The EU’s post-2020 fund to modernise the bloc’s power sector could focus exclusively on renewable energy projects, ignoring other low-carbon options, Poland’s biggest utility and emitter warned, adding that giving other organisations and non-recipient nations veto power over spending was a “big problem”.

As part of its proposed reforms to the EU carbon market, the European Commission has called for the so-called Modernisation Fund to be financed through the sale of around 310 million EUAs, but PGE said it is “afraid” that it will directed solely at investment in renewable energy sources.

“We would like the fund to be technologically neutral and will also look for some help in other technologies, such as possibly nuclear, modernisations or grid development,” Maciej Burny, director of PGE’s office of regulatory affairs, told attendees at the CBE Polska Emission & Energy Trading Summit in Warsaw last Thursday.

“With nuclear, it’s not so good because it’s controversial in Europe.  And God forbid there’s any new coal … Without CCS there’s no way you can do it.”

Burny added that PGE anticipates that the fund will be focused only on renewables based on the “proposed strong involvement of the European Investment Bank and the European Commission – both holding veto powers – and other non-beneficiary member states.”

The EC has proposed that a balanced governance structure be established for the fund, with an investment board responsible for the rules and guidelines and a management committee responsible for the day-to-day affairs, including project selection.

It said both bodies should feature representatives from each of the 10 likely recipients – Eastern European countries that have a GDP per capita below 60% of the EU average.

**Click here to read Carbon Pulse’s briefing on the Modernisation Fund**

TOO MANY VETOES

The Commission also proposed that itself, the EIB and three other member states hold seats on the two panels, a move that Burny said could limit the beneficiary nations’ control over the fund.

“We have a big problem with this proposal … [The recipient countries] were supposed to decide what investment projects they were going to target with EIB … [but] now three more member states will be included, who are not beneficiaries but who are going to determine the choice of projects.”

He added that the proposed rules were “not entirely consistent” with the arrangements agreed by the European Council in Oct. 2014, when EU leaders set the EU’s overall 2030 emission reduction goal.

However, Burny’s view was countered by Michael Steurer, an advisor on EU affairs at Eurochambers, the association of European chambers of commerce and industry.

“We should also consider that [the Modernisation Fund] has the potential to create market distortions … [so] the request to have central monitoring by the EC is not that bad,” he told the conference.

Under the Commission’s proposal, Poland stands to receive 43.4% of the fund’s proceeds, an amount that early estimates put at upwards of €3.5 billion.

DEROGATION DENIGRATED

The Modernisation Fund forms one part of a package of measures aiming to transfer cash from west to east, to ensure the bloc speaks with one voice on climate protection, and to help channel finance to areas where emissions cuts can be made more cheaply.

It builds on a programme introduced during the EU ETS’ third phase (2013-2020), which lets the bloc’s poorer nations apply to receive free allowances to help fund investment in modernising their power sectors.

But Burny also criticised the rules of this so-called ‘derogation’ mechanism – defined under Article 10c of the ETS Directive – because the beneficiaries were forced to set out their plans two years before the start of the third trading phase.

“The European Commission prevented us from verifying the lists after 2011 … The new BAT [best available technology] requirement by the EC completely changed the plans for us. The regulatory environment is changing so fast that you cannot plan for 10 years in advance,” he said.

Under the derogation programme’s rules, the emissions-reducing ability of the projects that were targeted for funding had to be evaluated against the best available technology at the time while taking into account the fuel being used.

Burny added that some projects have been delayed or abandoned for various reasons, meaning Poland will lose “quite a lot” of their free allowance quota as a result.

“We already know that we are going to use 70% of the maximum because we were obliged by the European Commission to fix [our plans] in Sep. 2011.”

By Mike Szabo – mike@carbon-pulse.com