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Complex but clever

Misunderstandings and misinterpretations of the European Commission's newest stab at a renewable energy directive have led to far too much misinformation. This leader offers a clear understanding of the "clever" directive and how it is meant to work, along with a lesson in the problems of markets and subsidies.

A lot is being said by relatively few people about the European Commission's newest stab at a renewable energy directive. Much of it has been just plain wrong. Misunderstandings and misinterpretations of the directive's intentions have led to far too much misinformation. So let's get some things straight. First, the Commission is extremely well intentioned towards renewables and should be regarded as an ally not an enemy. Its aim is to give renewables a socking great protective boost, within the remit given it by governments. Second, the issues are a highly complex political and economic mix-there are no easy solutions. Third, the directive has come out of a two year consultation process with some of the best heads in the business applied to it. Knee-jerk reactions are an insult to the intelligence of both the receiver and the perpetrator. Fourth, there is great political willingness to cover the "stranded costs" of the pioneers of renewable energy. Too much bellyaching by the renewables lobby could jeopardise the great efforts being made to protect the past investments of today's wind turbine owners.

To understand the directive requires an understanding of the problems of markets and subsidies. A re-creation of the nightmare of the Common Agricultural Policy is to be avoided at almost any cost. What concerns the Commission is that national renewable energy subsidy schemes have the effect of reserving part of the domestic electricity market for home-produced renewables only. In the context of the much wider European single market, this prevents renewable energy producers from having access to a far greater range of customers. In other words, renewables producers are stuck in well-meaning ghettos. They are cut off from the opportunities and benefits that life and trade in the free market can offer them.

This is the reasoning behind the Commission's insistence that within two years of the directive coming into force all renewable energy producers must have the opportunity to sell their output throughout the EU. Countries which are renewable energy laggards and do not even meet 5% of their electricity consumption from renewables will be banned from this market.

Put into practice, the implications of these key elements are fascinating to ponder. In effect, countries with systems for identifying and certifying their renewables electricity are well ahead of the game: exporters of renewables power will have to prove to importers that it is, indeed, green and if that power is certified, it is also clearly identified in the network and thus available for sale. As is the way of all markets, sellers will head for the place where they can get the best price. At the moment this appears to be in countries such as Germany and Spain which have special renewables tariffs. Clearly, however, these systems would collapse if, for example, the renewable energy marketers of Denmark the Netherlands and Italy got together to sell their wind kilowatt hours to Germany-and Germany had to buy them at its special tariff rate.

The directive has taken account of the problem with a generous period of grace. Countries do not have to allow foreigners access to their support systems for renewables for ten years. They do, however, have to allow renewable energy producers access to their market, that is their electricity customers, within two years. In other words, subsidised systems and a competitive market can operate in parallel for a decade. Again the implications are fascinating. Power marketers in Europe will be able to sell green electricity for whatever the "market price" might be in the importing country-or whatever a retailer is prepared to pay. Thus the fledgling concept of "green pricing" suddenly takes on a European dimension. Any utility or green marketer will be able to offer renewables at a premium, anywhere in Europe. So a customer eager to green its image, such as a big company hoping to boost sales by saying its products are manufactured using clean energy, can in future buy wind power. Environmentally minded private citizens will have the same option.

The system is clever. As long as countries provide price support, the renewable energy producer is not going to want to sell to a green marketer at a price that is bound to be lower than the renewables tariff. So that dispenses with the political hot potato of one country's citizens (or utilities) effectively subsidising purchases of green power by the citizens of a neighbouring country. It was this fear which caused a panic reaction from member states to the leaked draft of the directive in late October. The most recent, amended, version of the directive circumnavigates this perceived problem.

Another clever aspect is the 5% ban. About half of the EU's member states probably fall into this category, with the UK, Ireland, Greece and Belgium in particular trouble. Take the case of a green power marketer in Britain, such as Dale Vince of NextGeneration, also a wind developer. He has "ecotricity" for sale, but under the terms of the directive his market is restricted to his own back doorstep because Britain is nowhere near to covering 5% of its electricity from renewables. Its green power can be banned from the markets of other countries that have reached that threshold. What Vince will say about his new predicament is probably unprintable, but it does mean he and other green power marketers in Britain will apply enormous pressure to their governments to get on with renewables development. A very good thing too.

If all goes according to plan, Europe's energy ministers will be presented with the Commission's draft in early December. If they accept the document, they will have six months to study its implications before the next decision day. A considered and strongly positive response to the directive from all who support renewable energy will go a long way towards securing a cleaner and safer future for Europe and the world.

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