NEW EU STATE AID GUIDELINES ACTUALLY RESTRICT GROWTH OF GREEN AND DISTRIBUTED ENERGY
RANDY MOTT JD European Energy Journal (2015)(PowerGen. Rotterdam, 2015)
The European Community grew
out of a generation-old dream to create a single market across numerous
European countries. Explicit in this concept was the realization from the
beginning that the various national governments in this community should be restrained
from providing the traditional government assistance to their own businesses,
which by its very nature weakened competition and created uneven playing fields
across national boundaries in the community.
The Treaty for the
Functioning of the European Union in Articles 107 and 108 create a special role
for the European Commission to review state aid to assure that such distortions
of competition are minimized. State aid to promote renewable energy has been
routinely reviewed by the Commission and since 2008 guidelines have been used
to determine its compatibility with the treaty. This article describes how the
latest changes to the guidelines have already lead to lower renewable energy
investment and how they will likely be frustrated in their intent to provide
more cost-effective support.
The European Commission
revised state aid guidelines in 2014 (Guidelines
on State aid for environmental protection and energy 2014-2020, 2014/C 200/01)
mark a major departure from the policies used since 2008. Effective in 2017,
they will generally require “competitive market mechanisms” for state aid to
renewable energy.[1]
The objective of the Commission’s new guidelines is to attempt to focus
entirely on cost-effectiveness of support. “The
selection process should lead to the selection of beneficiaries that can
address the environmental or energy objectives using the least amount of aid or
in the most cost-effective way.” Id. at par. 99. In their opinion, this
can be in the form of auctions for feed-in premiums or technology-neutral certificates.
The biggest change is their reversal of the presumption that support should
be levelized by each technology’s production cost. The Commission now
assumes that technologies can be supported by a technology-neutral system,
subject to some exceptions. But by combining this presumption of uniform
support instruments with the new block grant exemption rules[2] (which
exempt technology-neutral auctions from notification), the Commission is
pushing its policy on Member States previously allowed by the RES Directive to
have wide latitude in implementing their support schemes.
The changes come on the heels of major
pressure from conventional energy utilities in several Member States. See
EuroElectric, “Renewable
Energy And Security Of Supply: Finding Market Solutions,” October
2014.[3] Unfortunately, the European body
charged with enforcing unfair and anticompetitive practices has failed to scrutinize
complaints from the large European utilities about RES support. The portions of
the new Guidelines for State Aid for Environmental Protection that deal with
renewable energy seem ideally suited to promote energy market share for the
bigger players, while doing a “hatchet job” on distributed energy. Once fully
implemented by 2017, these new rules may have little effect on lowering the
cost of renewable energy, but they will shape the renewable energy sector is
ways that will undermine competition and hurt consumers.
The rationale
Push back on renewable energy
has come from two directions: (1) increases in electricity prices in some
countries due to over-compensation of renewable energy producers; (2) changes in
the role of traditional electricity producers in the supplying base-load due to
the preference for renewables. These arguments have been adopted pretty much in
their entirely by the DG Competition in the new state aid guidelines.
Unfortunately, their solutions to these demands will not help resolve the
claimed problems and in some ways will aggravate the problems.
It is quite ironic that
the Commission found that over-compensation of renewable energy was a problem
in its explanation of the new guidelines, since virtually every RES system of
support has been reviewed for potential over-compensation and each was approved
by the Commission.[4]
If over-compensation was problem, each support system approved by the
Commission was found to have means to adjust the support. Many Member States
have done so, albeit often in erratic ways that have caused market distortion
in themselves. There is really no basis for now claiming that feed-in tariffs
or certificate systems must inherently result in over-compensation and
therefore need to be replaced with auctions.[5]
Ultimately, the
Commission was on the right track under the old rules, still effective until
2017, requiring a levelized support system that did not theoretically
over-compensate some technologies beyond a reasonable profit margin. If
anything, the Commission has lacked the political will to single out
over-compensation or under-compensation.
Member States are free under the RES Directive to select their own means
of reaching the 2020 targets. They submit National Renewable Energy Action
Plans to achieve the numbers by specific assumptions about the technologies
that will be developed. This critical
point is ignored by the DG Commission in looking at support systems. While every Member State did not provide an
adequate margin of profit in its support system for biogas [70% fail to do so],
for instance, the technologies specified in the National Action Plan should be
compensated consistent with their actual costs of production, including means
to adjust this for new facilities as those costs may change over time. For about fourteen years, the DG Commission
has followed this approach of levelization, but has never applied it
strictly to the technologies enumerated in the national plans.
The other leg of
the case for reform is the argument that renewable energy is distorting the
market to the detriment of conventional energy producers. By pre-empting the base load, renewables have
cut into the utilization rates of coal-fired and gas-fired plants. The state
aid guidelines do not directly address this issue. Since the mandate for
renewable energy from the European Parliament requires widespread deployment of
renewable energy in any event, the role of marginally competitive traditional energy
will be challenged under any system. In fact, competition from renewable energy
has created some downward pressure on end-users prices that actually mitigates
much of the cost of the support system. So critics argue at the same time
that RES is too expensive and that it is too cheap.
In fact, the need for balancing to adjust
for the variations in some renewable energy outputs can be accomplished under
any system and nothing about the Commission’s auction plans is necessary to
address this issue. See EcoFys, “Design features of support schemes for
renewable electricity,” January 2014 [a wide ranging discussion of the issues
under all forms of support]. However, the Commission’s solution in the new
guidelines makes some feasible balancing practices more difficult, not easier.
Competitive
Procedures?
The theory embraced by the Commission is
that competitive procedures allow the Member State to specify how much
renewable energy they want at a given time and what the maximum price will be.[6]
This can extend to “banded” technology specific auctions as well as “free-for-alls”
of competing technologies. The setting of the reference price, the
pre-qualifications and potential penalties for failure to deliver on a winning
bid are critical to the outcome. Without sufficient prequalification
requirements (such as building permits, environmental and planning approvals,
etc.) as well as penalties for failure to construct facilities that win the
auction, most projects historically do not get built at all. Low bidders gamble
on winning while figuring out if they can proceed after the auction. On the
other hand, extensive prequalification requirements (the ones listed here can
require 24-36 months of preparation) and substantial penalties for
non-performance can lead to insufficient bidders to create any competition or to
no bidders at all. As we will discuss
below, most auctions in the RES sector have resulted in one or the other undesirable
outcomes. A small minority have actually worked according to the theory. EcoFys
in their report for the Commission in January 2014 reached a conclusion at odds
with the Commission’s ultimate guidelines: “At present,
RES-support with auctions is still undergoing a learning phase…” Supra, page 73
(emphasis added). Even auction advocates concede that “[d]ue to negative past experiences with a third instrument (auctions),
this instrument has been broadly dismissed in academics….” Del Rio
et al, “Back to the Future,” Renewable and Sustainable Energy Reviews 35
(2014). Although the overwhelming
majority of attempted RES auctions have had major problems to date, the
Commission is pushing to expand the experiment to the whole EU-28.
