The Estonian Supreme Court satisfied the action of the energy company Evecon against the amendment of the Electricity Market Act and acknowledged that requiring a deposit for connecting to the electricity network is unconstitutional.
The amendment of the Electricity Market Act that was passed a year and a half ago created an unexpected obligation for persons connecting to the network for generation purposes – paying a deposit to the network operator within 60 days. The deposit would not have to be paid if at least 70% of the connection fee was paid.
The amendment of legislation was supposed to expedite the transition to renewable energy, free up unused network resources and remove fictitious connection applications from the transmission network, as these were bringing about the rapid exhaustion of the transmission network volume. The judgment of the Supreme Court clarified that the amendment to legislation would in fact harm renewable energy production.
The new requirement was to apply retroactively to the network connection of large-scale projects such as that of Evecon. “The amendment of legislation created a twofold obligation: payment for the construction of the network, plus a booking fee. It did not take into consideration the circumstances for fast-growing companies, as they have successful developments pending, and due to the large volumes, a deposit would mean millions of euros that would have to be unexpectedly paid within two months and then put on hold. We did not want to go to court, especially against Elering, who implemented the amendment of legislation. However, we firmly believed that enacting such a requirement was not legitimate,” explained Karl Kull, CEO of Evecon.
“By now, for example, we have completed the largest solar farm in the Baltic countries, and in spring, we commenced the development of the biggest battery park in Continental Europe. When it comes to large-scale investments and developments, we proceed from the legislation in force and enter into agreements based on it. It is therefore important for legislative drafting not to rescind existing agreements and conditions for projects already in progress,” said Kull.
In the judgment of the Supreme Court, Chancellor of Justice Ülle Madise noted that enacting the new requirement was unconstitutional as the term provided for the market participants could not be reasonably complied with and the requirement discouraged market participants who joined the network in a purposeful manner. “The requirement was extremely burdensome with respect to the complainants as they had entered into the connection agreement at a time when such an obligation did not exist.”
The Supreme Court panel also recognised that the period for the payment of the deposit was evidently short. “Even more so in a situation where the connection fee – which had increased by several times due to the increase in construction prices – also needed to be paid.” The Supreme Court was of the opinion that providing a longer period for the payment of the deposit for companies that had been connected earlier would not have jeopardised the reduction of CO2 emissions or the security of supply of energy.
According to Ramon Rask, Partner of RASK Attorneys-at-Law, the judgment of the Supreme Court should remind the legislators of the principles of good legislative drafting and functioning rule of law. “Within the context of the multiple crises experienced in the last few years, there is a tendency to forget the rules on which a stable and functioning legal order is based in the course of legislative drafting. One of these is the principle of legal certainty and the possibility for everyone affected by new legislation to reorganise their activities within a reasonable period of time,” noted the attorney-at-law providing legal assistance to Evecon.
According to Rask, sudden and surprising legislative amendments in the energy sector but also other sectors of the economy incorporating investments with a long payback period are criminal in nature. “Unpredictable legislative drafting will bring about a sharp decline in the confidence of entrepreneurs and investors and thereby suffocate the economy.”
Even though the judgment of the Supreme Court only declared the unconstitutionality of one specific provision, Rask stated that this was part of a larger whole with the objective of commencing reforms of the energy market back in 2023. “This is not about whether the state has the right to change the rules. This is about how it is done. We need more analysis and long-term view and less overreacting.”
Evecon is the leading private equity-based energy company in the Baltic States, developing an energy portfolio of more than 2.7GW, which has so far focused on the development of wind, solar and energy storage parks. The numerous developments of Evecon include, for example, the largest solar farm in the Baltic countries and the biggest battery park in Continental Europe, with the construction of the latter having commenced in spring.
