Investment yield parameter reduced for renewable energy projects
On 25 October 2019, the Flemish Government proposed a draft Order amending the regional Energy Order (“Energiebesluit”) of 19 November 2010. This is now pending with the Council of State for advice.
The draft Order alters a key parameter in the formula used to calculate the “banding factor”. The banding factor sets the number of Renewable Energy Certificates (“RECs”) a renewable energy project receives for each kWh of electricity generated from renewable energy sources. Each REC can be sold at a guaranteed price of EUR 93/REC. The banding factor thus effectively determines the subsidy level.
The proposed amendment reduces the parameter reflecting the yield of the investment, namely “parameter R”.
The proposed reduction applies to all green electricity projects, regardless of size or technology, though with different effective dates. For projects requiring an individual application for a project-specific banding factor, the reduced parameter R applies to projects for which that individual application occurred as of 1 January 2020. For other projects, the reduced parameter R applies for those projects having a starting date as of 1 April 2020.
The reduced yield parameter is 6,5% instead of 7,5% (for wind), 4,75% instead of 5% (for PV installations) and 10,5% instead of 12% (for biomass and combined head projects).
The change has no (quasi-)retroactive effect: projects which received a banding factor with the current (higher) parameter R will not see this reduced.
The reduction of factor R for future projects does not entirely come as a surprise. In the coalition agreement of 30 September 2019 (“regeerakkoord”), the Flemish government expressed the intention to reconsider the investment yield of new projects in the light of their risk profile.
Nevertheless, the current planned reductions still mark a shift in the way the REC regime is amended. Since the “banding factor system” was introduced, the value of the various parameters has been regularly amended (and the banding factors for existing projects are in addition updated to take account of electricity price evolutions). However, those amendments were nearly always intended to maintain the envisaged yield.
The latest amendment is different in that it seeks to reduce yield across the board. So far parameter R had been amended only rarely. Parameter R was amended only once for a very specific category of PV projects (in 2019, for PV projects connecting to a direct line), and once for onshore wind projects (in 2019 for onshore wind projects requiring an individual application for a project-specific banding factor and in 2018 for other onshore wind projects).
It remains to be seen to what extent investors will react to the reduction.
For more information, please contact Bram Devlies, Remias De Donder or your regular Loyens & Loeff adviser.