Brussels wants both a single European energy market and 20% renewables in the energy mix by 2020. The latter goal, however, risks disrupting the former. The Commission must resolve this tension in new state aid guidelines for energy for 2014-2020. The renewables sector warns that the conditions the Commission is currently considering threaten the renewable energy sector. (Photo: uSwitch)
Next month the European Commission is due to issue draft guidelines for state aid in energy and environment for 2014-20 for a third and final public consultation. The guidelines themselves are due to be adopted in spring next year. Led by EU competition commissioner Joaquín Almunia, their primary goal is to better align public support for renewables with the push for an EU internal energy market.
At a debate on state aid with all 28 commissioners on 8 October, Almunia described his aim thus: “how to phase out state aid for increasingly competitive renewable energies to avoid distortions of competition and a proliferation of rules within the internal market”. He did add: “without jeopardising the achievement of the EU’s overall target of a 20% share of renewable energies in its energy mix by 2020”.
So why is the renewables sector worried? Not because it fears it won’t be allowed any state aid in future. Rather that it fears EU authorisation of this aid will hinge on overly prescriptive rules: namely that it must be delivered through a competitive, technology-neutral support scheme that is open to bidders from all countries in the European Economic Area (EEA), i.e. EU member states plus Iceland, Liechtenstein and Norway. Today, no scheme is open to all EEA countries and most use neither competitive tenders nor technology-neutrality to distribute funds.
“Changes to support schemes like this should be discussed and decided in a political process,” said André Poschmann from the German environment ministry at the 10th Workshop of the International Feed-In Cooperation (IFIC) in Brussels on 24 October. (IFIC unites four countries who have championed feed-in tariffs: Germany, Spain, Slovenia and Greece.) He argued that state aid policy is not the right medium for proposing such momentous political changes.
Set for conflict
The draft conditions appear to directly contravene the EU’s 2009 renewables law. This explicitly leaves countries free to choose how they design their support schemes and whether they wish to cooperate. The draft also seems set to clash with upcoming guidance on renewables support scheme reform being prepared by the Commission as part of a state intervention package for the energy market. The draft guidance – now set for publication in early November – will set out best practice for the design of different kinds of support scheme, with no requirements for one to constitute a European template.
“There is a strong message in the guidance that technology differentiation is important, that we still need innovation,” said Commission official Ivo Schmidt from the Commission’s energy department at the IFIC workshop. (The energy department is developing the support scheme guidance; the competition department the state aid guidelines.)
Yet there were questions over how significant this guidance is – it will be non-binding – in comparison to the state aid guidelines – which will be binding. Schmidt insisted that the guidance is relevant and that member states are waiting for it. At the same time, Maria Kleis from the Regulatory Assistance Project (RAP), a not-for-profit group of experts that advise policymakers on energy and environment issues, stressed that what is crucial for investment security is how renewables are mentioned in the state aid guidelines and in a related regulation – the General Block Exemption Regulation – that exempts certain categories of state aid from notification to the Commission.
It is this General Block Exemption Regulation (GBER) which is the primary target of renewables advocates. Like the current state aid guidelines, it dates back to 2008 and is up for review. Whereas the guidelines set EU rules for evaluating requests for state aid, the GBER sets EU rules for when state aid does not need to be notified to the Commission for approval. This makes it even more likely the aid in question will face no questions from Brussels.
So far, most renewables support schemes do not qualify for this exemption. But in a publicly available draft for a revised GBER, the Commission proposes to introduce for the first time a general exemption for renewables support. Yet it also clearly spells out that to be eligible, support schemes would have to use tendering, be technology-neutral and be open to bidders from all EEA countries. These same conditions are found back in a leaked July draft of the new state aid guidelines themselves.
Many say it is the Netherlands’ new renewables support scheme, in place since 2011, which forms the blueprint for the Commission’s proposals. The Dutch scheme uses tendering and is technology-neutral. It is a “one instrument, one goal” approach, explained Suzanne Breman-Vrijmoed from the Dutch Ministry of Economic Affairs at the IFIC workshop. What this means, is that the scheme is purely intended to help the Netherlands meet its 14% renewables target for 2020 (up from 4.4% in 2012), nothing else. Technological innovation will come from innovation policies. Offshore wind, incidentally, has its own separate support scheme.
Yet other speakers at the IFIC event warned that as well as hampering innovation, technology-neutrality can end up over-subsidising more mature technologies. It can even end up more expensive than technology-specific support. Certainly in the 8 October debate, a “majority” of commissioners felt “that at this stage it was important not to opt for the principle of technological neutrality”, according to the minutes of that meeting.
Meanwhile, the cost savings and budget control advantages of tendering need to be set off against the risk of strategically low bidding and poor implementation as a result. The results of tendering systems around the world are very mixed to date, said Corinna Klessmann from Ecofys.
Too early to cooperate
Not a single voice at the IFIC workshop spoke up in favour of opening up national support schemes to bidders from other countries i.e. making cooperation mandatory. A host of economic and political (public acceptance) problems plague the concept. Only Norway and Sweden cooperate on renewables support today, although the UK and Ireland are in talks to do so. The latter would involve the physical transfer of electricity from Ireland to the UK to make sure UK consumers feel they get what they are paying for. But even here the details still need to be worked out.
Mandatory cooperation would in effect amount to full harmonisation of support schemes, argued Poschmann. System (read: grid) costs could outstrip savings on generation and member states would no longer be free to determine their own energy mix.
Overall, the message from most speakers was that it is too early to tell what kind of renewables support scheme works best, but that the indications so far are that this will in any case vary by location, project size and political objectives. The EU’s new state aid policy for energy and environment, consisting of the guidelines and GBER, is due to be adopted next spring. Commission official Schmidt suggested the latest yet-to-be-published draft of the guidelines tempers the prescriptive approach: “the story has changed a bit”.
Renewables advocates want the Commission to push for convergence around best practice, not a single kind of scheme that has yet to be created and prove its worth. In their view, the internal market must not come at the expense of the 20% renewables target.