Following a governmental meeting on solar power, François Fillon, the French Prime Minister, announced the decision to impose a four month moratorium on new solar power projects eligible for the current legal power purchase obligation feed in tariff.

This four month moratorium should allow the Government to prepare and adopt a new regulatory framework which will come into force in March 2011. The new rules aim to reach a target of 500MW of new solar projects per year and will include a decrease in the feed in tariffs.

A first draft of the decree addressing this moratorium has already been issued and is ready for discussions (hereinafter the "Decree").

According to the Decree, the following solar power installations are excluded from the freeze in the moratorium:

- installations with a scheduled installed power production capacity below or equivalent to 3 kW;

AND

- installations for which the owner, as of 2 December 2010, has already paid to the grid operator, namely ERDF, the first instalment of the total price of the connection to the grid.

However, further conditions apply to the above installations to be excluded from the freeze, these are:

- the commissioning of the installation must intervene within eighteen (18) months from the date of the payment of the first corresponding instalment due to ERDF for the connection to the grid;

OR

- for installations for which the first instalment had already been paid more than fifteen (15) months prior to the date of the Decree coming into force, the commissioning of this installation must happen within three (3) months following this date. It is important to note that under the current version of the Decree it is not 100% clear whether this last date shall be read as the date of payment of the first instalment or the date of the Decree coming into force, though logically it should be the date the Decree coming into force. Clarification of this issue will follow discussions due to take place in relation to the Decree.

Finally, according to the Decree, at the end of the four month freeze, projects not excluded as described above, will fall under the new regulatory framework. New applications for the benefit of the power purchase obligations will have to be made for these installations.

The Decree is currently being discussed. Opposition from all counterparties is strong but the Government seems strong in its conviction to the Decree being passed in its current, or very similar, form. Further developments are awaited.

These changes may not be limited in their effect to France. There is a concern that the actions of the French Government may give the UK Government, which is facing similar concerns and challenges with the UK FIT regime, some support for adopting a similar MW limit. European countries need to instil clarity to the renewable regulatory regimes which foster and support clean energy. Many investors operate on a global basis and repeated signs of uncertainty in the European markets will take their toll.

For further information or advice, please contact:

Michelle Thomas, Partner
Head of clean energy and sustainability
Tel: 0845 498 7553
michellethomas@eversheds.com

Boris Martor
Avocat Associé / Partner
Tel: +33 1 55 73 41 53
 borismartor@eversheds.com

© Eversheds LLP, 2010

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