nery - IHK für München und Oberbayern · nery Study by Chamber of Commerce and Industry, January...

Energy

Study by Chamber of Commerce and Industry, January 2016

Voraus für die Wirtschaft.

The Financing of Renewable Energy in EU Electricity Markets

2 | CONTENTS

Contents

Summary 3

1. Introduction 4

2. The energy transition in EU member states 6

3. Support instruments for renewable energy in EU member states 9

3.1 Feed-in tariffs 10

3.2 The quota model with tradable certificates 11

3.3 The tendering model 11

3.4 Other support instruments and hybrid forms 11

3.5 The current situation and historical trends worldwide and in the EU 12

4. The financing of support schemes for renewable energy in EU member states 16

5. Comparison of selected support schemes and their financing 23

5.1 The German support system 25

5.2 Experience with the quota model in Europe 26

5.3 Further experience with support systems in the EU 29

6. The quota model as an alternative for Germany? 31

7. Recommendations for future policy 33

Bibliography 37

Imprint 39

3

SUMMARY |

Summary

1. The energy transition is a European project. All EU member states are working to increase their share of renewable energy, reduce greenhouse gas emissions, and improve energy efficiency.

2. Member states employ a variety of schemes for financing and supporting renewable energy.

3. The experience of almost a decade reveals both the advantages and disadvantages of these various schemes, particularly with respect to the power market.

4. In the majority of member states, the costs of the support schemes to finance renewable energy in the power market are currently borne by the consumer, i.e., by businesses and households. This poses a major competitive disadvantage, particularly for the Bavarian economy, which faces stiff international competition.

5. EU member states that use a quota scheme to support financing have proved successful in increasing their share of renewable energy and in reducing CO2 emissions. There is a lesson here for the EU Commission and individual European countries about how to support renewable energy more efficiently and promote its integration on the EU level.

6. Increased Europeanisation must also mean greater harmonisation in the expansion of the EU single market for electricity. The ultimate goal of the various national support schemes should be the creation of a European quota scheme.

7. In its deliberations about how best to shape the electricity market, Germany, too, should consider the use of the quota model to support renewable energy.

8. Advantages of a quota scheme that might also be of benefit to Bavarian companies:

§ Expansion of renewable energy can be controlled

§ Grid expansion can be more easily planned

§ Market forces and competition can develop to their maximum potential

§ Favours selection of more efficient technologies, locations, and size of installation

§ Greater freedom for companies, combined with minimum bureaucracy

§ Reduces the total costs of the energy transition

§ Curbs rising energy prices

CONTENTS

4 | INTRODUCTION

The triad of primary energy-policy objectives – security of supply, economic efficiency, and environmental compatibility – is of crucial importance to the economy of Upper Bavaria. For many businesses in Upper Bavaria, security of supply and access to reasonably priced energy are now vital considerations – more important than just another location factor. Indeed, for a number of Upper Bavarian companies, the manner in which a nuclear-free and low-CO2 energy system is to be implemented has become an existential question. In Upper Bavaria, in particular, industry faces stiff international competition. In 2014 over 53 percent of the goods produced in Bavaria were exported to neighbouring European countries. In the same year, Bavarian companies exported goods worldwide to a record value of €168.9 billion. On account of its proximity to other countries, Bavaria as a whole – and especially Upper Bavarian municipalities – suffers from a huge competitive disadvantage as a result of having to meet what is currently the fourth-highest industrial price for electricity in the EU. One of the principal reasons for high electricity prices in Germany is the so-called EEG levy, which was introduced by Germany‘s Renewable Energy Sources Act and is scheduled to rise to 6.35 cents/kWh in 2016.

This study by the Chamber of Commerce and Industry for Munich and Upper Bavaria (CCI) therefore looks at the following questions: Are Bavaria and Germany indeed the undisputed leaders in the efficient management of the energy transition? How is the energy transition being implemented in other member states of the European Union? And what can we learn from other member states?

Germany regards itself as a pioneer in the development of a nuclear-free and low-CO2 energy system. Germany‘s management of the energy transition has attracted much interest worldwide. Assessments vary considerably: some see it as an incalculable gamble, others as a role model for the rest of the world. To make up for its exit from nuclear power, Germany plans a major expansion in renewable energy, with the market share for this sector targeted to rise to between 35 and 40 percent by 2020. Fifty percent of gross power consumption is to be covered by renewable energy (hereafter RE) by 2030, and 80 percent by 2050. For the foreseeable future, however, generating power from renewable energy sources at market prices is not a viable option. The pressure to make a success of the energy transition is high – both for government and for business. Increasing the proportion of renewable energy to the levels envisaged will have major cost implications and also pose some challenges in terms of grid expansion and grid stability. Furthermore, it will also require drastic changes in the internal energy market. One of the key points of contention with regard to the German energy transition concerns the question of how it should be financed. As yet, no final decision has been made with regard to the future financing of either renewable energy or the decom- missioning of Germany‘s nuclear power installations. Opinions as to how this might best be implemented vary in the extreme. At present, Germany has a fixed feed-in tariff for renewable energy that is financed by a levy.

An amendment to the German Renewable Energy Sources Act (EEG) entered into force on 1st August 2014. This reform came in response to an ongoing investigation by the European Commission into whether Germany had improperly granted state aid. From 2017, a tendering system is to replace the feed-in tariff and the market premium set by the state for electricity from RE installations. The federal government is also running a pilot project for freestanding photovoltaic installations. The federal government‘s aim is to reduce the costs associated with expanding the use of renewable energy in the electricity market. The EEG Reform 3.0 is scheduled for completion by summer 2016 and will then shape a redesign of the German electricity market.

1. Introduction

5

INTRODUCTION |

At the same time, however, the energy transition is also a European project. EU member states are all working to increase their share of renewable energy, to reduce greenhouse gas emissions, and to improve energy efficiency. Member states employ a variety of schemes for financing and supporting renewable energy. At present, the majority of EU member states employ a feed-in remuneration scheme in the form of tariffs or premiums. A number of member states also use quota schemes with tradable certificates to support ecological power installations. At present, tendering schemes and investment incentives are only used to support concrete projects or as an accompanying measure. Generally speaking, all of these support instruments have specific advantages and disadvantages. To date, the choice of instrument with which to support renewable energy has been left to individual member states and is not harmonised on the EU level. However, the Environmental and Energy Aid Guidelines (EEAG), issued by the European Commission and in force since 1st July 2014, now place limits upon state support for RE power installations. The EEAG includes concrete regulations for such installations, mandating, for example, the replacement of fixed feed-in tariffs with tendering procedures to determine the level of state support. Below, we examine the extent to which, if at all, other member states have already modified their own procedures in line with the new requirements, and what lessons the German federal government can learn from other EU member states in order to expand the use of renewable energy in a cheaper and more efficient manner.

To date, the choice of a particular scheme has been determined primarily by national interests. As a rule, this means the attainment of environmental goals, ensuring security of supply, and the creation and preservation of jobs. In the following study, the Chamber of Commerce and Industry for Munich and Upper Bavaria compares and evaluates the total economic efficiency of the various mechanisms used to support renewable energy. The study also provides data and scientific findings to underscore the need of the Bavarian economy for greater competition and economic efficiency with regard to renewable energy – and to emphasise to government and political parties the urgency of this need. The study examines the following questions in detail:

1. How do other EU member states support the energy transition and create incentives to invest in RE installations?

2. How do countries finance the support for renewable energy?

3. How are the burdens of financing the support for renewable energy shared in the economy of each member state?

As of 1st July 2014, the Environmental and Energy Aid Guidelines (EEAG) provide member states with concrete regulations governing the funding of RE power installations.

Good to know

CONTENTS

6 | THE ENERGY TRANSITION IN EU MEMBER STATES

2. The energy transition in EU member states

EU member states are all working to increase their share of renewable energy, to reduce greenhouse gas emissions, and to improve energy efficiency. In the process, they are obliged to adhere to the provisions and regulations of the EU. With the ratification of the Kyoto Protocol of 1997, the European Commission pledged to ensure that greenhouse gas emissions for the years 2008–2012 would be on average eight percent lower than in the year 1990. In order to meet this target, which applies to the whole of the EU, the so-called EU Burden-Sharing Agreement of 1998 was implemented, which determines the size of the burden that individual member states have to bear. In the effort to meet the target of reducing greenhouse gas emissions by 21 percent over the period from 1990 to 2020, Germany has so far borne by far the largest burden. Indeed, Germany‘s reduction commitment makes up around three-quarters of the total reduction for all EU states as determined in the Kyoto Protocol (EEA 2012:10). With the introduction of an EU Emissions Trading System (EU ETS), the European Union began working in 2005 towards meeting the emissions reduction targets specified in the Kyoto Protocol. The EU is now in Phase III (2013–2020) of the EU Emissions Trading System. All EU member states are working to meet the jointly agreed emissions reduction targets (ETS 2014).

In October 2014, member states agreed, via the European Council, on a new EU Framework for Climate and Energy Policy to cover the period to 2030. This updates the so-called 20-20-20 targets. The principal elements of the resolutions are1:

As fig. 2 shows, Germany is not among the leading contributors to a reduction in emissions within the EU (Eurostat, Umweltbundesamt 2014). Specific greenhouse gas emissions, in particular, are lower in the other major industrial nations of the EU – France, the United Kingdom, and Italy. However, according to the latest calculations, the EU as a whole remains on track to meet its emissions reduction targets. Current data show that in 2014 alone, greenhouse gas emissions for installations subject to EU ETS fell by 4.5 percent. Nevertheless, 13 member states still need to increase their efforts in order to meet their 2020 emissions targets for sectors outside of the ETS.

1 The reference year for targets for reductions in greenhouse gas emissions and increases in the share of renewable energy is 1990. The reduction in energy consumption is compared with the projection from the year 2007 (World Energy Council).

40%

reduction in greenhouse gas emissions by 2030

27%

improvement in energy efficiency by 2030

27%

share of renewable energy in final energy consumption

by 2030

24,7%

100-1000

4,1%

> 1000

Fig. 1: EU energy policy targets for 2030

The European Union Emissions Trading System (EU ETS) is undergoing reform. This reform is scheduled for completion in 2016. As of 2018, the introduction of a market stability reserve is designed to reduce the current surplus of carbon credits in circulation.

Good to know

7

THE ENERGY TRANSITION IN EU MEMBER STATES |

Met

ric to

ns o

f CO

2 equ

ival

ents

per

cap

ita

0%

5%

10%

15%

20%

25%

Latv

ia

Rom

ania

Swed

en

Croa

tiaHu

ngar

y Po

rtug

al

Spai

n

Mal

ta

Italy

Slov

akia

Bulg

aria

Slov

enia

Denm

ark

Aust

ria

Pola

ndBe

lgiu

m

Cypr

usFi

nlan

dN

ethe

rland

sGe

rman

y

Irela

nd

Luxe

mbo

urg

2.5

14.5

12.012.011.511.011.010.510.510.010.09.59.09.09.08.08.08.08.08.0

7.07.06.56.06.06.06.05.5

EU-28 (9.0)

Lith

uani

a

Fran

ce

Unite

d Ki

ngdo

m

Gree

ce

Czec

h Re

publ

ic

Esto

nia

Fig. 2: Comparison of greenhouse gas emissions in Europe; emissions per capita, 2012

Source: Based on Umweltbundesamt data, 2013.

