licensed contrac- In the UAE, a single buyer model operates, with the Abu Dhabi tors, and any other persons involved in the connection of small- DOE, DEWA, SEWA and FEWA purchasing the utility-scale scale solar PV generation systems to the distribution network renewable generation in Abu Dhabi, Dubai, Sharjah and the and/or entering into an energy netting arrangement with the Northern Emirates respectively. distribution companies. It is limited to small-scale solar PV The Abu Dhabi electricity sector is structured on a single electricity generators connected to the distribution network and buyer model. In accordance with the Abu Dhabi IPP Law, all which do not exceed an aggregate capacity of 5MW capacity in utility-scale renewable power generation capacity is purchased a single premises. by EWEC under a long-term power purchase agreement (except In Dubai, as part of encouraging residential and commercial where the “Side Sales System” applies). The electricity is sold to buildings to make use of solar panels, Dubai passed Executive ADDC and AADC via an annually adjusted bulk supply tariff Council Resolution No. 46 of 2014 concerning the Connection for onward sale to consumers. ADDC and AADC pay Transco of Generators of Electricity from Solar Energy to the Power use of system tariffs for using the Transco transmission system Distribution System in the Emirate of Dubai (“Resolution to transport electricity to the distribution systems. 46”), known as the Shams Dubai, a distributed renewable energy Under the EWEC Law, EWEC is the sole provider of water regime. Resolution 46 sets out the requirements for both resi- and electricity production capacity in the Emirate of Abu Dhabi, dential and commercial solar power generating units connecting unless the “Side Sales System” applies. The Side Sales System to the Distribution System and applies to all Producers, including is the sale of water or electricity, by the entities licensed to in special development zones and free zones. “Producers” produce, to persons other than EWEC and is implemented upon includes any persons (other than DEWA) that generate solar the recommendation of the EWEC’s shareholders, subject to the energy and connect it to the Distribution System. DEWA is the consent of the Abu Dhabi DOE. As of the date of writing, we regulator for the purposes of Resolution 46. are unaware of any sales being permitted under the Side Sales Under Resolution 46, Producers (building owners or tenants) System in Abu Dhabi. can generate electricity using a solar PV system on their premises Dubai also operates a single buyer model. In accordance with with any excess generation being exported to the Distribution the Dubai IPP Law, DEWA purchases all utility-scale renewable System. The net-metering credit is a direct exchange of values: power generation capacity under a long-term power purchase for each kWh of excess energy, a kWh is credited for future agreement. DEWA is also responsible for transmission and use, with no expiry (except if terminated). Under Resolution distribution. In Dubai, projects falling under the Dubai IPP 46, Producers can generate electricity using a solar PV system Law are exempted from the application of Dubai Law No. 22 of on their premises with any excess generation being exported to 2015 on public private partnerships. the Distribution System. DEWA can cap the amount of electricity that may be exported to the Distribution System by each Producer. The electricity generated must be either consumed 3.2 Are there financial or regulatory incentives by the Producer at the premises associated with the relevant available to promote investment in/sale of utility-scale renewable power? consumption account (not at other premises which the Producer may own) or, if there is an excess, exported to the Distribution System. In 2020, DEWA announced restrictions related to the As part of the IPP structure, financial benefits are offered Shams Dubai net-metering scheme. Under the announcements, through take or pay protection and deemed payment mecha- ground-mounted solar projects are no longer envisaged and a nisms to cover private participants in the event of grid failure cap of 2.08MW has been set for rooftop installations.

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3.5 Are there financial or regulatory incentives Regulated Activities without an RSB licence, which is issued on available to promote investment in distributed renewable the basis of technical, financial and administrative criteria. A energy facilities? “Regulated Activity” is any activity related to generating electricity, desalinating and adding minerals to water, or a combina- Dubai has established a fund to provide access to loans for tion of generating electricity and desalinating and adding minerals investors in the renewable energy sector, the Dubai Green to water, for the purpose of supplying the transmission system Fund, which acts as an investment arm of DEWA. The Dubai with produced electricity and/or water in the Emirate of Dubai. Green Fund offers loans to companies in the clean energy sector and includes, for example, investment in the energy efficiency 4.2 What are the primary consents and permits projects (including rooftop solar) at Dubai International Airport required to construct, commission and operate and Jebel Ali Free Zone Authority. distributed renewable energy facilities?

3.6 What are the main sources of financing for the Please see question 3.4 above. There are also specific licensing development of distributed renewable energy facilities? requirements for contractors supplying and installing distributed renewable energy facilities. For example, in Abu Dhabi, the distribution company is responsible for the certification Distributed renewable energy is typically privately funded. of solar PV integrators in accordance with a designated registration scheme. In Dubai, under Resolution 46, any entity 3.7 What is the legal and regulatory framework that supplying, installing and/or operating and maintaining a solar applies for clean energy certificates/environmental PV system pursuant to Resolution 46 must be registered and attributes from renewable energy projects? qualified as a consultant/contractor; namely licensed by the Dubai Department of Economic Development and approved by The Dubai Carbon Centre of Excellence is the exclusive issuer DEWA as a consultant/contractor. of renewable energy certificates in the UAE following an agreement with the International Renewable Energy Certificate 4.3 What are the requirements for renewable energy Standard (“I-REC”). I-REC is a standard used for systems facilities to be connected to and access the transmission tracking environmental and economic attributes and green- network(s)? house gas from energy. Connection to the transmission network requires compliance 3.8 Are there financial or regulatory incentives or with the technical standards. In Abu Dhabi, the Abu Dhabi mechanisms in place to promote the purchase of Transmission Code sets out the conditions for connection to renewable energy by the private sector? the transmission system, demand forecasts, operational planning, operating margin and demand control. Similarly, the Abu See above, the purchase of electricity is not permitted by the Dhabi Distribution Code sets out the requirements for connec- private sector. tion to the distribution system, demand and generation forecasts, operational planning, testing and monitoring. 42 Consents and Permits For distributed energy, in Abu Dhabi, the owner may apply for the connection of a small-scale solar PV generation to the distribution network. However, the owner cannot enter into 4.1 What are the primary consents and permits an energy netting arrangement with the distribution company required to construct, commission and operate utility- unless there is an electricity supply agreement under the owner’s scale renewable energy facilities? name for the same premises and linked to one metered service point. A PV Connection Agreement between the owner or A licence (or formal exemption) from the Abu Dhabi DOE, producer and the distribution company sets out the terms and Dubai RSB or FEWA (depending on the emirate in which the conditions for the solar PV connection and generation to the facility is based) will need to be obtained. These will be project distribution network and the energy netting arrangement. specific but typically include a requirement for an environmental In Dubai, the Independent Water and Power Producers Code impact assessment and a construction or building permit, as well issued in January 2020 by the Dubai RSB applies to all inde- as having a valid trade licence and commercial registration. In pendent power producers connected to the transmission system. addition, a number of no objection certificates may be required, The code includes the Electrical Connection Conditions Code for example, from Civil Defence, the Civil Aviation Authority which applies to DEWA and to generators, specifying the and Etisalat. minimum technical, design and operational criteria that must Under the DOE Law, the Abu Dhabi DOE is responsible for be complied with by generators seeking to be connected to the licensing all institutions, entities, companies and persons working transmission system, and the minimum technical, design and in the energy sector (which includes the generation, transmission, operational criteria, which must be complied with by DEWA. distribution and storage of renewable energy) and monitoring The Dubai RSB has also issued the RSB Renewables their commitment to providing the optimum level of quality Standards, which set out a common set of requirements for services in accordance with the legislations in force, and in coor- renewable resource generating facilities connected to DEWA dination with the relevant authorities. Under article 9 of the DOE transmission and distribution systems and set up a common Law, an establishment or individual is prohibited from engaging framework for grid connection agreements between the network in any activity in the energy sector in the Emirate of Abu Dhabi operator and the renewable resource generating facility owners. without obtaining the required licence from the Abu Dhabi DOE. The RSB Renewables Standards detail technical requirements Under the RSB Resolution and the Dubai IPP Law, the Dubai in relation to the protection scheme, power quality, normal RSB is responsible for licensing Regulated Activities. No public and emergency modes of operation, modes of operating and or private entity (save for DEWA which is exempt) may conduct metering.

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Finally, under Shams Dubai, a person or entity may not Government, the Local Government or any of the establish- connect its facility to the distribution system without obtaining ments, authorities, departments or any companies controlled or prior consent of DEWA, subject to the requirements set out in held by any of them directly or indirectly, and having at least Resolution 46. Such connection will be subject to the terms of a 25% of the shares of such companies, which operate in … the connection agreement with DEWA. energy sector of all kinds or the production of electricity…”, provided that a special provision to this effect is contained in the memorandum of association or articles of association of such 4.4 What are the requirements for renewable energy facilities to be connected to and access the distribution companies. The local licensing requirements applicable in each network(s)? emirate must also be satisfied. Given that utility-scale renewable energy projects are typically tendered as IPPs with the state (directly or through a Please see above. wholly-owned corporate vehicle) holding a majority interest, in accordance with article 4 of the Commercial Companies 4.5 Are microgrids able to operate? If so, what is Law, such projects could potentially be exempt from the appli- the legislative basis and are there any financial or cation of the Commercial Companies Law and therefore the regulatory incentives available to promote investment in 51% minimum ownership requirement. In practice, however, microgrids? notwithstanding the foregoing, such companies typically remain subject to the provisions of the Commercial Companies Law. Microgrids are not permitted to operate since business-to-busi- In addition, Federal Law No. 19 of 2018 (the “Foreign Direct ness distribution and sale other than to the applicable state- Investment Law”) provides a framework for foreign share- owned monopoly singe-buyer offtaker in an emirate is not holders to own up to 100% of companies in certain desig- permitted. nated sectors. Excluded from the benefits of the Foreign Direct There are no financial or regulatory incentives available to Investment Law in accordance with article 7(2) are activities which promote investment in microgrids. appear on the so-called Negative List, which includes water and electricity services. Further to the Foreign Direct Investment 52 Storage Law, in 2020, the UAE Cabinet issued Cabinet Resolution No. 16 of 2020 on defining the Positive List of the Economic Sectors and Activities in which Foreign Direct Investment is Permitted 5.1 What is the legal and regulatory framework which and their Ownership (the “Positive List Resolution”). The applies to energy storage and specifically the storage of Positive List Resolution sets out 122 economic sectors and activ- renewable energy? ities in which foreign direct investment is permitted and the criteria for the licensing companies, including minimum capital In Abu Dhabi and Dubai, the Abu Dhabi DOE and the Dubai requirements and the Emiratisation thresholds. RSB respectively regulate the storage of energy as part of their Finally, there are a number of free zones which not only broader mandates to regulate the energy sector in these emirates. provide tax holidays but also permit 100% foreign ownership of companies. The free zones are generally sector/activity specific. 5.2 Are there any financial or regulatory incentives As a general rule, an entity licensed in one of the free zones available to promote the storage of renewable energy? should only conduct business within the confines of that free zone or outside the UAE. There are currently no financial or regulatory incentives available to promote the storage of renewable energy. 6.2 Are there any currency exchange restrictions or restrictions on the transfer of funds derived from 62 Foreign Investment and International investment in renewable energy projects? Obligations The UAE dirham, the official currency of the UAE, is pegged to the US dollar. The exchange system is generally free of restric- 6.1 Are there any special requirements or limitations tions on international payments and transfers. However, there on foreign investors investing in renewable energy are certain restrictions under terrorist financing provisions that projects? have been implemented in accordance with the UAE’s international obligations. Federal Law No. 4 of 2002 (as amended) There is a general requirement under Federal Law No. 2 of 2015 imposes documentary requirements on large wire transfers and (the “Commercial Companies Law”) that all entities must be the import of large currency amounts as part of the UAE’s anti- majority owned by UAE nationals or wholly owned by UAE enti- money laundering legislation. All suspicious transactions must ties, although there are some exemptions to this requirement. be reported to the Financial Intelligence Unit within the UAE For companies seeking to operate “onshore” in the UAE, Central Bank. licences are activity-based and a licensed entity may only carry on the activities for which it is licensed. Limited liability companies are, with limited exceptions (please see below), subject 6.3 Are there any employment limitations or requirements which may impact on foreign investment in to foreign ownership restrictions and must be 51% owned by renewable energy projects? UAE nationals or companies wholly owned by UAE nationals; branches of foreign companies require the appointment of a local service agent. There are a number of requirements including for foreign Pursuant to article 4 of the Commercial Companies Law, as employees to hold a valid employment visa and work permit. an exception to the general UAE national minimum owner- In addition, Emiratisation is increasingly important and there ship requirement, the Commercial Companies Law does not are both statutory and contractual requirements to both hire apply, among other things, to companies in which “the Federal and train UAE nationals. There are restrictions regarding the

