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Estonian regulator: Renewable energy support bill will raise tax burden

Estonian news - etea November 22, 2012

Baltic News Service, 22.11.2012

An analysis the Estonian Competition Authority sent to the parliamentary economic affairs committee, environment minister and transmission system operator Elering points out that in accordance with the bill of amendments to the Electricity Market Act subsidies to several renewable energy producers will rise which will increase both the size of support payments and consumers’ tax burden.

Under the present Electricity Market Act the amount of supported wind energy is capped at 600 gigawatt-hours per year. The bill proposes that existing producers, including wind energy producers, who meet the conditions set down by law be ensured justified return of 10 percent on invested capital.

“This may create a situation where it is not advantageous for an entrepreneur to use existing production capacities in full, because a 10 percent return is guaranteed also at a smaller production volume, and it is more practical to operate the production capacities where the return is not guaranteed,” the Competition Authority said.

In a 2010 study the competition watchdog pointed out that the support scheme established by the Electricity Market Act is not sustainable and distorts the electricity market as it allows some producers to earn unreasonably large profit on account of subsidies.

It was this analysis that prompted a review of the law.

The amended law would automatically guarantee 10 percent return on invested capital to existing low-yield projects, in other words, support to certain producers would increase instead of being reduced, the Competition Authority said. This will both increase the size of subsidies and raise consumers’ tax burden.

“The above-mentioned facts raise the question whether the support scheme set out in the bill ensures fulfillment of the objective, which is to reduce consumers’ tax burden,” the agency said.

The government sent at the end of October to parliament amendments to the Electricity Market Act whereby the volume of renewable energy subsidies would be cut by 18 percent from next year. The Ministry of Economic Affairs and Communications that drafted the bill 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 in renewable energy fees until the year 2020 compared with the present scheme.

As renewable energy support described in the bill will qualify as state aid from next year, EU permission will have to be sought for the support arrangement.

 

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