New Hampshire, USA — The European Commission has offered up some new guidelines about managing electricity markets among its Member States, offering direction for design and support schemes for renewable energy, managing capacity, and addressing demand at the consumer level to mitigate new generation investments — which, while technically not binding, likely will inform future regional environmental and aid policies.
Renewable power generation is fast approaching parity with non-renewables, though in general any new generation type is more costly than market prices for electricity, according to recent analysis from the International Energy Agency. But those IEA studies are “not comparable [nor] fully applicable” to future energy policy directions, says the EC, so it is undertaking its own analysis of cost comparisons and subsidies of various technologies, pledging to issue its report next June.
While supportive of Member States’ efforts to establish an internal electricity market for Europe by 2014, the EC underscores the needs to adhere to European Union policies about secure and competitively priced supplies, renewable energy and climate change objectives, and energy efficiency improvements. Thus, it is stepping forward to “define the role, level and nature of public intervention, in line with the principle of subsidiarity, at Union, regional, national or local level.” (Here’s the PDF of the EC’s proposals and explanations.)
Specifically for renewable energy (admittedly focused on solar and wind), the EC suggests adapting policies and rules for state intervention to recognize future market needs. That means letting the market dictate investment and production decisions, and thus gradually phasing out feed-in tariffs (FIT) and moving towards other “supportive instruments” more tied to market pricing, such as auctions and tenders, feed-in premiums, and quota obligations. (Other types of support such as domestic content requirements, the EC advises, “might not be in line with the EU acquis.”) Cooperation mechanisms also should be pursued, seeking to leverage renewable energy opportunities across Member State borders, including joint projects and support schemes. Unannounced or retroactive scheme changes should be avoided to preserve investor confidence, says the EC — quite likely a memo to Spain about its recent legislative about-face. Renewable energy support and goals ought to align more closely with Europe’s carbon emissions trading schemes, says the EC, and these principles and directions it is laying out for public intervention in electricity markets could also be applied in other sectors, such as heating and transportation. All the EC’s recommendations and discussions, including examples of standardized forms, are listed here within individual working documents.
While the EC acknowledges all these guidelines and recommendations are not legally binding to Member States, it urges that they will be applied when the EC assesses state interventions into renewable energy support schemes or capacity mechanisms, and will “guide the future enforcement of EU state aid rules and future proposals for EU energy legislation.” The EC is currently prepping a draft for guidelines due next year on environmental and energy aid for 2014-2020.
Broadly speaking the EC’s proposals are well-timed, encouraging Member States to take the lead on deployment of renewable energy while raising broader issues of generation, availability to the EC’s level, notes the European Photovoltaic Industry Association (EPIA). However, many of the EC’s recommendations such as “competitive allocation mechanisms” and auction processes emphasize factors relevant to large-scale renewable energy efforts, and would tend to ignore or lock out smaller distributed-generation efforts and self-consumption, the EPIA notes. And adjusting renewable energy support schemes to be more market-based wrongly assumes that there’s a level playing field in the market to begin with; “requesting market responsiveness from renewables would be putting the cart before the horse,” says EPIA policy director Frauke Thies.
The EC also calls for Member States to assess and address “generation inadequacy” and whether and how to incorporate ancillary services into the equation particularly to balance renewable energy. This is especially important and needs to be “harmonized” across Europe as a whole, notes the EPIA, adding that the EC should emphasize it even more, particularly development of aggregation strategies. The group also thinks the EC must offer more direction in flexibility requirements such as demand response and energy storage, and rewarding more flexible generation assets.
Lead image: Flags of European Union in front of European Commission in Brussels, via Shutterstock