Policy upheaval threatens in Europe

In a scene-setting exercise prior to this month's European Wind Energy

Conference in London, we look at the rapidly changing political landscape for renewable energy in the European Union. Dull and distant as EU policies and politics are generally perceived, over time they have probably had the most positive impact on the growth of wind power of any market influence in the world. There is no guarantee that will continue

Against the background of a new European Commissioner for energy and a new European Parliament, the EU's impending review of the different national renewables support mechanisms operated by its member countries spells a period of uncertainty -- and dread in some quarters -- for wind and other renewable energies. The EU energy vision, formed after adoption of the EU's single market act in 1985, is for a competitive "internal energy market" for Europe. The reality is that unravelling existing rules and regulations in pursuit of a market for cheaper and more secure supplies of electricity is a monumental task -- and risks destabilising systems that work today. Securing the growth of renewables is just one element of this vast 20-year-old exercise in pulling down barriers to cross-border trade and creating a single market.

The 2005 review of renewables is to be conducted by the European Commission, the EU's executive body. It has been anticipated since 2001 when the European Renewables Directive became law. The directive states that the Commission shall, by October 27, 2005, produce a report on the experiences gained from different support systems employed by the EU's member countries, assessing their cost-effectiveness and success in meeting national targets for boosting renewable energy consumption.

More controversially, the directive adds: "This report shall, if necessary, be accompanied by a proposal for a Community framework with regard to support schemes for electricity produced from renewable energy sources." What that means is a proposal for a single support mechanism to be applied in all countries to meet the aims of an internal market for free trade of renewables across borders -- a market where wind power generated cheaply in a windy country can be easily sold to a country without much wind.

A passionate divide

Nothing in the field of European wind power invokes such strong passions -- or divides opinion -- like the prospect of a pan-European framework of renewables support. The attempt by the Commission to introduce just such a framework in an earlier draft of the 2001 directive ended in uproar and ultimate failure. The agreement to review the situation in 2005 was the best compromise that could be reached.

Just as progress towards a competitive internal electricity market in Europe has been impeded by different tariffs, different levels of access to the network and varying degrees of market opening between countries, so the widely different renewables support schemes and tariffs, huge variations in levels of support, and differing degrees of competition have thwarted moves towards simplifying renewables support in Europe.

Moreover, as support schemes tend to reflect national priorities and temperaments, many countries are strongly supportive of their own national mechanism. Hence the demise in 1998 of the Commission's first attempt at a renewables directive. At issue was the Commission's proposal that all European support schemes be based on competition between renewable producers, facilitated by cross border trade in green energy certificates. Not only did the Commission see certificate trade as driving growth of renewables in a way that was compatible with the aims of the internal market, it accepted that certificates were a way of pricing at least some of the environmental value of green power within that market.

But the proposal sparked a bitter controversy as opposing sides hotly contested the merits of unproven green certificate trading compared with fixed purchase prices for green power, which do not facilitate either competition or trade. Leading the protests against a one-size-fits-all market was the German wind lobby, which is fiercely attached to, and proud of, its guaranteed price support system. This has seen Germany become the world leader in installed wind capacity. Intense lobbying by Germany derailed the earlier draft directive, leaving the Commission to find a more conciliatory means of promoting renewable energy.

Enter pragmatism

A more pragmatic approach emerged from the just-departed Commissioner for Transport and Energy, Loyola de Palacio. She announced in 2000 that the Commission would delay proposing a single European market for trade in renewables for five years to give it time to study the results of different national support systems towards the aim of getting as much green power as possible, as cheaply as possible. Meantime, the main driver for renewables would be "indicative" (as opposed to mandatory) national renewables targets.

Despite grumbling from some quarters that the national targets were not legally binding, the renewables directive became law in September 2001. Although De Palacio is heavily criticised by some environmental groups for being pro-nuclear, the European Wind Energy Association (EWEA) believes she and the Commission deserve credit for achieving the breakthrough. "The directive is the single most important piece of legislation for wind power worldwide," says EWEA's Corin Millais. "It's more important than the Kyoto Protocol, more important than any trade agreement, and more important than any international conference like Bonn."

The directive sets individual targets for each member state, with the aim of renewable energy supplying 22.1% of Europe's electricity by 2010 and 12% of total energy consumed. It also lays down practical requirements to ensure a stable environment for renewables investments including removal of regulatory and permitting barriers, fair grid access, and creating a "guarantee of origin" document -- a pre-requisite for any future cross border trade in renewables.

