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Rollback: EU Countries To Cut Renewable Support Further

Gerard Wynn, Reuters

EU countries are likely to pare back support for renewable energy further after Spain’s recent proposed overhaul. Some countries have made sudden, retroactive cuts in returns on existing projects, rattling investors and developers.

Those most likely to take action are countries with more expensive schemes, programmes nearing their environmental targets or nations with higher political risk.

Energy consumers are paying more for expanding, subsidised renewable power, causing tensions over such programmes amid wider austerity measures.

As a result, almost all EU countries have reduced support to keep pace with falls in technology costs, with some having made more drastic cuts, or taken retroactive action which has jolted investors and undermined confidence.

While countries are working to EU targets, authorities in Brussels appear powerless to prevent such retroactive steps.

Even Spain appears vulnerable to further cuts, after repeated attempts to remove the state’s liability for energy sector subsidies, called the tariff deficit, as Fitch Ratings agency has reported.

“We view the (July) proposal as a further sign of increasing political risk in the sector,” the rating agency said last month.

“This is despite the inclusion of the government’s contribution towards the budget elimination. The weak operating environment and regulatory risk already constrain the ratings of utilities in Spain. We are unlikely to revise the negative outlook for the sector until the tariff deficit issue is largely eliminated.”

Spain is struggling under one of the euro zone’s biggest public deficits, bloated by a 42 billion euro bill for helping nine banks to recover from the 2008 property crash.


From the perspective of public finances, Spain had a particularly ruinous system for renewable energy support where the state bore the liability for the gap between regulated power prices and higher generation costs which include support schemes for renewables.

As a result of regulated power prices, utilities sell at a loss to consumers, accumulating a tariff deficit carried on their balance sheets as a receivable to be paid by the Spanish government.

Estimates for the size of the cumulative deficit range from around 25 billion to 35 billion euros.

Aiming to limit the liability, the government on July 12 cut regulated  earnings on electricity transmission, renewable energy projects and capacity payments for gas-fired power plants.

It aims to replace automatic subsidies for renewable power with a new system of “reasonable profitability”, capped at 7.5 percent a year initially for large renewable power companies.

Greece has a similar regulated power market and has also accumulated a tariff deficit which it has tried to reduce through cuts in support, including some retroactive measures.


Most other EU countries pass the cost of renewable energy support on to consumers, via utility bills.

However, they may still classify these programmes as tax and spend policy, rather than regulation, bringing them under the scrutiny of treasury ministers.

In Britain, for example, support for renewable energy support falls under the Treasury’s so-called levy control framework for tax and spend policies.

“Its purpose is to make sure that DECC (Department of Energy and Climate Change) achieves its fuel poverty, energy and climate change goals in a way that is consistent with economic recovery and minimising the impact on consumer bills,” a government memo said.

In November last year, Britain capped the cost of low carbon schemes under the framework at 7.6 billion pounds ($11.75 billion) in 2020.

Other countries have introduced spending caps based on the estimated cost of the policies for energy consumers, or nearing fulfilment of targets to deploy renewables.

Under its “Conto Energia V” policy, Italy introduced an expenditure cap of 6.7 billion euros annually for solar tariffs and premiums, after the country became the world’s biggest solar market two years ago.

Italy reached the cap in June this year, meaning feed-in tariff incentives would no longer be available for new PV projects from July 7.

Given the rising cost of support programmes, more countries will introduce such caps.

German plans to further limit renewable support are on hold pending a forthcoming election; in January, environment minister Peter Altmaier proposed to cap the renewable power charge on retail consumer bills this year and next.


Besides signalled, incremental reductions in renewable energy support, some countries have made sudden, retroactive cuts in returns on existing projects, rattling investors and developers.

Besides Spain and Greece, there are at least three other countries which have imposed retroactive changes in renewable support – the Czech Republic, Bulgaria and Romania, usually through new taxes or grid fees for existing projects.

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