In order to ensure an effective use and cost predictability of the state aid covered by all end consumers of electricity, and to prevent dishonest behaviour in the application of mandatory procurement in renewable energy and co-generation power plants, the Cabinet of Ministers, on April 10, 2018, approved amendments to the regulatory framework for electricity production and price for the production of electricity in co-generation, as well as for the production of electricity from renewable energy sources and pricing procedures, significantly increasing monitoring of this process.
As a result of amendments to the Cabinet of Ministers Regulations No. 211 and 262, the control of power plants will be increased. In the future, by carrying out planned inspections, the Ministry will alert the merchant at least three business days (until now, it was 20 days) before the planned control. In the future, the control team will also be able to carry out inspections without prior notice. On the other hand, if the merchant does not provide the control group with the possibility to carry out an inspection of the power plant for two consecutive times, the decision on the right to sell electricity under the mandatory procurement will be cancelled.
Also, the amendments define other violations (non-provision of auxiliary power consumption, non-conformity of the metering devices, capacity installed fails to comply with the agreement with AS Enerģijas publiskais tirgotājs (JSC), violations in the field of energy, environment and occupational safety, or other inconsistencies established by the control group that may affect the amount of aid paid); for which a warning is to be issued to the merchant, and certain shorter deadlines for elimination of the detected non-compliance of the power plants. The deadlines for elimination of violations have been reduced from 9 months to 3 months, and for certain violations these are set at 6 months, while in the case of inappropriate measuring devices, the violation shall be eliminated within 1 month. Meanwhile, tax debts will be verified twice, not once a year, and the merchant will be required to pay the debt within 3 months instead of 9.
If during the specified period the violation has not been eliminated, in addition to the abolition of the mandatory procurement rights, the merchant will also have to repay the aid paid out since receipt of the alert.
In cases where intentional fraud, such as significant technological violations or inappropriate use of fuel resources, will be established, the Ministry will be obliged to make a decision on the cancellation of mandatory procurement rights without prior warning.
Amendments to the Cabinet of Ministers Regulation No.221 stipulate that a merchant will have to enter into a contract with a public merchant of electricity within 3 months after the commencement of electricity generation in co-generation. In case of failure to conclude such a contract, the merchant will lose the obtained rights to sell the electricity produced in the framework of mandatory procurement and receive state aid accordingly.
Also, the amendments set the minimum capacity threshold. This means that the merchant, in order to retain the mandatory electricity procurement rights, during the time period for starting the production of electricity in co-generation, must have the initially installed capacity no less than 50% of the planned power allocation specified in the decision on the granting of mandatory electricity procurement rights. The Ministry of Economics has detected instances when merchants install several times lower electricity capacity than indicated in their applications for the acquisition of the electricity mandatory procurement rights. Also, in the event of failure to comply with this criterion, the merchant will lose its rights to sell the electricity produced within the framework of mandatory procurement.
In order to predict more accurately the cost of the future mandatory procurement component (MPC) mechanism and to reduce the possibility that currently unused part of authorized capacity and electricity procurement volume would generate additional costs within the future procurement framework, the amount of purchased electricity procurement will be reduced according to the actual installed capacity.
In order to prevent violation of the requirements of the Cabinet of Ministers regulations, the amendments envisage that for a period of three years a merchant may receive no more than three warnings. Upon receipt of the fourth warning, the rights to sell the electricity produced under the mandatory procurement will be cancelled.
Similarly, amendments to the Cabinet Regulation No. 262 require that the merchant ensure effective utilization of heat energy in the amount of 70% from January 1, 2020, and 90% from January 1, 2021, while auxiliary power consumption must be ensured from July 1, 2019.
With the entry into force of the amendments, AS Enerģijas publiskais tirgotājs (JSC) will carry out a single inspection of all, i.e., approximately 400 power stations, selling electricity produced under the mandatory procurement. Within the framework of the examination of the stations, their compliance with regulatory enactments shall be verified, as well as the compliance of the operation of co-generation power plants with the demand for useful heat energy will be assessed.