Varied national reactions to EC renewables Directive

The European Commission's proposed framework for common rules of support for renewable energy as part of the internal electricity market has sparked wide ranging reaction from member states. The article examines the reactions from Germany, the Netherlands, Denmark and the United Kingdom, finding the reactions of member states largely reflects the extent to which the EC's proposal will affect their existing systems of support.

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Heralding one of the biggest upheavals yet for Europe's clean power business, the European Commission's proposed framework for common rules of support for renewable energy as part of the internal electricity market has sparked wide ranging reaction from member states. Lobbies around Europe are attempting to influence the Commission's proposal, or even to scupper it before it sees the light of day. From the defiance of the German wind lobby to the laid back attitude of the British, the reactions of member states largely reflects the extent to which the EC's proposal will affect their existing systems of support.

With most at stake, Germany is where the battle to resist the proposal rages fiercest. Yet while its Renewable Energy Feed-In Tariff (REFIT) is ardently defended by the wind lobby (page 22), some in government are of the view that the cold wind of competition will force changes to the cosy protective climate for wind. Wind power generation is cheaper in other countries than in Germany -- and the German wind business will sooner or later have to face up to international competition, warned Werner Müller, federal minister for economic affairs, last month. He added, though, that time needs to be spent clarifying the issues raised by the EC's proposal (previous story). Such is Müller's phlegmatic response to the proposal's inherent requirement that Germany eventually phase out its REFIT in favour of a competitive model.

Not all German politicians are as calm about the writing on the wall for the REFIT. Hermann Scheer, member of parliament for the Social Democrats and chairman of Eurosolar, believes any EU support model will have to contain more than one policy option. "It is unacceptable that the most successful system in Europe is put into a worse position than other models of support," he says. The German REFIT with its fixed minimum price could become a model for other countries, he adds. "But we must not impose our system on others, nor should we allow others to push out our system." Michaele Hustedt of the Green Party recommends a more offensive strategy in defence of the REFIT. It must be better adapted to the competitive market, she says, and this should happen fast. Hustedt says models stipulating a fixed quota of renewables in the supply mix have not come up to scratch compared with the REFIT system.

Klaus Rave, vice chairman of the European Wind Energy Association (EWEA), calls on the German government to use the opportunity of its six month presidency of the EU to maintain the momentum on forming a pan-European renewables market. He acknowledges the disparate views within EWEA, which officially backs the support model outlined by the EC, but stresses that reaching a jointly held opinion is a complex and diplomatic process.

Germany's new environment minister, Jürgen Trittin, is keen for renewables to have a high profile. According to a ministry source, however, Germany may have to bide its time before being able to take any action on renewables, pending the result of an appeal against the REFIT support mechanism, now before the European Court of Justice in Luxembourg. It was lodged by the Kiel district court, which in the autumn applied for a higher judgement from Luxembourg before proceeding with a case brought by Preussenelektra against one of its satellite regional utilities (Windpower Monthly, July 1998). Preussenelektra is objecting to being forced to compensate Schleswag for the REFIT payments the regional utility is forced to make for wind power.

Positive Dutch reaction

With the EC draft directive effectively endorsing the Dutch approach to developing a renewable energy market, reactions from those responsible for shaping national renewables policy in the Netherlands are, not surprisingly, reasonably positive. Current government targets for 3% of total electricity generation from renewable resources by 2000, and 10% by 2020, are broadly consistent with the EC's 5% target by 2005. Moreover, Brussels' call for a system for trade of certified green electricity across national borders by 2005 presents no special problems to the Dutch. Since January 1998 the Netherlands has been operating its own "Green Label" system whereby wind turbine owners sell to the grid at market prices, but are also awarded green credits for the power produced. These credits are subsequently traded in a competitive market, created through an agreement with utilities to include fixed quotas of green power in the supply mix.

Nevertheless, a source at the economic affairs ministry counsels against any premature self-congratulation: "It's not that the Commission are putting forward Dutch ideas, rather that the Netherlands is a country which has already travelled some way down the path proposed by the Directive." With a new electricity act in the Netherlands gradually being phased in, containing important modifications to the way in which the green certificate system will work from 2001, "the timing of the new European targets is not optimal. We just don't know what is going to happen," says the source. Consequently the ministry is reported to be "very anxious to see just what percentage target the Commission decides to implement."

Likewise, Peter Niermeijer of EnergieNed -- representing the Dutch utilities -- extends the draft Directive a cautious reception. While welcoming a pan-European system for trading green certificates as an endorsement of the Green Label system developed by EnergieNed, he too can see problems with the details. He believes the Commission has underestimated the role of the market in stimulating the renewables sector, and points to the experience gained from the first year's trading under the Green Label system to back his claim (page ?).

The Dutch Green Label's "main achievement," he says, "is to have created a demand for renewable energy which is still growing. That's good for every form of renewable energy and wind power in particular, which at present is the most cost effective and thus the most attractive." This growth in consumer demand has in turn led to a change in the character of the system. Originally conceived by the utilities as a mechanism for dividing the extra costs of government imposed renewables quotas fairly among themselves, the primary focus of the Green Label system was on "burden sharing," says Niermeijer. "With increasing consumer demand for renewable energy as a product, that's becoming less important and the Green Label system is effectively becoming more of a trading system."

