New state aid guidelines take energy support systems slowly in a more market-driven direction

Fortum welcomes the Environmental and Energy State Aid Guidelines published by the EU Commission on 9 April 2014 as a move in the right direction.

​As presented in the guidelines, the criteria for renewable energy support systems and mechanisms to ensure generation adequacy are supportable.

It is important for the functionality of the energy market that a transition is made from fixed generation subsidies to a system where support is clearly tied to the market price of electricity. Additionally, we consider the regulations regarding renewable energy producers’ market obligations, such as the producers’ obligation to sell the electricity they produce directly to the market and that suppliers are subjected to balancing responsibilities, as important. It is also good that support will not be paid for generation when the market price of electricity is negative. A technology-neutral bidding process brings the needed cost-efficiency to support systems.

The biggest drawback in the Commission’s guidelines is related to the long transition periods and the numerous possibilities to deviate from the presented regulations. In fact, the positive changes in the energy market in practice will be minor before the guidelines expire at the end of 2020. From an investment security perspective, it is important that the existing support schemes are not changed retroactively. Instead, in terms of the new support systems, the provisions in the Commission’s guidelines should have been adopted as quickly as possible. A significant drawback, in our opinion, is that small projects with a renewable energy capacity of less than 500 kW have been completely exempted from all market obligations. In practice, the majority of e.g. solar energy generation will remain entirely outside the scope of application of the rules.

While we consider the criteria and the preconditions set for capacity mechanisms to be good and justified, it is unclear how much the ongoing electricity market development can be impacted by these guidelines. Uniform development would require the EU Commission to provide stronger steering than in the currently presented guidelines as well as a sharp focus on e.g. determining the practical implementation of cross-border collaboration in capacity mechanisms. The risk is that the development of the capacity mechanisms will continue to be directed from purely national perspectives.

Fortum considers it positive that the guidelines recognise the competitive challenges of energy-intensive industry and allows sectors that are vulnerable in terms of global competition to receive subsidies for renewable energy costs. However, the risk is that member state-specific support practices distort competition and unreasonably grow the cost burden of households. Because the guidelines will allow the current subsidies to continue until 2019, it offers a good platform to further strengthen the EU’s emissions trading before 2020. With more effective steering impact of emissions trading and carbon emissions prices, it would be possible to phase out renewable energy generation subsidies in the approach to the 2020s.