Explaining the need for certificate trade

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Eurelectric, as the organisation representing the common interests of the entire European electricity industry, is a powerful voice when it comes to formulating energy policy. Director-General Hans ten Berge explains here why Eurelectric believes green certificate trade and a uniform subsidy system is important for an efficient European power system that cuts costs for consumers

A cross-border trading system of renewable certificates among European countries, coupled with a strongly linked pan-continental grid, will allow wind power to be integrated into a competitive power market and help countries meet their renewable energy targets at a lower cost to consumers. This is the contention of Eurelectric, the European electricity industry's umbrella organisation. Eurelectric backs the European Commission's desire to introduce a system for trade in green electricity between countries, but maintains that the proposals outlined in the commission's draft renewables law, unveiled in January, are too weak and restrictive to allow any effective trading to develop.

This is not the view of some in the renewable energy lobby, however. Many were relieved -- if not jubilant -- when the commission back-tracked from earlier plans to make cross-border certificate trade a key tool for enabling Europe to meet its tough new goal of 20% of energy from renewables by 2020. In a last moment decision before releasing the draft, the EU executive arm pulled back from making trade in certificates -- known as Guarantees of Origin (GO) -- mandatory.

Instead, cross-border sales of GO will only be allowed when the country from which the certificates are being exported is fully on track to meet its 2020 target. Even then, governments will have full control over whether or not to permit producers to export -- or indeed to allow GO to be imported. The Commission's about-turn is designed to win over member states and the renewable energy-friendly European parliament who had argued that free trade in certificates would undermine the existing national markets for renewables, many of which pay subsidised prices for renewables electricity. Without their backing, the Commission knows that its proposals will never make it into the statute book.

European renewables associations and some governments -- most notably Germany and Spain -- warn that mandatory opening of borders to trade would interfere with functioning of current markets, particularly those where the purchase price for wind power is fixed by government with the purpose of reaching internal goals for renewable energy production and carbon emissions reduction.

Subsidies okay

Eurelectric's secretary general, Hans ten Berge, stresses that the organisation is not against subsidies for renewables. Europe will not meet its 20% goal without subsidies, he says. But with 27 different renewables support systems in the 27 member states, the market will become severely segmented and distorted, he states.

In a response to the commission's renewables proposals, Eurelectric warns that partitioning off the European renewables market along national lines will severely hinder the primary goal: seamless, pan-continental trade of electricity. Failure to reach that goal will push up prices for consumers.

When renewables made up just a minor segment of the power market with no great influence on it, different support systems throughout Europe did not fundamentally influence market forces, Ten Berge points out. But to reach Europe's 20% green energy target, 35% of Europe's electricity will come from renewables by 2020, with wind power making up by far the most of the new generation needed. With such a significant share of market, wind should not be playing to a completely different set of market rules, he argues.

Ten Berge concedes that the current power market does not present a level playing field on which wind can play. Subsidies for fossil fuels should also be examined, he says. "And distortion is there in the sense that coal is based on coal prices, gas is based on gas prices. But distortion is not there for fossil fuels and other renewables in the sense that most of them, if not all, are traded in the same market. You can buy lots in Leipzig or Amsterdam. That means there is a certain element of competition that is to the benefit of European citizens."

Fully competitive

In the long term, Eurelectric would like to see incentive systems for renewables harmonised across Europe. Significant differences persist between national systems -- even those of a similar nature such as fixed price tariffs, Ten Berge points out. The Spanish system, which rewards renewable investments while recognising the higher costs of balancing variable generation, is far more sophisticated than the German price subsidy structure, he says. "We should synchronise these systems as much as possible in order to have a fully competitive market."

In the absence of a single Europe market for wind power, a mechanism is needed to enable trade of electricity from wind plant between the different national markets, says Ten Berge. "That is the reason Eurelectric argues very strongly for tradable certificates of origin." With "liquidity" in the renewables market, meaning that lots of certificates are in play, countries with better renewable resources will be able to export certificates, or guarantees of origin, to help others that are struggling to meet their targets, he points out.

Eurelectric believes the best way of seeing that happen is to create a market on which individual producers of renewables electricity can choose where to sell their certificates to get the highest price. In that way, the best and most economic resources would be developed first. It is urging the Commission to widen the GO mechanism to allow companies to trade across borders as well as governments. "Few successful trading markets are restricted to governments and a government-only trading scheme will not incentivise market players to invest in those locations where development is most cost-effective," it tells the commission. If trade is restricted to between countries at government level, companies will be reluctant to invest, resulting in an inadequate supply of GO, Eurelectric predicts.

