EU Developments Archives - ENERGY BUSINESS LAW

EU Developments

Conto Energia IV Deadline Extended for Photovoltaic Plants on Public Administration Property

by McDermott Will & Emery | Jan 8, 2013 | EU Developments

On 20 December 2012, the Italian Chamber of Deputies approved Legislative Decree no. 228/2012, known as the Stability Decree 2013. Section 1, paragraph 425 of the Stability Decree 2013 extends the deadline by which photovoltaic (PV) plants built on property belonging to the Public Administration must be connected to the grid in order to benefit from the favourable feed-in tariffs under the Ministerial Decree of 5 May 2011 (the Conto Energia IV). The transitional rules of Section 1 paragraph 4 of Ministerial Decree of 5 July 2012 (the Conto Energia V) provided that installations on public land or rooftops would only benefit from the Conto Energia IV feed-in tariffs if they were connected to the grid by 31 December 2012. The extension of the deadline protects investments made by and with the Public Administration that were unable to meet the 31 December 2012 deadline and would otherwise have defaulted. Pursuant to the Stability Decree 2013, in order to benefit from the Conto Energia IV tariffs, PV plants installed on public property will now have to be connected to the grid by the following deadlines:

31 March 2013 for all PV plants that are not subject to an Environmental Impact Assessment (Valutazione di impatto ambientale)
30 June 2013 for all PV plants that are subject to an Environmental Impact Assessment (Valutazione di impatto ambientale) and have obtained the relevant building permit on or before 31 March 2013
30 October 2013 for all PV plants that are subject to an Environmental Impact Assessment (Valutazione di impatto ambientale) and have obtained the relevant building permit after 31 March 2013.

The Stability Decree 2013 does not limit the deadline extensions to property that was owned previously by the Public Administration. The extensions also apply to projects developed on property that the Public Administration will acquire after the new rules come into force. The overall annual expense cap of €6.7 billion for incentive payments payable to PV plants in Italy has not changed. As a consequence, and notwithstanding the deadline extensions, both the Conto Energia IV and the Conto Energia V will cease to apply 30 days after the announcement by the Italian Authority for Electricity and Gas (AEEG) that the cap has been reached.

European Commission Adopts EMIR Technical Standards

by McDermott Will & Emery | Dec 20, 2012 | EU Developments

by Simone Goligorsky

On December 19, 2012, the European Commission (EC) adopted the technical standards (TS) for the regulation on over-the-counter (OTC) derivatives, central counterparties (CCPs) and trade repositories, commonly known as the European Markets Infrastructure Regulation (EMIR).

The level 1 text of EMIR came into force on August 16, 2012, and will now be supplemented by the newly adopted TS. The TS were initially proposed by the European Supervisory Authorities in September 2012, and the texts of the TS have now been adopted by the EC without amendment.

However, in a press release from the EC, it is stated that one TS, submitted by the European Securities and Markets Authority (ESMA), has not been endorsed. This particular TS relates to colleges of CCPs. There are concerns over the legality of this provision, therefore ESMA has been asked to redraft this provision. The redrafting is not expected to delay the coming into force of the obligations prescribed by the other TS. No date has been set for the publication of the redrafted provision.

The TS cover matters, including, inter alia: (i) the clearing of trades by financial, and in certain circumstances, non-financial counterparties, by central counterparties; (ii) the reporting of all trades that come within the scope of EMIR; and (iii) putting in place risk mitigation techniques for OTC derivatives contracts that are not cleared by CCPs.

By adopting the TS now, the EC has met the deadline set at the G20 summit in Pittsburgh in 2009. At the summit, it was agreed that global regulators would put in place legislation necessitating the mandatory clearing and reporting of transactions, in order to reform the derivatives market, which was, at the time, subject to very little regulation. EMIR, and its US equivalent, the Dodd-Frank Wall Street Reform and Consumer Protection Act, are intended to improve the transparency of the derivatives trading markets.

