The long-awaited reform of RES support

author Ius Aegis
Dlho očakávaná reforma podpory OZE

IUS AEGIS Bratislava law firm on the reform of RES

In the interdepartmental comment procedure, we have the long-awaited law of the year in the field of energy, the Slovak Ministry of the Economy already knows how it would like to reform the system of support for renewable sources (RES) and highly efficient combined production of electricity and heat (VÚKVET), and the amendment to the law on the support of RES/VÚKVET has seen the light of day of the world. Although it is too early to determine its final form, including the bylaws of the Office for the Regulation of Network Industries (URSO) and the Ministry of Economy of the Slovak Republic (MHSR), in this article I will offer at least the preliminary parameters of this long-awaited law.

The new RES/VÚKVET support scheme is intended to support a market-oriented approach in this sector in accordance with EU guidelines on state aid in the field of environment and energy. It should be noted that the amendment in question does not only deal with the change of the support system, but also introduces the local resource institute, TPS compensation for large industrial customers over 1 GWh of annual consumption, unauthorized supply to the system, legalizes the payment of the G-component and others. MHSR justifies the change in the support system for RES/VÚVET primarily due to the advanced stage of the development of RES/VÚVET technologies and also the amount of electricity for losses, which exceeds the real losses in the regional distribution systems.

The new support scheme is primarily intended to contribute to the fulfillment of the climate goals set by the EU (27% to 35% share of RES in gross electricity consumption by 2030) and to re-energize the RES/VÚCHVET industry in the Slovak Republic after a several-year hiatus. The entire RES/VÚKVET support system should be under the patronage of the so-called support accountant, while the short-term electricity market organizer (OKTE) was designated as this "black petra". One entity instead of the current three is supposed to guarantee the centralization of administration and financing, reduction of administrative costs, costs of prediction and management of deviation.

While preserving the priority connection, access and distribution of electricity, in general, the reform of the RES/VÚVET support scheme can be divided into:

  • Surcharge + purchase of electricity + assumption of responsibility for deviation: for electricity producer equipment with an installed capacity of up to 250 kW producing electricity from water, geothermal, biogas, landfill gas, gas from wastewater treatment plants and CHP.

The so-called the "old-fashioned" type of support will be applied until December 31, 2033 at the latest, but for a maximum period of 15 years from the day the electricity production facility was put into operation. The contract for the purchase of electricity will be concluded with the purchaser, the contract for the transfer of responsibility for the deviation with the specified clearing entity and the contract for additional payment with OKTE.

  • Surcharge (Feed in tariff): for electricity producer equipment with an installed capacity of 251 to 500 kW producing electricity from water, geothermal, biogas, landfill gas, gas from wastewater treatment plants and CHP (up to 1 MW).

These so-called "surcharge payers" will be entitled to a surcharge, but they will have to place the produced electricity on the market themselves (selling electricity to the chosen merchant), including their own responsibility for the deviation. This type of support will be applied for a period of 15 years from the date of commissioning of the equipment. The additional payment contract is concluded with OKTE. As before, the amount of the surcharge will represent the difference between the price of electricity in the price decision and the price of purchased electricity determined annually by URSO until June 30.

Every year, MHSR will publish by June 30 the possible/potential installed capacity of new facilities for the production of electricity from RES and VÚKVET that can be built, while if the given limit is exceeded on the market, URSO will be entitled to interrupt the price procedure with the electricity producer, and thus as a result, not to approve the decision on the approval of the fixed price of electricity for determining the surcharge. The same applies to point 1) above.

  • Surcharge (Feed in premium) – new system: should refer to the electricity producer's equipment with a total installed capacity of 10 kW to 50 MW as a result of the auction announced by the MHSR. The details of the selection procedure will be regulated by the MHSR decree. The MHSR will therefore decide which technology it will prefer and which volume of electricity from RES/VÚKVET it will be interested in.

This type of support will be applied for 15 years from the date of commissioning of the equipment. The amount of the surcharge will represent the difference between the winning price in the MHSR auction and the set price of the purchased electricity. The surcharge contract is concluded with OKTE. As with the so-called additional payers, these electricity producers will also have to independently place electricity on the market - selling electricity to the chosen trader and their own responsibility for the deviation.

The amount of the purchase price, which depends on the amount of the surcharge and also the surcharge, is decisive for all of the above-mentioned three methods of RES/VÚVET support. The purchase price will be determined annually by ÚRSO as the expected market price of electricity (adjusted by a coefficient) and not as today's price for losses - the arithmetic average of the price of electricity for losses of three regional PDSs.

One of the risks for manufacturers is the introduced possibility of not paying the supplement and surcharge in the event that there are negative prices on the wholesale market during two business hours. Similarly, support will not be provided for producers who represent an island operation and are therefore permanently disconnected from the distribution system. At the same time, the regulatory authority could continue to change the price of electricity to determine the surcharge, as well as the price offered in a successful tender, based on the change in the price of input raw materials used to produce electricity (so-called positive or negative fuel surcharge). It is certainly a positive fact for electricity producers that "forgetting" to fulfill their reporting obligations will not constitute a sanction in the form of the impossibility of applying for support for the following calendar year, i.e. the so-called the loss of support is no longer in the proposed amendment. However, new obligations towards OKTE and obligations with the installation of continuous measurement will be added. For current electricity producers, the amendment in question means that by the end of 2018 at the latest, they will have to conclude (i) an agreement on compulsory purchase with the electricity buyer (replacing the agreement on the purchase of electricity for losses) and (ii) an agreement on additional payment with OKTE and (iii) an agreement on the mandatory assumption of responsibility for the deviation with the specified clearing entity. Provide continuous measurement for equipment with an installed power of over 100 kW at the generator terminals, technological self-consumption. In the same way, current producers have the opportunity to expose themselves to market signals in the form of the right to change the support system, i.e. the transition from the right to a surcharge and purchase to a surcharge, while the price of electricity set in the price decision represents, as it were, the price offered in the auction, while the surcharge is increased by the price of compensation for electricity purchaser and designated settlement entity.

At first glance, it looks like all the affected entities are satisfied, the supporters of RES/BLOOM and investors will get a local source and new opportunities to invest in production equipment, and industrialists who have been calling for a lower TPS for years will be compensated for part of the TPS paid. It looks too positive, who knows if the state has the same enthusiasm - MHSR, or OCT. Also for this reason, the amendment introduced the possibility of the MHSR to finance the deficit of OKTE for the payment of support. It can be assumed that the introduction of the auction system will increase the competitiveness of electricity producers, as the competition between them will intensify. From the point of view of costs, as well as the management of the electricity system, the form of an auction is certainly a more advantageous system than a guaranteed price in advance to an undetermined number of electricity producers. The state will thus gain a firmer control over the development of this industry, it is questionable how it will cope with it. It will be important to determine the auction volume in accordance with the expected demand and not to place unnecessary barriers that prevent the development of the competition. In terms of experience from the Western EU, higher efficiency and financial savings are tentatively confirmed for auction schemes compared to the system of fixed guaranteed prices.

We must also believe that the MHSR will fulfill its obligations in the field of economic competition and, unlike the original support scheme, will already notify the European Commission.

JUDr. Matej Slezák, lawyer
law firm, ius aegis s.r.o