French renewable projects: The introduction of aggregation agreements
Posted: 1st February 2018 09:14
Most renewable facilities will have to conclude a power purchase agreement (“PPA”) as an ‘aggregation agreement’. Given the risks inherent in the new French support system for renewable projects, both the content of the aggregation agreement and the choice of the aggregator are crucial aspects in securing these projects.
Aggregation agreements are not as such a novelty for renewable projects. Previously, hydroelectric power plants whose feed-in tariff contracts have expired are no longer able to benefit from a new contract and some have concluded power purchase agreements with aggregators.
The novelty consists in the overall framework established by the Energy Transition Act of 2015 in which aggregation agreements are a key component. Under the new support scheme applicable to most renewable projects, the remuneration of the producer will consist of the revenues from the sale on the market and of a premium on top of the market price (top-up payment) set by the regulation. The payment of this premium will be outlined in a contract pre-approved by the minister. Therefore, the producer will conclude an aggregation agreement and the contract relating to the top-up payment.
The conclusion of a power purchase agreement as an aggregation agreement is not an obligation. A producer may choose to go to the market, in particular the OTC market, and conclude a mutual agreement with suppliers, etc. However, except in certain cases and/or for certain producers, this option is not the one typically chosen in practice. Thus, most producers benefiting from the top-up payment, following a call for tenders or “open window”, will have to conclude an aggregation agreement which in principle does not expose them to market risks. The first aggregation agreement has been concluded for wind farms under the order of 13 December 2016.
Although the Energy Code defined the concept of aggregator (Article R.314-1) and established the aggregator mechanism as a last resort (Articles L.314-26, R.314-51 and R.314 -52), the aggregation agreements remain commercial agreements which are freely negotiated between the producer and the aggregator.
Only the agreement concluded with an aggregator as a last resort designated by the minister will be the subject of a model approved by the minister.
However, in view of their purpose and of financing practices, aggregation agreements will tend to be closer in terms of services offered, notably through duration, guarantees offered and options: payment of the market price (M0), management of variances, capacity certificates, REMIT obligations, and administrative services, up to full service agreements.
In this context, the standardisation and the drafting of an aggregation agreement standard model is a relevant and useful approach.
However, it is important that it does not prevent competitiveness between aggregators, and above all their inventiveness and the possibility to negotiate tailor-made agreements. Aggregation agreements may continue to evolve in terms of performance and in particular in terms of adjusted and reactive management of renewable facilities. Thus, the aggregator would have a technical and contractual link with the operation and maintenance services provider and would be, for example, in charge of the planning of maintenance operations.
The aggregation agreement and more generally the transition from a feed-in tariffs to the top-up payment system, constitutes a substantial change in practices in financing renewable projects and, depending on the type of the aggregation agreement, the market risks have to be identified and allocated. Otherwise, the aggregation agreement constitutes a project contract which must be taken into account in the project legal due diligence. As such, it may be relevant, at least in some cases, that a contractual relationship is created between the aggregator and the lenders through the conclusion of a direct agreement.
Aggregators are becoming a necessity for market players in the renewables sector. In this context, the aggregation activity is developed through existing and new operators, and the intervention of European aggregators. The intervention of these new players constitutes a risk that must be taken into account, even if it depends on the aggregator selected.
The Energy Code outlines the mechanism of the aggregator as a last resort (‘agrégateur de dernier recours’) and specifies the conditions for its intervention. This applies in particular to the case of failure of the aggregator resulting from the withdrawal or suspension of the balance responsible agreement with transmission system operator (RTE).
The information of the producer and the lenders of the initiation of this case of failure is not automatic. However, the suspension or termination of the balance responsible agreement between the aggregator and RTE means that the aggregator may no longer be able to intervene in the energy market and to perform the aggregation agreement.
Moreover, the introduction of a safeguard procedure maintains aggregation agreement without the possibility to choose another aggregator. In this context, beyond the contract, the choice of the aggregator is crucial, especially at a stage in which the aggregation market in France is not yet mature, as could be the German market.
Mounir Meddeb is a lawyer at the Paris Bar andthe Founder of Energie-legal, a French law firm dedicated to energy sector. He is a recognised expert in energy law and has extensive experience for over 14 years in France, Europe and Africa.
Mounir advises domestic and foreign energy market players (utilities, investment funds, banks and public entities) in the development and throughout the entire project lifecycle: project financing, due diligences contracts, regulatory issues in power and gas sectors with an emphasis on renewables projects.
Having worked at the Commission de régulation de l'énergie, Mounir has a deep knowledge of the regulatory issues relating to electricity and gas infrastructure and of the energy projects. Subsequently, he joined Ashurst’s Energy team in Paris where he supported the development of the energy business.
Energie-legal has been awarded in 2015 and 2017 Biannual ranking as the rising team in the category of Energy and Mining by the Trophées of Droit.