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termination of employment for UAE nationals. Also, under the sectoral regulatory bodies request that the Ministry of Economy long-term, IPP power purchase agreements, there is typically undertake such issue in whole or in part and the Ministry of a contractual obligation on the developer to give a preference Economy approves such request. This exclusion extends to to UAE labour, supervisory, professional and other personnel, activities related to the production, distribution and transmis- provided that such personnel are at least as reasonably favour- sion of electricity and water and would therefore include the able to the developer as others available taking into account renewable energy sector. Therefore, to the extent that renewable price, quality, reliability and schedule. energy activities are regulated (as is the case in, for example, Abu Dhabi through the Abu Dhabi DOE; and, in Dubai, through the Dubai RSB), then the provisions of the Competition Law 6.4 Are there any limitations or requirements related to equipment and materials which may impact on foreign will not apply. investment in renewable energy projects? In Abu Dhabi, pursuant to the DOE Law, the Abu Dhabi DOE may impose administrative fines for breach of the DOE Law or licence/exemption conditions. It can also issue notices, warn- At a federal level, Cabinet Resolution No. 10 of 2020 concerning ings, as well as mandatory financial, administrative and technical the UAE Control System for Solar Products was issued in 2020 supervision, suspension of activities, suspension or cancellation and provides that a certificate of conformity must be obtained, of a licence, and temporary or permanent closure of the entity. and continuous conformity for products must be adhered to, In Dubai, under the Dubai IPP Law, licensed entities, which fail before connecting to the grid. “Product” is defined as solar to comply with a violation notice, may be subject to a fine by the products including all appliances, equipment, storage batteries Dubai RSB, which also has the power to suspend a licence for a and materials related to the process of generating electric energy period not exceeding three months or cancel a licence. using solar cells. The resolution is intended to apply to all solar To the extent that the Competition Law applies, the UAE energy products offered, including the free zones, except for Competition Committee (the “Committee”) is the competent large-scale solar projects. body responsible for enforcement of the Competition Law. There are also controls at an emirate level. For example, under Resolution 46, in relation to distributed solar, the solar PV system and any equipment forming part of the system or 7.2 What power or authority does the relevant the installation must comply with DEWA’s certification process. governmental authority or regulator have to prohibit or DEWA publishes a list of equipment meeting eligibility require- take action in relation to anti-competitive practices? ments. The standards and accreditation requirements for equipment are set out in Annex C to the DEWA Standards for Please see question 7.1. Distributed Renewable Resources Generators. In addition, under the long-term, IPP power purchase agree- 7.3 What are the key criteria applied by the relevant ments, there is typically a contractual obligation for the devel- governmental authority or regulator to determine oper to give a preference to the use of construction equipment whether a practice is anti-competitive? and other equipment, materials and products produced and manufactured in the UAE, provided that such equipment, mate- In practice, the single buyer, transmission, distribution and rials and products are at least as reasonably favourable to the supply networks are controlled through price control reviews. developer as others available taking into account price, quality, For example, in Abu Dhabi, the Abu Dhabi DOE has the power reliability and schedule. to set (subject to Executive Council approval) fees, tariffs and prices related to its competences. In Dubai, the Dubai Executive 72 Competition and Antitrust Council Decision No. 16 of 2011 governs the applicable electricity and water tariffs in Dubai, applying a slab tariff, which 7.1 Which governmental authority or regulator is includes the right of DEWA to charge a fuel surcharge. responsible for the regulation of competition and In relation to the Competition Law, as the Committee only antitrust in the renewable energy sector? became operational in 2018, it remains to be seen what impact the Committee will have, if any, on the renewable energy sector; UAE Federal Law No. 4 of 2012 on the regulation of competi- but it is expected that it will actively monitor markets for tion (the “Competition Law”) entered into force in February anti-competitive behaviour. 2013. The Competition Law regulates restrictive agreements, abuse of market power and merger control. Cabinet Decision 82 Dispute Resolution No. 13 of 2016 established the jurisdictional threshold trig- gering a mandatory notification requirement: a merger or acqui- 8.1 Provide a short summary of the dispute resolution sition must be notified if the overall market share of the involved framework (statutory or contractual) that typically parties in the relevant market exceeds 40% and the concentra- applies in the renewable energy sector, including tion may affect competition. It depends on the definition of the procedures applying in the context of disputes between relevant market whether the relevant threshold is met. Where any applicable government authority/regulator and the the threshold is met, a notification is technically required within private sector. a specified period. Notifications are suspensory; therefore, following a notification, the concerned parties must not carry Any decisions or disputes that affect a particular renewable out any action or procedure to complete the transaction before energy project are governed in accordance with the terms of the the concentration has been formally cleared. applicable contract. Under the Competition Law, any agreement, practice or busi- UAE Federal Law No. 6 of 2018 concerning arbitration (the ness related to a certain commodity or service where another “Arbitration Law”) entered into force on 16 June 2018 and is law or regulation grants organisation of its competition rules based on the UNCITRAL Model Law. The Arbitration Law to sectoral regulatory bodies, is exempted from the application repealed the provisions contained within the arbitration chapter of the provisions of the Competition Law, except where such

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of the UAE Civil Procedure Code (Federal Law No. 11 of 1992, Both the Dubai and Abu Dhabi Courts have since recognised as amended) (the “Civil Procedure Code”) and applies to and enforced foreign arbitral awards pursuant to the New York any arbitration conducted inside the UAE, unless: the parties Convention; although in a system of non-binding precedent, it agree to submit the dispute to the provisions of another arbi- should be noted that there have been some inconsistent judg- tration law (subject to public policy requirements); it is an inter- ments which have refused enforcement of foreign awards in national commercial arbitration conducted abroad where the favour of domestic dispute resolution. parties agree to submit the arbitration to the provisions of the The UAE ratified the Convention on the Settlement of Arbitration Law; or it is an arbitration arising out of a dispute Investment Disputes on 23 December 1981 and the ICSID concerning a legal relationship of a contractual or non-contrac- Convention entered into force in the UAE on 22 January 1982. tual nature and regulated by the laws in force in the UAE except The UAE is also a party to the 1983 Riyadh-Arab Agreement as expressly excluded otherwise. The Arbitration Law sets out for Judicial Co-operation (the “Riyadh Convention”) and the the requirements for arbitration agreements, the appointment 1996 Gulf Co-operation Council Convention for the Execution of the arbitral tribunal, arbitral proceedings, arbitral awards of Judgments, Delegations and Judicial Notifications (the “GCC and enforcement of arbitral awards. It introduced mechanisms Convention”). The Riyadh and GCC Conventions provide, aimed at improving the efficiency and finality of the arbitral among other things, for the recognition and enforcement of process, incorporating general international arbitration princi- civil judgments amongst contracting parties. ples such as the doctrine of separability. It should be noted that the Dubai International Financial 8.5 Are there any specific difficulties (whether as a Centre and the Abu Dhabi Global Market both operate as matter of law or practice) in litigating, or seeking to common law jurisdictions in matters of civil law and both enforce judgments or awards, against government have their own arbitration laws which will apply with arbitral authorities or the state? proceedings with their judicial seat in the Dubai International Financial Centre or the Abu Dhabi Global Market (as applicable). It is not possible to enforce judgments that seek to seize property owned by the state. Article 247(1) of the Civil Procedure Code 8.2 Are alternative dispute resolution or tiered dispute provides that “public property owned by the state or one of the resolution clauses common in the renewable energy emirates” may not be seized for the purposes of enforcement. sector? “Public property” is defined under the UAE Civil Transactions Code (Federal Law No. 5 of 1985, as amended) as all real prop- Yes, alternative dispute resolution and tiered dispute resolu- erty or movables owned by the state or public judicial persons, tion clauses are common in the energy sector generally. Power allocated in fact or in law for the public benefit. purchase agreements typically include tiered dispute resolution In Dubai, in accordance with Dubai Law No. 3 of 1996 (as commencing with amicable dispute resolution, followed by a amended) (the “Dubai Government Lawsuits Law”), any technical expert decision and finally arbitration. lawsuits against the Ruler require the approval of the Ruler. Also, any lawsuit against the Government of Dubai and any department thereof must follow the procedures set out in the Dubai 8.3 What interim or emergency relief can the courts Government Lawsuits Law. Article 3 bis of the Dubai Government grant? Lawsuits Law, among other things, prohibits recovery of debts or obligations of the Ruler or the Government by attachment, sale, Articles 18(2) and 21 of the Arbitration Law provide that tribu- by auction or taking possession in any other legal manner, of the nals and courts can order interim and conservatory measures properties and assets of the Ruler or the Government. in support of arbitral proceedings, where appropriate, either at With regard to the enforcement of foreign judgments, whether the request of a party or on its own motion. Such measures against a government authority, state organ or private entity, include: preservation of evidence and goods constituting the article 235 of the Civil Procedure Code provides that judgments subject matter of the dispute; maintenance of assets and funds and orders made in a foreign country may be executed in the from which an award may be satisfied; maintenance or restora- UAE under the same conditions provided for in the law of that tion of the status quo pending final determination of the tribunal; country for the execution of judgments and orders issued in the and action to prevent current or imminent harm or prejudice UAE. There is, thus, a requirement for reciprocal treatment. to the arbitral process itself (or refraining to act, as applicable). A number of conditions must also be satisfied, in practice affording UAE courts a wide discretion to reject enforcement 8.4 Is your jurisdiction a party to and has it ratified of a foreign judgment on the basis of conflict or contradiction the New York Convention on the Recognition and with previously passed orders or judgments of UAE courts and/ Enforcement of Foreign Arbitral Awards and/or the or violation of public policy or public order. As a result, in the Convention on the Settlement of Investment Disputes absence of a treaty between the UAE and the country concerned between States and Nationals of Other States and/or on mutual recognition and enforcement of judgments, in prac- any significant regional treaty for the recognition and tice there are only limited circumstances when a foreign judg- enforcement of judgments and/or arbitral awards? ment is enforceable in the UAE.

On 21 August 2006, the UAE acceded to the 1958 New York 8.6 Are there examples where foreign investors in the Convention on the Recognition and Enforcement of Arbitral renewable energy sector have successfully obtained Awards (“New York Convention”). The New York Convention domestic judgments or arbitral awards seated in your entered into force in the UAE on 19 November 2006. In 2010, jurisdiction against government authorities or the state? the Fujairah Court of First Instance recognised and enforced a foreign arbitral award pursuant to the New York Convention, We are unaware of any such instances in the renewable energy understood to be the first case of enforcement of a foreign sector. award pursuant to the New York Convention.

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92 Updates and Recent Developments In terms of new legislation and regulations, as mentioned above, Cabinet Resolution No. 10 of 2020 Concerning the UAE Control System for Solar Products was issued in 2020. Finally, 9.1 Please provide a summary of any recent cases, in Dubai, the limitation imposed by DEWA on the application new legislation and regulations, policy announcements, of the Shams Dubai regime to 2.08MW may limit the continued trends and developments in renewables in your jurisdiction. development of distributed energy in the emirate. A number of commercial businesses, including hotels and manufacturers, had indicated that they would participate in Shams Dubai capacities Renewable energy provides a platform for both energy and well in excess of 2MW; it remains to be seen whether they will economic diversification in the UAE. As the country strives participate going forward in light of the recent limitations. to diversify from an oil and gas-based economy, the UAE has set ambitious renewable energy targets, with a commitment to Note to readers: The laws referenced in this chapter are English achieve 44% renewable energy sources by 2050. The UAE, and translations of the original Arabic language laws. Where there particularly the Emirates of Abu Dhabi and Dubai, are forging is a conflict between the English translation and the original ahead with impressive renewables projects, which are leading Arabic language law, the Arabic language law prevails. not just on a regional scale but globally, with new technologies, project size and the tariffs that have been achieved. The focus is very much on solar energy (both solar PV and CSP); however, there are also up-and-coming opportunities in respect of wind and waste-to-energy.

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Mhairi Main Garcia is a partner in Dentons’ Energy, Transport and Infrastructure practice specialising in project development and M&A in the energy and infrastructure sectors. Mhairi focuses in particular on utilities projects (renewables including solar (CSP and PV), wind and waste-to-energy, conventional power and water projects and wastewater). Mhairi has advised on a number of ground-breaking renewable energy projects in the Middle East. In the UAE, this has included advising on the DEWA’s landmark CSP project, Phase IV of Dubai’s Mohammed bin Rashid Al Maktoum Solar Park, as well as Phases II and III. In Abu Dhabi, she advised on the Sweihan solar PV IPP. Mhairi has also advised on a number of C&I projects in the UAE. Mhairi is a member of the Board and Vice-Chair of the Clean Energy Council, a non-profit organisation providing a forum for both private and public sector organisations participating in the clean energy sector across the MENA region.

