Solar Power Incentives in France

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    Solar Power Incentives in France:

    Subsidization without

    Planification?

    Worldwide, energy policy has come to the fore as a driving force in domestic and

    international politics. Higher prices, coupled with potential environmental damage

    from the use of traditional fuel sources, have driven governments to search for

    alternative energy sources while simultaneously attempting to bolster their countries

    access to the fossil fuels that will most likely drive economic performance in the

    short- to mid-term.

    In France, a nation that has traditionally been somewhat insulated from the need to

    purchase fossil fuels due to a strong nuclear power-generation capability more than

    !!."# of electricity production$, these recent pressures have given rise to a host of

    subsidies and policies designed to encourage a shift of energy production fromconventional to renewable. %ne area in which the French have invested heavily is

    solar. &wo firms that stand out in this effort, 'edavia and France (anneau) *olaires,

    have used subsidies to build profitable solar-panel installations on both commercial

    and residential scales. + third, *aint-obain, is focused on technology, innovation,

    and manufacturing.

    French subsidies have facilitated the creation of a nascent market for solar energy

    and solar energy production capacity, although significantly more work remains tocatch up to more advanced countries, including uropean counterpart ermany,

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    the *?1.16$ to *?1.50$ price range that would make solar energy

    cost-competitive with utility bulk power, but in some markets, such as Dos +ngeles,

    solar energy is already cost-competitive with peak rates. :heaper production of more

    efficient (C cells will eventually make solar energy cost competitive even in markets

    in less sunny locations.

    &he confluence of rising energy prices, the threat of environmental damage, and the

    increasing competitiveness of an alternate energy source have pushed the French

    government to offer several layers of subsidies @ primarily in the form of subsidies

    per kWh produced and income ta) credits @ to hasten the development of a

    competitive market. &hese subsidies include 5$ a re4uirement that lectricitE de

    France /F$ buy solar-produced energy at a rate that varies from < 1.95 >*?1.0$ to< 1.=6 >*?1.!=$ per kWh instead of the market rate of < 1.55 >*?1.50$, 7$

    income-ta) credits for the installation of renewable energy sources, 9$ direct

    subsidies for the installation of solar panels, and 0$ =1# income-ta) credits on labor

    wages during the installation of renewable energy materials. &hese incentives are

    designed to achieve grid parity, the point at which alternative energy production costs

    and market energy prices will be e4ual, artificially. &o this end, rates are not uniform;

    Dower-cost renewable energy producers are compensated at lower rates than higher-

    cost producers, and companies operating in places with higher solar incidence receive

    lower subsidies than companies operating in less attractive regions.

    &he government will reduce these subsidies over time as the cost of solar energy

    production decreases. In the meantime, a nascent market for solar energy has begun

    to develop, thanks to the demand stimulus provided by the government and the

    activities of a number of firms.

    Redavia: Solar Development on a Commercial Scale

    &he primary result of Frances solar energy policy is that it has become profitable,

    after subsidies, to install and operate (C panels in most parts of the country. &his, in

    turn, has led to a proliferation of pro2ect-development companies that find and

    secure land and financing to create new installations. In general, these companies fall

    into two broad categories; those that deal with large tracts of previously unusable,

    unused, or lightly used land to create solar installations on a commercial scale and

    those that deal with small-scale installations of solar panels in urban settings. In both

    cases, the key is that the companies are profitable thanks to government subsidies. +s

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    the government scales these subsidies back over time, companies will need to operate

    at a lower cost basis or e)pand their business models.

    SPONSORED CONTENT:

    'edavia, a French company founded in 7151 by rwin *polders, finds land and

    financing to build (C panel installations on a commercial scale. (reviously :% of -

    :ells International France, a solar-panel manufacturer based in ermany, *polders

    has a background in the solar industry as well as a strong network of contacts in

    pro2ect finance. He saw a significant opening to take advantage of French subsidies

    for solar power to develop previously unused or underused land and created 'edavia

    to pursue this opportunity. >nder his leadership, 'edavia has moved to the forefront

    of the charge to use government subsidies to create a solar energy market in France.

