EU uses long-term contracts to reform markets; Europe set to match US green subsidies
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EU plans wider use of state-backed wind, solar contracts
The European Commission (EC) wants to require EU countries to use contracts for difference (CFDs) when providing state aid to renewable energy projects in a set of market reforms that aim to shield consumers from volatile wholesale prices.
The reforms unveiled by the EC on March 14 aim to prevent a repeat of rocketing power prices last year when Russia's invasion of Ukraine sent gas prices soaring. EU leaders have already implemented a temporary limit on revenues from renewable energy generation and an EU-wide cap on gas prices, to limit the impact.
The EC's reforms steered clear of fundamental market redesign and suggested limited changes that increase the use of fixed-price contracts.
CFDs are long-term fixed price contracts where the generator pays the state if wholesale markets rise above the agreed price. UK offshore wind growth has been underpinned by CFD contracts and France and Spain rolled out similar schemes in recent years.
EU members should use CFDs for renewable energy and nuclear projects and also make it easier for all businesses to sign long-term power purchase agreements (PPAs) with generators, for example by using state guarantees, the EC said.
The reforms would also give customers the right to request fixed-price contracts from large electricity suppliers and allow national governments to intervene and temporarily fix energy bills if European prices spike to the extreme levels seen last year.
The new rules must be approved by the 27 EU countries and the European Parliament, a process that will take several months.
In September, EU energy ministers agreed to limit revenues from solar, wind and nuclear power generation to 180 euros/MWh ($191.4/MWh) from December until the end of June and several national governments are imposing lower price caps.
In December, EU energy ministers agreed an EU-wide cap on gas prices.
Effective since February 15, the gas price cap will be implemented if prices exceed 180 euros/MWh for three days on the front-month contract at the benchmark Dutch Title Transfer Facility (TTF) gas hub. The TTF price must also be 35 euros/MWh higher than a reference price based on existing liquefied natural gas (LNG) price assessments for three days.
EU set to match US green subsidies under temporary rules
EU renewable energy companies will be able to receive as much funding as U.S. green energy subsidies under a temporary loosening of state aid rules set out by the European Commission (EC) on March 9.
EU leaders agreed on February 10 to provide "targeted, temporary and proportionate" support to clean technology companies in order to counter competition from the U.S. and China. President Biden's 2022 Inflation Reduction Act provides $369 billion of green subsidies, including tax credits that increase the profitability of U.S. wind and solar projects as well as new manufacturing facilities.
Annual wind installations in Europe by country
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Source: WindEurope
Until the end of 2025, EU member states will be able to provide funding to companies that matches the level offered in other locations, or sufficient funding to persuade the company to invest in Europe, the EC said. National governments will also be allowed to provide more types of support to renewable energy projects.
The rules form part of the EC's Green Deal Industrial Plan to mobilise state aid and EU funding for clean technology companies and accelerate the permitting of manufacturing facilities.
The plan comes as a lack of federal financing in Europe, along with volatile regulation and permitting challenges, are making the U.S. more attractive for investment.
Last month, eleven EU countries urged "great caution" in relaxing the bloc's state aid rules, saying it risked damaging competition inside the bloc, a document showed.
The document dated February 10 was sent to the bloc's executive European Commission and signed by Denmark, Finland, Ireland, Poland, Sweden, the Netherlands, Hungary, Latvia, the Czech Republic, Slovakia and Belgium, Reuters reported.
EU leaders are scheduled to discuss the proposals on March 23-24.
UK needs faster reform of renewable energy permitting, advisers say
The UK must rapidly reform planning and regulations for renewable energy and publish a cohesive long-term strategy to achieve its goal of a decarbonised power system by 2035, the government's climate advisory committee said in a report published on March 9.
The government has not provided a "coherent strategy to achieve its goal, nor provided essential details on how it will encourage the necessary investment and infrastructure to be deployed over the next 12 years," the CCC said in its report.
UK government commitments on nuclear and renewables are insufficient and a "rapid overhaul of the planning system and regulations is needed," Lord Deben, Chairman of the CCC, said.
UK electricity generation by fuel type
(Click image to enlarge)
Source: UK Department for Business, Energy and Industrial Strategy (BEIS), 2021.
The UK aims to quadruple offshore wind capacity to 50 GW by 2030 and speed up onshore wind build but developers fear delays in the permitting and grid connection phases. The government is reforming planning rules and grid connection regulation but developers want more specific targets and milestones to make stakeholders accountable.
The CCC urged the government to "clarify urgently and formalise the institutional responsibilities" of the recently-created future system operator (FSO), energy regulator Ofgem and government ministers, for the strategic planning and delivery of a net-zero power system.
"It is not clear where the responsibility lies for the design and operations of our modern energy system," Lord Deben said.
A UK strategy for decarbonised power was delayed when the government focused its efforts on protecting consumers against record high energy bills following Russia's invasion of Ukraine, the National Audit Office (NAO) said in a statement on March 1.
The energy ministry had planned to establish a clear pathway to decarbonisation by October 2022 but "scaled back its work" because it was "focusing attention on responses to record-high energy bills," the NAO said.
"The lack of a delivery plan risks diminishing the confidence of industry stakeholders, who have increasingly expressed concerns about how all the change and investment that is needed across the power sector will be brought together without a strategic vision," the audit office said.
"Similarly, the absence of a clear plan and the perception that there could be changes in government policies could deter external investors from providing funds for new infrastructure or lead them to increase the rates of return they require, ultimately increasing costs for energy consumers."
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