The basic problem described above, i.e.
“threading the needle” between lowering the burden of bidding to encourage
competition in bids and more restrictive pre-qualifications so that winning
projects are actually built, has seldom been done successfully. In a report prepared for the European
Commission, EcoFys et al noted in January 2014: “…finding a compromise between encouraging high implementation rates
without reducing the number of market participants too much proved to be a
difficult task.” Design features of support schemes for renewable
electricity, January 2014, p. 5.
One irony is that auctions
have not necessarily lower costs. Some auctions have resulted in no major
savings, since bidders must add the risk factor to their financial projection.
“Compared
to feed-in systems, the auction introduces additional elements of uncertainty
for project developers regarding revenues and the future realization of
committed projects. This in turn makes planning more difficult and can in some
cases lead to higher risk premiums.” EcoFys, supra, page 45.
Thus, Germany actually recently had comparable or lower support for PV
than the French achieved in their auctions. “The
price of PV in French auctions (red line) fell from around 23 cents per
kilowatt-hour to around 17 cents during 2012-13, whereas German feed-in tariffs
(orange line) brought prices down from just under 25 cents to below 14 cents
during the same timeframe.” Morris, “Actual outcomes of auctions in France, Brazil, and
the Netherlands,” June 15, 2014. There is substantial doubt that an auction by
using maximum bid prices or reference prices can hit the right market price any
better than other support mechanisms. In Brazil, a PV
auction ended with no bids: “It
should also be pointed out that the round of bidding in the fall of 2013 did
not elicit a single submission for photovoltaics because the starting price was
far too low.”
Auctions have also notoriously failed
to assure that projects actually get built.[7]
Firms bid the project to later find it is not economically possible to proceed
or that they have failed to secure necessary steps that make completion
impossible. At one point, only 8 % of biogas projects in the Netherlands that
won bids were actually built.[8]
Brazil had an auction where none of the winning projects were later built.[9]
Projects also under-produce the bidded electricity output (especially in wind
and solar projects where projections are more difficult).
“While auctions aim for a specific amount
of electricity to be produced or capacity to be installed, empirical experience
has shown that a shortfall of the auctioned amount is a rather common
phenomenon. This is mainly due to ‘underbidding,’ which results in
economically non-feasible projects.” EcoFys, supra, page
45.
“A tender
scheme creates competition between bidders and, thus, inherently encourages
them to bid as low as possible. However, the evidence in France, Portugal, Nova
Scotia, U.K., India, China and Brazil shows that they may overestimate their
capacity factors, underestimate their costs (because, for example material
costs turn out to be higher than they were expected to be) and follow strategic
behavior in bidding (i.e., win the bid, then adjust).” Del Rio, supra,
page 51.
“Empirical evidence indicates that low
implementation rates caused, e.g. by underbidding or the
existence of non-cost barriers, are one of
the main drawbacks of auctions used for RES-support…..it remains to be seen whether auction schemes can eventually achieve
the desired effectiveness.” EcoFys, supra, page 72 (emphasis added).
This problem completely
undermines the assertion that auctions allow countries to specify the amount of
renewable energy they want and to specify a maximum price. The process more
typically resembles a “wish-list” than a real “shopping cart.” The period between auctions, given the need
to publish in advance the reference prices and other terms, may actually not
provide any advantage in adjusting the compensation to fit the investor’s
expectations and the public’s limits. Other systems may, in fact, have quicker
response times to adjust for the right fit in support levels.
Anti-competitive Impacts
Next, there is abundant evidence that the
auction process favors large utilities that have lower cost of capital and a
tolerance for lower levels of return on investment. Ironically, this
actually lowers long-term competition. The Commission is pushing this
process even in Member States where there is already very dominant market
control in the electricity market by a few major players (for example, in
France- EdF and in Poland- PGE and Tauron and other state-owned firms). These
conditions will add to the historical anti-competitive bias of auctions. Distortion
in the form of barriers to SMEs is a common result from auction systems:
“[S]maller
players have apparently been excluded from auctions in Brazil.
Despite the
initial transaction costs for the
qualification phase not being excessive, they have excluded smaller
actors. This can partly be attributed to
the fact that the required bid bonds have posed significant
barriers for smaller (and for local)
potential bidders. And local bidders participating in the auctions
have largely not been able to compete with
the underbidding strategies of international investors.” EcoFys, supra,
page 52. [they note that big international players seem to be bidding below
costs to achieve market position].
Similarly in China, EcoFys noted
, supra, page 66 [only large state-owned firms met prequalification
terms]. “Only little interest of private
investors in state-company dominated market has been observed….these lessons could
apply for incumbent players in liberalized markets with high market
concentration. Participation of smaller actors should be facilitated.” Id.
page 67. But the auction mechanism does not provide the means to do this.
The problem is not limited
to the countries where state-owned companies dominate the sector. Large
international firms have often exercised similar influence in auctions.[10] While
the Commission recognized the problem with small players and small projects, it
failed to adjust the guidelines to fit the real world realities:
“Unfriendly for small projects and actors.
A major empirical lesson of tenders is that they are unsuitable for small installations
and smaller actors.Competition may thus be affected. It has been argued that some
of the afore mentioned factors and,namely, information failure and difficult access
to finance,have a disproportionately negative impact on small actors and, thus,
that the instrument is not suitable for small actors, suggesting that smaller projects
should be promoted with a different instrument.” Del Rio, supra, page 52.
The Commission’s approach to
this issue to to provide for some discretion to exempt small projects from
auctions. Their exclusion from competitive procedures is discretionary and
limited to 1 MW for non-wind projects. “Aid
may be granted without a competitive bidding process as described in point
(127) to installations with an installed electricity capacity of less than 1
MW….” Guidelines,
par. 128. There is no indication that there is any factual basis for the 1 MW
size ceiling.[11] The presumption made by the
Commission should be reversed: small projects less than 5 MW should be presumed
to be unsuitable for competitive bidding procedures based on the history of
auctions. See infra, p.