    In many ways, 'edavia is typical of other companies building commercial-scale (C

    installations. &he company acts primarily as a broker between landowners,

    financiers, and panel operators. First, the company identifies a new site @ typically

    old agricultural land, 4uarries, or even military bases. 'edavia works to sign a lease

    with the landowner and to obtain all the necessary permissions and authoriGations

    from the government and from /F to create a (C panel installation. e)t, the

    company identifies sources of financing @ fre4uently e)ternal debt, sometimes

    'edavia e4uity @ and negotiates all the necessary contracts with the panel-

    construction contractor as well as /F to ensure connection to the electrical grid.

    +fter all the paperwork and agreements are in place, 'edavia supervises construction

    of the (C installation and its connection to the grid, and manages operations for a

    limited period of time. Finally, the company fre4uently looks to sell its interest in the

    pro2ect to a third party. %ver all, 'edavia contributes its e)pertise in pro2ect

    development in e)change for fees. &he company is able to take very little balance-

    sheet risk, leaving that to banks and other players that have access to cheaper capital.

    +ccording to *polders, the business has been highly successful to date but will re4uire

    continued innovation to ensure further growth. 'edavia is considering several new

    opportunities to anticipate that movement.

    France Panneau Solaires : ! Small"scale Developer

    %n the other side of the panel-installation landscape sit a number of companies thatfacilitate residential or smaller-scale installations. +mong them is France (anneau)

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    *olaires F(*$, founded in Cannes, rittany, in 7118. F(* provides all the services

    necessary to manage solar installations for small customers, fre4uently on rooftops.

    &hese services include studies of need, studies of site appropriateness, physical

    installation of the panels, management of all administrative and legal paperwork and

    processes, connection to the /F grid and operation, provision of insurance, and

    maintenance. *ince its inception, F(* has installed over 9,111 solar panels

    throughout France.

    F(*s success is due largely to government subsidies, as is the success of all

    companies in its sector. &o better understand the importance of subsidies in the

    residential solar industry, consider a case study of potential cash flows for

    the Chambre de Commerce et Industrie de Paris ::I($, a large building in thecenter of (aris. +n investment of *?95,711$ would allow the ::I( to

    cover its roof with solar panels, generating over 7,!11 kWh of energy annually.

    *ecuring a 71-year contract with /F at *?1.!=$ per kWh would then allow

    the ::I( to generate over *?7,161$ annually and pay back the investment

    in 57.69 years. + positive cash flow would then be generated during the remaining

    seven years and two months of the contract, earning *?5=,811$ in the

    process. &his potentially profitable venture will come to fruition only because of the

    important subsidies; %ver *?99,611$ of revenues @ or 61# of cash flows

    during the 71-year production period @ would be paid directly or via subsidy by the

    French government. In the residential sector, too, government subsidies have

    facilitated the proliferation of solar-panel installations.

    Saint"Gobain: #echnology R$D

    +lthough France lags behind other countries in alternative energy '/, government

    subsidies have created an environment in which a few large multinational French-

    based companies, such as *aint-obain, have been able to e)pand solar panel

    research and production early in order to establish market share and develop

    industry-leading technologies in an otherwise potentially unprofitable segment.

    stablished in 588= and with 711" revenues in e)cess of *?06.5

    billion$, *aint-obain is one of the world leaders in construction materials,

    particularly e)ternal glass and cladding. &he company recently increased its public

    status in orth +merica by manufacturing the glass for the eye-catching *kywalk

    suspended over the rand :anyon. However, in attempting to enter the (C solar-

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    panel manufacturing industry, the company encountered stiff competition @ most

    notably from First *olar in the >,*., *untech in :hina, and -:ells in ermany.

    +s a latecomer, *aint-obain decided in 7118 to enter into a partnership with *hell

    *olar a division of oil giant 'oyal /utch *hell$ to create +vancis, a leading (C

    research firm that developed the worlds first commercial series production of :I*(C

    cells in :alifornia in 5""6. &o capitaliGe on the French subsidies, *aint-obain placed

    +vancis in its innovative materials division, which employs 81,111 employees

    worldwide and represents over 8=# of *aint-obains annual '/ budget.

