France Taxes and incentives for renewable energy KPMG Global Energy & Natural Resources.
The accelerated tax depreciation has not been renewed as of 1 January 2011. However, companies can still apply a declining-balance method to certain equipment used to produce renewable energy. This method, which is optional, consists of multiplying the depreciation rate for the straight-line method by a coefficient determined by law, based on the asset’s expected useful life. In practice, when a company applies the declining depreciation method at the beginning of the depreciation period, it can obtain tax depreciation higher than the accounting depreciation.
Biofuels benefit from a partial exemption of the internal tax on petroleum products and of the general tax on polluting activities to compensate for the additional costs arising from biofuel production. Biofuels in gasoline include bioethanol and ethyl tertiary butyl ether (ETBE). This partial exemption is applicable for the period between 2014 and 2015.
Research tax credit
Companies may be granted a research tax credit on their environmental investments if the expenses they incur while carrying on such projects correspond to research activities eligible for this tax credit. The tax credit will be equal to 30 percent of the eligible research expenses that do not exceed EUR100 million and to 5 percent for the eligible R&D expenses exceeding EUR100 million.
The research tax credit will be offset against the corporate income tax due during the year in which the expenses are incurred. Any surplus tax credit will constitute a receivable for the company that can be used to pay the corporate income tax for the three following years and may be reimbursed afterwards.
Credit for competitiveness and employment (CICE)
The tax credit is equal to 6 percent of all wages paid to employees during the calendar year for salaries that do not exceed 2.5 times the French minimum wage (salaries of employees who earn more than 2.5 times the minimum wage are excluded from the computation).
The wages used to calculate the CICE base are the same as wages used to calculate employer’s social security contributions with respect to base pay, holiday pay, benefits in kind, etc.
The tax credit may be applied to offset corporate income tax liability and the excess could be carried forward for 3 years and may be refunded if not fully utilized at the end of this period.
Remuneration is available for electricity produced from the following sources according to tariffs which are revised on indexation formula.
These tariffs should be modified further for the implementation of offshore wind farm development zones (see below).
Due to several recent changes in the law, different tariffs apply to PV power plants, depending on the kind of projects (tariffs for the first quarter 2015):
As of 1 July 2011, the above-mentioned tariffs have been adjusted quarterly by the Ministry in charge of energy, depending on the number of grid connection applications received by the distribution system operators over the previous quarter.
A bonus of 5 percent or 10 percent applicable on the above-mentioned tariffs was granted for the components of the PV system made in Europe. This bonus was cancelled effective May 2014 since this system was considered as non-compliant with EU rules on freedom of movement.
The above-mentioned tariffs are mainly applicable for installations below 100 KW power. For the installations exceeding this threshold, they are subject to invitation to tender.
Électricité de France (EDF) and other electricity distributors must purchase the electricity produced by a renewable energies producer at fixed tariffs and for a minimum duration. For example, there is a purchase obligation for EDF during a 15 year period for onshore wind power, geothermal power, and biomaterial power and a 20 year period for offshore wind power, solar power (subject to the date of the operational start up of the facilities) and for hydro power. The tariffs mentioned above correspond to the tariff applied to the power plants located in metropolitan France. Increased tariffs apply with respect to Corsica and overseas departments.
The construction of a power plant is subject to the issuance of a building permit. However, solar power plants (subject to certain conditions) and wind turbines smaller than 12 meters are not subject to the issuance of a building permit. Specific authorizations exist for wind, hydro and biomaterial power stations. In addition to the building permit, an exploitation authorization issued by the Minister of Energy is required for power plants with an installed load/installed power higher than 4.5 MW. For power plants with an installed power lower or equal to 4.5 MW, only a declaration is required. For wind plant, an environmental permit is also required.
The debate over the renewal of hydraulic concessions and its corollary, the liberalization of the market, goes back several years and has been the subject of many reports and changes by the public authorities. For the time being, the renewal of hydroelectric concessions has not been organized.
Therefore, the Government took two approaches in the Energy Transition for Green Growth Act currently in discussion for this renewal: (i) the grouping together of concessions for major valleys (known as the “barycenter” method in order to optimize operations, and (ii) the possibility for the State to create “public-private hydro-electric companies” to operate the renewed concession.
The concessions due for renewal are located in the Alps, the Pyrenees and in the center of France. The hydropower stations are currently run by EDF and by a GDF-Suez subsidiary, the Société Hydroélectrique du Midi.
France has set a target plan for installing 6,000 MW of offshore wind energy by 2020 through a tender process.
In April 2012, the French government announced an award of four offshore wind farm development zones (2 GW of offshore wind energy capacity).
On 16 March 2013, the French Energy Regulatory Commission issued a second tender for offshore wind farms with 1 GW of new capacity. On May 7, 2014, the French government has awarded a tender to build and run two offshore wind farms to a consortium led by French gas and power group, ENGIE.
Furthermore, the Ministry of environment indicated that France wants to have 6000 MW offshore capacity before 2020. Therefore, specific organizations need to identify new zones for the construction of offshore wind parks. In the coming months, the French government should be announcing a new tender.
The producer/owner of a new power plant has to apply for a grid connection to the public distribution system such as Réseau de Transport d’Electricité (RTE), Electricité Réseau Distribution France (ERDF) or a local distributing company.
Some agreements have to be made by the owner of the power plant for the distribution of electricity produced by the plant:
The final version of the Energy Transition for Green Growth Act was voted on 17 August, 2015 and the following measures can be outlined.
This new agreement applies to facilities with a capacity of over 500 kw. The purchase obligation remains but is substantially modified as the aid is granted in the form of a bonus in addition to the market price. (This is an “ex post” bonus, that is, one that will ensure a known target remuneration for the producer.) From now on, the purchase price will no longer be set upon signing for the entire term of the agreement but will be adjusted based on the market price and other economic criteria related to the facility.
To reduce the difficulties often encountered by developers in the construction of wind power facilities, the use of local financing is one of several solutions offered by the Government. To support this local financing, it is provided that “commercial companies and local public-private companies may be set up to offer ‘residents living near the Project construction site’ as well as local authorities access to their share capital.”