Support for electricity from renewable energy sources

The Commission analyses the progress made in the area of renewable energy sources. It reports on the growth in the generation and circulation of renewable energy on the internal market. Public support plays an important role in cooperation between the Member States. The Commission considers that harmonisation of the rules in the field of renewable energy is not feasible at present. However, in the long term, this would be the path to take.

ACT

Commission Communication of 7 December 2005 "The support of electricity from renewable energy sources" [COM(2005) 627 final - Official Journal C 49 of 28 February 2006].

SUMMARY

This communication reports on the progress made in achieving the objectives set by the Member States in the field of renewable energies, as stipulated by the previous 2001 Directive. It focuses specifically on public support allocated to assist the market penetration of electricity produced from renewable energy sources (RES-E).

The existing support schemes cover the following:

• feed-in tariffs exist in most of the Member States. These systems are characterised by a specific price, normally set for a period of around seven years, that must be paid by electricity companies, usually distributors, to domestic producers of green electricity;
• the green certificate system, currently in force in Sweden, the United Kingdom, Italy, Belgium and Poland. RES-E is sold at the conventional market price. In order to finance the additional cost of producing green electricity, and to ensure that it is generated in sufficient quantities, all consumers are obliged to purchase a certain number of green certificates from RES-E producers according to a fixed percentage (quota) of their total electricity consumption/generation;
• tendering systems exist in two Member States (Ireland and France). Under this procedure, the State issues a series of invitations to tender for the supply of RES-E, which will be sold at market price. The additional cost is passed on to the final consumer in the form of a special tax;
• tax incentives used exclusively in Malta and Finland.

To assess the performance of these support schemes, it is necessary to:

• take into account the substantial differences between the national, regional and agricultural resources of different Member States. The wider the gap between "generation costs" and "support", the less the cost-efficient the system is;
• take into account the effectiveness of the different support schemes. Effectiveness refers to the ability of a support scheme to deliver green electricity;
• compare the profits from an investor perspective and compare effectiveness so as to indicate whether the success of a particular policy results above all from substantial financial incentives or whether there are other aspects that have had a crucial impact on market distribution in the countries in question.

The different forms of renewable energy affected by this support include:

• wind energy, for which analyses show that support is too low for any take-off in a quarter of the Member States. Another quarter of Member States provide enough support but still obtain mediocre results. Feed-in tariffs are currently the most effective systems for wind energy in Germany, Denmark and Spain;
• biomass forestry requires the use of straw, which is taken into account in analyses of biomass forestry. Denmark is the main country using this type of biomass. In close to half of all European countries, support for this form of renewable energy is still insufficient to develop this high potential sector;
• the biogas sector is closely linked to environmental policy for waste treatment. In nearly 70% of cases not enough support is provided for the development of this technology;
• the other renewable energy sources to benefit from this support are hydroelectricity and photovoltaic solar energy (especially in Germany). There are several other sources of renewable energy (geothermal, wave, tidal, solar thermal, etc) which, although they receive support in some Member States, have not yet been developed on an industrial scale.

Circulation of renewable energy on the internal market

These support schemes for RES-E cannot be separated from the internal electricity market. The compatibility of the different renewable energy support schemes with the development of the internal electricity market is essential in the medium and long term. Support for renewable sources of energy falls under the Community framework for State aid for environmental protection, whereas at the national level, the rules on State aid can influence the type of support scheme.

The Commission stresses that the market is dominated by one or several power companies that are too often vertically integrated. The existence of distribution and transport grid operators should guarantee all generators fair grid access, respecting the rules of competition. That is why the independence of these grid operators is vital to the proper functioning of the support schemes.

Governments must also ensure that consumers are informed of the way in which these support schemes for renewable energies affect consumers.

A distinction needs to be made between the physical trade in electricity and the green value of the electricity. RES-E is subject to the same restrictions as conventional electricity, including the mandatory disclosure system. This system makes it compulsory to inform consumers of the contribution of each energy source to the overall fuel mix.

The support covered by the Community framework for State aid for environmental protection may distort competition. These economic effects may however be justified and compensated for by the beneficial effects for the environment. Since the use of renewable energy sources is a priority for Community policy, the mentioned framework tends to favour support schemes. Some sixty support schemes for RES-E were already approved by the Commission during the period 2001 to 2004.

Towards a harmonisation of the rules?

Harmonisation between potential and actual development of renewable energies varies greatly among the Member States. In the short term, harmonisation seems unlikely. The Commission regards harmonisation of the rules in this sector as being desirable, as any changes to the system in the short term might disrupt some markets.

