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UK Green Energy Plans May Be Illegal Under EU Law

James Herron, The Wall Street Journal

New U.K. policies announced Thursday to shield heavy industry from the rising cost of subsidizing the development of low-carbon electricity were welcomed by many companies, but there is a growing danger the measures could fall foul of EU competition rules.

In fact, not long after British Energy and Climate Change Secretary Ed Davey had finished presenting his new plans to Parliament, that is exactly what happened to another euro-zone government.

A growing rift over who pays renewable energy subsidies in Germany triggered a European competition inquiry Thursday as a union of more than 13,000 households and small businesses in the country complained that current legislation unfairly favors large industrial energy consumers.

The European Union’s antitrust authorities said they are looking at whether German policies, similar to those planned in the U.K., that exempt heavy industries from paying the cost of subsidizing renewable energy and leave the burden to fall on households and small businesses, violates EU rules prohibiting state aid to business. The inquiry follows a complaint from Bund der Energieverbraucher, a pressure group representing small energy users.

The German policy has saved billions of euros for companies such as steelmaker ThyssenKrupp TKA.XE -1.70%, chemical producers Air Liquide AI.FR -0.82% and BASF BAS.XE +0.20% and cement manufacturer CEMEX. But if the commission finds that national legislation breaches rules on state aid, it can force the government to change the law and claim back money from the companies who benefited.

The U.K. wants to follow in Germany’s footsteps. It announced Thursday a raft of new energy policies to support the growth of low-carbon electricity sources like renewable or nuclear. These measures come at a huge price—a hike in the public subsidy for low-carbon electricity to £7.6 billion in 2020, from £2.35 billion now. The full cost of all the changes will be £110 billion.

U.K. businesses have long claimed that these extra energy supply costs would put them at a competitive disadvantage to overseas rivals. The government now seems to agree and wants to exempt sectors such as steel, cement and ceramics from paying a fixed minimum price for electricity they generate.

“It is important that the U.K.’s energy intensive manufacturing industry remains competitive whilst significant investments are made to the U.K.’s energy infrastructure,” said Business Secretary Vince Cable.

Mr. Davey added that “decarbonisation should not mean deindustrialisation” and John Cridland, Director General of business lobby group the Confederation of British Industry, said it’s “good news that the government has listened to our calls” to exempt energy-intensive manufacturers.

But it’s not such good news for households and businesses not big enough to lobby the government, both of whom face larger increases in their power bills than if the burden had been shared equally.

Until now, there was little that these people could do to tackle that inherent unfairness. The simple fact is that large companies are able to relocate their manufacturing to cheaper countries if energy costs rise too high, unlike SMEs.

However, if the German challenge under EU state-aid rules succeeds, it could be a useful weapon for similarly disgruntled folk in the U.K.

The Wall Street Journal, 30 November 2012