Dentons & Co. Tel: +971 4 402 0859 Level 18, Boulevard Plaza 2 Fax: +971 4 325 3350 Burj Khalifa District Email: [email protected] PO Box 1756 URL: www.dentons.com Dubai United Arab Emirates

Stephanie Hawes is an associate in Dentons’ Energy, Transport and Infrastructure practice based in Dubai. Stephanie is a corporate and commercial lawyer specialising in energy and infrastructure projects in the Middle East and internationally, advising sponsors, lenders and contractors and governments.

Dentons & Co. Tel: +971 4 402 0826 Level 18, Boulevard Plaza 2 Fax: +971 4 325 3350 Burj Khalifa District Email: [email protected] PO Box 1756 URL: www.dentons.com Dubai United Arab Emirates

Dentons has been operating in the UAE (through its offices in Abu Dhabi and Dubai) since 1968. Since then, the firm has been involved in numerous landmark events, including acting as counsel to the late Sheikh Zayed bin Sultan Al Nahyan and helping to draft the treaty that united the Emirates. The two offices operate together to provide regional and international clients with the benefits of a fully integrated practice and have advised on many of the major renewable projects in the UAE and wider region. In the UAE, the Dentons team has worked on the Shams 1 CSP project and the Sweihan solar PV IPP in Abu Dhabi and the Dubai solar PV and CSP IPPs. The team advises governments, multinational organisations, developers, utilities, banks, landowners and contractors on all aspects of solar project development and investments, both utility-scale and commercial and industrial (C&I). www.dentons.com

United Kingdom United Kingdom

Oliver Irwin Kirsty Delaney

Nicholas Bracewell (UK) LLP Neuberger Robert Meade

12 Overview of the Renewable Energy ■ The Office of Gas and Electricity Markets (Ofgem): a non-ministerial government department and an inde- Sector pendent National Regulatory Authority recognised by EU Directives. Regulation of the renewable energy sector is 1.1 What is the basis of renewable energy policy and delegated by GEMA to Ofgem. Ofgem administers envi- regulation in your jurisdiction and is there a statutory ronmental programmes and sustainability schemes on definition of ‘renewable energy’, ‘clean energy’ or behalf of the government (please see questions 3.5 and equivalent terminology? 3.7 for more detail). Key duties and functions concerning electricity include: Directive 2009/28/EC of the European Parliament and of the ■ the regulation of distribution and transmission networks; Council of 23 April 2009 (the Renewable Energy Directive) ■ granting licences; on the promotion of the use of energy from renewable sources ■ protecting interests of existing and future electricity defines “energy from renewable sources” as energy from renew- (and gas) consumers; able non-fossil sources, namely wind, solar, aerothermal, ■ ensuring that electricity wholesale and retail markets geothermal, hydrothermal and ocean energy, hydropower, are competitive; and biomass, landfill gas, sewage treatment plant gas and biogases, ■ managing the commercial tender process for offshore each of which are then defined separately within the Renewable transmission projects. Energy Directive. Under the Renewable Energy Directive, the UK must ensure Private participants that renewable energy accounts for at least 15% of its total energy ■ Generation companies: following the privatisation of the needs by 2020. This requirement is incorporated into UK law generation industry in the 1990s, an increasing number of under the Promotion of the Use of Energy from Renewable generating companies have been established, including the Sources Regulations 2011 (SI 2011/243). In addition, 10% of “big six” – British Gas, e.on, EDF, RWE npower, Scottish the UK’s transport energy consumption must come from renew- Power and SSE. able sources (such as biofuels) by 2020. ■ Transmission companies: the transmission network is There are various other policies, incentives and regulations owned and maintained by regional transmission compa- that are detailed throughout the answers below. nies: National Grid Electricity Transmission plc (NGET) for England and Wales; Scottish Power Transmission 1.2 Describe the main participants in the renewable Limited for southern Scotland; and Scottish Hydro energy sector and the roles which they each perform. Electric Transmission plc for northern Scotland and the Scottish islands groups. The National Grid Electricity System Operator (NGESO) is responsible for controlling Governmental participants the stable and secure operation of the national electricity The Department of Energy and Climate Change (DECC), transmission system as a whole. formed in 2008, was the ministerial department responsible ■ Suppliers: energy is purchased from the wholesale market for making decisions, setting policy and implementing legisla- by suppliers (or self-supplied by the “big six”), and then tion affecting the renewable energy sector. Following the EU sold to customers. Referendum held on 23 June 2016, DECC was merged together with the Department for Business and Innovation to create the Department for Business, Energy and Industrial Strategy 1.3 Describe the government’s role in the ownership (BEIS). and development of renewable energy and any policy BEIS is supported by other public bodies, including: commitments towards renewable energy, including applicable renewable energy targets. ■ The Gas and Electricity Markets Authority (GEMA): GEMA has primary responsibility for regulation of the energy sector. GEMA’s powers and duties are largely As stated in question 1.1, the UK has binding renewable energy provided for in statute (such as the Gas Act 1986, the targets under the Renewable Energy Directive and the Promotion Electricity Act 1989, the Utilities Act 2000, the Competition of the Use of Energy from Renewable Sources Regulations 2011. Act 1998, the Enterprise Act 2002 and the Energy Acts of In January 2019, BEIS published the UK’s draft National 2004, 2008, 2010 and 2011) as well as arising from directly Energy and Climate Plan (NECP) for 2021 to 2030. The effective European Community legislation. NECP is required as part of the EU Clean Energy For All

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legislative package, adopted in 2018, which sets ambitious 2030 that it will end financing for fossil fuel energy projects, including objectives for energy efficiency, decarbonisation, energy secu- gas projects, from the end of 2021. Instead, it plans to increase rity, the internal energy market and competition. In the NECP, support for investments that accelerate clean energy innovation, the government states that it expects to invest around £900 energy efficiency and renewables. million of public funds between 2015 and 2021 in research and In addition, at a community level, there has been a noticeable innovation in the power sector, including around £177 million growth of on-site distributed renewable generation projects in to further reduce the cost of renewables in a number of areas. recent years (both residential and commercial), which is underpinned by general environmental concerns and technological 22 Renewable Energy Market innovation, as well as by government policy.

2.1 Describe the market for renewable energy in your 2.4 What is the legal and regulatory framework for the jurisdiction. What are the main types of renewable generation, transmission and distribution of renewable energy deployed and what are the trends in terms of energy? technology preference and size of facility? The Energy Act 2013 (Energy Act) is the principal legislation The UK is particularly well placed to take advantage of wind relating to renewables, establishing a legal framework with a key power, with some of the best conditions in Europe and high aim to secure affordable and low-carbon electricity. The central average wind speeds. Both onshore and offshore wind farms provisions of the Energy Act relating to renewable energy are therefore an important renewable energy source for the UK, include the introduction of: with 32.4% of aggregate UK renewable generation coming from ■ provisions to enable the Secretary of State to set a 2030 offshore wind projects and 31.4% from onshore wind projects decarbonisation target range for the electricity sector in in the first quarter of 2020. Examples include Orsted’s Hornsea secondary legislation; One, located 120km off the Yorkshire coast in England, which is ■ a statutory framework for contracts for difference (please the world’s largest offshore wind farm with a capacity of 1.2GW, see question 3.2 for more detail); and the Walney Extension Offshore Wind Farm with a capacity ■ the Capacity Market, being a market to ensure the security of 659MW. of electricity supply based on the government’s forecast of Bioenergy (biomass or waste-fuelled plant) projects are the electricity demand; and UK’s second largest contributors to renewable energy gener- ■ access to markets via long-term contracts for independent ation. These include the Drax Power Station in Yorkshire, renewable generators (including power purchase agree- formerly the UK’s largest coal-fired power station, where three ments), and through liquidity measures to enable the of the five remaining operational units are entirely dedicated to government to improve the liquidity of the electricity biomass, with a combined capacity of 1.9GW. market. Hydropower and solar PV projects contribute a smaller (but The Electricity Act 1989 (Electricity Act) is the principal still significant) percentage of UK renewable energy, and tend to legislation governing electricity generation – including from be smaller-scale (the majority being less than 10MW). renewable sources. Subject to applicable exemptions, an electricity generator requires a generation licence from Ofgem to 2.2 What role does the energy transition have in the operate. Please see question 4.1 for more detail. level of commitment to, and investment in, renewables? What are the main drivers for change? 2.5 What are the main challenges that limit investment in, and development of, renewable energy projects? In 2019, following Parliament’s declaration of a “climate emergency” and recommendations from the independent Committee The challenges include: on Climate Change (CCC), the government legislated for net ■ Uncertainty as to the long-term laws, policies and the zero greenhouse gas emissions by 2050. One of the principal related incentives relating to the renewable sector that ways in which the UK proposes to meet the 2050 net zero target may be adapted by successive governments is a challenge is by increasing the use of renewable energy. The CCC has to any investment modelling. For example, onshore wind advised that the UK could require four times the amount of projects benefitted from certain government subsidies renewable generation from current levels. which were then removed in 2016, and then, in early 2020, A government Energy White Paper is expected to be published onshore wind subsidies were revived. in the autumn of 2020 by BEIS, having previously been due in ■ Intermittency of output (given that renewable sources, by the summer of 2019 and then again by the end of spring 2020. their nature, will vary and not be continuous) presents an The White Paper is expected to provide an insight into the issue for renewables integrating into a stable power supply. government’s plan for the UK to achieve net zero by 2050, by This can be mitigated, to some extent, with energy storage promoting the use of technologies such as “blue” hydrogen and systems. However, whilst the technology is developing carbon capture and storage, alongside renewable technologies, rapidly and the costs are falling, such storage systems can to support a green recovery. be expensive (particularly on large-scale projects). ■ Much of the technology involved with renewables projects 2.3 What role, if any, has civil society played in the is new or rapidly evolving, and there is an investment promotion of renewable energy? risk associated with any nascent technology including in respect of deployment issues and risk of obsolescence. The private sector has been subject to increasing awareness and ■ Grid inflexibilities mean that integration of variable renew- implementation of “green” or “socially responsible” investment able sources into grid infrastructure creates increased policies (from both equity and debt providers). For example, complexity including with respect to balancing supply and in November 2019, the European Investment Bank announced demand.

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2.6 How are large utility-scale renewable power strike price). When the market price is below the strike price, projects typically tendered? the generator receives a top-up payment from the LCCC for the additional amount. However, when the market price is above the strike price, the generator must pay back the difference to The Contracts for Difference (CfD) scheme is the government’s main mechanism for supporting low-carbon electricity genera- the LCCC. Although a CfD is a private law contract between a tion (please see question 3.2 for more detail). low-carbon electricity generator and the LCCC, it is issued under CfDs are awarded in a series of competitive auctions, which a detailed statutory framework under the Energy Act. drives efficiency and cost reduction. To date, there have been The Offtaker of Last Resort (OLR): this scheme aims to three successful CfD allocation rounds (2015, 2017 and 2019). promote the availability of power purchase agreements (PPA). It The fourth allocation round, planned for 2021, is expected is intended as a last resort to help independent renewable genera- to include auctions for “established” technologies (including tors who cannot get a PPA through the usual commercial means onshore wind, which was excluded from the previous round) and by providing eligible generators with a guaranteed “back-stop” less-established technologies (such as floating offshore wind). route-to-market at a specified discount to the market price.

2.7 To what extent is your jurisdiction’s energy demand 3.3 What are the main sources of financing for the met through domestic renewable power generation? development of utility-scale renewable power projects?

The share of UK electricity generated from renewable sources The offshore wind sector currently represents the primary source has increased considerably in recent years; from 35.9% in the of financing activity for large-scale renewable projects in the UK. first quarter of 2019 to 47% in the first quarter of 2020, which A low interest rate environment coupled with a large number of was the highest quarterly value on the government’s published lenders looking to participate in this sector has provided project data series (where quarterly renewables share has never previ- developers with favourable conditions to finance their projects in ously exceeded 40% of total electricity generation). This was recent years. To date, the main source of debt financing has been driven by large increases in generation for wind and solar, with commercial banks, although we have seen participation from the largest increase for offshore wind generation. export credit agencies (the Japanese ECA JBIC lent to the Moray East offshore wind farm in 2018). In recent years, we have also 32 Sale of Renewable Energy and Financial seen investment activity from new entrants to the market, such as pension funds (Danish pension funds PFA and PKA invested Incentives in the Walney Extension offshore wind farm in 2017) and infrastructure investors (Dalmore Capital Limited and Pensions 3.1 What is the legal and regulatory framework for the Infrastructure Platform acquired a minority stake worth £701 sale of utility-scale renewable power? million in 24 UK wind farms owned by EDF in 2018).