The TS are divided into two categories: regulatory TS and implementing TS. The former are subject to review by the European Parliament and Council, who will have a month from December 19, to review the provisions. The review period may be extended by a month, if necessary. The implementing TS are not subject to review by the European Parliament and Council. However, the implementing TS will not enter into force before the regulatory TS comes into force, since the two sets of standards complement each other, and are not stand-alone obligations. The TS will enter into force on the twentieth day following their publication in the Official Journal of the European Union.

Compliance with the provisions of EMIR by market participants may require, amongst others, the implementation of new IT systems, registration with a CCP and trade repository, and, for non-financial counterparties, an analysis of the trades that they undertake (as non-financial counterparties whose trading activities are below the thresholds prescribed in the TS will not be required to clear those trades). As these activities may take some time, market participants are encouraged to actively engage [...]

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International Trade Actions Complicate Global Market for Renewable Energy Businesses, Particularly in the Solar Sector

by McDermott Will & Emery | Dec 4, 2012 | EU Developments, Power Markets

by David J. Levine and Pamela D. Walther

As a result of several recent actions, developers of solar energy projects may face increased costs. Two cases pending before the World Trade Organization challenge domestic content requirements of solar sector feed-in-tariff programs, and China, the European Union and the United States have initiated actions under domestic trade remedy laws that could result in additional duties at the border on imports of solar industry goods alleged or found to be subsidized or unfairly priced in countervailing duty and anti-dumping actions.

To read the full article, click here.

Regulations on Emissions Auctions in Phase Three to Come into Force

by McDermott Will & Emery | Nov 13, 2012 | EU Developments

by Simone Goligorsky

On October 23, 2012, the Community Emissions Trading Scheme (Allocation of Allowances for Payment) Regulations 2012 (SI 2012/2661) (ETS Regulations) were made. The ETS Regulations deal with the administration of auctions under Phase Three of the EU Emissions Trading Scheme (EU ETS) and will come into force in the UK on November 14, 2012.

Operation of the EU ETS will change significantly in Phase Three. The most significant changes include:

A reduction in free European Union Allowances (EUAs);
A move of the decision making process on allocations of EUAs from Member States to the European Commission (EC);
The appointment of ICE Futures Europe (ICE) as the preferred platform to conduct the auctions scheme; and
The imposing of the requirement for certain firms to apply to the Financial Services Authority (FSA) for a variation of an existing authorisation, or requirement to seek authorisation to perform an activity regulated by the Markets in Financial Instruments Directive (MiFID).

During Phase Three, fewer free EUAs will be allocated. Any additional EUAs that are required by market participants will have to be purchased through auctions. Over the course of Phase Three, an estimated 50% of EUAs and 15% of European Union Aviation Allowances (EUAAs) will be auctioned, compared to 10% of EUAs in Phase Two

The auction process was previously operated by the UK Debt Management Office (DMO). In late 2011, the UK commenced an EU-wide open procurement process. In April 2012, ICE was selected as the preferred platform to conduct auctions on behalf of the Department of Energy and Climate Change (DECC) during Phase Three. The last auction of Phase Two conducted by the DMO took place on October 25, 2012.

Certain market participants will now have to apply to the FSA for a variation of permission to participate in the auction process, as ‘bidding in emissions auctions’ is now a regulated activity pursuant to MiFID. Undertaking a regulated activity requires FSA authorisation. Market participants who will not seek authorisation from the FSA, or a variation of an existing permission, will have to use an authorised broker or an ICE member if they wish to participate in the auctions.

On July 19, 2012, the FSA published a policy statement covering the bidding process for EUAs under Phase Three. The policy statement sets out the Emissions Allowance Auction Bidders Instrument, that implements the measures regulating to participation in the auction process, which came into force on July 27, 2012. On the same day, the FSA started accepting applications for variations of existing authorisations.

Phase Three auctions are scheduled to begin in November 2012, subject to completion of the EC’s approval process of the ICE auction platform, which is expected to happen in early November 2012.

The following are the provisional forthcoming auction dates: November 21, 2012 and December 5, 2012 for EUAs and November 26, 2012 and December 10, 2012 for EUAAs.

Those wishing to participate in the auction process in the UK must, inter alia, be members [...]

