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France’s Retroactive Cuts for Solar Draws Anger From Industry

France’s Retroactive Cuts for Solar Draws Anger From Industry

France’s utilities joined with investors in clean power projects in objecting to a government plan to cut as much as 4 billion euros ($4.7 billion) in subsidies owed to large owners of old solar farms, saying the move will create havoc in the renewable industry.

The government will create an “economic disaster” by slashing support for existing projects, damaging both the industry and its lenders, according to a joint statement from dozens of utilities and investment funds including Amundi SA, Axpo Holding AG’s Urbasolar, EnBW AG, Eurazeo SE, and Voltalia SA.

The outcry followed a decision on Friday by France’s Lower House to endorse a government amendment that will trim subsidies of hundreds of contracts signed between 2006 and 2010. Ecology Minister Barbara Pompili, who is seeking to limit the cost of supporting clean energy, has called the return on these 20-year contracts “excessive.”

“Such a legal provision would jeopardize the business plan and could lead to bankruptcies due to the contract holder’s inability to reimburse the banks,” Paul Elfassi, a partner at law firm BCTG Avocats and a board member of French renewable energy federation SER, said in an interview. “Many litigations would inevitably be brought against the State,” and “it could therefore be the citizens who could eventually pay the price.”

State-controlled Electricite de France SA said has about 150 megawatts of solar farms that may be affected by the revision. “We do not consider that we enjoyed any excessive remuneration, and we intend to defend our case with the French authorities,” EDF said in a statement.

The government wants to trim subsidies on hundreds of contracts because project costs dropped by 75% between 2006 and 2010, while the aid wasn’t reduced accordingly in the period, leading to a “bubble” of projects. The cut would affect the 800 biggest contracts out of the 235,000 solar projects signed in the period.

Operators of these projects and their lenders “will probably have to review their financing plans,” while an extension of duration be granted to some contracts if the reduction in annual subsidies were to jeopardize production, the government said in a statement Friday.

These contracts currently cost the government about 750 million euros a-year. The goal is to save as much as 400 million euros annually, leading to a gain of 4 billion euros by 2030, Pompili said Friday in the Lower House.

Renewables players urged the French Senate to reject the provision contained in 2021 budget bill. Its adoption would also slow future developments, making them costlier, and undermine the French State’s credibility at a time when it’s seeking to accelerate the development of solar and wind, and pledging billions of euros to subsidize its nascent biogas and green hydrogen industries.

“If the French government does not fulfill its commitments, there is a serious risk that investments in France, particularly in the energy transition, will be reconsidered,” BCTG’s Elfassi said.

The government sought to reassure investors by saying that new contracts have the European regulator’s backing and can’t be disputed, unlike an old version of support for solar power that was hit by revisions.

France has committed to spend more than 110 billion euros over the next 20 years on renewables, with government budgetary support set to climb by 25% to almost 7 billion euros in 2021.

Read More: France Cuts Onshore Wind Goal But Lifts Target for Offshore

©2020 Bloomberg L.P.