France: CRE on changing the indexation of the BG16 tariff for biogas power plants

The French energy regulator CRE issued an opinion on 5 October 2023 on a draft amendment to the BG16 tariff, i.e. the decree of 13 December 2016 on the terms of purchase of electricity from biogas from installations below 500 kW. The draft shifts the start of the tariff's indexation period: it is to run from the date a complete application for a contract is submitted, rather than from its entry into force. The change is intended to help projects built during the rise in costs since 2020.

How indexation works in BG16

The reference tariffs in BG16 are indexed every year by a coefficient L. According to CRE, it consists of a fixed part of 0.5 and two components: the hourly labour cost index in the mechanical and electrical industries (weight 0.2) and the French industrial producer price index (weight 0.3). The index values are taken as those known at the time the contract comes into force. The aim is to protect the producer against changes in operating costs after the investment has been completed.

What the draft changed

The change would cover contracts that came into force from 1 January 2021. The indexation period would start from the moment a complete application for a contract is submitted. The ministry justified this by the "exceptional economic situation" observed since the beginning of 2020. According to CRE data, it would affect 136 of the 452 installations operating under BG16. Their tariffs would rise from the start of indexation by 13% on average instead of 7%.

The regulator's reservations

CRE found that, in principle, taking account of cost changes before an installation is commissioned is justified, but it expressed two reservations. First, for facilities that are already operating it asked whether such assistance is necessary given the absence of any block on project development, and pointed out that for some contracts from early 2021 the change could even lower the tariff in 2023. It recommended limiting its application to projects that submitted a complete application after 1 January 2021 and to those whose contract has not yet come into force. Second, it proposed harmonising the indexation rules with other renewable technologies, including the introduction of a coefficient K reflecting changes in investment and operating costs between the publication of the decree and financial close.

Background: what the system pays

The CRE opinion states that the average electricity purchase tariff for the digestion installations in question (excluding landfills and wastewater treatment plants) was 186.4 EUR/MWh in 2022. At the end of 2018, 635 biogas installations with a capacity of 456 MW were connected to the grid, including 453 digestion installations (163 MW), 154 landfills (269 MW) and 28 wastewater treatment plants (24 MW). By the end of the second quarter of 2023, 854 digestion installations with a total capacity of 301 MW had been connected. The PPE targets for 2019–2028 assumed 270 MW in 2023 and 340–410 MW in 2028; CRE noted that the 2023 target had already been reached in 2021.

What next

The CRE opinion is not a decision: the decree is issued by the ministry. For producers this means that the indexation formula remains a matter of policy, and that the regulator is demanding data on the actual costs in this sector. We write about the broader context of French support, mainly for biomethane, in the entry Biomethane in France: the tariff model.