New renewable energy State Aid Guidelines: relief for large scale power but concern for smaller projects

Final Guidelines much improved on previous proposals, but still pose serious risks to UK Feed-in Tariffs

The outcome of the European Commission's review of State Aid Guidelines for renewable energy between 2014 and 2020 was published yesterday [1]. The Commission has reviewed the Guidelines to move renewables support programmes towards competitive allocation mechanisms, such as auctions. The REA and STA have been working with Government and fellow trade associations to ensure the Guidelines do not adversely impact on UK renewables.

REA Chief Executive Dr Nina Skorupska said:

"This is a huge leap into the unknown. Policies which pay developers a fixed price for their power have been shown to work and deliver a major increase in renewable electricity – up to 15% last year. These new Guidelines are based on economic modelling which suggests that competitive mechanisms will deliver equally good results at lower cost to the consumer. We support measures to reduce policy costs as renewables continue their journey towards price parity with fossil fuels. But putting so much faith in untested theory is a big risk, especially when the UK is in such desperate need of new capacity."

Much improved

The original proposals, published in December, could have forced the Renewables Obligation (RO, for large scale power projects) to close to new applications earlier than the 2017 date that Government, industry and investors have been working to. They were also ambiguous on the treatment of State Aid for renewable heat and transport. These issues have been resolved in the final version, thanks in large part to the constructive engagement of the European Renewable Energies Federation, several UK industry associations and the Department of Energy and Climate Change [2]. However, Feed-in Tariffs (FITs, for small scale electricity projects) are likely to require significant changes to comply with the new Guidelines.

REA Chief Executive Dr Nina Skorupska said:

"We very much appreciate the support shown by the Government in working with industry to achieve significant improvements over the previous proposals. We need to continue to work together on interpreting and implementing the Guidelines to ensure they achieve their aim of reducing policy costs, but without impacting on the ability of renewable energy to deliver clean, secure energy at all scales that creates jobs and benefits communities."

Risks for Feed-in Tariffs

Currently, UK FITs are eligible for renewable electricity projects up to 5MW, the size of a large biogas plant, a medium hydro system or a small wind or solar farm. If a significant change is made to the FITs scheme, the whole scheme will need to be brought in line with the new Guidelines. This would exclude all 1MW+ projects from the existing FITs scheme (except onshore wind, where the FIT threshold could actually increase to 6MW). Under this scenario, non-wind projects over 1MW would have to claim support through a competitive process, such as Contracts for Difference with auctions. The Government's existing CfD scheme is only eligible for projects over 5MW, so there could potentially be a policy void for all non-wind projects between 1MW and 5MW. In any case, CfDs are not well suited to the farmers, community groups and businesses developing projects at this scale. This could have major implications for the Government's Community Energy Strategy [3].

However, the Guidelines do provide for exemptions, e.g. to support new technology, achieve diversification, or overcome grid and system costs. The UK Government's interpretation of these exemptions will significantly affect the ability of farmers, businesses and community groups to operate within FITs.

REA Chief Executive Dr Nina Skorupska said:

"Farmers, businesses and community groups have become important participants in the UK electricity supply thanks to the simplicity of the Feed-in Tariff. It has also enabled electricity-intensive companies to save money by supplying their own clean power. These new players in the energy mix are unlikely to be able to make new projects work under Contracts for Difference. We hope the Government will be able to support this diversification in the energy mix through the State Aid Guidelines exemptions, not least so that it can fulfil its exciting new community energy ambitions."

STA Head of External Affairs Leonie Greene said:

"The Commission advocates technology-neutral auctioning and clearer moves towards open competition so it makes no sense at all that they themselves have discriminated against on-site solar power by limiting Feed-in Tariffs for solar to 1MW while wind can secure 6MW. Solar power is exceptionally well suited to on-site self-supply and the UK has recently announced a vital push on large solar roof schemes serving businesses, communities and public buildings. It is highly efficient for the grid to use solar power when it is generated, at the point of use.

"This is an illogical decision by the Commission which shows unjustified technology bias, serves a big utility agenda and risks damaging one of the most cost-effective and biggest markets for solar across Europe. It could leave a total policy void for 1-5MW projects from 2017. The solar industry and on-site investors should continue to push back strongly against this very poor decision."

Inconsistent on biofuels

The REA remains concerned that the Guidelines do not realise the full long term value of sustainable biofuels for decarbonising the transport sector. The Guidelines assume a cap on first generation biofuels that does not in fact exist (EU policymakers failed to agree final decisions on indirect land use change last autumn) [4]. There is also a need for clarity on the definition of advanced biofuels.

REA Chief Executive Dr Nina Skorupska said:

"Renewable energy targets are not an end in themselves; they are a means for decarbonising the energy mix and improving our energy and resource security. In particular, the transport sub-target acknowledges the vital importance – and the difficulty – of decarbonising transport. Sustainable first generation biofuels, which produce food and fuel, will remain crucial for cost-effective carbon savings in transport until at least the 2030s, when advanced biofuels and electrification could become genuine prospects."

The REA and STA will continue to engage with Government and stakeholders on interpretation and implementation of the Guidelines to address outstanding issues, including the thresholds for ‘notifiable aid' in respect of support for individual energy infrastructure projects and proposals to end support to generators during periods when wholesale prices are negative.

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