Europe's green energy faces subsidy shake-up

Wed Jan 26, 2011 12:10pm EST

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* EU draft calls for converging subsidies for renewables

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By Pete Harrison

BRUSSELS, Jan 26 (Reuters) - The European Union looks set to overhaul the way renewable energy projects and power grids are financed, launching a new type of infrastructure bond and converging the EU's tangle of overlapping subsidies.

European leaders will meet in Brussels for a Feb. 4 summit to reconcile an EU goal of getting 20 percent energy from renewable sources by 2020 with a debt crisis that has driven several EU countries to the brink of insolvency.

EU energy commissioner Guenther Oettinger highlighted the difficulties ahead.

"Don't kid yourself -- we don't have the machine to print new money," he told a European Parliament hearing on Wednesday. "The European Investment Bank can help us, but they are not a charitable organisation. Member states... need to look at this in an innovative manner."

The plans to harmonise national subsidies for renewables in the long term has caused worries in Germany, where generous subsidies have led to a surge in green power which now faces a national overhaul. [ID:nLDE70A1K1]

The Netherlands and Spain, where wind and solar power have boomed, are also overhauling support schemes.

A draft strategy paper on financing renewables, seen by Reuters on Wednesday, estimates the EU could save 10 billion euros ($13.7 billion) a year by harmonising such schemes.

Typically, EU states support renewable projects at a national level via a complex toolbox of quotas, grants, tax exemptions and feed-in tariffs.

"We need a greater convergence of national support schemes and to move to a pan-European trade in renewable energy," says the draft, to be launched next week.

"Billions of euros could be saved if member states treated renewable energy as a commodity in a single European market," it added.

Luxembourg politician Claude Turmes said the concept of a tradeable regime for renewables had been proposed and then dropped when the EU formulated its energy strategy in 2008.

"I'm surprised the Commission is re-opening that debate," he said. "Harmonisation through a tradeable regime would actually be costly, more than through national support schemes and via cooperation mechanisms."

PROJECT BONDS

Leaders at the Feb. 4 summit are expected to give EU energy commissioner Guenther Oettinger a mandate to explore innovative ways of financing useful energy projects that companies have ignored or blocked in their quest for profits.

One example would be investment in pipelines to bring northwards a Spanish glut in gas from north Africa -- infrastructure that would benefit European consumers, but holds little allure for the French utilities receiving that gas.

EU sources said the push for innovative financing includes "project bonds", a new initiative launched late last year by Commission President Jose Manuel Barroso.

EU states invested around 35 billion euros in renewable energy infrastructure in 2009, but EU support amounts to just 3.3 billion per year, mostly loans from the European Investment Bank (EIB), the Commission says.

Subsidies are needed for renewables to compete with fossil fuels which, according to the International Energy Agency, receive more than five times more subsidies worldwide. [ID:nLDE6A81BN]

Hydropower, electricity from waste and photovoltaics in the Mediterranean are starting to compete economically with traditional energy sources, but most other renewable sources will need a decade more of subsidies in Europe.

(Reporting by Pete Harrison; Editing by Jason Neely)

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