Green subsidies cleared

The European Court of Justice has ruled that individual member states’ green energy subsidies are legal – even if they skew cross-border electricity sales. Michael Kosmides reports.

Green energy support schemes across the European Union have survived a tough and potentially damaging legal challenge at the European Court of Justice (ECJ), which has ruled such subsidies legal, even if they skew cross-border electricity sales.

EU member states have agreed to increase their energy production from renewable sources. But they tend to introduce support schemes and subsidies that apply only to installations in their territory.

As some spend more on green energy than others, the differences in the subsidies system between the member states affects utilities directly, because it may make it more expensive for them to import power than use home-grown production.

Because this was potentially incompatible with the idea of a border-free energy market, a case was brought at the ECJ by power producer Alands Vindkraft against the Swedish Energy Agency ­Energimyndigheten on the issue.

Alands Vindkraft serves Finland’s Baltic Sea Aland Islands, and also sells power to Sweden. In 2009 it asked to be granted saleable Swedish renewable energy certificates. The Swedish Energy Agency declined, arguing that the company was based in Finland and so could not be granted these subsidies. Alands Vindkraft brought the case to the Swedish administrative court, which in turn asked for the ECJ’s decision on the issue.

Despite a January 2014 opinion by the advocate general of the ECJ that Article 34 of the EU treaty mandates the “free movement of goods” and prohibits such “discrimination” of foreign (EU-based) suppliers, the full ECJ has now found the Swedish support schemes compatible with the renewable energy directive and with EU law in general.

While noting that the Swedish support scheme constitutes a restriction of the free movement of goods because it may hinder imports of green electricity from other member states, the court found the restriction justified “by the public interest objective of promoting the use of renewable energy sources in order to protect the environment and combat climate change”.

The effect of the ruling means that member states are free to continue subsidising green energy as they see fit – even if it disrupts the flow of free and fair energy trades across EU borders. The case is at the core of the discussion about green energy in Europe, with the European Commission pushing for more harmonised subsidies and cross-­border movements of power to solidify a single EU energy market, minimising costs and ­maximising available resources.

Welcoming the ruling, Renewable UK’s external affairs director, Jennifer Webber, told Utility Week that it provides a clarification that “EU member states have the right to limit financial support for renewables to projects within their own national boundaries, and that there is no requirement for them to provide support for projects in other countries”.

This will boost investor confidence in the UK’s wind industry, and in time “could help to keep costs down for the consumer, as there is less financial risk for investors”.

“The court’s clarification is good news for the UK wind market as it provides an extra element of certainty,” said Webber.

Meanwhile, the UK Renewable Energy Association’s senior policy analyst, Mike Landy, said the “ruling gives helpful clarity on the legal status of domestic renewable energy incentive schemes”. There will not be an immediate effect on the British market, but he said that “in time, interconnection and cross-border trading will become more important”. Landy added: “Existing legislation does allow for a wide range of formal co-operation mechanisms between member states, but the UK is currently on 5 per cent renewables, so we’ve a long way to go yet.”

Managing consultant for policy design and evaluation at renewable energy consultancy Ecofys, Corinna Klessmann, said the court ruling allows member states to continue doing what they are doing already. If they were forced to help foreign power producers, they might be deterred from subsidising green energy at all. “We see many countries thinking very nationally when talking about supporting renewables. So they are not really willing to provide subsidies to installations in other countries. It may be a pity, but forcing them to do so would not necessarily create a benefit as they could decide to provide less support or find other ways to exclude installations,” she said.

Many analysts agree that the ECJ ruling brings clarity. A European Photovoltaic Industry Association (EPIA) statement said that “with such a clear confirmation of the validity of the renewable energy directive, the EU court is sending an important signal to investors in photovoltaics, and investors in renewables in general”, giving member states “the full means to live up to their 2020 [directive] national binding targets”.

In similar terms, Justin Wilkes, deputy chief executive of the European Wind Energy Association, said it “will provide added clarity for investors in the wind industry and reinforces stable regulatory frameworks, which are of paramount importance”.

Not everyone is as happy, however. RECS International, a non-profit organisation promoting “an open pan-European renewable energy market” said it was “disappointed” by the ruling. In a statement, it said the “ECJ has allowed the continuation of protectionist electricity support schemes which encourage electricity producers to go for the highest subsidies and not the most cost-efficient new renewables”. In RECS’ view, producers should be allowed “to place wind turbines where the wind blows the hardest and solar panels where the sun shines longest”.

Along the same lines, the European Federation of Energy Traders described the ruling as a “missed opportunity” to help Europe find a more efficient way to support renewables and the “integrity of the single electricity market”, arguing that “a harmonised EU-wide scheme would help the long-term stability of renewable promotion schemes more effectively than national promotion schemes, which, in the past, have even experienced retroactive cuts”.

But the EPIA notes that a ruling favourable to Alands Vindkraft could have “destabilised existing support for renewables” and “triggered a race to the bottom between member states, creating high uncertainty for investors”.