5-6.
The most tenacious and intractable problem is that auctions generally
only select based on price. This not only results in support going to a couple
of lower cost production schemes, but restricts the quality of projects in
terms of collateral benefits, such as levels of environmental protection and public
health.
Relying solely on the
price of electricity ignores the Commission’s own policy of balancing support
with environmental benefits.[12]
Noise, odor and emissions controls are frequently sacrificed for the need to
keep the investor rate of return high enough and still win auctioned support.
Long-term advantages of more expensive technologies like biogas used for
organic waste management will also not get any priority or consideration in
auctions.[13]
Even targeted goals for biogas infrastructure will be outside the scope of a
“technology-neutral” auction. Multiple experiences in nations doing auctions
support this conclusion:
“The SDE+ is organised in
such way that only established, low-cost technologies will receive support. The
Netherlands argue that it will be too expensive to reach the 2020
renewable energy target with innovative projects and technologies. It is
however questionable if the target will be reached with only
low-cost technologies.” EcoFys, supra, page 56.
China: “Similar to the auctions for wind, underbidding has been a
problem in the Chinese PV auctions. In
addition, realised projects have been characterized by a low quality
of power plants.” EcoFys, supra, page 66.
There is little indication that the
auction mechanism can be implemented in 28 Member States without them
experiencing the same degree of problems that have occurred in the past.
The fundamental premises of the Commission’s move to auctions are faulty. There
is no flat cost-curve for most of the technologies involved. Setting reference
prices and technology bands to assure that a sufficient number of bids occur
and that projects are actually built will be quite problematic.[14]
One of the major pro-auction academic reports (Del Rio et al, supra)
observes from a study of dozens of RES auctions:
“Unfortunately,
these theoretical advantages of auctions come at a cost. Due to the complexity of
the bureaucratic procedures, and also to the planning required ahead, auctions have
higher transaction costs which,
together with uncertainties on the final price
and the tendering schedule, deter participation by smaller firms,
resulting in a low degree of competition and creating opportunities for market power.
In turn, this may eliminate the higher theoretical efficiency
of this instrument.”[15]
The EcoFys report in 2014, just a couple
of months before the Commission approved the new guidelines, completely
contradicts the optimism about this device expressed by the Commission. At
best, they found auctions to be an experimental tool with some future promise
but many limitations and risks. Compelling all future support schemes to use
this approach seems irresponsible and unwise.
Missing
2020 Targets
One of the most perplexing things about the new state aid guidelines
is why they were pushed into effective just three years before the 2020
deadline. Changes in RES support systems have notoriously influenced the
schedule and timing of investment and project development, both positively in
the case of high PV FITs and negatively in the case of announcements of
downward adjustments. With the majority of Member States not on track to
meet the mandatory 2020 targets for RES,[16]
the rationale for throwing a huge dose of uncertainty into the RES market in
Europe seems highly problematic. The move to any new system makes investment
more risky and creates financial uncertainty. In the home stretch to 2020,
requiring a new system that does not guarantee support for projects that have
permits, land agreements, and other approvals in hand can only dampen the
enthusiasm of investors. Doing so with the avowed intent of lowering the level
of support offered can only have one outcome: fewer projects and more problems
meeting mandatory EU targets.
The industry that is expected to invest billions in this sector has
identified the problems that have caused so many countries to be lagging in RES
development:
“The most important category across all
sectors relates to the political and economic framework: it gathers 357
barriers out of 780. This category mainly refers to the existence and
reliability of a general RES support scheme, access to finance and the
remuneration level of existing support schemes.” Keep on Track 2014, p. 13.
The new guidelines are not
helping: “The newly adopted State aid
guidelines are limiting the
member states’ freedom of choice
of support schemes that have proven to be effective.” Keep on Track 2014,
p. 17. “Stop-and-go policies and
disruptive changes are currently jeopardising the achievement of the 2020
targets.” Id. “Since the announcement of new state aid
guidelines, many potential investors fear less stable conditions. In case the
guidelines are implemented as announced, investments will drop to a much lower
level.” Id. page 20 (emphasis added).
The negative effect of the new
guidelines on RES investment has, in fact, already started in 2014, as European RES investment has fallen 44%. Bloomberg
New Energy Finance, Global Trends In Renewable Energy Investment (2014)
prepared for the United Nations Environmental Program, page 11.[17]
As more Member States juggle their systems to meet the new rules, it is
unlikely that this trend will reverse itself.[18]
The negative effect on RES
investment from the new state aid package is occurring when most Member States
were already off-track to meet their obligatory 2020 targets. It is hard to
see the logic of “avoiding over-compensation” when support was already too low
to trigger the RES investment necessary in most Member States. This is more
puzzling when mechanisms to avoid instances of over-compensation were supposed
to be engrained in all of the national support schemes to begin with.
Technology Neutrality
The Commission has moved from requiring
levelized RES support that differentiates based on technology to a preference
for technology neutrality. This shift is central to the new guidelines and the
new GBER exemptions. The premise of technological neutrality is also
fundamentally wrong.
The entire basis for technology-neutrality
is flawed: the Commission moved from adjustments of support levelized across
technologies to these “free-for-all” auctions with no factual basis for their
decision. In fact, one of the reports probably originally intended to provide support
for changes (EcoFys, January 2014), came out with the opposite conclusion in
discussing auctions: “At present we consider the cumulated cost-potential curve in the EU28 to be too
steep for technology-neutrality…” Design features of support schemes for renewable electricity,
January 2014, p. 23 (emphasis added). The idea started with the Commission’s
proposal of state aid to place “deployed technologies” into free-for-all
auctions. This “deployed” classification was an attempt to find a surrogate for
technologies with comparable cost-curves. See Comments of the Polish Biogas
Association, February 2014. As EcoFys noted, “[i]n case of a rather flat cost-resource curve, there might not be a
need differentiation, since deployment of the most cost-effective plants is
encouraged….” Id.
But they did not find the necessary “flat cost-curve” to be present in
Europe.
Numerous studies have supported the EcoFys
conclusion that the RES technologies found in Member States are not based on
comparable cost-curves. The Institute for Renewable Energy in Poland did a 2013
study for the Polish Ministry of Economy for the expressed purpose of determining
the differentials in the levelized cost of providing electricity. They found a
spread in the necessary support of a factor of more than five across
technologies. These included only the technologies called for in the Polish
National Action Plan, so Poland was committed to develop each of these
technologies under their RES support scheme.
