Possibility for the Electricity Producers to Opt Out of the Premium Subsidy Scheme

Authors: Elisa Panula and Alisa Ainonen

A government proposal for certain amendments to the Finnish Act on the Production Subsidy for Electricity Produced from Renewable Energy Sources (1396/2010, as amended, in Finnish: laki uusiutuvilla energialähteillä tuotetun sähkön tuotantotuesta) (the “Subsidy Act”) was submitted to the Parliament on 23 January 2025. The aim is that the amended Subsidy Act would enter into force on 1 April 2025. In this blog, Elisa Panula and Alisa Ainonen briefly describe the amendment that would enable the electricity producers to opt out of the premium subsidy scheme.

The aim of the premium subsidy scheme is to promote electricity production from renewable energy sources in Finland. The premium subsidy scheme is based on a tender process that has been organised once, in 2018, by the Energy Authority. In the tender process, the electricity producers provided bids on the premium and the amount of electricity they were willing to produce. Following the tender process, seven (7) projects were accepted into the scheme, all of which are wind power projects. The electricity producers are entitled to receive the subsidy in accordance with the premium for up to 12 years and must follow the obligations related to the scheme during this period.

According to the government proposal, so far only approximately 424,000 euros have been paid in subsidies under the premium subsidy scheme during its entire existence. In accordance with the Subsidy Act, if the market price of electricity is negative or equals to or exceeds the sum of the premium and a reference price of 30 euros per megawatt hour, no subsidy in accordance with the premium is payable. For most of the duration of the premium subsidy scheme, the quarterly average market price of electricity has exceeded the sum of the reference price and the offered premium.

Whether or not the electricity producers receive the subsidy in accordance with the premium, they may be liable to pay underproduction compensation (in Finnish: alituotantokorvaus) to the Finnish Energy Authority under the premium subsidy scheme. The Subsidy Act sets out certain production obligations for the electricity producers. The wind farm must produce on average at least 75% of the annual electricity production set out in the decision on approval for the scheme during the first subsidy period (meaning the first period of four (4) years) and thereafter on average at least 80% during the second and third subsidy periods (meaning the following periods of four (4) years each). If such production obligations are not met, the electricity producers are obliged to pay an underproduction compensation for each subsidy period. The amount of the compensation is calculated based on the amount of the underproduction and the premium.

Prior to the proposed amendment of the Subsidy Act, it has not been possible for the electricity producers to voluntarily leave the premium subsidy scheme and be released from the obligations related to the scheme, such as the production obligations and reporting obligations. The cancellation of the decision to accept a producer into the scheme has been possible only by a decision of the Energy Authority in case the electricity producers have provided incorrect or incomplete information or breached their obligations related to the scheme. The proposed amendment to the Subsidy Act would enable the Energy Authority to cancel the decision also by an application of the electricity producer, provided that the electricity producer pays the underproduction compensation for the first subsidy period (if such compensation is payable). Thus, the Energy Authority can make the decision on the cancellation only after the first subsidy period has ended and it has been determined whether the underproduction compensation for the first subsidy period will be payable or not. After the cancellation, the electricity producer would no longer be entitled to the subsidy and would be exempted from all remaining obligations under the premium subsidy scheme. The aim of the amendment is to reduce the administrative burden on the companies, the tasks of the Energy Authority, and the subsidies paid by the state.

Hannes Snellman advises clients on a regular basis with respect to, inter alia, the permitting, construction, operation, and financing of energy projects. Our experts will continue to monitor the subsidy forms for the green transition. Please contact us should you wish to discuss any related questions.