Call for evolution not revolution

As the established European electricity industry formally calls for a single competitive market for renewable energy in the EU, the wind lobby is urging caution. Rather than risk market collapse caused by dramatic policy change, it advises publication of a series of guidelines for countries to voluntarily align their market support systems. The result would be a gentle and orderly development of market clusters for cross-border competitive trade

A hasty move towards a single Europe-wide payment mechanism for electricity from renewable sources of energy would put Europe's leadership in wind power technology at risk, says the European Wind Energy Association (EWEA). The warning comes just as Eurelectric, the union of the European electricity supply industry, last month called for policy makers to "proceed quickly" towards a single EU market for renewables based on trade in green power certificates or "guarantees of origin."

The jostling for position on the subject of how best to integrate renewables into the European electricity market comes as the European Commission prepares its 2005 review of the EU's plethora of renewables support mechanisms. Depending on the conclusions, the Commission may recommend a single mechanism to be applied across all 25 EU countries to meet its aim for 22.1% of EU electricity to come from green power by 2010.

The review will assess the progress of different national mechanisms toward meeting the EU's twin targets of meeting percentage targets for renewable energy and bringing down its cost. At the same time, the overall aim is for renewable energy to slot into a fully competitive internal energy market.

EWEA argues that while many distortions remain in the conventional power market, forcing renewables to comply with the single market ideal would be discriminatory and premature. In a position paper it points out that new renewables -- not including large hydro -- account for just 5% of electricity supply, with wind power accounting for 2.4%. Distortions in the 95% conventional market, it says, include institutional and legal barriers, large subsidies to conventional players, exclusion of external costs (the costs of pollution and securing supplies of fossil fuels) from fuel prices, lack of competition, barriers to third party access, limited interconnection between national markets, discriminatory tariffs, no effective unbundling of production and transmission and a grid infrastructure designed around large-scale conventional generation. "Given that the renewable and non-renewable electricity markets interact at a number of levels, there can be no effective competition in renewables without effective competition in the conventional electricity market," says EWEA.

A successful national framework for promoting renewables needs more than just a well designed payment mechanism, argues the association. It also demands fair access to strategically developed grids, good administrative procedures and public acceptance of the technology. Different types of mechanism operating today tend to be lumped together under single headings, such as fixed price "feed-in tariffs" or tradable "green certificates," says EWEA. But in practice they vary in their application from country to country and cannot be simply "harmonised."

More time needed

It is too soon to draw final conclusions on the potential impacts of the full range of policy options available, says EWEA. So far, only fixed purchase prices and price-premiums have performed effectively. But these are not an automatic guarantee of success; not all countries' attempts to introduce fixed price tariffs have led to an increase in renewables. Meantime, there is not yet enough experience with certificate trading mechanisms. "These must be given time to prove their effectiveness. More time and experience are needed to make credible conclusions on their potential ability to attract investments and deliver considerable new capacity."

The association calls for any move to a community wide mechanism to be gradual, well prepared and to take place only after effective competition has been achieved in the internal electricity market. It proposes, meantime, voluntary guidelines for the design of support mechanisms. The type of support system is not the determining factor for success, EWEA explains, it is the way the mechanism is designed and implemented. "The devil is in the detail, not in the name of the mechanism."

Proceed quickly

Echoes of EWEA's call for a gradual move towards aligning support mechanisms are found in Eurelectric's proposal for a "stepwise approach" to implementing an EU-wide system of tradable guarantees of origin (GoO) for renewable energy. But in contrast to EWEA's argument that competition needs to be achieved in the conventional power market before it can be imposed on renewables, Eurelectric urges the Commission to "proceed quickly" to put in place the building blocks towards a comprehensive EU system of tradable certificates. This will be by a series of steps encouraging member states to establish a standardised system for issuing GoO certificates, encouraging countries to trade GoO certificates bilaterally and, after learning from experience, introducing legislation.

The proposal, which emerged from a two day conference in Brussels last month, Towards a Pan-European Renewables Market, is made together with RECS International, an organisation set up to test and promote renewable energy certificate trading. The two organisations have long favoured harmonised EU support of renewables based on green certificates.

Despite its sense of urgency, the proposal from Eurelectric and RECS appears to signal a more pragmatic acceptance than seen previously that the legislation needed to effect Europe-wide green certificate trading is unlikely to happen any time soon. The organisations stress in a "vision paper" the importance of bringing down the cost of supporting renewables. A system based on GoOs "will ensure cost-efficient promotion that does not interfere with the market for physical electricity, that will contribute to EU-wide market integration and that will provide incentives for investments in cost efficient technologies and for cost efficient siting of power generation installations."

The vision paper further states that GoOs should be tradable across EU borders independently of the physical electricity, they should count towards fulfilling national targets for renewable energy, and should contain transparent information of any subsidy paid to the electricity represented by the GoO.

In response, EWEA's Christian Kjær reiterated to electricity companies that the first step towards harmonisation of renewables should be to create effective competition in the far larger conventional market. "Wind power will compete, but you need to give us an effective and undistorted market to compete in," he said.

Ten requirements

EWEA has identified ten requirements of any mechanism if it is to encourage investment. These are: compatibility with the polluter pays principle; high investor confidence; simplicity in design and implementation; high effectiveness in renewables deployment; encouraging technology diversity; encouraging technology development and lower costs; compatibility with the power market; facilitating a smooth transition to protect existing investors; encouraging public acceptance; transparency and integrity so that consumers are protected against fraud and "free-riding."

Adoption of these guidelines would help member states align currently incompatible mechanisms in the EU 25, believes EWEA. And it would gradually increase the compatibility of markets between countries that have chosen the same type of mechanism -- such as tradable green certificates -- encouraging cross-border "market clusters." This would provide experience for when an internal market for renewable electricity is eventually created.

What way the EU Commission will swing on the issue of harmonisation remains to be seen. Early indications from new energy commissioner Andris Piebalgs are that he favours member states finding their own solutions -- at least for the time being. Piebalgs was asked by members of the European Parliament at his Commissioner Designate hearing whether he favoured a "one-size fits all policy" for reaching targets. Piebalgs stated: "On renewables, we have learned from the successful use of wind energy. We need a good support system around the projects, less bureaucracy and the facilitation of access to the electricity grid. We should try to find national solutions; we have a common goal which is to promote renewable energy."