Compromise EU paper on renewables is adopted

Commission initiates debate on support mechanisms, fires warning shot on price guarantees

Clear rules must be agreed on the subsidies that EU member states can give to renewable energy if they are to achieve their aim of doubling its output to 12% of total EU energy production by 2010, acting energy commissioner Christos Papoutsis said yesterday.

His comments were contained in a working paper outlining options for harmonising renewables support systems. This replaced a planned directive specifying a phase out of guaranteed price schemes that was heavily opposed by some member states, particularly Germany (ENDS Daily 9 February).

The working paper, which will form the basis for discussions when national energy ministers hold their next meeting in May, concludes that a competitive renewables market can either be created through a directive in the short term or through the operation of state aid and internal market rules in the medium term. However, a spokesperson for the European Commission's energy department said that "while we have been pretty tolerant (of price guarantees) because of the environmental question, this has got to come to an end. Even the defenders of those types of state aid know there needs to be a clear legal framework."

"Although the Commission has not come down formally on either side, we are delighted at this clear signal that competition, with some restrictions over an initial period, is the way forward to promote renewable energy," a spokesman for the European electricity suppliers' association Eurelectric told ENDS Daily.

The powerful German Wind Energy Association, on the other hand, expressed its relief that a reference specifying a three- to five-year transition period towards a free market in renewables was deleted from the final version of the draft. The association credits the "feed-in" system of fixed tariffs for renewable energy entering the national grid as a major factor in having enabled Germany to achieve the largest installed capacity of wind power in Europe.

The report acknowledged feed-in's achievements in Germany, Spain and Denmark, although it noted that Denmark is now moving away from the system. It expressed concern, moreover, that it could lead to a problem of "stranded costs" as prices on the wider market begin to fall. Placing pricing in government hands could limit investor confidence and reduce innovation, the report suggested.

Systems based on quotas and competition, originally favoured in the abortive directive, were also reviewed. The report said that problems over planning procedures meant that numerous successful tenders in, for example, the UK, failed to deliver the contracted capacity, but that it should be possible to design competition-based systems to avoid this.

A third option, being introduced in the Netherlands and Denmark, is based on issuing green certificates to producers of renewable electricity and requiring supply companies to purchase a certain percentage of their needs in this way. A further alternative, the report suggested, could be to introduce a certain level of competition within the context of a fixed premium approach.

Follow Up:
European Commission, tel: +32 2 295 1111; Eurelectric, tel: +32 2 515 1000; German Wind Energy Association, tel: +49 228 352 276.

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