In order to achieve a reduction in CO2 emissions, EU countries are turning increasingly to renewable energy. As fig. 3 shows, the countries with the highest share of renewable energy as a proportion of final energy consumption in 2013 were as follows: Sweden (52.1 percent), Latvia (37.1 percent), Finland (36.8 percent), and Austria (32.6 percent). In 2011, Estonia became the first country to meet its target share for 2020 (25 percent), followed in 2012 by Bulgaria (16 percent) and Sweden (49 percent) (Eurostat).

Germany uses a high proportion of renewable energy sources for power generation (27.8 percent in 2014); at 12 percent, however, its share of renewable energy in terms of gross final energy consumption, upon which the EU target is based, remains below the EU average (Eurostat).

With a share of 18.8 percent (2014) of renewable energy as a proportion of final energy consumption, Bavaria would currently top the EU ranking.

Of interest

CONTENTS

8 | THE ENERGY TRANSITION IN EU MEMBER STATES

The reason for Germany‘s low RE share as a proportion of final energy consumption is the limited use of renewable energy for the purposes of heating and transport. Other EU member states place a higher priority on supporting the use of renewable energy for heating and refrigeration purposes. In most cases, however, this support is financed not by the electricity consumer but rather from the general budget, i.e., tax revenues (RES LEGAL 2014). Below we examine the financing of the energy transition in terms of the use of renewable energy for the purposes of power generation.

Source: Based on Eurostat data, 2015; figures in %.

Fig. 4: The power-generation mix in 10 selected EU member states, 2013

711

55

3

24

Lignite Coal Nuclear power Natural gas Renewables Other

Netherlands

314

27

20

36

United Kingdom

217

3

74

4

France

2

54

0,4

43

0,4

Sweden

6

78

106

Austria

4

45

10

41

Denmark

10

25

19

46Greece

69

2

35

6

42Czech Republic

3103

50

34

Poland

9

21

11

15

19

25

Germany

10%

20%

30%

40%

50%

60%

Luxe

mbo

urg

Mal

taN

ethe

rland

s

UKIre

land

Belg

ium

Cypr

usSl

ovak

iaHu

ngar

yPo

land

Germ

any

Czec

h Re

publ

icFr

ance

Gree

ce

Spai

n

Italy

Croa

tiaBu

lgar

iaSl

oven

iaLi

thua

nia

Rom

ania

Esto

nia

Port

ugal

Denm

ark

Aust

riaFi

nlan

d

Latv

iaSw

eden

52.1

37.136.832.6

27.225.725.623.923.021.519.018.016.715.415.014.212.412.411.39.89.88.17.97.85.14.53.83.6

Share of RE in 2013Difference to 2020 target

13

16

Targeted share of RE in 2020

30

18

25

38

23

1816

17

40

23

11 1014

34

15

31

49

14

25

20

1313

24

15 13

Fig. 3: Share of renewable energy in final energy consumption in the EU, 2013 and 2020 target

Source: Based on Eurostat data, 2015; figures in %.

9

SUPPORT INSTRUMENTS FOR RENEWABLE ENERGY IN EU MEMBER STATES |

3. Support instruments for renewable energy in EU member states

Support instruments for power generated from renewable energy sources can be classified according to various criteria. Table 1 provides an overview of the most common instruments. A distinction is made between direct and indirect instruments and, with respect to price-based and volume-based instruments, between regulatory and voluntary instruments, and between investment-based and generation-based instruments (Ragwitz et al. 2006 and Morthorst et al. 2005).

DIRECT

INDIRECT

PRICE-BASED VOLUME-BASED

REGULATORY INSTRUMENTS

INVESTMENT-BASED

Investment grantsTendering schemes

Environmental taxes

Investment-based tax benefits

GENERATION-BASED

Feed-in tariffTendering schemes

Premium systems

Generation-based tax benefits

Quota scheme with tradable certificates

VOLUNTARY INSTRUMENTS

INVESTMENT-BASED

Shareholder programmes

Voluntary agreements

Contribution programmes

GENERATION-BASED Green tariffs

Table 1: Classification of support instruments for RE power

Source: Based on Ragwitz et al. 2006 and Morthorst et al. 2005.

EU member states use a variety of schemes to support renewable energy. There are three principal types of instrument: a feed-in remuneration system (tariffs or premi-ums), a tendering system, and a quota system with tradable certificates. Modifications and subtypes of these three systems also exist, including a feed-in remuneration scheme with fixed premiums. Below we provide a brief description of the basic forms of the most commonly used support instruments.

CONTENTS

10 | SUPPORT INSTRUMENTS FOR RENEWABLE ENERGY IN EU MEMBER STATES

3.1 Feed-in tariffs

A feed-in tariff scheme uses fixed tariffs set by the government in order to support certain types of power generation. As a rule, this means generation from renewable energy. As a support instrument, a feed-in tariff scheme guarantees power installation operators the purchase of electricity at a fixed price per unit of power fed into the grid, independently of market-price movements and for an extended period of time. This makes it much easier to calculate the income from a RE installation, thereby minimizing the risk for operators and investors.

The level of remuneration (feed-in tariff) depends, as a rule, on the type of generat-ing technology used and other cost factors, such as installation size (Kalt et al. 2013: 2). The minimum price guaranteed by a feed-in tariff scheme makes it possible to integrate types of power generation that would otherwise be unable to compete with other types of generation. This ensures a power market with a broad portfolio of generating technologies. As a rule, feed-in tariffs are degressive. This means they are progressively reduced – e.g., yearly – by a certain percentage. This increases the pressure on operators, thereby creating an incentive to make RE installations more efficient and generate at a lower cost as well as providing better long-term planning security for investors. The long-term goal of the feed-in tariff model is to enable new technologies to survive in the market without need for support (Canzler et al. 2013: 69).

A feed-in tariff offers a temporary means of introducing renewable energy. In the long term, however, it must be replaced by other schemes that further the integration of renewable power generation in both the market and the industry infrastructure. A systematic disadvantage of feed-in remuneration is that installations supported in this way remain insulated against the competitive pressures of the power market. This aspect, along with a sharp increase in the costs of RE support and the technical challenges of operating a power system with a growing share of volatile generators, has led to a growing debate in both academic and public spheres.

As of 2014, 17 of the 28 EU member states had introduced feed-in tariff schemes. Other support instruments to support renewable energy, such a quota scheme or the tendering model, remain significantly less common (RES LEGAL 2013).

A well-known example of legislation based on the feed-in tariff model is the German Renewable Energy Sources Act (EEG). This has served as role model worldwide for the expansion of power generation from alternative sources. As of the beginning of 2014, the feed-in tariff model in its basic form had been adopted by almost 70 countries worldwide, whereas the quota model was used in almost 30 countries (REN 21: 77). As such, the feed-in tariff model is the most common choice of support instrument to support alternative power generation. In recent years, the feed-in tariff model has been extended in many countries to become a system of feed-in premiums. Here, the power from RE installations is sold on the open market. In addition to the price achieved in this way, RE installation operators also receive a fixed premium. Compared to a system of feed-in tariffs, this furthers the market integration of RE installations and creates an incentive for demand- driven generation (Fischer et al. 2012). A number of EU member states, including Denmark, have recently converted to feed-in premiums.

In the EU, three principal instruments are employed to support renewable energy. With a feed-in remuneration system, the tariff is set by the state and is independ-ent of market-price movements. A quota system fixes the volume of power from renewable sources as a proportion of total power consumption. Power suppliers, electricity traders, and other market participants can reach this fixed quota either by producing RE power themselves or by purchasing certificates from other RE installation operators. With a tendering system, the amount of new generating capacity from renewable sources to be created is fixed and then sold via auction.

At a glance

11


3.2 The quota model with tradable certificates

The quota model fixes the volume of power from renewable sources as a proportion of total power consumption. Power suppliers, electricity traders, and other market participants are obliged to show they have obtained a minimum quota of power from renewable energy sources, as fixed by the government or an appointed regulator. This quota can be achieved through either own power generation or the purchase of certificates (green certificates) from other installation operators, e.g., one certificate per MWh of green power fed into the grid (Kalt et al. 2013: 3). These green certificates are traded on a separate market or bilaterally among market participants. The revenue for RE installation operators is made up of the electricity price and the certificate price (BWE 2012: 14). Failure to meet the quota triggers payment of a buyout fee or a penalty. This support instrument creates a market for certificates with mechanisms that lead to a low-cost achievement of the required share of renewable energy.

3.3 The tendering model

Tendering schemes are either investment-based or generation-based. In either case, the amount of new RE generating capacity to be created each year is set and then sold by auction. In other words, potential generators bid for the contract to provide a certain amount of capacity put out to tender (Kalt et al. 2013: 3). The bidding process determines which supplier is prepared to supply power on the cheapest terms. This supplier is then awarded either an investment grant or a fixed tariff for the power generated. In this case, feed-in tariffs are no longer determined in the public realm. Instead, they arise endogenously as the result of the bidding behaviour of potential generators (Haucap et al. 2012: 55). In this way, the government can fix how much new generating capacity it wants to create each year and control the amount actually created on the basis of an endogenous pricing mechanism.

The federal government intends to implement this model in Germany as of 2017,‎ thereby abolishing the fixed levels of state aid in the Renewable Energy Sources Act (EEG). In line with the 2014 amendment to the EEG, the levels of state aid for renewable energy are to be competitively determined on the basis of technology-specific tendering procedures from 2017 at the latest. This amendment is in accordance with the European Commission‘s new Environmental and Energy Aid Guidelines, which came into force in 2014 and prohibit from 2017 onwards the use of feed-in tariff schemes for all new RE power projects above a certain size. In other words, as of 2017, only those operators who have been awarded a contract on the basis of tendering may construct RE installations in Germany. At the same time, however, there is no guarantee that projects will be realised. Exceptions to mandatory tendering are permissible when it can be shown that there are not enough rival bidders, that tendering would lead to high levels of state aid, or that not enough projects are being realised. A number of EU countries already use tendering schemes. The federal government is currently running a pilot project for freestanding photovoltaic installations in order to gain initial experience with the tendering model.

3.4 Other support instruments and hybrid forms

As a rule, investment incentives, tax relief, and tax exemption are employed not as primary instruments but rather in conjunction with the support instruments described above. In addition, hybrid support instruments are also an option. These include feed-in tariffs in combination with tendering, and quota schemes in combination with feed-in tariffs, for certain types of installation (Kalt et al. 2013: 3). Net metering, as used in, for example, the Netherlands, Greece, and Cyprus, is a scheme for remunerat-ing the power generated by, as a rule, small photovoltaic installations or small wind installations. Here, solar power is fed into the grid via a bidirectional meter and offset

CONTENTS


against power consumed. Should a household generate more solar power than its total power consumption, the excess can also be carried over to the next billing period. In addition to the EU member states listed in table 2, net metering has also been introduced in the USA, Australia, and Brazil.

