Commission prepares changes to energy subsidy reform

The European Commission is preparing to retreat on some
elements of reform of state subsidies for renewable energy. The Commission has published a draft version of
guidelines that have set out what kinds of subsidies member states are allowed
to offer their renewable energy industries without falling foul of European
Union rules on state aid.

Those guidelines are supposed to reduce distortions
to the internal market, which have, for example, seen traditional energy
companies in neighbouring countries complain about subsidies in Germany that
prompted excessive production.

The guidelines call for greater co-ordination to take
into account the effects of such policy changes on neighbouring countries.

The Commission put forward an initial draft for public
consultation back in December, but significant changes have since been made to
a version that emerged last week from inter-departmental discussions.

The initial draft required states to have a bidding
process for public subsidies, so that generators of renewable energy would
compete against each other.

Technologies

Whereas the Commission had initially sought to
distinguish between renewable energy technologies that are still in development
and those that are already mature, this distinction has not survived in the
revised draft. The initial thinking was that governments should not be
subsidising technologies that no longer needed assistance in order to compete
against hydrocarbons or nuclear energy. Without a distinction, there is a risk
that more mature technologies will be over-compensated and shut out emerging
technologies from the market. However, lobbyists from the renewable energy
sector claimed that unless the Commission adopted a technology-neutral approach
that treated all renewable the same, regardless of maturity, then rival
renewable energy technologies might harm each other.

The latest draft maintains the Commission's intention
to mandate bidding processes for most subsidies, but introduces a series of
exceptions that member states could use to avoid this requirement. Germany,
which is adamantly opposed to mandatory bidding, has been lobbying against the
proposal, with France, Italy and the UK also opposed.

The revised draft would also delay the start of
restrictions on subsidies, introducing a transitional phase from 2015 to 2017,
when only 5% of renewable energy capacity would require bidding. Wind farms
that generate less than 6 megawatts would not be subject to bidding. The
guidelines are supposed to take effect from July.

Government support for renewable energy is estimated
to have cost the EU more than €30 billion in 2010. The Commission wants to
reduce this by replacing feed-in tariffs with tradeable green certificates.