The EU subsidy rules: balancing energy and competition objectives?

No one said the energy transition would be easy and it is certainly proving to be true. Alex Barker and Jeevan Vasagar write in the Financial Times about the tug-of-war between Germany and the European Commission over subsidies for renewable energy

Germany and EU row over energy subsidies

Brussels and Berlin traded barbs on Thursday amid a bitter row over EU competition rules allegedly scuppering reforms to Germany’s prized renewable energy programme.

In an unusually pointed public statement, Brussels hit back at Sigmar Gabriel, the German vice-chancellor, for accusing the competition watchdog of trying to hold Germany “hostage” with unjustified and arbitrary demands.

The dispute relates to the billions of euros of German public subsidies deployed to promote the energiewende shift to renewables while at the same time shielding heavy industry from the costs. Brussels raised questions over the system being discriminatory and penalising consumers in order to help big industry.

Germany plans to generate up to 60 per cent of its electricity from renewable sources by 2035, as part of a radical shift in energy supply which involves a complete exit from nuclear power.

The expansion of clean energy has been encouraged by a generous system of subsidies paid to renewables operators. These have been funded by surcharges that have left Germany with some of the highest household electricity bills in Europe.

The German government is seeking to curb costs by cutting subsidies for clean energy producers, capping new installation, and shrinking the number of industrial sectors entitled to rebates on their electricity bills.

The Bundestag is scheduled to vote on the revised law on Friday, even though a prolonged battle with the European Commission remains unresolved. At issue is not just the timetable for the law, but Brussels’ ability to hold its ground against strident demands from the EU’s most powerful member state.

Joaquín Almunia, the EU competition chief, contradicted Mr Gabriel’s claim that one outstanding issue – forcing Germany to treat imported energy on the same terms as domestic producers – was never before raised in six months of talks.

In a statement issued on Thursday, Mr Almunia argued the discrimination was potentially illegal, a risk that had been “made clear to the German authorities back in December 2013”.

“There is nothing new in the need to address possible discrimination of imported electricity by Germany,” he said. “If consumers have to pay a surcharge on their consumption of both domestic and imported electricity but revenue from the surcharge is used to only finance domestic electricity producers, there is a risk that imported electricity is disadvantaged and made comparatively more expensive.”

With Berlin’s deadline for a Bundestag vote drawing closer, Mr Gabriel showed little appetite to compromise. Speaking in the Bundestag on Thursday, he accused the commission of wanting to “destroy” the energiewende.

“We will not collaborate in this attack [which aims] to destroy the renewable energy legislation,” he said.

Mr Gabriel, the centre-left SPD leader, has the backing of his coalition partner Chancellor Angela Merkel. On Wednesday she attacked the commission for “starting to question support systems which have been in place for years”, adding she would campaign for the reforms “decisively”.

Berlin and Brussels were locked in months of difficult talks over Mr Almunia’s revised guidelines that restricted state support for clean energy. The final version adopted in April saw significant concessions to heavy industry and Germany’s demands.

In spite of the agreement on the new guidelines, there remain several areas of difference over Berlin’s revised energy law. Along with the surcharge on imported energy, Brussels also questions whether planned surcharge exemptions offered to industrial companies that generate their own electricity fit with the EU guidance. “The rules are clearly set out,” Mr Almunia said.

In an editorial in Thursday’s edition, Germany’s biggest selling newspaper Bild accused Mr Almunia of “throwing a spanner in the works” of the Energiewende.

In an echo of German anxiety over the costs of the eurozone crisis, the editorial asked whether German customers “must share the costs for the introduction of clean energy in the whole of Europe.”

The Social Democrats’ environment spokesman Matthias Groote told Bild that Almunia’s intervention made him “red with rage.”

“Mr Almunia should stick to what was agreed weeks ago with the German government,” Mr Groote said.

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