IEO, “Analysis on the
Possibility Of Determining the Necessary Amount of Support For Individual Res
Technologies in the Context of The Implementation of the "National Action
Plan For Renewable Energy," (July 2013).
|
Fraunhofer, LCOE RES (Nov. 2013) [Germany 2012
data].
|
A recent calculation of the levelized cost of production of renewable
energy technologies done by the Institute for Solar Energy Systems in Germany
(above) also illustrates the vast disparity still remaining between the various
technologies. No data from a credible source has been published that suggest
all of these technologies faced similar cost-curves. As we noted below,
they will need to be grouped by cost in both separate auctions by technology
bundles or exempted from auctions by their small size.
Auction advocates ironically use the argument that its mechanism is
better than some other systems to adjusting to diverse costs of production by
“banding,” having separate auctions by technology or cost of production
grouping. See Del Rio, supra.
The Commission has also consistently made the same finding in reviewing
individual Member State RES plans. See UK decision, July 2014.
Each use of a band by technology
undermines the principal assumption of an auction (increased competition),
although banding will be inevitably necessary given the disparities in costs of
production and national goals in RES technology policies. The results will
still be problematic. Banding also does not eliminate the key problem of
under-bidding or over pre-qualification. It may, in fact, enhance it since
there is a smaller pool of players involved.
What technologies need to be supported?
The Commission has ignored the mandates of the RES Directive which required
that National Action Plans be approved by the Commission, including the
technology mix to be supported. Article
4, Directive 2009/28/EC, requires that “Each
Member State shall adopt a national renewable energy action plan. The national
renewable energy action plans shall set out Member States’ national targets for
the share of energy from renewable sources consumed in transport, electricity
and heating and cooling in 2020….”
These plans were developed using a mandatory
template from the Commission, including specification of the
technologies that would be relied upon. Plans had to be approved by the
Commission. Inadequate progress toward the 2020 mandatory targets could require
the Commission to recommend changes in the plan. Id.
Member States should be compelled to
produce support systems that credibly promote the development of the
technologies included in their Commission-approved National Plans. It is not a
question as most commentators assert of support for “less mature” technologies
(the faulty assumption there being that all mature technologies will have
comparable costs per MWhr). It is an issue over the inability of the single
variable of cost per MWhr of electricity to provide the entirely basis for a
policy decision on what should be built. Biogas with a higher cost per MWhr
(see Fraunhofer on previous page) may be required for organic waste management
plans or regulations (like the Animal Byproducts Regulation). It offers
benefits that greater exceed the production of green electricity. But biogas
costs of production are not going down as PV and wind technologies are doing.
The issue is not support of “less mature” technologies (assuming that this is a
surrogate for cost of production), but the issue is simply the relative cost of
production. The existing state aid rules get it right and the new guidelines
get lost in a somewhat naïve infatuation with competitive procedures (which
have normally ended up being anti-competitive in practice).
The Commission’s approval of the UK auction plan involving “contracts
for the difference” still involved separate auctions in three groups based
on levelized cost of production as well as an exclusion of all projects under 5
MW.
See State aid SA.36196 (2014/N) – United Kingdom Electricity Market Reform - Contract for
Difference for Renewable, July 23, 2014. The Commission did not consider the UK
National Action Plan in this decision, which would require sufficient support
for each technology included to satisfy both the DG Competition’s state aid
rules and the DG Energy’s RES Directive.
The
technology neutral auction has proven to be problematic in terms of its results
as well:
“Thus, technology-neutral
auction design tends to provide only very limited development possibilities for
less mature technologies (low dynamic efficiency) and can limit
the variety of
market participants, since smaller actors may
not be able or willing to bear the transaction costs of participating in an
auction” EcoFys, supra,
page 73.
“If a technology-neutral
design is selected, implementing additional measures to stimulate less mature
technologies and smaller-scale technologies should be considered.” EcoFys, supra¸page 73.
The technology-neutral
auction has the greatest chance of being anti-competitive and unfair to smaller
players, yet the Commission new policy makes this the “default setting:”[19]
The bidding process
can be limited to specific technologies where a process open to all generators
would lead to a suboptimal result which cannot be addressed in the process
design in view of in particular:
(i) the
longer-term potential of a given new and innovative technology; or
(ii) the need to
achieve diversification; or
(iii) network
constraints and grid stability; or
(iv) system
(integration) costs; or
(v) the need to
avoid distortions on the raw material markets from biomass support Member
States shall carry out a detailed assessment of the applicability of such
conditions and report it to the Commission according to the modalities
described in Article 11 (a).
Art. 42(3), Commission Regulation
(EU) No 651/2014, June 17, 2014.
There is no clear basis
for shifting from levelized support policies to uniform support policies when
the underlying technologies still have more than a five-fold difference in cost
of production. Member States can
elect to use two or three of the cheapest technologies in their National Action
Plan under the RES Directive (as Sweden has) but it is generally not possible
for Member States to meet 2020 targets without a more diverse mix of
technology. Most Member States are already set up for failure in 2020 and
inadequate support for diverse technologies (even those in their National
Action Plans) is the leading reason.
The guidelines still allow
Member States to make determinations to avoid auctions altogether under certain
circumstances described in par. 127:
Aid is granted in a competitive
bidding process on the basis of clear, transparent and non-discriminatory
criteria, unless:
(i) Member States demonstrate that
only one or a very limited number of projects or sites could be eligible; or
(ii) Member States demonstrate that
a competitive bidding process would lead to higher support levels (for example
to avoid strategic bidding); or
(iii) Member States demonstrate that
a competitive bidding process would result in low project realisation rates
(avoid underbidding).”
The fact is that
virtually all of the above exceptions in the Commission’s text are
the rule for auctions done to date. They are not sporadic artifacts of
poorly conceived auctions, but the dominant characteristics of auctions done to
date. Low project realization rates are a nearly universal problem. It
has been corrected most frequently by imposing pre-qualification requirements
that result in a very low number of bidders, generally rewarding market
concentration. EcoFys conclusion in the Commission-funded report earlier in
2014 is striking: “it
remains to be seen whether auction schemes can eventually achieve the desired
effectiveness
(emphasis added).”
