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Afraid to fly

The European Commission's draft Directive, which was to give renewables a head start in the liberalised Internal Energy Market, has been derailed at source. It is a great shame that the various sections of the renewables lobby did not have the vision to put their full weight behind it. Had they done so, the long term market future of renewables would have been far more secure. As it is today, much of Europe's booming wind market is politically highly unstable -- and economically doomed.

Two months ago this column praised the appearance of a document laying the political framework for a pan-European market for renewable energy. The aim of the European Commission's draft Directive was to give renewables a head start in the liberalised Internal Energy Market -- and to ensure the full integration of market-ready renewable energy technologies from the outset. This was to be achieved by requiring governments to legislate for a fixed proportion of "new renewables" in their national electricity supplies. The document, we wrote, "goes out of its way to cater for the many different market structures in existence across Europe, allowing plenty of scope for individual countries to decide their own detailed legislation." With enthusiastic optimism we added: "The chances of it being adopted should be good."

So much for optimism. Events have shown it to be sadly ill-founded. Far from even making it to the vote, the draft Directive has been derailed at source (page 22). No longer is it proceeding along a fast track to legislation, but along a slow track to further discussion. Ironically, the derailing does not seem to have been caused by the locomotive of the electricity establishment, but by fierce opposition from the ranks of the renewables lobby, specifically the German wind lobby. Instead of giving the draft Directive its wholehearted backing, the response of the wind business has ranged from lethargy (Britain) to panic (Germany), with a series of confusing signals in-between these two extremes, including Spain's introduction of its own REFIT from January 1 (page 22), in direct contravention of the EC's policy proposal. All this from the very lobby that advised the EC in the first place on the shape its legislation ought to take. No wonder that the Eurocrats in Brussels threw their hands in the air and then washed them of the entire affair.

It is a great shame, given the enormous elasticity built into the EU proposal, that the various sections of the renewables lobby did not have the vision to put their full weight behind it. Had they done so, the long term market future of renewables would have been far more secure. As it is today, much of Europe's booming wind market is politically highly unstable -- and economically doomed. No support system which sparks yearly market growth rates of well over 40% -- as in Germany -- is sustainable in the long term. At some point it will collapse under its own weight, as its costs soar along with the levies on taxpayers eventually needed to support it. Granted, that point is still a long way off, even for Germany. At current growth rates, Germany will have 10,000 MW of wind by 2005, providing about 3-4% of its electricity. Compared with the 8-9% of electricity supplied by Denmark's 1450 MW of wind, much of it paid for by today's taxpayers, it's clear that 10,000 MW in Germany is not going to break the bank. The country's fixed price payments enshrined in the renewable energy feed in tariff (REFIT) can comfortably continue until at least 2005 and probably for a few years beyond that.

The EC draft Directive did not dispute this. In fact, it went out of its way to accommodate the REFIT, allowing fully ten years for its gradual replacement. For this reason alone, the German wind lobby's rally to arms, its bombardment of European politicians with hundreds of letters of protest, and its destructive performance as a member of the European Wind Energy Association (which officially supports the draft) is inexplicable, to say the least. True, the existing investment in wind plant by many families in Germany and Denmark must be protected. But that aim should not be allowed to preclude the introduction of legislation with the far greater aim of fully integrating wind into the open power market of the future, once and for all. Achieving both aims is what the Danes are working towards and what the Netherlands' experiment is all about -- and Dutch wind plant owners earning higher returns on their investments as a result have no complaints about free market competition (page 34).

the bottom line

Support systems based on price regulation have an important role as market catalysts, as Germany, Denmark and Spain have proved. But catalysing a market is one thing. Keeping it going is quite another. There is no avoiding the bottom line: to be certain of a large and long term market, wind has to be competitive with all forms of power generation, especially in liberalised markets. In the absence of fair eco-taxes, wind's prices have to drop. That they will do so is no longer in doubt (pages 48), but in this unfair world, a wind plant operator on a crude open market has to offer his kilowatt hours at rates competitive with the "marginal costs" of thermal plant, the additional cost of one more kilowatt hour. Thus the overriding aim of any support program must be to lead to cost reduction. A protected competitive market -- quotas for renewables -- is the best proposal around for propelling wind into the open market. Once there, no more help is needed. Too much artificial competition can be dangerous, however. Mechanisms must also be included for securing the long term health of the participating renewables industries.

It is just such a "kindly quota" system that we shed light on in this issue (page 42). Horrendously complex, yes. But the choice is between short term complexity in return for long term survival, or remaining in a nest so cosy that it prevents growth of the wings necessary for adult flight. Growing out of a nest, without having prepared even the vestiges of a safety net, is synonymous with a crashing fall.

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