Bioenergy, Energy Efficiency, Geothermal, Hydropower, Solar, Wind Power

Like minds: A common agenda

Issue 2 and Volume 11.

In January the European Commission presented its long-awaited proposal for a Directive on the promotion of renewable energies. This policy is based on the unified voice of the industry, argue Arthouros Zervos and Oliver Schaefer.

During the process of drafting the European Commission proposal for the renewables Directive the industry was proactively involved, making proposals and raising its voice about its needs and expectations constantly. What we finally got on the table, presented by the Commission in January, is a very good basis for a comprehensive Directive, which needs now to be fine-tuned by the Council and the European Parliament.

The main expectations of the renewables industry, which spoke from the beginning to the end of the drafting process with one voice, were taken up in the Commission’s proposals.

It was at the first EREC policy conference in Berlin, in January 2004, when the industry’s visions for the future of renewables in Europe were presented. Our vision was based on our own study and contained as a main result two numbers: 20% by 2020.

This was four years ago when we made a comprehensive calculation of what we believe is ambitious, but feasible under improved political circumstances. This is far from what the industry could deliver under the best possible political conditions, but we believe this is feasible under the assumption of proactive European legislation, taking into account different starting points in the various Member States.

The European Parliament was the first institution to believe in our vision and demanded the necessary legislation to make a 20% – respectively even 25% – target by 2020 a reality by introducing the necessary policy measures.

The Commission followed with their own studies and came to a similar conclusion: 20% by 2020 is feasible and necessary to meet Europe’s climate goals, increase energy independence and make Europe more competitive.

Consequently, in January 2007 the European Commission put forward an integrated energy/climate change proposal that addresses the issues of energy supply, climate change and industrial development.

Two months later, European heads of state endorsed the plan and agreed to an Energy Policy for Europe. The heads of state unanimously committed their countries to different goals (including a mandatory goal of 20% of energy from renewables, a mandatory goal of 10% biofuels, a mandatory goal of a 20%-30% reduction of greenhouse gases and an increase of energy efficiency by 20% by 2020).

It took the Commission nearly another year to listen to the different stakeholders, streamline the energy and climate goals, make an impact assessment, look into the legal issues and sort out some other important details.

In the end the Commission presented a well balanced approach, which for the first time in European legislation covers all three sectors of renewable energy: heating and cooling, electricity and biofuels. This alone is nothing short of a major achievement for our industries.

At the very same policy conference in Berlin, EREC together with its members also demanded a Directive on heating and cooling, the missing pillar in legislation and the ‘sleeping giant’ in renewable energy potential.

The Commission’s proposals aim to establish binding national renewable energy targets that result in an overall binding target of a 20% share of renewable energy sources in energy consumption in 2020 and a binding 10% minimum target for biofuels in transport to be achieved by each Member State.

It is up to the Member States to decide on the mix of contributions from the three sectors to reach their national targets, choosing the means that best suits their national circumstances.

The Directive also aims to remove unnecessary barriers to the growth of renewable energy, for example by simplifying the administrative procedures, granting transmission priority for renewable projects and guaranteed grid access, setting obligations for the use of renewables in buildings, and other similar measures.

National Targets

One important part of the discussions over the last year was the distribution of the overall 20% target amongst the Member States. From the beginning it was clear that it will not be met by forcing each state to reach 20% renewables in 2020, because of the very different starting points, for instance some are already beyond 20%. EREC proposed an easy calculation during the process: To increase the share of renewables from today’s 8.5% to 20% an increase of 11.5 percentage points is needed. If each Member State would fulfil this flat rate increase in percentage points, we would meet the overall target. For various reasons the Commission decided, in close cooperation with the Member States for a more balanced approach, which also partly contains the flat rate idea.

The Commission therefore put forward a five-step approach:

  • The share of renewable energy in 2005 (the base year for all calculations in the package) is modulated to reflect national starting points and efforts already made by Member States that achieved an increase of above 2% from 2001-2005

  • 5.5% is added to the modulated 2005 share of renewable energy for every Member State

  • This remaining effort (a carbon reduction of 0.16 toe for each person in the EU) is weighted by a GDP/capita index to reflect different levels of wealth across Member States, then multiplied by each Member State’s population

  • These two elements are added to derive the full renewable energy share of total final energy consumption in 2020

  • Lastly, an overall cap on the target share for renewable energy in 2020 is applied for individual Member States.

The 10% target for renewable energy in transport has been set at the same level for each Member State in order to ensure consistency in transport fuel specifications and availability. Member States which do not have the relevant resources to produce biofuels will easily be able to obtain renewable transport fuels from elsewhere.

This method of setting the targets should provide for a fair distribution of effort across Member States – even though one could question the distribution method, more important is that nearly all Member States have already accepted their national share. This will hopefully prevent lengthy discussions in the Council. Only some are still complaining about their individual targets, but we believe that these will also understand that increasing the share of renewables is not a burden, but a great opportunity. And, while it seems that Belgium, Malta, Cyprus, Luxembourg and Latvia still complain, to convince those governments of the benefits of renewable energies in their countries is also a job for the renewables industry.

