Provisions of the new law for RES and CHP: A brief legal analysis


Preliminary remarks 

After completion of the relevant consultation, the Parliament passed Law No. 4414 / 09.08.2016  under  the  title  “New  support  scheme  for  electricity  stations  from Renewable Energy  Sources  and  Combined  Heat  and  Power  High  Performance  -Provisions for legal and functional separation of supply and distribution industries in the market of natural gas and other provisions” (Gov. Gazette A’139 / 09.08.2016), which regulates, among other highly important issues for the Greek energy market, the new  support  scheme  for  electricity  produced  by  Renewable  energy  Sources (RES) and Combined Heat and power High Performance (CHP) stations.

The new regime falls within the broader ambit of the EU common policy towards tackling climate change. In the context of achieving national and EU targets for the penetration of  renewables  in  the  energy  market,  the  new  scheme  adopts  the requirements of  section  3.3  of  the  “EU  Guidelines  for  State  aid  in  the  field  of environment and energy for 2014-2020 ” aiming to support the further development of RES in Greece.

Reforms in the RES Special Account 

Τhe normative  intervention  undertaken  by  the  legislator  to  correct  the  lingering structural dysfunction  of  the  financing  of  the  RES  support  mechanism,  as articulated in  Article  23  of  the  Law,  is  οf  fundamental  importance.  The said provision establishes  a  new  source  of  revenue  of  the  RES  Special  Account  that reflects the  cost  which  is  avoided  by  the  Suppliers  due  to  the  presence  and penetration of  RES  in  the  energy  market  (“merit  order  effect”).  This legislative section is  based  on  the  reasoning  that  the  financing  of  the  RES  Special  Account administered by LAGIE is realized in a distorted way, resulting to Suppliers paying reduced amounts that do not reflect the actual economic value contributed by RES Producers.  In  this  way,  Suppliers  receive  a  substantial  benefit  from  the  Special Account, which in essence, according to the perception of  the legislator, constitutes an  indirect  subsidy  of  their  cost  (which  is  part  of  the  variable  component  of  the tariffs they offer to their customers). In other words, the deficit of the RES Special Account, which Law No. 4254/2014 (introducing the so-called “New Deal”) sought to  address  through  the  retroactive  cut  of  the  guaranteed  compensation  of  RES producers,  is  causally  linked  to  the  benefits  earned  by  the  Suppliers,  who  do  not bear  the  obligation  to  contribute  in  uplifing  a  deficit  systemically  linked  to  their economic advantage. The reasoning behind this legislation is extremely important because  it  automatically  undermines  the  legal  and  regulatory  foundations  of  Law No. 4254/2014.

In particular,  the  Explanatory  Statement  of  the  Law  recognizes  the  ‘structural inability to resolve the Daily Ahead Scheduling (DAS)”,   owed to the decrease of the System Marginal Price (SMP), due to the participation of RES / CHP power stations in the DAS, which is not taken into account when determining the charges owed by Suppliers, with  a  consequence  to  create  a  deficit  in  the  RES  Special  Account.

Through the provisions of Article 23, Suppliers are asked now to assume the related costs through  two  new  charges  that  take  into  account  the  benefits  resulting  from the existence of RES during the liquidation of the electricity market, without placing any  further  burden  on  consumers  by  increasing  the  Special  Emissions  Reduction Tax for Gas Emissions (ETMEAR).

The new regime provides two new sources of revenues for the RES Special Account. One source of revenue derives from the cost levied on each charge representative in the wholesale electricity market for the part corresponding to the energy supplied to all consumers of the Interconnected System and Network, excluding exports. The second source  of  revenue  derives  from  the  cost  that  may  be  applied  each  year, starting from  2018,  to  charge  load  representatives  for  the  energy  absorbed  for consumers they  represent  within  the  interconnected  system,  with  a  purpose  to progressively reduce  the  amount  to  be  recovered  from  consumers  through  the ETMEAR tax.

