(The author is a Reuters market analyst. The views expressed
are his own.)
By Gerard Wynn
LONDON, March 6 The European Commission is
backing a gradual shift away from renewable energy subsidies,
where it must tread a fine line between phasing out support and
It is significant that the European Union's executive
Commission is signalling such a shift after European Union
countries already pared back subsidies.
The Commission will publish this year new guidelines for
support programmes, aiming to curb over-compensation and promote
trade with nations rich in renewable power.
Europe ramped up ambition in a 2009 EU directive which set
each member state a mandatory renewable energy target in 2020.
But growth in solar and wind power has been much faster than
expected, impacting wholesale power markets and swelling
consumer liabilities, as stated by the Commission last June in
its note "Renewable Energy: a major player in the European
The Commission found that technologies were maturing and
would have to survive without subsidies, while some "limited but
effective" support may remain after 2020 for newer technologies.
The EU's renewable energy programme has been successful but
it is right to signal an end to support around 2020.
The EU's 2009 renewable energy directive set binding targets
for member states' renewable energy as a certain proportion of
final energy consumption.
It actively encouraged renewable energy subsidies and
assured state aid approval.
It gave no specific guidelines or timeline for phasing out
support and demanded that member states also guaranteed priority
grid access for renewable power.
The Commission's recent shift follows signs of a conflict
with its other flagship project, for an internal energy market
which aims to erase power price differences between member
Rising renewable power has eroded market incentives to build
conventional gas-fired and nuclear back-up, because of lower
peak wholesale power prices, leading to a renewed focus on
national rather than cross-border capacity amid concerns of
In an extreme example, the Czech Republic has threatened to
block cross-border German wind power to maintain market
incentives for its planned new nuclear power plant.
The Commission's new approach came under the title
"Optimising state intervention: steering the energy mix to low
carbon", in its publication last November, "Making the internal
energy market work".
"Support schemes for renewables - as well as a number of
mandatory rules on priority grid access - were introduced on the
grounds of incomplete market opening, incomplete internalisation
of the external costs of conventional generation, and the early
stage of development of most renewable-energy technologies," the
Commission report said.
"Markets and technologies have evolved since then," it
The Commission has hinted that various advantages for
renewable power enshrined in the directive may be rolled back,
including state aid approval for subsidies.
The original 2009 directive said, in a footnote: "In order
to be able to achieve the national objectives set out in this
Annex (renewable energy targets), it is underlined that the
State aid guidelines for environmental protection recognise the
continued need for national mechanisms of support for the
promotion of energy from renewable sources."
Last November's document said such guidelines were under
"The Commission is in the process of reviewing the
guidelines on State aid for environmental protection to reflect
changes in the technological landscape and EU policy objectives
in the energy sector, while minimising competition distortions
in the internal market," the document said.
"In particular, the revision aims at ensuring that State aid
control facilitates the granting of aid provided that it is
well-designed, targeted, least distortive and provided that no
better alternatives (regulatory, market-based instruments) are
The Commission has also said that renewable power producers
should, in time, provide grid-balancing services where they
would be disconnected when electricity supply exceeded demand,
called curtailment, as required by conventional power.
That would be a shift from the directive, which said:
"Member states shall ensure that appropriate grid and
market-related operational measures are taken in order to
minimise the curtailment of electricity produced from renewable
And in November the Commission published a consultation
which canvassed support for priority grid access. This was was
questioned by the trade body for grid operators, the European
Network of Transmission System Operators for Electricity
(ENTSO-E), which is responsible for managing intermittent power.
"ENTSO-E would note that priority dispatch and access is
also a support and, in their current format, is likely to lead
to inefficiencies with increasing levels of renewable power.
There may be merit in examining this going forward as well," it
said in its response published last month.
The tricky part for the Commission will be guiding countries
between phasing out renewable energy support and deterring
There is a sense that the pace of growth in renewable power
capacity is creating unforeseen and perhaps uncontrollable
For example, many major electric utilities have come out
forcefully in favour of capacity markets where they would be
paid to build reserve capacity, risking a new market distortion.
And several member states have made retroactive cuts in
renewable energy support, for example by increasing taxes on
Several utilities have pushed for an end to renewable energy
subsidies in their responses to the November consultation, from
"at least by 2030" (E.ON ); to "as soon as possible"
(Enel ); and "should be discontinued", implying
immediately (CEZ ).
EU renewable policy after 2020 may depend above all on how
fast technologies can become competitive, given no easy solution
between paying subsidies which are increasingly hurting
consumers and utilities, or else halting support altogether and
risk missing long-term climate targets.
(Editing by Stephen Nisbet)