IN DEPTH: EC support shake-up

The European Commission (EC) seems determined to stick to large parts of its proposed new guidelines for the support mechanisms that EU members are allowed to use to spur renewables’ expansion – despite attracting criticism from industry bodies.

The latest draft of the Environmental and Energy Guidelines, seen by Recharge, would likely spell the end of feed-in tariffs (FITs) for wind installations bigger than 5MW, with support instead being added to the market price as a premium.

It would also make tender models for new renewable projects mandatory from 2017 onwards.

The guidelines – which set out what is permitted for support to qualify under EU state aid rules – also insists that mechanisms need to be “technology neutral”, which renewable energy (RE) groups have said contravenes the sovereignty of member states over their energy mix.

One area left hanging in the draft is the status of offshore wind as either a mature or immature technology. If deemed the former, offshore could in theory find itself in competition with other, far cheaper renewable sources such as onshore wind.

The guidelines are due to be approved by the EC on 9 April.

The European Wind Energy Association EWEA when the guidelines were first proposed in December warned that if adopted in their current form, would endanger member states’ ability to meet their 2020 RE targets cost-effectively.

EWEA also urged Brussels to maintain FITs at least for offshore wind to guarantee investor certainty.

National RE bodies have also voiced deep concerns, and pointed to the injustice of pressing renewables to become more market-driven while fossil and nuclear generation continue to receive huge subsidies.

“If these guidelines are enacted in the current form, it would mean a massive slowdown of the build-up of renewable energies across Europe,” claimed Stefan Moidl, who heads the Austrian wind energy association IG Windkraft.

“This proposal can only be understood as a present to the fossil and nuclear energy lobby.”

The EC in an effort to make support mechanisms more market-friendly wants member states to operate systems where generators receive market prices for the electricity they produce, plus a market premium.

The EC draft would allow one alternative support scheme: “Member States may grant support for renewable energy sources by using market mechanisms such as green certificates,” the draft says. However, 19 out of the EU’s 28 member states currently operate FIT-based support systems, according to IG Windkraft.

FIT systems have been tremendously successful in countries like Germany, where the share of renewables in gross electricity consumption has jumped from 10% in 2005 to 25% now, thanks to the comprehensive FIT system enshrined in the country’s much-copied Renewable Energies Act (EEG).

Countries such as Finland, which had tried to spur the development of renewables through an investment aid scheme, have recently also switched to a FIT-based system.

RE groups say tenders often give an advantage to large companies that have the cash and expertise to prepare complicated bids, whereas small developers or grassroots energy co-operatives may not be able to compete any longer.

Germany’s Renewable Energy Federation (BEE) points out that 47% of the country’s renewable power systems are community energy projects. “Introducing such a mechanism (tenders) would bring the development of renewable energy to an abrupt halt and throw the Energiewende, or energy transition, off course,” the BEE warned in a recent reaction to Brussels’ plans.

The fact that countries such as Portugal, Luxembourg and the UK stopped using tenders shows that this model has been disappointing, the BEE claimed.

However – apparently in response to signals from Brussels – the UK recently signalled plans to embrace auction-based allocation of support for what it called “established” technologies, including onshore wind and large-scale PV – though not offshore wind.

And the situation in Germany is further complicated by the fact that it argues that the FIT-system does not even qualify as state aid at all.

“Our conception of legality is that the EEG surcharge (renewables surcharge) is neither a subsidy, nor state aid. The German government in the past also held on to this view,” Fritz Brickwedde, president of BEE told Recharge.

Via the EEG surcharge German electricity consumers pay operators for the difference between energy wholesale prices and FITs for renewables, and thus indirectly finance the build-up of renewables via their power bills.

An increasing number of heavy industries are exempt from the payment of the surcharge, however, which prompted EU competition commissioner Joaquin Almunia last year to start a probe into Germany’s RE support system, arguing the exemptions could be considered state aid to those industries.

Germany’s government should rein in the exemptions, instead of risking the entire EEG to be labelled state aid, Brickwedde said.