Nonetheless, the directive's warning still remains that the Commission will "if necessary" propose a community-wide framework for renewables support. National support schemes that do not fall within such a framework will get a seven year period of grace before they would have to be phased out.

Targets not met

Whether or not the Commission proposes a pan-European system by October 2005 depends on the progress of each country towards the twin targets of meeting percentage targets and bringing down the cost of renewables. So far, the signs do not bode well. In May this year the Commission revealed that with current policies and measures, renewables in the 15 EU states -- not including the ten new accession countries -- will achieve a share of only 18-19% of Europe's electricity. The goal is 22.1%. Part of the reason, the Commission explained, is that some member states have not yet introduced policies in line with their targets. While the EU can create the legislation, it is up to member states to implement measures on the ground to increase renewables capacity.

Another reason for Europe's poor renewables performance to date is the underachievement of the biomass sector. This is in direct contrast to wind, which has outstripped all EU expectations -- thanks mostly to the efforts of just three countries: Germany, Spain and Denmark. The Commission has increased its estimates of wind's contribution; in 1997 it expected to see 40 GW of wind by 2010, but now anticipates an eventual 75 GW. Yet wind's impressive performance does not outweigh the disappointing growth of biomass, which the Commission expected to account for 68% of new renewable-generated electricity.

The irony is that if, because of the shortcomings of biomass, the Commission were to push for a harmonised framework for European support systems, it could spell the end of the fixed price mechanism in Germany that has done so much to boost wind's performance.

What the wind lobby says

With the Commission's analysis of support mechanisms looming, EWEA is to unveil elements of its position on the contentious issue at the European Wind Energy Conference (EWEC) in London this month. With conflicting views on green certificates versus fixed purchase prices to be found among EWEA's members, the unanimous endorsement of its new position by its 30 member board in September is no mean achievement. EWEA's Christian Kjær explains its latest thinking: "The EWEA board all agree that we need to change the nature of the debate from our side," he says. "We as an industry need to speak with one voice. We do not want a repetition of an unproductive debate over whether we should pick one or another mechanism. So we sat down and figured out how we could put together a more productive approach."

EWEA's viewpoint is to focus on what wind industry companies, developers and manufacturers want from any renewables support mechanism, regardless of type. Kjær says that EWEA has produced a list of criteria against which to evaluate mechanisms and judge which would best meet the needs of the industry and attract investments -- and how others would need to be re-designed to meet its needs.

Kjær claims there is no value in comparing fixed purchase prices against national mandates for specific volumes of green power, facilitated by markets for trade of green certificates, while there are three or four different "certificate systems" and several variants of fixed price systems operating or proposed in Europe, none of which would initially be able to work together. "What is important is how to structure a mechanism to meet both the political requirements laid down in the renewables directive and the requirements of the renewables industry for creating a sound investment climate. If the Commission can't structure a mechanism in a way that creates investor confidence, we can't support it, regardless of the choice of mechanism."

The Commission's response

At the Commission, officials are also well aware that any proposal to align national government regulations would re-awaken the controversy of the earlier debates. The indications are they will seek to avoid an all-out confrontation with the proponents of fixed purchase prices that early moves towards a re-launch of their proposals for a single competitive market would inevitably result in.

Beatriz Yordi from the renewables team in the Commission's Directorate-General for Transport and Energy (DG TREN) will not be drawn further on the issue. But she points out that the directive is not concerned just with aligning market systems. It also requires member states to pull down administrative barriers such as existing regulations governing planning and permitting of projects, and ensure fair access for renewables to electricity grids. She says the Commission is working on a range of additional measures to boost renewables. These include the successor to the current EUR 250 million Intelligent Energy-Europe (EIE) program which runs until 2006. "We are working on the next step of the program and want to propose a more ambitious program for beyond 2006," she says. EIE aims to promote efficient use of energy and renewables and tackle non-technological market barriers.

Yordi explains that since renewables are consistent with a number of Community goals such as sustainable development and employment, money could be available from EU "structural" and "cohesion" funds, while a new aid for energy crops is becoming available under the Common Agricultural Policy. In addition, the Commission is working on action plans for biomass and for offshore wind (page 50).

Igniting the debate

Commission officials may be playing down the likelihood of an early move towards a pan-European renewables market, but Energy Commissioner designate, László Kovács, re-ignited the debate at the end of September -- before even taking up his post. Speaking to a parliamentary committee, Kovács proclaimed European green certificates to be an innovative system of support that "could enable European renewable energy developers and equipment manufacturers to reach a critical mass to compete successfully on external markets as well."

