The perspectives of the suspension of the cap are becoming clearer. There has been some interesting news in the French renewable energy sector this week, as the Commission de régulation de l'énergie (CRE) published its recent recommendations that arose from its recent discussions on the current energy crisis, with some important news for French renewable energy producers.
According to CRE’s deliberations, the organisation has recommended an end to the “plafonnement”, or capping, mechanism in relation to complément de rémunération contracts.
Historically, this type of contract provides that energy producers pay back the difference between the market price and the reference tariff, when the market price is high, as it very much has been in recent months. Producers pay back this difference in order to reimburse financial assistance received from the state in times of market prices below the reference tariff, and in the current system, once the ‘cap’ limit of state aid has been reimbursed, the producer would be able to profit from the high prices to earn extra revenue since all the credit notes are eventually deferred until the market move price moves below the reference tariff again.
At the end of last year however, a suspension of this ‘cap’ was put in place for all new contracts signed after the 20th of December 2021. Under that new system, producers had to continue to pay back the positive price difference even if all the aid had been reimbursed. Since then, the removal of the cap was put in place for all projects, for the period April to December 2022. And finally now, after this week’s publication, the CRE has recommended that this change to be made permanent for 2023, with prominent lawyers involved in the French energy sector predicting that the draft French budget for 2023 will codify this change into law, including a retroactive suspension of the cap for the whole year of 2022.
For those producers that had been hoping to take advantage of high wholesale market prices by terminating their existing “complément de rémunération” contract early and entering into a new full merchant style agreement, the CRE has recommended the introduction of a special taxation regime in order to ensure that these extra revenues are not missed.
The thinking behind this recommendation is quite clear. The CRE estimates that for the years 2022 and 2023 that renewable electric energy sources in mainland France will represent a cumulative revenue of €8.6 billion for the State budget ( without taking into account any likely retroactive suspension of the cap). The State hopes to recoup some of the extra revenues flowing to French renewable energy producers due to the current high market prices, and use this money to limit the impact of high prices on French consumer’s electricity bills for what promises to be a difficult winter ahead for households.
It is also indicative of the increasingly important role that renewable energy is playing in the French economy, and the sizable flows of money surrounding the sector this year and beyond. The French state is beginning to move the focus from a system that props up renewable energy producers (sometimes at the taxpayers expense), to one in which producers are viewed more and more like vital contributors to the French economy and vital cogs in the country’s energy sector. The suspension of cap for reimbursement of the “Complement de Rémuneration” is not extremely good news for the producers that might fear to lose their prospect of higher yields in the coming years but other market mechanisms should bring them more upside. It can be viewed as another important step in the maturation process of the sector.