    In 7151, due in large part to the increasing demand for subsidiGed (C panels in

    urope, *aint-obain decided to build a second plant in &orgau, ermany, toproduce high-efficiency (C modules. &his new +vancis plant will have a production

    output of 511 3Wp per year.

    French Solar Po%er: ! &uali'ied Success

    %verall, it is clear that French subsidies have worked. While French electricity

    consumption increased from 0!6 &Wh in 7118 to 068 &Wh in 711", new (C solar

    panels installed in the country increased from 6 3W in 7118 to 76= 3W in 711", of

    which 511 3W of capacity is still awaiting approval to be connected to the grid. Incomparison to its neighbors, however, France is lagging. ermany and *pain, which

    surround France geographically and share similar regulatory environments with

    France, are commonly accepted as the industry leaders in (CJ France is not. &his

    leadership e)tends from actual (C installations to the perhaps more important field

    of '/.

    *panish (C installations have been encouraged since 711! by means of 'oyal /ecree

    885, which established the current subsidy environment. From 7118 to 7116, annual

    installations of (C panels in the country increased from 66 3W to 7,81= 3W, or

    almost 91-fold in two years. In 711", the market took a step back. /ue to a

    combination of the credit crisis, cutbacks in guaranteed electricity payments, and a

    cap system limiting new installations, new panel installations in *pain dropped to

    only 8" 3W. &he uropean (hotovoltaic Industry +ssociation (I+$ forecasts that

    installations in *pain will bounce back to 811 3W in new capacity in 7151 and will

    remain at that level until 7150. If political pressure plays a greater role, the total

    could reach 5,181 3W by 7150.

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    ermanys performance in the area of solar-panel installation has been even more

    impressive, a result that should be e)pected from a country with the most stable

    subsidy system in urope. ermanys first law promoting the use of renewable energy

    dates back to 5""5. However, the 'enewable nergy Daw of 7111 has driven most of

    the countrys success in promoting alternative energy sources. ew (C installations

    in ermany 2umped from 609 3W in 7118 to an astounding 9,618 3W in 711" @

    an increase of 95=# in 2ust three years. (I+ e)pects that ermany will install

    between =,111 3W and !,111 3W in new (C panels in 7151.

    France has lagged behind *pain and ermany in solar-panel installation in the past,

    but this may be changing. (I+ estimates that France could reach 881 3W to 5,911

    3W of new annually installed capacity by 7150, provided that administrativeprocedures are softened and support mechanisms accompanied by political drive are

    put in place. &his scenario would make France one of the ma2or solar energy

    producers in urope. ut the country appears to have a much more serious issue with

    '/. +ccording to Kason 3atlof, a partner at attery Centures, an +merican venture-

    capital firm, Athe French are way behind and far from leading the industry. &en to 5=

    years ago, they had a few good companies, but no longer.B He mentioned only *aint-

    obain as a French company offering much in the way of solar-technology

    development.

    Why has France lagged while ermany and *pain have sped aheadL +ccording to

    3atlof, the answer is most likely a combination of later and lesser subsidies for (C

    installations, combined with a lack of commercial incentives to get manufacturers to

    locate in France. +s France considers its ne)t few moves in energy policy, the

    e)amples of its closest neighbors will certainly drive the countrys decisions.

    #he Future o' Solar Po%er

    +s the French e)ample illustrates, subsidies can help build the foundations for a

    strong solar energy industry. ventually, this industry will drive down the cost of

    solar energy until price parity e)ists with conventional energy, at which point solar

    can become self-sufficient.

    &his is the theory. In reality, it is unclear when price parity will be achieved and to

    whom the value of solar energy will accrue. It could be five years or it could be 71.

    &he winners could be the French, the ermans, or the :hinese. overnments could

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    allow a proliferation of private companies to reap the rewards of new energy sources,

    or they could place power and profit in the hands of state-run monopolies. %ther

    4uestions arise; Will solar energy ever be profitable in northern urope, with its low

    level of direct sunlightL Will the electricity grid ever be able to handle a less

    predictable form of energy and will people be able to store sunlight-created energy for

    the cold winter monthsL Will entrenched energy interests drive political will away

    from the transition to renewable energiesL

    /espite the concerns, there is promise in the interplay of 5$ government subsidy and

    direction and 7$ private initiative, as the French e)perience shows. &his is e)actly the

    type of market @ where real innovation in both technology and business process is

    needed @ in which private companies are most helpful. In the presence of broaddirection from the government, companies like 'edavia, France (anneau) *olaires,

    and *aint-obain have been able to flourish. &hey are building the ne)t generation of

    energy-production capacity, and they are finding ever-more-creative ways to do so.