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Webinar: Power Purchase Agreements in European Markets

by McDermott Will & Emery | Nov 12, 2012 | EU Developments, Power Markets

On Wednesday, November 7, 2012, McDermott Will & Emery energy lawyers conducted a webinar discussing key issues and risks in power purchase agreements as European markets transition away from feed-in tariffs to market-based concepts.

Topics included:

The move from feed-in tariffs to power purchase agreements
Typical business models and transaction structures
Regulatory challenges
Key contract clauses and risk distribution

Please click here to download the slide presentation with audio.

Please click here to download only the slide presentation materials.

The Office of Gas and Electricity Markets of Great Britain Consults Further on its Electricity and Gas Retail Market Review

by McDermott Will & Emery | Oct 31, 2012 | EU Developments, Natural Gas, Power Markets

by Caroline Lindsey

On October 26, 2012, the Office of the Gas and Electricity Markets (Ofgem) published updated proposals for changes to the regulation of the non-domestic electricity and gas retail markets in Great Britain. The Retail Market Review Proposals (RMR Proposals) are part of Ofgem’s RMR program, which also includes proposals for the domestic markets.

The RMR Proposals follow Ofgem’s initial consultation on proposals for the non-domestic market in November 2011, and its Energy Supply Markets Probe in 2008. Since the initial consultation, Ofgem has been conducting further research, gathering relevant information from suppliers and considering the responses to the initial consultation.

The principal RMR Proposals are:

Increased protection for small business consumers – condition 7A of the standard conditions of electricity and gas supply licences (SLC) currently provides protection for micro business consumers when dealing with suppliers. Ofgem is proposing to expand the number of small business consumers who have the benefit of those protections, by introducing a new definition of small business consumer. The new definition is intended to capture existing micro business consumers, as well as a wider category of consumers whose annual consumption of electricity and gas is equal to or less than the relevant threshold (100,000 kWh per annum for electricity and 293,000 kWh per annum for gas). Ofgem also proposes to introduce additional protections, including an obligation to include contract end dates and related notice periods on customer bills.
Introduction of binding standards of conduct when dealing with small business consumers – suppliers will, by way of a new SLC 7B, be required to comply with standards of conduct when engaging in the designated activities of billing, contracting and customer transfers with small business consumers. The overarching objective of the standards of conduct, which will be expressly stated in SLC 7B, is to ensure that each small business consumer is treated fairly. The standards of conduct include an obligation on the licensee to carry out the designated activities “in a Fair, honest, transparent, appropriate and professional manner.” Ofgem has indicated that it will give guidance on the meaning of at least some of those terms.
Development of a common code of conduct for third party intermediaries (TPI) – Ofgem proposes to develop options for a common code of conduct for TPIs, who broker contracts between non-domestic consumers and suppliers. It will also conduct a wider review of the regulatory framework applicable to TPIs, including considering whether more direct regulation by Ofgem (in addition to the code of conduct) is needed.
Continuing monitoring of suppliers’ compliance with the customer transfer process – Ofgem proposes to increase its level of monitoring of suppliers’ compliance with the customer transfer objection requirements set out in SLC 14. No changes to the SLCs are proposed at this stage.

Ofgem intends to publish an issues paper on the TPI regulatory framework review in the first half of 2013. It proposes to introduce the new protections for small business consumers (the first two items in the [...]

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ACER Publishes Second Edition of Guidance on REMIT

by McDermott Will & Emery | Oct 4, 2012 | EU Developments, Natural Gas, Power Markets

by Prajakt Samant, Thomas Morgan and Simone Goligorsky

On September 28, 2012, the Agency for the Cooperation of Energy Regulators (ACER) issued the second of two pieces of non-binding guidance on the Regulation on Wholesale Energy Market Integrity and Transparency (REMIT). REMIT imposes requirements aimed at preventing and detecting market abuse, and more specifically, market manipulation and insider trading in the wholesale energy market.

The guidance considers, inter alia,:

The scope of REMIT;
The application of the definitions of wholesale energy products, wholesale energy market and market participants; inside information;and market manipulation; and
The application of the obligation to publish inside information; the prohibitions of market abuse and on possible signals of suspected insider dealing and market manipulation; and the implementation of prohibitions of market abuse.

