As of 2017, member states will only fund new renewable energy projects after organising a "genuinely competitive bidding process," according to new EU aid rules in the pipeline.
European regulators have set a 2017 deadline to introduce a new market-based tendering system for funding renewable energy, increasing pressure on EU member states to abandon costly subsidies, according to a draft document seen by Reuters.
Under the new rules, from 1 January 2017, EU member states would only be able to fund new renewable power generation after "a genuinely competitive bidding process" open to all generators. Only "a very limited number" of projects will eligible to win state funding.
Existing 2020 EU energy policy has encouraged a major shift towards renewable power in Europe. Subsidies have been generously handed out, irrespective of market conditions, leading to a storm of criticism from industry and politicians, who say they have inflated energy costs.
The issue is part of a wide debate on energy security, climate policy and the implications for industrial competitiveness at talks held by EU leaders on Thursday and Friday in Brussels.
The European Commission has said subsidies should be used only when strictly necessary and it is seeking to harmonise them across the European Union. Its tougher new rules are expected to be published next month, and to apply from July 1 this year, until 2020.
Germany, the EU's biggest economy, is most affected, as it has pushed for an Energiewende, or shift from nuclear power to renewable sources, such as wind and solar. Lawyers said the July deadline meant it would have to speed up reform of its domestic renewable energy law.
However, it makes an exception for smaller projects, which would, for instance, allow Germany to continue subsidising smaller wind projects without holding a tender.
Lawyers said Germany has effectively been given some concessions, as it nears a deal with the Commission over its waiver of green energy surcharges for its industry, which allegedly breach EU law on fair competition.
It is not clear to what extent Germany might have to recover industrial subsidies paid in the past, which run into billions. This year's industrial discounts on renewable surcharges other energy consumers have to pay are worth just over €5 billion.
Analysts predict a massive back payment would be avoided. "I still do not believe anyone in Brussels or in Germany has any interest in retroactive changes," Jochen Terpitz, a partner at the law firm Simmons & Simmons in Frankfurt, told Reuters.
Today (21 March), EU heads of state gather for a second day of EU Summit talks. They will discuss the bloc’s 2030 energy and climate agenda.
There is a certain momentum on energy during this summit, which is devoted to de-escalating the crisis in Ukraine: In the light of these high tensions, EU leaders are increasingly looking for energy alternatives to decrease their dependency on Russian gas.