EU Commission Calls for Predictable, Cost-efficient and Market-integrating Support of RES – Some Potential Consequences for Germany

Supporting renewables in a predictable, cost-efficient and market integrating way that does not hurt investor confidence by making retroactive changes, this in a nutshell seems to be the stance the EU Commission takes in its new Communication “Delivering the internal electricity market and making the most of public interventions”.

1. Commission Guidance on Future RES Support

With the increasing maturity of renewable energy technologies and declining costs, RES have to be gradually subjected to market forces, the Commission says, adding that “any support that is still necessary should therefore supplement market prices, not replace them, and be limited to the minimum needed”. The Commission goes on to explain what this means in practice, i.e. “phasing out feed in tariffs which shield renewable energy producers from market price signals and move towards feed in premiums and other support instruments, such as quota obligations, which force producers to respond to market prices”. It also invites Member States to grant support through genuinely competitive allocation mechanisms such as tendering procedures.

Furthermore the Commission calls on Member States to render support systems more consistent with the EU Emissions Trading System (EU ETS) and to ensure reduced support when EU ETS carbon prices increase, e.g. with floating feed-in premiums.

The Commission also reminds Member States that “local content rules” or similar territorial constraints on the use of particular technologies, equipment or feedstock for production of electricity might not be in line with the EU acquis.

Focusing public intervention on research and development for emerging technologies is seen as crucial.

“Small, currently non-commercial, decentralised production such as from individual households may need to be supported in specific ways”, the Commission says.

“In addition to public intervention to promote RES electricity, balancing obligations, the design of balancing markets, the use of interconnections, grid connection charges and grid use rules can be designed in a technology-neutral manner and allow appropriate cost signals to be passed to all major producers and users”, the Commission points out, inviting Member States “to apply cost minimising methods (such as competitive tendering for support)”.

2. Consequences for Reform of German Renewable Energy Sources Act (EEG)

A key aspect of the Commission guidance for Germany is the recommendation to phase-out feed-in tariffs as they are currently provided for in the German Renewable Energy Sources Act (EEG). They are paid for a period of 20 calendar years, as well as for the year in which the installation was commissioned (cf. Section 21 para. 2 EEG).

In view of surging EEG costs for consumers over the past years, the currently still acting government had already proposed an EEG amendment and announced a long-term overhaul in February 2013, which failed to get support by the federal states that are mainly ruled by opposition parties. Following the Federal Election in September 2013 a new coalition government has to be formed. The most likely candidates the conservative CDU/CSU sister parties (who emerged as the winners of the election) and the Social Democrats are in the process of discussing a coalition agreement and reportedly want to agree on a reform of the EEG by Easter 2014, so that the amendment can enter into force in 2015. While all three parties have made it clear already prior to the election that EEG costs have to be curbed, it is not yet clear what steps the potential partners plan to take.

Prior to the election the SPD had mainly favoured a reduction of the electricity tax as a means of reducing the burden on consumers. The above mentioned proposal for an EEG amendment put forward at the time by the CDU/CSU and their then coalition partner, the FDP, already wanted to oblige EEG power plants that started operating as of 1 August 2013 to market the electricity themselves (mandatory direct marketing), except for plants with a capacity of below 150 kW. Operators should receive a market premium that should no longer contain a management premium that is part of the direct marketing premium pursuant to Section 33g EEG (Under the presently applicable EEG direct marketing is already an option, albeit an option which shields operators more or less against market forces).

The Commission’s demand to make RES support systems more compatible with the EU ETS has to be seen against dwindling prices for emission allowances under the EU ETS, which may not provide the desired incentives to invest in climate change. Hence the Commission had submitted in 2012 a draft amendment to postpone the auctioning of 900 million allowances from 2013-2015 to later in phase three of the EU emissions trading system, which ends in 2020. Eventually the European Parliament backed the emission allowance freeze under certain conditions in July 2013. The European Council still has to decide.

The previous government’s opinion on the backloading proposal was split with Conservative Environment Minister Mr Altmaier supporting the plan and his Liberal cabinet colleague Economics Minister Philip Rösler opposing it for fear of rising carbon prices for the industry. Unlike Mr Altmaier and Chancellor Merkel, some CDU party colleagues are, however, also opposed to the backloading proposal. North Rhine Westphalia’s Minister for the Economy Garrelt Duin (SPD) recently also voiced his opposition. Yet is seems as if the chief negotiator’s of the coalition talks for the Conservatives and the Social Democrats agreed to move towards the Commission’s position, as Frankfurter Allgemeine Zeitung (FAZ) reports.

FAZ also writes (as well as numerous other media sources) that the potential coalition partners are to meet with the EU Commissioner responsible for competition, Joaquin Almunia, concerning the partial exemptions from the renewable energy surcharge (EEG surcharge) for large energy-users pursuant to Sections 40 to 44 EEG. In July 2013 the magazine Der Spiegel had reported that the EU Commission was to open an official investigation under EU state aid rules into said provisions. Later reports suggested that the Commission was still continuing its preliminary investigation. Recent media reports claimed that the potential CDU/CSU and SPD coalition partners had agreed to strike certain industries from the list of companies that can apply for an EEG surcharge limitations.  The acting environment minister Mr Altmaier, who will travel to Bruxelles with Hannelore Kraft (SPD), the state premier of North Rhine-Westphalia, to discuss energy questions, wanted to defend the EEG reductions, MDR says.

Concerning the Commission’s demand to introduce balancing obligations for RES electricity, it appears as if an EEG overhaul will introduce greater obligations. In its election programme for the September election the SPD said renewables had to take greater responsibility for stable grids (cf. page 38). The same applies for the CDU/CSU (cf. page 29 of the election programme).

Source: EU Commission Communication “Delivering the internal electricity market and making the most of public intervention”

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