The cost of state support for renewable energy

In response to these requests, the Court decided to extend a review initially focused on public service energy charges (PSE) to the issue of budgetary support for renewable energy.

The production of electricity and gas from renewable energy sources is one of the levers of the energy and climate policy of the European Union and France to achieve carbon neutrality by 2050. In order to encourage investment and ensure the profitability of installations, the State has put in place support mechanisms guaranteeing producers, for periods generally of around twenty years, support tariffs compensating for the difference with market prices for energy. In metropolitan France, these contracts supporting the production of renewable electricity and biomethane represented a cumulative cost of €26,3 billion between 2016 and 2024, with significant variations depending on the evolution of energy prices, and long-term financial commitments estimated at €87 billion at the end of 2024. Without commenting on the energy policy objectives set at the national and European levels, the Court examines the implementation methods of these support mechanisms and makes recommendations aimed at improving their effectiveness and efficiency, better monitoring producer remuneration, and strengthening the anticipation and control of their cost to the State.

These are modalities whose effects on producer remuneration and the electricity system need to be better controlled.

Public support schemes have significantly contributed to the development of renewable energies by guaranteeing producers long-term remuneration, generally around twenty years, in order to secure investments characterized by high initial costs. These mechanisms – feed-in tariffs and feed-in premiums – have accompanied the strong growth of supported installations: the number of contracts more than doubled between 2016 and 2024. They have contributed to achieving some of the deployment targets for these sectors set by national energy policy, even if some delays remain, particularly for wind power.

The Court notes, however, that the levels of support and how they are set can lead to situations of overpayment or windfall gains, particularly due to a still insufficient understanding of the economics of the sectors. Open-access schemes have thus generated a surge in applications when the rates appeared particularly attractive, while, in a context of sometimes insufficient competition in certain calls for tenders, candidates have been able to request high rates.

Furthermore, certain support mechanisms can have undesirable effects on the functioning of electricity markets, particularly by encouraging episodes of negative prices, since producers benefiting from guaranteed tariffs have no incentive to adjust their production. Finally, the Court emphasizes that the controls and sanctions applicable to producers remain insufficiently implemented, even though shortcomings and non-compliance are reported by regulatory bodies and obligated purchasers.

Significant but difficult-to-predict impacts on the state budget

Public support for renewable electricity and gas producers, provided through purchase obligation schemes and supplementary remuneration, translates into budgetary expenditures for the State as compensation for the public energy service (SPE) charges borne by EDF OA and other obligated buyers.

The government compensates these operators, firstly, for the additional payments made to producers and, secondly, for the difference between the cost of purchasing renewable energy and the revenue generated from its resale on the electricity or gas markets. The level of public energy sector (PES) costs thus depends on the volumes of energy supplied, the guaranteed tariffs, and the market prices at which this energy is valued. This results in a high sensitivity of public spending to fluctuations in the energy markets. After increasing between 2016 and 2020 to reach €6,05 billion, PES costs became negative in 2022 and especially in 2023 (-€3,12 billion) in a context of very high market prices, before expected to increase sharply again, according to estimates from the Energy Regulatory Commission, to reach €7,44 billion in 2025.

The valuation of supported energy depends largely on short-term markets, making these costs particularly sensitive to price fluctuations and difficult to predict, even during the fiscal year. Furthermore, cash flow problems may arise for some operators. In addition, support contracts are concluded for long periods, generally twenty years, which commits the State over the long term without the final amount of costs being known in advance. At the end of 2024, off-balance-sheet commitments associated with renewable energy support were estimated at €87 billion, an estimate, however, subject to significant uncertainties.

Given the scale of the financial commitments associated with supporting renewable energy and the sensitivity of public service energy charges to market price fluctuations, the Court emphasizes the need to improve the predictability and monitoring of these mechanisms. It specifically recommends improving knowledge of the supported sectors, establishing a plan to combat fraud, strengthening information on the State's long-term commitments, improving the monitoring of management costs borne by obligated purchasers, and revising the methods for compensating financial costs to better reflect financing conditions observed in the markets. More broadly, various developments envisaged by public authorities could contribute to reducing the variability of annual charges and improving their budgetary management.

Illustrative image of the article via Depositphotos.com.