3.5 The current situation and historical trends worldwide and in the EU

There is now state aid for renewable energy in a total of 138 countries worldwide (REN 21: 14). The following graphic shows global trends in the introduction of RE support systems in the power market. Between 2010 and 2012 there was an increase in feed-in tariff schemes, which then flattened out in 2014. The use of tendering increased continuously between 2010 and 2014. The use of quota schemes also increased, although to a lesser degree.

The map in fig. 6 shows the main support instruments for RE power currently implemented in EU member states (excluding Croatia). Many member states employ either technology-specific or a collection of different but complementary support instruments. Fig. 6 shows only the principal support instruments. A detailed overview of all support instruments is provided in table 2, chapter 4. Most EU countries use feed-in tariffs as their primary support instrument. In recent times, however, a move towards premiums has been observable. Quota schemes with tradable certificates are currently in use in Belgium, Sweden, the United Kingdom, Poland, and Romania, in some cases in conjunction with feed-in tariffs. In the United Kingdom (in Great Britain only) there is also provision for supporting small-scale installations with feed-in tariffs.

Fig. 5: Global trends in the use of RE support systems 2010–2014

Source: Based on REN 21 2014.

0

10

20

30

40

50

60

70

80

2010 2011 2012 2014

42

33

20

13

29

212017

53

45

3427

6872

67

60

Feed-in tariffs/premiums Tendering schemes Quota schemes Net metering

13


Fig. 6: Principal support instruments in the EU-27, 2014

Source: Based on Ragwitz et al. 2012.

At present, no country uses a tendering scheme as its primary support instrument. In some cases, however, tendering is being used to support concrete projects (e.g., for new small-scale installations in Portugal from 2015 onwards). As described above, this will change radically as a result of the European Commission‘s Environmental and Energy Aid Guidelines, which came into force in 2014. These prohibit from 2017 onwards the use of feed-in tariff schemes for all new RE projects above a certain size. As a result, many of the schemes for supporting renewable energy in EU member states are currently being modified. In Germany, for example, the 2014 amendment to the Renewable Energy Sources Act (EEG) specifies that EEG support must be determined on the basis of technology-specific tendering procedures from 2017 at the latest. Chapter 4 presents a detailed overview of the support instruments currently used by EU member states for supporting renewable energy in the electricity market as of October 2015.

Fig. 7 shows trends in the use of support instruments by individual EU member states over the period from 1997 to 2014. As can be seen, most EU member states have made several adjustments to their support instruments for supporting electricity from renewable sources and, in certain cases, undertaken a comprehensive shift. Whereas many countries initially used tendering schemes or investment incentives, these were replaced within a few years, mainly by feed-in tariffs or quota schemes. At present, more and more countries are moving back to tendering schemes.

Hungary

Czech Republic

Spain

Slowenien

Slovakia

Sweden

Romania

Portugal

Poland

Austria

Netherlands

Malta

Lithuania

Latvia

Italy

Ireland

UnitedKingdom

Greece

France

Finland

Estonia

Germany

Denmark

Bulgaria

Belgium

Luxembourg

2.

Quota schemes Feed-in tariffs Feed-in premiums Other support instruments

CONTENTS


Fig. 7: Trends in principal support instruments in EU-27, 1997–2014

Source: Based on data from RES LEGAL 2014, European Commission 2008, and Steinhilber et al. 2011. RE is the abbreviation for renewable energy; member states are designated by their international country code.

Feed-in tariffs / premiums Quota schemes Tendering schemes Tax incentives / investment incentives

Country code

RE source 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

AT All RE

BE All RE

BG All RE

CY All RE

CZ All RE

DK All RE

EE All RE

FI All RE

FR

Wind

Bio- energy

PV

DE All REPilot PV

HU All RE

GR All RE

IE All RE

IT

Wind

Bio- energy

PV

LT All RE

LU All RE

LVWind

Other

MZ

Wind

Bio- energy

PV

NL All RE

PL All RE

PT All RE

RO All RE

ES All RE

SE All RE

SI All RE

SK All RE

UK All RE

15


There are substantial differences in the support individual member states devote to renewable energy and in the types of technology they promote. In 2013 the average annual cost of supporting electricity from renewable sources was €10.56/MWh in Estonia and €194.51/MWh in the Czech Republic. The average annual cost for the 21 EU member states for which this value was calculated was €81.41/MWh. There are also large variations in the share of subsidised power from renewable energy as a proportion of gross power generation. In Norway, for example, subsidised RE power comprised only 0.1 percent of gross power generation in 2012, whereas in Denmark this was around 56 percent. In 2012 and 2013, Germany had the largest share of subsidised RE power (2012: 114 TWh; 2013: 122 TWh). In addition to receiving financial assistance, RE installations also enjoy priority grid access in most EU member states (CEER 2015).

The question of how to achieve a fair distribution of the burdens of the energy tran-sition without endangering the competitiveness of some especially energy-intensive industries has become acute, not least in view of the increasing costs of funding this transition. More and more sectors need to be exempted from levies and taxes in order to retain them at their European locations. In many countries the schemes for sup-porting the energy transition are now the target of strong criticism from the general public and also regional governments, not only in Bavaria and Germany. Indeed, as a result of the economic crisis, a number of EU countries, such as Portugal and Bulgaria, have suspended support schemes for new RE installations, and Spain has retroactively replaced its feed-in tariff scheme for power installations with other forms of remuneration that have still to be clearly defined in terms of their precise nature and their actual amount (Held et al. 2014: 12). In a number of countries this has led to planning uncertainty among investors in RE installations.

CONTENTS

16 | THE FINANCING OF SUPPORT SCHEMES FOR RENEWABLE ENERGY IN EU MEMBER STATES

4. The financing of support schemes for renewable energy in EU member states

Of crucial importance for the energy transition is the question of how EU member states pay for the use of renewable energy for the generation of electricity and heat. The following chapter provides both an overview and a detailed exposition of the schemes currently used by EU member states, as of October 2015, to support the use of renewable energy in the electricity market, and of how these are financed.

Infrastructure projects of individual EU member states are financed from a variety of sources. When it comes to shaping public infrastructure, the public sector has a whole range of options at its disposal. As a rule, public infrastructure is financed by tax revenues via the state budget. Infrastructure projects can also be financed with the help of private partners. A public-private partnership (PPP) enables a government to draw upon outside know-how for the delivery of state services. Infrastructure projects that are not financed in full or in part by the state are paid for by the people who use them, as in the case of toll roads. In many cases, a similar model is used to finance the use of renewable energy. Rather than being borne by the taxpayer or a private investor, the associated costs are transferred, often via the intermediary of installation operators and investors, to the end consumer, i.e., businesses and households. As a rule, these costs are reflected in the price consumers pay for their electricity. According to data from the European Commission, electricity prices for EU consumers are made up of the various components shown in the graphic below. On average for the EU as a whole, taxes and levies make up around 30 percent of the electricity price for households and 18 percent of the electricity price for industry.

Fig. 8: Breakdown of electricity prices in the EU

Source: Based on data from European Commission, 2014.

As a weighted average for the EU as a whole, the share of the electricity price made up by taxes and levies rose by 127 percent between 2008 and 2012. The biggest increases were in Germany, Estonia, Italy, Slovenia, and Slovakia. However, the size of this share varies greatly between individual countries. In 2012 the share made up by taxes and levies in individual EU member states ranged between five and 56 percent (European Commission 2014: 10).

Table 2 provides a detailed overview of the schemes currently used by EU member states to support the use of renewable energy in the electricity market and of how these are financed. The table is based on the database of RES LEGAL and shows not only current schemes to support renewable energy but also who bears the burden of financing the scheme – whether the taxpayer, electricity consumer, or the state.

ELECTRICITY PRICE FOR CONSUMERS

ENERGY NETWORK TAXES, LEVIES, EXEMPTIONS…

Wholesale Retail Transmission Distribution General budget Specific policies

17

THE FINANCING OF SUPPORT SCHEMES FOR RENEWABLE ENERGY IN EU MEMBER STATES |

Table 2: Support schemes for renewable energy in EU electricity markets and their financing

EU MEMBER STATES

SUPPORT SCHEME

COSTS BORNE BY

GENERAL BUDGET /

TAXES

NON-TAX LEVIES

SUPPLIER COSTS

HANDED ON TO END USER

BELGIUM

Quota system (green certificates)Consumer

(Art. 14 bis Arreté du 16 juillet 2002)

ü

ü ü

Subsidies State

Net meteringInstallation operator and consumer

via electricity bill

BULGARIA Feed-in tariffConsumer via electricity bill (Art. 31, item 7, Energy Act) ü ü

DENMARK

Market premiumsConsumer

(§ 8, par. 2, Electricity Supply Act) ü ü

Net meteringState

(budget managed by Energinet.dk)

Loan guaranteesConsumer

(§ 8, par. 2, Electricity Supply Act)

Subsidies State ü

GERMANY

Feed-in tariff via levyConsumer via electricity bill

(§ 37, par. 2, EEG)

ü ü

Market premiums Consumer

Flexible surcharge or premium for biogas installations

offering on-demand supplyConsumer

Subsidised loans Operator | KfW

ESTONIA

Market premiumsConsumer via electricity bill

(§ 59.2, par. 1, ELTS) ü

Subsidy for investmentEU Structural Funds; European

Agricultural Fund for Rural Development; state for wind energy

FINLAND

Market premiums with feed-in tariff

State (§ 29, Act No. 1396/2010), general budget

ü

Subsidies State

CONTENTS


EU MEMBER STATES

SUPPORT SCHEME

COSTS BORNE BY

GENERAL BUDGET /

TAXES

NON-TAX LEVIES

SUPPLIER COSTS


FRANCE

Feed-in tariffConsumer

(Art. 5, Loi n°2000-108)

ü üTendering Consumer

Tax incentives (income-tax relief) State (general budget) ü

GREECE

Feed-in tariff

State (revenues from auction of emission permits are held in an RES

account, from which the feed-in tariff is paid); consumer (via emissions-

reduction tax on electricity bill) Operator (via levy and enrolment fee)

ü ü ü

Subsidies and tax relief

State (Ministry of Development, Competitiveness, Infrastructure,

Transport and Networks); installation operators (must bear at least 25% of investment costs)

Net metering (planned)

IRELAND

Feed-in tariff Consumer via electricity bill ü

Tax reliefInstallation operator

State

ITALY

Feed-in tariff

Consumer via electricity bill and installation operator in the event of higher costs resulting from sale on

intraday market

üMarket premiums following tendering for installation

operators

Consumer via electricity bill and installation operator in the event

of higher costs resulting from sale on intraday market

Net metering Annual fee for installation operator

VAT reliefState; 10% relief for wind and

solar power

19


EU MEMBER STATES

SUPPORT SCHEME

COSTS BORNE BY

GENERAL BUDGET /

TAXES

NON-TAX LEVIES

SUPPLIER COSTS


CROATIA

Feed-in tariff Consumer ü

LoanState and donations

LATVIAFeed-in tariff scheme

featuring elements of tendering and quota models

No information

LITHUANIA

Feed-in tariff Consumer via electricity price

üü

SubsidiesState (budget) and EU funding from the Programme for Climate Change

Mitigation

LUXEM-BOURG

Feed-in tariff Consumer

ü

ü

Tax relief for PV Tax exemption for power from PV

SubsidiesState (Environment Ministry and Trade

and Industry Ministry)