The Energy Act and related secondary legislation provides the 3.4 What is the legal and regulatory framework main legal and regulatory framework for the sale of utility-scale applicable to distributed renewable energy? renewable power in the UK and implements the UK’s Electricity Market Reform (EMR) policy. The Energy Act supplements the Electricity Act and the Utilities Act 2000 which provide Distributed renewable energy facilities are subject to the same a legal and regulatory framework for the wholesale electricity legal and regulatory framework as utility-scale renewable energy market generally in the UK. facilities with respect to the sale of electricity, participation in the wholesale market and connection to distribution and transmission networks. 3.2 Are there financial or regulatory incentives available to promote investment in/sale of utility-scale renewable power? 3.5 Are there financial or regulatory incentives available to promote investment in distributed renewable energy facilities? The primary incentive schemes related to renewable energy include: The Renewable Obligation (RO): the RO scheme, which Available incentives include: came into effect in 2002 in England, Wales and Scotland, Feed-in Tariffs (FIT): the FIT scheme supports investment followed by Northern Ireland in 2005, was previously the main in small-scale renewable and low-carbon electricity generation financial mechanism to incentivise large-scale renewable elec- projects up to 5MW capacity. It offers long-term support to tricity projects in the UK (please see question 3.7 for more projects and provides generation and export tariffs based on detail). The RO scheme closed to all new generating capacity the costs of generation for the following technologies: solar on 31 March 2017, and has now been replaced by the Contracts PV; onshore wind power; hydropower; anaerobic digestion; for Difference scheme. and micro-combined heat and power (up to 2kW). The FIT Contracts for Difference: the CfD scheme is the primary scheme closed to new entrants on 31 March 2019, but continues mechanism to incentivise new low-carbon electricity genera- to support existing generation for up to 25 years. tion. The CfD is a quasi-power purchase agreement between Smart Export Guarantee (SEG): following the closure of an eligible generator and the Low Carbon Contracts Company the FIT scheme to new installations, the supplier-led SEG was (LCCC), a wholly government-owned company established introduced on 1 January 2020. Under the SEG, licensed elec- under the Energy Act. Generators with a CfD sell their electricity tricity suppliers (with 150,000 domestic customers or more) are into the wholesale electricity market in the normal way; the CfD required to offer small-scale low-carbon generators a price per then pays the difference between an estimate of the market price kWh for electricity exported to the grid. Remuneration is avail- for electricity and the generator’s lowest estimate for the costs of able to solar PV, wind, anaerobic digestion, hydro, all up to 5MW developing, financing and operating the given technology (the in capacity, and micro-combined heat and power installations,

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up to 50kW. Mandated suppliers are required to provide at least Consent is required under the Electricity Act for utility-scale one SEG compliant tariff. They are free to determine the price projects which are not subject to the Planning Act or the Town and length of contract, provided that remuneration must be and Country Planning Act 1990 (TCPA), such as offshore wind greater than zero at all times. projects with a generating capacity of greater than 1MW but less than 100MW. Applications under the Electricity Act are considered by the Secretary of State for BEIS. 3.6 What are the main sources of financing for the development of distributed renewable energy facilities? The installation of the project will need to comply with development regulations, including the Construction (Design and Management) Regulations 2015 which sets construction The majority of smaller-scale distributed renewable energy facili- requirements and restrictions. ties have been financed on balance sheet, but project finance has The Electricity Act provides that it is an offence to generate grown in importance for investments in this sector. To date, the electricity for the purposes of supply to any premises without majority of this project finance debt has been provided by commer- a licence or exemption. Licences are granted by Ofgem. The cial banks, either on a standalone project or portfolio basis. Secretary of State for BEIS may grant specific or class exemptions to this requirement. 3.7 What is the legal and regulatory framework that The Electricity (Class Exemptions from the Requirement for applies for clean energy certificates/environmental a Licence) Order 2001 (Class Exemptions Order), SI 2001/3270 attributes from renewable energy projects? (Class Exemptions Order), provides a number of class-based exemptions to the general licensing requirements under the The Renewables Obligation scheme applies to large-scale renew- Electricity Act. Smaller utility-scale generators may benefit able electricity projects in the UK creating a market for the sale from the “Class A” exemption, for facilities which do not at any of environmental attributes. The scheme obliges UK electricity time provide electric power in excess of 10MW (for facilities suppliers to source an increasing proportion of the electricity with a declared net capacity of greater than 100MW) or 50MW supplied to customers from renewable sources. (for facilities with a declared net capacity of less than 100MW). Ofgem issues Renewable Obligation Certificates (ROCs) to In addition, generators must comply with relevant health qualifying renewable generators in respect of the electricity they and safety legislation and industry codes in order to operate generate. Such generators can then sell those ROCs to suppliers their facilities, such as the Balancing and Settlement Code, or traders as tradable commodities. Different renewable types Connection and Use of System Code and the Distribution Use receive different numbers of ROCs depending on their costs and of System Agreement. size. Suppliers are then obligated to meet individual targets by purchasing ROCs either from renewable generators directly or 4.2 What are the primary consents and permits from the ROCs market. Ultimately, ROCs are used by suppliers required to construct, commission and operate to demonstrate that they have met their annual obligation. distributed renewable energy facilities? This scheme closed to all new generating capacity on 31 March 2017. Projects that have been accredited before this date will be supported until the earlier of 20 years from the date of In England, distributed renewable energy facilities are likely to accreditation and 31 March 2037. fall beneath the 50MW threshold under the Planning Act and will instead be subject to approval under the TCPA. Onshore wind farms, including facilities with generating capacity in 3.8 Are there financial or regulatory incentives or excess of 50MW, are subject to the TCPA planning regime due mechanisms in place to promote the purchase of to the perceived increased local impact caused by their construc- renewable energy by the private sector? tion and operation. Planning applications under the TCPA are made by generators to the local planning authority. The Renewable Heat Incentive (RHI) is a financial incentive Certain microgrids with a generating capacity of 50kW or less to encourage the uptake of renewable heat by businesses, public may benefit from permitted development rights where planning sector and non-profit organisations and homeowners. The permission is deemed to have been granted without the need for non-domestic RHI was introduced in 2011, with the domestic an application to the local planning authority. RHI following in 2014. The schemes are designed to help bridge The requirement for a generation licence under the Electricity the gap between the costs of fossil fuel heating technologies Act applies equally to distributed renewable energy facilities, and low-carbon alternatives. Participants receive a tariff, set in although distributed renewable energy facilities are likely to pence per kilowatt hour of heat used, for either seven (domestic benefit from the Class A exemption under the Class Exemption RHI) or 20 years (non-domestic RHI), which is set at a level to Order. cover the additional costs of the renewable heating system. Generators of distributed renewable energy must also comply with relevant industry codes in order to operate their facilities, 42 Consents and Permits as described in question 4.1.

4.1 What are the primary consents and permits 4.3 What are the requirements for renewable energy required to construct, commission and operate utility- facilities to be connected to and access the transmission scale renewable energy facilities? network(s)?

In England, utility-scale projects with more than 50MW of In England, the Conditions of Electricity Transmission Licences capacity or 100MW for offshore wind are subject to the Planning (CETL) provides the standard terms of the licence, and the Act 2008 (Planning Act) and are deemed “nationally signifi- Connection and Use of System Code (CUSC) provides the cant infrastructure projects” requiring specific consent from the commercial framework between NGESO and the users of the Planning Inspectorate which acts on behalf of the Secretary of National Grid. State for BEIS.

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Generators seeking access to the Grid must make an applica- that applications have been submitted prior to 31 March 2019) tion under the CETL to NGESO. If the application meets the and the RHI scheme as described at question 3.5. requirements of CETL and CUSC, NGESO must make an offer Additionally, in early 2019, BEIS launched the Storage at to the applicant as soon as practicable offering connection to the Scale competition for up to £20 million to be awarded to up Grid. The offer of connection comprises: to three projects offering large-scale energy storage solutions ■ a construction agreement in respect of the relevant connec- using innovative technologies which offer a market competition facilities; tive alternative to conventional energy storage. The target for ■ a connection agreement governing the relationship these projects is to be capable of operating cost-effectively with between the generator and NGESO; and a target minimum output power of 30MW or minimum capacity ■ an accession agreement to CUSC. of 50MWh for electrical energy storage technologies. Successful projects will be built and tested by December 2021. 4.4 What are the requirements for renewable energy facilities to be connected to and access the distribution 62 Foreign Investment and International network(s)? Obligations

The UK’s distribution networks are operated by two sets of 6.1 Are there any special requirements or limitations operators: 14 distribution network operators (DNOs), who on foreign investors investing in renewable energy operate larger distribution networks; and independent distribu- projects? tion network operators (IDNOs), who operate smaller networks within areas covered by DNOs. There are no particular restrictions on foreign investment in UK In order to be connected to and access distribution networks, renewable energy projects. the renewable energy facility must apply to the relevant DNO or However, Ofgem, currently together with the European IDNO in accordance with the requirements of the Electricity Commission (subject to any Brexit-related developments), Act. The DNO or IDNO must then offer connection terms to is required to undertake an assessment as to whether foreign the facility as soon as practicable, subject to certain exemptions. ownership or control of a renewable power project poses a risk to security of supply. 4.5 Are microgrids able to operate? If so, what is Additionally, in July 2018 the government published a White the legislative basis and are there any financial or Paper setting out proposals to strengthen its powers to scru- regulatory incentives available to promote investment in tinise transactions and projects on national security grounds, microgrids? particularly in “core areas” (including certain parts of energy sector, and specifically organisations owning large-scale power Microgrids may operate in the UK and are subject to the same generation of greater than 2GW). Following voluntary notifi- legal and regulatory regime as distributed renewable energy cation or “call-in” by the government, a full national security facilities. assessment may be made, which may result in the transaction or Until 2019, generators using microgrids were able to benefit project being blocked or allowed subject to certain conditions. from the FIT scheme, now replaced by the SEG scheme (please see question 3.5 for more detail). 6.2 Are there any currency exchange restrictions or restrictions on the transfer of funds derived from 52 Storage investment in renewable energy projects?

5.1 What is the legal and regulatory framework which No exchange control restrictions affect inward or outward applies to energy storage and specifically the storage of investment (direct or portfolio), the repatriation of income or renewable energy? capital, the holding of currency accounts, or the settlement of currency trading transactions. Electricity storage (including the storage of renewable energy) is currently treated as a type of electricity generation. Accordingly, the applicable legal and regulatory framework that applies to 6.3 Are there any employment limitations or requirements which may impact on foreign investment in electricity storage is currently the same as that applicable to renewable energy projects? electricity generation. Although the Electricity Act does not currently include a specific definition of electricity storage, this is currently the subject of government consultation. No sectors of the economy are restricted to UK nationals or The provisions relating to generation licences (and exemp- require majority equity holdings or other specified holdings by tions), planning permission and construction described at ques- UK nationals. In practice, foreign companies can obtain work tion 4.1 also apply to electricity storage projects. permits for foreign employees by demonstrating that their skill All electricity storage projects will also need a completed lease level or experience cannot be found among UK nationals. on satisfactory terms in relation to the land in which it is located and, in respect of battery storage projects, must comply with 6.4 Are there any limitations or requirements related to various UK, European and international standards on battery equipment and materials which may impact on foreign matters. investment in renewable energy projects?

