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EU Nations Urged to Overhaul Energy Markets State Support

EU Recommends Nations Overhaul Energy Markets State Support
The debate about state support comes as Germany, Europe’s biggest economy, is looking for ways to reduce the cost of renewable-energy subsidies after deciding to close its nuclear power plants. ge Photographer: Krisztian Bocsi/Bloomberg

Nov. 5 (Bloomberg) -- The European Union presented a set of recommendations for governments to improve their state-aid mechanisms in energy markets, including support programs for renewable energy.

The European Commission, the 28-nation bloc’s regulatory arm, aims to give for member states guidance on public intervention in the electricity market as end-user prices rise. The principles for state support address renewable energy and back-up capacities, which involve mainly fossil fuels, the commission said today in Brussels.

“The ultimate aim of the market is to deliver secure and affordable energy for our citizens and business,” EU Energy Commissioner Guenther Oettinger said in the statement. “Public intervention must support these obiectives. It needs to be cost-efficient and be adapted to changing circumstances.”

The debate about state support comes as Germany, Europe’s biggest economy, is looking for ways to reduce the cost of renewable-energy subsidies after deciding to close its nuclear power plants. The fee that German power-grid operators charge consumers to support wind and solar power has more than quintupled since 2009, helping to make the country’s household power bills the second-highest in the EU.

Germany is seeking to get 80 percent of its electricity from renewables by 2050, compared with about 23 percent now. The EU has binding targets of boosting the share of renewable energy to 20 percent in 2020 and reducing greenhouse gases by one-fifth from 1990 levels.

Investment Decisions

As the renewables sector and technologies mature and costs decline, investment decisions should be driven by the market and not by guaranteed price levels determined by the government, the commission said. Support should supplement market prices and be limited to the minimum needed, it said.

“In practical terms this means that feed in tariffs should be replaced by feed in premia or other support instruments which give incentives to producers to respond to market developments,” according to the statement.

The commission also recommended auctions of renewable energy production to the lowest bidder. That would enable the cost of different technologies to be revealed and stimulate competition not only between different operators and locations but also between different renewable-energy sources, it said.

The Climate Action Network Europe environmental lobby said it welcomed the commission’s efforts to boost regulatory certainty for the renewable industry in Europe, even as it had some reservations on the auctioning plans, which could put small-scale producers at a disadvantage.

Policy Changes

“Retroactive and sudden policy changes have affected grievously the renewables sector and reduced investors’ appetite for this growing and sustainable sector, with investments flowing to other regions,” said Daniel Fraile, Brussels-based EU energy and climate policy officer for CAN.

Today’s communication, which is not legally binding, also includes a set of recommendations for back-up capacities, or gas and coal-fired plants which are flexible enough to be turned on and off whenever needed. Nations should remove any distortions that may prevent the market from delivering the right incentives for investment in generation capacity, such as regulated prices or high subsidies for renewable energy, it said.

“Governments should also ensure that renewable electricity producers react to market signals and promote flexibility on the demand side, for example by promoting different tariffs to consumers and therefore giving an incentive to use electricity at other times than peak times,” the commission said.

To contact the reporter on this story: Ewa Krukowska in Brussels at ekrukowska@bloomberg.net

To contact the editor responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net

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