MALTA

Feed-in tariff Consumer

üü

Subsidies State

NETHER-LANDS

Tendering for off-shore wind planned from 2015 (pilot scheme)

Consumer

ü ü

Market premiums State (state budget to €3bn)

Tax relief State (state budget)

Subsidised loans State

Net meteringState; installation operators

via grid usage costs

AUSTRIA

Feed-in tariffConsumer

( § 44 ÖSG 2012)

ü

ü

Subsidies State

CONTENTS


EU MEMBER STATES

SUPPORT SCHEME

COSTS BORNE BY

GENERAL BUDGET /

TAXES

NON-TAX LEVIES

SUPPLIER COSTS


POLAND

Quota schemeConsumer via electricity bill (§ 17, Order of 18/10/2012)

ü

ü üTax relief

State (Art. 1, par. 2, Tax Act)

SubsidiesFines for failure to meet quotas are passed on to the consumer

by suppliers

PORTUGAL

Feed-in tariff for existing installations

Consumer via electricity bill (Art. 22, par. 2ff., DL 189/88)

ü üTendering for new small-scale

installations from 2015 Consumer

(DL 153/2014)

ROMANIA

Quota system Consumer via electricity price

ü

ü ü

Subsidies

State (20% from Paying Agency for Rural Development and Fisheries);

EU (80% from European Agricultural Fund for Rural Development)

SWEDEN

Quota systemConsumers in

Sweden and Norway

ü

ü üTax relief for wind energy State (§ 8, Act No. 1984:1052)

Subsidies for PV installations State (§ 1, Regulation No. 2009:689)

SLOVAKIA

Feed-in tariff Consumer via electricity bill

ü

ü

Market premium State

Subsidies State

SLOVENIA

Feed-in tariff

Consumer via levy on electricity price

(§ 64.s Energy Act; item 6.4.2. RS 57/2004) ü ü

Market premiumConsumer via levy on

electricity price

Subsidised loansState and donors (Chapter IV, § 14,

Statute of the Eco Fund)

üSubsidies State (§ 1, RS 89/2008)

21


EU MEMBER STATES

SUPPORT SCHEME

COSTS BORNE BY

GENERAL BUDGET /

TAXES

NON-TAX LEVIES

SUPPLIER COSTS


SPAIN

Feed-in tariff or market premium, as chosen by installation

operator; all support measures currently suspended

Consumer (Art 4, par. 2, l. h and Art. 6, par. 2,3 RD 2017/1997)

ü

Tax credit State

CZECH REPUBLIC

Feed-in tariff

Consumer via surcharge in electricity bill (§ 28, par. 3,

Act No. 165/2012)ü üMarket premium: Green Bonus

Subsidies

HUNGARY

Feed-in tariffConsumer (§§ 13 (1) (1a) Act No. LXXXVI of 2007)

ü üSubsidies

State (15%, from the Environmental and Energy Operative Programme) and EU (85%, from the European Regional

Development Fund)

Net-Metering Electricity traders and power suppliers

UNITED KINGDOM

Feed-in tariff (in Great Britain only): obligatory for installations under 5

MW; optional for larger installationsConsumer via electricity bill

ü ü

Quota system Consumer via electricity price

Tax relief (exemption from Climate Change Levy and, in Great Britain only, from the Carbon Price Floor)

State

Subsidised loansState and Green Deal Finance

Company (GDFC) (consortium of private companies)

Contracts for difference (CfD) Consumer via levy

CYPRUS

Subsidies

State and consumer üNet-Metering

Source: Based on RES LEGAL 11/2013; CEER Status Review of Renewable and Energy Efficiency Support Schemes 2015. Data for Croatia were not yet available.

CONTENTS


Table 2 shows that in most EU member states it is the electricity consumer who bears the main burden of financing national support instruments for renewable energy. In 23 of 28 countries, consumers pay for the cost of at least one of the various support instruments. As a rule, this involves payment of a non-fiscal contribution, e.g., in the form of a levy, included in the electricity bill. This is calculated on the basis of either the amount of electricity consumed or grid charges (e.g., in Austria).

In Estonia the costs are borne by the consumer and calculated in terms of the volume of grid services used and the amount of electricity consumed. In France the national regulatory authorities review the levy annually, but the decision whether to change it rests ultimately with the Energy Minister (CEER 2014:11). In 20 countries the state also bears some of the costs of the energy transition, e.g., in the form of subsidies, tax relief, or subsidised loans for investors. In eight countries (Ireland, Italy, Finland, France, Greece, Luxembourg, the Netherlands, and Romania) part of the energy transition is financed by general taxes. In Spain, all funding to support the expansion of RE generation capacity has been suspended. This is because of powerful expansion in this sector, which has led to targets being overshot, and a realignment of policy as a result of the economic downturn. At present, no feed-in tariffs have been set and no contracts are being awarded (RES LEGAL 2014).

In general, electricity taxes can be subdivided into consumption taxes (e.g., value- added tax) and specific taxes (e.g., excise duties, electricity taxes, coal taxes). Con-sumption taxes such as value-added tax are borne by the end consumer as a propor-tion of the price. Excise duty is indirect and relates to the consumption or use of electricity. It is calculated as a proportion of the amount of product consumed (European Commission 2014: 102). Tax exemptions and tax relief are granted, as a rule, to energy-intensive companies.

In the following, we compare the German system with that of five other EU member states. Alongside Germany, we have chosen countries that have already introduced a quota scheme. This enables closer examination of this system, with a view to determining whether this market-oriented support instrument represents an efficient and effective alternative to a feed-in tariff and to the tendering model currently being tested in Germany.

In most EU member states, it is the electricity consumer who bears the main burden of the energy transition. In 23 EU countries, consumers pay for the cost of at least one support instrument for supporting renewable energy. In 20 EU member states, the state also bears some of the costs of the energy transition. As a rule, this is financed by means of tax revenues.

Good to know

23

COMPARISON OF SELECTED SUPPORT SCHEMES AND THEIR FINANCING |

Table 3: Selected support schemes in six EU member states

EU MEMBER STATES

SUPPORT SCHEME

COSTS BORNE BY

LAWENTITLED

PARTYOBLIGATED

PARTYDISTRIBUTION MECHANISM

BELGIUM

Quota system (green certificates)

Consumer (Art. 14 bis Arreté du 16 juillet

2002)Arrêté royal du 16 juillet 2002, Loi du 29 avril

1999

Not specified

All electricity suppliers must

meet the regional quota.

The grid operator is obliged to purchase green certificates for

RE installations. The resulting costs are

paid for by the consumer via a levy in the electricity bill.

Subsidies State

Net meteringInstallation operator

and consumer via electricity bill

GERMANY

Feed-in tariff via levy

ConsumerErneuerbare-

Energien- Gesetz

(Renewable Energy

Sources Act)

Power plant and instal-lation operators

Grid operators

Installation operator à Grid

operator àTransmission grid

operator àSpot market or power supply company àConsumer

Market premium Consumer

Various KfW funding

Plant operator repays loan; KfW guarantees

‎low interest rates

NETHER-LANDS

Tendering for off-shore wind

planned from 2015 (pilot scheme)

Consumer

Regulation Green

Projects 2010

All energy producers

Agentschap NL (Dutch energy

agency)

The costs of the market premium

system are paid from the state budget.

The Trade and Industry Ministry has set aside

€3bn for the SDE+ 2013 system (Art. 2 (1),

RAC 2013)

Market premiums

State (state budget to €3bn)

Tax relief State (state budget)Energy producers that also consume energy themselves

Subsidised loans State

Net meteringState; installation operators via grid

usage costsSmall customers

Energy companies and

the state

POLAND

Quota schemeConsumer via

electricity bill (§ 17, Order of 18/10/2012)

Act of10 April 1997, Energy Law

Power companies that produce or

sell electricity have to meet quotas;

industrial customers that consumed

over 100 GWh in the previous year

The costs for purchase of green certificates and for a levy on installation operators are contained

in the electricity bill and paid by the end

consumer. Installation operators who fail to purchase green

certificates and to pay the buyout risk

being fined.

Tax reliefState

(Art. 1, par. 2, Tax Act)

Subsidies

Fines for failure to meet quotas are

handed on to the consumer by suppliers.

5. Comparison of selected support schemes and their financing

CONTENTS

24 | COMPARISON OF SELECTED SUPPORT SCHEMES AND THEIR FINANCING

EU MEMBER STATES

SUPPORT SCHEME

COSTS BORNE BY

LAWENTITLED

PARTYOBLIGATED

PARTYDISTRIBUTION MECHANISM

SWEDEN

Quota schemeConsumers in Sweden

and Norway

Electricity Certificate Act

(Act No. 2011:1200)

Power suppliers / self-providers /

registered energy- intensive

companies

Costs rising from the quota obligation

are transferred by the power suppliers to customers in the form of a surcharge.

Joint Swedish- Norwegian certificate

market with a distribution of the

burdens among consumers of both

countries.

Tax relief for wind power

State (§ 8 Act No.1984:1052)

Subsidies for PV installations

State (§ 1 Regulation No. 2009:689)

UNITEDKINGDOM

Feed-in tariff (in Great Britain only): obligatory for installations

under 5 MW; optional for larger

installations

Consumer via electricity bill

The Energy Act 2011, c. 16

Installation operatorsLicensees / power

suppliers

Licensee pays feed-in tariff.

These costs are incorporated in the consumer‘s electricity bill.

Quota schemeConsumer via

electricity pricePower suppliers

Power suppliers pass on their costs to

consumers via the price of electricity in

the electricity bill.

Tax relief (exemption from Climate Change

Levy and, in Great Britain only, from the Carbon Price

Floor)

StateSuppliers of power

from renewable energy receive tax relief

State receives lower tax revenues.

Subsidised loans

State and Green Deal Finance

Company (GDFC) (consortium

of private companies)

Companies that are more energy-efficient

The credit costs are assumed by the Green Deal Finance Company (consortium of private companies), which has

been set up by the state. Start-up capital from

the state.

Contracts for difference (CfD) Consumer

via levy

Power suppliers who have entered

into a CfD (sec. 6 (1),

(2) and 10 EnA 2013)

Low Carbon Contracts Company

(LCCC), a state-owned company responsible for

administering the contract (sec. 6 (1),

(2) and 10 EnA 2013; sec. 2 CfD Counter-party Designation

Order 2014)

The consumer pays a levy to the power supplier.

