Supporting Renewables

REFIT ‘Feed in-Tariffs’, the UK Renewables Obligation and the new EU Directive

Prof. Dave Elliott

Open University

http://eeru.open.ac.uk/natta/rol.html

The UK has enviable renewable energy sources

Potential % of overall UK electricity supply in 2050

Onshore wind 8-11%

Offshore wind 18-23%

Wave/Tidal 12-14%

Biomass 9-11%

PV solar 6-8%

TOTAL 53-67%

Based on overall likely level of supply of 400-500 TWh in 2050

Source: DTI/Carbon Trust ‘Renewables Innovation Review’ 2004

UK Support for the renewables £ million * estimates Research grants + RO NFFO

1990-91 21.3 -- 6.11991-92 24.8 -- 11.71992-93 26.6 -- 28.1993-94 26.8 -- 68.11994-95 20.5 -- 96.41995-96 21.6 -- 94.51996-97 18.5 -- 112.81997-98 15.9 -- 126.51998-99 14.4 -- 127.01999-00 14.9 -- 56.42000-01 15.9 -- 64.92001-02 24.0* -- 54.72002-03 27.6* 282.0* unknown2003-04 29.0* 405.0* unknown

+ Direct Government funding for R&D on renewable energy through the DTI’s Sustainable EnergyProgramme & through the Research Councils via the Science Budget. Source: Hansard, 21 Nov 2001 :Column: 300-01WForward projections for RD&D- over £500m allocated for 2002-2008 according to theDTI, Sept 2004

Initial UK renewables support programme

Current UK Renewable Energy Support Programme

•National Targets: 10% of UK electricity to come from renewables by 201015% by 2015 and up to 20% by 2020

•R&D Funding: typically £20-30 m /year

•Capital Grants: £400m + mainly for offshore wind, energy crops • £50m capital grants plus revenue funding for wave and tidal currents • £50m Low Carbon Building programme (PV/microgeneration)

•Users - Climate Change Levy 0.43p/kWh tax on (most) business use of electricity- but users of power from renewable sources exempt.

•Suppliers - Renewable Obligation Electricity supply companies must move in steps to source 10.4% of their electricity from renewable generators by 2011, or purchase equivalent Renewable Energy Certificates from companies who have excess, or pay a 3p/kWh 'buy out' fine.

•Incentives:

At present the Renewables Obligation is the UK’s main support mechanism - it awards companies with Renewable Obligation Certificates (ROC’s) for each MWh of eligible power they produce, set against targets.

UK RO: Renewables Obligation- a quota/ trading system

Overall renewable target increased in stages- 10% by 2010, 15% by 2015, 20% by 2020

Renewable Obligation Certificates (‘ROCs’) given for each eligible MWh

Suppliers pay ~ 3p/KWh ‘buy out’ fine if they don’t meet their RO target -that sets the prices ceiling for projects

Or they can buy ROCs from those who have more than they need- so ROCS are valuable and traded.

Prices variable- depend on the market for electricity and for ROC’s.

This uncertainty makes it hard to get investment capital for new projects- so suppliers have to charge more.

UK Renewables Obligation: Results:

Relatively high prices and not much capacity e.g 2GW of wind

Some mature wind projects on good sites may get more subsidy than they need.

Cost to the consumer- 5-6% extra on bills by 2010

Less developed renewables can’t get started.

UK unlikely to meet its quite low targets, despite proposed modifications to RO- ‘technology bands’ with different ROC allocations.

Capital grants have had to be provided to try to get new renewables going - £500m so far

Comparison of Feed In Tariff and Quota/ Certificate Treading schemes

Euro cents /kWh for wind capacity installed in 2003

REFIT fixed price:Netherlands 9.2Germany 6.6-8.8France 8.4Portugal 8.1Austria 7.8Spain 6.4Greece 6.4

Quota/Trade:UK 9.6Italy 13.0

Source: BWE/ Grotz & Fouquet 2005

UK’s Renewables Obligation costs more than REFIT Feed -in Tariff as used in most of the rest of the EU

German REFIT: Renewables Feed-In Tariff (EEG)

Suppliers have to pay fixed prices for renewablesPrices are set at different levels for each technology Prices are reduced in stages (‘degressed’) over time reflecting their expected development.

