21st November 2013
On 5 November the European Commission published a Communication, ‘Delivering the internal electricity market and making the most of public intervention’. Public, or state, intervention can be at regional, national or local level and can take different forms, such as: state aid to certain sectors or companies in the form of grants or exemptions from taxes and charges; imposing public service obligations; or regulation through general measures.
This Communication is the latest in a line of documents emanating from Europe around energy. It has been issued now because the EU has set a deadline of 2014 for the completion of the internal EU energy market, where cross-border markets for gas and electricity must be up and running in all parts of the EU, but there is concern that this deadline will not be met.
It is specifically focused on the electricity market although the principles can be applied in other energy sectors such as gas and heating. The Commission has focused on reviewing public intervention in the electricity market in particular because such intervention has a significant influence on the cost and prices of electricity. There is a need for public intervention to secure a level playing field, overcome market failures, foster technology and innovation, and, more generally, support the market in delivering appropriate investment signals. If not done properly, public intervention risks being counterproductive and distorting the functioning of the internal market, leading to higher energy prices for both households and businesses.
The Communication sets out principles for state intervention in:
Renewable energy support schemes
The Communication recommends the following best practice principles:
Back-up capacities for renewable energy
The increase in renewable energy makes it more of a challenge to keep producing electricity when the wind is not blowing and the sun is not shining. The Communication therefore also gives guidance on how member states can design back-up capacities (such as coal and gas power plants) in a cost-effective way that takes full advantage of the European market:
What does this mean for UK’s electricity market reform proposals?
The Commission has developed this Communication in tandem with revising the guidelines on state aid for environmental protection as part of its state aid modernisation programme. It will follow the main principles set out in this Communication when it is assessing whether public intervention in renewables support schemes or to promote generation adequacy constitutes a state aid or not. It appears that the new guidelines on state aid for environmental protection will be based on the idea that public interventions should, wherever possible, be more market-based, more open to cross-border solutions and allow for more competition between supported technologies. Watch this space!
For more information on state aid, please contact Richard Auton.