Feed-in tariffs for small-scale renewables are to be gradually replaced by feed-in premiums, which expose recipients to the market, while larger renewable schemes are subjected to competitive bidding processes.
The European Commission rules also encourage support for cross-border infrastructure and allow for member states to introduce capacity mechanisms and levy exemptions for energy intensive industries.
Competition commissioner Joaquín Almunia said: “It is time for renewables to join the market. The new guidelines provide a framework for designing more efficient public support measures that reflect market conditions, in a gradual and pragmatic way.
“Europe should meet its ambitious energy and climate targets at the least possible cost for taxpayers and without undue distortions of competition in the Single Market. This will contribute to making energy more affordable for European citizens and companies.”
A statement from the Commission said “remarkable growth” of renewable energy in recent years had “helped to make progress on environmental objectives” but caused “serious market distortions and increasing costs to customers”.
Nina Skorupska, chief executive of the Renewable Energy Association, said it was “a big risk” to rely on the “untested theory” that competitive mechanisms would deliver results at a lower cost to the consumer.
She added: “Policies which pay developers a fixed price for their power have been shown to work and deliver a major increase in renewable electricity – up to 15% last year.”
Environmental think-tank E3G said the Commission had missed opportunities to steer member states towards a more resource-efficient and low carbon economy.
It lowered a cap on the level of allowed support to energy efficiency measures, a move Manon Dufour, head of E3G’s Brussels office, described as “astonishing” and “illogical”.