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State subsidies to EU renewable energy producers to be reined in, but some energy intensive sectors will still enjoy benefits

Out-Law News | 11 Apr 2014 | 2:42 pm | 3 min. read

A number of energy intensive industries will still be allowed to receive some state support to compensate for high power bills caused by government subsidies for renewable energy under new European Commission guidelines which are designed to gradually phase out state subsidies in the renewables sector.

Manufacturers of chemicals, metals, paper and ceramics are among 68 energy-intensive industries which will still be allowed to receive state support under the new guidelines, which will apply from 1 July 2014 and be effective until 2020.

But larger renewable energy producers will in future have to become involved in competitive bidding processes for allocating public support for new projects, as the Commission moves the sector towards a more market-based approach.  And the current system of feed-in tariffs, which guarantee renewable producers a selling price for their power, will gradually be phased out. A pilot phase in 2015 and 2016 will allow them to test competitive bidding procedures in a small share of their new electricity capacity.

Small installations will benefit from special regime and can still be supported with feed-in tariffs or equivalent forms of support. Also, the new guidelines do not affect schemes already in place that were approved under the existing guidelines. Aid to owners of existing renewable energy installations will not be affected by the changes, the Commission said. These will continue to receive aid based on existing approved state aid schemes, to safeguard investors' legitimate expectations of returns on existing investments.

The Commission is changing the rules on state support for renewables because it believes the policy has resulted in "serious market distortions and increasing costs to consumers" while supporting growth in the sector. The new guidelines will address this issue, while still allowing member states to meet their environmental targets, said the Commission. It should also lead to lower energy bills for consumers.

"It is time for renewables to join the market," said Vice President Joaquín Almunia who is in charge of EU competition policy, as he announced the changes. "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," Almunia said. "This will contribute to making energy more affordable for European citizens and companies."

A statement by the Commission said that support of renewable energy sources through fixed tariffs in recent years has encouraged the growth of the sector but "this type of support has also sheltered them from price signals and has led to market distortions." The new guidelines "aim to better integrate renewables into the internal electricity market in a gradual way, limiting support to what is truly necessary."

From 2016, renewable generators will need to sell their electricity in the market and be subject to "balancing responsibilities" which will oblige them to compensate for short-term deviations from their previous delivery commitments.

"The system gives Member States flexibility to take account of national circumstances, and even allows them to depart from competitive processes when the outcome might not be optimal," said the Commission. "To facilitate the better functioning of the internal electricity market, the guidelines also promote the use of co-operation mechanisms to facilitate cross-border support of renewable energy where possible and appropriate."

Aid to owners of existing installations will not be affected, said the Commission. "These continue to receive aid based on existing approved state aid schemes, to maintain investors' legitimate expectations on the returns on their existing investments," a Commission statement said. "Aid which has not been notified to the Commission will however be assessed on the basis of the guidelines in force at the moment of granting the aid - i.e. where applicable, the Guidelines on aid for Environmental protection adopted in 2008 - with one exception: the new guidelines will apply retroactively for the assessment of reductions in the financing of renewables for energy-intensive users. The possibility for such reductions was not foreseen in the previous guidelines."

Some energy intensive manufacturing sectors will still benefit from partial state support under the changes, in acknowledgement of the fact that "these sectors support a very high burden from levies charged for renewables support because they are heavy intensive users of electricity," said the Commission. "To ensure that this does not go beyond what is strictly necessary, the aid is partial - companies will have to partially contribute to the funding of renewable," the Commission added.