Grounds for new claims from Renewable energy producers

Recouping the losses from the 20 % fee

With the final provisions of the Law on the State Budget of Republic of Bulgaria for 2014, amendments in the Law on Renewable Energy Sources (“LRES”) were adopted. A new Section V of Chapter IV was introduced which provided the payment of 20% fee for wind and solar producers. After the approval of the amendments, the president of Republic of Bulgaria approached the Constitutional Court with claims that the adopted changes contradicted to general constitutional principles of rule of law and free business initiative. With decision № 13 under constitutional case № 1/2014 as of 31.07.2014, the Constitutional Court declared the 20% fee for unconstitutional adopting the view of the Bulgarian president.

The decisions of the Constitutional Court enter into effect three days after their publication in the State Gazette and the legal act announced for unconstitutional is not be applied from the date of the decision’s entry into force.

With regard to the announcement of the 20% fee as unconstitutional, there have already been decisions of the Bulgarian courts of first instance upon claims for liability of the State in relation with the annulled fee. Based on the current case law, two different lines of claims could be outlined:

The first is a claim against the State for damages caused by a breach of EU law, which protection has been undertaken under the domestic legislation. However, under this type of claims there is a controversial case law concerning the procedural order at which the case should be led, namely whether the liability of the State for damages should be pretended under the Liability of State and Municipalities Act (“LSMA”) or under the Obligations and Contracts Act (“OCA”), as tort.

There is a recent ruling of Varna District Court on a claim brought by renewable energy producer against the National Assembly to recoup the 20% fee. Varna District Court takes the view that the State liability for damages as a result of adopted changes in the Renewable Energy Act, should be engaged under the rules and procedures of the OCA.

The second line is claims against the State for unjust enrichment due to the declared unconstitutional amendments of LRES. In case of successful claim for unjust enrichment, the State will return the collected 20% fee, together with the statutory interest. We note that when a law is declared unconstitutional, this does not apply as of the date of the announcement. The effect of the law is invalidated for the future, which means that until its announcement as unconstitutional, the law has regulated a valid relationship between the parties. Therefore, under this claim there is a risk of objection by the State for lack of retroactivity of the decision of the Constitutional Court (CC) and respectively for contestation that the obligation for payment of the fee has not been repealed retroactively, which in turn does not imply the return of the amounts paid until the date of the decision of the Constitutional Court.

There is a decision of Sofia Regional Court which is in favour of a renewable energy producer who brought his claim against the State for unjust enrichment. The court takes the view that the 20% fee should be returned because the ground for its collection was announced unconstitutional. The decision of Sofia Regional Court is not final and it remains to be seen whether the second court instance will confirm it.

Taking into account the identified legal risks, we recommend claims for 20 % fee reimbursement to be brought as partial in case of bigger material interest and after careful consideration of the legal arguments, the legal grounds and the competent court.

Net specific production

In July 2015 amendments in the Bulgarian legislation concerning the renewable energy producers were urgently adopted.  A new method for determination of the hours up to which the produced electricity has to be purchased at the preferential price has been provided. Namely, the existing obligation for mandatory purchase of the electricity produced from renewable energy sources at the already agreed and fixed in the power purchase agreements preferential price (the FiT) was limited only up to the determined net specific production of electricity for the respective year.  After reaching these annual limits, the electricity should be purchased at significantly lower price (the price of surplus of the Balancing Market or at freely negotiated prices at the liberalized market). In addition, the legislator provided for that the Bulgarian Energy and Water regulatory Commission (EWRC) should adopt until 31.07.2015 (1 week after the adoption of the law) a decision by virtue of which to determine the net specific production of electricity for all RES producers.

In compliance with the new requirements of the law on July 31, 2015, EWRC adopted Decision SP-1/31.07.2015 setting the levels of net specific production of electricity for almost all of the currently applicable FiTs—189 positions reflecting the types of renewable technologies and preferential prices set throughout the period of 2011-2015. These levels as specified in the decision represent the maximum amount of electricity produced to be purchased under the respective preferential price determined upon conclusion of the respective long-term power purchase agreement.

For most producers of electricity from wind, an additional condition for differentiation of the value of the specific net production was introduced, namely depending on the operation of the wind power plant up to 2250h and above 2250h for the respective year. Due to the specifics of wind generators, however, they can operate both up to but also above 2250h, and it is not possible to determine in advance how much a wind power plant will operate. This distinction in the value of net specific production, created ambiguity in the interpretation and application of Decision SP-1, especially with regard to the invoicing and payment of the produced electricity, which in its turn created opportunity for ESO, NEK, EVN, CEZ and Energo Pro to apply only the lower value of the net specific production determined for wind power plant operating up to 2250h. Thus, even after reaching and exceeding those 2250h, the distribution / transmission company has refused to purchase the electricity above the lower net specific production at a preferential price, and has paid to the producers significantly lower price than agreed (the price of surplus).

This conduct of the distribution and transmission companies raises doubts on whether or not they perform accurately their obligations under the respective power purchase agreement. Failure to comply with this contractual obligation is a ground for seeking the liability of the party in default through a claim for the unpaid preferential price which can be brought before the respective Bulgarian civil court. We note that EWRC has been requested to give instructions on the application of Decision SP-1 and its act should be taken into consideration in the event that a claim is eventually brought.