25


5.1 The German support system

Table 3 provides a detailed overview of the differences between the various sup-port schemes for renewable energy implemented in Germany, Sweden, the United Kingdom, Belgium, Poland, and the Netherlands. The support schemes are classified according to who bears the costs, the enabling legislation, those entitled to payment, those obligated to play, and the mechanism of distribution. As already stated, in all of the countries the major share of the costs is borne by the electricity consumer. Unlike Germany, the countries of Sweden, the United Kingdom, Belgium, and Poland already have experience with the quota model. In addition, we take a closer look at the sup-port schemes used in a number of other countries.

Germany primarily uses a feed-in tariff to promote the energy transition, supple-mented by market premiums and various support instruments such as KfW funding. Support schemes for renewable energy in Germany operate parallel to – and largely uncoordinated with – the EU Emissions Trading System (ETS). In terms of climate policy, the parallelism of the ETS and the EEG is problematic, since the reduction of CO2 emissions in Germany as a result of an expansion in renewable energy is not accompanied by a reduction in EU CO2 certificates. Overall, the amount of CO2 emissions remains unaffected by the EEG; the only thing that changes is the location where the emissions occur (Haucap et al. 2012b: 31–32). However, reduced demand for CO2 certificates could also cause the price to fall. In turn, this would result in a new equilibrium with a lower price for the same amount, because the ETS has a fixed cap (Sommer, RWI, 12/11/2015).

The costs arising from the German support system are paid for by power consumers largely in the form of the EEG levy in their electricity bill. However, certain types of consumer are partially or totally exempt from the levy:

§ To help maintain their competitiveness, energy-intensive companies are only required to pay a reduced levy. This applies to companies with an annual power consumption of over one gigawatt-hour and electricity costs in excess of 14 per-cent of total revenue. In addition, there are partial exemptions.

§ The so-called green power privilege reduces the EEG levy for power suppliers that meet certain criteria, including at least 50 percent of renewable energy in their electricity mix (Held et al. 2014: 12 ff.). This green power privilege was, however, abolished as part of the 2014 amendment to the EEG.

Alongside the EEG levy, there are also electricity taxes in Germany. The so-called Öko-steuer (Eco-Tax), introduced in 1999, also has an impact on emissions trading, since here, too, the aim of the legislation is to reduce power consumption and the tax is borne by consumers as a share of the electricity price. Once again, however, the Eco-Tax has little or no impact on the reduction of greenhouse gas emissions. Since total emissions are capped in the EU Emissions Trading System, any supplementary electricity or CO2 taxes do not effect any further reduction in CO2 (Böhringer 2010: 68). This is also true of all the other instruments that aim to reduce electricity consumption in EU countries.

The optional market-premium model, which was introduced in 2012, marks an initial move towards integrating power generation from renewable energy sources within the market and the industry infrastructure. RE power generators can choose between a guaranteed feed-in tariff and a premium paid on top of the price they receive for selling their electricity on the open market. Here, generators opt for the scheme that promises them the highest revenues at the desired point in time (Haucap et al. 2012b). As opposed to feed-in tariffs, which guarantee a fixed price per unit of electricity fed into the grid irrespective of daily or other price fluctuations, a market premium is paid in excess of the price achieved when renewable power is marketed conventionally via an electricity exchange or bilaterally. Depending on the design, the value of this premium is either fixed or variable, calculated in line with certain set parameters.

A feed-in tariff, flanked by a market- premium scheme, is currently the primary support instrument for renewable energy in Germany.The costs thereby incurred are paid for by power consumers largely in the form of the EEG levy in their electricity bill. Certain types of consumer are exempt from the levy.Reform to the EEG means that this support scheme is to be replaced by a tendering process from 2017 at the latest.

At a glance

CONTENTS


In the German model, the premium is determined monthly and ex post on the basis of the difference between the respective feed-in tariff and the monthly average of power prices on the EEX electricity exchange (Bardt et al. 2012). Yet the market-pre-mium model does not provide genuine integration within the electricity market. This is because there is a de facto reversion to the feed-in tariff in periods of high feed-in levels, because at such times there is a levelling in the difference between the market price and the feed-in tariff. As such, suppliers continue to be protected against the risks of the market (Haucap et al. 2012b).

As described in Chapter 3.3, the EEG reform means that this support scheme is to be replaced by a tendering process from 2017 at the latest. From this time onwards, the level of state aid for renewable energy will no longer take the form of a fixed feed-in tariff or a market premium set on the basis of that tariff, but will rather be deter-mined by auction. The introduction of the tendering model is currently being tested in a pilot project. As of April 2015, auctions have been used to determine the level of state aid for freestanding photovoltaic installations. The experience gained from this project will serve to shape the final changeover of EEG support to a tendering process by the year 2017 (cf. § 2, para. 5, EEG) (Monopolkommission 2015: 81).

5.2 Experience with the quota model in Europe

There are some major differences in the quota schemes so far implemented by EU member states. In the quota scheme introduced in the United Kingdom in 2002, for example, there was initially no distinction between different generating technologies (Bardt et al. 2012). In the period from 2002 to 2009, quota fulfilment was on average below 70 percent (Haas et al. 2011). Analysts attribute this to the fact that buyout fees in the event of nonfulfillment of quotas were too low and the system for redistributing these payments too complex, which in turn led to tactical behaviour on the part of power suppliers (Bardt et al. 2012). Furthermore, faster expansion in renewable power was hindered by poor regulation of grid access, planning legislation problems, and lengthy approval procedures. As such, many of the problems had nothing to do with the actual method of subsidy. Since 2009 the allocation of certificates has been weighted according to the generating technology, i.e., the number of certificates per MWh of power generated is now determined on the basis of the type of renewable generation and the category of installation. In addition, buyout payments are now based on the electricity price. In a quota system, the costs of the energy transition are borne by the consumer via the electricity price.

In 2010, feed-in tariffs were introduced, but in Great Britain only, for installations with a capacity of less than 5 MW (Kalt et al. 2013: 8). In addition, tax relief is used as a support instrument throughout the United Kingdom. This includes exemption from the Climate Change Levy for companies and the public energy sector in the event that certain energy-saving measures are fulfilled (EU 2014: 276). Renewable energy installations may also benefit from the Climate Change Levy. In 2013 the Carbon Price Floor was intro-duced in Great Britain only. This functions like a tax on fossil fuels and is levied on industrial companies that use conventional sources of energy. Power generated from renewable energy is exempt from this levy (RES LEGAL UK 2015).

As of April 2017 all state support in the United Kingdom for renewable power instal-lations larger than 5 MW will be via so-called contracts for difference (CfD). These are private contracts between generators of renewable power and a company owned by the state. The CfD is based on the difference between the market price and the strike price. If the market price is higher than the strike price, then the electricity generator pays the difference to the state. Parties to such a contract are determined on the basis of an allocation round (RES LEGAL UK 2015).

There are major differences in the various quota schemes implemented in the EU. At present, the United Kingdom, Sweden, Belgium, and Romania use a quota scheme as their principal support instrument for renewable energy. Poland has been using a quota scheme since 2012, alongside tax relief for power generators. Italy used a quota scheme from 2002 to 2013. At present, the Swedish model is regarded as the most successful within the EU.

Good to know

27


The Swedish quota scheme was introduced in 2003 and is based on the allocation of one certificate per MWh of power, regardless of the generating technology employed. Electricity suppliers, energy-intensive companies, and certain electricity consumers are required to hold a certain quantity of RE certificates. This quantity is determined on the basis of their electricity sales or electricity consumption. Hydroelectric installations with a capacity upwards of 1.5 MW and dating from before 2003 are excluded from the scheme.

Wind energy installations are eligible for relief on energy tax, and there are invest-ment incentives for the creation of photovoltaic installations (Bardt et al. 2012). Due to the fact that buyout fees were initially too low, the rate of quota fulfilment in 2003 was only 77 percent. Electricity suppliers evidently assumed that buyout fees would rise and, with them, the market value of certificates, and therefore opted to pay buyout fees in 2003 rather than submit the requisite certificates to meet their quotas. Since 2004, quota fulfilment has been almost 100 percent. As of 2005, penalties for nonfulfillment have been set at 150 percent of the weighted-average certificate price. In 2006 the certificate market was extended to 2035 (Winkel et al. 2011). Bardt et al. (2012) describe the Swedish quota scheme as being very close to ideal. It initially led to exploitation of the country‘s existing biomass reserves and, from 2007 onwards, to a greater expansion in wind energy. From an international perspective, the Swedish system is regarded as effective and successful, despite the fact that it excludes large-scale hydroelectric installations, which make up a substantial share of Sweden‘s electricity production. The major portion of the electricity generated under the quota scheme comes from biomass, small-scale hydroelectric installations, and wind energy (Haucap et al. 2012b: 44). The experience of the Swedish support system shows that an adequate timeframe is a basic requirement for a properly functioning quota scheme (Edenhofer et al. 2011), since this provides security for investment. In Sweden too, the costs of the quota scheme are ultimately borne by the end consumer, since electricity suppliers pass on the costs of their quota obligations directly to their customers. However, since the introduction of a common Swedish-Norwegian certificate market, these costs are paid by electricity customers from both countries (RES LEGAL Sweden 2013). As such, the two countries are playing a pioneering role in the development of a common European system of support for renewable energy (Haucap et al. 2012b: 44).

In the Swedish system, it is the electricity suppliers and certain consumers who are subject to quota obligations, not the electricity generators or the distribution grid operators (Haucap et al. 2012: 8). In the event of nonfulfillment of the mandatory quota obligation, a penalty of 150 percent of the average green certificate price must be paid (Haucap et al. 2012b: 11).

In Belgium the federal government and regional administrations are jointly respon-sible for the regulatory framework for renewable energy. Flanders, Wallonia, and the Brussels region each have their own certificate systems, although the systems of Wallonia and Brussels are connected. The Belgian system is not a pure quota scheme.The transmission grid operator and the distribution grid operators are required to bid a minimum price for certificates. This varies between €20 and €450 per MWh, depending on the type of generation and the date at which the installation was built. However, it is the electricity suppliers who must demonstrate possession of the requisite certificates. If the trading price for certificates lies above the guaranteed minimum price, grid operators are not obliged to purchase them. The minimum price therefore provides a safety net for the renewable energy market. For this reason, the system is very similar to a model with a fixed feed-in tariff (Haucap et al. 2012b: 46).

Since 2002, electricity suppliers in Flanders are required to prove that they have met a prescribed quota obligation. The grid operator must buy up certificates at a fixed price according to the generating technology used (Bardt et al. 2012). Whenever the fixed price for certificates is higher than the market price (as it is for photovoltaic power, for example), the system corresponds de facto to the feed-in tariff model. The mini-

CONTENTS


mum price currently lies at €93 per certificate. As of 2013, this no longer corresponds to 1 MWh. Seventy-five percent of the certificates belong to the distribution grid operator, who, as a result of the low market price, does not make a profit with them at present. The grid operator sells the certificates to those electricity suppliers who do not produce certificates themselves. There has been a boom in photovoltaic power since 2012, because the number of certificates issued was greater than the number that had to be submitted. As a result, the costs for the system have continued to rise, which has likewise increased electricity prices for consumers. Yet in 2014 the indus-trial price for electricity in Belgium (almost 11 cent/kWh) was still substantially lower than in Germany (over 15 cent/kWh). Belgium also grants exemptions to energy- intensive companies. The EU is currently examining whether this system complies with EU law (Discussion on energy policy with the Deputy Premier and Energy Minister of Flanders, Annemie Turtelboom, and energy experts from Flanders on 18th February and 16th September 2015).

