F – EU court says feed-in tariffs are “not state aid”

In 2001, the European Court of Justice ruled that feed-in tariffs do not constitute “state aid” and are therefore not illegal subsidies, thereby paying the way for the boom of renewables.

The law quickly led to a boom in in wind power in particular, so the conventional power sector decided to challenge the policy’s legality. EU Competition Commissioner Karel van Miert openly stated that he considered feed-in tariffs to be illegal subsidies, and around that time German power provider Preussenelektra (which merged with Bayernwerk in 2000 to create E.On Energie) decided to challenge feed-in tariffs in court. The matter went all the way to the European Court of Justice, which ruled in 2001 that feed-in tariffs did not constitute “state aid” and were therefore not illegal.

As the Court explained, EU member states can require private power firms to purchase renewable power “at minimum prices higher than the real economic value of that type of electricity, and, second, distribute the financial burden resulting from that obligation” to consumers because renewable energy is “useful for protecting the environment” and for reducing “emissions of greenhouse gases which are amongst the main causes of climate change which the European Community and its Member States have pledged to combat.”

In layman’s terms, the Court basically ruled that feed-in tariffs are in fact open to everyone, including large power corporations, so they do not discriminate against any market players and therefore do not distort competition. Rather, they promote a particular type of energy to the disadvantage of other types in order to reach goals for the common good supported throughout Europe. Specifically, they are not subsidies because no particular firm receives payment from the government, and the cost of feed-in tariffs is passed on to ratepayers, not taxpayers; it is not an item in the government’s budget.

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