The sky is the limit for clean energy subsidies in Europe

By Irina Slav for oilprice.com

China may have saddled itself with as much as $42 billion in unpaid renewable energy subsidies, but it pales in comparison to the enormous amount of money Europe is pumping into ambitious renewable transition plans even as the continent is ravaged by a global pandemic.   Germany recently unveiled a $145-billion (130 billion euro) recovery plan for Europe’s largest and strongest economy. Of this, Bloomberg has calculated that some $48.7 billion (41 billion euro) was allocated for renewable energy and EVs. The government was especially generous with EVs: it increased subsidies for these to the extent that it made some models cheaper to buy than comparable models with internal combustion engines. Some EVs, Automotive News reported earlier this month, are even free thanks to the higher subsidies.

Other European countries are also generous with the EV subsidies, although not excessively generous, as per this overview by Argus Media. Germany is by far the most generous, offering EV buyers up to $10,000 (9,000 euro) for cheaper EVs. Across France, Spain, and Italy, subsidies are between $4,750 and $8,300 (4,000-7,000 euro).

Most of this support, however, is focused on lower-end EVs—not Teslas—although some incentives, such as tax exemptions, are in force for all-electric vehicles.

But that’s just electric vehicles. As crucial as EVs are for the decarbonization of economies, they are not the only tool at governments’ disposal. 

China has been by far the most active investor in solar and wind power, topping world charts for years. Last year, China said it would cut renewable energy subsidies to $807 million this year. That unpaid subsidy bill may well have had something to do with it, along with the fact that falling solar and wind power costs have motivated a reconsideration of these industries’ need for government support.

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But then this year something interesting happened. China’s Ministry of Finance reversed the 2019 decision, announcing solar and wind subsidies this year will be $13.2 billion (92.39 billion yuan), 7.5 percent higher than last year’s. This, according to CMB International Securities analyst Robin Xiao, would cost the government some $28.6 billion this year (200 billion yuan), he told Bloomberg. The big beneficiary of this subsidy increase would be solar power, despite those fast-falling costs of building and operating solar farms and a requirement from Beijing that all renewable power projects applying for subsidies need to prove they are as cheap as the equivalent coal-powered plant.

Germany is also spending actively on solar. In fact, the Merkel government last year removed a cap on solar power subsidies to boost capacity faster. Earlier plans had envisaged a suspension of subsidies for solar projects once Germany’s installed capacity reached 52 GW. Yet later, the government decided to remove this stipulation when it was faced with climate protests and the realities of having to satisfy the country’s energy demand even after it shuts down its coal-powered plants.

In wind, some pretty good news came earlier this month from the UK. A study by Imperial College London suggested that before long, offshore wind farms could generate electricity so cheaply that they won’t need subsidies. This is because the technology is improving, and production is becoming a lot more efficient. Therefore, by 2050, offshore wind farms may begin to pay dividends, which would make electricity cheaper across the board.

That’s certainly good news. It is common but grudgingly admitted knowledge that renewable power tends to swell utility bills for the average taxpayer, despite all the government incentives available to make the difference more palatable. The fact that costs for solar and wind are falling thanks to the evolution of the technology should be appreciated.

Europe is also betting big on hydrogen. Clean hydrogen, to be precise. The EU plans to build some 6 GW in clean electrolysis capacity in just four years, which means an output of 1 million tons of hydrogen. This should grow to 40 GW by 2040, capable of generating 10 million tons of hydrogen. Since clean hydrogen production involves the use of electricity produced by renewable sources, the EU will have to be strict about its renewable power capacity goals.

Right now, everything points to governments sticking to subsidies for renewable energy and electric cars for the observable future. Add to that hydrogen cars, which are not cheap, either. How much this would cost taxpayers is a complex question whose answer depends on government policies. One thing is for sure, though: It will not be minimal, especially if Germany and France are willing to make EVs free for consumers to stimulate demand.

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