On the whole the Flemish quota system to support renewable energy is highly transparent and effective. It provides investors with long-term security, since they know what they will receive in return for building a renewable power installation, whereas electricity suppliers, by contrast, are required to meet quota obligations. In other words, the expansion of renewable power in Flanders could be much cheaper than it is in Germany, were it not for the fact that market forces are currently inoperative. In a perfect market, the efficiency of the quota system would be guaranteed. In regions such as Flanders, however, the markets for both the supply and purchase of electricity are an oligopoly. Moreover, geothermal and photovoltaic energy continue to benefit from tax privileges in Flanders (Discussion on energy policy on 18th February and 16th September 2015).

In 2003, Wallonia introduced a quota scheme with allocation of certificates weighted according to the generating technology used. This weighting helps generate incentives for the expansion of certain generating technologies or types of installation. The quota was fully met for the first time in 2007, with biomass installations, wind power installations, and CHP installations fired by fossil fuels (which also receive certificates) providing the biggest contributions to quota fulfilment (RES LEGAL Belgium 2013). In the event of nonfulfillment of the mandatory quota obligation, a penalty of €100 per MWh must be paid (Haucap et al. 2012a: 11).

Poland has been using a quota scheme to support renewable energy since 2012. This is in addition to tax relief for electricity generators. Power installation operators that generate from renewable energy receive one certificate per MWh of power produced. Polish energy legislation requires certain industrial consumers, power generators and suppliers, and end consumers who are members of the commodity exchange to present a certain quota of certificates. Alternatively, companies can also pay a fee. If they fail to do either one of these, they are fined (RES LEGAL Poland 2013).

In Italy too, a quota scheme implemented in 2002 was for some time the primary means of supporting electricity from renewable energy. Under this scheme, producers and importers of electricity are obliged to demonstrate that a certain proportion of their power derives from renewable energy (Art. 14 DM 18/12/08). The requisite certificates can also be combined with other support schemes. The period for which certificates are allocated is limited to 15 years for all installations that went into operation after 31st December 2007 (Art. 2., para.143, 144 L 244/07) (RES LEGAL Italy 2014).

This support scheme is not available to installations that went into operation on or after 1st January 2013 (Art. 25, c. 11, l. b DL 28/11). Now all installations may only be supported by means of a feed-in tariff or market premium. Installations that qualify for support and have been in operation since before 31st December 2012 are eligible to receive support under the old system for the entirety of the period of eligibility (Art. 25, c. 7, 8 DL 28/11) (RES LEGAL Italy 2014).

29


5.3 Further experience with support systems in the EU

As fig. 7 shows, there is a wealth of experience in the EU and beyond with the use of tendering schemes to support renewable energy. Great Britain was already holding auctions in the 1990s. These, however, covered not only generation from renewable energy but also nuclear power installations, since the emphasis back then was on cutting greenhouse gas emissions rather than expanding RE power generation. It is to be noted that comparatively low levels of state support ensued. Problematic, on the other hand, was the actual implementation of projects once a contract had been awarded, with the result that the government fell far short of its expansion targets for renewable energy. The inadequate rate of implementation seems to be the result of deficiencies in the design of the tendering process. For example, there were no penalties for noncompliance with project commitments (Monopolkommission).

Ever since 1996, with the exception of certain periods, France has made repeated use of tendering to determine the level of feed-in tariffs for certain sectors of the renewable industry. Initially, auctions were used for wind power and biomass installa-tions. Rates of realisation were very low: 40 percent for biomass installations and as little as 10 percent for wind power installations. The scheme has since been extended to larger photovoltaic installations (with a capacity of over 100 kW); smaller installa-tions continue to receive a fixed tariff. The tendering process for photovoltaic installa-tions in France has several unusual features. Firstly, it gives priority to installations that use materials produced in France, i.e., successful bids are selected on the basis of not merely price but also other criteria. Furthermore, the prices achieved in this way are not made public. Secondly, a distinction is made between the type of generating technology and also the size of installation. The result is a relatively piecemeal system with a lot of different bidding rounds. In addition, the qualification require-ments for the tendering process are high. Potential bidders must supply extensive proof of their competence and liquidity. These stringent criteria along with the piecemeal nature of the process have meant that only a small number of large companies have successfully tendered for contracts. This powerful concentration has led to relatively high prices but also high rates of realisation.

Many other countries have introduced tendering schemes to fix levels of support for RE power generation. In all of them, a clear pattern can be recognised: while most countries failed to meet their expansion targets for renewable energy, there was a fall in both electricity prices and levels of state support. In other words, increasingly stringent qualification requirements to provide evidence and documentation, and increasingly piecemeal tendering procedures with regard to technology and region, tend to lead to higher rates of realisation but also to greater levels of state support (Monopolkommission).

The Netherlands has four support schemes for electricity from renewable sources of energy. These are financed in the main by the taxpayer rather than the actual consumer. The SDE (Stimulering Duurzame Energieproductie) scheme, a capped feed-in tariff scheme, was financed from the state budget over the period from 2007 to 2013. In January 2013 the Dutch government introduced a levy on electricity bills for both household and business customers in order to finance the follow-up scheme, SDE+.

The financial burden is split roughly 50:50 between households and businesses. The levy is collected by the utilities and handed on to the state. The levy is to be imposed until 2016 and increases yearly to match the available SDE+ budget for that year (Ragwitz et al. 2014: 13). The total budget for this scheme (€1.7bn in 2012) is no longer allocated to individual generating technologies. Instead, there is a unified budget, with generating technologies competing with one another for funding.

There is a lot of experience in the EU with the use of tendering schemes to support renewable energy. In Great Britain the experience was predominantly negative in the 1990s. The system was therefore replaced by a quota scheme soon after the year 2000. Ever since 1996, with the exception of certain periods, France has made repeated use of tendering to determine the level of feed-in tariffs. The system in France is highly piecemeal with a lot of different bidding rounds.

At a glance

CONTENTS


In 2013 this initially technology-neutral market premium scheme was further refined by the introduction of a location-specific differentiation of ceiling prices in order to further diversify on the basis of full-load hours. This limits the annual amount of electricity eligible for support (RES LEGAL Netherlands). Installations with a capacity of less than 15 kWp are not eligible for SDE+ and can use net metering instead. Here, power generated is offset against power consumed, so that generators are not liable for any extra costs for the power they use (Wilming 2014).

Alongside SDE+ and net metering, there are also tax benefits for business and domestic consumers in order to promote investment in renewables. In addition, as of 1st July 2012, domestic consumers can apply for a grant of 15 percent of the purchase price of a photovoltaic installation (capped at €650). This scheme was funded by the government to the amount of €52m for the years 2012 und 2013 (RES LEGAL Netherlands).

The first bidding rounds of a tendering process for offshore wind power installations were scheduled for December 2015 in a pilot project. The Netherlands is also looking to introduce a system with tradable quotas. The introduction of this scheme should be closely monitored with a view to learning from the Dutch experience.

31

THE QUOTA MODEL AS AN ALTERNATIVE FOR GERMANY? |

6. The quota model as an alternative for Germany?

In the debate about how Germany‘s Renewable Energy Sources Act (EEG) might be further improved, there have been repeated calls to replace the current feed-in tariff with a quota scheme based on tradable certificates (e.g., Haucap et al. 2012a and b). The advantage of the quota model is that it leads to a more cost-efficient expansion of RE power generation. It also increases competition between generating technol-ogies and provides powerful incentives to reduce costs. And whereas a feed-in tariff provides little or no control of the rate of expansion (Haucap et al. 2012b), a quota system accomplishes this very well. At the same time, the trade in certificates makes it possible to monitor the actual costs of RE power generation. Similarly, the costs of providing an operating reserve are at present not fairly allocated to the generating technologies responsible for load fluctuations. A quota model would correct this (Haucap et al. 2012a). Moreover, priority grid access for renewable energy leads to a suboptimal use of power installation capacity. An economically inefficient choice of location for renewable power installations along with a lack of incentives for bet-ter grid integration also results in excessive costs for grid expansion. These likewise remain limited in a quota system (Haucap et al. 2012a). The quota system would also check the redistributive effects that currently result from the EEG allocation mechanism in Germany.

As shown above, there is already considerable experience in the use of a quota system with tradable certificates for the support of renewable energy. There are also debates in academic circles about the impact of such a system. In their economic and legal report, Haucap et al. (2012b) recommend that the German support system be changed to a quota-based model – as do Germany‘s Monopolies Commission (Monopolkom-mission 2011) and the German Council of Economic Experts (Sachverständigenrat zur Beurteilung der gesamtwirtschaftlichen Entwicklung 2011). Such a support instrument would require power suppliers, energy-intensive companies, and power consumers to obtain an annually increasing proportion of power from renewable energy sources as a share of their own power production, power imports, or power purchased on the German electricity exchange.

A lack of empirical research prevents the formulation of any meaningful statements on a causality between support instruments and electricity prices. A few studies, such as the one by Winkler and Klobasa (2014), simulate the impact of the design of support systems for renewables on the electricity-exchange price. However, there is no investigation of whether this has an influence on consumer prices. Such an analysis would depend on a host of other factors, particularly the competitive structure of the market. Nevertheless, a comparison of electricity prices and the respective support mechanisms in individual EU member states does show that the quota model is a successful system. The electricity prices for industry consumers are often lower in countries with a quota system than in those without. As fig. 9 shows, in 2014 the industrial price for electricity was substantially lower in, for example, Sweden (6.7 cent/kWh) and Belgium (10.9 cent/kWh) than in Germany (15.2 cent/kWh) (Eurostat 2015). The average industrial price for electricity in EU countries that use a quota system is 9.48 cent/kWh. By comparison, the average industrial price for electricity in all EU member states is 12 cent/kWh. This is the first area that research should now be looking at. The support provided for renewable energy is only one of many factors influencing the price of electricity, but it is by no means the only parameter for which correlations can be found.

CONTENTS

32 | THE QUOTA MODEL AS AN ALTERNATIVE FOR GERMANY?

Similarly, a comparison of the individual components of the trading price for electricity among EU member states shows that in countries with a quota system the tax share of the industrial price for electricity was lower than in countries without a quota system. In the United Kingdom, for example, the tax share of the price of household electricity was 0.85 cent/kWh, which amounts to five percent of the total price. In Denmark, by comparison, it was 16.8 cent/kWh, which amounts to 56 percent of the total price (EU 2014). Overall, household electricity in Germany is 46 percent more expensive than the EU average, and industrial electricity is 18 percent more expensive and around twice as expensive as in the USA.