For Niermeijer the Green Label's great advantage is its very transparency. "While you can't physically follow electrons from a wind turbine to a customer, the Green Label makes that possible for the purposes of trade," he explains. He points out that the lengthy discussion about the exclusion of large-scale hydro plants from the definition of renewables becomes "irrelevant" in a demand-driven, fully transparent system. "You should be able to see from the green label where the energy comes from and if customers say, 'I don't want this,' then there is no demand, end of discussion." He feels it is this element of citizens' power that has been underestimated. "You couldn't have a more market driven system."

Gently, gently

Denmark's government has been closely watching the Netherlands' Green Label experiment. Denmark is considering the introduction of a similar system, but with "major differences" according to the energy and environment ministry. The country is in the process of liberalising its electricity market and is seeking a policy for the long term integration of wind. About 8-9% of Denmark's electricity is today supplied by wind energy.

The Danish wind association is warning, however, against moving too fast down the green label route. "The government and the parliament have a moral duty not to pull the carpet from under turbine owners who have invested large sums," says chairman Flemming Tranæs. These warnings appear to have fallen on fertile soil. Statements by energy committee members suggest that the replacement of a subsidised market with a liberalised green market will be introduced gradually, with care taken to protect the interests of existing wind turbine owners. Committee chairman Martin Glerup, from the ruling Social Democratic party, promises that "nobody can touch" the DKK 0.10/kWh C02 levy refunded to wind turbine owners as part of their payments. But he is prepared to discuss the DKK 0.17/kWh production subsidy. The subsidy, however, "must not be removed."

Both the centre-line Radical party and the right wing Venstre party broadly support the government's stance. From Venstre, however, Peter Hansen-Nord repeats his party's view that in principle wind turbine owners cannot expect to be subsidised forever. Subsidies should be phased out, but slowly, he says. He stresses that the wind industry must have time to adjust to a domestic market based on green credits, which he is convinced is on the way. Hansen-Nord points out that common rules are needed in the EU for a renewables market.

The Danish model

Denmark's proposal for a quota market supported by trade in green credits differs decisively from the Netherlands' experiment, according to a document circulated by the energy and environment ministry. Whereas the Dutch system relies on the voluntary compliance of utilities, in Denmark they will be obliged to include fixed quotas of wind in the supply mix. Furthermore, electricity sold under green pricing schemes to consumers willing to pay a premium for it may not also be included in the utility quota. "Green electricity at a premium price will be used to ensure that consumers can voluntarily buy more green power than the quota defines," states the document.

In the Netherlands model, the entire wind market is reliant on utilities meeting quotas defined by government, it continues. But Denmark will run a parallel system of competitive bidding for major developments ordered by government. Presumably this would include the government's 4000 MW of offshore wind. Lastly, the Dutch model does not include safeguards to help technologies less competitive than wind into the market. "The Danish model will probably have an extra quota for less market mature technologies," or they will be protected with a weighting system, which will evaluate specific proposals or technologies more highly than others.

The wind association is more cautious about the potential benefits of liberalising the renewables market. "There is no good reason for experimenting with a green market and an unavoidable and comprehensive bureaucracy as part of the broad energy reform. The problems in the existing system can much better be solved through one-off adjustments," says chairman Flemming Tranæs. He also points out that a pan-European market for green energy does not yet exist, and will not do so until 2006-2010 at the earliest, and will have substantial flexibility for exemptions.

A solution to the problem of wind turbines in good wind areas reaping overly large benefits from the subsidy system could be to introduce a two phase system of payment for future projects. A fixed price would be paid for production up to a specified number of kilowatt hours and thereafter payment would be according to a new principle.

No fears

Meanwhile, in the UK, which boasts the lowest prices for wind generated electricity in the EU, the threat of Europe-wide competition in renewables holds no terrors. Over the past nine years the British wind industry has become inured to the fiercely competitive Non-Fossil Fuel Obligation (NFFO) system. In fact, the details leaked from the Commission's draft Directive have barely registered in British wind circles.

The reason for this apparently apathetic response is due, in part, to timing. The EC proposal made its appearance in the midst of a policy vacuum, with the industry scrambling to contribute to a government consultation paper on renewables expected already in March. Meanwhile, a major program of energy market reform, including the separation of the supply and distribution businesses and reform of the electricity trading arrangements in England and Wales, has been signalled by the government's Energy White Paper, published in October 1998.

With these coming reforms having rendered new legislation inevitable, discussion of a support mechanism to replace NFFO has been preoccupying lobbyists and policy makers far more than what is happening at European level. What's more, the EU proposal dovetails with British thinking so far. "It's well framed for us," comments Gaynor Hartnell of the British Wind Energy Association. "The 5% by 2005 is precisely right to keep the UK continuing on its momentum, although it would be nice if the target was bigger."

The promptest reaction to the EC's renewables proposal has come from the parliamentary upper house, the House of Lords. The Lords Select Committee on the European Communities has already earmarked the document for in-depth scrutiny. The committee looks at all legislation emanating from Brussels, but reserves deeper investigations for just a few Directives.

Government officials are being more cautious in their reaction to the EC proposal, but a source points out that with legislation in place to meet a domestic target of 10% from renewables by 2010, the UK should already be on track to achieve the EC's 5% target by 2005. As for how the UK will fare in the EC's proposed open and competitive market: "If you were a British developer who had been subject to the miseries of competition for the last decade, you might be smiling gently behind your hand."

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