5.2 Are there any financial or regulatory incentives Whilst the UK remains a member of the EU customs union, UK available to promote the storage of renewable energy? companies can buy most goods from other EU member countries without restriction, although VAT and excise duty will usually Energy storage systems benefit from the FIT scheme (provided still apply. In respect of imports from outside the EU, there may

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be a requirement to comply with import licensing requirements is available in certain circumstances where it can be demon- and common customs tariffs that apply across the EU. strated that the anti-competitive effects of a particular agree- Aside from general restrictions applicable to materials that are ment or conduct are outweighed by the pro-competitive bene- harmful to health and safety and to the environment, there are fits for consumers. no other legal restrictions that apply to equipment or materials required to construct or operate renewable energy projects. Abuse of a dominant position An undertaking will be considered to hold a dominant position 72 Competition and Antitrust where it has the ability to behave independently of competitive pressures. Factors such as market share, size and number of competitors, barriers to market entry and customer buyer power 7.1 Which governmental authority or regulator is responsible for the regulation of competition and are all relevant to assessing dominance. antitrust in the renewable energy sector? Examples of abuse of a dominant position include charging unfair prices (either excessively high for consumers, or excessively low to drive out competitors), imposing other unfair The relevant authorities are: trading conditions or refusing to supply existing customers ■ the European Commission (at least until the end of the without justification. Brexit transition period on 31 December 2020); ■ K the U Competition and Markets Authority (CMA); and 82 Dispute Resolution ■ Ofgem. Under the Enterprise and Regulatory Reform Act 2013, both the CMA and Ofgem have concurrent powers to apply competi- 8.1 Provide a short summary of the dispute resolution tion law in the renewable energy sector. framework (statutory or contractual) that typically applies in the renewable energy sector, including procedures applying in the context of disputes between 7.2 What power or authority does the relevant any applicable government authority/regulator and the governmental authority or regulator have to prohibit or private sector. take action in relation to anti-competitive practices? Judicial review in the national courts may be available to chal- The CMA and Ofgem have a broad range of powers in respect of lenge decisions made by the government or other public bodies actual or suspected anti-competitive behaviour. These include (including Ofgem). An application for judicial review must be the ability to: made promptly and in any event within three months of the ■ conduct market studies and, if appropriate, make a market decision being challenged (subject to a few exceptions, where a investigation reference under which the CMA conducts an shorter time limit applies). A number of such challenges have in-depth investigation into any feature, or combination of been brought in relation to renewables. features, of a market in the UK; Where the rights and obligations of the participants in a renew- ■ investigate suspected infringements (including by conducting ables project are governed by contract, the agreed dispute resolu- “dawn raids”); tion mechanism will apply. For example, the CfD standard terms ■ give specific directions to end anti-competitive behaviour; and conditions provide for disputes to be finally resolved via LCIA ■ impose financial penalties of up to 10% of an undertak- arbitration or, for certain types of dispute, expert determination. ing’s annual group worldwide turnover; and ■ o apply t the court for an order to disqualify an individual 8.2 Are alternative dispute resolution or tiered dispute from acting as a director for up to 15 years. resolution clauses common in the renewable energy In addition, the CMA has the power under the Enterprise sector? Act 2002 to prosecute for criminal cartel offences (which covers agreements relating to price-fixing, market/customer sharing, Yes. For example, the CfD standard terms and conditions provide output limitation or bid-rigging). for most types of dispute between the LCCC and the generator to be referred first to their senior representatives. If no amicable 7.3 What are the key criteria applied by the relevant resolution can be achieved within a minimum period of 30 days, governmental authority or regulator to determine the dispute can then be referred to expert determination or LCIA whether a practice is anti-competitive? arbitration as appropriate.

Both UK and EU competition law (which remains applicable 8.3 What interim or emergency relief can the courts in the UK until 31 December 2020) prohibit anti-competitive grant? agreements and conduct which amounts to an abuse of a dominant position. The English courts have a broad discretion to grant interim or emergency relief. Such relief may take the form of: (i) interim Anti-competitive agreements injunctions ordering a party to refrain from doing a specific act Agreements and concerted practices which, by object or effect, (such as commencing proceedings in a foreign court) or to do appreciably prevent, restrict or distort competition are prohibited. a specific act; (ii) freezing orders preventing the dissipation of This captures formal written agreements as well as informal oral assets; (iii) orders for the preservation of evidence; (iv) orders for agreements and even tacit understandings between businesses. the disclosure of documents; and (v) orders in support of arbi- Some agreements, such as price-fixing or market-sharing tral proceedings. cartels, are considered to be anti-competitive by nature, regard- Some contracts related to the development of renewables less of their actual effect. Other arrangements, such as exclu- projects provide for disputes to be resolved by arbitration. Where sive purchasing or supply obligations, will only be prohibited that is the case, the possibility of interim or emergency relief under where there is an actual anti-competitive effect. An exemption the applicable institutional rules (if any) should be considered.

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8.4 Is your jurisdiction a party to and has it ratified have not seen examples of foreign investors successfully utilising the New York Convention on the Recognition and this procedure to reverse a government decision, following the Enforcement of Foreign Arbitral Awards and/or the commencement of legal action against the Secretary of State Convention on the Settlement of Investment Disputes for BEIS by Banks Renewables Limited, the UK government between States and Nationals of Other States and/or announced a policy U-turn that would lift its ban of onshore any significant regional treaty for the recognition and wind projects from government-backed contracts support, which enforcement of judgments and/or arbitral awards? resulted in Banks Renewables withdrawing its legal challenge.

The UK has signed and ratified both the New York Convention 92 Updates and Recent Developments and the ICSID Convention. Its ratification of the New York Convention is subject to the 9.1 Please provide a summary of any recent cases, reciprocity reservation (meaning that it will only recognise and new legislation and regulations, policy announcements, enforce awards made in the territory of another contracting state). trends and developments in renewables in your The UK left the EU on 31 January 2020 but, during the tran- jurisdiction. sition period, the UK continues to apply the Recast Brussels Regulation and the 2007 Lugano Convention, which deal with In an attempt to promote the development of more large-scale issues of jurisdiction and the recognition and enforcement of electricity storage projects, the government published draft judgments between EU Member States and the European Free legislation in July 2020 that removes electricity storage from Trade Association. Following expiry of the transition period the NSIP planning permission regime. This means that (with (on 31 December 2020), the Recast Brussels Regulation and the the exception of pumped hydro) electricity storage projects of 2007 Lugano Convention will cease to apply to the UK, unless any size would be progressed under the TCPA consent process the UK and the EU jointly agree to continue the current regime. rather than the more onerous and time intensive Planning Act consent process that previously applied to electricity storage 8.5 Are there any specific difficulties (whether as a projects in excess of 50 MW. matter of law or practice) in litigating, or seeking to In 2017, the Planning Inspectorate recommended the rejec- enforce judgments or awards, against government tion of an application for the expansion of a gas-fired power authorities or the state? plant in Selby on climate grounds (the first time such a recommendation had been made). However, the project has subse- Neither the UK government nor UK public bodies are immune quently been approved by the government (and in May 2020, to litigation in the UK. Both frequently appear as defendants the High Court dismissed a judicial review challenge against the in UK litigation and are often held to account by the national government’s decision). courts. Renewable energy made up 47% of the UK’s electricity generation in the first quarter of 2020, breaking the record of 39% set 8.6 Are there examples where foreign investors in the in 2019. We expect this record to be broken repeatedly in the renewable energy sector have successfully obtained short term as the UK government continues to promote invest- domestic judgments or arbitral awards seated in your ment in renewable energy technology. We also expect that elec- jurisdiction against government authorities or the state? tric vehicles, residential solar and battery storage will continue to gain prominence in the UK as a medium for the ongoing Various judicial review proceedings have been brought against transformation of the energy sector. the government to challenge decisions which it has made in relation to renewable energy policy and specific projects. Whilst we

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Oliver Irwin advises lenders and sponsors on the development and financing of cross-border projects across a broad range of industries, many of which are the first of their kind in their industry. He has significant experience advising on multi-sourced project financings involving export credit agencies, multilaterals and development finance institutions. He is also a regular speaker at industry conferences. IFLR1000 has identified Oliver as a “Rising Star” or “Highly Regarded” every year since 2013, and he has been ranked by Chambers UK each year since 2012. Oliver is also ranked as a “Next Generation Partner” for Projects, Energy & Natural Resources: Infrastructure in The Legal 500 UK (2018–2020), and was nominated by in-house counsel and peers to appear in Euromoney’s 2015, 2016 and 2017 “Rising Stars” Expert Guides. Oliver was recognised by Law360 as a 2019 MVP for Project Finance and named to Law360’s 2020 Project Finance Editorial Advisory Board.

Bracewell (UK) LLP Tel: +44 207 448 4228 Tower 42, 25 Old Broad Street Fax: +44 207 657 3124 London EC2N 1HQ Email: [email protected] United Kingdom URL: www.bracewell.com

Kirsty Delaney advises clients on a range of corporate and project matters within the energy and natural resources sector, including M&A, corporate re-organisations, joint ventures and project development. She regularly advises on multi-jurisdictional transactions and has particular experience in developing markets.

Bracewell (UK) LLP Tel: +44 207 448 4230 Tower 42, 25 Old Broad Street Fax: +44 207 657 3124 London EC2N 1HQ Email: [email protected] United Kingdom URL: www.bracewell.com

Nicholas Neuberger is a corporate lawyer with a particular focus on international transactional matters within the energy sector. He has advised on a wide range of cross-border acquisitions in both the public and private sectors. Nicholas has also represented clients on capital markets transactions, as well as general corporate matters.

Bracewell (UK) LLP Tel: +44 207 448 4249 Tower 42, 25 Old Broad Street Fax: +44 207 657 3124 London EC2N 1HQ Email: [email protected] United Kingdom URL: www.bracewell.com

Robert Meade acts on international disputes in the energy sector, as well as disputes related to infrastructure, construction and international trade. His experience includes representing clients on construction disputes concerning renewable power projects and in relation to issues arising under CfDs. He has also acted on UK public procurement disputes and related judicial review challenges. Robert was recognised as a “Rising Star” in The Legal 500’s 2019 International Arbitration Powerlist: United Kingdom and described as “one of the most promising young counsel on the London scene”.

Bracewell (UK) LLP Tel: +44 207 448 4219 Tower 42, 25 Old Broad Street Fax: +44 207 657 3124 London EC2N 1HQ Email: [email protected] United Kingdom URL: www.bracewell.com

Bracewell LLP is a leading law firm in the energy sector, headquartered in Houston, Texas, with offices across the United States and in London and Dubai. With one of the largest dedicated energy legal teams in the world, Bracewell has been at the forefront of developments in renewable energy and sustainability. At the core of our renewables and sustainability practice are lawyers who have dedicated their careers to working in the energy industry. Their knowledge and experience are consistently recognised on the national and international level by independent directories such as Chambers Global, Chambers UK, Chambers USA, IFLR1000, The Legal 500 UK and The Legal 500 US. www.bracewell.com

USA USA

Pillsbury Winthrop Shaw Pittman LLP Mona E. Dajani

12 Overview of the Renewable Energy 2.2 What role does the energy transition have in the level of commitment to, and investment in, renewables? Sector What are the main drivers for change?

1.1 What is the basis of renewable energy policy and There is huge commitment to the energy transition. The main regulation in your jurisdiction and is there a statutory definition of ‘renewable energy’, ‘clean energy’ or drivers are the changes in shareholders’ and investors’ attitudes equivalent terminology? towards the energy transition. The COVID-19 pandemic, along with the strong climate changes – wildfires, hurricanes and flooding – made such changes acute. The basis for renewable energy policy and regulation is both on a federal level and a state level. There is no uniform federal statutory definition of ‘renewable energy’, but at the state level, there 2.3 What role, if any, has civil society played in the are various definitions for specific types of ‘renewable energy’ promotion of renewable energy? technology. Shareholders and consumers are accelerating the growth of 1.2 Describe the main participants in the renewable renewable energy. energy sector and the roles which they each perform. 2.4 What is the legal and regulatory framework for the The main participants in the renewable energy sector are: generation, transmission and distribution of renewable ■ Sponsor of the Project – the developer of the project. energy? ■ Banks – they provide debt to the Sponsor for the development of the project. At the federal level, the Federal Energy Regulatory Commission ■ Tax Equity Investor – an investor in the project that part- (FERC) regulates the transmission and distribution of energy. ners with the Sponsor by providing tax equity financing to There are also regulatory and legal frameworks at the state level. the project. The federal and state frameworks are not always consistent. ■ IE – The Independent Engineer that provides consulting. ■ Operations and Maintenance (O&M) Service Provider. 2.5 What are the main challenges that limit investment in, and development of, renewable energy projects? 1.3 Describe the government’s role in the ownership and development of renewable energy and any policy The main challenge is financing a viable project. commitments towards renewable energy, including applicable renewable energy targets. 2.6 How are large utility-scale renewable power projects typically tendered? There are specific federal mandates and specific state mandates that differ based on the technology. Utility-scale renewable power projects are typically tendered 22 Renewable Energy Market either by auction or bilaterally.

2.1 Describe the market for renewable energy in your 2.7 To what extent is your jurisdiction’s energy demand jurisdiction. What are the main types of renewable met through domestic renewable power generation? energy deployed and what are the trends in terms of technology preference and size of facility? In 2019, renewable energy sources accounted for about 11% of total U.S. energy consumption and about 17% of electricity Generally, the main types of renewable energy are wind, solar, generation, according to preliminary data from the U.S. Energy energy storage, electric vehicles (EVs) and the surrounding Information Administration (EIA). infrastructure together with hydrogen.

32 Sale of Renewable Energy and Financial 4.2 What are the primary consents and permits required to construct, commission and operate Incentives distributed renewable energy facilities?

3.1 What is the legal and regulatory framework for the While permitting is state-specific, major consents include consent sale of utility-scale renewable power? for the Power Purchase Agreement (PPA), Lease estoppels (for site control) and/or consent for the EPC and/or Interconnection The legal and regulatory framework for the sale of utility-scale Agreement. renewable power is primarily driven by FERC and specific state regulatory laws. 4.3 What are the requirements for renewable energy facilities to be connected to and access the transmission 3.2 Are there financial or regulatory incentives network(s)? available to promote investment in/sale of utility-scale renewable power? Renewable energy facilities need to have FERC approval and/or specific state regulatory approval or an exemption. Yes. On the federal level, tax credits are available as incentives. On the state level, there are various state tax credits, property exemptions and other state-specific credits. 4.4 What are the requirements for renewable energy facilities to be connected to and access the distribution network(s)? 3.3 What are the main sources of financing for the development of utility-scale renewable power projects? Please see question 4.3.

