Greece: The Greek "Special Solidarity Levy" on RES Electricity Producers and its Questioned Compatibility with EU Renewable Energy Law and Policy

Abstract

[...]a tax levy has been introduced and imposed on RES producers' turnover for the period 2012-2014, thus leading to a defacto retroactive reduction of the applicable feed in tariff (FiT) paid to renewable electricity producers accord- ing to the already concluded Power Purchase Agree- ments with the competent Operator.

I. Introduction

The adoption of Law 4093/2012/ in November 2012, has introduced a new taxation framework for ener- gy production from Renewable Energy Sources (RES) in Greece. More precisely a tax levy has been introduced and imposed on RES producers' turnover for the period 2012-2014, thus leading to a defacto retroactive reduction of the applicable feed in tariff (FiT) paid to renewable electricity producers accord- ing to the already concluded Power Purchase Agree- ments with the competent Operator.

The following analysis intends to demonstrate that this national provision levying a tax on certain elec- tricity producers - i.e. RES electricity producers may in fact contravene the general principles of European Union (EU) Energy policy on RES development and constitute an infringement of EU energy law.

II. The Imposition of a "Solidarity Tax Contribution" on RES Electricity Producers - Law 4093/2012

Law 4093/20122 provides that a special tax, a so- called "special solidarity levy", is imposed on electric- ity producers from Renewable Energy Sources and Cogeneration of Heat and Power of High Efficiency (CHP).

The tax is imposed on the revenues of energy pro- duction taking place during the period between 1 Ju- ly 2012 to 30 June 2014 - with the possibility of a one- year extension until June 2015 - and is calculated as a percentage according to the price of electricity pur- chased. The tax applies to both operating RES sta- tions as well as to those operating in a trial period and will be connected in due time. However, it does not affect those solar photovoltaic (PV) stations for which the compensation for the energy produced is calculated on the basis of a reference price (FiT) cor- responding to a date later than 9 August 2012". Ex- empted from the tax are also PV stations included in the Special Program for Development of Photovolta- ic Systems on Buildings.

The so called "Special Solidarity Levy" is calculat- ed as a percentage of the price for electricity inject- ed to the Grid by the Producer, before taxes, and amounts to:

a) 25 % for PV stations placed into trial operation or connected to the Grid by 31 December 2011,

b) 27 % for PV stations placed into trial operation or connected to the Grid after 1 January 2012 and for which the compensation for the energy produced is calculated based on a FiT corresponding to the period between February 2012 and 9 August 2012, as provided for in Art. 27A of Law3734/20C>94, as applicable,

c) 30 % for PV stations placed into trial operation or connected to the Grid after 1 January 2012 and for which the compensation for the energy produced is calculated based on a FiT corresponding to a month prior to February 20t2, as provided for in Art. 27A of Law 3734/2009, as applicable,

d) ro % for the remaining RES and Combined Heat and Power stations.

Furthermore, in May 2033, Law 4t52/2or35 revised the aforementioned regulatory scheme once more. According to these most recent developments, the calculation of the tax is amended and as a result, the so called "special solidarity levy" was increased fur- ther, reaching up to 42% of the turnover of business- es active in the production of energy from photovolta- ic systems. Consequently, in addition to the above- mentioned measures and taxes provided by Law 4093/2033, the taxation scale is complemented by the new framework, which involves taxes of 34%, 37%, 40%, and 42% of the revenues of PV electricity pro- duction businesses.

The amounts corresponding to the abovemen- tioned contribution are calculated and withheld dur- ing each reckoning by either the Operator of the Elec- tricity Market (LAGIE S.A.) or, in the case of the non inter connected islands, the Hellenic Electricity Dis- tribution Network Operator (DEDDIE S.A.) and con- stitute revenues of the RES Special Account.5

III. The RES Electricity Production Support Scheme in Greece

In Greece, renewable energy generation is mainly promoted through a guaranteed feed-in tariff system; the main rules for the application of this were set by Law 3468/2006.7 According to the provision of the relevant Law/ electricity produced from Renewable Energy Sources or from Cogeneration of Heat and Power or through a Hybrid Station, which is absorbed by the System or by the Network, is charged on a monthly basis. More specifically, as regards energy produced by photovoltaic stations, the feed-in tariff is calculated in accordance with Article 27A par. 4 of Law 3734/2009. The prices of the relevant table in- cluded therein may be modified by a ministerial de- cision, following the Regulatory Authority's for En- ergy opinion. Pursuant to this provision, the compe- tent Minister of Environment, Energy and Climate Change has already proceeded with issuing a deci- sion, which significantly reduces guaranteed prices.9

