Effects of feed-in tariff on existing business cases

A feed-in tariff should not only distribute grid costs more fairly, but also create an economic incentive for more efficient grid use. The previous blog discussed the six variants of a feed-in tariff and the different financial effects on existing projects. The crux of the problem is that a feed-in tariff for existing projects introduces new costs, while these costs cannot necessarily be passed on to customers.
Only the one-time connection tariff related to deep grid investments would not affect existing projects.

Besides the effects at the level of an individual business case, a feed-in tariff could also affect the macro development of renewable energy generation capacity and thus the market price. Because many pipeline projects would be cancelled as a result of a feed-in tariff (all other things being equal), CE Delft's calculations show that the electricity price would rise by about 10% in the short to medium term, after which a new equilibrium would be found to about 1% above the current electricity price (CE Delft report, page 6). While that sounds like a favourable consequence for existing projects, for the vast majority of projects this will still have no net positive effect because of the SDE(+(+)) subsidy mechanism. This is because this subsidy reimbursement of the ‘unprofitable top’ decreases as the market price of electricity increases. It should be noted that calculating the macro consequences is extremely complex and ultimately depends on many more circumstances than just a feed-in tariff. For the record: this has also been noted by CE Delft itself.

Compensation for new costs?

The ACM not only faces the complex task of shaping an effective feed-in tariff, but also of mapping out its concrete effects on existing projects, taking into account all objective differences. Simply excluding existing projects from the feed-in tariff is not an option, as this would defeat its purpose. Neither would grid costs be distributed more fairly, nor would existing projects have an incentive to use the grid more efficiently (if such incentive can even be made strong enough). Moreover, an exception would be very vulnerable legally, as such an exception would potentially be discriminatory and not cost-reflective. Another option appears to be a change in the ‘phase amounts’ or ‘correction amounts’ in the SDE+(+) decisions for existing projects. There are however challenges in this as well. First of all because, depending on the choice for a specific feed-in tariff, the impact per project can be different. To ensure that a compensation scheme neither undercompensates nor overcompensates, the impact must be calculated for each type of project. A second challenge concerns the financing of that compensation. After all, except for a pure volume-based tariff, the effective start of a feed-in tariff will not immediately increase the electricity price. This is because capacity tariffs such as the kWcontracted and kWmax are in principle not marginal costs, but rather fixed charges. Producers will therefore in principle not be able to pass-on such costs in their EPEX bid strategy. Thus producers do not get a higher price for their electricity, but do have higher costs. As a result, additional money is needed to compensate producers.

The price tag of compensation

To compensate the transport costs of existing projects, the government will have to dig deep. According to RVO data, the SDE(+(+)) subsidised energy projects will have generated about 114.8 Petajoules of renewable electricity in 2023, converted and rounded up to 32 million MWh. If the average feed-in tariff were EUR 2.50 per MWh (which amount CE Delft calculated with), the government would have to pay out about EUR 80 million per year in extra SDE(+(+)) (for the remaining duration of the subsidies already granted). However, in that case only 9.5% of the total 2030 grid costs would be charged to feed-in (see our earlier blog). If the EU-limit is not taken into account, that amount could therefore increase by up to a factor of 5 to the order of EUR 400 million per year. Over the remaining duration of the SDE(+(+))-decisions (maximum 15 years), that potential could reach into the billions of euros. This calculation is far from complete, but gives an idea of the order of magnitude. In addition, projects without SDE(+(+)) subsidy could still claim compensation, such as offshore wind farms and possibly even batteries.

A second challenge, although not insurmountable, concerns the coordination of a feed-in tariff and a compensation scheme. For although the ACM is exclusively in charge of designing a feed-in tariff, the Minister of Climate and Green Growth is responsible for SDE(+(+)) decisions, and budget will have to be released at the political level to finance compensation.

Thus, a compensation scheme is not easy in itself, let alone one that does not under- or over-compensate in each specific case (taking into account changing transport costs and tariffs over the next few decades). Complicating factors therein include questions to what extent specific individual circumstances should be taken into account, such as long-term obligations under power purchase agreements, or a different transport cost structure due to alternative transport rights or alternative connection configurations (e.g. direct lines, cable pooling and/or a connection to a closed (distribution) system). In the calculation of the SDE(+(+)) correction amounts, the CBb has already ruled several times that the actual capture price of an individual producer is not relevant for the determination of the final SDE(+(+)) subsidies (see e.g. ECLI:NL:CBB:2025:56), but it is questionable whether the same should apply to changes in legislation over which producers have no influence. For example, in the case of the compensation for coal-fired power plants, individual circumstances were taken into account in the compensation, such as the existence of legal delivery obligations based on long-term contracts.

Should the introduction of a feed-in tariff not be accompanied by a compensation scheme that in each individual case fully covers the cost increase for the remaining duration of the SDE(+(+)) subsidies already granted, the question arises as to whether a producer can still legally recover his (remaining) uncompensated damages.

Appeal against the feed-in tariff decision

A first option for producers would be an objection and appeal procedure against the “feed-in tariff decision” (or “offshore grid tariff decision”). In that case, it would have to be successfully argued that the feed-in tariff - without an adequate compensation scheme - is unlawful against a specific group of producers, e.g. SDE(+(+)) recipients. The question, however, is what exactly should qualify as being unlawful. After all, the ACM is in principle authorised to change tariff structures, so the introduction of a feed-in tariff is not in itself unlawful. Instead, the problem is the combination of a feed-in tariff without a simultaneous, adequate compensation scheme. In legal jargon, it could be argued that the ACM then violated the principle of care by failing to adequately consider the financial consequences for all or a specific group of producers when making the decision.

