EU probes power subsidies

In Brussels on Wednesday, EU Competition Commissioner Margarethe Vestager announced an inquiry into whether European Union rules against state financial aid to businesses are being broken by so-called 'capacity mechanisms' that exist in a host of EU countries.

The mechanisms are used to pay subsidies to power generation companies for the service of keeping idle fossil-fuelled generating capacity ready to fire up on short notice.

In an environment of ever more wind and solar power, capacity mechanisms are meant to ensure that no blackouts will occur if there's a sudden decrease in power output from renewable sources.

Normally, power companies are paid only for the electricity they produce. Capacity mechanisms pay companies even if no power is produced.

Increasingly unprofitable

Under the rules governing most European electricity markets, clean renewable energy has priority access to the electricity transmission grid. With an increasing amount of wind and solar power generating capacity coming on-line, fossil-fuelled generating equipment is switched on less and less.

But the capital costs of acquiring that equipment, and the costs of keeping it maintained and ready for action, remain the same as they ever were.

That means fossil-fuelled generating capacity is generating less revenue from a fixed cost base. That's causing increasingly serious problems for the financial balance sheets and business models of power companies that have a lot of legacy fossil-fuelled power plants in their portfolio. Capacity mechanisms are meant to address those issues.

'A clear signal'

However, the question Commissioner Vestager has posed is whether the subsidies are consistent with EU rules.

"This sector inquiry sends a clear signal to member states to respect EU state aid rules when implementing capacity mechanisms, and contributes to the Commission's goal to build a true energy union in Europe," Vestager said in a statement.

She underlined that while EU states legitimately could take measures to prevent blackout risks, investments or subsidies should "not unduly favor particular producers or technologies, or create obstacles to trade across national borders."

Vestager suggested that it might be more efficient in some cases to invest in improving electricity connections between EU countries, rather than building or subsidizing excess power-generating capacity.

The European Commission recently launched a plan to create an EU-wide energy union, aimed at increasing such transmission links and securing the continent's energy supply in the face of variable oil prices and possible supply disruptions, for example in relation to gas from Russia.

The Commission inquiry will be launched by asking eleven EU countries that either already have capacity mechanisms or are (like Germany) considering adopting such mechansims to answer detailed surveys about their subsidy policies.

The Competition Commission's office expects to be able to report the inquiry's results by early to mid-2016.

nz/sri (AFP, dpa)