The topic of renewable energy is front and center again with the European Commission’s announcement in April of new guidelines that address public support of renewable energy projects. The guidelines aim to assimilate the renewable energy sector into the market fold. However, the ramifications have left some European lawmakers and lawyers scratching their heads.
The new guidelines will revamp the existing renewable energy subsidy programs of the bloc’s 28 member states in favor of an EU-wide market-driven bidding process for allocating public support. Member states will be allowed to subsidize energy-intensive industries to shield them from price hikes affected by increased renewable energy. According to the EU Commission, the renewable energy industry has suffered from market-distorting policies that keep renewable energy prices higher than they would be using the bidding process promoted in the new guidelines.
However, for energy specialists like Jacques Isabelle, an attorney with Wolf Theiss in Budapest, these guidelines were a foreseeable and logical reaction to the events in the last few years.
“Looking at renewables in the region, there have been various state interventions which took place in the two bigger markets of Romania and Bulgaria that reduced the attractiveness of support schemes,” Isabelle said. “Romania operates a green certificate regime, which they have reduced through measured suspension of the certificates. And Bulgaria tried to do this, first through grid access charges which got thrown out by the Bulgarian courts, so they returned with a so-called new “fee”, which is pretty much a new tax affecting only wind and solar photovoltaic power producers. Both of these measures reduced the attractiveness of renewables [to investors] in those countries.”
Furthermore, according to Marian Dinu, Managing Partner of DLA Piper in Romania, the individual state schemes foretold the eventual promulgation of the new guidelines. “Significant renewable energy state aid schemes implemented in European countries led to concerns of overcompensation, heavy burdens on end consumers and on a number of energy intensive industries, and ultimately to dysfunctional energy markets.”
In this context, Dinu said, various Member States adopted a less favorable approach towards renewable energy support and it was only a matter of time until the EC would adopt a new policy aiming to promote a gradual move to market-based support for renewable energy.
Not to mention, he added, there has not been a great deal of movement in other big markets of the region to underscore the success of state support. Specifically, Poland has been promising an overhaul of its renewable energy laws for several years without effect while the Czech Republic and Slovakia have been less attractive in the wake of the 2012 boom.
According to Isabelle, states are focusing more on 2020 and 2030 targets.
“The European Union is committed to a 20 percent renewable energy target by 2020. The trajectory for reaching this goal is steeped toward the end,” he said. “There will be a bigger effort in the latter years of 2016, 2018 and 2020, as most markets will see an increase in need for renewable energy investment coming later in decade. There are no binding national targets for renewables after 2020, but the Commission proposes an EU-target: the share of renewable energy should reach at least 27 percent of the EU’s energy consumption by 2030.”
Longer term, these numbers are likelier to pick up. What we see happening is that in more mature markets developers are now looking at those projects they had discarded a few years ago, such as solar and wind farm projects, as lower hanging fruit. However in our markets [Central and Eastern Europe], people are getting interested but there is much more thinking in longer terms due to the current regulatory instability affecting those markets.”
While the legal community has reacted differently to the onset of the guidelines, anyone familiar with the market and cross border energy policy knew it was just a matter of time before the EU acted to integrate renewable energy into mainstream markets, according to Isabelle.
“Many consultants had questioned the long term sustainability of the schemes some countries were introducing, but then they had to attract developers and get their renewables sector off the ground. However, the European Commission’s thinking in terms of support had been clearly in favor of integration of renewables into the energy markets, so their approach in these guidelines was foreseeable,” Isabelle said.
At the same time, governments have intervened abruptly and introduced legislation that affected projects that had already been financed, like what was done in Bulgaria and Romania. It was this retroactivity that came under heavy fire by the European Commission.
“The EC has been in favor of renewable energy being integrated into energy markets in general,” Isabelle said, “but they have been requesting this be done gradually, and, most importantly, without retroactive effect. If you look at the new guidelines, they will only be applicable to new support schemes. They will not affect state aid which had been given before the guidelines come into effect this July.”
In the meantime, energy attorneys are in a race to ascertain where the guidelines will be applicable outside of discussions member states will have with the EC in defense of their individual support schemes.
The simple fact, according to the folks following the developments, is that there are not many attorneys involved.
“Where we see requests coming are in renewable energy associations, who will put forth proposals for new support schemes,” Isabelle said. “With our longstanding clients, we will make them understand the new rules and what is possible under them. Also, for those of us involved in trade associations, we’re trying to gather people around one proposal and then put forth one robust enough to pass new state aid tests.”
There is still some time to come before the first milestone of 2016, but because implementation processes are bound to be lengthy, trade associations will be discussing this topic from this summer onward.
From DLA Piper’s perspective, no changes in behavior will occur immediately. “We do not expect immediate significant changes in the energy market due to the guidelines alone. However, coupled with the Members States’ policy for diminishing the support granted to renewables, we can foresee that investors will seek counseling in relation to the future context of renewables in order to reassess their objectives in this sector,” DLA’s Dinu said. “We also envisage a decrease in the interest in renewables and therefore a re-orientation towards other areas, so attorneys with a more complex offering in energy will be more in demand than those focusing exclusively on renewable energy projects.”
One question that has attorneys talking is what these guidelines will do to the viability and demand for renewable energy on the market.
“It is very likely that new renewable projects will decrease in the absence of substantial state aid or in the context of an uncertainty as to the extent of such aid,” said Dinu. “In Romania, we already noticed a reduced interest in the context of significant amendments to the current support scheme having been recently implemented and also given that no European funds are apparently envisaged during the 2014 — 2020 programming period for wind or solar projects. In the Romanian context, overcapacity concerns may also be a factor. Nevertheless, we think that renewable energy is here to stay and that selected new projects will continue to be developed, especially in solar energy, as the cost/efficiency ratio will continue to improve.”
Isabelle was cautiously optimistic. “Those people who have seen different support schemes work can see new support schemes working in their own jurisdictions,” he said. “The difficulty is that some attorneys in the region have only worked in one specific jurisdiction and don’t have experience in how other support schemes can work.”
With the EC signaling an end for feed-in tariffs, attorneys will also need to adjust their thinking to price premiums or green certificates.
“People need to see how that works in practice.” Isabelle said. “It is those who have multi-jurisdictional experience who will be at forefront of the discussion.”
Julia Foresman can be reached at julia.foresman@gcgrapevine.com
