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An acceptable basis for negotiation

The overwhelmingly positive reception given to the European Commission's package of climate change legislation is the best foundation possible for the months of horse trading ahead. Governments, parliaments, and the EU executive will be driving hard bargains under the watchful eye of energy producers and consumers to ensure a fair and strategically sensible distribution of weapons in the war on climate change

As governments and renewables industries across Europe digest the details and implications of the new energy package proposed by the EU's executive arm (page 27), first reactions to its release have been overwhelmingly positive. The European Commission appears to have pulled off that rare coup -- a combination of legislative proposals that pleases both governments and the renewables lobby alike. The main dissenters are those who would have preferred a faster trajectory towards a single EU-wide market for renewable energy, while some states are dismayed at their tough targets.

Only as recently as a month ago, few within the renewables community would have predicted that the Commission would back-track so far from its desire to see cross-border trade in renewables become a cornerstone of its aims for a fully functioning internal market in energy. Its final proposal, however, settles for a slower move towards what has been dubbed "virtual trade" in renewables through the use of Guarantees of Origin (GO) certificates to meet targets in one country with renewables generation in another.

The Commission's about-turn over conditions for trading GO came as a welcome surprise to the European Wind Energy Association (EWEA), says its chief executive, Christian Kjaer, pointing out that these particular provisions in the proposals underwent a dramatic change between a January 3 draft and the January 23 final document. "They had been working on the previous model for a year and they did not start diverging from it until a few weeks before the directive was due out." The slower transition towards cross-border trade is a signal to member states to put in place domestic market frameworks to stimulate the development of their own renewables resources, including the use of price subsidies mechanisms, improved grid networks for uptake of locally generated electricity and streamlined planning procedures, rather than relying on buying credits from outside their borders, he says. But for countries that exceed their targets, the ability to export GO avoids the target from becoming a cap, he adds.

Germany

Perhaps most strident in its opposition to plans for an obligatory certificate trading system had been the German renewables lobby and government. Johannes Lackmann, president of renewable energy federation Bundesverband Erneuerbare Energien (BEE) claims that trade in GO would have undermined Germany's support system, raised the burden on consumers and put a brake on renewables expansion in Europe. The German wind market is based on paying premium prices for wind power fed into the network at a rate fixed by government for a 20-year period. BEE says that a comparison of European support systems for renewable energies, which formed part of the January package, "demonstrates the superiority of the feed-in tariff system." Lackmann adds: "When it comes to deciding on a unified EU-wide support system in coming years, this can only be for an EU-wide feed-in system."

Federal environment minister Sigmar Gabriel is pleased the EU commission "took up important pointers from Germany" in connection with expansion of renewables; in particular that "national arrangements are to continue to have priority, with trading only to be introduced as a supplementary system." Also welcoming the Commission's compromise over the renewable energy support system is the German association of municipal utilities, the Verband kommunaler Unternehmen, representing around 600 electricity suppliers. Its managing director, Hans-Joachim Reck, says the German approach has proved itself: "It allows a targeted steering of support for innovative technologies."

Not all in Germany are of the same opinion. The German energy and water federation, Bundesverband der Energie und Wasserwirtschaft, representing among its members the large conventional energy generators, deplores the cost of the fixed price system. It wants "cost efficiency as a priority" in the further expansion of renewable energies. "A majority in the energy sector regrets that the Commission has not fully exploited market possibilities such as trading with certificates of origin," it says.

European utilities

It is a view shared by the umbrella association for European electricity producers, Eurelectric. It fully supports the trend towards greater use of renewable energy in power generation, it says, but professes disappointment that the Commission's proposals "present a mechanism for cross-border trading in guarantees of origin only as a limited secondary possibility." Eurelectric urges policymakers to foster GO trade so as to link renewables more closely into the electricity market.

Eurelectric believes the best way to move towards a low carbon mix is through efficiently working competitive markets for sales of electricity and sales of carbon emission credits. "The purpose of emissions trading is to send a carbon price signal that will encourage take-up of new low-carbon technologies," points out Eurelectric. If the mechanism works correctly it will incentivise the deployment of renewable energy sources, it says. "It is vital that current efforts to drive forward the internal energy market are not negated by ring-fencing up to 35% of the EU electricity market via non-market renewables support schemes," it stresses, with reference to the share of electricity that renewables will have to provide to meet the overall EU target for 20% renewable energy by 2020.

Spain

In Spain, the government and the renewables lobby, with utility Iberdrola, hail the EU's green package as little short of a national victory. "The Spanish government, together with the governments of Germany, Estonia, Slovenia and Latvia, led the defence for the [renewables generation] price support mechanisms, the most effective model for developing clean power in Europe," says José María Velez of national renewables association Asociación de Productores de Energías Renovables. With those mechanisms secured, so too is long term investor confidence, says wind group Asociación Empresarial Eólica. The ability to trade green credits abroad, once national targets are met, is also widely greeted as an extra incentive for the industry to keep pushing installed costs down in order to compete.

Under the Commission's renewables target allocation, Spain must meet 20% of total energy consumption through renewables by 2020, compared to 8.5% now. The figure translates to a 42% renewables penetration within the electricity mix -- up from today's 23%. By government estimates, that will require 35-40 GW of wind, compared to just over 15 GW now. "The objective is ambitious but in line with government priorities," says Prime Minister José Luis Rodriguez Zapatero. State energy secretary Ignasi Nieto has already penned in a 29 GW national wind target for 2016 (Windpower Monthly, December 2007). But he had expected the 35-40 GW range to be reached "hopefully before 2030."