Kovács was setting out his vision as Commissioner-Designate at his hearing in front of the European parliament's Industry, Research and Energy (ITRE) Committee. The parliament is required to approve the team of new Commissioners under EC President José Manuel Barroso, who were due to take up their posts on November 1, had all gone as planned. Kovács was formerly Hungary's foreign minister and led the country's governing socialist party. The 65 year old economist and former Communist party member inherits half of the transport and energy responsibilities of De Palacio; a number of Commission jobs have been split to create additional posts to accommodate the arrival of the ten new member states.

At his hearing, Kovács said renewable energy is of the utmost importance, but needs stronger political support. He said he would aim to strengthen research and development into renewables. He also said renewable energy should be produced in the most cost efficient manner making the best use of available resources. Moreover, he added, it should be produced at the geographically most favourable locations -- a view unpopular in some areas of the wind community. Cost and competitiveness are key, he said. "The overall objective is clear for the Commission: more renewables at a lower cost. EU energy policy must find a proper balance between our environmental objectives and the legitimate competitiveness concerns of European industry."

Some within the Commission voice the relaxed view that Kovács was still getting to grips with his new portfolio and at this stage too much should not be read into the admiration he expressed for green certificates. More importantly, they point out, his speech contained plenty of references to renewables.

This is not the opinion, however, of the European Renewable Energy Council (EREC), the umbrella body of renewables trades associations such as EWEA. Within hours of Kovács stating his pro-renewables views, it publicly accused him of making a premature judgement on a possible Europe-wide support mechanism for renewables. Arthouros Zervos of EREC says: "Before favouring a system that has not yet proven its ability to attract renewable energy investment, we should wait for the evaluation," of different support mechanisms by the Commission.

Conspiracy theories

Seasoned Brussels observers detect in Kovács' pronouncements the influence of Francois Lamoureux, the pro-nuclear Director-General of DG TREN. Having managed to retain DG TREN intact, the powerful Lamoureux now rules a larger empire than either Kovács or Jacques Barrot, after the energy and transport portfolios were split between the two Commissioners.

Kovács' first public appearance as Energy Commissioner designate left some members of the renewables lobby who witnessed his three-hour hearing less than impressed. Green member of parliament Claude Turmes of Luxembourg and Rebecca Harms of Germany dubbed his performance before the Committee "an offence to the parliament." In a joint statement they claim he was "badly prepared" and "lacked even a basic understanding of essential energy technologies." From his responses under questioning they claim he will become "a toy for the coal and nuclear lobbies," and conclude: "Kovács is not the right person for this job."

Neither was his performance enough to persuade the rest of the ITRE committee he is up to the job. "Most members of the committee were not convinced by his professional competence in the energy field nor his aptitude to assume the high office he has been proposed for," was its verdict, presented by committee chairman Giles Chichester to the President of the Parliament.

Although parliament may not be happy with his appointment, they did not have the option of singling Kovács out for rejection when they voted at the end of October on whether to approve the 24 new Commissioners or not. The rules mean they must approve all commissioners or none. Barroso, however, is understood to have secured an informal agreement from each of the new commissioners that they would stand down voluntarily if the parliament objected to their appointment.

From green to blue

While uncertainty persists about the future direction of the Commission under Kovács, the democratically elected parliament underwent a change of colour in summer's European elections. The previous dominant alliance of socialists and greens now finds itself outnumbered by the Conservative and right-wing groupings of mostly Christian and European Democrats. But holding the balance of power is the more volatile group of Liberal Democrats who, depending on their nationality, vary hugely in their position on the political spectrum and -- importantly for wind -- in their attitude to renewables.

Parliament's make-up is reflected in the 51 members of the ITRE committee -- the key group that represents parliament in overseeing all energy and renewables legislation. The committee is now headed by British Conservative Giles Chichester, who is pro-nuclear and actively anti-wind. Wind power is very expensive, not very efficient and desecrates the landscape, he says. "People view it as a benign source of energy, but it requires subsidy to get it going and it requires significant back-up capacity for when the wind does not blow." His constituency website makes it clear he was not answering questions he was not prepared for. It features a number of press articles detailing the shortcomings of wind energy.

Whether Chichester's sentiments reflect the views of a majority of the new committee -- or indeed, the European parliament -- remains to be seen. As yet they have not been tested by any vote on renewables legislation. But EWEA's Kjær is not in doubt: "In terms of how the groups voted historically, we will face a more challenging parliament."