PM+: New EU state aid guidelines 'maintain' existing system

The revision of state aid guidelines sees commission favour 'maintaining' system that 'ignores progressive shift' toward decentralisation and renewables, argues Alexandre Roesch.

By Alexandre Roesch

24 Apr 2014

On 9 April 2014, the European commission presented its long-awaited new state aid guidelines. Besides the control of aid to environmental protection purposes, energy will for the first time be included in the scope of these guidelines.

You may think that this was the perfect occasion to clarify how member states are supporting different forms of energy, including for conventional and mature technologies. Well, you will have to be patient. The commission is currently exploring more in depth direct and indirect public support to various energy producers. It is actually expected to present a new study on the matter in the coming months. But in the debate about state aid, the attention mainly focused on the support to renewables, which were once again presented one-sidedly as troublemakers.

The commission's press release, announcing the launch of the new state aid regime, reads that support for renewables has "caused serious market distortions" and that, as commission vice-president Joaquín Almunia highlighted, "it is time for renewables to join the market". It is worth taking a closer look at how this underlying philosophy has been translated concretely. In a nutshell, the new rules proposed by the European commission depict a vision of the electricity system where renewables are mainly developed by large, established players. And, do not expect the system to change: If you're generating renewable electricity, you'd better be prepared to be squeezed into pre-existing, non-suitable frameworks.

"By favouring technology-neutral competitive bidding processes as the main mechanism to allocate support, the commission is again thinking large scale"

Let's take a concrete example: The guidelines impose standard balancing responsibilities to all generators "unless no liquid intra-day markets exist". What is presented as a way to integrate renewables into the market is actually, under the current market conditions, discriminatory against variable renewables. Nothing is less technology-neutral than balancing markets and products. These have been designed so as to accommodate the dispatchable nature of large power plants and several regulatory and practical barriers still prevent variable generators from reducing their imbalances to an equal footing with other technologies. Moreover, established players with large and diversified generation portfolios are better placed than new and innovative market entrants to reduce their imbalances.

By favouring technology-neutral competitive bidding processes as the main mechanism to allocate support, the commission is again thinking large scale. Such tendering schemes inevitably come along with risks and transaction costs that small-scale electricity generators simply cannot bear. Even with a 1 megawatt threshold, this measure remains discriminatory. Cooperatives and community projects, for instance, will now be forced to place their bids in a scheme that is much more suited to the largest established energy players. In addition, by considering as matter of principle that renewable technologies with very different characteristics should compete for support, the commission wants governments to pick the most mature and currently cheapest instead of making sure that the different technologies will become cheaper to make up for a healthy mix. Since many member states complained that this ill-designed technology-neutral model would not deliver a technology cost-decline, the commission finally introduced a series of generous derogations.

A last example of this philosophy of squeezing renewables into the old system is the notion of "grid competitiveness", which is meant to become a reference point to phase out support to renewables after 2020. Unfortunately, while technologies like photovoltaics will indeed become competitive on the basis of power generation costs, their market integration and viability mainly depends on an electricity market design which today remains biased in favour of centralised dispatchable power plants.

These examples show that while these new rules are supposedly intended to integrate renewable electricity in the market, they are in fact maintaining in place a system which ignores the progressive shift towards decentralisation and towards more renewables.

To really drive a better market integration of renewables forward, the European commission should focus on the fundamental adjustment of market rules to allow renewables a fair access, instead of forcing them into a market which is simply not fit for them. Until that has happened, claiming that it is time for renewables to join the market would simply be putting the cart before the horse.

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