Results:

Massive expansion of wind (~20 GW).

Also PV solar (~2GW)

Lower prices per kW and per kWh than Renewables Obligation

Cost to consumer ~3% extras on bills so far.

214,000 jobs created

‘The current levels of renewable deployment have been achieved at a cost to the consumer that is over 40% higher compared to what could have been achieved with a REFIT organised in a way

that is broadly similar to that operating in Germany’

Dr Dave Toke in the World Future Council’s report ‘Making the UK Renewables programme FITTER’

Aug. 2007

Renewables Obligation pays out more than some mature projects now need

< £740m

excess

RO wastes money

Renewables Obligation may pay out more than is need to some mature projects - including possibly on land wind projects on good sites

OFGEM estimatesin 2005

RO excess payments

REFIT in Germany -degression of prices for wind

European Commission Support of Electricity from renewable energy sources 2005

REFIT systems are used by most EU countries

RO may have stimulated opposition to wind

* The competitive pressures the RO creates mean that companies have to seek out high wind speed sites- which are usually of more scenic value. This had led to a backlash from preservation groups and interests.

* The fact that the RO gives support to some projects that may not need it has added to the backlash against wind- with charges of profiteering being levied.

In Germany and Denmark most wind projects are on sites with much lower wind speeds than would be considered economic in the UK- and there has been very little local opposition.

In the UK around 70% of project proposal have been blocked with regular often bitter local objections.

RO has mainly benefitted large companies

Many UK national opinion polls have found that wind energy is a very popular option – typically 80% support it. But there are local objections to some projects- they may be seen as being imposed on communities.Local ownership means less local opposition- more support

The UK gets around 1% of its electricity from wind -98% of wind farms are owned by large companies in the UK.

Denmark gets 21% of its electricity from wind- over 80% of the turbines are locally owned by wind co-ops or local farmersThere are many less objections…It’s the same for Germany- 50% are locally owned.

RO makes it hard for co-ops to set up projects- only two so far in UK

Danish wind co-op meeting

Ownership of Onshore wind power in UK, Germany, Denmark and The Netherlands byPer Cent Capacity in 2004

Type of owner UK Germany Denmark Netherlands

Utilities/ 98 55 12 60corporate

Farmers 1 35 63 34

Co-ops 0.4 10 25 6

Local Ownership of wind projects

Micro generation Low Carbon Building Programme

Renewables Low Carbon

Micro- wind Micro CHP

Electricity

PV solar

Electricity

Stirling Engines

Fuel Cells -gas fired

Solar Heating Others : Electric powered

Others : Biomass for heat /electricity Heat Pumps

QuickTime™ and aPhoto - JPEG decompressor

are needed to see this picture.

Micro-generation Technology No. InstallationsMicro-wind 650Micro-hydro 90Ground source heat pumps 546Biomass boilers (pellets) 150Solar water heating 78,470Solar PV 1,301Micro-CHP 990Fuel Cells 5Total 82,202

Source: Our Energy Challenge: Power from the People, Microgeneration Strategy, DTI, March 2006

Energy minister Malcolm Wicks says that in the proposed new consultation on how the UK can meet the new EU target "we will be looking afresh at micro-generation, and any proposals to boost micro-generation, including a feed-in tariff, are ones we are open to consider."

But he insisted that this "is not at all challenging the mainstream renewables obligation" which he clearly will not abandon. "I think it is important for confidence, including investor confidence, that we don't, as it were, change policies halfway through. I am confident about the reforms we are making," i.e to the RO.

Wicks quoted in the Guardian Feb 20th 2008

EU Directive : 2010 Targets for Electricity from Renewables (% including and excluding hydro (ranked in order of % excluding hydro) Including large hydro excluding large hydro

Denmark 29.0 29.0Finland 35.0 21.7Portugal 45.6 21.5Austria 78. 1 21.1Spain 29.4 17.5Sweden 60.0 15.7Greece 20.1 14.5Italy 25.0 14.9Netherlands 12.0 12.0Ireland 13.2 11.7Germany 12.5 10.3UK 10 9.3France 21.0 8.9Belgium 6.0 5.8Luxembourg 5.7 5.7EU 15 22.1% 12.5 %

EU Renewables Directive- % electricity by 2010

_>

Share of renewable energies in gross electrical consumption in European Union countries in 2005- and 2010 targets

/ UK

New EU aim: 20% of EU energy from renewables by 2020...