    +s long as the French government continues its support for the solar energy market,

    does more to encourage production as well as installation, and refrains from choking

    the market with undue regulation, the solar market will be a ma2or contributor to

    electricity production in France.

    France launches rescue plan for solar

    power industry

    'euters$ - France has doubled its capacity target for photovoltaic power generation and

    offered more financial support to small solar power farms that use uropean-made

    panels in a bid to rescue the countryMs ailing solar industry.

    nergy 3inister /elphine atho announced the measures, which are e)pected to spur

    investments worth more than 7 billion euros ?7.8 billion$, during a visit to a solar panel

    factory in WesternFrance.

    &he *ocialist government is seeking to rescue an industry which has lost about 5=,111

    2obs in the last two years, after the previous conservative government tried to dampen a

    speculative bubble in new solar power installations. In 7157 the industry employed

    56,111 people, down from 97,=11 in 7151.

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    &he production capacity growth target will double to 5,111 megawatts 3W$ per year,

    the e4uivalent of a small nuclear powerreactor, atho said.

    France will also add a bonus of up to 51 percent on the subsidy for feed-in-tariffs paid to

    generators of solar power through consumersM power bills for small solar farms usingpanels made in the 91 countries of the uropean conomic +rea +$.

    N3any 2obs were lost because of the former$ governmentMs yo-yo policies. ut we will

    fight ... to develop the ecological competitiveness of France,N atho told reporters on the

    sidelines of the visit to 3(% nergy, a :/ and /C/ maker that diversified into solar

    panel production.

    NWe finally feel supported,N said 3(% nergyMs managing director Kean-Francois (errin.

    &hese emergency measures, which are due to take effect when a decree is published later

    this year, are being sought to support the solar industry until a wider energy law is drawn

    up after the governmentMs so-called Nenergy transition debateN.

    &he government estimated the annual cost at between "1 and 5!1 million euros, to be

    levied on consumers through the e)isting :*( ta) on power bills.

    Kean-Douis al, the head of FranceMs main renewable energy sector lobby *', said the

    measures would allow the sector to survive in the short term but did not offer long-termvisibility for the industry.

    NHowever itMs the first positive message from the government in over three years,N al

    told reporters.

    D+D 'I*O

    France is slowly embracing heavily-subsidiGed renewable energy, such as wind and sun

    power, which accounts for 59 percent of energy consumption, well below the 79 percent

    target set by former (resident icolas *arkoGy for 7171.

    French feed-in tariffs are reduced by about 51 percent every year to match falling

    production costs.

    &he French energy regulator :' ad2usts the cut every 4uarter, to either attract or deter

    more investments, depending on the volume of installed plants compared with the

    governmentMs target.

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    +cross the 'hine inermany, the installed capacity for wind and solar electricity

    production is already e4uivalent in output to FranceMs =6 nuclear reactors, even though

    the output is highly variable.

    France is also trying to reduce its reliance on foreign-made solar panels, after cheap:hinese modules flooded the French market, prompting cries of unfair competition and

    creating a 5.9= billion euro trade deficit for the sector in 7155.

    However, atho acknowledged the government was taking the risk of having its N3ade in

    uropeN bonus challenged by foreign competitors in international trade courts.

    NIn terms of legal risk, I donMt think there is one at the uropean level. ut at the World

    &rade %rganisation W&%$ level, it would take years to challenge it$, so the government

    did well,N al said.

    :hinaannounced last month it had added a further ?5.5 billion in subsidies to its solar

    power industry, more than doubling its support in 7157.

    In *eptember :hinaraised its 715= target for solar power capacity by 01 percent to about

    75 W, the third rise in 2ust over a year.

    Writing by 3uriel oselliJ diting by 3ike esbit and reg 3ahlich$

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