Profitability assessment
According to clause 59 (2) 1), subsection 59 (25) and subsection 108 (1) of the Electricity Market Act, owners of production devices with a capacity of up to 50 kW are entitled to receive operating support for renewable energy.
In June 2020, an amendment to the law was adopted, which entered into force on 1 July 2020, and according to subsection 59 (26) of the Electricity Market Act, the aforementioned support constitutes state aid for the purposes of Article 43 of the General Block Exemption Regulation (GBER) and the granting of such aid is subject to the provisions of that Regulation. Article 43(6) of the GBER sets an upper limit for the aid that can be granted to a person and, based on Article 43 of the GBER, when granting aid, it must be ensured that the aid granted is in accordance with the provisions of the Regulation.
Based on the above, KPMG has developed a methodology for calculating the profitability of projects (Appendix A) commissioned by Elering, conducted an industry-based analysis of power-generating facilities based on the methodology (Appendix B), and Elering, as the payer of operating support and provider of state aid, has developed an implementation plan (Appendix C) to ensure that projects comply with the profitability upper limit established in the block exemption regulation. The documentation includes an assessment model (Appendix D) for conducting individual assessments of projects, if necessary.
Elering conducted a public consultation with market participants in October 2021 and February 2022, and based on the feedback received, the profitability calculation methodology and related documents were improved. The aforementioned documents and the feedback provided on the questions and suggestions submitted by market participants are available in the attachments below.
By decision of 7 July 2022, Elering AS decided to:
- identify that, pursuant to subsection 59 (25) of the Electricity Market Act, the support provided for electricity generated by a production device with an electrical capacity of less than 50 kW and which commenced production on or after 1 July 2020 has an upper limit, as a result of which the support paid in euros per megawatt-hour may not exceed the difference between the levelized cost of energy generated from solar energy and the market price of the same type of energy during the maximum support period of 12 years;
- based on subsection 59 (25) of the Electricity Market Act, when calculating the upper limit of support for electricity generated by a production device with an electrical capacity of less than 50 kW and which commenced production on or after 1 July 2020, rely on the profitability assessment methodology (the methodology for the model analysis of solar energy support and related documents are included in the attachment).
In summary, the support paid for a solar energy production device with a capacity of up to 50 kW depends, among other things, on the exchange price of electricity. According to EEuropean Commission Regulation (EU) No 651/2014 (General Block Exemption Regulation), support may not exceed the difference between the levelized cost and the market price for the same type of energy. Therefore, under the conditions of high electricity prices, the support period may end before 12 years have elapsed if the producer’s estimated income from the support and the market price of electricity exceeds the levelized cost of the generated energy together with the profit permitted in the General Block Exemption Regulation.
By its decision of 31 January 2023, Elering AS approved Appendix No. 2 to the Implementation Plan for the Assessment of the Profitability of Solar Power Plants, including the adjusted levelized cost limits (LCOE with maximum profitability rate) and the terms and conditions for implementing the exception specified in the implementation plan, which established when it is deemed that the subsidised production device does not exceed the limits.
Additional information
According to the implementation plan for assessing the profitability of solar power plants, solar energy production devices have been divided into four groups based on the group analysis carried out:
Group 1 – production devices of private consumers
Group 2 – production devices installed on the roofs of commercial buildings or apartment associations
Group 3 – production devices installed next to commercial buildings
Group 4 – production devices with no connection to the direct consumer
Information about which group the production device falls under is shown in Elering’s Renewable Energy Information System at green.elering.ee – “Devices” – “Change” – “Group”.
If a production device falls under another group, please let us know by e-mail at [email protected].
According to Appendix 2 to the Implementation Plan for the Assessment of the Profitability of Solar Power Plants, in order to implement the exception specified in the implementation plan which establishes when it is deemed that the subsidised production device does not exceed the profitability limits, the producer must submit a long-term fixed contract that meets the terms and conditions specified in section 2 of Appendix 2 to the Implementation Plan for the Assessment of the Profitability of Solar Power Plants to the e-mail address [email protected] no later than by 31 December 2023.