The main sources of financing are project financing, debt and 4.5 Are microgrids able to operate? If so, what is tax credits. the legislative basis and are there any financial or regulatory incentives available to promote investment in 3.4 What is the legal and regulatory framework microgrids? applicable to distributed renewable energy? Yes – these are state-specific. Please see question 3.1. 52 Storage 3.5 Are there financial or regulatory incentives available to promote investment in distributed renewable 5.1 What is the legal and regulatory framework which energy facilities? applies to energy storage and specifically the storage of renewable energy? Please see question 3.2. Please see question 4.3.

3.6 What are the main sources of financing for the development of distributed renewable energy facilities? 5.2 Are there any financial or regulatory incentives available to promote the storage of renewable energy? Please see question 3.3. Please see question 3.8.

3.7 What is the legal and regulatory framework that applies for clean energy certificates/environmental 62 Foreign Investment and International attributes from renewable energy projects? Obligations

These are state-driven. 6.1 Are there any special requirements or limitations on foreign investors investing in renewable energy projects? 3.8 Are there financial or regulatory incentives or mechanisms in place to promote the purchase of renewable energy by the private sector? Yes – depending on the location, the foreign investor’s previous energy transactions in the U.S. and the specific country of the foreign investor, the Committee on Foreign Investment in the The only incentives are the tax credits and environmental, social, United States (CFIUS) may limit foreign investment and must and governance (ESG)/Impact principles. give its approval. 42 Consents and Permits 6.2 Are there any currency exchange restrictions or restrictions on the transfer of funds derived from 4.1 What are the primary consents and permits investment in renewable energy projects? required to construct, commission and operate utility- scale renewable energy facilities? Yes. There are restrictions by various laws concerning money laundering, and they are not limited to renewable energy projects. Permitting is state-specific.

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6.3 Are there any employment limitations or 8.2 Are alternative dispute resolution or tiered dispute requirements which may impact on foreign investment in resolution clauses common in the renewable energy renewable energy projects? sector?

Not for employment, but CFIUS may impact foreign investments. Disputes are commonly resolved either by litigation or arbitration.

6.4 Are there any limitations or requirements related to 8.3 What interim or emergency relief can the courts equipment and materials which may impact on foreign grant? investment in renewable energy projects? The courts can grant Specific Performance. Yes – President Trump issued an Executive Order (EO) that impacts equipment imported to the U.S. that was manufactured 8.4 Is your jurisdiction a party to and has it ratified outside of the U.S. the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and/or the 72 Competition and Antitrust Convention on the Settlement of Investment Disputes between States and Nationals of Other States and/or any significant regional treaty for the recognition and 7.1 Which governmental authority or regulator is enforcement of judgments and/or arbitral awards? responsible for the regulation of competition and antitrust in the renewable energy sector? Yes, the U.S. has ratified both conventions. HSR – Anti-Trust. 8.5 Are there any specific difficulties (whether as a matter of law or practice) in litigating, or seeking to 7.2 What power or authority does the relevant enforce judgments or awards, against government governmental authority or regulator have to prohibit or authorities or the state? take action in relation to anti-competitive practices?

The authorities can deny approval. The difficulties depend on whether the cause of action is federal or state-specific.

7.3 What are the key criteria applied by the relevant governmental authority or regulator to determine 8.6 Are there examples where foreign investors in the whether a practice is anti-competitive? renewable energy sector have successfully obtained domestic judgments or arbitral awards seated in your jurisdiction against government authorities or the state? Unless an exemption applies, premerger HSR notification is required if your transaction meets three tests: (1) the Commerce It is possible, but fairly rare. Test; (2) the Size of Transaction Test; and (3) the Size of Person Test. 92 Updates and Recent Developments 82 Dispute Resolution 9.1 Please provide a summary of any recent cases, new legislation and regulations, policy announcements, 8.1 Provide a short summary of the dispute resolution trends and developments in renewables in your framework (statutory or contractual) that typically jurisdiction. applies in the renewable energy sector, including procedures applying in the context of disputes between any applicable government authority/regulator and the Recently, renewable energy outpaced coal by supplying 23% private sector. of U.S. power generation. We have seen declining costs and increased capacity for renewable energy and increased capacity Usually, the process starts with an internal dispute resolution for energy storage. procedure.

Mona E. Dajani serves as a lead lawyer in complex acquisitions, dispositions, financing and project development transactions involving energy and infrastructure facilities in the United States and around the world. Dual qualified as both an MBA lawyer and an engineer, Mona has pre-eminent experience in both conventional energy and renewable energy – the latter being where her professional and personal passion lies. She represents a wide variety of commercial and public institutions, sponsors, utilities, financial institutions, underwriters, private equity funds, investment banks and multilateral agencies in transactions throughout the Americas, Europe, Asia and the Middle East. Mona is a board member for the American Council on Renewable Energy (ACORE), The Energy Lawyers Network, Lawyers for the Creative Arts and the Association of International Petroleum Negotiators (AIPN). She is recognised as a leading lawyer by The Best Lawyers in America (2013–2020), The Legal 500, IFLR1000, Rising Legal Stars, Law 360, and other publications. Mona was also appointed as a Fellow to the Construction Lawyers Society in 2017, an accolade given to only 42 lawyers. Mona is a regular contributor and commentator for International Financial Times, CNN Radio, POLITICO, Bloomberg Energy, FOX News, New York Times, The Washington Post, National Public Radio and USA Today, among others.

Pillsbury Winthrop Shaw Pittman LLP Tel: +1 212 858 1061 31 West 52nd Street Email: [email protected] New York URL: www.pillsburylaw.com NY 10019-6131 USA

About Pillsbury’s Renewable Energy Practice by BTI Consulting, Pillsbury and its lawyers are highly regarded for their Excellence in Global Renewable Energy Transactions. Our team of energy forward-thinking approach, their enthusiasm for collaborating across disci- and ﬁnance lawyers have advised on pioneering renewable power gener- plines and their authoritative commercial awareness. To learn more, visit: ation and infrastructure asset transactions for decades. With our clients, www.pillsburylaw.com we have worked on projects that collectively have brought tens of thou- sands of megawatts of solar-and wind-generated power onto electric grids. Our work spans billion-dollar transmission lines, innovative off-shore wind developments, large solar and wind farms portfolios, and pumped hydro-energy storage projects. Pillsbury Winthrop Shaw Pittman LLP is an international law firm with a particular focus on the energy, technology & media, financial services, and real estate & construction sectors. Recognised as one of the most innovative law firms by Financial Times and one of the top firms for client service

Zimbabwe Zimbabwe

Wintertons Nikita Madya

12 Overview of the Renewable Energy Development (MOEPD), ZERA, the public utility Zimbabwe Power Company (ZPC), Zimbabwe Electricity Transmission and Sector Distribution Company (Private) Limited (ZETDC), a number of Independent Power Producers (IPPs), Zimbabwe National 1.1 What is the basis of renewable energy policy and Water Authority (ZINWA), and the Zambezi River Authority regulation in your jurisdiction and is there a statutory (ZRA). The MOEPD has overall responsibility for the energy definition of ‘renewable energy’, ‘clean energy’ or sector in Zimbabwe. It is responsible for policy formulation and equivalent terminology? implementation, an oversight role over the government-owned utilities (ZETDC and ZPC), ZRA jointly with Zambia and the Renewable energy policy and regulation is set out in the National activities of ZERA. It is also responsible for regional and inter- Energy Policy of 2012 (NEP) and the National Renewable national cooperation on renewable energy issues. ZETDC and Energy Policy, 2019 (NREP). The NEP recognised the impor- ZPC are wholly owned by ZESA Holdings (Private) Limited tance of developing a comprehensive renewable energy policy which in turn is wholly owned by the government. ZPC is the in order to enhance the contribution of renewable energy to the utility responsible for electricity generation and owns the Kariba overall energy supply in Zimbabwe. The NREP sets out in detail Hydro power station which presently generates about 50% of the ambitious targets of the government in the development of the electricity generated in Zimbabwe. ZETDC is the utility renewable energy and its contribution to the overall electricity that owns the transmission and distribution infrastructure. All supply in Zimbabwe. The NREP defines “renewable energy” renewable energy generated, if not off-grid, would have to be as referring to “small hydro (equal to or less than 30MW), solar, transmitted through ZETDC. ZRA is the authority jointly set wind, geothermal, biofuels and biomass and other such clean up by Zambia and Zimbabwe to manage the Kariba Dam water energy sources approved by the Ministry responsible for Energy source and the Zambezi River which is jointly controlled by the in Zimbabwe”. The definition leaves room for the Ministry of two countries. It determines how much water can be made avail- Energy to designate other energy sources as renewable energy able for power generation to ZPC and its Zambian counterpart. at some future date. The Energy Regulatory Authority Act ZINWA controls all inland dams and water sources and is [Chapter 13:23] (ZERA Act) which establishes the Zimbabwe responsible for giving the rights to use water in such sources for Energy Regulatory Authority (ZERA) has a statutory definition any purpose including the generation of power. of renewable energy. Renewable Energy is defined in the Act as Various IPPs are also a significant group in the renewable “energy generated from natural resources such as sunlight, energy space. These are licensed to generate electricity and the wind, rain, water, tides, geothermal heat, plants and majority of them operate within the renewable energy space. biomass which are naturally replenished, and “renewable They are issued with generation licences which entitle them energy source” shall be construed accordingly”. The defi- to generate electricity, either for their own use or for sale to nition is comprehensive and seeks to identify renewable energy ZETDC or other third parties. It is anticipated in the NREP by having reference to the nature of its sources and the key char- that the IPPs will play a significant role in achieving the ambi- acteristic of it being capable of replenishment. This naturally tious targets set for renewable energy. excludes from its scope energy derived from coal, for instance. The Rural Electrification Fund (REF) was established in terms There are other Regulations that have their own variants on of the Rural Electrification Fund Act [Chapter 13:20]. Among what renewable energy is. For instance, the Electricity Solar other things, it is responsible for ensuring that rural areas, with Water Heating Regulations, 2019 (SI 235 of 2019) defines an electricity penetration rate of circa 13%, have access to elec- renewable energy as “all non-fossil sources including, biomass, tricity especially through the deployment of off-grid solar solu- geothermal, small hydro-power, solar, wind, sewage treatment tions. REF is also responsible for developing the grid in rural and plant gas”. There is no doubt that the various definitions all areas to ensure that electricity reaches even the most remote have common elements, namely, that the source of the energy is parts of the country. such that it cannot be depleted through use and is an alternative Another significant player in the renewable energy sector is to the fossil fuel-based energy forms. the Environmental Management Agency (EMA) established in terms of the Environmental Management Act [Chapter 20:27]. 1.2 Describe the main participants in the renewable Its role is to ensure that renewable energy projects, among other energy sector and the roles which they each perform. responsibilities, are carried out in a manner that ensures that the environment is protected and an adverse impact on the environment is reduced. The major participants are the Ministry of Energy and Power