The positive impact of the quota system can be seen even more clearly when the increase in the industrial price for electricity is observed. Over the period from 2008 to 2012, electricity prices in Germany rose by 20 percent, in Sweden by 0.5 percent, and in the United Kingdom by around 12 percent (EU 2014: 226). Furthermore, a comparison of the share of renewable energy as a proportion of final energy consumption for the year 2013 shows that countries using a quota system had achieved the highest share (20 percent), ahead of countries using a feed-in tariff (16 percent). In those EU-27 member states not using the quota model and for which data is available,‎ the share of renewable energy was only 17 percent. Assuming that EU member states maintain their current energy policies, the European Commission estimates that the share of renewable energy as a proportion of final energy consumption for the EU as a whole will rise to 24 percent by 2030. This would fall short of its targeted share of 27 percent. As stated above, the share of renewable energy as a proportion of final energy consumption for the year 2013 was highest in Sweden (52 percent), followed by Latvia (37 percent), Finland (almost 37 percent), and Austria (almost 33 percent) (Eurostat 2015).

Similarly, CO2 emissions, measured in terms of gross domestic product, were on average lower in member states using the quota model (505.9 metric tons per euro of GDP) than in member states using a feed-in tariff (523.4 metric tons per euro of GDP). In countries using a feed-in premium, greenhouse gas emissions were only 444.8 metric tons per euro of GDP.

Fig. 9: Electricity prices for industrial consumers, incl. taxes, charges, and levies

Year

ly e

lect

ricity

pric

e (5

00 M

Wh–

2.00

0 M

Wh)

tariff

0

2

4

6

8

10

12

14

16

18

20

Cypr

usM

alta

Italy

Germ

any

Unite

d Ki

ngdo

m

Irela

ndGr

eece

EU 2

8Po

rtug

alLa

tvia

Slov

akia

Lith

uani

aSp

ain

Belg

ium

Aust

riaLu

xem

bour

gEs

toni

aCr

oatia

Fran

ceHu

ngar

yN

ethe

rland

sDe

nmar

kSl

oven

iaBu

lgar

iaPo

land

Czec

h Re

publ

icRo

man

iaFi

nlan

dSw

eden

6.77.28.18.28.38.48.58.88.99.09.19.29.39.910.610.9

11.711.711.711.811.912.013.013.113.4

15.2

17.418.619.0

Jahr

esst

rom

prei

s (5

00 M

Wh-

2000

MW

h)

0

5

10

15

20

25

Zype

rn

Mal

ta

Italie

nDe

utsc

hlan

dVe

rein

igte

s Kön

igre

ich

Irlan

dGr

iech

enla

ndPo

rtug

alLe

ttla

ndSl

owak

eiLi

ttau

enSp

anie

nBe

lgie

nÖs

terr

eich

Luxe

mbu

rgEs

tland

Kroa

tien

Fran

krei

chUn

garn

Nie

derla

nde

Däne

mar

kSl

owen

ien

Bulg

arie

n

Pole

nTs

chec

hien

Rum

änie

nFi

nnla

ndSc

hwed

en

20

10.0

6.77.28.18.28.38.48.58.88.99.09.19.29.39.910.610.911.711.711.711.811.9

13.013.113.415.2

17.418.619.0

Feed-in tariffFeed-in premiumQuota system

Source: Based on Eurostat data; second half of 2014 (average) in cent/kWh.

33

RECOMMENDATIONS FOR FUTURE POLICY |

Furthermore, it is evident that the level of state support is not a crucial factor in in-creasing the share of renewable energy. In Norway, for example, the share of support-ed RE power as a proportion of gross power generation is ‎lower than anywhere in the EU. In Sweden, too, this share was just under 13 percent in 2012.‎ In Germany, by comparison, this share was over 18 percent. Nevertheless, within the EU, Sweden has the highest share of renewable energy as a proportion of final energy consumption. Sweden and Norway, which have a joint certificate market for renewable power, are aiming to increase RE power generation by 26.4 TWh over the period from 2012 to 2020 (CEER 2015: 23).

In all EU member states, electricity markets should be designed so as to promote competition, transparency, and European integration within a liberalised energy market that aims to meet and reconcile each of the following social, ecological, and energy policy objectives: security of supply, cost effectiveness, and environmental equity. In this respect, it is vital that markets and support instruments are designed in such a way that they enable and encourage effective and efficient behaviour on the part of market players. The current electricity market in Germany and its support systems do not guarantee this to an adequate extent.

The feed-in tariff system, as provided for in the EEG, was established as a temporary instrument to ease market entry for renewable generation. It is, however, unsuitable for permanently regulating the market in an economically efficient manner. Apart from renewable energy, Germany needs a host of other options to replace the nuclear installations scheduled to go offline in the coming years. To ensure targeted invest-ment here, we require market incentives that are open to new technology and lead to minimal additional costs. The current electricity market was designed for an energy system that is based essentially on conventional generation and does not contain renewable energy on any systemically relevant scale.

The EU is likewise demanding a move away from feed-in tariffs. This will mean transforming what is still a heavily subsidised market into an integrated market free of continuous political intervention. This is also the recommendation of the German Monopolies Commission (Monopolkommission 2011), the German Council of Econom-ic Experts (Sachverständigenrat zur Beurteilung der gesamtwirtschaftlichen Entwick-lung 2011), the RWI (Frondel et al. 2012) and Germany‘s National Academy of Science and Engineering (acatech 2012).

It will require a system with a more powerful market focus and one that is able to exploit the potential for greater efficiency that comes from stronger incentives towards system integration and towards a utilisation of the best possible locations for power generation from renewable energy sources, preferably on a European-wide basis (Frondel et al. 2012: 3).

In place of nationally fixed feed-in tariffs for EEG installations, tendering offers a good means of avoiding over-subsidisation (Sommer, RWI, 11.12.2015). This also paves the way for a move from a price-based to a volume-based system of regulation in the renewable energy market. In turn, this should effectively curb the previously unchecked increase in the EEG levy. Here, it is important to specify the volume with some precision so as to prevent the market overheating and investment declining. Direct marketing with a sliding market premium, as now provided for in the EEG, marks an initial step

7. Recommendations for future policy

It is vital that electricity markets and support systems for renewable energy in EU member states are designed in ‎such a way that they enable and encourage effective and efficient behaviour on the part of market players.‎ A volume-based system of regulation in the form of quotas offers an effective means of advancing the market integration of RE power generation.

The advantages of the quota model:

§ Expansion rate of renewable energy can be controlled

§ Grid expansion can be more easily planned

§ Enables full development of market forces and competition

§ Favours the choice of more efficient technology, location, and size of installation

§ Minimal bureaucracy

§ Reduction in total costs of the energy transition

§ Check on rising energy prices

At a glance

CONTENTS

34 | RECOMMENDATIONS FOR FUTURE POLICY

towards creating an incentive for renewable power generation in line with actual market demand. Yet this remains but a first step towards full market integration of renewable power generation.

Further options here include volume-based market regulation in the form of quotas, as proposed by both the German Monopolies Commission (Monopolkommission 2011) and the German Council of Economic Experts (Sachverständigenrat zur Beurteilung der gesamtwirtschaftlichen Entwicklung 2011) (Frondel et al. 2012: 4). This would enable a better balancing of supply and demand. With a quota system, the only parameter fixed by the state is the expansion target for renewable energy. As such, the government can precisely determine the amount of new generating capacity it wishes to create. This not only makes it easier to plan required grid expansion but also guarantees companies greater freedom as a result of minimum bureaucracy combined with genuine competition. Such a system can also take account of the own use of renewable power (Haucap et al. 2012b: 61). This could drastically reduce the total costs of the energy transition and thereby help control rising energy costs. To address the argument that a quota system tends to support merely the most efficient technology of the moment, it is also important to introduce parallel incentives to support further technologies. This will help counteract the so-called infant industry phenomenon2 for new technologies.

At the same time, it is vital to learn from the initial mistakes made by other countries with a quota system, such as the United Kingdom. On no account should we conclude that just because there were teething troubles with the quota model, it is better to stick with the feed-in tariff. As we have seen, the latter can provide no long-term solution. Until more experience has been gathered in this field, it will prove impossible to clearly define an ideal quota model that is open to new technology. Sweden, however, does offer a very successful example of how to implement a quota system that other countries can follow.

Often it is necessary, at least in the early stages, to grant support to specific technologies, e.g., a purchase commitment at fixed prices or feed-in tariffs for certain small-scale installations. However, this cannot be the long-term objective of a support instrument that intends to achieve a given proportion of renewable energy at the lowest economic cost (Bardt et al. 2012).

In addition, a quota system increases the incentive to invest in energy-storage tech-nology, which would enable generators to select the optimal feed-in time themselves and thereby maximise profits. Moreover, in cooperation with the EU and following harmonisation of support schemes in member states, this model can lead to the creation of a European certificate market and thereby exploit potential for greater efficiency at that level (Frondel et al. 2012: 5).

When setting up an auction-based quota system, the following points should be observed:

§ The buyout fees must be weighted to the average certificate price and high enough to ensure that quotas are met and to curb tactical behaviour on the part of power suppliers.

§ The time framework must be large enough to provide greater security for investment.

§ The approval process must be as simple and unbureaucratic as possible.

2 An infant industry is a young branch of industry as yet unable to compete with established market rivals. The infant industry theory holds that such young industries should be initially protected against international competition by means of certain forms of state support, such as quotas or trade barriers, in order to give them an opportunity to become established.

35

RECOMMENDATIONS FOR FUTURE POLICY |

The report by Haucap et al. (2012b) recommends the implementation of a quota-based model to support renewable energy in Germany. Such a support instrument would require power suppliers, energy-intensive companies, and power consumers to obtain an annually increasing proportion of power from RE sources as a share of their own power production, power imports, or power purchased on the German electricity exchange. Renewable power does not actually need to change hands in order to meet a quota ob-ligation; alternatively, tradable green certificates may also be purchased to fulfil quotas. In its latest special report, the German Monopolies Commission likewise recommends a quota system based on the Swedish example and, as such, a transition to a technolo-gy-neutral, volume-based system of support for the renewable energy market.

Conclusion:

The energy transition is a European project. All EU member states are working to increase their share of renewable energy, reduce greenhouse gas emissions, and im-prove energy efficiency. Member states employ a variety of schemes for financing and supporting renewable energy. At present, the majority of EU member states employ a feed-in remuneration scheme in the form of tariffs or premiums. A few member states also use quota schemes with tradable certificates to support RE power instal-lations. At present, tendering schemes and investment incentives are only used to support concrete projects or as a complementary measure. The experience of almost a decade reveals both the advantages and disadvantages of the various funding and support schemes, particularly with respect to the power market. To date, the choice of instrument with which to support renewable energy has been left to individual member states and is not harmonised within the EU. However, the Environmental and Energy Aid Guidelines (EEAG), issued by the European Commission and in force since 1st July 2014, now place limits upon state support for RE installations. These include concrete regulations that mandate, for example, the replacement of fixed feed-in tariffs with a market premium, and the use of tendering procedures to determine the level of state support.

