EU calls for market-based initiatives to replace green energy subsidies

The Commission said Wednesday that the revamped guidelines would support member states in reaching their 2020 climate targets while addressing market distortions that may result from subsidies granted to renewable energy sources.

Specifically, the new rules call for a gradual move to market-based support for renewable energy while also offering a boost to energy intensive companies "that are particularly exposed to international competition from charges levied for the support of renewables," the Commssion said in a statement. The guidelines also include new provisions on aid to energy infrastructure and generation capacity to strengthen the internal energy market and ensure security of supply.

Joaquín Almunia, Commission vice president in charge of competition policy, said: "It is time for renewables to join the market. The new guidelines provide a framework for designing more efficient public support measures that reflect market conditions in a gradual and pragmatic way. Europe should meet its ambitious energy and climate targets at the least possible cost for taxpayers and without undue distortions of competition in the single market. This will contribute to making energy more affordable for European citizens and companies."

The Commission added that the remarkable growth of renewable energy in recent years, due in part to public support, has helped to make progress on environmental objectives but also “caused serious market distortions and increasing costs to consumers."

The new regulations, which will go into effect July 1 and remain valid through 2020, address the Commission’s concerns.

Among the guidelines’ key features is the gradual introduction of market based mechanisms such as competitive bidding processes for public support while giving member states more flexibility in considering domestic circumstances. A pilot phase in 2015 and 2016 will allow countries to test competitive bidding procedures in a small share of their new electricity capacity.

The guidelines also call for the gradual replacement of feed-in tariffs by feed-in premiums, "which expose renewable energy sources to market signals." Small installations will benefit from a special program and can still be supported with feed-in tariffs or equivalent forms of support. The Commission said the rules would not affect schemes already in place that were approved under existing rules.

The Commission also demands the reduction of green energy surcharges levied on energy intensive companies in order to better promote the competitiveness of European industry and supports cross-border energy infrastructure to further the single European energy market. The new guidelines include criteria to support projects that improve cross-border energy flows and promote infrastructure in Europe’s less developed regions.

The European government is likewise seeking to "permit aid to secure adequate electricity generation when there is a real risk of insufficient electricity generation capacity." Member states will thus be able to introduce "capacity mechanisms" to encourage producers to build new generation capacity, prevent them from shutting down existing plants or reward consumers to reduce electricity consumption in peak hours.

At the same time the Commission is simplifying procedures to implement aid measures in the field of environmental protection and energy. Specifically, the new rules will make it easier and faster for public authorities to implement measures, such as aid to promote of renewable energies or district heating, clean up contaminated sites or improve energy efficiency in buildings, without having to obtain prior approval from the Commission.