The current debate on support mechanisms

at European levelOliver Schaefer, Policy Director,

European Renewable Energy Council

4th European PV Industry Forum, Milan, 5th of September

EREC – European Renewable Energy CouncilUmbrella organisation representing all RES sectors:

AEBIOM European Biomass AssociationEGEC European Geothermal Energy CouncilEPIA European Photovoltaic Industry AssociationESHA European Small Hydropower Association

ESTIF European Solar Thermal Industry FederationEUBIA European Biomass Industry AssociationEWEA European Wind Energy AssociationEUREC Agency European Renewable Energy Research Centres

Agency

Associate members:EU-OEA European Ocean Energy AssociationEBIO European Bioethanol Industry AssociationEREF European Renewable Energy Federation

Representation of European RES industry, trade & research

RES policy frameworkRES White Paper (1997) To double the share of renewable energy from 6% to 12% of gross energy consumption by 2010

RES Electricity Directive (2001) To increase the share of renewables electricity from 14% to 22% of gross electricity consumption by 2010

Directive on liquid biofuels (2003) To achieve 5.75 % of biofuels in the total amount of fuels in Europe by 2010

Renewable Energy Roadmap (2007) Proposes a binding target of 20% renewable energy by 2020. Target agreed on by Heads of States in March.

Future Framework Directive

The European Commission plans to release on 5th of December a Framework Directive covering all RES sectors. This Directive will include:

A binding target of 20% of the EU’s overall energy consumption to come from renewables by 2020

differentiated national overall targets for each member state to reach collectively the 20% target.

a binding minimum target of 10 % for the biofuels share of transport fuel consumption to be achieved by each member state - as part of the overall target

Division of the 20% target amongst Member States

EREC proposition to increase the EU renewable energy share from today's 7% to 20% :

Each Member State increases its renewable energy share by 13 percentage points equally.

The Framework Directive must contain:

• On Electricity: Provisions on grid issues and administration procedures must

be maintained or strenghened.

• On Heating/Cooling:Proper definition, removel of barriers, reliable statistics

• On Transport:Definition of sustainability standards of biofuels

Precondition for reaching the targets

• Renewable Action Plans with sectorial targets for – RES-electricity, – RES heating/cooling & – Biofuels for transport

• Interim targets (e.g. 2015) to check whether development is on track

• Penalities in case of not reaching the target• Ensuring: development of ALL renewable energy

technologies

in order to not to cause market instability around 2010

(ending of RES-E & Biofuels Directives)

.

The Framework Directive must be in place as soon as possible

(before 2010)

An evaluation report on support schemes is also planned

to be released by the European Commission

in December 2007

It is too early to harmonise support schemes :

- It is too early to compare the advantages and disadvantages of support mechanisms with such short history.

- Due to varying developments in Member states, harmonisation will be very difficult to achieve in the short and medium-term.

- Changes to the system will disrupt certain markets and make it more difficult for Member States meeting their targets.

Evaluation Report from December 2005 concluded:

Pre-Conditions for RES uptake• Change in Paradigm: individual responsibility for own energy supply, as

local and decentralised as possible• Households and private sector in general should primarily produce their

own heat and electricity from RES sources in an efficient environment• Combination with drastic change in consumption pattern and increase in

efficiency• Political commitment beyond ideologies and short term thinking to go for

strong national RES• Clear instruments, targets for rapid uptake and enforcement• High level of market penetration by Independent RES Power Production• Swift abatement of open and hidden harmful subsidies to incumbent

industry• As long as one or more of these conditions are not met – counterbalance

is necessity

Where is the Energy or Electricity market?

• The EC attests since many years and again and again “serious malfunctions in EU energy markets” (EC Commission MEMO/06/78 from February 2006 ) which are clearly caused within the scope of incumbent energy industries, including especially also grid issues and affecting market entrance for newcomers and especially independent RES power production

Malfunctions of a “market”

• EC Commission attests “serious malfunctions in EU energy markets” (EC Commission MEMO/06/78 from February 2006 )

• Harmful subsidies to the traditional fossil and nuclear sector amount to 250 billion US$ worldwide per year, representing “a substantial market distortion, discourage new entrants into the market, and undermine the pursuit of energy efficiency”. (UNDP,2004, page 72))

• Barrier market - fails to focus and internalise all negative effects of conventional energy use into the price for electricity, so that the price for electricity on these markets are not cost related prices. (Goldemberg, Johansson)

• It is not the renewable energy which is too expensive but the traditional energy which is made to be too cheap.

But this is nothing new

• The prospects for the Commission to achieve rapid progress here are dim, since especially Germany and France are fencing in the interest of their concentrated market structures

• This means the market distortion will continue to be the major obstacles and reason for support mechanisms for market entrance

Priority Market

• First the Market has to be opened• Then it will have to be seen if support

mechanisms are still needed• Only then a harmonisation of systems may

make sense• Basis must then be the most efficient system

Coordination of RES Support mechanisms

• Only if added value for increased market penetration and efficiency is aimed for

• Not if aim is to create a market outside a distorted market

• REFIT is best• Coordination between REFITs is prime task• Flexibility Mechanisms towards remaining Quota

modules have to be discussed and developed in parallel.

Commission analysis: Best notes for RE-FIT

• COM(2005) 627: Feed-in is “cheaper and more effective”• Reasons in view of Commission: Feed-In

– more investment security

– differentiates between technologies• > less windfall profits• > promotion of mid- and long term technologies• Chance for new comers and new technologies

• Logic calls for RE FIT as only applicable system in case of future harmonisation

Improvement of Feed-In

• Not all feed-in systems are structured well enough and not all are embedded in an efficient planning environment

• The successful feed-in countries are the ones which help Europe to come closer to its Kyoto and RES targets – without them the situation would be quite disastrous on Europe's promises

Major barriers to be deleted

• Failure of Governments to deliver:• Consequent action planning• Administrative capability and coherence• Public Information on RES• Sticking to promises given• Ability to agree to new, decentralised market

structure• Flexibility• Market incentives• Market Fairness

• EU-Tariff– Same tariff for all RE of same kind– Reflects full costs at best location in the EU

• Premium:– Allows for national priorities– Funded on the national level

Tariff

Nat. Premium

EU-Tariff

= +

EU-Equalisation

Funded by MS

Basic elements of an EU-FIT (I)

Basic elements of an EU-FIT (II)

Tariff

3 Ct/kWh

4 Ct/kWh

= +

EU-Equalisation

Funded by GE

Hypothetical example:Tariff for wind onshore in Germany

Further informationEREC

European Renewable Energy CouncilRenewable Energy House

63-67 Rue d’Arlon, 1040 Brussels, Belgium

www.erec.org

Thank you very much for your attention!