It is an understatement to say that the report, revealed by the newspaper *Les Echos* on September 16, stating that the Ministry of Economy and Finance was considering, for budgetary reasons, “renegotiating” the solar power purchase agreements entered into by producers and EDF Obligation d’Achat (or other mandatory buyers) before 2011, has sent shockwaves through the French solar industry.
Since that announcement, it appears to be understood that only “large-scale solar power plants”—the scope of which has yet to be defined—would be affected, and that the proposed change would involve reducing the duration of feed-in tariff contracts to 13 or 15 years (instead of 20) rather than adjusting the feed-in tariff rate itself.
This newsletter sheds light on one of the possible foundations of this approach: the “right of the Administration to unilaterally amend administrative contracts.”
- Is it generally possible to unilaterally amend a solar power purchase agreement?
Since Law No. 2010-788 of July 12, 2010 , “on the National Commitment to the Environment” (the “Grenelle 2” Law, Article 88 III 3°, now Article L. 314-7 of the Energy Code), contracts requiring the purchase of electricity from renewable energy sources have been classified as “administrative contracts.”
The legislature has thus “ killed two birds with one stone”: the principle of “modifiability” of administrative contracts—under which a public entity may unilaterally modify or terminate such a contract at any time—has thereby been made applicable to solar power purchase agreements.
- Can the Ministry of Economy and Finance amend a purchase contract to which it is not a party?
Most power purchase agreements are between an electricity producer and EDF Obligation d’Achat, a private company in which the French government holds a majority stake. As a result, no public entity is a “party” to these power purchase agreements.
The Council of State, however, found that the clauses of the solar power purchase agreement largely reproduced regulatory provisions, which had the effect of eliminating any contractual freedom (Council of State, January 22, 2020, No. 418737, “Société Electricité de France (EDF) v. Société Corsica Sole”).
Based on this case law, it can be argued that the purchase agreement is of a “quasi-regulatory” nature and that the Administration would therefore have the authority to modify its terms.
- Are there legal guidelines governing unilateral amendments?
The public entity must comply with several conditions.
On the one hand, the amendment must be justified by a “reason of public interest” ( Council of State (CE), May 2, 1958,No. 32401, “Magnac-Laval Distillery”).
Case law shows a certain degree of tolerance for contractual amendments aimed at controlling public spending (Council of State, May 23, 2011, No. 328525, “Public Agency for the Development of the La Défense Region”).
One might question whether the goal of reducing spending is compatible with all the treaties and Community and/or national standards that underpin the energy transition.
Furthermore, it is settled case law that a unilateral amendment to an administrative contract cannot result in the financial terms of that contract being called into question (CE, May 16, 1941, “Commune de Vizille, ” Rec. CE 1941, p. 93: CE, January 16, 1946, “Ville de Limoges, ” Rec. CE 1946, p. 15).
Finally, in order to preserve the overall financial balance of the contract, any unilateral amendment to an administrative contract by the public entity must be accompanied by compensation to the other party to the contract (CE, March 21, 2010, “Cie générale française des tramways, ” Rec. CE 1910, p. 216).
This compensation covers both actual losses and lost profits (Council of State, June 5, 1953, “Département de l’Isère, ” Rec. CE 1953, p. 270).
This last condition appears to pose a serious obstacle to the “unilateral modification” of solar power purchase agreements: the Ministry of Economy and Finance would have to compensate producers for any losses caused by a reduction in the feed-in tariff, which would run counter to the stated goal of cost savings.
We do not believe that shortening the term of the contracts in question—rather than implementing a blanket reduction in the feed-in tariff—is an appropriate solution to the issue described above.
- Can a unilateral amendment to the purchase agreement apply to contracts signed before 2011?
In its aforementioned decision of December 13, 2010, the Tribunal des Conflits held that “the amendment made by the second text to the first (…) retroactively changes the nature of the contracts in question…”
Since the reclassification of the purchase agreement would apply retroactively, the Administration could therefore retroactively modify solar power purchase agreements.
This line of reasoning runs counter to the fundamental principle of the non-retroactivity of administrative acts (Council of State, June 25, 1948, “Société du Journal l’Aurore ”: Rec. CE 1948, p. 289).
The administrative judge considers, however, that this principle does not necessarily prevent the Administration from amending an administrative contract.
The Council of State further clarified in a decision dated March 24, 2006 (No. 288460, “KPMG” ), on the one hand—and “subject to the general rules applicable to administrative contracts”—that only a legislative provision may, for reasons of public policy, provide for the application of a new rule to existing contracts; and, on the other hand, that it is incumbent upon the regulatory authority to enact transitional measures when new regulations may constitute an “excessive infringement of existing contractual relationships.”
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Based on this initial analysis, a “unilateral modification by the Administration” of solar power purchase agreements signed before 2011 appears to us to raise significant legal questions.
The alternative would undoubtedly be for the government to include this retroactive amendment in a bill, citing public policy grounds.
In the latter scenario, transitional measures would need to be put in place to avoid causing “undue harm” to existing purchase contracts—a criterion that will surely lead to a heated debate between the Ministry and the producers.
If the ongoing negotiations prove unsuccessful, they should begin considering their options for appealing a decision that could undermine the economic stability of their business.
Sébastien Canton, Laurence Duriez