According to Article 343 of Law no. 4003/2033, the respective Operators, LAGIE S.A. and DEDDIE S.A., collect the amounts paid to RES electricity produc- ers from the RES Special Account, which is admin- istered by LAGIE. The revenues of this Special Ac- count derive from the following sources:

i) amounts paid by the electricity production and supply license holders, through the procedure laid down in Articles 320 and 305 of Law 4003/2033,'0 corresponding to the energy inject- ed in the transmission system and distribution network of the mainland and the interconnect- ed islands, according to Law 3853/2030,"

ii) amounts paid by Suppliers based on the non-In- terconnected Islands for electricity absorbed by the system and produced by units, as referred to in Article 329 par. 2 of Law 3853/2030,

iii) the Special Duty for Emissions' Reduction which varies amongst the different categories of cus- tomers, and which is paid by every electricity con- sumer in the country. The methodology for the calculation of this duty per kWh is set on an an- nual basis, following RAE's opinion. The method- ology includes factors that differentiate the spe- cial duty among different consumers' categories, so that the fees charged balance the financial im- plications among the consumers' categories. Its pricing is based on RES production cost minus the System Marginal Price (SMP), which corre- sponds to the general electricity production cost in Greece. If this difference is found to be posi- tive, as it is presently, it constitutes a deficit, which is paid proportionally by all consumers through their electricity bills. Thereafter, the amount cor- responding to the special duty is transferred to the RES Special Account, managed by the Oper- ator of Electricity Market (LAGIE S.A.), and there- fore should cover the abovementioned deficit,

iv) lignite mining anduse royalty. Lignite firedunits are burdened with a special levy of 2 Eu- ros/MWh of energy produced. This special levy, which is calculated and collected pursuant to the provisions of a Ministerial Decision,12 is also in- cluded amongst the Special Account's resources,

v) revenues accrued from the auctioning of the undistributed greenhouse gases emission rights for the period 2033-2035'" shall also be trans- ferred to the RES Special Account.

It should be noted that the sole purpose of the Spe- cial RES Account is to cover the difference in cost oc- curring from the (higher) feed-in tariff paid to RES and CHP electricity producers and the SMP paid to LAGIE S.A. This means that the Special Account's re- ceivables should at least be equal to the total costs that LAGIE S.A. shall pay to all RES and CHP produc- ers for the total amount of energy generated by RES and CHS plants in Greece (mainland and non-inter- connected islands) at the feed-in tariff that applies in accordance with the concluded Power Purchase Agreements.

Today, the RES Special Account, despite the fact of being "subsidized" by the abovementioned resources, shows a deficit amounting to euro 550 million,'4 which is expected to reach the amount of euro 900 million by July 2035. This massive deficit has caused major dys- function to the support scheme (i.e. RES producers are paid by the Operator - their counterpart in the Power Purchase Agreements - with a seven month delay) and, moreover, poses a serious threat to the functioning of the Greek energy market overall.

IV. The Measure's (In)Compatibility with the EU Energy Policy

The abovementioned retroactive tax levy imposed on the gross revenues of RES electricity producers in Greece aims at addressing the liquidity issue of the RES Special Account.

However, the way of imposition of this tax is clear- ly retroactive in nature, in the sense that it did not exist, nor was it known at the time of the conclusion of the Power Purchase Agreements between RES pro- ducers and the competent Operator. Consequently, the sudden change in the financing environment of investments already initiated or projects in operation marks a significant overthrow in investments with- in this sector, as incentives are drastically reduced.

The European Commission has repeatedly criti- cized the application of retroactive measures and has highlighted the negative effects that such measures have on promoting investment in RES, in the con- text of reaching EU Energy and Environment Policy targets in 2020 and beyond. The imposition of a tax measure, as such, on the gross revenues of all oper- ating RES projects in Greece moves in a direction op- posite from that of the aforementioned EU Energy policy.

Apart from this general target, the tax measure de- scribed above further infringes specific regulatory provisions of EU Energy Law. Both, the EuropeanPar- liament and Council have repeatedly stressed the im- portance of retaining a stable investing environment for RES; more specifically, under Directive 2009/28/EC, Member States, having different renew- able energy potential, operate different support schemes for energy from renewable sources at a na- tional level. However, for the proper functioning of national support schemes and in order to maintain investor confidence, it is vital that Member States are able to control the effects and costs of these support schemes.

