Jubilation over pragmatic compromise legislation -- Countries must prioritise domestic resources to meet new EU renewables targets

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The European Commission has defused much of the opposition to its vision for increasing renewable energy use across the EU with its publication of a proposal for a new renewables law. The draft legislation sets ambitious goals and also lays the foundation for a future European renewable energy market without barriers to cross-border trade. But it pulls back from moving quickly down the road to a seamless single market for sales of renewables electricity, which would have required the introduction of cross-border trade in renewable energy certificates.

The draft renewables directive, unveiled on January 23, forms a key part of a EUR 60 billion legislative package to cut greenhouse gases across Europe by 20% and boost renewables' share of energy consumption to 20% by 2020. The greenhouse gas reduction goal will be increased to 30% if a global climate change agreement is reached.

The package translates the historic agreement reached in March 2007 by the 27 countries of the EU to adopt 20% targets for greenhouse gas cuts and renewables into individual national targets together with a series of measures to achieve them. To become law, it must be approved by national governments and the European Parliament, a process expected to take about a year.

Also in the package is a proposal to strengthen the EU Emissions Trading Scheme (ETS) and impose an EU-wide cap on carbon emissions. This will have a major influence on the way that energy markets work, the Commission believes, and will boost investment in greener power production technologies.

The Commission stresses that the package demonstrates Europe's leadership on international action to combat climate change. Realising the measures will cost less than 0.5% of GDP by 2020, says Commission President José Manuel Barroso. "This amounts to about EUR 3 a week for everyone." But, he says, last year's report for the British government by Sir Nicholas Stern on the economics of climate change shows that not acting would cost more than ten times that. "And every day the price of oil and gas goes up, the real cost of the package falls. Instead of costs, we really should be talking about gains for the EU."

Economic opportunity

One of these is the huge economic opportunity it presents. "The renewables sector alone will bring one million jobs by 2020. I am sure that once again European industry will show its ability to innovate and adapt. Europe can be the first economy for the low-carbon age: we must seize this chance," says Barroso

The 20% target for renewable energy represents a hefty 11.5% increase across the EU from today's 8.5% starting point. The Commission has proposed legally enforceable targets for each member state, with a series of interim goals. The targets vary from country to country (page 57). They were calculated by imposing a flat rate increase for all member states, weighted by GDP, so that more effort is required of wealthier countries.

It will be for each country's government to determine how its national target will be divided among the three energy sectors -- electricity, heating and cooling, and transport. But all countries will be required to meet a minimum target of a 10% share for biofuels in transport. By the end of March 2010, governments will be required to draw up action plans for meeting their targets.

Electricity will provide most of the renewable energy target. Out of total EU electricity consumption, the Commission expects that renewables could meet 35%, with 12% coming from wind, broken down into 8% from onshore installations and 4% offshore. With hydro power, which meets most of the renewables energy contribution so far, not able to contribute much more, wind power will need to produce by far the lion's share of the new renewables requirement.

Red tape reduction

Permitting and authorisation of renewables installations are to be streamlined and speeded up under the new law, "with precise deadlines for approving planning and building applications." The Commission advocates that projects be approved by default where authorising bodies fail to respond to siting applications within set time limits.

Priority access for renewable generators to electricity grid systems and priority of dispatch by transmission system operators "insofar as the security of the national electricity system permits," are two further measures likely to be welcomed by the renewables community. The proposal also allows member states, should they wish, to require network operators to bear the full or part of the cost of grid reinforcements or connections to integrate renewables onto their systems.

Renewables certificates

Imported electricity from new renewables plants outside the EU will count towards national targets as long as it is consumed within the European Community. But that is as far as cross-border trade is allowed for the time being. Plans for a controversial "virtual" pan-European trading mechanism for renewables to allow countries unable to meet their targets from domestic resources to buy green certificates from an EU neighbour have been effectively postponed.

With one voice the renewable energy lobby had argued against using certificate trade to bring down the barriers represented by separate national support programs to developing wind power where it is cheapest to do so. Such a change, it was argued, risked destroying national renewables markets that had been years in the making. A single EU market for renewable energy only makes sense within a single European electricity market, but that has yet to be achieved, was a main argument put forward by the European Wind Energy Association (EWEA). It seems the Commission was listening.

Although the proposal opens up the option for trade in renewables certificates -- known as guarantees of origin (GO) -- they may only be exported from member states once the host country has met its interim target. The Commission had argued that a market structured to encourage development of renewables where the resource is best in Europe had the potential to shave EUR 1.8 billion off the price tag for meeting the target.

On this, as on a number of issues concerning trade in renewables, the Commission seems to have given in to demands from the renewables community after months of fierce lobbying. Without backing from the renewables groups and key governments, the Commission would have little chance of getting its proposals passed into law.

Renewable energy associations had argued against mandatory trade in GO, saying it would lead to introduction of a one size fits all system of support "by the back door" instead of allowing countries to choose their own market structures. A furore ensued over proposals in earlier drafts to allow electricity market players to freely trade GO between themselves. Renewables groups and some governments urged that since member states are responsible for meeting the targets, they, rather than companies, should retain control over certificate trade.

Full control

Under the current proposals, this control will now rest firmly with member state governments. Trade will be voluntary; governments will be able to block imports or exports of GO to or from companies within their countries. And, in a further departure from previous drafts, even if countries fail to meet their targets they will not be required to open up their borders to import of GO.

With the final draft directive giving in to practically all their demands, renewables groups across Europe have warmly welcomed the Commission's proposals. EWEA approves of the proposed "stable and flexible" framework which allows countries to keep control of their successful national renewables support systems.

"By introducing a voluntary trading mechanism, controlled by member states, the proposal maintains market stability, increases investor confidence and will help member states to reach their ambitious, yet achievable, targets" says EWEA's chief executive Christian Kjaer. "The target implies that renewable energy's share of electricity will increase from 15% today to more than a third of Europe's demand in 2020. Wind energy will be the biggest contributor to that massive increase in clean electricity production," Kjaer adds.

Time running out

EWEA commends the proposal that countries will only be able to sell their guarantees of origin if they meet their interim targets -- and not before. "Such trade must be additional to investment in, and development of, domestic renewable energy sources, planning procedures and grid infrastructures," it says.

The European Renewable Energy Council, an umbrella group for the various renewables groups, says the draft directive contains all the elements necessary to allow the EU to meet its 20% target. "Now we expect the member states and the parliament to further improve the legislative document and agree on the directive this year since time is running out," says EREC president Arthouros Zervos. One of the improvements that EREC would like to see is an enforcement mechanism for member states which are not on track to meet their targets.

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