With current low electricity prices, the government continues to consider subsidy schemes for renewable energy.
In early 2015 the government commissioned the Energy Agency to present proposals to increase support for the expansion of offshore wind power in Sweden. The proposals were presented on June 1 2015 and have since been commented on by the energy industry.
The report recognises that the existing subsidy system of electricity certificates is insufficient for the expansion of offshore wind power and substantial subsidies are required for large-scale expansion. The Energy Agency has based its calculations on an expansion of 15 terrawatt hours (TWh) of offshore wind power by 2025.
The agency suggests that offshore wind power should be subsidised by a feed-in system with a sliding premium. Producers will then receive a premium that varies as a function of the fixed spot market price, but msut still sell the electricity on the spot market. The report estimates that current electricity prices require a subsidy of approximately Skr0.75 per kilowatt hour (kWh).
The adoption of a large-scale subsidy system would have to take EU regulations on state aid into consideration. From 2017 state aid regulations will require tendering schemes for subsidies to major offshore wind power plants. The Energy Agency has therefore proposed that subsidies be granted within a tendering scheme where producers state their required subsidy level and the lowest bid wins the tender and is granted subsidies. The subsidies are suggested as a sliding premium (ie, the premium varies as a function of the spot market price), which the agency believes can contribute to increased competition and lowered costs.
The report has received mixed reviews from referring bodies. While some bodies, including Swedish Windpower and the Swedish Windpower Association, have welcomed the increased support for renewable energy, others have highlighted weaknesses in the report. Apart from the need for a further in-depth impact assessment, it is argued that expansion will be cost intense and complicate existing renewable energy production. Swedish Energy and the Swedish Energy Markets Inspectorate argue that a feed-in system (ie, where producers are paid for each kWh produced) will further distort competition.
According to the agency's calculations, the subsidies analysed in the report would have a negative effect on the average spot price. Referring bodies have identified this as a negative aspect, since it would lower the incentive for other renewable energy producers.
Swedish Energy has further stated that increased support for offshore wind power is untimely, since technology is set to become cheaper with time while electricity prices may rise – an argument identified in the report. This would mean lower subsidy costs in future. The report estimates that expansion to 15TWh with a 15-year subsidy period would cost Skr120 billion if commenced by 2018 and Skr40 billion if commenced 2025.
Given the identified weaknesses and need for further analysis, it is unlikely that new regulations on subsidies for offshore wind power will be introduced before a more thorough investigation has taken place.
For further information on this topic please contact Peter Högström at Advokatfirman Lindahl KB by telephone (+46 8 527 70 800) or email ([email protected]). The Advokatfirman Lindahl KB website can be accessed at www.lindahl.se.
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