Member States’ burden to demonstrate
a problem with underbidding to avoid auction procedures is also a tautology. Competitive
bidding procedures have normally resulted in “low project realization rates.” How
will a Member State prove that a prospective auction will have this problem,
other than to draw on the past experiences elsewhere? Competitive bidding with
restrictive pre-qualifications (to address underbidding) leads to higher bids
due to increased risks for the bidder. This normally results in bid prices that
could have been readily achieved with a fixed instrument (no savings) or in no
bids at all (no savings and no projects). The Commission does nothing to
resolve the historical problems of auctions, while making them the presumptive
norm.
Exemption from
Notification
But those electing to avoid auction
problems will have to notify and await Commission approval. The exemption
from notification requires:
“ Aid
shall be granted in a competitive bidding process on the basis of clear,
transparent and non-discriminatory criteria which shall be open to all
generators producing electricity from renewable energy sources on a
non-discriminatory basis.” Art. 42(2), Commission Regulation
(EU) No 651/2014, June 17, 2014.
Members States wishing to
invoke the exceptions in the state aid guidelines from Section 127 will be
compelled to submit a notification package and await approval. So the GBER
exemption is being used as a bludgeon to pound Member State’s into auction procedures.
While the basis for a notification exemption for auctions is
fundamentally wrong, the applicability of the exemption will undoubtedly prove
to be problematic. How small projects are handled, what bands are used by
technology, how reference prices are set, what technologies are exempted, and
other procedures will all raise issues that normally would be part of the DG
Competition’s review of the state aid involved. It is dubious that simply
announcing that auctions that are transparent and open to all bidders will
satisfy all of the competition and fairness concerns. Complaints can be
expected that will have the effect of getting the Commission into these issues
even where a Member State tries to claim a block grant exemption.[20]
Certificates
The Guidelines also allow certificate systems to continue, although they
have more restrictions than in the past. Section 3.3.1.4. (“Aid granted by way of
certificates”) provides the guidance.
(136) Member States may grant
support for renewable energy sources by using market mechanisms such as green
certificates. These market mechanisms allow all renewable energy producers to
benefit indirectly from guaranteed demand for their energy, at a price above
the market price for conventional power. The price of these green certificates
is not fixed in advance, but depends on market supply and demand.
Certificate systems have enjoyed
Commission support in the past precisely because their market value floats with
supply and demand. This is also a huge potential draw back if the scheme is not
done in a way to limit distortion of the market. Generally, the distortion has
occurred because some technologies have a significant price edge and end up
with a lion’s share of certificates, which especially if accumulated
year-to-year, can cause an over-supply that destroys the certificate value.
Left: Polish Economic Chamber for Renewable Energy
graphic, from Detailed Paper on Green Certificates.
Poland
is a classic case of this effect: The practice of co-firing biomass
with coal and old hydro plants received the same support (one certificate per
MWhr) as other technologies, leading to the collapse of the market, especially
since certificates have been allowed to accumulate. Over 70% of the
certificates are going to these suppliers (mostly state-owned companies).
The Polish Ministry of Economy explained: “Multi-fuel co-firing plants contributed the
most to the rapid increase in the volume of electricity production from
renewable energy sources which in recent years recorded the highest growth (which
is related to low expenditure necessary to run this type of production
and high revenues generated by this practice).[21] As recently as July
2, 2014, the Polish Government
still criticized the uniform support system noting that “technology showing the lowest cost of power generation received
unjustified support.” Regulatory Impact Analysis, July 23014 bill, p.
21. The current Polish system is the
subject of a Commission investigation, SA.37224 (2013/CP) — Polish system
of green certificates for co-firing coal plants.
Despite the huge problems caused in Poland by the single certificate
value as late as 2014, the Commission is now pushing the idea of a single value
in the hopes of creating competition. “The Commission considers in particular that no differentiation
in support levels through green certificates may be applied unless a Member
States demonstrates the need for a differentiation….” Guidelines, par. 138. This is, of course, a complete reversal of
the rules in the 2008 guidelines that required differentiation to levelize
support across technologies. Community
Guidelines on State Aid For Environmental Protection, section 109 (2008/C
82/01).[22] See
C(2010)2211, State
aid No N 65/2010 - United Kingdom Amendments to the Renewables Obligation
Certificates (ROCs) scheme, March 30, 2010 (“…levelised costs matching the
midpoint of the predicted revenues… will therefore prevent overcompensation in the
aggregate of the different producers”); C(2005)480,
State aid No N 362/2004 – United Kingdom Renewables Obligation Order 2005,
November 23, 2005; C (2011) 4938, State aid SA. 33134 2011/N– RO, Green
certificates for promoting electricity from renewable sources, July 13, 201
At this
point, the Commission will only allow differentiation of certificate values
(levelization) after 2017, based on the same criteria for technology banding of
auctions:
“(i) the longer-term potential of a
given new and innovative technology; or
(ii) the need to achieve
diversification; or
(iii) network constraints and grid
stability; or
(iv) system (integration) costs; or
(v) the need to avoid distortions on
the raw material markets from biomass support.”
Guidelines, supra,
par. 137.
The
need to achieve diversification can presumably be justified by the technology
mix contained in the National Renewable Energy Action Plan for the RES
Directive. So the bar may not be set
very high here for a program to institute or maintain differentiated
certificates. However, it remains mysterious as to what changed in the market
over a relatively few number of years that requires the Commission to turn its
presumption on the need to levelize on its head. Changes in the cost of RES in
some technologies, such as wind and in the future PV, clearly show that the
need for huge support levels is diminishing. But the fixed value systems (FITs
and FIPs) can also reflect that development as can adjusted certificate
coefficients. While the absolute cost per MWhr of some technologies is falling,
the differential between technologies including some that will be necessary to
meet National Action Plans for 2020 have not shrunk. They may be, in fact,
growing as wind and PV prices come down.
