New renewables policy war threatens -- Wind association against pan-European green certificate trade

Amid a welter of concern in European renewables circles that the EU Commission is set to propose a market structure for virtual trade of renewable energy across Europe based on green certificates, the European Wind Energy Association (EWEA) has restated its view that a fully functioning single market for trade of electricity in the EU must be a pre-condition for cross-border certificate trading.

The Commission, acting on a vote earlier this year by Europe's governments for a mandatory target of 20% of energy from renewables by 2020, is preparing a new legislative framework for renewable energy. It is due out in January, having been postponed last month from the ambitious original date of early December. The proposal will form the basis of a new renewable energy directive to replace that passed in 2001. That directive, against the Commission's wishes, did not introduce a pan European market for renewable energy certificate trade following stiff opposition from renewables trade organisations in some countries, particularly Germany.

No official announcement of the Commission's new attempt at green certificate trade has been made, but EWEA fears it is coming "through the back door." At a meeting last month of the Amsterdam Forum on sustainable EU policy development, Fabrizio Barbaso, deputy director-general of the EU directorate general for transport and energy (DGTren), stated that the Commission is considering introducing virtual trading of renewables, perhaps based on "guarantees of origin" certificates.

EWEA's Christian Kjaer says that by referring to "virtual trade" in renewables the Commission is trying to introduce green certificates under another name. "Why is it being wrapped in a different package, and why introduce this without having any debate or analysis? They are choosing a system through the back door." He adds that green certificates are not necessarily a bad system of support. "But it is a very tricky system to construct -- particularly if politicians are involved."

A source within the Commission stresses that no decisions have yet been taken. "But we want a system that makes the most of the potential for renewables where the potential exists." Some of Europe's more affluent countries have only limited renewable resources, while other states are renewable resource-rich but cash-poor, he explains. So the Commission is trying to develop some kind of market based mechanism to increase the use of renewable energy throughout Europe in the most effective way.

Speaking as one, Europe's renewables organisations fear a change away from the plethora of subsidy systems now successfully driving markets for green power within national borders. EU member states, however, have long ago pledged to bring down such barriers to trade of electricity between member countries by creating a single electricity market for Europe.

According to the renewables lobby, the push for mandatory trade of green energy certificates by "forces" within the Commission threatens existing national renewable energy policies. It would endanger markets where governments set all or part of the purchase price, such as in Germany and Spain. These so-called "feed-in tariffs" have already proven to be cost-efficient measures, argues the European parliamentary group EUFORES. The European Renewable Energies Federation, which represents a number of renewables groups in Europe, says: "Member states would lose grip over their support mechanisms and would not have control over their ability to achieve their targets."

Ill-judged rush

EWEA warns that "legislative uncertainty is by far the most dangerous enemy for a growing industry such as the wind energy sector." An ill-judged rush to introduce "virtual trading" could lead to market distortions and "strategic gaming exercises" by governments involving frequent adjustments to their support systems, the association fears. This would threaten investor confidence and slow development. EWEA insists that any virtual trade in renewables should be voluntary, must not undermine national support systems, and should only occur within a country once national targets have been met.

According to Kjaer, there appears to be an ideological battle going on within the Commission. "Nobody can be against trade. But the discussion should focus on the preconditions for trade rather than trade itself. The pre-conditions for trade in renewables certificates are not present due to the lack of trade in the electricity market." This is why EWEA recommends the creation of a truly competitive internal energy market first.

He believes that within a single market, the price for renewable-traded electricity will be set by energy sources that cost more than wind. This will lead to windfall profits for some generators and a heavier burden on the consumer. A project led by the German Fraunhofer Institute calculated that introduction of a mandatory non-technology-specific target for renewables in Europe facilitated by green certificate trade would lead to 50% higher costs to the consumer when compared with technology-specific support such as targeted fixed price tariffs.

Going further

According to the Commission source, existing national support schemes will continue under DGTren's plan. "We do not want to jeopardise something that is working well, but we want to go further," he says. Both the existing and the proposed systems can co-exist. "But how we are going to do that is too early to say."

One approach would be an expansion of the voluntary renewable energy trading concept run by Renewable Energy Certificate System International (RECS International), based in the Netherlands, says the organisation's Peter Niermeijer of RECS. This would allow countries to import limited volumes of renewables without the need to create a single pan-European system by "harmonising" support systems.

Niermeijer notes that a European policy debate that had been widely expected to centre on how the 20% target will be shared between countries has moved to instead focus on replacing national subsidy programs with competitive trading markets for renewables. But he believes the debate is on false ground and is based on misunderstanding.

No one is suggesting that 100% of national markets will be opened up, he says. The RECS proposal advocates a "stepwise" change. This could involve opening perhaps 10% of national renewables markets through trade in guarantees of origin.

Under the RECS proposal, cross border trade could run alongside Europe's plethora of different national support systems, he says. He insists that fixed tariff systems will be able to cope with open markets. "So if the Germans want to keep the feed-in system they can; no one is asking them to change it," he says. But as a first step, countries would need to agree common rules for some aspects of their national systems such as length of support.