France Must Triple Tax to Cover EDF's Solar-Energy Costs, Watchdog Says

A French tax on electricity must be almost tripled next year to pay for a seven-fold increase in subsidies for solar energy paid for by Electricite de France SA, according to the energy watchdog.

The tax should increase to 12.90 euros ($16.80) a megawatt- hour from the current 4.50 euros to pay for an increase in the cost of renewable power, mostly solar, France’s CRE regulator said in documents published today. The cost of solar power for state-controlled utilities is projected to rise to 915 million euros next year from 128 million euros in 2010.

A 2011 budget law being debated in parliament would raise the tax to 7.50 euros a megawatt hour. The tax has been “insufficient” since 2009 and has led to a shortfall for EDF, according to the regulator. The shortfall was 1.4 billion euros last year and is estimated to exceed 1 billion euros this year.

Solar energy costs for EDF have come under increasing scrutiny as capacity has expanded while subsidized rates for power have remained relatively high. The government cut the so- called feed-in tariff for solar power on Sept. 1 for a second time since January to counter what it called a speculative bubble in the industry. A planned solar-policy overhaul, to come as soon as this week, may include an annual capacity growth cap of 500 megawatts, the government has said.

Cutting Prices

Feed-in tariffs require utilities to buy electricity from renewable sources at more than the standard rate. EDF, France’s former power monopoly, pays more for solar power than for the nuclear power it produces at 58 reactors and what it can buy on European spot electricity markets. The added cost is passed on to consumers through the tax.

The government is preparing to cut the price EDF pays for solar energy about 10 percent and cap the annual volume of installations, Les Echos reported today, citing people it didn’t identify.

EDF Energies Nouvelles SA, which is developing solar and wind energy in France, dropped as much as 2.8 percent to 28.46 euros and was trading at 28.62 euros at 4:02 p.m. in Paris. The shares have dropped 21 percent since the start of the year.

A spokeswoman for Prime Minister Francois Fillon said a meeting on solar energy is planned for Dec. 2. She declined to say whether there will be a further drop in solar prices.

The regulator estimates that EDF will pay an average of 546 euros a megawatt-hour for solar power in 2011. This compares with estimated spot market power prices of 55 euros.

Solar Capacity

The tax is supposed to cover the cost to state utilities for solar, wind and other renewable energies as well as subsidies for power to needy households and rural zones.

The total costs will rise to an estimated 3.5 billion euros in 2011 compared with 2.2 billion euros last year, the regulator said. The costs of solar power will make up 26 percent of the total next year, compared with 2 percent in 2009.

France will have 860 megawatts of photovoltaic capacity installed and connected to the grid at the end of 2010 and a total of 2,150 megawatts by the end of next year, according to the regulator. This estimate takes into account the fact that more capacity is in the pipeline than EDF’s power distributor ERDF can connect.

A government report in September on solar costs and the stipulations in the 2011 budget law are the first positive steps towards reducing the impact on EDF’s debt, the company said in a Nov. 15 earnings presentation.

Reducing Subsidies

A proposed tax increase of 7.50 euros a megawatt hour, as planned in a draft law before parliament, is lower than the 9.30 needed to cover 2011 costs and the 12.90 required to pay EDF’s past solar shortfall, the regulator said today.

The government needs to revise solar targets and further cut subsidies to curb costs to consumers that may balloon to a cumulative 54 billion euros by 2020, according to the report, written for the government by economist Jean-Michel Charpin.

New installations should be capped at 300 to 500 megawatts a year, Charpin wrote. France is on track to surpass its 2020 target for installed solar capacity by 2013 as companies rush to profit from inflated tariffs, he said.

Companies rushed to install solar power as tariff increases became automatic under a 2006 law and as installation costs declined, according to Charpin. Returns were as high as 26 percent in the sunniest parts of France.

To contact the reporter on this story: Tara Patel in Paris at tpatel2@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

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