Another issue which could prevent investment in renewables is the proposed system of "prior authorisations," Eurelectric contends. This is the term applied to the decision to allow governments to ban exports and imports of renewables if they are anxious about certificate trade undermining their domestic, subsidised markets. Ten Berge sees this as a major drawback of the commission's proposals. Some member states have made it clear they will use their ability to veto trade in GO, he notes. "You will get blocks of countries which are trading and blocks which are not trading. I think that is a missed opportunity." Moreover, Eurelectric expresses doubt that prior authorisations are compatible with EU rules on the free movement of goods.

Subsidies should remain

He emphasises that guarantees of origin should not be looked upon as replacing renewables subsidies. "A Guarantee of Origin system would identify renewables and it would make them tradable but it would not be a support system," says Ten Berge. Renewable energy should have terraced support to a level where it would be capable of competing on an international market. "That support should stay in until CO2 prices have driven the electricity price to a level where you could fully compete on the market," he stresses.

"We should aim for a carbon price to drive all renewables," Ten Berge continues. "That should be the final story." He would like to see wind farms competing with other forms of generating plant as well as with other wind farms. "It's healthy to compete in the market and that goes for any kind of generation, in order to get a fair deal from suppliers, in order to get a fair deal with your land lease and in order to get a fair deal with your rent collection. If there is no competition, you put everything in a tariff which is paid by the consumer. It is in the interests of consumers to create competition."

Grid access

Another area of conflict between Eurelectric and the wind industry concerns access to electricity grids. There should be no priority access for renewables; everybody should have equal access to the network, Eurelectric maintains. And renewables should pay their share of network costs and the cost of balancing supply and demand. "Special deals" for renewables, can be inequitable and distort markets, it states. Support levels should take these costs into account. "To hide subsidies behind favourable connection and access rules cannot be in the long term interest of renewables as they take an increasing share of the market."

The wind industry has for years been pushing for priority access to the power lines to counter obstruction by some network operators who stand accused of giving preference to their own generation arms. Ten Berge, however, denies knowledge of any of Eurelectric's members taking unfair advantage of their monopoly position. "If there is any sign that an existing company abuses its rights, the regulator should penalise them very hard," he says.

Complete separation -- or "unbundling" -- of generation and transmission activities among such monopoly power companies is high on the wish list of the European Wind Energy Association (EWEA). The European Commission would also like to see vertically integrated power companies unbundled. Eurelectric, however, is not so sure. Targeting private companies for unbundling would confer an unfair advantage on state-owned energy businesses, Ten Berge argues. Some states could own both the wires and have interests in generation -- in more than one country. "Is that improvement?"

Where Eurelectric and the wind industry are in complete agreement, is that both would like to see a better integrated electricity grid across Europe, with a faster extension of the transmission system. Eurelectric is urging the commission for a more "copper-plated" Europe with electricity flowing in all directions with the help of additional transmission lines and more interconnection between countries. "An integrated European market requires an integrated European grid," says Ten Berge. "One of our worries is that we have copper plates at best up to the borders but not over the borders."


But standing in the way of its vision are the different national interests and national grid operations in the 27 member states, he says. "We don't have authorities which are capable of designing European grids," he says. What is needed is a powerful European regulator. "Governance -- how do we look at these grids and how do we take decisions -- should not be made through compromises at a national level, but should take on a much more European perspective." Without a European regulator, many of the cross-border transmission interconnectors planned by the EU will not get built, he fears.

He also claims that a European regulator and a more integrated grid are in the interests of the organisation's members. Many are major international players in the wind business. "They plead very strongly for integration so that, for example, they could use their Spanish wind in the French market," he says. "It is not a pleasure to have a monopoly in your own area and be accused of abusing that monopoly while you cannot expand outside that area due to the lack of interconnectors -- which is due to the lack of European governance."

But an integrated European grid is a long term project. It will take more than ten years for the EU to enact legislation to bring about European-wide regulation and the additional wires and interconnectors it needs. Meantime, companies want to be able to trade their wind-generated electricity, says Ten Berge. "We don't want to be locked in to Spain or Ireland or wherever we produce the wind and not be able to sell it somewhere else."

For the time being, a system of trading GO would deal with this shortcoming and is the mechanism that Eurelectric is seeking to strengthen, through dialogue with the Commission. "This system has most advantages as far as we can see today, but of course we are open to any debate which would help fully integrate all kinds of generation technologies into the market," he says.

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