Time for renewables to get competitive – are we ready?

The EU is changing the rules on support for renewables, so it’s time to pay attention and make sure you don’t miss out as renewable energies are exposed to greater market forces.

In April 2014, the EU announced changes in the rules that govern financial support for developments in energy generation. The aim is to strengthen renewables technologies by exposing them to the bracing currents of market forces.

Commission vice president in charge of competition policy, Joaquin Almunia, commented: “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.”

One of the main reasons behind this change in the rules is a recognition that support for renewables has created distortion in the energy market, as well as pushing up prices for householders who are footing the bill for grants through their energy bills. The new guidelines come into force in July 2014 and will last until 2020.

EU and national state support for renewables means that these technologies have been protected from fluctuations in the market. But the various incentive schemes seem to have had their desired effect, because the EU says we are set to meet the 2020 target on using renewably-generated energy. However, the EU does not want to create a distorted market, and must now put renewables under the same conditions as other energy sources.

From the 1st July 2014, the EU Commission will be checking over all proposed national support mechanisms for renewables. Anyone on an existing tariff will be safe – those will not be changed. However, from the 1st January 2016, any new support mechanisms for renewables will have to be “market based”.  

For most new projects this will mean aid is handed out on the basis of a competitive bidding process, although there are exemptions for small projects. Somewhat controversially, some ‘energy intensive industries’ will be exempt.

Germany has already made alterations to its renewables incentives schemes to encompass this new market-focused approach. And the ERM scheme being developed in the UK is heading down a similar route.

The last time the UK government changed an incentive scheme (the feed-in-tariff) it was done so quickly that the market did not have time to prepare. As a result many businesses had to abandon photovoltaic technologies altogether. Not a positive experience for anyone concerned.

This seems a more measured approach, but it is one that readers of MBS should watch carefully. The new guidelines will walk the fine line between making renewables compete with traditional generation and continuing to help change market behaviour. Ultimately however, there will come a time when the incentives are over – and those whose businesses currently depend on these need to be prepared for that time. 

Karen Fletcher is Director of Keystone Communications

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