LONDON -- On 9 April the European Commission adopted its new rules on State Aid in the energy sector. The measure is crucial for the future development of renewables, which for the time being at least are still almost wholly reliant on state hand outs in some form or other to secure private investment.
According to the Commission, the guidelines will support the 27 Member States in reaching their 2020 climate targets, while addressing the market distortions that result from renewable energy subsidies. It aims to achieve this by promoting a gradual move to market-based support.
Explaining the decision, Commission Vice President in charge of competition policy, Joaquín Almunia, said: "It is time for renewables to join the market. 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."
The new guidelines, which will be valid from 1 July 2014 until the end of 2020, include key features such as the gradual introduction of competitive bidding processes for allocating public support and the gradual replacement of feed-in tariffs by feed-in premiums — a supplementary payment on top of electricity market prices — which aim to expose renewables to market price signals.
Under the terms of the plan, a pilot phase in 2015 and 2016 will allow competitive bidding procedures to be tested across a relatively modest share of Member States’ new electricity capacity. Furthermore, the new rules still allow smaller installations to be supported with feed-in tariffs or an equivalent under a special regime.
Renewables Riposte to Reform
Considering the implications of these new rulings on the future financial health of the European renewable energy sector, concerns were levelled that EU-wide reform of the feed-in tariff system could leave such developments vulnerable.
For example, in the U.K. the Renewable Energy Association (REA) trade group CEO, Dr Nina Skorupska, set the problems out clearly, saying: “This is a huge leap into the unknown. Policies which pay developers a fixed price for their power have been shown to work and deliver a major increase in renewable electricity — up to 15 percent last year. These new guidelines are based on economic modelling, which suggests that competitive mechanisms will deliver equally good results at lower cost to the consumer. We support measures to reduce policy costs as renewables continue their journey towards price parity with fossil fuels. But putting so much faith in untested theory is a big risk.”
The REA warns, for instance, that as a result there could potentially be a policy void for all non-wind projects between 1 MW and 5 MW.
Similarly, the European Wind Energy Association (EWEA) has raised concerns that the Commission proposal refers to phasing out support for renewable technologies that are expected to become "grid competitive" between 2020 and 2030, without specifically defining what “grid-competitive” actually means.
EWEA says the complex nature of the state aid guidelines risks exacerbating investor uncertainty around the renewables industry. They argue that Member States must be “flexible in implementing the proposals.”
European photovoltaic trade group EPIA has also expressed doubts, arguing that the new rules risk discriminate against small-scale generation.
"To drive a better market integration of renewables forward, the Commission should rather focus on removing existing barriers on the market, instead of forcing renewables into a market which is simply not fit for them," said Alexandre Roesch, EPIA’s head of regulatory affairs.
Fanny-Pomme Langue, Policy Director for the European Biomass Association (AEBIOM), tells REW: “The objective of the Commission is to make renewable energy support more market orientated. In this debate, AEBIOM has raised the importance to take into account the fact that the bioenergy sector is not homogeneous with different sizes and processes. The guidelines leave the possibility to Member States to derogate from feed-in premium and the bidding procedure for small size installations producing renewable electricity. We welcome this possibility although we estimate that the thresholds are too low regarding the bioenergy sector”.
Indeed, perhaps the most damning indictment comes from Cooperatives Europe, representing 92 cooperative member organizations, with its president, Dirk Lehnhoff, saying: “Neither the threat of global warming nor the enormous potential for employment creation has been sufficient for EU policymakers to continue the shift towards more decentralized renewable energy systems in the EU. Maybe the current Ukraine crisis and the linked energy security issue will be their final wake-up call for change.”
Show Me the Money
In Global Trends in Renewable Energy Investment 2014, the Frankfurt School-UNEP analysis concludes that in developed economies, such as those in Europe, developers have indeed relied on subsidies to support the investment case. However, they also note that in Spain for example, where feed-in tariff support was removed in 2012, some modest renewable energy projects are still taking place. They cite the example of Grupo Enerpro, a Spanish developer that completed a 1-MW solar project without public subsidies, a first for the country, selling its output at the market price. Further PV projects are planned by Grupo Enerpro this year.
The Global Trends report also notes that clean energy funds had a strong 2013 with new financing vehicles also growing in popularity. According to their analysis crowd-funding is becoming a more mainstream way to raise financing for small-scale projects, in particular solar.
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