Biomass and sustainability

During the preparation of the draft, concerns were raised about whether biofuel production is sustainable. Whilst biofuels are a crucial part of renewable energy policy and a key solution to growing emissions in the transport sector, they should not be promoted unless they are produced sustainably. This stance is widely supported by the renewables industry. We do not want to repeat the mistakes of the others, such as oil producers, in ignoring sustainability issues. The majority of biofuels currently consumed in the EU are produced in a sustainable manner. Nonetheless, these concerns are legitimate and need to be addressed. The Directive therefore sets out stringent environmental sustainability criteria to ensure that biofuels that are to count towards the European targets are sustainable and that they are not in conflict with overall environmental goals. Nevertheless, it is also necessary to set sustainability goals for other sectors in a similar way in order to guarantee a level-playing-field.

A useless discussion

Despite all the broad agreement with the Commission’s ideas on the overall shape of the Directive, conflict loomed until the last moment, with a crucial difference of ideas between the industry and some people within the Commission. Early drafts of the Directive contained the idea of the introduction of a mandatory trading mechanism for virtual certificates. The initial idea behind such a mechanism was to introduce flexibility for Member States in meeting their targets.

Unfortunately the opposite would have been true. With such a mechanism Member States would lose the control over their target, because companies could buy and sell certificates across borders as they wish and would not necessarily care about national targets. This could potentially result in a very active country – which may have invested heavily in renewables and installed an enormous capacity – ending up paying fines to the Commission for not meeting its target due to the certificates connected to the target being sold to companies across the border. This seems a bizarre definition of flexibility by any reckoning and, while it sounds logical at first glance, more detailed consideration reveals that the only conclusion can be that this is not the right approach and at the wrong time.

In addition, the introduction of such a mechanism would have jeopardized and harmed existing national frameworks for the support of renewable electricity and by that damaged investor confidence. Ultimately it would have been a contradiction with the Commission’s objectives: there is no intention to undermine or endanger national support systems.

Tasking the Commission to stand by its words, the European renewables industry, both under the umbrella of EREC and individually, formed a common position and put it forward in what is possibly the strongest common effort ever undertaken by our industry.

Together and in co-ordination with the support of a growing number of Member States’ governments and other stakeholders, such as EU Parliamentarians, NGOs, business associations and more, three logical demands to a flexibility mechanism for governments were put forward. These are:

  1. Flexibility in meeting the national target should be provided where the responsibilities are at Member State level. At this stage, a trading mechanism must be regulated and operated by public authorities on a Member State level only and not on a company level. Since Member States are responsible for meeting the target, they should retain control over the target and not leave it to companies.

  2. If a Member State wants to sell renewable energy certificates abroad, it must already have fulfilled its own national intermediate target. Thus, exporting guarantees of origin to another Member State should be allowed only after the exporting country has met its own national intermediate target: a country should not be able to sell something which it does not possess.

  3. Clear and convincing penalties should be introduced for those Member States which are not complying with their national intermediate targets.

In the end the Commission listened to these arguments and agreed in principle with these conditions, at least the first two.

This was due to the fact that, while at the surface it sounds very charming, certainly some consequences would have occurred which would be unacceptable for European citizens. First of all, the introduction of such a system would have been a de facto harmonization of support mechanisms on the basis of virtual certificates and would have led to the abolishment of systems such as feed-in tariffs in different Member States. Not only are these systems currently the most successful and cost effective mechanisms to support renewables, they also provide for success in some parts of our industry, such as the PV sector.

Additionally, a calculation by the German ministry for the environment came to the conclusion that the introduction of such a system would lead to additional costs of a30 billion for Germany alone – a wonderful ‘gift’ from the Commission to the renewables frontrunner of recent years. Others, such as the Spanish government, came to similar conclusions that overall it would have been an expensive disaster for European citizens at the expense of windfall profits for a few companies.

The introduction of a mandatory trading scheme at company level would also have strengthened the market dominance of incumbent electricity producers. Due to the huge upfront cost and investment risks inherent to such a complex trading system, small and medium-sized enterprises are not able to compete with large incumbent energy producers. The system initially discussed by the Commission would favour such energy producers and undermine the Competition Commissioner’s fight against energy monopolies and oligopolies.

In addition, it should be noted that it is largely the same incumbent energy producers which have been calling for such a mechanism but which have a poor track record in terms of increasing the renewables share in their portfolio. Others, which have already invested in renewables were and are strongly arguing against such a scheme as they are aware of the insecurity that it brings to the investment market.

Ultimately, our common effort to speak with one voice against an idea which could have endangered renewables development has shown positive results.

The Commission has now presented a different approach in line with what we and others suggested. However, since the changes were made at the very last minute, the formulation and the detailed approach has yet to be clarified. As it stands right now it does not reflect the political will in legal terms. And the Commission has repeated its political position loud and clear – they do not want to endanger national support mechanisms, it is far too early to harmonize support mechanisms, and that flexibility should be given to those who are responsible to meeting the targets, which are governments.

This politically and economically sound opinion needs to be reflected during the changes made by the European Parliament and the Council and needs be translated into legally robust language. Certainly, there are no major obstacles for the institutions to delay the adoption of the Directive, although some details need to be sorted out.

It is now up to the Member States’ governments and the Parliamentarians to follow their responsibilities and make this long needed legislation a reality and by that contribute to shaping a more sustainable world.

Our industry is committed to work together, delivering the right, and necessary, results under the right political conditions.