1.3 Describe the government’s role in the ownership These IPPs include Kupinga Renewable Energy, Green Fuel and development of renewable energy and any policy (bagasse), Distributed Power Africa (solar), Centragrid (solar) commitments towards renewable energy, including and UK-based PGI Group Limited renewable energy projects applicable renewable energy targets. run by Nyangani Renewable Energy (Private) Limited which include Riverside Solar Power Station (Pvt) Ltd (2.5MW) (solar), The government through the MOEPD, as already indicated, is Nyamingura Mini Hydro Station (hydro) (1.1MW), Dura Power responsible for policy formulation and ensuring that the policy Station (2.2MW) (hydro), Pungwe A Power Station (2.725MW) is implemented by those organisations responsible for doing (hydro), Pungwe B Power Station (15MW) (hydro), Pungwe so. The government is also responsible for ensuring that the C Power Station (3.75MW) (hydro) and Hauna Power Station necessary legislation to give effect to the policies put in place (2.3MW) (hydro). There are other companies that produce is enacted. power mainly for their own consumption. These include As part of its policy formulation role, the government formu- Nottingham Estate (1.5MW), Hippo Valley Estates (33MW) lated the NEP in 2012 and then the NREP in 2019. The (bagasse), Triangle Estates (45MW) (bagasse) and Border NREP took into account other policy measures and commit- Timbers (wood waste). ments of the government to the international community on the need to reduce greenhouse gases. The NREP was based 2.2 What role does the energy transition have in the on the Nationally Determined Contributions (NDCs) interven- level of commitment to, and investment in, renewables? tions that the government committed itself to and submitted to What are the main drivers for change? the United Nations Framework Convention on Climate Change (UNFCCC). The NDCs recognised the energy sector as a major The energy transition from fossil-based fuels driven by the need to greenhouse gas contributor, hence the need to develop a policy reduce carbon emissions is central to the government’s commit- that ensures that the energy sector reduces its greenhouse gas ment to policy changes in the energy sector towards renewa- emissions by focussing on renewable energy. bles. The government of Zimbabwe’s NDCs submitted to the By 2025, the NREP has set the target of achieving an installed UNFCCC recognise the commitment to the decarbonisation of renewable capacity of 1,100MW or 16.5% of the overall elec- the energy sector. The commitment of the government as set out tricity supply in Zimbabwe, whichever is the greater. By 2030, in the NREP is to encourage investments in renewable energy, the target is that the installed renewable energy capacity should provide incentives to the investors in the sector, encourage the be 2,100MW or 26.5% of the overall electricity supply. These public utility to support the initiatives by procuring power from targets exclude the large hydro power stations of more than renewables, give priority dispatch from renewable energy genera- 30MW. As indicated above, the NREP includes small hydro tors and support off-grid renewable projects in rural areas. While power stations of less than 30MW in the definition of renew- the commitment expressed in the NREP has ambitious targets of ables. Accordingly, any hydro power project that is more than getting at least 16.5% of all electricity supplied from renewables 30MW will not be considered in determining whether or not the by 2025 and 26.5% by 2030, the actual investment is expected to targets have been met. Most of the generation shall therefore be be driven by the private sector. Faced with acute power short- carried out through the IPPs. There is nothing, however, that ages, the government encouraged the use of solar technologies stops ZPC from establishing its own renewable energy plants. and removed import duties on solar products. The NREP also aims to have installed 250,000 solar geysers The government at present has limited resources and it is by the year 2030 in new and old buildings, to increase the use unlikely to invest on its own. It is hoped, however, that suffi- of institutional and domestic biogas digesters, to deploy the cient incentives will be put in place so as to make it worthwhile use of solar mini grids, off-grid solar solutions and solar water for private investors to put money into such projects. It is also pumping solutions, and generally to increase the use of renew- expected that as and when the Batoka hydrological project is able technologies. The policy aim is to increase the electricity commissioned, an additional 800MW of power will be added to penetration rates in both rural and urban areas. the national grid and will provide an incentive to the retirement The government has also undertaken to increase the purchase of the old coal fired power plants at Hwange. of renewable energy generated electricity by the government-owned utilities so as to encourage further investments. Investments incentives are also promised to investors in 2.3 What role, if any, has civil society played in the renewable energy to ensure that they will be able to find invest- promotion of renewable energy? ment in renewable energy profitable. Civil society organisations have played a part in promoting the 22 Renewable Energy Market renewable energy agenda. Organisations involved in the protection of the environment and the climate change agenda have 2.1 Describe the market for renewable energy in your been at the forefront of pushing for the adoption of renewable jurisdiction. What are the main types of renewable energy. The message became easy to promote in the face of energy deployed and what are the trends in terms of acute power shortages as most businesses and households were technology preference and size of facility? forced to adopt solar technologies as a way of dealing with the power shortages. At present, the major hydro power station at Kariba which is owned by ZPC supplies over 50% of the total power gener- 2.4 What is the legal and regulatory framework for the ated in Zimbabwe. Its output is, however, affected by weather generation, transmission and distribution of renewable patterns. A poor rain season has the potential to reduce the energy? power generated from the hydro power station as was the case in 2018 and 2019. The legal and regulatory framework for the generation, transmis- IPPs occupy the remainder of the renewable energy market. sion and distribution of energy has not yet been made specific The combined output from the IPPs is at present only 130MW. to renewable energy. The process of acquiring the generation

licence is still largely the same as that for fossil fuel-based energy 2.6 How are large utility-scale renewable power generators. The principal law governing the construction and projects typically tendered? operation of generation facilities is section 42 of the Electricity Act [Chapter 13:19], as well as the Electricity Licensing The present regulatory environment does not have specific Regulations, 2008 as amended by Statutory Instrument 55/2015. tendering procedures for energy projects. What has typi- Under section 42(1) of the Electricity Act, a generation licence cally been happening is that an entity, after being issued with a authorises the licensee to construct, own, operate and maintain a generation licence, will approach ZETDC to negotiate a power generation station for the purposes of the generation and supply purchase agreement (PPA). Due to shortages of power, ZETDC of electricity, subject to any terms and conditions imposed by has invariably accommodated such unsolicited offers. Tendering ZERA and without contravention of the other provisions in the has, however, been undertaken for contracts to construct the Electricity Act. power plants for ZPC as the power generation unit of ZESA. In terms of section 42(2) of the Act, the holder of a generation The Public Procurement and Disposal of Public Assets Act licence may supply electricity to any transmission, distribution [Chapter 22:23] (PPDPA Act) regulates the tendering process or supply licensee who purchases electricity for resale and, with in Zimbabwe. The utility concerned, through its procurement the approval of the Commission, to any one or more consumers, unit, would prepare the tender documents and invite bids. After subject to the terms and conditions imposed by ZERA and the bids are received and adjudicated, the successful bidder without prejudice to any other provisions in the Electricity Act. would be announced. The unsuccessful bidders are given the In terms of section 11 of the Licensing Regulations, anyone right to challenge such awards in the event that it is believed that who operates an electric generator (including standalone gener- the process was not carried out properly. ators) that is capable of generating, distributing or transmitting in excess of 100 kW must obtain a licence under section 40 of the Electricity Act, unless they can show ZERA that the gener- 2.7 To what extent is your jurisdiction’s energy demand ator in question is for the sole use of their household or business. met through domestic renewable power generation? The notification must occur within 60 days of acquiring the generator. ZERA may order and conduct an inspection and, if Renewable energy, including the large-scale hydro projects, it determines that the generator is for personal use, will issue an currently contributes at least 68% of the energy requirements. indefinite permit with conditions to comply with public safety This is largely due to the Kariba Power Station now operating standards and to allow further inspection by ZERA. at near full capacity as the Kariba Dam received significant The principal laws are as follows: inflows this season. There is a power deficit in Zimbabwe as ■ the Electricity Act [Chapter 13:19]; the thermals currently contribute around 280MW. The balance ■ ERA the Z Act; is met through imports from South Africa and Mozambique. ■ the Electricity Licensing Regulations; and ■ 5f SI 5 o 2015 Electricity Licensing Regulations Amendment. 32 Sale of Renewable Energy and Financial The Electricity (Net Metering) Regulations, 2018 allow Incentives consumers with excess power generated from renewable energy to feed in the excess power into the grid. The excess power will then be set-off against the power consumed by the customer 3.1 What is the legal and regulatory framework for the from the utility during the period when the customer’s power sale of utility-scale renewable power? generation is below its demand. The Electricity Act regulates the sale of power in Zimbabwe. The power is sold to ZETDC which also owns and operates the 2.5 What are the main challenges that limit investment in, and development of, renewable energy projects? grid transmission system in Zimbabwe. A generator of renewable power would negotiate a PPA with ZETDC in advance of the construction of the generation facility. The PPA would then The major challenges to the investment in renewable energy be approved by ZERA provided its terms and the agreed tariff have been the lack of clear and coherent policies that encourage meet the requirements of ZERA. Generally, ZERA would be investments in Zimbabwe generally. Investments in gener- looking at ensuring that the generator receives a reasonable ation plants are long-term decisions and require that there be return on its investment and ZETDC receives the power at a policies that guarantee the investors that their investments are tariff that would ensure that it can be sold to the consumer at a secure and that the utilities will honour their obligations, and reasonable tariff. if that fails, the government will step in. This has been lacking in Zimbabwe. The government itself has defaulted on many of its obligations to international institutions which has meant 3.2 Are there financial or regulatory incentives that there is no comfort in any such guarantees. Zimbabwe is available to promote investment in/sale of utility-scale renewable power? generally regarded as a high-risk investment destination. This has also meant that borrowing for projects in Zimbabwe will command a high premium for those investors willing to take Utility-scale projects are generally accorded National Project the risk. This has meant that many of the licensed IPPs have not Status which will enable them to import much of the equip- been able to attract investors for their projects. Many of them ment duty-free. Because of high duties, an exemption from the are now threatened with cancellation of their licences. payment of the duties can make a huge difference to the profita- Another major limitation is the acute shortage of foreign bility of a project. Power generation projects are also exempted currency in Zimbabwe. There is no guarantee for most inves- from income tax for the first five years of commencing their tors that they will be able to repatriate their profits and capital operations. The income would be taxable at a lower rate of 15% from Zimbabwe due foreign currency shortages. The policy for the next five years thereafter compared to the general tax inconsistencies in this area have also meant that it is impossible rate of other companies at 25%. to plan with any degree of certainty.

3.3 What are the main sources of financing for the technologies by offering duty-free imports in respect of solar development of utility-scale renewable power projects? products. This is to make them affordable and enable their rapid deployment. As indicated above, due to the shortage of power in general, the focus appears to be on ensuring that adequate Utility-scale renewable power projects are largely funded from power is made available first. borrowing from international banks and resources provided by the project companies. The NREP proposes a number of schemes aimed at according specific projects Prescribed Asset 42 Consents and Permits Status to enable pension funds and insurance companies to invest in such projects. 4.1 What are the primary consents and permits required to construct, commission and operate utility- scale renewable energy facilities? 3.4 What is the legal and regulatory framework applicable to distributed renewable energy? The licensing process required for renewables in order for one to construct, commission and operate utility-scale renewable Distributed renewable energy is regulated in terms of the energy facilities is similar to the process for non-renewables with Electricity Act as read together with the Electricity Licensing minor variations in relation to the specific requirements for the Regulations. In terms of the Electricity Licensing Regulations, energy type. Essentially, one must obtain a generation licence every electricity undertaking which generates, transmits, distrib- issued by ZERA in terms of section 42 of the Electricity Act as utes or supplies electricity in excess of 100 kilowatts (kW) is read together with the ZERA Act and the Electricity Licensing required to apply for a generation licence, a transmission and Regulations. In order for ZERA to consider the application bulk supply licence or a distribution and retail licence or two for a generation licence, one would need to also have satisfied or more of these licences as the situation demands. Distributed other requirements. These include: the requirements of the power has been deployed in remote areas where the national grid Environmental Management Act by securing the Environmental is not available. Due to shortages of power, most companies Impact Assessment Certificate; a Grid Impact Assessment Study and organisations have now resorted to their own generation would need to have been commissioned providing details of the plants, mostly solar plants to generate their own power. The connection that can be permitted to the national grid; land lease/ practice in respect of distributed renewable energy has been to ownership or land use permit; and water extraction permit. have the generation licence applied for and issued in the name of the company or organisation that would use the power. 4.2 What are the primary consents and permits required to construct, commission and operate 3.5 Are there financial or regulatory incentives distributed renewable energy facilities? available to promote investment in distributed renewable energy facilities? Distributed renewable energy facilities require the same consents and permits as utility-scale renewable facilities. One requires a The incentives that are available for renewable energy and other generation licence issued by ZERA. In terms of section 40 projects are also available for distributed power. The NREP of the Electricity Act as read together with section 11 of the has proposed incentives which are still to be recognised that are Licensing Regulations, anyone who operates an electric gener- meant to provide for investments in distributed power in the ator (including standalone generators) that is capable of gener- remote rural areas where the national grid is not available. ating, distributing or transmitting in excess of 100 kW must obtain a licence under section 40 of the Electricity Act. 3.6 What are the main sources of financing for the development of distributed renewable energy facilities? 4.3 What are the requirements for renewable energy facilities to be connected to and access the transmission Most organisations have to raise their own funding and borrow network(s)? from the banks. There are also renewable energy companies that provide fully functional power plants onsite and sell the power ZETDC currently owns and controls the national transmis- generated to a specific entity. The funding for such plants is sion network. Any generation facility intending to connect to provided by the distributed power company. Most banks would the network would be required to first commission ZETDC be comfortable in lending money for such projects. to undertake a Grid Impact Assessment Study that will determine the impact of the intended connection to the national grid 3.7 What is the legal and regulatory framework that and what can be done to ensure the continued integrity of the applies for clean energy certificates/environmental national network. ZETDC determines the maximum power attributes from renewable energy projects? connection that it can offer from a particular location and may determine that the generator must construct a transmission line Clean energy certificates are not yet provided for in our jurisdic- to the nearest connection point that may offer a stable connection. The transition to renewable energy is still under way in a tion as required in terms of the Grid Code, 2017. Once the country that still experiences power shortages. Sadly, the NREP connection parameters are agreed, the generator and ZETDC did not deal with the issuance of clean energy certificates. will then sign a Transmission Connection Agreement.

