Estonia Won’t Cut Green Subsidies Retroactively, Minister Says

Estonia will not lower subsidies to renewable-energy producers retroactively unless it reaches an agreement with investors, Environment Minister Keit Pentus said.

The ruling coalition partners have agreed that they cannot force a retroactive change in subsidies, introduced in 2007, as it would affect the “fragile” investment climate, Pentus told lawmakers in a question-and-answer session yesterday, according to a transcript on the parliament’s website.

The subsidies would be cut by as much as half from next year under a draft bill which is in the second of three parliamentary readings. The plan was first revealed by Economy Minister Juhan Parts in 2010 to lower costs for consumers, who pay for the subsidies directly through their energy bills.

The move would violate European Union law, the European Renewable Energies Federation lobby group said in February, urging Estonia to withdraw the plan.

The subsidies would drop by as much as 26 euros ($33) per megawatt hour of electricity, according to Brussels-based EREF lobby group. The planned retroactive changes would have a “devastating impact” on renewable-energy producers and represent a “flagrant violation” of EU rules, it said on Feb. 8.

“If the Economy Minister can negotiate with market participants and reach a common understanding, and if the market participants accept such a change, only in this case can it be implemented,” Pentus said. “If such an agreement can’t be made, then the state cannot enforce a retroactive change in the rules. This just wouldn’t be appropriate for Estonia.”

The sharp increase in subsidies in 2007 led to new investment by companies including Fortum Oyj (FUM1V), the second-largest Nordic utility, and Nelja Energia OU, majority owned by Norway’s Vardar AS.

Dalkia

Dalkia International, a subsidiary of France’s Veolia Environnement (VIE), last December sold an 85 percent stake in a biomass-fired cogeneration plant near the capital Tallinn to a local company, citing a change in global strategy. Dalkia purchased the 75 percent stake it didn’t already own in 2009 and said the subsidies were essential for long-term investment plans in September 2010, when Parts first announced his idea.

Pentus also said the Economy Ministry should scrap from January green subsidy payments to co-generation units of state- owned Eesti Energia AS where oil shale and biomass are used as mixed fuel. This would reduce electricity bills by a “couple of percent” and remove preferential treatment for fossil fuel, she said. The Economy Ministry said last month the present plan should continue next year.

Electricity from renewables made up 16 percent of Estonia’s consumption in the first quarter, compared with 11 percent for all of 2011, grid operator Elering AS said last month. The oil shale-fired power units of Eesti Energia received 7.8 million euros in renewable support in the first quarter, four times more than a year earlier, and more than 40 percent of total subsidies of 19 million euros, according to Elering data.

To contact the reporter on this story: Ott Ummelas in Tallinn at oummelas@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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