When should state aid be allowed?

The European Union, as almost anywhere, has to juggle many priorities at once.  Obviously the EU has benefited from the internal market and that has meant a level playing field.  Always vigilant, the European Commission has questioned the use of state aid for sustainable energy.  Ewa Krukowska writes for Bloomberg news service about the possibility that aid for renewables may be allowed to meet another objective – improving industrial competitiveness.


EU May Allow Renewable Energy-Linked Aid to 62 Industries

The European Union is considering allowing state aid to 62 energy-intensive industries including aluminum- and petroleum-product manufacturers to help with the cost of boosting renewable energy, a draft EU document showed.

The European Commission, the EU regulatory arm, will approve support in the form of reductions in environmental taxes if the beneficiaries cover at least 20 percent of the additional costs, according to state-aid guidelines for 2014-2020 obtained by Bloomberg News.

The document, to be adopted by the commission on April 9, will define state-support rules to help spur renewables as nations including Germany call for permission to use tools that would shield industry from rising power bills during the EU shift to a low-carbon economy.

“The aid should be limited to sectors that are exposed to a risk to their competitive position due to the burden resulting from the funding of support to energy from renewable sources as a function of their electro-intensity and their exposure to international trade,” the commission said in the draft document.

Governments will also be allowed to extend state aid to sectors that have electricity intensity, or power costs as a proportion of overall costs, of at least 25 percent and trade intensity of at least 4 percent, according to the draft guidelines. The aid could be granted in the form of a reduction from charges or as a lump sum paid to the beneficiary in the year when the costs are incurred or in the following year, the commission says.

Levies, Taxes

The own contribution of state-aid beneficiaries may be further reduced to 5 percent or even to 2.5 percent of renewable surcharges for companies whose electricity intensity is more than 20 percent, according to the draft. The commission has not specified how electricity intensity will be calculated.

Levies and taxes linked to renewable energy have added to an increase in EU energy costs, with household electricity prices rising 4 percent a year on average in 2008-2012, according to analyses by the commission. As a part of its 2020 energy and climate strategy, the EU has legally binding targets to cut carbon emissions by 20 percent and increase the share of renewables in energy consumption to an average of 20 percent.

In Germany, the aid to help boost renewables is paid for with a levy on customer bills, driving up power prices to the highest in the EU after Denmark. To ease costs for businesses, large energy users have received power-fee rebates, sparking a probe by the EU.

National Authorities

The country granted reductions last year to 1,716 companies or units, more than twice as many as in 2012, amounting to about 4 billion euros ($5.6 billion), according to data from national authorities. The list for 2013 includes companies from drugmaker Bayer AG (BAYN) to gas producer Linde AG. (LIN) HeidelbergCement AG (HEI), Vattenfall Europe Mining AG and ThyssenKrupp AG (TKA) units also benefited.

While Chancellor Angela Merkel has made reforming aid to clean energy the top priority of her third-term government, she said producers exposed to international competition should keep lower levies. Every fourth job in Germany depends on exports, according to the Economy Ministry.

The draft EU guidelines also specify that renewable-energy producers can benefit from operating aid if they sell power directly in the market. As of 2015, aid under new measures and schemes would be granted as a premium in addition to the market price. Support will not be available if market prices are negative, the commission said in the document.

“In a transitional phase covering the years 2015 and 2016, aid for at least 5 percent of the planned new electricity capacity from renewable-energy sources is granted in a genuinely competitive bidding process on the basis of clear, transparent and non-discriminatory criteria,” it said.

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