3.8 Are there financial or regulatory incentives or 4.4 What are the requirements for renewable energy mechanisms in place to promote the purchase of facilities to be connected to and access the distribution renewable energy by the private sector? network(s)?

At present, the government encourages the deployment of solar The requirements to be connected to and to access the distribution

networks are the same those required for one to access the trans- Agency Act [Chapter 14:37] (ZIDA Act) empowers the Zimbabwe mission system. ZETDC owns the distribution network. The Investment and Development Agency (ZIDA) to issue invest- parties would be required to comply with the technical requirement licences to both local and international investors in a ments in the Grid Code. non-discriminatory manner. Renewable energy projects are not part of the sectors that have been reserved for investment by locals only in terms of the Indigenisation and Economic 4.5 Are microgrids able to operate? If so, what is the legislative basis and are there any financial or Empowerment Act. regulatory incentives available to promote investment in microgrids? 6.2 Are there any currency exchange restrictions or restrictions on the transfer of funds derived from Microgrids are not specifically mentioned in the Electricity Act. investment in renewable energy projects? The legislative framework exists for one to hold generation, transmission and distribution licences and to be able to operate a The ZIDA Act offers guarantees and assurances that, in respect microgrid. The focus in Zimbabwe has been to ensure that elec- of all investments for which licences have been secured under tricity is available due to the present electricity deficit that exists the Act, the investors may without restriction or delay in freely in the country. The NREP seeks to promote investments in convertible currency transfer funds into and out of Zimbabwe renewable energy and it is hoped that specific incentives will be in respect of contributions to capital, such as: principal and addi- put in place for the operation of microgrids especially in remote tional funds to maintain, develop or increase the investment; areas where the national transmission infrastructure is not yet proceeds, profits from the asset, dividends, royalties, patent fees, available. At present, only ZETDC holds the right to transmit licence fees, technical assistance and management fees, shares and distribute as it is the sole owner of the assets for distribution, and other current income resulting from any investment under transmission and supply functions. this Act; proceeds from the sale or liquidation of the whole or part of an investment or property owned by an investment; 52 Storage payments made under a contract entered into by the investor or investment, including payments made pursuant to a loan 5.1 What is the legal and regulatory framework which agreement; payments resulting from any settlement of invest- applies to energy storage and specifically the storage of ment disputes pursuant; and earnings and other remuneration of renewable energy? foreign personnel legally employed in Zimbabwe in connection with an investment subject to any laws in force at the time. In The present regulatory framework has not developed rules cases of serious balance-of-payments or external financial diffi- relating to the storage of energy and particularly renewable culties, the government may temporarily restrict payments or energy. The focus appears to be more on developing the infra- transfers related to investments, provided that such restrictions structure for generation and increasing capacity. Energy storage are imposed on a non-discriminatory and good faith basis. would be expected, however, to comply with the Environmental Management Authority standards for the prevention of pollu- 6.3 Are there any employment limitations or tion and environmental degradation. Statutory Instrument requirements which may impact on foreign investment in Environmental Management (Control of Hazardous Substances) renewable energy projects? (General) Regulations, 2018 were passed as Statutory Instrument 268 of 2018, and in terms of section 10, the importation, manu- The ZIDA Act allows an investor to appoint, regardless of their facture or selling of hazardous substances or the movement nationality, any individual who is a qualified person as a senior thereof needs to be licensed or permitted. manager, technical and operational expert or advisor with respect to the investment in accordance with the laws of Zimbabwe. 5.2 Are there any financial or regulatory incentives Work permits would be required for such employees. Outside of available to promote the storage of renewable energy? the employees allowed in terms of the ZIDA Act, work permits are issued on the basis that the skills or expertise possessed There are no specific financial or regulatory incentives in place by the person being employed are not available in Zimbabwe. at the moment. With projects of this nature, it is possible, in There are certain fields which may have additional requirements line with the policy directives in the NREP, for one to apply in the field. One such example is the Engineering Council Act for National Project Status. The MOEPD should be able to [Chapter 27:22] and the by-Laws prescribe that locals must be support such an application. Once such a project is granted involved in the project as a condition of the issuance of the regis- National Project Status, import duties on the capital goods would tration and the practising certificate to the foreign firm. This be waived in terms of sections 140 and 141 of the Customs and would therefore affect engineers involved in an EPC capacity. Excise (General) Regulations. It would also be possible to nego- The Engineering Council would need to be satisfied that the tiate specific waivers of certain taxes and other government levies. skills being brought in are not available in Zimbabwe.

62 Foreign Investment and International 6.4 Are there any limitations or requirements related to Obligations equipment and materials which may impact on foreign investment in renewable energy projects? 6.1 Are there any special requirements or limitations on foreign investors investing in renewable energy At present, there are no restrictions imposed in respect of equip- projects? ment and materials for renewable projects as most of the equipment required for these projects is not locally available. There are no restrictions on foreign investors investing in renewable energy. The Zimbabwe Investment and Development

72 Competition and Antitrust impose fines and take any such other action that it deems appropriate to bring to an end to the conduct complained of.

7.1 Which governmental authority or regulator is responsible for the regulation of competition and 7.3 What are the key criteria applied by the relevant antitrust in the renewable energy sector? governmental authority or regulator to determine whether a practice is anti-competitive? The principal obligations to monitor competition and antitrust behaviour in the energy sector lie principally with ZERA Section 32(1) of the Competition Act sets out the factors to be subject to the overall control of the Competition and Tariff considered by CTC in determining whether or not any restric- Commission (CTC) established in terms of the Competition Act tive practice, merger or monopoly situation is or will be contrary [Chapter 14:28]. to the public interest. CTC is obliged to take into account everything it considers relevant in the circumstances, and shall have regard to the desirability of: maintaining and promoting 7.2 What power or authority does the relevant effective competition between persons producing or distributing governmental authority or regulator have to prohibit or commodities and services in Zimbabwe; promoting the interests take action in relation to anti-competitive practices? of consumers, purchasers and other users of commodities and services in Zimbabwe, in regard to the prices, quality and variety Section 59(1) of the Electricity Act gives ZERA the ongoing of such commodities and services; and promoting, through responsibility to monitor whether electricity services are being competition, the reduction of costs and the development of new provided competitively, to determine whether any electricity techniques and new commodities, and of facilitating the entry service in respect of which prices or tariffs are fixed by ZERA of new competitors into existing markets. In cases involving a can be provided competitively, and to provide a report on these person with substantial market control, a restrictive practice will matters, at least annually, to the Minister. be regarded as contrary to the public interest unless: the restric- Subject to Ministerial approval, ZERA may free a regulated tive practice is reasonably necessary, having regard to the char- service from price or tariff regulation and determine the time acter of the commodity or service to which it applies, to protect and circumstances in which this would be permissible. consumers or users of the commodity or service, or the general ZERA has powers to restrict the introduction of competition public, against injury or harm; the termination of the restrictive in certain areas, or of certain licensees or customers, on either a practice would deny to consumers or users of a commodity or temporary or permanent basis. service to which the restrictive practice applies, other specific ZERA determines the preconditions and any transitional and substantial benefits or advantages enjoyed or likely to be arrangements required in order for a regulated service to be enjoyed by them, whether by virtue of the restrictive practice offered competitively, which may include codes of conduct, itself or by virtue of any arrangement or operation resulting rules relating to access to information, access to the electric therefrom; the termination of the restrictive practice would be system and constraints against undue price discrimination in likely to have a serious and persistently adverse effect on the the offering of services. general level of unemployment in any area in which a substan- ZERA also has the responsibility to monitor electricity tial proportion of the business, trade or industry to which the undertakings and markets, and is entitled to require informa- restrictive practice relates is situated; and the restrictive practice tion from licensees, to undertake enquiries and hearings, and does not directly or indirectly restrict or discourage competition to establish or contract with an independent entity to provide to a material degree in any business, trade or industry and is not monitoring services. likely to do so, among others. In terms of section 59(7) of the Electricity Act, ZERA is obliged to provide evidence to CTC of the presence or possible 82 Dispute Resolution development of market power in the operation of the licensed undertakings or electricity markets. ZERA has the ongoing responsibility to consider issues asso- 8.1 Provide a short summary of the dispute resolution framework (statutory or contractual) that typically ciated with the competitive provision of electricity services and applies in the renewable energy sector, including the prevention or mitigation of market power in its decisions procedures applying in the context of disputes between and orders regarding matters such as licence applications, the any applicable government authority/regulator and the grant of licences, licence terms and conditions, the setting of private sector. prices and tariffs, and whether to approve a merger, acquisition or affiliation, among others. Both the ZERA Act and the Electricity Act give ZERA the In terms of section 59(8) of the Electricity Act, if ZERA power to mediate and arbitrate disputes among and between determines that there is any problem related to the development licensees and consumers. Section 63 of the Electricity Act or unfair exercise of market power, it may do the following, with provides for the resolution of disputes between licensees. If the the agreement of CTC: dispute is not resolved amicably, it will be referred to ZERA for ■ issue such cease and desist orders as may be required upon a determination with each party having the opportunity to make the licensee or licensees concerned; representations. Any party who is not happy with the deci- ■ levy monetary penalties upon the licensee or licensees sion would be entitled to appeal to the Administrative Court. concerned; and In addition to the statutory processes, it is uncommon that in ■ refer the matter to CTC for investigation. contractual relations between government entities, the agree- Once the issue is referred to CTC, it will have the power ment would provide for arbitration proceedings in Zimbabwe. to investigate any restrictive practices. Where uncompetitive These will be carried out in terms of the Arbitration Act [Chapter behaviour is noted, CTC has extensive powers to redress the 7:15]. Zimbabwe adopted (with amendments) the Model Law situation including giving orders and directives for such conduct on International Commercial Arbitration adopted by the United to be terminated, refuse to approve the merger of any businesses, Nations Commission on International Trade Law on 21 June

1985, to give effect to the Convention on the Recognition and countries. In terms of Article 3 of the Convention, each Enforcement of Foreign Arbitral Awards adopted in New York contracting state shall recognise arbitral awards as binding and on 10 June 1958. Accordingly, foreign investors are free to enforce them in accordance with the rules of procedure of the resort to international arbitration, and awards from such arbi- territory where the award is relied upon. tration proceedings are recognised and enforced in Zimbabwe. In disputes with the government of Zimbabwe, access to the 8.5 Are there any specific difficulties (whether as a High Court and the Constitutional Court is generally available. matter of law or practice) in litigating, or seeking to enforce judgments or awards, against government 8.2 Are alternative dispute resolution or tiered dispute authorities or the state? resolution clauses common in the renewable energy sector? Generally, the court process can be lengthy and frustrating. In enforcing judgments against the government, the State Alternative dispute resolution clauses are common in contracts Liabilities Act prohibits the attachment of state assets. One will in the renewable energy sector. This largely depends on the therefore not be able to obtain payment from the government preference of the parties. The practice is to adopt the practices through the normal execution process of attaching and selling that are common in other jurisdictions as the EPC contractor, government assets. The government may therefore simply not the supplier of plant and equipment, and the O&M contractor honour the judgment and one has limited scope in getting it are typically a foreign entity. enforced if there is resistance.

Nikita Madya joined the firm on 1 July 2000 and became a Partner on 1 July 2003. He heads the firm’s Energy, Infrastructure and Natural Resources Department and is co-head of the Commercial and Corporate Department. He has a large commercial practice and advises several listed and unlisted companies in relation to acquisitions, mergers, disposals and various types of contracts. He is currently involved in greenfield projects in the energy sector, with work covering all aspects, including the construction elements involved in such projects. He has handled several completed transactions for companies listed on the Zimbabwe Stock Exchange, including share option schemes, rights issues, mandatory offers to minorities, Zimbabwe Stock Exchange Rules compliance and related matters. He has acted and continues to act as local counsel for a number of international law firms handling investment transactions into Zimbabwe. He is also involved in advising local, regional and international financial institutions in various loan transactions.

Wintertons Tel: +263 4 250 113/29 Beverly Corner, 11 Selous Avenue Email: [email protected] P.O. Box 452 URL: www.wintertons.co.zw Harare Zimbabwe

Wintertons – formerly Winterton, Holmes and Hill – was founded in 1902 and provides a full array of legal services. Our commitment is to deliver the highest-quality legal services for our clients. We understand the importance of accurately interpreting our clients’ needs and delivering quick, reliable and cost-effective legal advisory and representation services to our clients. We pride ourselves on being a modern, full-service, commercial law firm. Our mixture of youth and experience enables us to maintain stability whilst creating innovative solutions to our customers’ needs. Wintertons has been highly recommended as a Leading Firm in General Business Law and its Partners have been rated consistently as Leading Lawyers by Chambers Global over the past decade. www.wintertons.co.zw

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