Europe to Stop Financing Renewable Energy

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Written by Martin Lynch, European News Editor for Industrial Info (Galway, Ireland)-- The European Commission (E.C.) is planning to end financial subsidies for renewable energy after 2020.

The move has been widely criticized by renewable energy groups but the commission believes that renewable technologies, including wind and solar, "have reached a stage of maturity that calls for their integration in the market". It envisages that subsidies will be phased out between 2020 and 2030.

The commission said that it wants to address the market distortions that may have resulted from subsidies granted to renewable energy sources. It believes that the "remarkable growth" of renewable energy over recent years, partly due to public financial support, has helped achieve environmental objectives, but has also caused "serious market distortions" and increased the cost of electricity to consumers. Utilities operating gas and coal-fired power stations in Europe have complained in recent years about how subsidized renewable energy has led to the shuttering of many plants that are no longer financially viable. Many of the region's largest energy companies are actively shutting new, high efficiency but expensive-to-run gas-fired plants due to the high-priced gas, subsidized renewables and the availability of cheap coal imports from the U.S..

The commission is proposing a "gradual move" to market-based support for renewable energy. The new guidelines highlight how member states can relieve energy intensive companies that are particularly exposed to international competition from charges levied for the support of renewables. There are also new provisions on aid to energy infrastructure and generation capacity to strengthen the internal energy market and to ensure the region's security of supply.

"It is time for renewables to join the market," explained Commission Vice President in Charge of Competition Policy, Joaquín Almunia. "The new guidelines provide a framework for designing more efficient public support measures that reflect market conditions, in a gradual and pragmatic way. Europe should meet its ambitious energy and climate targets at the least possible cost for taxpayers and without undue distortions of competition in the Single Market. This will contribute to making energy more affordable for European citizens and companies."

Justin Wilkes, deputy chief executive officer of The European Wind Energy Association (EWEA), countered that the commission's proposals are short-sighted and not clearly defined.

"The commission would have liked to put the cart before the horse, by focusing on forcing wind energy to compete in a market which still does not exist, while ignoring the obvious market distortions that need to be tackled first, such as the majority of subsidies that go to fossil fuels and nuclear," Wilkes argued. "While we welcome the drive for long-term market integration of wind energy, state aid guidelines are not the ideal tool for the commission to legislate on energy policy. Member states should be flexible in implementing the guidelines, in order to enable the most cost-efficient development of wind energy in Europe, and avoid increased uncertainty for the sector. In the main, the opt-outs will become the most important tools used by member states because the Commission has failed to propose good design requirements for its favored method of tendering."

Key features of the new guidelines include:

• Gradual introduction of market based mechanisms: To increase cost effectiveness and limit distortions, the new guidelines foresee the gradual introduction of competitive bidding processes for allocating public support, while offering member states flexibility to take account of national circumstances. A pilot phase in 2015 and 2016 will allow them to test competitive bidding procedures in a small share of their new electricity capacity. The guidelines also foresee the gradual replacement of feed-in tariffs by feed-in premiums, which expose renewable energy sources to market signals. Small installations will benefit from a special regime and can still be supported with feed-in tariffs or equivalent forms of support. Furthermore, the rules do not affect schemes already in place that were approved under the existing rules.

• Promoting competitiveness of European industry: Charges levied for the funding of renewable energy support make up an increasing proportion of the energy bill for industry. This constitutes a very high burden for some energy intensive companies, in particular those exposed to strong international competition. The guidelines therefore allow reducing the burden for a limited number of energy intensive sectors defined for the whole EU. Member states will also be allowed to reduce the burden on highly energy intensive companies in other sectors.

• Supporting cross-border energy infrastructure to further the single European energy market: The new guidelines include criteria for supporting energy infrastructure, focusing on projects that improve cross-border energy flows and promote infrastructure in Europe's less developed regions.

• Another new feature is to permit aid to secure adequate electricity generation when there is a real risk of insufficient electricity generation capacity. This will allow member states to introduce so-called "capacity mechanisms," for example, to encourage producers to build new generation capacity or prevent them from shutting down existing plants or to reward consumers to reduce electricity consumption in peak hours.

• At the same time the E.C. will also simplify procedures to implement certain aid measures in the field of environmental protection and energy.

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