Considering the scope of REMIT, it should be noted that the guidance stipulates that intra-group transactions, i.e. over-the-counter contracts entered into by counterparties which are part of the same group of companies, would come within the scope of REMIT, given that the definition of wholesale energy products specifies that REMIT will apply to contracts irrespective of how and where they are traded.

Regarding penalties that will be imposed in the event that a market participant is found to be in breach of REMIT, the guidance states that the national regulatory authorities (NRAs), i.e. the bodies from each member state working with ACER to monitor market participants, should penalize not only breaches of the market abuse prohibition, but also:

Any breaches of the obligation to notify ACER of any delayed disclosure of inside information;
Any breach of the obligation to provide ACER with a record of wholesale energy market transactions; and
A breach of the obligation to register with the competent NRA.

The first piece of guidance on REMIT was published by ACER in December 2011, a few days before REMIT entered into force. The guidance focused particularly on the definition of inside information, and what activities ACER would consider to be market manipulation, or attempted market manipulation. The guidance also gave examples of the types of activities that may indicate insider dealing and suspicious transactions.

It is expected that REMIT will be fully implemented by summer 2013. In the interim, member states will be required to enable NRAs with the means and powers necessary to investigate suspicious cases, and the prosecute confirmed cases of insider trading and market manipulation. By summer 2013, it is expected that both ACER and the NRAs (Ofgem in the UK) will start collecting data, and monitoring market participants that come within the scope of REMIT.

EMIR Enters into Force

by McDermott Will & Emery | Aug 22, 2012 | EU Developments, Power Markets

by Prajakt Samant and Simone Goligorsky

On August 16, 2012, the European Market Infrastructure Regulation (EMIR) came into force, 20 days after the final text was published in the Official Journal of the European Union. The Level 1 text will be supplemented with technical standards, which are due to be published later this year, and expected to come into force next year. It is the technical standards that will define who exactly will be affected by EMIR, and how.

The European Securities and Markets Association (ESMA) has also published the responses that it received from market participants to the June 2012 consultation on the draft technical standards. Responses were received from, inter alia, asset managers, banks, government regulatory and enforcement bodies, insurance and pension funds, investment services, issuers, and regulated markets, exchanges and trading systems.

These responses will be taken into account when ESMA submits its proposals on the technical standards to the European Commission (the Commission) by September 30, 2012. Following this submission, the Commission will have three months during which it must adopt the final technical standards. The technical standards will cover matters including:

The threshold that non-financial counterparties will have to cross before their trades have to be cleared;
The exemptions for intragroup transfers;
The data to be reported regarding each trade; and
Data that will have to be provided by trade repositories to the relevant authorities and regulators.

The various provisions of EMIR are due to come into force at different times. For example, the first clearing obligations are expected to be imposed from summer 2013. Derivative contracts are expected to have to be reported from July 1, 2013. By the end of December 2014, ESMA is expected to submit reports to the Commission on the functioning of EMIR.

With the final text of EMIR edging closer to completion, market participants are advised to ensure that they have the requisite systems in place, to guarantee that their trading activities are fully compliant with the requirements of EMIR.

Changes to the Feed-In Tariff Scheme for Non-Solar Photovoltaic Technologies in the UK

by McDermott Will & Emery | Jul 26, 2012 | EU Developments, Renewables

by David Birchall and Caroline Lindsey

In April, we reported on changes to the feed-in tariff scheme for solar photovoltaic (PV) technology in the United Kingdom Those changes were the outcome of Phase 1 of the Department of Energy and Climate Change’s (DECC) comprehensive review of the feed-in tariff scheme launched in February 2011 (the FIT Scheme). In addition to solar PV technology, the FIT Scheme is available to hydro, wind, anaerobic digestion (AD) and micro-CHP technology.

The DECC then consulted on Phase 2B of its comprehensive review, which focused on feed-in tariffs for non-PV technologies and wider scheme administration issues (the Consultation). On July 20, 2012, the DECC published its response to the Consultation (the Response) and has confirmed that a number of changes will be made to the FIT Scheme. The changes will be introduced by way of amendments to the Standard Conditions of Electricity Supply Licences. Most of the changes are expected to come into effect on December 1, 2012.