France and Denmark

In France, trade association Renewable Energy Syndicate (SER) welcomes the directive, noting that it "leaves member states able to determine their national support systems at the same time as establishing intermediary stages by which to monitor progress." SER is also pleased that the directive makes clear the importance of "simplifying administrative procedures and grid connection and of reinforcing the grid, which is indispensable for the development of the renewables sector."

The Danish wind industry's trade association is even more enthusiastic. Denmark's 30% target for the share of energy consumption to be met from renewable sources presents a growth potential that other industries can only dream about, states the association. "For many countries, the EU's plan will lead to a radical restructuring of their energy supply. Wind energy can deliver a very significant share of the technology to a much greener Europe," says association director Bjarne Lundager Jensen. "It is a unique chance for the Danish industry to exploit its full potential within renewable energy technology." The Commission's proposal for 30% should in no way be seen as a burden, he says.

"This is a big day for the EU and a very brave proposal from the Commission. A political process starts here and we will probably see a number of countries attempt to run from their responsibilities. We hope the Danish government will don the green leader vest and lead the many EU countries by good example," adds Lundager Jensen.

Denmark's national industry confederation, however, does not fully share the enthusiasm of one of its largest member sectors and main earners of foreign currency. It is "old fashioned and short sighted to make the massive development of renewable energy dependent on national support systems," says Dansk Industri, referring to the Commission's decision not to enforce pan-European trade of green energy certificates. The organisation fears that wind turbines will be built in countries offering the largest subsidies rather than where the resource is best.

From the Danish wind energy association, which represents turbine owners in the private sector, Asbjørn Bjerre believes that green certificate trade can be beneficial in the long term, but it is unlikely to become a tool in the next few years. Denmark, with its many years experience in wind power, "gives us the opportunity to set big goals and show the world that a high level of renewable energy development is both technically possible and economically advantageous." He adds that it will cost more not to do it, echoing the words of Commission president Manuel Baroso when he presented the climate change package (page 27).

For its part, the Danish government has given its full support to the Commission's goals. "Denmark is ready to lift its share of the task for the benefit of the environment, climate and the business sectors that will deliver solutions for the future. Renewable energy is an important key for lifting this big task by bringing down CO2 emissions and for that reason we wish to discuss it with all political parties," says climate and energy minister Connie Hedegaard, with reference to a long awaited cross-party proposal for renewable energy legislation. "The EU has set itself the most ambitious goals of all in the world."

Britain

One of the toughest goals among all the EU's 27 members is the UK's 15% renewables target for 2020. From a low base today of 2%, the UK has the furthest to go to reach its goal. The British government looks set to battle it out with the Commission for a lower national target in the months to come. "The UK remains committed to meeting its share of the EU renewables target, which will be decided in the negotiations ahead," says secretary of state for business John Hutton, adding that the Commission's proposals are a "welcome starting point" for that discussion. "Whatever the final outcome, the UK is already scoping a vast expansion of wind energy offshore and tidal power on the Severn, and we are already thoroughly reviewing our strategy to drive progress further." Environment secretary Hilary Benn is more positive about the proposals on emissions trading, which are "exactly what we are aiming for globally -- a comprehensive and effective agreement to tackle climate change, with the carbon market at its heart."

The British government's lacklustre response is criticised by the Renewable Energy Association (REA). It lacks substance and urgency, just like UK policies which are too weak and slow to deliver the 15% target, accuses the REA's Philip Wolfe. "The European Commission has been gentle, giving us a below average target, especially considering we have the best wind, wave and tidal resources in Europe. We won't even get close to that, however, if we carry on at the snail's pace that has kept us at the bottom of the European renewables league."

According to the British Wind Energy Association (BWEA), the 15% target is achievable but industry and government have to work together to make it happen. BWEA's Maria McCaffery points out that over half the target will have to be delivered by renewable electricity, with the vast majority of that being wind power. The association calculates that between 30-40% of UK electricity will have to come from renewables by 2020. "In order to reach the new target, there will need to be a step change in government policy to harness the UK's potential," says McCaffery, explaining that at 2%, and despite having some of Europe's richest resources, Britain has the third lowest supply of energy from renewables. "Wind energy is the next North Sea oil. Britain could be a world leader in renewable energy if we have the will to make this vision a reality."

Italy

One of the few governments that openly approve the move towards certificate trade is Italy's. Its European affairs minister, Emma Bonino, notes that the Italian government strongly pushed the Commission to allow the import of renewable energy from countries adjacent to the European Union with promising renewables potential. She cites the Balkan states or North African countries. "This will allow production where it makes most sense," she says. Moreover, during negotiations on the final version of the directive, Bonino says that Italy will push to also allow the virtual trade of energy with third countries that GO allow for, in addition to the actual physical exchange of energy that is currently foreseen. "Greater flexibility could also be achieved through trade within the European Union."

From Italian wind energy association Associazione Nazionale Energia del Vento, Simone Togni says the proposed directive is a step in the right direction, "although it will now be important to see the next ten steps." In a country like Italy, known for its lengthy and sometimes confusing authorisation process, the introduction of a firm deadline by which projects not authorised or rejected would be considered approved would be a major stimulus, he says. "In Italy, the law gives regions 180 days to decide on an authorisation but nothing happens if they don't."

Slovenia

Slovenia currently holds the revolving presidency of the EU. It says the climate and energy package is a top EU priority and it will immediately initiate debate on the package, with the aim of developing a framework for the job ahead and decisions as soon as possible. "The presidency also believes that the efforts required of particular member states and particular industries must be balanced and proportionate and must take individual circumstances into account. The guiding principles must be fairness and solidarity," it says. "We are counting on the constructive approach and support of the member states and the European parliament leading to final adoption of the package by spring 2009 at the latest."

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