Achieving the potential benefits of harmonisation presupposes:

• integration of renewable energies on the internal market, making the RES-E sector more competitive;
• reduction of the forecast costs for RES-E to achieve its target share for 2010 on the basis of a harmonisation of systems such as green certificates and feed-in tariffs. These forecasts suppose the elimination of market distortions caused by support for conventional energy sources;
• creation of a system of green certificates at the European level that would be more wide-ranging and therefore more liquid, making it possible to ensure greater price stability on national markets;
• a common feed-in tariff system for the whole of Europe, bearing in mind the availability of resources at the local level. This could lower the cost of all RES technologies in the different Member States once installations are no longer reserved for only some of them.

Avoiding the potential disadvantages of harmonisation presupposes:

• the absence of any significant fluctuation in the price of green certificates to avoid increasing investor uncertainty and holding back the development of RES;
• costs linked to information on these technologies and keeping such costs low;
• development of competitive technologies only, in the context of green certificates, as this system favours profitability above all else. Investment in other promising technologies would be insufficient.

Consideration must also be given to Member States that are importers of RES-E. There is a risk that they will not wish to pay the bill without also benefiting from the advantages at the local level to which they would have access if the renewable energy were being produced on their territory. In any case, the exporting countries may not wish to keep an excess capacity of RES if the public is opposed to building future RES installations on their territory.

Recommendations concerning administrative barriers and grid access

Such barriers appear when the project developers or investors disagree over the installation of new generation capacities or over grid access. The Commission has launched a public consultation into perceptions of these barriers and recommends that action be taken in relation to the following:

• the large number of authorities involved (national, regional and local) and the lack of coordination between them leads to uncertainty in connection with investment. Single authorisation services should be set up;
• it can take several years to obtain the necessary permits and this can completely freeze the development of the market. The Member States must set out clear guidelines and a precise division of responsibilities;
• the insufficient attention given to RES in spatial planning, which must be improved by encouraging public authorities to anticipate future RES projects through the establishment of advance planning mechanisms. It is also important that the planning and authorisation process complies with European environmental legislation.

Grid access problems play a crucial role in the increase in RES-E generation. The Member States have largely put the necessary legislative provisions in place whereby grid operators guarantee transport and distribution. In the view of the Commission, transparent rules are required in order to meet and share out the necessary cost of investment in the grid, as the absence of such rules is the source of numerous difficulties.

Denmark, Finland, Germany and the Netherlands have established rules of good practice in relation to the sharing of the cost of the various investments that have to be made in the grid. Such good practice makes it possible to implement the "shallow" cost approach, under which grid connection costs are borne by project developments or shared with grid operators. These rules should be completely transparent and non-discriminatory.

The Commission stresses the necessity of developing grid infrastructure so as to be able to absorb the future increase in RES-E generation.

Lastly, the Commission recommends the establishment of a system to guarantee the origin of electricity generated from renewable energy sources in order to facilitate trade and ensure transparency for consumers.

Preference for a coordinated approach

In the view of the Commission, harmonisation is still at an experimental stage and it consequently advocates a coordinated approach to support schemes benefiting renewable energy sources, based on the following:

• international cooperation which would certainly contribute to the development of the different support schemes in Europe, prior to undertaking partial harmonisation;
• optimisation of national schemes that are indicative of the ineffectiveness of such systems, resulting in a rise in prices for consumers.

In order to optimise their national schemes, the Member States should take the following action:

• consolidate the legislative framework and limit investment risks linked to the intermittent nature of national support schemes. The system must appear stable and financially viable in the long term in the eyes of economic operators in order to contribute to greater transparency in market prices;
• encourage technological diversity even if RES technology appears to be the most competitive at present. Better use should be made of exemptions and tax reductions offered to renewable energy sources;
• ensure compatibility with the internal electricity market with a view to integrating these support schemes in a liberalised energy market;
• encourage employment and local and regional benefits;
• work in unison with national energy efficiency and demand management schemes so as to avoid cancelling out the progress achieved by RES-E with an excessive increase in consumption.

Background

The Commission will closely monitor developments concerning European renewable energy policy. It will draw up a report by the end of 2007 at the latest on the levels envisaged by the national systems for promoting electricity from renewable energy sources. It will report on the drive towards the completion of the internal electricity market and further analyse the options for and the impact of possible harmonisation.

RELATED ACTS

Directive 2001/77/EC of the European Parliament and of the Council of 27 September 2001 on the promotion of electricity produced from renewable energy sources in the internal electricity market [OJ L 283 of 27.10.2001]

Last updated: 05.05.2006