A working group, established by the Finnish Ministry of Employment and the Economy, has published a report according to which different subsidy schemes have been evaluated for the purpose of determining the most suitable model for fulfilling the targets set for a new subsidy scheme for renewable energy. The working group submitted the report to the Minister of Economic Affairs, Mr. Olli Rehn, on 13 May 2016.
The working group has evaluated certain subsidy schemes in relation to investment subsidy, production subsidy and certificates and has made some conclusions regarding the implementation of such schemes. The assignment also included e.g. the evaluation of a tender process as part of the subsidy scheme.
The relevant assignment was limited to the evaluation of schemes where the share of emission-free renewable energy can be increased in industrial scale combined heat and electricity production as well as in separate electricity production. Please find below in brief some of the conclusions made by the working group:
Investment subsidy scheme
In an investment subsidy scheme, power plant projects would be supported at the investment phase and the relevant subsidy would be directed towards the initial investment costs. According to the report, an investment subsidy scheme is particularly suited for e.g. demonstration projects and for the commercialisation of new energy technology.
Production subsidy scheme based on a tender process
In a production subsidy scheme, the subsidy amount is connected to the amount of electricity produced. In Finland, a production subsidy scheme is in practice only possible to finance with funds from the state budget. According to the report, a production subsidy scheme based on a tender process would be a cost efficient way of ensuring the increase of production capacity of renewable energy, which would also direct relevant investments into Finland. From a cost efficiency perspective, such scheme would also need to be technology-neutral. According to the report, a production subsidy scheme would be the most suitable alternative for project developers.
The production subsidy referred to above would, at the outset, require the approval of the European Commission in order to ensure that the scheme is in compliance with the EU regulation on state aid. The report further states that such subsidy scheme (incl. the level of subsidy) could be executed in several ways e.g. by means of a floating or fixed premium (or a combination of both) based on the market price for electricity and the emission allowance price.
A certificate scheme is financed by the electricity users (and not by the state) and all (new) power plants which produce electricity through renewable energy sources would become part of such scheme. Although such scheme would, at the outset, be technology-neutral, the report underlines the risk of the certificate scheme leading to over-subsidising as a consequence of the level of subsidy being, at the outset, same for each relevant project. Furthermore, the report states, inter alia, that such scheme would not necessarily increase the investments made into Finland. In addition, the execution of the said scheme would not be possible within a tight time frame.
To get further information on the report, please see link (only available in Finnish):
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