Article 23 also provides that the modification of the Electricity Exchange Code and the Grid Code for determining the methodology parameters will be introduced by decision of RAE, applicable  from  01/10/2016.  This decision is also of  great importance since  the  methodology  to  be  applied  should  not  over- or  under compensate the RES Account.

Changes in the electricity sales process from RES 

The new law seeks to establish a framework for a smooth transition from the old system of  fixed  retail  prices  (feed-in-tariffs)  to  the  new  system  of  differential increments and tendering (feed-in-premium).

The new regime is based on the development of a new support mechanism for the operation of RES (operating aid), which provides a premium in addition to the price shaped in the wholesale electricity market. This increase will be  granted  for  the validity support period of RES and CHP of each power station and will take the form of a  differential  value  (FiP),  taking  into  consideration  the  revenue  resulting  from their participation in the electricity market.

The incremental  increase  was  adopted  on  a  station  category  level  (sliding premium) and  not  as  a  steady  increase  (fixed  premium),  so  that  the  financial assistance mechanism  is  not  affected  by  variations  of  the  future  price  in  the wholesale market. This way attempts to ensure control and a predetermined size of the total  income  received  by  certain  stations  from  RES  and  CHP,  targeted to minimize both the phenomena  of  overcompensation  and  undercompensation  of electricity produced from RES and CHP stations.

More specifically,  the  RES  and  CHP  power  stations  put  into  operation  in  the Interconnected System  from  1.1.2016  are  included  in  the  support  scheme  in  the form of  operating  aid  and  on  the  basis  of  a  Price  Differential  Compensation (Differential Increment) for the electricity they produce. The differential premium is calculated on a monthly basis, whereas the validation, billing and settlement of transactions involving  the  differential  increase  processes  will  be  determined  by  a decision to be issued by the Minister of Environment and Energy, which is expected to be issued within three months from the entry into force of this Act.

The adoption of this differential increment allows a relatively “smooth” transition to the  new  scheme,  taking  into  account  that  the  support  system  via  fixed guaranteed price (FiT) will be active until December 31, 2016.

Conducting competitive tendering procedures for power stations from RES and CHP

Furthermore, from  1.1.2017,  the  support  system  enters  into  force  in  the  form  of operating  aid  for  RES  and  CHP  power  stations,  through  a  competitive  bidding process.  The Minister  of  Environment  and  Energy  decision,  issued  upon  RAE’s opinion,  will  set  the  installed  power  per  technology  and  /  or  the  category  of  the electricity  from  RES  stations  which  is  tendered  through  competitive  bidding processes.  The RES and CHP stations selected through the  competitive  bidding process will be endorsed in the support system of operating aid and will conclude Operational Support Contracts of Differential Increment for the electricity produced from RES and CHP (CEMR), as well as Functional Support Contracts of Fixed Price (S.E.S.T.). The competitive tendering procedure will be announced by RAE and the condition  for  participation  will  be  the  payment  of  a  fee,  payable  in  favor  of  RAE.

Especially, for  the  year  2016,  a  RAE  decision  for  launching  the  pilot  competitive bidding process for photovoltaic systems will be issued within three months from the entry into force of the law.

Transitional Law

During the  transitional  period,  a  mechanism  seeking  to  optimize  the  hourly electricity infusion  forecast  of  RES  and  CHP  stations  during  their  participation  in Day Ahead  Market  will  apply.  In the absence of the  intraday  market,  such  a mechanism is considered desirable in order to reduce deviations from the forecasts of the DAS and the requirements of service use, but also so as to gradually operate as a  preparation  for  the  RES  and  CHP  stations  with  respect  to  services  and obligations to be undertaken with the implementation of the new electricity market model.

Concerning RES projects that have signed purchase agreements by the end of 2015, it is  projected  that  they  will  retain  the  old  tariffs,  as  long  as  they  are  constructed and operating (normally or under a test period) until 30/06/2018.

For further information contact:

Metaxas & Associates (Attorneys At Law)

54 Asklipiou Str.
114 71 Athens,
Tel.: +30 210 33 90 748
Fax.: +30 210 33 90 749