Law firm IUS AEGIS Bratislava on the RES reform
We have the long-awaited law of the year in the field of energy in the interdepartmental comment procedure, the Slovak Ministry of Economy already knows how it would like to reform the system of support for renewable energy sources (RES) and highly efficient combined heat and power (CHP) and the amendment to the Act on Support for RES/CHP has seen the light of day. Although it is too early to state its final form, including the by-laws of the Network Industries Regulatory Authority (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 the EU guidelines on state aid in the field of environment and energy. It should be noted that the amendment in question does not only address the change in the support system, but also introduces, among other things, the institute of a local source, TPS compensation for large industrial consumers over 1 GWh of annual consumption, unauthorized supply to the system, legalizes the payment of the G-component, and others. The Ministry of Energy justifies the change in the RES/VÚKVET support system primarily due to the advanced stage of development of RES/VÚKVET technologies and also the amount of electricity for losses, which exceeds the real losses in regional distribution systems.
The new support scheme is intended to contribute primarily to the achievement of climate goals set by the EU (27% to 35% share of RES in gross electricity consumption by 2030) and to relaunch the RES/VÚKVET sector in the Slovak Republic after a pause of several years. The entire RES/VÚKVET support system is to be under the patronage of the so-called support accountant, while the Short-Term Electricity Market Organizer (OKTE) has been designated as this "black pet". One entity instead of the current three is to guarantee centralization of administration and financing, reduction of administrative costs, costs of prediction and management of deviations.
While maintaining preferential connection, access and distribution of electricity, the reform of the RES/VÚKVET support scheme can generally be broken down into:
- Additional payment + electricity purchase + assumption of responsibility for deviation: for an electricity producer facility with an installed capacity of up to 250 kW producing electricity from water, geothermal, biogas, landfill gas, gas from wastewater treatment plants and VÚKVET.
The so-called "old-new" type of support will be applied no later than 31 December 2033, but for a maximum period of 15 years from the date of commissioning of the electricity generation facility. The electricity purchase contract will be concluded with the purchaser, the contract on the transfer of responsibility for the deviation with the designated settlement entity, and the contract on the additional payment with OKTE.
- Surcharge (Feed-in tariff): for an electricity producer facility with an installed capacity of 251 to 500 kW producing electricity from water, geothermal, biogas, landfill gas, gas from wastewater treatment plants and VÚKVET (up to 1 MW).
These so-called "surchargers" will be entitled to a surcharge, but they will have to place the generated electricity on the market themselves (sell electricity to a selected trader) 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 facility. The surcharge agreement is concluded with OKTE. The amount of the surcharge will, as before, represent the difference between the electricity price in the price decision and the price of purchased electricity set annually by URSO by 30 June.
The Ministry of Energy and Water Resources will publish annually by June 30 the possible/potential installed capacity of new electricity generation facilities from RES and VÚKVET that can be built, and if the specified limit is exceeded on the market, the URSO will be entitled to interrupt the price proceedings with the electricity producer, and thus not approve the decision to approve the fixed electricity price for determining the surcharge. The same applies to point 1) above.
- Surcharge (Feed in premium) – new system: is to apply to electricity producer equipment with a total installed capacity of 10 kW to 50 MW as a result of an auction announced by the Ministry of Energy and Natural Resources. The details of the tender procedure will be regulated by a decree of the Ministry of Energy and Natural Resources. The Ministry of Energy and Natural Resources will therefore decide which technology it will prefer and what 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 facility. 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 agreement 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 a selected trader and taking responsibility for the deviation.
For all three above-mentioned methods of supporting RES/VÚKVET, the amount of the feed-in tariff is decisive, on which the amount of the surcharge and the additional payment depend. The feed-in tariff will be set annually by the 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 DSOs.
One of the risks for producers is the introduced possibility of not paying the surcharge and the surcharge in the event that there are negative prices on the wholesale market during two trading hours. Support will also not be provided to producers who represent island operations and are therefore permanently disconnected from the distribution system. At the same time, the regulatory authority could continue to change the electricity price for determining the surcharge, as well as the price offered in a successful tender, based on a change in the price of input raw materials used for electricity production (so far the so-called positive or negative fuel surcharge). A certainly positive fact for electricity producers is that "forgetting" to fulfill their notification obligations will not represent a sanction in the form of the impossibility of applying for support for the following calendar year, i.e. the so-called loss of support is no longer included in the proposed amendment. However, new obligations will be added to OKTE and obligations to install continuous metering. For current electricity producers, the amendment in question means that by the end of 2018 at the latest, they will have to conclude (i) a mandatory purchase agreement with the electricity purchaser (replacing the electricity purchase agreement for losses) and (ii) a surcharge agreement with OKTE and (iii) a contract on mandatory assumption of responsibility for deviation with the designated settlement entity. Ensure continuous measurement for devices with installed capacity over 100 kW at the generator terminals, technological self-consumption. Current producers also 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 electricity price set in the price decision represents, as it were, the price offered in the auction, while the surcharge is increased by the price of remuneration for the electricity purchaser and the designated settlement entity.
At first glance, it seems that all stakeholders are satisfied, supporters of RES/BLOOM and investors will receive a local source and new opportunities for investment in production facilities, and industrialists who have been calling for a lower TPS for years will be compensated for a part of the TPS paid. It looks too positive, who knows if the state – MHSR or OKTE – has the same enthusiasm. For this reason, the amendment introduced the possibility for MHSR to finance the OKTE deficit to pay support. It can be assumed that the introduction of an auction system will increase the competitiveness of electricity producers, because 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 for an undetermined number of electricity producers. The state will thus gain stronger control over the development of this industry, but it is questionable how it will cope with it. It will be important to set the auction volume in accordance with the expected demand and not to put unnecessary barriers that hinder the development of competition. In terms of experience from the Western EU, auction schemes are provisionally confirmed to be more efficient and financially save compared to a system of fixed guaranteed prices.
It is also important to believe that the Ministry of Economic Affairs and Communications will fulfill its obligations in the area of competition and, unlike the original support scheme, will already notify this one to the European Commission.
JUDr. Matej Slezák, attorney-at-law
law firm, ius aegis sro