EU approves €400M Danish aid scheme for renewable energy

The European Commission has approved, under the EU State aid rules, a new Danish aid scheme to support electricity production from renewable sources, including offshore wind and wave energy.

The measure will help Denmark reach its renewable energy targets without unduly distorting competition and will contribute to the European objective of achieving climate neutrality by 2050, according to the European Commission.

The new Danish scheme aims to support electricity produced from renewable energy sources, namely onshore wind turbines, offshore wind turbines, wave power plants, hydroelectric power plants and solar PV.

The aid will be awarded through a competitive tendering procedure organised in 2021-2024 and will take the form of a two-way contract-for-difference premium.

Under this model, where the electricity price is below a reference price established based on an auction, the state pays the renewable electricity producer the difference between the actual electricity price and the reference one.

On the other hand, where the electricity price is above the reference price, the electricity producer pays the state the difference between the actual electricity price and the reference one.

This guarantees renewable energy producers long-term price stability, helping them to make the necessary investments, while limiting the cost for the state, according to the European Commission.

The measure has a total maximum budget of approximately €400 million (DKK 3 billion). The scheme is open until 2024 and aid can be paid out for a maximum of 20 years after the renewable electricity is connected to the grid.

Margrethe Vestager, European Commission’s executive vice-president in charge of competition policy, said: “This Danish scheme will contribute to substantial reductions in greenhouse emissions, supporting the objectives of the Green Deal. It will provide important support to a wide range of technologies generating renewable electricity, in line with EU rules.

“The wide eligibility criteria and the selection of the beneficiaries through a competitive bidding process will ensure the best value for taxpayers money and will minimise possible distortions of competition”.

The measure follows a previous Danish aid scheme for electricity from renewable energy approved by the Commission in August 2018, which expired on 31 December 2019.

The Commission assessed the new measure under EU State aid rules, in particular the 2014 Guidelines on State aid for environmental protection and energy.

“The Commission found that the aid is necessary to further develop the renewable energy generation to meet Denmark’s environmental goals. It also has an incentive effect, as electricity prices do not fully cover the costs of generating electricity from renewable energy sources”, the European Commission stated.

Thanks to the existence of a competitive bidding process, the Commission also found that the positive effects of the measure, in particular the positive environmental effects, outweigh any possible negative effects in terms of distortions to competition.

On this basis, the Commission concluded that the Danish scheme is in line with EU State aid rules, as it will facilitate the development of renewable electricity production from various technologies in Denmark and reduce greenhouse gas emissions, in line with the European Green Deal and without unduly distorting competition.