EU Court upholds national renewable subsidy schemes in surprise decision

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In a rare event, the EU Court of Justice has overturned the opinion of its own Advocate-General to rule that member states are not obliged to open up their national renewable subsidy schemes to producers in other countries. The decision was welcomed by renewables producers and member states such as Germany, which have generous subsidies in place. But it was lambasted by others, such as RECS International, an organisation of market players, including the likes of Eon, RWE, Vattenfall and Enel, which promotes pan-European renewables trading. They regard it as a major missed opportunity to harmonise energy legislation in Europe. Is this the latest blow to the EU internal energy market? Sonja van Renssen reports from Brussels.

The EU Court of Justice was as unequivocal in its final ruling as its Advocate-General had been in his opinion: yet the two came to radically different conclusions. On 1 July, the Court ruled that the public interest objectives of combating climate change and protecting the environment justify keeping national renewables subsidy schemes strictly national. But Advocate-General Yves Bot used exactly the same public interest argument back in January to recommend that national schemes are opened up to producers in other member states.

At the time, Energy Post wrote about the potential end of national subsidy schemes, national energy policies and the final triumph of the integrated EU energy market. The 1 July ruling is no less a landmark than if Bot’s Opinion had prevailed: it reaffirms the EU’s current policy framework, which gives member states legally-binding renewables targets for 2020 and full control over subsidy schemes to meet them. The Commission welcomed the ruling and the certainty it provides for renewables investors, while noting it still wants to see renewables policies and subsidy schemes converge more in future. 

“The Commission welcomes the ruling and thus investor certainty [...] It will strive to achieve more convergence of renewable policies in the EU and a Europeanisation of renewable energy support systems in the context of the Internal Energy Market and the 2030 Framework.”
European Commission, 1 July 2014

The case which has just been decided is that of tiny Finnish wind power producer ÅlandsVindkraft versus the Swedish Energy Agency. In 2009, Ålands Vindkraft, which sells its power to Sweden, asked the Swedish Energy Agency (Energimyndigheten) to be granted renewable energy certificates. The Agency refused on the grounds that Ålands Vindkraft is based in Finland. The company went to court in Sweden and the Swedish judge referred the case to the EU Court.

Justified discrimination

What it came down to was a perceived conflict between the EU’s 2009 Renewable Energy Directive and the EU Treaty. The 2009 Directive categorically gives member states full control over national renewable subsidy schemes. It says they are allowed to cooperate with other member states to set up cross-borderschemes if they wish, but they are not required to do so. Ålands Vindkraft argued however, that the Swedish decision broke the rules of the EU Treaty on the free movement of goods and that it discriminated against foreign electricity imports.

In the end, both the Advocate-General and the Court concluded that yes, Sweden is allowed to exclude foreign producers from its green certificates scheme (as per the 2009 Directive) and yes this is indeed discrimination under article 34 of the EU Treaty. Where they differ, is on whether this discrimination is justified. The Advocate-General said no: if renewables subsidies are meant to protect the environment, how could subsidising renewables imported from other countries undermine this effort? He rejected the notion that it is difficult for Member States to determine the origin of imported electricity and that opening up subsidy schemes might disrupt them – governments are free to limit subsidies as they wish.

However, the final Court ruling turns this logic on its head, arguing that the discrimination is justified because of the role of renewables in tackling climate change and protecting the environment. “It must be acknowledged that the objective of promoting the use of renewable energy sources… is in principle capable of justifying barriers to the free movement of goods,” the Court writes. It goes on to admit that at first glance, the environmental and climate goals could be met with renewable energy produced anywhere in the EU but then notes: “EU law has not harmonised the national support schemes for green electricity [so] it is possible in principle for Member States to limit access to such schemes to green electricity production located in their territory.” It quotes the 2009 Renewable Energy Directive: it is essential for Member States to be able to “control the effect and costs of their national support schemes”.

The Court also defends the production- rather than consumption-based approach to renewables support, by noting that “the green nature of the electricity relates only to its method of production” and the “systematic identification at the consumption stage of green electricity is difficult”. Member state renewable energy targets for 2020 are set out in terms of production, not consumption, the Court adds.

Cementing achievements

Renewables representatives and environmental campaigners welcomed the ruling with open arms. Their first reaction – like that of the Commission – was that it would reassure investors.

