The Public Utilities Commission or the Regulator has adopted rules on payment of reservation fees for the electricity power to be installed (dated December 15, 2022). They came into force as of January 1, 2023 after extensive consultations with market participants. The rules are well balanced and are intended to facilitate development of the green energy projects by unlocking capacities which have been taken for so called ‘paper projects’, which cannot attract financing and ensure the real implementation of the project. “The cornerstone of the rules is the ultimate requirement for the developer to concentrate its all efforts and resources to let the project fly and production of the green energy start. If the reservation fee is not paid and/or next development steps are not achieved, the reserved capacities can be lost and the next developer it the row can obtain them”, says partner Lelde Laviņa.

 Who pays? – Electricity producer, if and when:

  • power to be installed shall exceed 50 kW, and
  • relevant permit from the ministry is obtained, and
  • technical requirements for connection have been received from the system operator.

What is the amount of the reservation fee?

  • amount will be set per one power unit – EUR/kW, according to formula and based on system operator’s actual cost of installed new capacities during the previous 5 year period (to be announced during January/February 2023);
  • amount 21,63 EUR/kW until 2028. Thus, a wind park with a planned capacity of 50 MW will require a reservation fee of 1,08 million euros. The Regulator may amend the amount sooner if the interconnection development costs rise significantly;
  • amount is capped – at the amount required for 100 MW station or 2,16 milllion euros.

Type of payment:

  • deposit to the account of the system operator; or
  • first demand, unconditional guarantee issued by EU or EEZ financial service provider (with a long-term credit rating of at least Baa1 according to Moody`s, or BBB+ according to Standard&Poor`s, or BBB+ according to Fitch Ratings for long-term loans in foreign currency) and to be valid until grid connection contract is concluded (i.e. after a design has been completed).

When to pay?

  • producers that have already received technical requirements, shall pay the reservation fee within 3 months. Although the decisive amount in the formula is not yet known, Regulator treats that 3 months start from January 1, 2023;
  • producers submitting new applications the reservation fee shall be paid within 60 days after receipt of the technical requirements;
  • producers installing capacities for self-consumption without material changes in the grid on the side of system operator, shall pay reservation fee within 6 months from receipt of the technical requirements.

How used?

  • to cover costs for connection to the grid/payment of the connection fee;
  • the difference from the deposit amount and actual cost of connection (if any) is repaid to the producer upon conclusion of the connection contract;
  • the guarantee is released upon conclusion of the grid connection contract.

When lost and when returned?

  • the law provides that the reservation fee is not repaid if the power is not connected to the system for reasons beyond the control of the system operator;
  • in order to eliminate the theoretical unjust enrichment and unfair treatment the Rules mitigate the harsh premise of the law by 1) listing limited grounds for the system operator to annul technical requirements and stop the development and 2) by permitting to receive back the reservation fee in cases justifying the termination – i.e. when the connection process has stopped due to reasons beyond a reasonable producer’s control (e.g. challenge of building permit by third parties), subject to sufficient documentation provided by the producer;
  • in the following cases the producer loses the reservation fee:
    • Producer has not concluded a grid connection arrangement contract within 60 days as of receipt of the technical requirements;
    • Producer has unilaterally terminated the grid connection arrangement contract or grid connection contract;
    • Producer is in breach of the grid connection arrangement contract or grid connection contract;
    • Producer has not concluded a system service agreement with the system operator within 3 years from receipt of the technical requirements;
    • Producer does not hold a valid ministry’ permit for introducing of new electricity power.