The Estonian government on Thursday gave its nod to amendments to the Electricity Market Act whereby the volume of renewable energy subsidies would be cut by 18 percent from next year.
Under the bill drafted by the Ministry of Economy and Communications, the amount of electricity to be subsidized will depend on the renewable energy objective and the support will be linked to the market price of electric energy and carbon dioxide. The new arrangement will cover both the already existing and still to be established renewable electricity generating capacities, the ministry said.
The ministry said the support arrangement set out in the bill represents a compromise achieved with producers of renewable energy that will save consumers of electric energy 300 million euros of renewable energy fees until the year 2020 compared with if the present arrangement was preserved.
The volumes of renewable energy generated in Estonia have grown substantially in recent years, making up 13 percent of total electricity consumption in 2011. Since generating of renewable energy is significantly more expensive than of electricity coming from conventional sources, the increase in the volumes of renewable energy has become a remarkable burden on consumers, accounting for almost one-tenth of the electricity bill.
The current renewable electricity subsidy has been fixed at 53.7 euros per megawatt-hour and is paid equally to all producers by the transmission system operator Elering in addition to the price that the producer gets for electric energy on the market. When the market price increases, an arrangement like this allows for ungroundedly high rates of return as the subsidy remains unchanged regardless of the market price of electricity, the ministry said.
Returns on invested capital achieved with state support which are higher than 10–12 percent contradict the EU guidelines on state aid and can be viewed as forbidden state aid or over-compensation, according to the ministry.
Besides the unproportional nature of the present support, renewable electricity support will become wholly state aid in the light of the opening of the electricity market next year and EU permission will have to be sought for the support arrangement.