Proposed changes to renewable subsidies unlikely to bolster carbon

10 April 2014 16:35 Source:ICIS

A potential cut in renewable electricity subsidies is unlikely to curb the proliferation of cleaner energy generation sources within the EU emission trading system (ETS), according to an expert on Thursday.

The European Commission announced on Wednesday that new renewable energy projects may receive less support in future, which would be bullish for carbon prices if it caused a decline in cleaner capacity for power generation.

New renewable electricity projects are gradually to be exposed to more market-oriented support, a notable change from the current situation where clean generation is strongly supported by state subsidies.

Instead of receiving funds from government, financial support for renewable energy projects will be allocated via a bidding process and in line with country-specific needs, the EU said on Wednesday.

But while state funding for such projects will be harder to secure, renewables have become less reliant on subsidies, Frankfurt-headquartered Deutsche Bank analyst Josef Auer said on Thursday. Technical progress has cut the cost of producing electricity from such sources, he explained.

This suggests that the proportion of renewables in the EU energy mix may not suffer that greatly as a result of the new rules.

Energy analysts previously said that an increase in renewables was a factor in pushing down EU carbon prices, as it displaced more polluting generation sources such as coal ( see EDCM 15 November 2013 ).

“These new [EU] guidelines are based on economic modelling which suggests that competitive mechanisms will deliver equally good results at lower cost to the consumer”, UK-based lobby Renewable Energy Association (REA) Chief Executive Dr Nina Skorupska said in a statement on Thursday.

Skorupska warned though, that “putting so much faith in untested theory is a big risk, especially when the UK is in such desperate need of new capacity”.

However, renewable sector lobby groups maintain that the new EU rules could hamper further proliferation of renewables.

“There could be a slowdown in the rate of renewables deployment in the UK”, a spokesman from the REA said on Thursday in relation to the new EU rules.

Similarly, the European Wind Energy Association said on Wednesday that the commission proposal to reduce renewable subsidies after 2020 “pushes its narrow vision for EU energy policy and clouds the future of wind energy” and that the complex plan “risks exacerbating investor uncertainty” for the sector. Ben Lee

By Ben Lee