The EU is preparing for an overhaul of the EU’s energy market: Flemish and EU incentives can help companies thrive in this new energy landscape

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Europe is currently facing a double energy crisis. On the one hand, the geopolitical tensions with Russia have substantially reduced the supply of natural gas, putting into jeopardy the block’s ability to meet its energy demand. On the other hand, climate change and the need for a more sustainable energy future has become a pressing concern. The latter compels the European Union to take decisive actions to address these challenges. 

The current revision of the Energy Taxation Directive and the pressing reform of the European electricity market design are expected to bring significant changes to the energy landscape, with potentially disruptive effects to the energy market. Regional and European incentives might offer an interesting opportunity to tackle these changes. 

1. The revision of the Energy Taxation Directive (ETD)

The revision of the Energy Taxation Directive (ETD) aims at aligning the taxation of energy products with EU energy and climate policies, such as ReFuelEU(1) and the EU Emission Trading System. It will ensure that the fuels and electricity sources that are the most polluting will be taxed the highest. In turn, a clear price signal will be provided to companies and encourage them to make the transition towards more sustainable energy sources. To achieve these goals, the revised ETD will bring changes to the way energy is taxed in the EU, including

  • The overhaul of the structure of tax rates based on the real energy content and environmental impact of energy products;
  • The  creation of specific minimum and transitional tax rates for alternative fuels, such as low carbon hydrogen and biofuels; 
  • Eliminate outdated tax exemptions and incentives for carbon-intensive energy products, such as aviation kerosene and maritime transport heavy oil.

 

2. The revision of the EU electricity market

Intense negotiations at EU level are currently ongoing on the reform of the EU electricity market. Unfortunately, reaching an agreement in the short term still seems difficult to achieve(2). However, most Member State representatives agree that the reform should provide increased transparency and predictability to companies that invest in renewable energy. Thus, the reform will likely provide tools to stabilize the price of electricity for industrial actors, such as a clear legal framework for long-term energy contracts(3).

3. Incentives for renewable energy and energy efficiency

The combination of these two reforms will bring both challenges and opportunities for companies in the energy sector. On the one hand, companies may need to adjust to the new tax rates and energy prices. This might require additional investments in new technologies and processes. On the other hand, companies that are aware of the upcoming changes may have the advantage to leverage tax incentives and cash grants that are available at a regional or EU level. Such companies will be well positioned to thrive in this new energy landscape.

Opportunities at European level

At EU level, the Horizon Europe funding programme offers a wide range of opportunities for energy-related investment or R&D projects. Support for these projects typically ranges from €4M to €12M on average. Project calls are competitive and are only open for a certain amount of time depending on the specific call topic. Next to this, the programme also offers several partnerships that specifically focus on alternative energy and ecology such as the European Partnership for Clean Energy Transition

Recently it was also announced(4) that – among other policy changes – the EU State Aid rules would be loosened to boost European investments in green technology and industrial innovation. This came as an answer to the US Inflation Reduction Act (IRA) that might divert investments from the EU to the US. These policy changes are expected to be bundled in the Green Deal Industrial Plan that should be approved in the upcoming months. 

Opportunities in Belgium

On a local level, the Flemish government also has several support mechanisms in place to help companies in these challenging times and boost energy-saving investments. The most recent example is the Energy Aid programme that supports companies in Flanders and Wallonia that are being confronted with rising energy expenses, as a result of the current geopolitical tensions and are experiencing operational losses. Companies that adhere to the programme requirements can get financial support of 25% to 35% of their eligible additional costs for gas and electricity in the last quarter of 2022. This mechanism is planned to continue throughout 2023 (We have launched several newsflashes concerning this topic and will continue to post updates). 

Opportunities in Flanders

To stimulate investments in energy-saving technologies and alternative fuels, there is the Energy Premium Plus (EP+) funding programme. This mechanism financially supports investments in pre-defined green technologies on a limitative technologies list (LTL). Funding can range from 15% to 45% of additional costs compared to a conventional technology. 

To complement the EP + programme, the Flemish government also launched the GREEN Investment programme. This programme supports companies that want to make the transition from fossil fuels to electricity or green energy for the heating or cooling of production processes or the efficiency optimisation of energy usage. Funding ranges from 20% to 40% of eligible costs with a maximum of €1M depending on the chosen technology and company size. 

Lastly, for smaller-scale investments in renewable energy (e.g.solar panels, heat pumps) or energy savings (e.g. isolation, relighting) there are several premiums available from the grid operators Fluvius and Elia or the Mijn VerbouwPremie (MVP) investment programme focussing on renovations. The premiums are dependent on the chosen technology and the energy-saving capacity. 

4. How can we assist you?

It is worth noting that the revision of the Energy Taxation Directive and the reform of the electricity market design will not only impact companies in the energy sector. All companies will be affected by the changes in energy prices and the increased investment in renewable energy and energy efficiency. 

At Pwc, our ESG TLS Team can help your company navigate this uncertain energy landscape while our Incentive Team can support your company in identifying potential incentives for your sustainable investments. Please reach out to Alexis De Méyère (alexis.de.meyere@pwc.com), Tom Wallyn (tom.wallyn@pwc.com) or Bart Wyns (bart.wyns@pwc.com) to find out how we could assist your company.

 

Sources:

(1) ReFuelEu Aviation and Fuel EU Maritime are policy proposals within the FirFor55 package aimed at increasing the use of renewable and low-carbon fuels in the transportation sector.

(2) https://www.bloomberg.com/news/articles/2023-01-10/spain-wants-set-prices-for-renewables-in-europe-s-market-revamp#xj4y7vzkg

(3) https://www.euractiv.com/section/electricity/news/eu-launches-debate-on-electricity-market-reform-amid-rising-consumer-bills/

(4) https://news.pwc.be/flemish-and-european-implications-of-the-climate-and-energy-crisis-government-support-for-green-industrial-investments/