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Europe's Power Sector At a Crossroad

Europe is the biggest energy junkie in the world. The EU is addicted to external energy sources, currently getting more than 50% of its energy from outside the region and that percentage is set to rise.

One of the best developments on the European energy market therefore was the astonishing uptake of renewable energy over the last ten to fifteen years. Countries like Spain, Germany and Denmark spearheaded the massive increase of wind, biomass and solar energy with “feed-in tariff policies that provided investment security and triggered almost a million new jobs. New renewable energy sources increased from almost zero in 1995 to more than 10% of the total electricity share in Europe today.

By 2008, 77% of all new European renewable energy systems installed after 1997 were deployed in countries using feed-in tariffs. In the case of wind energy the share was as high as 85% and in the case of solar PV it approached 100%.

On a worldwide scale, the picture does not look much different. In 2009, more than 86% of the newly installed solar PV capacity was deployed in feed-in tariff countries, according to DB Climate Change Advisors’ GET FiT Program: Global Energy Transfer Feed-in Tariffs for developing countries.

Most of the other EU Member states benefited from lessons learned in these countries and set up similar policies in their own jurisdictions. Only a small minority of member states, Poland and Sweden for example, still stayed with the rather antiquated quota model, which has proved to be less efficient than feed-in tariffs. Poland and Sweden therefore haven’t benefited from this global renewable energy development.

Thanks to the early success of countries with good feed-in tariffs, the European Union has set the ambitious 20/20/20 target for the development of renewable energy: 20% greenhouse gas emission reduction and a 20% share of renewable energy sources in final energy consumption by 2020. And recently the EU adopted a renewable energy directive for the years 2010 to 2020.  Member States are just beginning to translate the European framework directive into national law.

Therefore various members of the European Parliament are calling for rather radical steps: "More than 70% of all investments in supply in the next ten years must be in renewables in order to reach the binding targets," said MEP Claude Turmes, vice-chair of the Greens group in the European Parliament.

One Renewable Energy EU Support Scheme Could Put Industry in Jeopardy

A decade ago, no one would have even believed that a 20% renewable energy share of total electricity in Europe was even realistic but this goal is now at risk. In a bold move non-renewable energy companies jointly with EU energy commissioner Guenther Oettinger have called for a European wide support scheme, aiming to harmonize all existing national support schemes.

Such harmonization of support mechanisms would jeopardize national achievements and the growth of the renewable energy sector in Europe as a whole. What it would also do is nourish the interests of those who are deadly opposed to the highly successful, decentralized renewable energy developments. Once again, the ancient conflict emerges: modern small-scale decentralized power generation verses the large-scale, centralized structure that dominates European energy politics.

So why is harmonization such a threat for the renewable energy industry? Here are the three main reasons:

  1. There is no sufficient European wide grid infrastructure to trade electricity from one country to another. The Iberian electricity grid for example is essentially an electricity island with limited interconnection capacity with the rest of Europe. Even though the resource availability is better in Spain than in Germany, the electricity could not be transported to the center of the continent. These grid constraints also exist in other European countries.
  2. There is no harmonized energy legislation for the whole energy market that includes all types of energy production. There is no European regulation either regarding the treatment of decommissioning funds for nuclear power. There are still substantial subsidies for coal-fired power generation in some member states. In addition, there is no such thing as one common European electricity market for “grey” electricity. In some countries, national utilities own almost 90% of all power generation capacity. Competition is more than limited. In other countries, electricity prices for final consumers are still regulated and do not reflect real power generation costs. The level playing field that some decision makers work to establish for renewable energy sources does not even exist for conventional power sources.
  3. There is no consensus among European member states about the long-term targets for renewable energy sources. Member states in the EU might have a common target for the year 2020, however, Germany has much more ambitious long-term targets for renewable electricity (80% by 2050) than France, which will most likely also rely on a substantial share of nuclear power in the future. How could Germany guarantee its citizens that its political objectives will be achieved if renewable energy support is organized European-wide? 

Instead of sketching European renewable energy policies on a drawing board, European decision makers should pursue realistic European support policies. National feed-in tariffs have proven to be an effective tool for fostering competition in the European electricity sector and democratizing the electricity system. The success behind them is as simple as the concent of “participation triggers acceptance – acceptance triggers investments.”

By also allowing the development of smaller scale projects, feed-in tariffs help close the gap between energy sources, energy production and energy consumption. Hence, the EU should educate European member states about effective policies and provide information about successful support mechanisms in countries that have implemented them well.

In this way, more experience would be gained about the full range of options for renewable energy development and support. Any decision on future harmonization could then be based on concrete knowledge and experience. Instead of just implementing untested mechanisms for the EU-27, countries that still struggle in terms of renewable energy such as Poland, France and Hungary could then learn from their neighboring countries and adopt legislation that works for them.

Further, I must stress that successful frameworks require not just good payment mechanisms and public support, but also policies that remove the numerous barriers to grid access and transmission as well as barriers in the form of administrative procedures and non-transparency.

At the recent summit of the European Council, a non-legislative European institution where Heads of States set the guidelines for the future development of the European Union, thankfully there was no mention of attempting to harmonize policies. This is a positive sign.

We need voluntary cooperation between European member states in the near future rather than heavy-handed attempts at ‘harmonization’ of support mechanisms.

Stefan Schurig is Director, Climate Energy at the World Future Council.  Anna Leidreiter (left), from the Climate Energy department at the Council also contributed to this article.

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