European policy discussion on fast track to nowhere

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What was planned to be a constructive discussion last month over the European Commission's derailed proposal for a renewables Directive at the 1999 European Wind Energy Conference and Exhibition (EWECE) turned into a bitter argument that accomplished nothing. The debate -- which several conference delegates complained was organised haphazardly and given no chance to develop beyond fighting words and personal attacks -- allowed the virtual volcano of tension that had been building and steaming over the last year to finally explode on the first day of the event.

Setting the stage, Enzo Millich of DG XVII, the Commission's energy directorate, stressed that the EC is anxious to improve the market share of renewables and increase their development. With this in mind it had been preparing a proposal for a Directive, setting a legal framework for a guaranteed market for renewables across the EU. This work in Brussels was suddenly derailed by fundamental policy disagreements (Windpower Monthly, February 1999). Now, in the wake of the crash, the EU's executive body is preparing a "working document" in consultation with the renewables industry (page 20). This will be presented to the next council meeting of EU energy ministers on May 11. "Depending on the council's reaction, the Commission will act," said Millich. "If the reaction is positive, the commission will re-draft the Directive. The ball is now in the court of the council of ministers."

By the end of EWEA's conference, however, it was clear that the European wind community will not be lobbying ministers from a common platform.

The debate

The argument at the conference centred around one question: what is the best policy mechanism to ensure wind's development -- a framework for a protected competitive market, based on trade in green power certificates and fuelled by national quotas for emission free generation? Or a scheme like the German Renewable Feed-In Tariff (REFIT), where the price paid for wind generation is fixed by government at a premium rate, amounting to a production subsidy paid directly by taxpayers, or by utilities that raise the money through higher electricity rates? The huge obstacle to production subsidies is that they contravene the aims of European laws passed to liberalise the energy market, which in February launched the Internal Energy Market for electricity.

The outgoing president of the European Wind Energy Association (EWEA), Ian Mays, presented EWEA's official view: "In a fully liberalised market, the best way to ensure maximum wind development is thorough a percentage obligation or quota. Meantime what we must do is to ensure we protect successful systems in the member states. There has to be a careful transition between the two." Mays reminded delegates of the climate change negotiations in Kyoto and the prospects of a carbon trading market, both of which will have "significant impact on the market for wind energy." He was later backed by new EWEA president Klaus Rave, who said liberalisation was an opportunity not to be missed. "If there is no opening up of a market, then we will see a monopolistic structure within the utility business re-emerging as before. This could destroy the business."

Fist shaking

Following Mays onto the platform, Hermann Scheer, president of Eurosolar and currently the rapporteur on energy in the German parliament, brought the topic to an immediate boiling point. Waving his arms and shaking his fist, he boomed, "I am convinced the quota system will destroy the real opportunities of the wind sector -- that it will lead to much slower market growth and then lead to stagnation. Let's forget the quota system." Scheer argued that in such a system, the more established utilities will try to take the quotas first to retain their dominant position and then manoeuvre to stop further renewables development by the private sector. He proposed a "competition" between different policy structures in Europe, where after five years the most successful one would be adopted continent-wide. On the chances of Germany accepting a quota mechanism as part of a competitive market, he menacingly muttered: "There will be no law passed against the will of the rapporteur."

Other REFIT advocates, such as Andreas Wagner from Germany's wind energy association, Fördergesellschaft Windenergie (FGW), pointed again and again to the fast growth of wind energy in countries that have used that system, such as Germany -- whereas a competitive bidding mechanism, at least in the version operating in the UK, has resulted in very little development. Nick Goodall of the British Wind Energy Association countered that the UK's problems have centred around the planning permit procedure, not the bidding process which has generated hundreds of megawatts of wind proposals, many on a grand scale. Later, Goodall expressed his fury that FGW, a member of EWEA, was openly opposing a policy it had already signed up to.

Hijacked in nice

"The conference was hijacked by the German organisers to promote the interests of the German wind turbine owners," he said. The so-called debate on market instruments was entirely one-sided, he added, echoing the views of many participants. He referred to the Directive as a "golden opportunity" which "has been fumbled and dropped, clearly because of specific, aggressive and counter productive lobbying within the association."

