Renewable energy subsidies that helped spur Europe’s €48-billion-a-year clean energy industry are to be phased out across the continent, under new market-friendly state aid rules announced by the European Commission Wednesday (9 April).

"It is time for renewables to join the market,” the Commission's competition chief, Joaquin Almunia, said in a statement. “The new guidelines provide a framework for designing more efficient public support measures that reflect market conditions, in a gradual and pragmatic way."

Under the new rules, renewable energy subsidies will have to be replaced by market-based mechanisms for all but the smallest of clean electricity generators by 2017, following a pilot phase that will start next year.

Feed-in tariffs will be replaced by feed-in premiums that expose renewables to market signals, while energy infrastructure and cross-border schemes will also to some extent be protected, and 68 energy intensive sectors will be singled out for subsidies.  Aid may also be earmarked for measures to keep the lights on through capacity mechanisms should power cuts threaten.

More generally though, competitive bidding processes will become the rule, forcing power generators to sell electricity on the market with balancing responsibilities for “short-term deviations” from delivery commitments.

EU states will be obliged to use premiums – top-up’s on the going price – as support instruments to integrate renewables into the market.

 The complicated new regulations emerged from an investigation into the market-distorting potential of Germany’s renewable energy subsidies which were intended to help the country’s transition to a low-carbon economy after the Fukushima disaster.

It was premised, Almunia said, on the principle that “Europe should meet its ambitious energy and climate targets at the least possible cost for taxpayers and without undue distortions of competition.”

Free market limitations

In a sign that the Commission’s free market vision had some limitations though, high-polluting industrise such as the chemicals, metals, paper, and ceramics sectors will be allowed exemptions from paying full market premium support to renewable power generators.

One report by Germany’s respected Öko Institute suggests that these opt-outs could be worth as much as €2 billion. But Gordon Moffat, the director-general of Eurofer said that although the new rules were “appreciated,” the Commission’s proposed 15% minimum contribution to renewable subsidies would “lead to a further substantial increase in energy costs”.  He called for a revision of the EU’s 2030 climate and energy framework.

While welcoming the proposals as “a step in the right direction,” the European Aluminium Association also said that to restore Europe’s industrial competitiveness, they would need more access to public revenues.   

“We regret that the new guidelines still enforce additional burden to the industry,” said the EAA’s director-general, Gerd Götz. “The state aid rules must now be accompanied by appropriate and long-term compensation measures for all costs related to climate and energy policies, also beyond 2020.”

For the Green MEP Claude Turmes though, the industry exemptions were in “complete contradiction” with the Commission’s free market principles.

Free ride for energy intensive industry?

“The energy intensive industry is not just the biggest polluter in Europe, it is a ruthless sponge lobbyist,” he told EurActiv. “If you offer them a finger they will take the hand. If you give them that, they take the arm. If you give them the arm, they will devour you in your entirety.”

“Despite consuming up to 35% of electricity, these sectors will get a free ride, with private consumers and small businesses left to foot the bill of the energy transition.”

The Commission’s announcement was made two days after the United Nations Environment Programme reported a 44% plunge in renewable energy investment in Europe, spreading a sense of gloom among clean energy enthusiasts.

One clause in the new rules lowering the cap on the level of allowed support to energy efficiency measures was described as “astonishing” by E3G, an environmental think tank.

“This seems ironic, if not illogical,” the group said. “Only last month, the European Council concluded that energy efficiency was the first step to take to reduce the bloc’s energy dependency and deliver its energy and climate objectives.”

The new rules may, however, make it more difficult for the UK and other governments  to subsidise nuclear energy projects such as the proposed Hinkley Point reactor, according to Greenpeace.

A general block exemption regulation is still being drafted by the European Commission and, analysts say, could have a significant effect on resource efficient technologies and their cost-effective financing.