Additionally, the Commission, in its Communica- tion,'5 expressly renounces policies that hinder in- vestment in the renewable energy sector and contin- ue to subsidize fossil fuels, which should be phased out. In view of the complimentary nature of climate and renewable energy policies, a well functioning car- bon market is deemed to be necessary, together with "properly designed energy taxes to give investors clear and strong incentives in low carbon technolo- gies and their development". Further on, the Com- mission finds that the fear of retroactive changes to support schemes increases project risk, thereby hin- dering the efficiency of the existing RES support schemes, while retroactive changes suddenly im- posed on support schemes, despite the fact of being often triggered by unexpectedly high growth, under- mine investor confidence in the sector.'5

Furthermore, in the Impact Assessment accompa- nying the aforementioned Communication, the Commission found that some of the reforming in the Member States' RES support schemes took place in a way that resulted in the creation of investors' uncertainty throughout Europe.17 This uncertainty is being reinforced by investors' reluctance - with- in the current financial crisis environment - for in- vestment in capital-intensive electricity markets, and particularly in the RES sector, which is depen- dent on the associated policies. This happens to be the case exactly with the retroactive tax measure in question, which has derailed the investing environ- ment in Greece and finally discourages any local or foreign investor from investing in the local RES sec- tor.

While it cannot be denied that it is important for Member States to reform and improve their support schemes so as to reflect the decreasing cost of renew- able and encourage competitiveness, however, the need to avoid the creation of uncertainty, leading to the discouragement of investment, remains at the forefront.

The above is in line with the Commission's opin- ion that reforms imposing a levy or cutting expect- ed returns to investors in RES facilities or RES elec- tricity producers retroactively, thus circumventing any legal constraints in cutting PV tariffs, are not con- sistent with the best practice in the design, structure, and reform of support schemes, which should strike a balance between certainty and sufficient incentives to invest in new technologies, on one side, and avoid- ing overcompensation on the other. Conversely, in order to achieve this, principles for support schemes need to be established, addressing transparency and predictability.

V. Conclusion

The incompatibility of retroactive taxation measures, as the so called "special solidarity levy", with EIJ En- ergy Policy, especially within the context of the 2020 targets and beyond, is a serious objection to be raised when evaluating the harmonization of a national le- gal framework with EIJ guidelines and normative texts.

In parallel to this, the sensible question arising in this case is to what extent can the special solidarity levy tackle the RES's Special Account deficit. Will it be able to support an effective plan for a viable, long- lasting resolution addressing this deficit? And even if the answer were in the affirmative, to what extent may the current financial situation justify the breach of EU Law and policy objectives?

A significant part of the Greek energy market is convinced that the RES Special Account deficit is ac- tually a systemic deficit of the national energy mar- ket, which should not be addressed by unidimen- sional measures that radically undermine the eco- nomic stability of the existing RES business environ- ment. A closer look at the current functioning of the Greek energy market may, in fact, clearly show that the deficit is causally and intricately linked with ex- isting distortions within the market, in favour of fos- sil fuel energy producers and electricity suppliers, combined with long standing policy failures.

Footnote

1 Government's Gazette A' 222/12.1 1.2012

2 Article 1, para. 1.2, Law 4093/2012

3 Ministerial Decision Y.A.n.E./4>1/2301/oiK.1 6933

4 Government's Gazette A 8/28.01.2009

5 Government's Gazette A 107/09.05.2013

6 See RES Special Account, Article 40, Law 2773/1999

7 Government's Gazette A 129

8 See Article 5, par. 2, Law no. 3851/2010, amending the provision of Article 13, par. 1, of Law no. 3468/2006.

9 See Y.A.n.E.AD 1/1288/901 1 (the most recent Ministerial Decision with the applicable significantly reduced Leed in Tariffs)

10 Government's Gazette A 179/22.08.2011

11 Government's Gazette A 85/04.06.2010

12 Ministerial Decision A5/B/OIK.3982

13 Article 39 of Law 4062/2012

14 According to the Monthly Bulletins of the Special Account for RES & CHP, as officially published by the Operator of the Electric- ity Market (LAGIE S.A.)

15 Communication to the European Parliament, the Council, the European Economic and Social Committee and the Committeeof the Regions, titled Renewable Energy: a major player in the European Energy Market of June 6th, 2012

16 Ibid, at p. 4

17 Commission Staff Working Paper impact Assessment accompany- ing the document Communication to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, titled Renewable Energy: a major player in the European Energy Market of June 6th, 2012, p. 7