Wind power produced about 5.6 % of all consumed Finnish electricity in 2017. By the spring 2018, new wind power projects were published for nearly 15 500 megawatts (MW), of which offshore projects are approximately 2 000 MW. In total, projects in different stages of project development will lead to a total investment of over 23 billion in Finland. However, lately the development has decelerated due to the anticipation of the new support scheme.
Wind power operators have been waiting for a new support scheme for renewable energy and its details for a long time. The Finnish Parliament has on 23 May 2018 approved the Government Bill 175/2017 vp by enacting an amendment to the Feed in Tariff Act (Act on Subsidies for Electricity Produced from Renewable Energy Sources 1396/2010). According to the new Act, provisions on a premium system based technology-neutral tender process are added to the Feed in Tariff Act. The new Act must be approved by the European Commission before entering into force.
According to the Energy and Climate strategy for 2030 adopted by the Finnish government on 24 November 2016, the aggregate annual electricity production to be tendered under the new support scheme will be 2 TWh. The Government has, however, subsequently, stated that it will in the autumn 2018 make a proposal to the Parliament to ban the use of coal, which, if approved, will most likely to reduce the aggregate annual electricity production covered by the scheme from 2 TWh to 1.4 TWh. If said reduction is effected, it is expected that only one auction round will be arranged. The timing of the round has not yet been determined, but it is however expected that it will be arranged in December 2018.
Hydro power excluded from the support scheme
According to the new Act, the new subsidy scheme will apply to wind power, solar power, wave power, biogas and wood fuel power. Therefore, hydro power is explicitly excluded from the support scheme. The tenders with the lowest premium and with an annual electricity production not exceeding the annual production subject to tender would win the process. The premium offered would have to fall under the threshold price of the process, which in the beginning would be EUR 53.5/MWh, i.e. the same as under the current feed-in tariff system. The subsidy may be received for maximum of 12 years.
The project must fulfill the preconditions for the auction process
To be eligible for an auction process, the project should be genuinely feasible, which means that the project is as ready as possible for the construction. Therefore, the electricity producer would have to meet certain physical conditions of participation in order to be able to participate in the tender process. The Energy Authority verifies the fulfillment of the conditions as part of the process of selecting the electricity producers approved for the premium system. A participation fee (currently estimated to be EUR 2 500 per bid) is payable in connection with the submission of the bid in the auction process. Furthermore, as the aim is also to ensure the viability of the projects, a participation security and a construction guarantee must be issued during the process. To participate in the tender process, electricity producer would have to post a participation security amounting to the annual production of electricity being tendered multiplied by EUR 2/MWh. Respectively, the amount of the construction security is the offered annual production amount multiplied by EUR 16/MWh.
Obligation to produce electricity
The electricity producer is obliged to produce electricity produced from renewable energy sources according to the accepted tender. Whether the electricity producer would fail to comply with its obligation, an underproduction compensation shall be paid to the state. However, the electricity producer would not be obliged to pay the underproduction compensation insofar as the shortage is attributable to the grid operator and for the time when the market price of electricity in the power plant’s location has been negative. The Energy Authority may also in certain situations exempt the electricity producer to pay the underproduction compensation.
HPP is one of the leading legal experts in the wind power sector. We are actively following the development and implementation of the new premium scheme and assisting customers in support scheme related issues.
Minna Juhola specializes in environmental law and advises clients on issues relating to renewable energy projects. Minna has extensive experience in energy, environmental and land use issues related to the wind power sector both in project development and in operational projects.
Björn Nykvist specializes in banking and finance, M&A and real estate transactions and advises clients on investment and structuring issues arising from renewable and wind energy projects for overseas investors on regular basis. Björn has long-term experience in various transactions and financing arrangements in the wind power and energy sector in general. He is widely respected by both project developers and investors.