The
failure to levelize can still cause all of the adverse effects on competition
that the Commission has strived to eliminate in the past. Nothing on the ground
has changed fundamentally to alter this fact. Yet the Commission is erecting barriers
to Member States doing what was viewed as legally obligatory until the new
rules. There is no GBER exemption for certificate programs, even single value
certificates. See Article 42, Commission
Regulation (EU) No 651/2014, June 17, 2014. In reality, the policies involving
certificates have been sorted out in several Commission decisions and are
relatively straight-forward compared to the procedures that should be used in
auctions and their potential problems. The fact that auctions which would
superficially meet all of the GBER exemption tests have nevertheless resulted
in market concentration would seem to undermine the whole new structure.[23]
Balancing
There is a big emphasis in the new
guidelines on balancing obligations.[24] The Guidelines, as EuroElectric urged, seek
to impose “´standard balancing
responsibilities´ mean non-discriminatory balancing responsibilities across technologies
which do not exempt any generator from those responsibilities.” Section
1.3(38). The Guidelines provide that “Beneficiaries [of RES support] are
subject to standard balancing responsibilities, unless no liquid intra-day
markets exist.” Infra, par. 125(b). The balancing issue will be one of
the major controversies over the next decade. However, the auction mechanism is not particularly well-suited to
impose balancing obligations. Moreover, other provisions of the guidelines
actually impede balancing.
“One usually cited disadvantage of auctions is that they do not give the
right market signals to RE producers, which are therefore not encouraged to
produce in peak times, to focus maintenance on lower demand seasons, or,
generally, to increase operational efficiency. Del Rio, supra. They propose using feed-in premiums to
correct this flaw. Their solution of contracts for the difference may work to
encourage meeting demand curves,[25]
but there is no inherent requirement that the support awarded in an auction
differentiate between peak and non-peak hours, just as there is no requirement
in most FIT systems. The solution funneled through grid sales will likely be
more complex, less flexible and more unfriendly to smaller players than simply
allowing direct sales of electricity to end-users. Distributed energy offers a solution that is
far more direct, manageable and flexible.
It is noteworthy, that while the European Union has championed
“distributed energy” for years, that the Guidelines do not use the term
anywhere in their text. If critics
wonder about the influence of the large conventional utilities on the DG
Competition, they need look no further than this fact.
Certificate systems can now
allow for direct sales to occur[26]
and these schemes can continue under the new guidelines, but only if they go
through elaborate efforts at notification. The Guidelines would require that
certificate programs meet the Section 125 requirements that include sale of electricity
on the market. Infra, Section 138 (“where technically possible”).
The major savings for renewable energy in the lower run is its ability
to provide “distributed energy” in the local communities where the energy is
used. By moving closer to the energy user, this type of RES can reduce
distribution charges that account for about half of the end-user’s bill. Distributed
energy is supported by Commission in theory and then undermined by Commission
in the state aid guidelines by apparently forcing sale to grid.[27]
By eliminating direct sales to end users except for very small installations,
the guidelines restrict distributed energy by definition. Direct sales can
achieve consumer savings and higher margins for RES producers without
additional government support. Local use of energy lowers distribution
prices. If the objective of the state aid package was to reduce the adverse
impact on RES support on end-user prices, then the Commission could not have
made a more irrational decision.[28]
The discrimination against small facilities from auctions[29]
will hurt distributed energy, but the requirement to connect to the grid cuts
off a major market mechanism that could provide for more cost-effective support.
A major way that renewable energy can promote energy security is through
dispersed generation into local grids or direct to users. Biogas has one of the
highest potentials for this application, since it can take organic wastes from
food and meat processing and directly sell the energy back to the waste
producer. This is also a vital way to create incentives for more sound waste
management practices. Smaller sources can find electricity markets in the local
area with transmission costs much lower than the grid. This can also be much
more profitable than sales to the grid for the RES facility. Biogas can be stored over-night and
generation increased in the day during peak hours. So in the right support
scheme, biogas can not only balance itself, but improver the net grid balance.
This also provides improved revenue for market sales during peak hours. This
creates better incentives to invest in such projects without raising the
support levels or impacting consumer prices negatively. Obstructing such
developments is a major distortion of the market to favor the big utilities and
to do so in a way that offers no advantages to consumers.
Section 125 may make community-based biogas impossible when combined
with the 1 MW ceiling on exception from auctions. It is pretty obvious that the
only reason for these restrictions is to limit competition not to protect it. Differential
certificates, so essential for biogas and other technologies that do not have the
lowest cost per MWhr also must undergo a full notification and approval process
with a presumption against the need to levelize (exactly the opposite of the
2008 guidelines, which have been changed even though the relative cost of
production has not changed).
Conclusion
The European Commission is given the task of assuring fair competition
within the community. One important part of that is to provide assurances that
state aid has the smallest impact on competition necessary to achieve the
common goals of European legislation. For many years the Commission fought to
levelize support across technologies, avoid discrimination against new RES
technologies, and encourage small and medium enterprises to enter the energy
market.
Yet in the new state aid guidelines and GBER regulation, the Commission
departs from consistent positions taken in the past. The mechanism for awarding
support would be the procedure most favorable to large utilities, the scheme
most likely to discourage small projects and small developers. The support for
various technologies would be flattened, not levelized, dropping to the lowest
denominator. Distributed energy would be limited to sources of 500 kW assuring
no serious market threat to the major utilities. The pace of RES investment has
slowed considerably. All of these twists and turns have only one thing in
common, that they favor the large established utilities.
The guidelines are only guidelines and in the end they can be challenged
case-by-case as new Member State schemes come into play. Despite the depressing
thought of delayed justice, it may also be that the European Court is destined
to sort out the issues.
““None of the three countries
investigated currently have a model that is likely to help Germany reach the
three goals of its Energiewende: affordability, targets for renewables, and
competition between large corporations and SMEs.” The
Energie Wende Blog, June 25, 2014 (citing IZES study 2014].
[1]
“In order to incentivise the market integration of electricity
from renewable sources, it is important that beneficiaries sell their
electricity directly in the market and are subject to market obligations. The
following conditions apply from 1 January 2016 to all new aid schemes and
measures:
(a) Aid is granted
as a premium in addition to the market price (premium)whereby the generators
sell its electricity directly in the market.
(b) Beneficiaries66
are subject to standard balancing responsibilities, unless no liquid intra-day
markets exist.
(c) Measures are
put in place to ensure that generators have no incentive to generate
electricity under negative prices.” Guidelines, supra,
par. 125.
[3]
This parallels EuroElectric’s “European Commission’s Public Consultation on the
Renewable Energy Strategy,” February 2012 (which has language nearly identical
to the April 2014 guidelines in many respects].
[4] it
is clearly possible to abuse the support system, especially feed-in tariffs, is
a manner that causes over-compensation and higher prices to electricity customers.
