EU countries need to coordinate renewables support to avoid investor hopping - study

EU member states need to coordinate their domestic energy reforms in order to better implement the bloc’s stricter 2030 climate targets and promote renewable energy sources, a study by the Institute for Advanced Sustainability Studies (IASS) in Potsdam has found. The study argues that without such coordination, many investors would relocate their activities to technologies that are still subsidised or to countries where funding is still available. This, in turn, would increase the total costs of expanding renewables. Many EU countries have already replaced state-guaranteed remuneration per kilowatt-hours with auctions and there is growing political pressure to abolish fixed-price payments and allow the free market to determine renewable energy pricing. The authors examined how different funding options influence investors’ decisions and found that most of them, when free to choose, would invest in supported photovoltaics or onshore wind projects in their own country.

But many investors would prefer to invest in other technologies or in other countries if fixed-price remuneration is only available there. Larger investors are more willing and able than smaller ones to relocate their activities to new countries if they find an attractive, low-risk market. As a result, larger projects would be relocated. “This could change the European energy mix in such a way that it becomes dependent on a single, less mature technology or a specific production region,” the study said. “For example, photovoltaics first became competitive in the sunny southern European countries. If they let their funding expire, investors will invest more in PV systems in the northern European countries that are still paying subsidies, and thus the overall costs for the European energy transition will rise.” Cross-border coordination of the reforms is therefore essential. Policy reforms that encourage greater market influence may be aimed at lowering costs, but if such changes are not coordinated, they run the risk of actually increasing costs, the authors point out.