Published: April, 2011 - Finland
Submission: April, 2011
New Proposal for Feed-in Tariff System for Wind Power Production Submitted
by Ville Hailikari Aki Kallio
Introduction Based on the final report submitted on September 29 2009 by a working group established by the Ministry of Employment and the Economy, on March 11 2010 the government submitted a draft for proposal to Parliament on new legislation in relation to a feed-in tariff system for electricity produced by renewable energy. The draft proposal was circulated for comments among various ministries and other interest groups, leading to the amendment of the draft proposal in relation to certain regulations concerning the feed-in tariff system for electricity produced from wood (especially forest chips). The amended proposal was finally submitted to Parliament in mid-September and is currently undergoing debate in various Parliament committees. The government plans to bring the proposal into force at the beginning of January 2011, provided that the European Commission approves the proposed use of state aid to finance the feed-in tariff system.
The amended version of the proposal now being debated in committees of the Parliament differs considerably from the original report (for further details please see "Government proposes feed-in tariff system for wind power"). This update discusses the most significant changes and the reasons behind them.
Financing of feed-in tariff
Instead of financing the feed-in tariff system through fees collected directly from electricity consumers, as proposed in the report, the new proposal finances the system through the annual state budget. This amendment was made in order to avoid possible conflict with the Constitution, which sets forth specific requirements and preconditions for new legislation concerning taxation. In practice, Section 81 of the Constitution would have regarded the feed-in tariff system (as defined in the original report) to constitute a tax on electricity consumers which did not fulfil the section's requirements and preconditions relating to taxes. Therefore, the system cannot be financed through fees collected directly from electricity consumers.
The public debate around the proposal is ongoing. Many commentators have mentioned that similar feed-in tariff systems to that described in the report are in place in several EU countries, some of which systems are financed through fees collected directly from electricity consumers. In addition, since May 2007 a feed-in tariff for peat for a fixed period lasting until the end of 2010 has been established in Finland, according to which a tariff is collected directly from the electricity consumers by the Finnish national electricity transmission grid operator, Fingrid Oyj. It has been argued that if the financing of the wind power tariff system through consumer fees is deemed to be constitutionally illegal, so should the feed-in tariff system for peat. This argument has also reached the government and the government has reviewed its opinion in relation to legality of its prior aid model relating to the energy produced from peat. As a result a separate draft proposal to Parliament has been released according to which the prior feed-in tariff based aid system for peat shall be changed to a state aid based system financed through the annual state budget.
Another concern about the possible financing of the feed-in tariff from the annual state budget is that it could result in an unstable system which is subject to future changes in the political situation in Finland, which could lead to a decrease in general interest among market participants and therefore restrict investment in renewable energy.
Conditions for approval to the feed-in tariff system
According to the proposal, in order to be approved to the wind power feed-in tariff system, the project itself and the constructed wind power plant must fulfil certain general and specific preconditions. In general, the proposed wind power project must meet certain operational and financial requirements. In addition, the wind power plant must fulfil certain specific preconditions. The plant must:
· not have received any other state aid in the course of its construction;
· be entirely new (ie, it cannot include any used parts); and
· be able to generate an aggregate of at least a nominal output of 500 kilovolt amperes.
Where these preconditions are not met, a wind power plant may still be eligible for fixed operating aid for electricity set forth in the proposal which would entitle it to a lower level of aid: €6.90 per megawatt hour (MWh).
In addition, no new wind power plants may be approved to the wind power feed-in tariff system after the aggregate nominal output of all generators of the wind power plants already approved to the system exceed 2,500 megavolt-amperes. Although this condition may have no impact during the early years of the system, it may complicate the financing of new wind power plants and commencing of new wind power projects in the future when the aforesaid threshold is starting to be close. Otherwise, the amended proposal did not introduce any significant changes to the conditions already stated in the original report, but mainly specified the already proposed conditions.
Relationship to EU state aid regulations
According to the proposal, when financed through the annual budget, the feed-in tariff system should be considered as state aid, in accordance with EU state aid regulations. This means that the feed-in tariff system should be notified to the commission. In general, the notification procedure takes at least six months, which would further delay the enactment of the legislation. Although it is likely that the feed-in tariff system as described in the proposal will be approved, it cannot be guaranteed, a factor which should be taken into consideration by market participants.
The relationship between the proposed feed-in tariff system and EU state aid regulations is complex. Some legal commentators in Finland have even questioned the need for the proposal's notification obligation. The main objective of the feed-in tariff system is to assist Finland in meeting the European Union's legally binding environmental '20-20-20' objectives (ie, to reduce greenhouse gas emissions by 20%, to increase the share of renewable energy sources by 20% and to improve energy efficiency by the same proportion, all by 2020). Therefore, the notification procedure should not become a major obstacle, given that many similar state subsidised systems are in place across the European Union.
Feed-in tariff price
The proposal suggests that the feed-in tariff for wind power projects in the development stage should be €105.30 per MWh until the end of 2015, rather than the €90.2 per MWh suggested in the report. However, this tariff would be paid only for a maximum period of three years, in order to support investment in new wind power technology. Otherwise, the wind power feed-in tariff system in the proposal is identical to that put forward in the original report.
Other preconditions for enactment
The enactment of the proposal is dependant on the enactment of many other government proposals which have been deemed necessary in order for the feed-in tariff system to be established and its objectives achieved. These proposals relate to the amendment of the Land Use and Building Act and the Environmental Protection Act, with the aim of reducing bureaucracy in relation to admitting construction permits and environmental permits for wind energy plants.
The proposal has attracted criticism from commentators, environmental organisations and other market participants. According to many commentators, the feed-in tariff should not be limited to wind power, biogas and electricity produced from wood, but rather should cover all forms of renewable energy, including solar power. In addition, the proposal's output limits on the feed-in tariff are considered by many to be too high, placing small and large-scale wind power producers in differing positions. The Finnish Association for Nature Conservation has even suggested that the proposal violates the Constitution due to its unequal treatment of wind power producers of different scales.
The government has tried to respond to the criticism in the amended proposal by implementing the fixed operating aid for electricity to the legislation which is especially directed to small and mid-scale wind power producers. Also, the exclusion of the Åland Islands from the scope of the proposal has confused many, given that the archipelago would be a highly suitable location for wind power plants.
The original report, the draft proposals and the amended proposal itself have identified a number of constitutional, judicial and administrative issues in light of which the proposed feed-in tariff system must be evaluated. Given the number of delicate judicial, administrative and financial issues which are yet to be resolved at legislative level, it remains to be seen whether the legislature will be able to implement the wind power feed-in tariff system within the proposed schedule, or at least by April 2011, when the next parliamentary elections take place in Finland. Nevertheless, Finland must implement a workable and well-functioning feed-in tariff system to finance the development of the wind power industry and increase its international competitiveness, while meeting international climate requirements.
For further information on this topic please contact Ville Hailikari (firstname.lastname@example.org) or Aki Kallio (email@example.com).
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