Appeal against SDE(+(+)) determination decision

An alternative route would involve an appeal against the Minister's decision regarding the (annual) determination of the individual, final SDE(+(+)) subsidy amounts. Indeed, under Article 14 of the SDEK Decree, the Minister must, among other things, apply corrections to the final subsidy on the basis of “corrections to be determined by ministerial regulation which have a substantial impact on the difference between the average cost price of renewable electricity and the relevant average market price of electricity and which result from government measures.” The introduction of a feed-in tariff could qualify as such a government measure, making a correction to the SDE(+(+)) subsidy obvious. If the Minister fails to establish such a correction in a ministerial regulation, its absence could be challenged in an individual objection and appeal against an SDE(+(+)) subsidy determination decision. However, not every producer receives SDE(+(+)) subsidy, such as certain offshore wind farms and batteries. Still, other options would be open to such parties.

Loss compensation

If the feed-in tariff is not deemed unlawful and an individual producer is not eligible for compensation under a compensation scheme, such producer can still apply for ‘loss compensation’ with the ACM or the Minister. Loss compensation follows from general administrative law, and concerns the obligation of an administrative body to compensate the loss of a private party as a result of lawful government action in specific cases. Not all damages are eligible for compensation: they must be (i) abnormal and (ii) special burdens. A burden is abnormal if it does not fall within normal business risk. Whether this is the case depends on all the circumstances of the case. In particular, foreseeability, the possibility of passing on the costs, the existence of legitimate expectations and the actual financial impact will be relevant here. In any case, it follows from case law that entrepreneurial risk means that costs or damages do not have to be compensated in full, as a percentage damage threshold (relative to yearly revenue) or discount on compensation is usually applied. The special burden implies that the damages disproportionately affects the disadvantaged party compared to a reference group. The challenge here lies in determining the relevant reference group. Does the reference group refer to the other producers, a specific subgroup, or should the situation instead be compared to that of future producers, now that they can take these costs into account in their investment decision? In any case, it follows from, for example, the loss compensation for coal-fired power plants due to obligatory production limitation and the Law banning coal in electricity production, that the political and legal considerations and calculations of loss compensation will be a complex exercise.

Unjustified enrichment

Finally, the Dutch law concept of unjustified enrichment could possibly play an interesting role (Section 6:212 of the Dutch Civil Code). Unjust enrichment concerns a civil law figure under which an impoverished party can claim compensation from an enriched party if the enrichment and impoverishment are causally related and the enrichment is not justified. What makes unjust enrichment interesting is that it is not necessary to establish that the enriched party acted unlawfully. This means that the feed-in tariff itself does not have to be deemed unlawful in order to still successfully bring a claim for damages.

Unjust enrichment would be particularly interesting if the ACM introduces a feed-in tariff as a result of which the market price arguably increases in the short term, but SDE(+(+)) recipients are not compensated. The most obvious case would involve a kWh volume tariff, as this means that all producers will include this marginal production cost in their EPEX day-ahead market bidding strategy. Indeed, such an increase in the market compensation would lead to a decrease in the SDE(+(+)) subsidies the State has to pay out, thus “enriching” the State. This saving of SDE(+(+)) costs for the State, leads to an equal impoverishment (reduction of subsidy payment) of producers. In such a case, an SDE(+(+)) recipient could argue that the enrichment of the State due to the feed-in tariff is unjustified and impoverishes SDE(+(+)) recipients.

Although, according to CE Delft's calculations, the other feed-in tariff variants studied do not generally lead to marginal production costs, these variants would also have macro effects on the development of the market price, as fewer new projects would be realised in the short term, and thus supply would not increase as much (or perhaps even decrease). In principle, the same argument regarding unjust enrichment could then be made. Nevertheless, it will be more difficult to be able to substantiate what the effect on the market price is, and over what time period those effects would materialise.

Immediate concerns for producers

Regardless of potential future recourse, producers should already take the announcement of the future feed-in tariff into account when (re)negotiating power purchase agreements. For although the introduction of a feed-in tariff will usually fall under the usual change in law clauses, this is not necessarily the case now that the feed-in tariff has already been announced. Invoking the general Dutch law concept of 'unforeseen circumstances' will also become more difficult in the case of new power purchase agreements, since it is questionable whether a feed-in tariff should now still be considered unforeseen now it has been announced. Thus, in order to adequately share the financial consequences and risks of a feed-in tariff and avoid legal proceedings, parties will have to explicitly discuss the consequences of a feed-in tariff in their negotiations.

Furthermore, when developing new projects subsidised with SDE++, there is also the concern that it is not guaranteed that new projects will also automatically fall under any feed-in tariff compensation scheme. Applications for SDE++ should take this into account, and this matter also deserves attention in upcoming investment decisions regarding projects that already have an SDE++ grant.

Conclusion

Introducing a feed-in tariff with a simultaneous adequate compensation scheme for existing projects is not an easy task. The ACM will have to balance between an effective feed-in tariff structure and a fair distribution of grid costs. In doing so, it will have to coordinate a feed-in tariff closely with the Ministry of Climate and Green Growth. Because of the price tag of a necessary compensation scheme and the various individual circumstances that could justify a distinction between projects in such a scheme, there is a possibility that not all damages for all existing projects will be compensated. Whether damage recovery is still possible for such projects can be better assessed once the feed-in tariff decisions and any compensation scheme are known. Nevertheless, the announcement of a feed-in tariff should already be considered by producers and developers when (re)negotiating power purchase agreements and SDE++ applications.

This blog was the second in a series. The third and final blog will not be about the feed-in tariff, but rather the obstacles to more efficient grid use in the off-take tariff structures.

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