Support for wind falls foul of EU regulations

Germany's Electricity Feed Law (EFL) is now facing attack from the competition directorate of the European Commission (EC) having survived an assault course of court cases at home. Although the Commission endorsed the EFL back in 1990, the competition Commissioner, Karel van Miert, is now demanding a reduction of the premium rates paid for wind generated electricity under the EFL. A complaint from Preussenelektra, the second largest utility in Germany, seems to have played a major part in animating Van Miert against wind.

Ironically, the competition Directorate finds fault with the EFL because it has proved so successful -- a line of argument remarkably similar to Preussenelektra's. At the time of its original endorsement of the EFL, the Commission felt that renewable energies played only a minor part in Germany's electricity supply and there would be no question of unfair competition. But Van Miert notes, in a communication to economy minister, Günter Rexrodt, that over the last six years wind energy has mushroomed into a flourishing energy sector and by 2005, EFL premium payments in northern Germany are expected to reach DEM 900 million a year.

The EFL forms the foundations of the market for wind energy in Germany by stipulating that all wind generated kilowatt hours must be bought by utilities at premium rates. Since its introduction in 1991, the utilities have fought a running legal battle against the law. Its premium payments are an effective subsidy of operating costs and would not normally be tolerated under European Union regulations. But exceptions are allowed for state aid aimed at protecting the environment.

The Commission, however, is having second thoughts. While accepting that renewables have high priority, it is questioning whether waiving competition rules on account of the environment is justified. Van Miert recognises that wind energy cannot yet survive in a raw competitive climate, but says that "continuing with the high rates for wind energy paid under the EFL is no longer justified under European Union subsidy rules."

He recommends that the rate for wind, currently 90% of the average price of power to the end-customer, should be cut to 75%. Aid should be for a limited period and should gradually drop, he suggests. But any change in the rules should only apply to new installations from the beginning of next year.

The wind lobby has sharply criticised the Commission document, complaining that Preussenelektra's influence has been too great. It has arranged for a barrage of letters to German and European Members of Parliament arguing the case for retention of the current rates of pay.

Moreover, the solar and renewables organisation, Eurosolar, has torn the Commission's reasoning apart in a blow-by-blow analysis. It takes issue with utility complaints that the law unfairly burdens utilities in windy areas, pointing out the advantages utilities in these areas have because of their proximity to cheap Scandinavian hydro power and cheap imported coal. The claimed cost of wind power to utilities is also questioned.

Both Eurosolar and the wind energy organisations warn that reducing the EFL rates would mean an end to the steady expansion of wind power "Thousands of wind energy operators would be driven to ruin and a young industrial sector with a lot of promise would be left standing on the brink."

Fully constitutional

Meantime in Germany, the EFL has been declared fully constitutional by the Federal Supreme Court in Karlsruhe. In a case involving two hydro plant operators and the south Germany utility Rheinfelden Uebertragungswerke, the court has ruled against the utility's claim that the EFL's obligation on it to buy clean hydro power at premium rates was unconstitutional.

The decision has been widely greeted with a sigh of relief by the wind lobby, but the oral statement giving a short account of the ruling leaves room for appeal. The court establishes that "the legislator is justified in laying the obligations arising from the Electricity Feed Law onto the utilities as the financial sums involved are relatively small and the law has a hardship clause." Furthermore, "The utilities have a monopoly-like position in their demarcated supply areas and therefore carry a special responsibility to see that resources are used sparingly and that account is taken of climate and environmental protection."

These statements, however, only refer to the 1991-93 period, a restriction that major utility Preussenelektra is using to challenge the judgement's validity for subsequent years. There are also fears that the coming liberalisation of the German electricity market -- resulting in the removal of the utility sector's monopoly on supply -- will bring the EFL into a new and poorer light. No longer will the court's reference to guarding against the dangers of monopolistic supply be relevant.

The full implications of the court's decision will not be clear until the written judgement is available in December, but there are already fears that it will not be as positive as the wind lobby had hoped.