Some RES programs offered support at levels above the cost of production,
including more than a reasonable margin of profit. German solar producers got between
46-57 Euro cents per kilowatt, while the Polish system to date, for example,
offers about 11.5 Euro cents (if Green Certificates are at 100% value). German
biogas plants got between 25 and 40 Euro cents per kilowatt, again compared to
11.5 cents in Poland. Because of the higher feed-in tariffs, much more PV capacity
was built in Germany than predicted when the impact of consumers was initially
projected: for example, in 2010, "7,400
MW of solar panels were installed; six times as much as estimated in the
reference scenario used by the environment minister." [Daniel
Wetzel, Die Wel, October 25, 2012]. Similarly,
in Spain, the solar subsidies got adjusted to a level that proved excessive to consumers.
"The payment for PV solar was set at
41.4 eurocents per kWh, with the Spanish government anticipating 400 MW of
installed PV solar between 2007 and 2010. However, the high rate that was set
for PV solar spurred developers to install 344 MW of PV solar in the first nine
months of 2007 alone." Environmental and Energy Study Institute
(2012). "Due to the Spanish
government’s subsidization of electricity, there was a cost to Spanish taxpayers totaling over $1.4
billion. In response, the Spanish government imposed a cap of 500 MW for PV
solar in 2009 and reduced the payments to 32-34 eurocents per kWh. "
Id. The Czech solar subsidies were also excessively high ($700 MWhr or 55 Euro cents
a kilowatt hour) and resulted in a disaster to consumers of electricity: "The result was a more than 24,000
percent increase in Czech solar energy plants, from nine in 2005 to more than
2,230 by January 2010, making the Czech Republic the third-largest solar energy
producer in Europe, despite the country's relatively small size."
Prague Post, March 24, 2010. One of the challenges has been the declining cost
of PV energy and the failure of the support systems to make stable and
predictable adjustments or predictions that kept prices in balance. The history
of PV auctions offers little comfort that suddenly government agencies can set
the references prices at precisely the magic point.
[5] In fact, a majority of the Member States
appear not able to meet the 2020 targets for RES, suggesting that
over-compensation is not a general problem from most European countries. See
Keep on Track (2014).
[6] “Market instruments, such as auctioning or
competitive bidding process open to all generators producing electricity from
renewable energy sources competing on equal footing at EEA level, should
normally ensure that subsidies are reduced to a minimum in view of their
complete phasing out.” Guidelines at par. 109. The phasing out assumption
is only accurate as to certain technologies that are projected to achieve
parity with conventional prices in the future. No such projection is possible
for biogas, for example, yet it is doubtful that the Commission intends for
support for biogas to simply end. See
par. 110 (technology-specific tenders suggested).
[7] Many auctions for RES support in the world
would not meet the Commission’s definition: “´competitive
bidding process´ means a non-discriminatory bidding process that provides for
the participation of a sufficient number of undertakings and where the aid is
granted on the basis of either the initial bid submitted by the bidder or a
clearing rice. In addition, the budget or volume related to the bidding process
is a binding constraint leading to a situation where not all bidders can
receive aid.” Section 1.3(43).
[8] “The Dutch are having trouble simply getting
stuff built. Only eight percent of the biogas projects awarded contracts since
2011 have been completed – and a whopping 98 percent of the PV projects that
won auctions last year were apparently not built even though they had to be
completed within a few weeks in compliance with auction rules.” Craig Morris, The
Energie Wende Blog, June 25, 2014,
[9]
Even in normal auctions in Brazil, “a large share of the selected projects are heavily delayed, thereby negatively
affecting the effectiveness
of the
auctions” EcoFys, supra, page 53. In the
Netherlands: “The realisation rate of
projects so far amounts to roughly 40% of the projects that were committed in
2011…” EcoFys, supra¸page 57.
[10]
Morris writes in The
Energie Wende Blog, on June 23 2014: “In Germany, normal citizens and energy co-ops accounted for nearly
half of the installed capacity in renewables and a third of the capital
invested as of 2012. A switch to reverse auctions would therefore gradually
revert ownership back to conventional utilities.” This may, in fact, be the
real objective of the Commission’s new policy.
[11]
The Commission recognizes that “[f]or
installations which are deemed to be of a size where it cannot be presumed that
a bidding process is appropriate.” Guidelines at par. 111. But it sets the
small project ceiling at 1 MW (except for wind) which is, for example, lower
than the average size of biogas plants in Poland. The most cost-effective
support for biogas is for plants from 1-2 MW (according to the Commission’s own
funded research). "At status quo the eight demonstration plants could
produce electricity at a level of 17.2 €Cent per kWh in average." EU
Agro-Biogas, European Biogas Initiative
to improve the yield of agricultural biogas plants," Deliverable 22
(2010), page (enclosed). Their study looked at ways to optimize
biogas production at various plant sizes and reported the lowest cost per
kilowatt at the larger plants 1-2 MW. See
also Doehler and
Patterson, “Improvement of
the technical, economical and ecological efficiency of biogas production
-future challenges for the agricultural engineering sector,” Club of Rome
(2011).
[12]
The Commission recognizes that market distortion must be evaluated in light of
the environmental benefits. “When
assessing the potential negative effects of environmental aid, the Commission
will take into account the overall environmental effect of the measure when
looking at its negative impact on the market position, and thus on the profits,
of non-aided firms. In doing so, the Commission will consider in particular the
distortive effects on competitors that likewise operate on an environmentally friendly
basis, even without aid. Likewise, the lower the expected environmental effect
of the measure in question, the more important the verification of its effect
on competitors’ market shares and profits in the market.” Guidelines, par.
90. Yet the auction mechanism only evaluates the price of electricity offered,
not the other environmental benefits (biogas has the most environmental
benefits which then get systematically excluded from the decision-making in
violation of this principle.
[13]
This is apparently a contradiction from the
Commission’s intent to promote innovation and to not allow aid to some firms to
restrict RES development. “That might lead to
a situation where, due to the aid granted to some firms, more efficient or
innovative competitors, for example competitors with a different, possibly even
cleaner technology, that would otherwise be able to enter and expand are unable
to do so. In the long run, interfering with the competitive entry and exit
process may stifle innovation and slow down industry-wide productivity
improvements.” Guidelines, par. 91.
[14] “The
initial ceiling price significantly influences the level of competition and
thus the number of bids that will be received in an auction: if it is set too
high, auction results might be inefficient, since bidders might collectively be
tempted to bid well above their lowest possible profit margin. If it is set too
low, only few bidders will enter into the auction, leading to undersupply and a
lack of competition.” EcoFys, supra, page 53. In Brazil, a PV
auction ended with no bids: “It
should also be pointed out that the round of bidding in the fall of 2013 [in
Brazil] did not elicit a single
submission for photovoltaics because the starting price was far too low.” This
is not unusual!