Sidestepping the German-British antagonism, Pierre Radanne, president of ADEME, the French agency for energy and environment, pointed out that "fixed tariffs encourage the use of less good sites as these become profitable. But you have the problem of proliferation of wind turbines and there is no cost reduction incentive." His comments were backed by fellow countryman Jean-Pierre Bourdier, environmental head of French utility EdF. "In an open market there is going to be a very fierce competition. Use of market mechanisms is the proper way to go forward. What would be absurd is a repeat of the situation in California where tax breaks disappeared," he said, referring to the debacle of the 1980s which bankrupted many a wind project.

In the real world

Many financiers at the conference dismissed the policy debate as a sideshow compared with wind's new found competitiveness on the energy market. The broad view among them seemed to be that it was the uncertainty caused by the debate that could be considered an investment risk, not the prospects of wind losing its direct subsidies. "Deregulation itself does not worry us, but we cannot mitigate the risk that government policies might do to this situation," said John Caird of ORIX Corporate Finance Ltd of the UK. Referring to the potential phasing out of the REFIT in Germany in favour of a quota and credit trading market, Marc Wallenstein of Germany's HypoVereinsbank said: "The only thing that can worry us is how to get from a 'best case scenario' to a more 'realistic scenario.' It is only the uncertainty that will worry us. The change in itself does not worry us."

Adrian Lloyd of Britain's IMPAX Capital Corp agreed: "In the long term, renewables industries must find ways of realising green value to escape dependency on political mechanisms," he said. "The REFIT is wonderful and the envy of everyone -- it's no surprise why Germany's renewable energy industry has taken off. But the REFIT is a political gift and it can be taken away, as the proposed EU Directive has indicated."

Poul Erik Morthorst, an economist from the Danish Risø National Laboratory, said in an open market use of the two systems is probably the best approach, depending on which stage a market has reached. A high REFIT will ensure fast development at the start, giving a government valuable experience with wind, but subsidies will weigh too heavy on the public budget in the long run. Wind should eventually be sold on the market on the same conditions as other energy sources, he said, with additional payment in the form of green certificates or investment subsidies.

"We need a mechanism in Europe -- eco-taxes, carbon taxes, green certificates," demanded Michel Benard, an economist with French utility EdF. "One nation could then export wind generated electricity to other countries to the benefit of both of them." Further, he added "The market for renewables should no longer be constrained to national markets, but opened to European markets. From a utility's point of view, wind has a special advantage, in that the highest periods of electricity generation are well correlated to electricity demand."

Another advantage to wind in its relative position of other generation technologies is its short lead time, noted Gordon Edge of the Financial Times Renewable Energy Report. "This is extremely important in a liberalised market." Wind is also possibly the cheapest generation option in carbon trading, he added. "Learn to love carbon trading is what I say. It allows politicians to set the limit and say, 'You go off and work out how much it costs and we'll wash our hands of the blood.'"

Countering advocates of the REFIT, Lyn Harrison, editor of Windpower Monthly, stressed, "In less than five years, we will have an entirely new market. Everything we have heard so far is based on what would have worked in the past." Much of the dissent to a competitive system, she said, has been based on "fear of the unknown," as well as misconceptions and language misunderstandings. This point was also underlined by ADEME's Bernard Chabot. "You take a hundred people here in this auditorium -- half of them talk about cost, half talk about selling price, but everybody thinks they are talking about the same thing," Chabot said.

from another planet

Corin Millais of Greenpeace brought a valuable outsider's view to the debate. In tones of exasperated astonishment he expressed his relief that the conventional power sector was not in attendance to witness such division in the renewables lobby. He also chastised the gathered wind community for its lack of acumen in selling the technology as a valuable environmental asset. "Anybody walking in here from off the street would think you lot came from a different planet," he said. "International trading is the future, and wind energy has the solution in its hands and you don't see it," he added.

The real political issue is not about energy, it is about the environment, explained Millais. Electricity is simply not on the political agenda of consumers. "The lights work, people watch TV. When energy is discussed, what's it about? The price of oil per barrel. There's not much space for renewables in the discussion." The renewables industry in Europe must get together and lobby jointly, stressing such points as the environment and creation of jobs, he said. "A logical argument is constructed one way, a political one quite another. The renewables Directive has to be passed."

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