EU Guidelines Regarding Renewable Energy — Harmful & Useless

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Originally published on Lenz Blog.

The EU Commission has adopted a useless and harmful Communication titled “Guidelines on State aid for environmental protection and energy 2014-2020“. Here are a couple of  remarks.

1. How To Work Around the Useless and Harmful EU Commission Guidelines

These guidelines are on “State aid”. Therefore, they don’t apply to a feed-in tariff system like the German one that isn’t State aid in the first place.

It would have been helpful if these guidelines discussed the relation between feed-in tariffs and State aid, so as to enable Member States to steer clear of anything that triggers application of these useless and harmful guidelines.

Unfortunately, the guidelines offer no such discussion. The document has a section on “scope of application”. The words “feed-in tariff” are not to be found in that section. Nor do these words appear anywhere in the section on renewable energy (section 3.3).

The only place this term shows up is at Paragraph 19-21, in the definition of the term “operating benefit”. That reads:

´operating benefit´ means, for the purposes of calculating eligible costs, in particular cost savings or additional ancillary production directly linked to the extra investment for environmental protection and, where applicable, benefits accruing from other support measures whether or not they constitute State aid, including operating aid granted for the same eligible costs, feed-in tariffs  or other support measures;

I have no idea what exactly that is supposed to say. That sentence is much lacking in clarity. But clearly the last part assumes that feed-in tariffs may constitute State aid, or may not (“whether or not”).

They got that right. Under Court of Justice case law Member States can mess up and build their feed-in tariff law as State aid (like France did), which triggers application of these useless and harmful guidelines. Or they can successfully avoid such a mistake, and avoid this Commission power grab.

It remains to be seen if there is a fight at the EU Court of Justice between Germany and the Commission over this. And it remains to be seen if the Commission succeeds in dictating their useless and harmful ideas about feed-in tariffs to the German legislator. And then it remains to be seen if this act, which is ultra vires, stands to a challenge before the German Federal Constitutional Court.

As far as I am concerned, the German feed-in tariff is not State aid. Therefore, these useless and harmful guidelines do not apply in the first place.

2. Increasing Cost of Renewable Energy

The Commission seems to be motivated by a desire to decrease the cost of the transition to renewable energy.

Unfortunately, the ideas they propose will work in the exact opposite direction.

The German experience with over ten years of feed-in tariffs shows one thing. There is not much risk building a project  under a feed-in tariff. Investors know exactly what return they can expect.

That point is very important for reducing cost. Capital costs (interest) will go up with more risk. And capital costs are the main cost factor for renewable energy. Once you have your solar panels or wind parks deployed, the fuel is free and operating costs are very low.

The risk for investors will go way up under the “competitive bidding process” the Commission favors. In such a competition there will be losers. And of course small scale citizen projects, which have been essential to the German renewable transition, won’t have the resources to participate in those bidding processes in the first place.

The risk for investors will also go up under the idea of paying premiums over market prices (Paragraph 125 of the Communication). Selling electricity directly to the market brings the new risk of not finding a buyer. And it of course adds new marketing costs, which again will be difficult for small citizen projects.

3. What Germany Should Do

There are several possible courses of action to deal with this power grab.

One is of course to fight the EU Commission at the European Court of Justice. I think the German government should defend the right of Member States to decide on their energy policy, and strongly resist this illegal Commission power grab with full force.

Another one is to actually introduce a State aid system for renewable energy on top of the existing feed-in tariff, which is not state aid.

Find a modest amount of public funds, let’s say one million euros. Then pay those out in “premiums” to installations of geothermal electricity generators, which is still a very small sector in Germany. Of course keep the feed-in tariff payments (not from public funds and not State aid) in place as well.

There would be two points in building such a system. One would be a contrast to the feed-in tariff system, which is not state aid. And the other one would be to empirically study, as a pilot project, if there is any chance that the model the Commission favors will be of any use for getting things done faster in the geothermal sector.

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Dr. Karl-Friedrich Lenz

is a professor of German and European Law at Aoyama Gakuin University in Tokyo, blogging since 2003 at Lenz Blog. A free PDF file of his global warming science fiction novel "Great News" is available here.

Dr. Karl-Friedrich Lenz has 67 posts and counting. See all posts by Dr. Karl-Friedrich Lenz