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Harmonisation
Green Power
Harmonisation The continuing competition of support mechanisms The European Commission is not yet taking any final decisions about harmonising national support systems for power from renewable sources. However, the recent evaluation of support mechanisms shows that the Commission is gradually preparing to link national markets, to advocate cooperation and maybe in the end - to establish harmonisation. Rolf de Vos of GreenPrices analyses the current situation.
I
n theory, establishing an internal green power market in the EU would be economically efficient. Free transfer of green kilowatt-hours across borders would mean that - for instance - wind energy would be preferably generated in Scotland, biomass power in Lithuania and solar power in Greece. But the European market for green power is still a patchwork of national markets, based on national policy instruments. Some markets are developing quite prosperously, some less, but these markets are not very well linked to each other. At present, many parties don't mind. The market is still young, so let many flowers flourish, water them and see which one gives the most attractive flowers. And please don't disturb the investment climate! At present, harmonising support mechanisms all over Europe would be a rigorous step to establish such an internal market. The long-awaited communication of the European Commission about policies and measures regarding power from renewable sources shows no real further steps towards harmonisation of policies in the European market for green power. However, the evaluation, published in December 2005, announced a new review of the need for harmonisation in 2007. As a prelude to further steps, the European Commission advocates more cooperation between Member States.
60 reFOCUS
January/February 2006
As already stated in a draft evaluation published during the Amsterdam Forum on sustainable energy last October (but in different wording) "the Commission does not regard it appropriate to present at this stage a harmonised European system." Of course, in recent years the Commission has experienced a lack of political support for harmonisation, so any further steps would be useless at this stage. Fierce discussions between obligation-adepts and feed-in fans have shown that the twain shall not meet - at least not within the short or medium term. Nevertheless the European Commission will take up the issue of harmonisation of renewable power policies again. And reading between the lines of the document, one cannot disregard the Commission's willingness to take further steps in this. Although strong forces in the market and in political circles are not very eager to discuss the matter again in 2007, the Commission takes the risk of - again disquieting market parties and investors by re-scheduling the issue. In a reaction both the renewable industry association EREC and Eufores said that 2007 is still too early to take up the harmonisation issue again. "Obviously it is not clear that exactly this discussion brings insecurity in the market", said Marc Timmer , Managing Director of Eufores.
The recent Communication from the Commission evaluates the strength of the current support systems. Besides some tax incentives and tendering procedures, two support systems are dominant. At present, the feed-in systems (stable tariffs for power from renewable sources fed into the grid) seem to be ahead of systems based on obligatory shares of renewable power (mostly imposed on suppliers). Especially for wind energy the feed-in tariffs seem to be more effective, according to the Commission. Obligations and certificates seem to offer higher support levels, but also go with more uncertainty for the investors. The immaturity of the market for green certificates is implying investment risks that are too high. But the Commission is not judging yet and wonders how this market will develop in the next years which in this young market is a clever thing to do. In biomass and biogas the situation is considered less transparent. Regarding economic efficiency and effectiveness, sometimes feed-in tariffs and sometimes other mechanisms are better. But especially in biogas, support levels are still too low for a positive development of potential. So harmonization is still far away. In two years time the European Commission will come up with the next review, covering the advantages and
1471 0846/06 © 2006 Elsevier Ltd. All rights reserved.
disadvantages of harmonisation. The report will then cover a policy framework for renewable energy beyond 2010. When it comes to harmonisation, this will not happen immediately. Already it is stated that transitional periods for national support systems will last seven years at least. Meanwhile, "the Commission considers a coordinated approach to support schemes for renewable energy sources to be appropriate." This European coordination can be regarded as the preparation for an internal market. This coordination will be based on two pillars. Countries with similar systems, e.g. feed-in tariffs (in Germany, Spain, France) or obligatory shares of renewables, proven with certificates (e.g. in some Nordic countries), could intensify their co-operation or even start 'subharmonisation'. However, competition between the leading policies is still fostered by the Commission. Suprisingly enough, in this Communication, the
www.re-focus.net
European Commission takes no stand regarding the position of the Guarantees of Origin, that are considered by many market parties to be an important instrument to link at least the administration of green energy in different countries. The second pillar is the optimisation of national systems. The Commission recommends several measures for this optimisation. Reduction of the risks for investors is very important. The Commission sees too many 'stop-andgo' systems that are not creating the long-term stability of the investment climate wanted by both bigger and smaller investors. Maybe even more than the size of the profit margins, a steady financial return on investments is of great interest to investors. The market for new green power capacity will be even more enhanced if permit procedures will be transparent and if grid infrastructures will be developed to accommodate further - decentralized - renewable capacity. The Commission even recommends the
possibility of tax reductions or exemptions. The Commission has identified the barriers for further development of green power, but is not intending to use its muscle yet to remove these barriers. National governments are politely invited to improve their systems and cooperate with sister-nations. Will that be enough? There is no indication yet that this will do to reach the 21 % share of renewables in the total EU power consumption. Maybe it's time for the European Commission to show some muscle, but 2007 may be too late for that….
