The difference in tax regime for electricity generation between Norway and Sweden has been heavily discussed the last few years, and in particular after the start of the joint green certificates market in January 2012. A new legal argument is now supporting the idea of a rapid review of the Swedish regime, based on a survey ordered by industry associations.The Swedish tax exemption regime for self-produced wind power
A legal note ordered by the Swedish District Heating Association and Energy Norway (Energi Norge) concludes that the current tax exemption regime applicable in Sweden to self-generated wind power is in breach with EU state aid rules.
Under Swedish law, companies that generate wind power in Sweden for their own use are exempted from paying tax on the electricity production. Alternatively, the producers may also be exempted if they have an installed generation capacity of less than 100 kW. In both cases, one condition is that they are not involved in any electricity supply activity. At the time of its introduction, the idea back the provision was to reduce administrative burden, but not to establish a general support in favour of small-scale wind power. It may not have evolved as forseen then.
The Swedish regime may infringe EU state aid rules - Conclusions from the review
The note concludes that the exemption provides the encompassed producers with a significant economic advantage which is tehcnology specific and not beneficial to the society. It is not economically justified (i.e., costly), and not beneficial from an environmental point of view. As energy tax increased, the benefit became greater and greater. The exact scope of the exemption (number of installation and volumes) remains unclear, a fact that has been criticised by the Norwegian Wind Power Association (Norwea), as it undermines confidence on the green certificates market. The tax exemption regime is also distortive of competition, as it introduces large distortions of competition between producers of electricity based on renewable energy sources, in Sweden and abroad. According to the note, it weakens the competitiveness of both biomass power cogeneration and district heating, and favours some producers in the wind energy sector. As of today, the exemption primarily covers municipalities and real estate companies, which, in combination with heat pumps, use wind power for heating purposes.
To sum up, the note concludes that the tax exemption regime is contrary with EU state aid rules on the following grounds:
- The exemption regime fulfills all the criteria of Article 107.1 TFEU
- It is not covered by any exemption, would it be the de minimis regulation, the Block Exemption Regulation, or the Guidelines on state aid for environmental protection and energy. It cannot either be defined as an existing aid.
- It has not been notified to the European Commission.
- It can be allowed under the Energy Taxation Directive, but this does not exempt the authorities from notifying the measure.
Effects on the joint green certificates market with Norway
The Swedish tax exemption regime has been criticized several times by Norwegian market actors, since it may have direct consequences on the joint green certificates market between the two countries. It affects both the technological neutrality of the scheme and competitiveness.
Next steps
The tax exemption is regulated in the Energy Tax Act 1994:1776 (Chapter 11, para. 2, 1st alinea). A so-called net-metering commission has recommended repealing the measure, but no further move has been noticed. A new opportunity to review it is now coming, as part of budgetary discussions to take place in the autumn (reference: SOU 2013:46).
Whether European competition authorities will follow-up the issue or not is not made clear, at least publicly.
Concluding remarks
Devil is always in the details, and this example must recall national authorities that they should carefully assess whether their support scheme must be or not notified, and that they must follow closely the practice from the European Commission.
Support to renewables is allowed and necessary, but, as they are becoming more and more competitive, and put in competition at national and European level, Member States have less and less latitude.
Administrative and other support measures that once have been insignificant, may over time be the basis for a too wide exemption.
Finally, difference in tax regimes and concession rules should be carefully examinated before the conclusion of a joint support scheme, as any difference may affect the development of the market. The bilateral treaty between Norway and Sweden does cover the issue, but the current example has reveals a loophole.
Source:
Press release, Svensk Fjärrvärme/Energi Norge, "Skattefriheten för vindkraft bryter mot EU:s statstödsregler", 2014
Full text of the legal report (in Swedish) is available here.
Comment by the Norwegian Wind Power Association (Norwea) here
Photo credits : (c) Catherine Banet
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