Wind sector seeks EU exemption on tax rating

Estonia's fledgling wind power sector has asked the government to seek an exemption from EU rules disallowing the country's zero sales tax rating for wind and hydro electricity production. Estonia has been told by the European Commission that it must abolish its so-called Green Energy System (GES) before the Baltic country joins the European Union in May. Industry chiefs believe that removal of the zero-sales tax benefit will deter private investment in wind power development in Estonia. Abolition of the GES will subject wind and hydro power to a sales tax of 18%, the same rate now applied to electricity from oil-shale fired power plants. "Unfortunately the EU rules are clear and make no provision for us to introduce a sales tax rate lower than 18% for green energies such as wind or hydro power. Estonia could have applied for an opt out or special concessions during EU entry negotiations, but it seems wind or hydro production were not considered important enough," says Urmas Koidu, head of the finance ministry's Indirect Taxation Department. The abolition of the tax break has infuriated the Estonian Wind Energy Association. "With an eighteen per cent sales tax in place, banks may be less interested in providing funding for new wind plant projects. The eighteen percent rate will be reflected in prices consumers pay for wind power," says the association's Jaan Tepp. Ironically, during Estonia's accession talks the country committed to increasing its share of green energy from 0.2% of total electricity generated to 5% by 2010.