EU Climate State Aid Rules Draft

The EU Commission has published a draft of their revision of the State Aid Guidelines for renewable energy. The public has a chance to comment until August 2nd.

This is a public comment on this draft.

The existing 2014 version of the guidelines helped change the German law on renewable energy from a very successful feed-in tariff to an auction based model. I perceive it as “Not an Absolute Disaster”, but close. I am disappointed that the Commission still insists on their auction model.

The motivation for the change to auctions might be to save costs. I applaud such a motivation. Especially in recent times, the Member States are issuing much new debt and the European Central Bank is buying up all that debt, printing lots of new Euros in the process, with no end in sight. Trying to limit costs may help with that problem.

On the other hand, the track record for installation of renewable projects is somewhat lacking.

In an auction system, there never will be more installations than whatever the state decides to put up for auction. The decision on price moves in the direction of the market. The decision on volume moves away from the market to central planners.

Therefore keeping calling for auctions in the new guidelines draft is misguided.

Fortunately, there will be two important elements mitigating the damage these Guidelines will be doing to the climate.

For one, prices for renewable energy have already come way down. That battle was won in 2000 when the EEG was introduced without the Commission being able to stop it. The Court of Justice upheld the system in the PreussenElektra case. The Commission argued against that result and tried to resist this historically important successful support scheme, but fortunately they lost at the Court, just as they lost again in 2019. There is no way to get costs for renewable up again over the level of fossil fuel energy.

And the other factor is that we are about to see a completely new world wide massive support scheme for renewable energy. Said scheme will not be financed by taxpayer money and not be paid for by any one EU Member State. There will be no way for the Commission to mess up this one, or even to require their permission.

I am of course talking about the El Salvador volcanoes.

As anyone paying attention knows, El Salvador just decided to make Bitcoin legal tender and to use some of their geothermal energy for bitcoin mining, turning renewable energy directly into money.

If you are running a bitcoin mining operation close to the geothermal well, you have a guaranteed source of stable income before the first power transmission line is built. You get that income secured even in time slots where demand from household or industry users is not sufficient to cover for supply. That means a massive financial support scheme for the operation of the renewable energy facility, courtesy of the 150 million Bitcoin users in the world.

Their economic interest in Bitcoin makes it possible to mine with that volcano geothermal energy. You can do the same thing everywhere on the planet. You get a stable source of demand 24/7, before building any transmission lines.

And without asking the EU Commission for permission.

I will be interested to see what will be left of the EU support schemes for renewable energy once the new guidelines are in place. I hear that there will be massive funds available under the “Next Generation EU” drunken sailor spending scheme.

I expect it will be interesting to come back once the next update of the Guidelines needs to be done another decade later and see if this time was as spectacular a failure as the 2014 version.

And it will be interesting to see if the new Bitcoin support scheme will be more effective in promoting renewable energy than whatever the EU and the Member States do.

Published by kflenz

Professor at Aoyama Gakuin University, Tokyo. Author of Lenz Blog (since 2003, lenzblog.com).

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