Some EU countries have already reached 20%

But for many, still a long way to go..and the RO isn’t helping the UK

EU Directive 2008: National targets for 2020- 20% EU energy target Share of energy from renewables in final consumption

2005 2020

Sweden 39.8% 49%Latvia 34.9% 42%Finland 28.5% 38%Austria 23.3% 34%Portugal 20.5% 31%Denmark 17.0% 30%Slovenia 16.0% 25%Estonia 18.0% 25%Romania 17.8% 24%Lithuania 15.0% 23%France 10.3% 23%Spain 8.7% 20%Germany 5.8% 18%Greece 6.9% 18%Italy 5.2% 17%Bulgaria 9.4% 16%Ireland 3.1% 16%Poland 7.2% 15%United Kingdom 1.3% 15%Slovak Republic 6.7% 14%Netherlands 2.4%

14%Belgium 2.2% 13%Cyprus 2.9% 13%Czech Republic 6.1% 13%Hungary 4.3% 13%Luxembourg 0.9%

11% Malta 0.0% 10%

New EC Renewables Directive- tradingThe European Commission initially considered imposing a mandatory EU- wide green certificate trading system. However this was resisted strongly.

The fear was that that pressure to meet the new EU targets would force up the price of any spare renewable energy available for trading.

Suppliers might then decide to abandon REFIT, for which prices are falling under the degression system, since they could get more by selling their output/credits on to under-performing countries.

The end result, with the REFIT system undermined, could then be higher prices all round, and less capacity being installed.

Guarantees of Origin system

The Commission backed down and its new plan recognised explicitly that ‘well-adapted feed-in tariff regimes are generally the most efficient as well as effective support schemes for promoting renewable electricity’.

It backed a voluntary ‘Guarantee of Origin’ certificate trading scheme, but just for any excess energy over and above national targets. And this energy cannot be part of a REFIT scheme -or an RO scheme.

So, given the tight targets, REFIT is safe for now. So is the RO- and the UK will continue with the RO

EU -ETSThe European Commission hopes the EU Emission Trading System will provide a competitive stimulus for renewables expansion, although the first round can hardly be seen to have been a success- caps were set to high.

Tougher national targets have been set for some countries for the second round (2008-2012), especially for new EU countries, and a new scheme proposed for after 2012

Proposed cap 2008-2012Austria 32.8 30.7 (93.6%)Belgium 63.3 58.5 (92.4%)Bulgaria 67.6 42.3 (62.6%)Cyprus 7.12 5.48 (77%)

Czech Rep. 101.9 86.8 (85.2%)Denmark 24.5 24.5 (100%)Estonia 24.38 12.72 (52.2%)Finland 39.6 37.6 (94.8%)France 132.8 132.8 (100%)

Germany 482 453.1 (94%)Greece 75.5 69.1 (91.5%)Hungary 30.7 26.9 (87.6%)Ireland 22.6 22.3 (98.6%)Italy 209 195.8 (93.7%)

Latvia 7.7 3.43 (44.5%)Lithuania 16.6 8.8 (53%)

Luxembourg 3.95 2.5 (63%)Malta 2.96 2.1 (71%)

Netherlands 90.4 85.8 (94.9%)Poland 284.6 208.5 (73.3%)

Portugal 35.9 34.8 (96.9%)Romania 95.7 75.9 (79.3%)Slovakia 41.3 30.9 (74.8%)Slovenia 8.3 8.3 (100%)Spain 152.7 152.3 (99.7%)

Sweden 25.2 22.8 (90.5%)UK 246.2 246.2 (100%)

Total 2325.34 2080.93 (89.5%)

Cap allowed 2008-2012 (in relation to proposed)

Proposed and allowed carbon emission caps in the EU ETS (million tonnes CO2 allowances) 2008-12