Greece brings new retroactive measures; cuts FIT by 30%

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A new set of retroactive measures, a so-called "new deal" that applies to all renewable energy systems (RES), was announced on Friday by the Greek Ministry of Environment, Energy and Climate Change (YPEKA). Of all RES plants, solar PV installations face the biggest plunge.

The new measures ask solar photovoltaic energy producers to contribute 35% of their 2013 income to the Greek electricity market operator LAGIE. The intention is to plug a €700 million gap in LAGIE’s fund used, which is used to pay renewable energy producers in Greece. The country has promised its international lenders – the European Union, the European Central Bank and the International Monetary Fund – that it will completely eliminate LAGIE’s fund deficit by the end of 2014.

While the same measures also apply to other renewable power producers, they are currently only required though to contribute 10% of their 2013 income to the LAGIE fund, with one exception: rooftop solar PV installations are exempted completely from this measure.

Retroactive FIT cuts

The second measure introduced by YPEKA regards the drastic reduction of FITs for operational RES plants. Again, solar PV installations face the sharpest reductions, which on average reach 30% of the initial tariffs. Retroactive FIT cuts also apply to rooftop installations.

A smoother FIT reduction, around 20% on average, applies to smaller PV projects up to 20 kW each that are not installed on buildings, and to those projects owned by farmers should they not exceed 100 kW each.

Other renewable energy systems such as wind and hydro projects have been instructed to take a much smaller FIT reduction of around 5-6% on average.

Reductions for solar PV FITs have taken into account a number of factors, such as the technology used, the time of project development, the cost of the installation, and even the location (specifically differentiating between projects in mainland Greece and in the smaller electricity grids of the many Greek islands). A critical factor also taken into account is whether a RES project has received any additional form of aid (e.g direct subsidy, tax exemption). FITs for projects receiving such aids face even sharper cuts.

The ministry believes the new tariffs will close the LAGIE RES fund deficit and allow it to remain at zero levels until about 2020/2025. The new tariffs are also significantly higher than what most investors had feared last summer, when the "new deal" news first broke.

Extension of power purchase agreements (PPA)

To make up for the lower FITs, YPEKA allows renewable power producers to extend their PPA with LAGIE by five years.

Specifically, after the end of the current PPAs, all RES plants that this January had been operating for less than 12 years are given two options: to sell the generated power to the energy market and according to the market rules; or to sell the energy they produce to the grid at a set price of €80/MWh.

The second option obliges the grid to prioritize the purchase of power produced by RES, for the given €80/MWh price and subject to an annual amount of energy that is capped according to the installed capacity and the efficiency of the plant.

Solar PV market: open for business

Last but not least, YPEKA’s new bill does bring some good news, too. Upon the approval of the new bill by the Greek Parliament, Greece’s Regulatory Energy Agency (RAE) will again begin receiving new applications for the installation of solar PV systems.

RAE had stopped receiving applications for producer licenses and connection requests in August 2012. The suspension of new applications for PV systems and of the approval process for pending applications was recently extended until the end of 2014, but YPEKA aims to end this, albeit under a new system.

Thus, YPEKA has now set an upper limit for RES capacity to be installed per year under the FIT system. For solar PV specifically, the limit is set at 200 MW per year until 2020. The new measures furthermore allow for the new capacity to be selected by tenders.

YPEKA holds the right to modify the limits for the new RES capacity to be installed according to the energy system’s needs, the cost of each technology, and other factors.

Towards rational investment returns

Apart from eliminating the RES fund deficit, YPEKA Deputy Minister Asimakis Papageorgiou said the new retroactive measures also aim to reduce the cost of electricity and to stir the projects’ internal rates of return (IRR) so that all RES power producers have similar investment returns.

Such an argument is not new. In a recent letter to the Greek energy regulator RAE, the deputy minister had written that in Europe, PV projects’ investment returns are around 8% to 9%. In Greece, he added, there were cases where the return on the solar PV investments started at 36% and rose much higher. Rationalization of the investment returns in the Greek solar PV market was necessary, he argued.

Meanwhile, in a recent European Union document regarding Europe’s climate and energy trends in 2030, the European Commission says: "Support provided to RES [in Greece] led to overcompensation, and could not be maintained over time. Ongoing reforms need to be pursued to ensure that RES support is provided in a budget-neutral manner as of 2014. At the same time, it must be provided in a cost-effective manner to avoid placing excessive burden on consumers."

Critics argue the recent "new deal" measures are rather aiming to correct last year’s Greek policies’ patchwork. Overcompensation, they add, and high returns beyond the European levels would have been avoided with a more careful and considerable public policy planning.

Consequently, the Hellenic Association of Photovoltaic Energy Producers’ (SPEF) response to the new measures does not come as a surprise. The proposed bill, SPEF says, appears to be in principle against the country’s legal framework and opposes the freedom of contract and trade. The current mess in the solar PV sector, SPEF argues, is the result of recent governmental policies. But since a resolution of the current problems is absolutely necessary, SPEF endorses the measures, seeking major changes.

One of those changes is the new bill to force banks to accept losses by cutting the interest rates to loans given to RES investors. SPEF also asks for the PPAs to extend to 8.5 years and for a higher price, while it rejects the initiation of the application procedure saying the situation is not yet smooth enough to allow new installations.

On the contrary, the Hellenic Association of Photovoltaic Companies (HELAPCO) fully endorses the re-opening of the PV market since the "applications suspension has led to a loss of more than 75% of jobs in the industry."

Nevertheless, this week finds solar PV investors in Greece counting their losses, which for some (older) projects might climb up to over 50% FIT reduction. The good news is that even after the new retroactive cuts the investment rate for solar PV installations in Greece remains often higher than the European average. Therefore, the fate of many projects will be decided by the investors’ balance sheets.

Public consultation on the new bill is set to cease on Thursday 13 March when the government will try to pass it through parliament. By the end of January 2014, Greece’s cumulative PV capacity stood at around 2.6 GW, of which about 1 GW was installed in 2013.