The key changes to the FIT Scheme to note are as follows.

1. The generation tariffs for non-PV technologies will be reduced with effect from December 1, 2012, except that:

a new generation tariff will be introduced for hydro installations with a capacity of between 100 and 500 kilowatts; and
the generation tariff for micro-CHP installations will be increased to 12.5p/kWh.

A full list of the generation tariffs to apply from December 1, 2012 is available at page 8 of the Response. We note that the generation tariff for the largest capacity band of each technology is linked to the equivalent level of support available to that technology under the Renewables Obligation. Consequently, the DECC has indicated that the tariffs applying to those bands will be amended to reflect the outcome of the DECC’s Renewables Obligation banding review. The DECC announced the outcome of its current review on July 25, 2012, but is yet to confirm the corresponding amendments that will be made to those tariffs.

2. A preliminary accreditation process will be available to solar PV and wind installations with a capacity of more than 50 kilowatts, as well as all AD and hydro installations. The criteria for preliminary accreditation will be similar to, but narrower than, the criteria to obtain preliminary accreditation as a renewable generator under the Renewables Obligation. Among other things, installations for which a grid connection is required will need to produce evidence of a firm grid connection offer to receive preliminary accreditation. Installations that receive preliminary accreditation will also benefit from a fixed tariff for a prescribed period.

3. A tariff degression mechanism will be introduced, under which generation tariffs for all non-PV technologies, with limited exceptions, will be decreased annually from April 1, 2014. The baseline degression rate will start at 5 percent, and will be adjusted annually according to the level of deployment of the relevant technology. As a result, the degression rate could be as [...]

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Fifth Italian Conto Energia for Photovoltaic Plants Signed

by McDermott Will & Emery | Jul 10, 2012 | EU Developments, Renewables

by Carsten Steinhauer and Anna Vesco

The final draft of the fifth Italian Feed-In Tariff (FiT) system for photovoltaic (PV) plants (the Conto Energia V) was signed on 6 July 2012 by the relevant ministers. It will enter into force after its publication in the Italian Official Gazette, which is expected to happen in the next few days.

Under the new Conto Energia V, in order to be eligible for the FiT, ordinary PV projects must be registered with the Gestore dei Servizi Energetici (GSE) and ranked according to certain priority criteria in order to fall within the following budgets:

First registration period: €140 million
Second registration period: €120 million
All subsequent registration periods: €80 million

Separate budgets of €50 million each are reserved to building-integrated PV plants with innovative features, concentrated PV plants and PV plants built by the Public Administration. Rooftop PV plants of up to 50 kWp installed in combination with the removal of asbestos and small PV plants of up to 12 kWp generally do not fall under any budget restrictions.

The Conto Energia V will expire once the overall annual expense cap of €6.7 billion for incentive payments payable to PV installations in Italy has been reached.

We will analyse the new FiT system in detail after the publication of the final version of the Conto Energia V in the Official Gazette. In the meantime, however, it is worth looking at its potential impact on projects currently under development or construction.

Immediate Impact

The new FiT system will apply 45 days after the publication by the Italian Authority for Energy and Gas (AEEG) of the notice that the annual aggregate value of FiT payments for PV plants in Italy has reached the €6 billion threshold. PV plants that start operations on or before 31 December 2012 will fall under the new FiT unless they are installed on property belonging to the Public Administration, in which case they will continue to be eligible for the FiT under the Conto Energia IV.

All previous drafts of the Conto Energia V contained a transitional rule, pursuant to which the FiT of the Conto Energia IV continued to apply to all PV plants that start operations prior to the application of the Conto Energia V FiT system. The final version of the Conto Energia V, however, includes a dramatic exclusion to this rule. Large PV plants that have not obtained a ranking position in the GSE register for 2012, and are not built on Public Administration property, will no longer be eligible for the 2013 FiT provided by the Conto Energia IV, even if they start operating prior to the application of the new FiT system under the Conto Energia V. The only form of protection that the Conto Energia V reserves to these plants is a special priority right in the ranking of the first GSE registration period under the Conto Energia V.

The unexpected exclusion from the tariff protection rules of large PV [...]

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