Federal support for renewable energy in the US makes the system of lumping subsidies on consumer energy bills, common across Europe, look "perverse", argues a top GlobalData energy consultant in a new insight.
27 February 2013
"Whisper it quietly," says Jonathan Lane, GlobalData's Head of Consulting for Power and Utilities, "the US has a more progressive renewable support policy than Europe." In the US, the major federal support scheme for renewables, the production tax credit (PTC), provides a tax break for renewable generators of $c2.2\kWh for 10 years.
The firm's latest insight states, however, that in many European countries, renewable subsidies are loaded onto customers' electricity bills, usually through a tax or sometimes via an electricity retailer obligation. Lane explains: "Whilst this approach confers the advantage of keeping tax subsidies out of the electricity sector, with the competitive market setting the price for consumers, the reality is that it is government intervention pushing prices upwards.
"As energy prices become more politically charged across the world, Europe should take a look at the US. The problem with Europe's policy is growing fuel poverty. Electricity and gas prices increase rapidly against a recessionary backdrop, with little or no wage growth and high food and road fuel inflation. There is, however, a shockingly small amount of policy and data across Europe on fuel poverty and no single definition. In the UK, a fuel poor household is one on which more than 10% of income is spend on fuel (excluding road fuel). In France, it's officially defined as those households that find it hard to pay for their energy and the same is true in Belgium!"
The EU Fuel Poverty Network states that there are 3.8 million fuel poor households in France and the number is rising but unknown in Belgium. In the UK, the Hills report into fuel poverty recommends changing the definition, although under the existing definition there were 4.8 million fuel poor households in 2010. With electricity and gas prices rapidly rising across Europe, countries with a definition and a statistical measure find it hard to keep their assessments up to date.
"There is another perversity from heaping the whole cost of renewable subsidies onto the consumer. Germany has over 1 million solar installations and 42% of the final electricity bill is tax. Italy has 300,000 installations and 35% of the bill is tax. In effect, those who cannot afford solar panels are subsidizing those that can.
"This can't be considered fair, and the complaints are getting louder," says GlobalData's energy consultant. "The reason that governments subsidize renewable generation is a social good – aimed at reducing carbon emissions and reducing fossil fuel import dependency and it makes far more sense for these goals to be delivered via general taxation. Under the US system those most able to pay for renewables do so, under the European system those least able to afford it pay. Something needs to change, and quickly."