Swedish Government propose effectless “stop mechanism” in the Electricity Certificate System
The Electricity Certificate System is intended to increase the production of renewable electricity and make the production more cost efficient. Since 2012, Sweden and Norway have a common electricity certificate market. The system has successfully contributed to a rapid expansion of climate friendly electricity production, reduced electricity price for consumers, increased security of supply and paved the way for electrification and digitization.
The national development target for renewable electricity is now reached – 10 years ahead of schedule – and the expansion of wind power in Sweden is market-driven. Consequently, the Electricity Certificate System should be phased out with a so-called stop mechanism. The Government have promised that the stop mechanism should contribute to a balance between supply and demand in the electricity certificate market, preventing over-development and price collapse.
The Swedish government last week proposed that the deadline for allocating new electricity certificates be set for 31 December 2021 (instead of 2030) and that the electricity certificate system be ended by the end of 2035 (same time-stop as in Norway). The stop mechanism is proposed to be implemented on 1 January 2021.
The Swedish Wind Energy Association´s member companies represent a majority of the investments that has contributed to achieving the expansion target within the Electricity Certificate System. We mean that the proposed stop mechanism fails to fulfil the promise of closing the system in balance, preventing over-development and price collapse.
The Government’s proposal for a stop rule will be effectless, as a basic principle for the system to work is that there is a balance between supply and demand for electricity certificates.
Without an allocation-stop according to the Swedish Wind Energy Association’s and the Swedish Wind Power Association’s proposal, an over-development will be reached within the system and the certificate price will drop to zero. This means that the electricity producers will not be compensated for the development that they have contributed to and paid for. Furthermore, it is mainly early investors, who have included compensation from electricity certificates in their cost calculation, who are hit hard financially.
A main reason for the government’s proposal is that a low price for electricity certificates will be a saving for electricity consumers. That is correct, but the very basic idea of the system was to provide extra income to producers of renewable electricity for a limited period of time. Also, the proposed stop mechanism ignores the fact that the introduction of the Electricity Certificates System has largely benefited consumers through reduced electricity price due to increased production of renewables.
Additionally, the government’s proposal for a stop mechanism is inconsistent with both the revised Renewable Energy Directive, which states that member states must guarantee the proper functioning of national support systems with regard to investor confidence, and the principles of EU governance regulations for promoting investments.
To meet the climate challenge, investors must have confidence in the stability of the Swedish market and dare to invest in infrastructure that enables change. Thus, the SWEA hopes that the Swedish Council on Legislation will consider the above criticism in its review of the referral.
In parallel with the proposed stop mechanism, the Government announced in a press release that the Energy Market Inspectorate will be commissioned to review and analyse the economic conditions for smaller production facilities of renewable electricity.
SWEA will examine the new assignment and what it may mean for small and medium-sized wind turbines, which account for a significant part of the Swedish production of renewable energy.
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