EU Commission seeks to crack down on costly energy subsidies

European Energy Commissioner Guenther Oettinger addresses a news conference on the security of energy supply and international cooperation at the EU Commission headquarters, in Brussels September 7, 2011. REUTERS/Thierry Roge

By Barbara Lewis

BRUSSELS (Reuters) - EU energy prices will rise unless European governments stick to strict guidelines on when subsidies are justified, the European Commission said on Tuesday.

Following intense political debate and a storm of protest over energy prices, the Commission, the EU executive, is revising rules to guide the European Union's 28 member states.

Generous support schemes for solar energy, for instance, have been blamed for adding to the financial burdens of households and businesses at a time when economic recovery is tentative.

The Commission says the subsidies should be phased out and meanwhile made more flexible. Instead of feed-in tariffs, which are fixed-rate incentives, it favours a "feed-in premium", which would rise or fall depending on market conditions.

"The ultimate aim of the market is to deliver secure and affordable energy for our citizens and business. Public intervention must support these objectives. It needs to be cost-efficient and be adapted to changing circumstances," EU Energy Commissioner Guenther Oettinger said in a statement.

"If public interventions are not carefully designed, they can severely distort the functioning of the market and lead to higher energy prices," the statement added.

Tuesday's publication of rules for electricity markets precedes formal state aid guidelines expected over the coming weeks and to be finalised early next year.

The Commission has the final word on whether state aid and other market intervention moves are legitimate, but says it is publishing rules to help member states avoid decisions that would lead to financial penalties for breach of EU laws.

State aid is designed to fix problems the market cannot and must not cause unfair competition. In principle, it is reserved for technology in its infancy.


The Commission has already said the guidelines will not mention nuclear, which is a mature technology.

That does not necessarily mean government aid for nuclear energy would be illegal, as each case is assessed individually. But analysts say the failure to mention it takes away a degree of certainty.

Britain has expressed confidence the Commission will approve its funding plans for a nuclear project to be built by French firm EDF . The Commission has said only that it is considering the case.

While the Commission has the last word, the guidelines seek to help governments avoid measures that would eventually lead to financial penalties for breach of EU law.

Provided there is no market distortion, Tuesday's rules say, the Commission might allow support to ensure sufficient back-up generation for variable green energy. This could possibly mean paying firms to maintain loss-making gas plants they would otherwise mothball.

For renewable subsidies, the rule says that support must be strictly necessary and alternatives have been ruled out. It must respond to falling costs and then be phased out as an energy form becomes competitive.

At the same time, governments must avoid unannounced and retroactive changes that would harm investors.

(editing by Jane Baird)

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