European energy market at crossroads

EU Commission's guidance package, published on 5 November 2013, pursues the original goal of a common, well-functioning internal energy market.

​During the past years, Europe has witnessed a very rapid growth in renewable energy generation in order to meet the climate targets. The vast majority of this generation is based on subsidies. Consequently, ill-designed subsidies for renewable energy have diluted the competitiveness of non-subsidised assets and led to higher costs for customers even though the market price of electricity has decreased. Since renewable energy production is often intermittent by nature, many countries are forced to start planning the introduction of capacity mechanisms in order to keep the non-profitable but indispensable back-up capacity running.

The EU Commission has today published a guidance package dealing with various public interventions in the energy market, focusing on renewable energy subsidy schemes and capacity mechanisms. This non-binding guidance is closely linked to the forthcoming revision of the energy and environment state aid guideline package, which will establish legally binding rules for various support schemes in the energy sector.

A functioning energy market is market-driven, not based on subsidies

We might have the last moments at hand to pursue towards the original goal of a well-functioning and fully integrated internal energy market for the EU where investments are driven by price signals and not subsidies. We believe that subsidy-based electricity production is not economically sustainable in the long term. Decarbonisation requires investments, and money is not allocated to sectors where investment costs cannot be covered with sufficient return. Furthermore, policies pursuing decarbonisation must exploit the internal market as otherwise the cost would be too high deteriorating the competitiveness of European economy.

Fortum therefore welcomes the Commission's guidance package. Although non-binding, we find it very useful in terms of assisting member states to opt for support mechanisms which are least detrimental to the development and functioning of the internal energy market. The forthcoming state aid guidelines will, however, set legally binding criteria according to which energy investments and generation can be supported, be it renewable energy or capacity payments. The Commission is expected to publish the state aid guideline draft for energy and environment by the end of this year.

Background information:

What is the Commission's guidance package about?
- The package published today (5 November) called "Optimising state interventions to make electricity system more efficient" gives political guidance for various subsidy schemes and capacity mechanisms in the energy market
- This guidance package in non-binding but closely linked to the forthcoming revision of the energy and environment state aid guidelines, which will be legally binding.

What happens next?
- EU member states do not have a legal obligation to follow the guidance but the goal is to assist opting for support mechanisms which are least detrimental to the development and functioning of a market-driven internal energy market
- EU Commission will prepare more detailed guidance on certain issues and might come up also with legislative proposals at later stage
- The legally binding EU state aid guideline which will establish legal framework for energy sector state aid will be published later this year. There will be a six weeks consultation on this draft guideline. The final state aid guideline will be published before summer 2014 and it will be applicable until the end of 2020.