Three step strategy

In the October issue of Windpower Monthly we argued for a radical new future policy: the introduction of tradable renewable energy credits. A common theme runs through the arguments of those not in favour of renewable credits: fear of rocking the boat. The debate in this issue points to a three stage strategy: building an industry (capital subsidies); catalysing a market (renewable energy "feed-in" tariffs, or REFITs); moving wind into the global mainstream (renewable credits). All three stages can coexist in any one market.

If the wind industry fails to take the realities of liberalisation into account, it will become the cripple of the European electricity business. If it allows fear of free markets to carry the day, it will end up on a side-track going nowhere fast. Dire warnings, indeed, but ignore them at your peril. Far from emanating from an hysterical green fringe, they are contained in articles contributed to this issue by some of the most respected observers of the wind power market. This month we devote seven pages to an open debate of the hottest wind issue of the day: devising policies for long term market stability (pages 32-38). The skeleton of a strategy behind which the wind lobby can unite is now emerging.

In the October issue of Windpower Monthly we argued for a radical new future policy: the introduction of tradable renewable energy credits. The response from readers to our "Beyond Tomorrow" series has been impressive, both in its volume and in its depth. There has been support and opposition to our stance, praise and criticism. Windpower Monthly's aim, however, is not to split the wind lobby, but to advance the debate. Care needs to be taken that the discussions taking place are seen as the deliberations of an industry now mature enough to be listened to. They should not be seen as a fundamental disagreement, for on close perusal of the arguments, nothing could be further from the truth.

The debate in this issue turns on whether or not tradable renewable energy credits should replace fixed prices for wind in countries where renewable energy "feed-in" tariffs (REFITs) exist. Such debate, however, is based on an error of perception. Nobody in these pages has suggested that national REFITs be replaced by renewable credits, certainly not in the foreseeable future. What has been discussed is formulation of a European policy; if necessary, this can coexist with national policies based on taxation. Tradable credits are being mooted as the basis for such a policy, one that would dovetail with C02 emission limits, with globalisation of energy and financial markets and with liberalisation of the electricity sector.

The major argument in support of this policy is that none of the existing support systems for renewables are suitable for trans-European or global implementation -- and they all have major failings. With REFITs, market stability is dependent on political whim, rather than legal fact -- a recipe for uncertainty; the price might be guaranteed, but the market is not. With Britain's competitive bidding system, the greatest of its many flaws is perhaps the sidelining of wind into a "subsidised" market. Only cripples need crutches and wind is no cripple. The chief objection to renewable credits is the fear that a capital market, unfairly tilted in favour of fossil fuel and nuclear, is incapable of managing the risks of a supply and demand economy for wind. But, with careful policy construction, these risks are manageable, argues economist Peter Helby. He suggests two management tools (pages 32-33), neither of which preclude national REFIT systems. In his defence of REFITs, Andreas Wagner of Germany's wind energy association, says a tradable credits market will not be as dynamic as a fixed price market. Yet events in Canada last month indicate he could be wrong (page 18). Even on a preliminary and short term spot market for wind credits, a utility anxious to hedge its bets on CO2 mandates was one of the first customers, and the largest, to put its money on the table.

In fact, utility involvement in wind development is a must. Goals now being discussed by wind associations around the world cannot be reached through private investment alone. The European Wind Energy Association has consistently argued for "the electric utility sector's active, willing and responsible engagement" for the creation of a stable market. The trick, it would seem, is to devise a policy where utilities are just as keen to connect renewables to electricity networks as are the developers of wind plant. Renewable credits could hold the key to third party access to the grid.

Waves unavoidable

A common theme runs through the arguments of those not in favour of renewable credits: fear of rocking the boat. Existing legislation, in Germany, in Britain, and in Denmark is working, they argue: leave well alone. But this is short sighted thinking. Renewables are all in the same boat -- and it has to go forward if the passengers are not to starve. Forward motion might rock the boat and a few waves might slip over the gunwales. But diligent use of bailers (such as gaining financial recognition of the value of embedded generation) will keep the boat afloat as it heads for calmer waters -- with plenty of fish.

The debate in this issue points to a three stage strategy: building an industry (capital subsidies); catalysing a market (REFITs); moving wind into the global mainstream (renewable credits). All three stages can coexist in any one market. No step is expendable for healthy growth. The beauty of renewable credits is that they do not rule out tax based incentives where these are acceptable, nor do they disqualify renewables obligations on utility monopolies where these still exist.

The policy framework for renewable credits ideally needs to be integrated into broad European energy policy. Consultant Birger Madsen argues for the inclusion of an environmental goal -- C02 reduction targets -- in the EU Directive for the Internal Energy Market (pages 36-38). If this is achieved, a dynamic market in tradable renewable energy credits can swiftly develop.

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