The Court’s clear confirmation of the validity of the Renewable Energy Directive is an important signal to investors. The European legislation for renewables remains as solid as ever, and Member States have the full means to live up to their binding targets.
Frauke Thies, European Photovoltaic Industry Association (EPIA) Policy Director 

The big fear among renewable energy advocates had been that a ruling the other way would throw the entire 2009 Renewable Energy Directive into doubt. “In 2009, member states signed up to binding national targets for renewables because they could design support schemes as they wished,” says Claude Turmes, a recently re-elected Green MEP at the European Parliament and rapporteur (lead MEP) for the 2009 directive when it was negotiated. “By opening up the question of support schemes you would indirectly open up the renewables directive and binding national targets.”

The second big worry was that existing support schemes would simply implode under mandatory Europeanisation. “Forcing member states to open up their support schemes to imports could have led to cherry picking and a race to the bottom,” says Frauke Thies from EPIA. “Installers would of course ask for support where it is highest, and Member States would have had pressure to lower their support for it to become meaningless.”

Others take the opposite view. RECS International, which is backed by energy companies such as Eon, RWE, Vattenfall, GDF Suez, Enel and Dong, said it was “disappointed” with the 1 July ruling. It imagines a pan-European renewables market with solar panels where the sun shines and wind turbines where the wind blows. The market’s currency would be Guarantees of Origin (GOs), or certificates per unit of electricity that attest to how it was produced. Subsidies for renewables would be focused on where they are consumed, not produced, through tax rebates for example.

“The ECJ [European Court of Justice] 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.”
RECS International, 1 July 2014

Cost-efficiency

The RECS narrative is one of cost-efficiency and it is a familiar one that also runs through all of the Commission’s climate and energy policy proposals today. In welcoming the Åland ruling, the Commission drew attention to the “evolution of support mechanisms for renewables to more cost-effective and market-based schemes”. Its new energy and environment state aid guidelines, which also entered into force on the 1 July, seek to make renewables support more competitive. Commission officials have emphasised cost-efficiency in the 2030 climate and energy debate, arguing for a central role for the carbon market in this light.

But “cost-efficient” can mean different things. Thies for example argues that as long as energy markets themselves are not harmonised – electricity prices, grid connection charges, administrative procedures and costs, capital costs, etcetera, vary substantially across Europe – a one-size-fits-all approach to renewables would result in investments in those areas where the sum of these conditions seems most favourable – not where the sun shines or wind blows. She adds that a balanced regional spread of renewable power generation is a better fit for system efficiency and grid stability.

Mario Ragwitz from the Fraunhofer Institute in Germany argued at a conference on feed-in tariffs in Brussels last autumn that even with full harmonisation of subsidy schemes, grid limitations would still lead to an unequal deployment of renewables, unequal electricity costs and raise the total energy bill for Europe.

The Commission’s agenda is Europeanisation and the Ålands ruling does not change that. There are already perfectly well worked out templates for member state cooperation on renewable energy. This was foreseen in the 2009 Directive – on a voluntary basis – and the mechanisms were further developed by the Commission in guidance on public intervention in the internal energy market last year. The options stretch from “on-paper” statistical transfers of renewable energy to physical cable transfers to real joint subsidy schemes. The Commission’s guidance sets out how to deal with all the thorny issues of making sure that costs and benefits – to local economies as well as to renewables targets for example – are fairly distributed across borders.

The problem with all this is that member states have almost completely failed to use it. Only Luxembourg and Italy ever foresaw a need for cooperation in the first place, back in 2010, when all member states were required by the 2009 directive to draw up National Renewable Energy Action Plans. Only Sweden and Norway have set up a bilateral “joint support system”. The only plan for the physical transfer of electricity – from Ireland to the UK – has stalled.

The mechanisms for a more European energy market are there, but they’re not being used. Advocate-General Bot offered the fleeting prospect of a legal hammer to force them through. Instead, policymakers will have to do their job and create demand for renewables in 2030 that forces member states to look past the end of their own nose.

“We have understood the warning shot and know that Member States and the European Commission swiftly need to advance to the completion of the EU internal energy market, to avoid further litigation. In the long-term, Germany needs a European electricity market design.”
Angelika Niebler, Co-Chairman of the CDU/CSU parliamentary group in the European Parliament

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