Further information Contact: Rolf de Vos, Ecofys BV, Kanaalweg 16-G; P.O. Box 8408; NL-3503 RK Utrecht; The Netherlands. E-mail: [email protected]; Tel: +31 (0)30 2808 446; www.ecofys.nl; www.greenprices.com
January/February 2006
reFOCUS 61
Harmonisation The continuing competition of support mechanisms The European Commission is not yet taking any final decisions about harmonising national support systems for power from renewable sources. However, the recent evaluation of support mechanisms shows that the Commission is gradually preparing to link national markets, to advocate cooperation and maybe in the end - to establish harmonisation. Rolf de Vos of GreenPrices analyses the current situation.
I
n theory, establishing an internal green power market in the EU would be economically efficient. Free transfer of green kilowatt-hours across borders would mean that - for instance - wind energy would be preferably generated in Scotland, biomass power in Lithuania and solar power in Greece. But the European market for green power is still a patchwork of national markets, based on national policy instruments. Some markets are developing quite prosperously, some less, but these markets are not very well linked to each other. At present, many parties don't mind. The market is still young, so let many flowers flourish, water them and see which one gives the most attractive flowers. And please don't disturb the investment climate! At present, harmonising support mechanisms all over Europe would be a rigorous step to establish such an internal market. The long-awaited communication of the European Commission about policies and measures regarding power from renewable sources shows no real further steps towards harmonisation of policies in the European market for green power. However, the evaluation, published in December 2005, announced a new review of the need for harmonisation in 2007. As a prelude to further steps, the European Commission advocates more cooperation between Member States.
60 reFOCUS
January/February 2006
As already stated in a draft evaluation published during the Amsterdam Forum on sustainable energy last October (but in different wording) "the Commission does not regard it appropriate to present at this stage a harmonised European system." Of course, in recent years the Commission has experienced a lack of political support for harmonisation, so any further steps would be useless at this stage. Fierce discussions between obligation-adepts and feed-in fans have shown that the twain shall not meet - at least not within the short or medium term. Nevertheless the European Commission will take up the issue of harmonisation of renewable power policies again. And reading between the lines of the document, one cannot disregard the Commission's willingness to take further steps in this. Although strong forces in the market and in political circles are not very eager to discuss the matter again in 2007, the Commission takes the risk of - again disquieting market parties and investors by re-scheduling the issue. In a reaction both the renewable industry association EREC and Eufores said that 2007 is still too early to take up the harmonisation issue again. "Obviously it is not clear that exactly this discussion brings insecurity in the market", said Marc Timmer , Managing Director of Eufores.
The recent Communication from the Commission evaluates the strength of the current support systems. Besides some tax incentives and tendering procedures, two support systems are dominant. At present, the feed-in systems (stable tariffs for power from renewable sources fed into the grid) seem to be ahead of systems based on obligatory shares of renewable power (mostly imposed on suppliers). Especially for wind energy the feed-in tariffs seem to be more effective, according to the Commission. Obligations and certificates seem to offer higher support levels, but also go with more uncertainty for the investors. The immaturity of the market for green certificates is implying investment risks that are too high. But the Commission is not judging yet and wonders how this market will develop in the next years which in this young market is a clever thing to do. In biomass and biogas the situation is considered less transparent. Regarding economic efficiency and effectiveness, sometimes feed-in tariffs and sometimes other mechanisms are better. But especially in biogas, support levels are still too low for a positive development of potential. So harmonization is still far away. In two years time the European Commission will come up with the next review, covering the advantages and
1471 0846/06 © 2006 Elsevier Ltd. All rights reserved.
disadvantages of harmonisation. The report will then cover a policy framework for renewable energy beyond 2010. When it comes to harmonisation, this will not happen immediately. Already it is stated that transitional periods for national support systems will last seven years at least. Meanwhile, "the Commission considers a coordinated approach to support schemes for renewable energy sources to be appropriate." This European coordination can be regarded as the preparation for an internal market. This coordination will be based on two pillars. Countries with similar systems, e.g. feed-in tariffs (in Germany, Spain, France) or obligatory shares of renewables, proven with certificates (e.g. in some Nordic countries), could intensify their co-operation or even start 'subharmonisation'. However, competition between the leading policies is still fostered by the Commission. Suprisingly enough, in this Communication, the
www.re-focus.net
European Commission takes no stand regarding the position of the Guarantees of Origin, that are considered by many market parties to be an important instrument to link at least the administration of green energy in different countries. The second pillar is the optimisation of national systems. The Commission recommends several measures for this optimisation. Reduction of the risks for investors is very important. The Commission sees too many 'stop-andgo' systems that are not creating the long-term stability of the investment climate wanted by both bigger and smaller investors. Maybe even more than the size of the profit margins, a steady financial return on investments is of great interest to investors. The market for new green power capacity will be even more enhanced if permit procedures will be transparent and if grid infrastructures will be developed to accommodate further - decentralized - renewable capacity. The Commission even recommends the
possibility of tax reductions or exemptions. The Commission has identified the barriers for further development of green power, but is not intending to use its muscle yet to remove these barriers. National governments are politely invited to improve their systems and cooperate with sister-nations. Will that be enough? There is no indication yet that this will do to reach the 21 % share of renewables in the total EU power consumption. Maybe it's time for the European Commission to show some muscle, but 2007 may be too late for that….
Further information Contact: Rolf de Vos, Ecofys BV, Kanaalweg 16-G; P.O. Box 8408; NL-3503 RK Utrecht; The Netherlands. E-mail: [email protected]; Tel: +31 (0)30 2808 446; www.ecofys.nl; www.greenprices.com
January/February 2006
reFOCUS 61