The feed-in tariff system, as still used in many European countries, is a temporary in-strument to ease market entry for renewable generation. It is, however, unsuitable for permanently regulating the market in an economically efficient manner. A comparison of EU member states with different support systems shows that those using a quota

EuropeCONTENTS

36 | RECOMMENDATIONS FOR FUTURE POLICY

scheme to promote renewable energy have proved successful in increasing their share of renewable energy and in reducing CO2 emissions. In 2014 the industrial price for electricity was substantially lower in countries such as Sweden (6.7 cent/kWh) and Belgium (10.9 cent/kWh) than it was in Germany (15.2 cent/kWh) (Eurostat; cf. fig. 9). The average industrial price for electricity in EU countries that use a quota system is 9.48 cent/kWh. By comparison, the average industrial price for electricity in all EU member states is 12 cent/kWh.

A comparison of the share of renewable energy as a proportion of gross final energy consumption for the year 2013 shows that countries using a quota system had achieved the highest share (20 percent), ahead of countries using a feed-in tariff (16 percent). In the EU-27 member states not using the quota model, the share of renewable energy was only 17 percent. The share of renewable energy as a proportion of final energy consumption for the year 2013 was highest in Sweden (52 percent), followed by Latvia (37 percent), Finland (almost 37 percent), and Austria (almost 33 percent) (Eurostat). Similarly, CO2 emissions, measured in terms of gross domestic product, were on average lower in member states using the quota model (505.9 metric tons per euro of GDP) than in member states using a feed-in tariff (523.4 metric tons per euro of GDP). There is a lesson here for the EU Commission and for individual European countries, including Germany, about how to make support for renewable energy and its EU integration more efficient. Increased Europeanisation must also include stronger harmonisation in the expansion of the EU single market for electricity.

The question of how to finance support schemes for renewable energy is a major challenge for all EU member states. More and more energy-intensive companies have to be exempted from the costs. An undue burden is placed on socially disadvantaged households, which in turn weakens their purchasing power. In those areas of Bavaria near the German border, the costs place many businesses at a competitive disadvan-tage compared to companies in neighbouring countries. In the majority of member states, the costs of the support schemes to finance renewable energy in the power market are currently borne by the consumer. As a rule, this is via a levy and other non-fiscal contributions. Certain countries, e.g., the Netherlands, also have experience in financing support schemes from the general budget. Here, the costs are borne by the taxpayer.

With a quota system, by contrast, there is no levy that then gets handed on to the consumer. Instead, electricity suppliers and certain consumers undertake to obtain a proportion of power from renewable energy sources. This quota obligation is met by the purchase of certificates traded via a market mechanism (Haucap et al. 2012a: 19). The advantages of the quota model are that it becomes much easier to control the expansion of renewable energy and to plan for increases in grid capacity. In addition, it encourages free competition between the various sources of renewable energy, thereby favouring efficient technologies, locations, and sizes of installation. This guarantees companies greater freedom as a result of minimum bureaucracy combined with genuine competition.

Moreover, such a system could be extended to other EU member states, thereby strengthening the EU single market in the sector for renewable energy (cf. Commu-nication by the European Commission to the European Parliament, 2012). This can significantly reduce the total costs of the energy transition and thereby maintain rising energy costs within acceptable limits. A condition for this, however, is that we press ahead with grid expansion on the European level.

37

BIBLIOGRAPHY |

Bibliography

acatech (2012): Die Energiewende finanzierbar gestalten: Effiziente Ordnungspolitik für das Energiesystem der Zukunft.

Bardt, H., Niehues, J., Techert, H. (2012): Das Erneuerbare-Energien-Gesetz – Erfahrungen und Ausblick. Institut der deutschen Wirtschaft, Cologne, Berlin.

Bundesverband WindEnergie e.V (BWE) (2012): Positionspapier zur Novelle des Erneuerbaren-Energien-Gesetzes.

Canzler, W., Knie, A. (2013): Schlaue Netze. Wie die Energie- und Verkehrswende gelingt, Munich.

CEER (2014): Status Review of Renewable and Energy Efficiency Support Schemes in Europe, Ref: C12-SDE-33-03, Brussels.

CEER (2015): Status Review of Renewable and Energy Efficiency Support Schemes in Europe in 2012 and 2013, Brussels.

European Commission (2015): 2020 Climate & Energy Package, <ec.europa.eu/clima/policies/strategies/2020/index_en.htm>.

European Commission (2014): ‚Communication from the commission to the European parliament, the council, the European economic and social committee and the com-mittee of the regions. Energy prices and costs in Europe‘, 17.03.2014, Brussels.

European Emission Trading System (2014): <ec.europa.eu/clima/policies/ets/index_en.htm>.

European Energy Agency (2012): ‚Summary‘, GHG Inventory 2012. European Environment Agency, Copenhagen,

<eea.europa.eu/publications/european-union-greenhouse-gas-inventory-2012>.

Eurostat (2015): Energy Trends, <ec.europa.eu/eurostat/statistics-explained/index.php/Energy_trends>.

Eurostat (2015): Erneuerbare Energien in der EU28 – Anteil erneuerbarer Energien im Jahr 2013 auf 15 % des Energieverbrauchs gestiegen. Press release.

Fischer, S., Westphal, K. (2012): Erneuerbare Energien im Stromsektor: Gestaltungs- optionen in der EU. Deutsches Institut für Internationale Politik und Sicherheit, Berlin.

Frondel, M., Schmidt, C.M., aus dem Moore, N. (2012): Marktwirtschaftliche Energie-wende: Ein Wettbewerbsrahmen für die Stromversorgung mit alternativen Technologien. Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Essen.

Frontier Economics (2011): Study on Market Design for Renewable Quota Scheme. Study prepared for Energie-Nederlands, London.

CONTENTS

http://ec.europa.eu/clima/policies/strategies/2020/index_en.htm

http://www.ec.europa.eu/clima/policies/ets/index_en.htm

http://www.eea.europa.eu/publications/european-union-greenhouse-gas-inventory-2012

http://www.ec.europa.eu/eurostat/statistics-explained/index.php/Energy_trends

38 | BIBLIOGRAPHY

Haucap, J., Kühling, J. (2012a): Zeit für grundlegende Reform der EEG-Förderung – das Quotenmodell. Düsseldorfer Institut für Wettbewerbsökonomie, Nr. 33.

Haucap, J., Kühling, J., Klein, C. (2012b): Wirtschafts- und rechtswissenschaftliches Gutachten über die Marktintegration der Stromerzeugung aus erneuerbaren Energien. Düsseldorfer Institut für Wettbewerbsökonomie im Auftrag des Sächsischen Staats- ministeriums für Wirtschaft, Arbeit und Verkehr.

Held, A., Ragwitz, M., Gephart, M., de Visser, E., Klessmann, C. (2014): Design features of support schemes for renewable electricity. ECOFYS by order of: European Commission, DG ENER.

Kalt, G., Lang, B., Schmidl, J. (2013): Fördersysteme für die Stromerzeugung aus erneuer-baren Energieträgern – Status und Perspektiven. Endbericht. Bundesministerium für Land- und Forstwirtschaft, Umwelt und Wasserwirtschaft. Austrian Energy Agency, Vienna.

La Chevallerie, A., Schweitzer, K. (2012): ‚Gemeinsamer Handel mit Stromzertifikaten – Förderung Erneuerbarer in Schweden und Norwegen‘. Energiewirtschaftliche Tages- fragen 62 (3), 2–95.

Monopolkommission (2011): Sondergutachten 59: Energie 2011: Wettbewerbsentwick-lung mit Licht und Schatten, Baden-Baden.

Ragwitz, M., Held, A., Resch, G., Faber, T. (2006): Monitoring und Bewertung der Förderinstrumente für Erneuerbare Energien in EU Mitgliedsstaaten. Fraunhofer ISI, Energy Economics Group (TU Wien), Karlsruhe.

RES LEGAL (2014): Legal Sources on Renewable Energy, <res-legal.eu/>.

RES LEGAL (2015): Legal Sources on Renewable Energy, <res-legal.eu/>.

Sachverständigenrat (2011): Verantwortung für Europa wahrnehmen. Jahresgut- achten 2011/2012, Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung, Wiesbaden.

Sommer, Stephan, Rheinisch-Westfälisches Institut für Wirtschaftsforschung e.V. (RWI), Kompetenzbereich Umwelt und Ressourcen, personal communication on 11.12.2015.

Umweltbundesamt (2013): Europäischer Vergleich der Treibhausgas-Emissionen, <umweltbundesamt.de/themen/klima-energie/klimaschutz-energiepolitik-

in-deutschland/treibhausgas-emissionen/europaeischer-vergleich-der-treibhausgas-emissionen>.

Wilming, W. (2014): „SDE+“ ersetzt bisherige Förderung Erneuerbarer Energien in den Niederlanden, Sonne, Wind und Wärme,

<sonnewindwaerme.de/photovoltaik/sde-ersetzt-bisherige-foerderung- erneuerbarer-energien-den-niederlanden>.

Winkel, T., Rathmann, M., Ragwitz, M., Steinhilber, S. et al. (2011): RE-Shaping: Shaping an Effective and Efficient European Renewable Energy Market. Renewable Energy Policy Country Profiles, ECOFYS.

Winkler, J., Klobasa, M. (2014): ‚Quantifying the effects of different support policies for renewables on European electricity markets‘, 11th International Conference on the European Energy Market, EEM 2014, 28–30 May, 2014, Cracow.

http://www.res-legal.eu/

http://www.res-legal.eu/

http://www.umweltbundesamt.de/themen/klima-energie/klimaschutz-energiepolitik-%20in-deutschland/treibhausgas-emissionen/europaeischer-vergleich-der-treibhausgas-emissionen

http://www.sonnewindwaerme.de/photovoltaik/sde-ersetzt-bisherige-foerderung-erneuerbarer-energien-den-niederlanden

39

IMPRINT |

Imprint:

Publisher:Chamber of Commerce and Industry (CCI) for Munich and Upper Bavaria Dr Eberhard SassePeter Driessen Balanstraße 55-5981541 Munich

089 5116 - 0 muenchen.ihk.de

Responsible:Evamaria LutzDr Norbert AmmannCCI for Munich and Upper Bavaria

Design: Word Wide KG, Munich

Picture credits:Cover: BUSCH BRANDING

Printing: K. Fell GmbH, Gräfelfing

Munich, January 2016

CONTENTS

http://www.muenchen.ihk.de

muenchen.ihk.de/newsletter

/ihk.muenchen.oberbayern

@IHK_MUC

xing.com/net/muenchenihk

Follow us!

muenchen.ihk.de

https://www.muenchen.ihk.de/de/WirUeberUns/Publikationen/Newsletter/IHK-Newsletter

https://www.facebook.com/ihk.muenchen.oberbayern?_rdr

https://twitter.com/ihk_muc

http://www.xing.com/net/muenchenihk

nery - IHK für München und Oberbayern · nery Study by Chamber of Commerce and Industry, January...

Documents

Transcript of nery - IHK für München und Oberbayern · nery Study by Chamber of Commerce and Industry, January...