New Communication on the internal market in electricity and public intervention


Last week the Commission made public a package of documents on the internal electricity market and public intervention, consisting in a Communication[1] and four Working Papers on: (1) public intervention in the electricity market[2], (2) the design of support schemes for renewables[3], (3) the mechanisms of cooperation in renewables[4], (4) demand of flexibility[5] and a document with forms of cooperation mechanisms.[6]

We are mainly interested in the Communication (which is the text that has greater interpretative value) and the Working Document on the design of support schemes, without losing sight of the document on the flexibility of demand as it may be relevant to self-consumption.

First of all, we should clarify that a Commission Communication is a non-binding text which is relevant for interpretive effects and which provides a guideline of how future reforms of the internal electricity market could take place. By contrast, the Communication does NOT state at any time that the supporting schemes to existing renewables must be removed, since this would mean that the abovementioned Communication conflicts with the Renewable Energies Directive.

The Communication contains a number of interesting elements that cannot be extensively developed in this article; for this reason, we recommend a complete reading of the document to anyone interested in the topic. We would, however, like to highlight some elements of the document:

1) The Commission recognizes that renewables have reduced the price of electricity and that its production is beneficial because it does not cause GHG emissions. This statement (so obvious at a European level) still has trouble being recognized in Spain. The Communication literally states that renewables are not listed among the reasons for the high price of electricity. The Commission also recalls its goal of reaching electricity production "almost free" of CO2.

2) When assessing the costs of installations, the capital costs, the operational costs, the maintenance costs and its residues, the network costs and all externalities, including emissions, should be taken into account.

3) During 2014 (we do not know whether before or after the election), new State aid guidelines in Environment and Energy for 2014-2020 will be adopted.

4) Support schemes for renewable made sense when renewable technologies were immature. Now that they are becoming mature technologies, support schemes must be tailored accordingly. Hence, the key criterion is the maturity of technologies. It follows that the support scheme is justified in the case of the less mature technologies.  This is why support schemes for new installations can only be reduced and removed in the case of more mature technologies, while the facilities that are in operation, which need a support scheme to be profitable, cannot be removed or reduced. Without the initial investment in renewable technologies from the leading producers, technological maturity could have not been achieved. It would be unacceptable that those who had invested in the first place and allowed the technological maturity, lost their support scheme and in turn would not be able to compete with the newer plants and more mature technologies.

5) The Communication also emphasizes the control of energy demand for a better functioning of the electricity market. This is why, among other requirements, the promotion of delocalized energy is essential, as is the case with self-consumption. It also clarifies that the production of small-scale, decentralized and non-commercial energy should be encouraged. After the release of these documents, the proposed tax on self-consumption will be even more difficult to justify.

6) In the future, supporting schemes for renewable energies could become an EU competence. We do not know when, but the Communication is beginning to pave the way for a possible “Europeanization of support schemes”. The Commission notes that it is good that a convergence of regimes across States occurs (p.9) and that the unilateral intervention of a Member State can harm companies in neighboring countries. If an adequate generation in the European internal market is achieved, it could save EUR 7.5 bn. a year on average between 2015 and 2030. If efforts were coordinated at the European level, gains between EUR 16 and 30 bn would be obtained between 2015 and 2030. Given this scenario, the Commission presents the "Europeanization" as the most convenient solution. Nevertheless, acceptance by the States of this Commission proposal when adopting the post-2020 regime for renewables remains uncertain . In any case, what does seem clear is that the Commission has grown tired of all the conflicts that national support schemes for renewables have generated and wants to take on more responsibilities in the matter.

7) In relation to the modification of the support schemes (p.14), the Commission considers that the retroactive changes generate damage to investor confidence and that these will probably reduce investment in the sector. The Commission recommends support schemes which are "stable, transparent, credible, efficient and considering the market" support. Indeed, the Commission advised that a premium system should be used in the future instead of the feed-in-tariff. It also recommends public tenders for the allocation of premiums.

In short, we believe that a careful and honest reading of the Commission’s documents demonstrates that some of the headlines in the media, saying that the Commission is approving retroactive cutbacks to renewable, do not correspond themselves to reality, taking into account that this. The truth is that the Commission simply gives some guidelines to support schemes as the renewables mature, but in no case supports a retroactive change It does rather the opposite. The criterion of maturity (an essential piece of the document) is fully reasonable and implies that plants installed at a time when technology was not yet mature should continue to benefit from support schemes.