Only renewables can create an integrated, competitive EU energy market
The European Commission’s state aid decision on 9 April has put renewable energy support schemes in the firing line, and threatened attainment of the 2030 climate and energy goals, even though renewable energy has created – and not obstructed – competition, writes Martin Schoenberg.
Martin Schoenberg is head of policy at Climate Change Capital, an environmental asset manager and advisor.
Is there really a contradiction between national-level state intervention to promote renewable energy and the internal market for energy? Depends on how you look at it. I would argue there is not.
It is woven into the DNA of the European Union that state subsidies are in principle not allowed – unless you present a justification for why it is necessary. After all, one of the EU’s objectives is to encourage free trade between its members - a level playing field meaning that no economic operator is given an undue advantage.
But the basic treaty provisions that govern state aid were established in their current form in 1992, way before climate change rose to the priority for the highest levels of government that it is today. There is thus a vital area where state intervention should be allowed: climate change and the use of renewable energy.
Subsidies can actually create, rather than obstruct, competition. Last December, Swiss Bank UBS released a report that demonstrated how serious the challenge is that the utilities are facing from decentralised power generation: it has already undermined their business prospects, and their market capitalisation. Renewable energy has brought tremendous competition and disruptive innovation to European energy markets – it is absurd to say it is hindering competition.
The race to enable technologies, such as onshore wind and solar PV, to thrive on the market without subsidies is nearly over. Let us continue the support for the last part of the marathon. Other technologies, such as offshore wind, will need continued support if we are to achieve decarbonisation. Subsidies should be reduced gradually to reflect cost reductions, but there is no reason to radically change successful support schemes at this stage.
I have trust in the ability of policy-makers to set support levels at the right level. There has been over subsidization in the past – but policy-makers have learned from past mistakes.
There is a danger that the European Commission is now modernising the state aid guidelines without constructively addressing what it sees as a contradiction between government intervention at the national level and an integrated energy market. Rather than decelerating the development of low-carbon energy sources, the state aid guidelines should make the completion of the internal electricity market and the achievement of climate objectives mutually reinforcing priorities.
Renewable energy does not destroy the internal market for energy – it needs it more than any other energy source. If policy-makers rise above a purely national view of security of supply, they will understand that better interconnection and integration of wholesale and balancing markets are an indispensable precondition for a cost-effective transformation to renewables.
State aid guidelines should require member states to fully utilise the potential of the internal market for energy when shifting to renewables, but they should not interfere in the design of national support schemes that are increasingly converging between member states anyway. The internal market and climate protection can strengthen each other. It just depends on how you look at it: from a short-term perspective or in the long run. I think we should opt for the long run.