European Commission threatens feed-in tariffs for renewables

The European Commission has launched a thinly veiled attack on feed-in tariffs and the latest Energy Communication from the Commission threatens to change state-aid rules that currently favour renewable energy. Meanwhile the UK debate is distracted by the arguments surrounding the Government's fantasy new nuclear power construction programme.

The EU Commissioner for Energy, Günther Oettinger has criticised the feed-in tariff used in his own country (Germany) for distorting the market - Apparently he believes that the system of renewable energy subsidies  in Germany is unfair in the context of wholesale power prices being pushed down not only in Germany but also in The Netherlands and Switzerland. One may wonder just what is probelmmatic about wholesale powered prices being reduced, especially given the EU Renewable Directive requiring that 20 per cent of EU energy should come from renewables by 2020.

One also wonders how exactly the renewables target is to be met without special incentive regimes - subsidies - call them what you like - for renewable energy. However, it seems that given two apparently conflicting objectives, that is clearing away 'distortions' in energy markets caused by Government interventions, and the target for renewables, Oettinger has decided in favour of stopping what he calls 'distortions' in the energy market. Coincidentally, of course, this coincides with the agenda of the major electricity utilities and their mainly fossil fuel (plus some old nuclear) portfolios who are concerned that the growing renewables market (almost entirely owned by independent companies in Germany) is depriving them of electricity sales. You can see Oettinger's reported attitude in a news report on Renewables International website, http://www.renewablesinternational.net/eu-energy-commissioner-criticizes-german-energy-policy/150/537/59979/.

You can also see the formal notices from the European Commission in the website

http://ec.europa.eu/energy/gas_electricity/internal_market_en.htm

and specifically, the detailed Communication on:

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:52012DC0663:EN:NOT

Please note the passage:

'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.

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 available. The Commission will encourage in particular solutions that are cost-efficient and promote cross-border integration.'

Currently state aid rules give a clear exemption to Governments to establish and operate feed-in tariffs for renewable energy, but as this passage suggests, this exemption is now under threat. The Commission hints that it favoures some pan-EU certificate-based scheme ('market instruments'). This sort of scheme is well known for being very expensive (like the UK Renewables Obligation), except that it would not be as effective as the Renewables Obligation in building capacity since a) the EU could never agree a strong enough pan-EU single trading instrument (look at the poor showing of the EU-ETS 'market instrument') and b) the whole system would be under the effective control of the major electricity companies who would control the certificates. Independent investment, vital for acheiving the targets and giving competition to the multinationals, would wither.

The Commission says it wants lower prices for the consumer - but what will happen if the Commission gets its way is that more of the energy will come from fossil fuel plant run by multinational companies. The interests of the electricity majors are clear - either the renewables market has to be controlled by them or there should be no significant renewables market.

The only (small) crumb of comfort  in all of this is that the Commission's proposals would not help nuclear power in the UK. Outside of what seems currently to be the unlikely possibility that the UK Treasury would sanction a cost recovery guarantee being handed to EDF (a blank cheque), new nuclear construction seems very unlikely. Of course you wouldn't believe this by reading what is said in the newspapers, but then there are too many people who are paid to be optimistic about nuclear power. Some suspect that the Government will try and hide a 'blank cheque' for nuclear in the so-called 'investment instruments' that can keep financial terms secret - it is very necessary to make an issue out of this  possibility - see the article in The Independent on http://www.independent.co.uk/news/uk/home-news/taxpayer-billions-could-be-secretly-funnelled-to-edf-to-underwrite-cost-of-proposed-power-station-at-hinkley-point-8473810.html and also see the Parliamentary exchange on http://www.parliament.uk/business/publications/hansard/commons/todays-commons-debates/read/unknown/109/

However the 'investment instrument scheme', if it is a secret plot to give back door assurances to nuclear power, looks so hare-brained from a number of angles that the whole thing beggars belief. One problem of course, is that too many people have invested too much commercial and political capital in the public relations fairy tales spun by nuclear supporters over the past few years that they have lost touch with financial and commercial realities - see earlier blogs on this.

But a really major tragedy is that the nonsense about the fantasy 'new nuclear' programme is distracting the attention of British opinion away from the threats to renewable energy programmes. First there is the issue of the lack (as yet) of robust incentives for independent generators in the UK, under the proposed Electricity Market Reform, which are vital to the renewables programme continuing even at its present level of expansion (see earlier blogs). Second there is the very real threat posed by the EU Commission against any renewable energy strategy.