EU’s Energy Policy: confusion is now complete

The current commission has concluded that FITs for renewables must be banned from 2017 because they distort competition. On the other hand, it has concluded that FITs for nuclear can continue until 2058 because they do not distort competition.

The current commission has concluded that feed-in tariffs (FITs) for renewables must be banned from 2017 because they distort competition. On the other hand, it has concluded that FITs for nuclear can continue until 2058 because they do not distort competition.

Before his nomination, European Commission (EC) president-elect Jean-Claude Juncker said he wanted “to reform and reorganise Europe’s energy policy into a new European Energy Union”. He added: “I am neither in favour of nuclear, nor in favour of fracking, because I think it leads to environmental problems we cannot afford. That is the wrong way”. Moreover, “I want the EU to become the world number one in renewables.”

If these are his priorities for a future EU energy policy, he cannot be satisfied by recent decisions made by the institution he is taking over. In the past year, the current college of commissioners have made unilateral competition policy decisions that seem incompatible with Juncker’s energy objectives. Not since the 1997 EC White Paper on renewable energy has political uncertainty been greater.

Wednesday, 8 October was a remarkable day in Brussels. In the morning, outgoing competition commissioner Joaquín Almunia announced that the Hinkley Point nuclear power station, planned by EDF in the UK, would cost £24.5bn ($39bn) to build €8bn more than the French company had been communicating until then. The total cost, Almunia said, would be 34 bn, or 10.6m per MW.

He added that the £17.6bn feed-in tariff (FIT) that the UK is planning to pay EDF, and the government’s credit guarantee, could not be considered incompatible with EU state aid rules and would not distort competition; and this ruling would not “put any kind of obstacle to the Energy Union project”.

On the same day, the person selected by Juncker to lead that Energy Union, Bratušek from Slovenia, was rejected by the European Parliament in a 112-13 vote. In an extraordinarily bad performance during her earlier nomination hearing, Bratušek had been unable to shed any light on the Energy Union and what she would actually do as EC vice-president in charge of the policy. Thus, it remains an open question what exactly the Energy Union is and how the Hinkley Point subsidy will not be an obstacle to achieving it.

Four commissioners, including Connie Hedegaard (climate action) and Janez Potočnik (environment), reportedly voted against the decision to allow the £17.6bn subsidy, and the Austrian government has threatened legal action against the EC ruling.

Earlier this year, Almunia’s own staff had questioned the level of the FIT, the need for indexation and the credit guarantee. These “have the potential to distort competition and affect trade between member states”, they wrote. The EC also pointed out that the lack of a tender for Hinkley Point could “lead to violation of Article 8 of the Electricity Directive”.

Remarkably, all these concerns had vanished when Almunia presented his decision on 8 October. Even more remarkably, he insisted that an inflation-adjusted FIT for 35 years that starts at £92.50/MWh and reaches £279 in 2058 would not in itself make Hinkley Point commercially viable. For anyone to undertake the project, the FIT would have to be combined with: a credit guarantee; compensation for curtailment; protection from any increase in insurance costs; and compensation for shutdown caused by future political decisions.

Almunia also insisted – and this must come as a surprise to onshore wind developers – that no renewables technology would be competitive under similar conditions: “In all cases, from all perspectives, the support for renewables is higher than for this case.”

That is an astonishing statement, given that from 2017, UK onshore wind will receive an FIT of 90/MWh, which is not gradually adjusted for inflation and which lacks the additional compensation features for Hinkley Point.

Perhaps the oddest statement made on 8 October came from the UK Department of Energy and Climate Change, which said the contract would be offered to EDF only if the government considers it to be “value for money and in line with our policy of not giving support to new nuclear unless similar support is also made available more widely to other types of generation”.

What completes the confusion is that only three months ago, Almunia issued measures banning member states from introducing the same kinds of FITs for renewables after 2017. Those measures also demand that new renewables projects must be subject to tenders, and signal that subsidies to “grid-competitive renewables” would be phased out after 2020.

The current commission has concluded that FITs for renewables must be banned from 2017 because they distort competition. On the other hand, it has concluded that FITs for nuclear can continue until 2058 because they do not distort competition. It will take some effort from Almunia’s successor as competition commissioner, Denmark’s Margrethe Vestager, to explain that logic. She is from a country that pays onshore wind a non-adjusted FIT of 78/MWh (£50/MWh) for ten years.

The outgoing commission keeps insisting that all its efforts on energy and climate policy are intended to ensure investor confidence, stability, predictability and a common energy market. Never has Europe seemed so far from those objectives.

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