[15]
The Commission’s policy recognizes the problem of state aid enhancing market
power. “Aid may also have distortive
effects by strengthening or maintaining substantial market power on the part of
the beneficiary. Even where aid does not strengthen substantial market power
directly, it may do so indirectly, by discouraging the
expansion of
existing competitors or inducing their exit or discouraging the entry of new
competitors.” Guidelines, par. 92. The Commission just ignores this effect
in its advocacy of auctions. Experience indicates that auctions normally
enhance market power, not competition.
[16]
“In the RES-E sector, 12 Member States overachieved on their 2011 target, 16
underachieved.” Keep On Track, 2014 report. “Out of the 27 Member States
analyzed in this publication, [only] nine are expected to meet their 2020
targets (Austria, Bulgaria, Cyprus, Denmark, Estonia, Italy, Latvia, Romania
and Sweden). http://www.keepontrack.eu/contents/publicationseutrackingroadmap/kot_eutrackingroadmap2014.pdf Nineteen EU Member States will not achieve their
mandatory targets for renewable energy by 2020, a fact made more likely by the
Commission’s actions!
[17] The impact on investment is disproportionally
felt by start-ups and SMEs that rely on external equity funding. “Venture
capital and private equity investment in specialist renewable energy companies
slumped 46% to $2 billion, the lowest figure since 2005…” Id. Larger
utilities with a lower cost of capital then receive a disproportionate boost in
the market as potential competitors fade out of the picture. The DG Competition
rules by creating enormous uncertainty in the sector have an anti-competitive
effect, which they never acknowledge.
[18] Ironically, EuroElectric claimed that the
guideline changes were needed to increase RES investment, a claim boldly
unconnected with reality.
[19] The block grant exemption repeats this
theme, although technology specific auctions can be justified as well. GBER
Regulation, Article 42(3), discussed here on page 12.
[20]
Poland, for example, is proposing only a 60 day notice of reference prices
before the auctions. Projects under 1 MW are not exempt from the auction, but
will have a separate auction. Existing facilities will have their own optional
auction using the average uniform value of Green Certificates in prior years,
regardless of the costs of production of the technologies involved and bidding.
Exiting facilities can opt to continue Green Certificates or go to an auction
(however, the Green Certificates were never notified and approved by the
Commission and have not been levelized). So the “fruit of the poisonous tree”
(unnotified, non-levelized aid) will creep into the decision whether to bid or
not, basically making the decision a product of the past market distortion
[over 70% of the certificates have gone to co-firing and old hydro, each will
huge problems under the state aid rules]. This destroyed the value of the
certificate by as much as 70% at one point and it still has not recovered. 10
TW of certificates have accumulated and are unused, still distorting the
market. The auction threatens to simply extend the distortion of the market,
regardless of its “technology-neutrality.”
[21] Uzasadnienie, Projekt ustawy z dnia 12.11.2013 r.
(justification for draft law of November 11, 2013).
[22]
This was summarized by the head of the Polish Office of Competition in a June
5, 2012 letter to the Ministry of Economy: the
Commission notes whether it is necessary to ensure the viability of energy
production, does not provide overcompensation for the production costs' of
energy (proportional size of the planned instruments is relation to actual
costs) and does not dissuade producers of energy from increasing
competitiveness. In order to
demonstrate this, it is necessary to provide the Commission with a detailed justification
of the necessity and proportionality of
the envisaged measures. In particular, it is necessary to analyze the
markets in which the beneficiaries operate for the planned measures, the
real costs of energy production incurred by them depending on the
type of RES and CHP technology in relation to the achievable
rates the sale of the energy and the rate of return on investment for
different types of RES and CHP technologies” OCCP to Min. of Economy, June 5, 2012.
[23] See
examples cited earlier from Brazil and China. The GBER definitions as well as
the state aid guideline definitions are far too ambiguous to provide clear
policy guidance on what auction mechanisms and procedures will be fair to
competition and avoid market distortion. As has been the case with public
tendering, pre-qualification rules can be used to dictate just about any result
the organizers want to achieve. Par. 131 on pre-qualifications seems to leave
the door open and even the items explicitly mentioned can be used unfairly.
[24] The Guidelines provide that “ ´balancing
responsibility´ means responsibility for deviations between
generation, consumption and commercial transactions of
a BRP within a given imbalance settlement period.” Section 1.3(37). BRP means
Balancing Responsible Party.
[25] “Contracts may differ depending on the
technology: when it is interesting (and feasible) for the technology to receive
the electricity market signal so that it can improve its operational efficiency,
then it could be a contract-for- differences, cleared at an annual basis. This way
the RE producer ensures receiving a guaranteed income, while simultaneously encouraging
him/her to operate when the system needs it most (i.e., at peak times, when electricity
prices are higher). An alternative is to use a fixed tariff with the obligation
to pay balancing costs, or as a take-or-pay contract. The contracts should include
minimum and maximum levels of electricity generation (as in Brazil), again to ensure
a correct performance and integration into the system.” Del Rio, supra¸
page 53.
[26] The language about sale of the electricity on
the market might mean the Commission wants to prevent sales to end-users. But
this would make little sense if they goal is more competition and lower prices
for electriocity.
[27] “In order to incentivise the market
integration of electricity from renewable sources, it is important that
beneficiaries sell their electricity directly in the market and are subject to
market obligations.” Guidelines, par. 125. The context appears to define “market” as only the grid. See par. 126, exempting facilities under
500 kW. The language here comes directly from EuroElectric. If this means no
direct sales to third-parties, then it is obviously anti-competitive and placed
in the rules to restrict an open market, not to create one!
[28] The principal parties hurt by distributed
energy are the large traditional utilities, leading some to suggest that the
Commission’s guidelines were simply intended to buffer the effects of RES aid
on traditional energy providers by actually distorting competition the other
way around.
[29] Del Rio, page
52: “Larger installations facilitate
economies of scale in production but a model of distributed generation calls
for smaller plants scattered around the territory.” Of special interest to
biogas and other technologies is the fact that the guidelines exempt 1 MW
projects from the auction, but exclude up to 6 MW for wind projects. There
is absolutely no justification for this distinction and is distorts competition
in violation of the Treaty.
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