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ACKNOWLEDGEMENTS
ThisreportwaspreparedbyE3GforRE100initiative,toprovideinputtothecurrentprocessforamendingEUenergylegislation.©E3G2016AnumberofRE100membercompanieskindlycontributedtothisreport.Wewouldliketothankthemfortheirongoingsupport.AboutRE100RE100isaglobal,collaborativeinitiativeofinfluentialbusinessescommittedto100%renewableelectricity,workingtomassivelyincreasedemandfor–anddeliveryof–renewableenergy.Thiswillacceleratethetransformationoftheglobalenergymarketandaidthetransitiontowardsalowcarboneconomy.RE100sharesthecompellingbusinesscaseforrenewablesandshowcasesbusinessaction,whileworkingwithotherstoaddressbarriersanddeveloptransparentreportingmechanisms.RE100isbroughttoyoubyTheClimateGroupinpartnershipwithCDP,aspartoftheWeMeanBusinesscoalition.AboutE3GE3Gisanindependentorganizationworkingtoacceleratethetransitiontoalow-carboneconomy.E3Gspecializesinclimatediplomacy,climaterisk,energypolicy,governanceandclimatefinance.Weworkcloselywithlike-mindedpartnersingovernment,politics,civilsociety,science,themedia,publicinterestfoundationsandelsewhere.E3GisaEuropeanorganizationwithaglobaloutlookandreach.WecurrentlyhaveofficesinLondon,Brussels,BerlinandWashingtonDC,togetherwitharegularpresenceinChina.
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EXECUTIVESUMMARY
ManylargecorporationswithoperationsbasedacrosstheEUnowrecognizethatmeetingelectricitydemandfrom100%renewablesourcesrepresentsamajorstrategicopportunity.Energycanbesecurelysuppliedwithincreasedcostcontrol,aswellashelpingtopositionbusinessesasprogressiveandforwardthinkingleadersintheirsectors.However,itcanbedifficultforbusinessestoachievethisobjectiveandsupportingthisagendapresentssomerealopportunitiesforpolicymakers1.ThechangesthatareneededwillhelppolicymakersachieveimportantaspectsofcurrentEUenergypolicy;inparticular:— Becomingaworldleaderinrenewableenergy,— Promotingasinglemarketforenergy,and— Creatingaconsumerfocusedmarket.Companiesthatcurrentlyaspireto100%renewablesupplyrepresentthevanguardofamovementthathasthepotentialtogrowthroughoutthebusinesscommunityandbeyondintootherconsumersectors.Thismustbeencouragedsincethebenefitsareenormous.Itwouldcreateaconsumerledenergytransitionthatwouldultimatelybeself-sustaining.Policymakersshould,therefore,usethecurrentrevisionstoenergylegislationtosupportbusinesseswiththisemergingcommercialimperative.Thefollowingchangesareimportantinthisregard:RevisiontoRenewableEnergyDirective— The2020targetsfortheshareofrenewableenergyassetoutinthecurrentRenewableEnergy
Directivemustcontinuetoapplyafter2020andshouldconstitutetheminimumbaselineforthecontributionofMemberStatestothe2030EUREStarget.
— Thereshouldbeamethodologythatwillapplyintheeventofpledgesnotaddinguptothetarget.Forexample,MemberStatescouldberequiredtocontributeeitherinkind(bydevelopingREScapacitythemselves)orfinanciallytofillaneventualgapbetweentheirpledgedcontributionandtheirexpectedfaircontributiontothecollectiveEUtarget.
— Establishbasicdesignprinciplesofnationalrenewableenergyframeworksandameansforensuringthefurthermarketintegrationofrenewablesaswellassettingoutaprocessandroadmapfortheprogressiveconvergenceofnationalrenewableenergyframeworksoverthe2020-2030decade.
— Establishbasicprinciplesofcustomerparticipationthatincludetheenforceablerighttoindividuallyorcollectivelyproduceandconsumetheirownelectricity,aswellastherightofaccesstothegridtosellsurpluselectricityunderfairconditions.
1‘EUpolicymakers’referstoEUparliamentarians,MemberStates,throughtheirroleontheEUCouncil,andtheEuropeanCommission.
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Marketdesigninitiative— Renewableenergymustbegiventhehighestpriorityingridplanning.Thismeansthatmeasuressuch
asprioritydispatchforrenewablegeneratorsshouldbemaintained,or,alternatively,thatMemberStatesputinplaceothereffectiveprocessestoavoidunnecessarycurtailmentofrenewablegeneration.
— Establishtemplatesfortheprocurementofrenewableelectricitybycorporatebuyersthatcanthenbeusedatmultiplesmallandlargeconsumptionsitesspreadacrossoneormorejurisdictions.
— Mandateacommondistributionnetworkframeworkthatwillprovidemoreconsistencyforconsumerswishingtodeveloprenewableenergyprojects.
— IncludeproposalsforfacilitatingthefreetradeinrenewableelectricityacrosstheEUtoenableconsumerstoaccessthecheapestavailablerenewableresources.
— Recognizethechangingenergymixontheelectricitysystemandconsiderensuringrenewablesbecomethedefaultsupplyoptionthroughimplementingacertificationschemefornon-renewableratherthanrenewableelectricity.
— Promoteamuchmoreflexiblepowersystembyencouragingavailabilityofservicessuchasdemandresponseandstorage.
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INTRODUCTION
AlargenumberofmajorcorporationswithbusinessoperationsintheEUarenowclearthatthedirectionoftravelforenergyproductionistowardsasystembasedonhigherpenetrationsofrenewableenergysources.Thisrepresentsasignificantstrategicopportunitythatgoesbeyondsimplyseekingtominimizecorporateimpactontheenvironmentandpositioningthecompanyasaclimateleaderwithinthebusinesssector.Energycanbesecurelysuppliedfromrenewablesourcesandtheircostsaredecliningfast.Importantly,renewableshavemuchlowerpricevolatilitythanfossilfueledalternatives,allowingmuchgreatercontrolofakeybusinesscost.Therefore,manybusinessesarealreadyseekingtoensurethattheenergytheyuse(initiallyfocusingonelectricity)comesfromsustainablerenewablesources.AsofCOP22,theRE100initiative2hasmorethan80members,representingmanylargemultinationalcompaniesthatarecreatingdemandforover100TWhofrenewableelectricity–withagoodproportionofthisinEurope.AllRE100membersarecommittedtomeetingalltheirelectricityneedswithrenewablesourcesofenergy.
ThisgroundswellofcorporatemomentumrepresentsbothachallengeandanopportunityforEUpolicymakers.ItisvitalthattheyensuretheEUenergymarketiseffectivelydesignedtohelpbusinessesmeetthisemergingcommercialimperative.Indeed,meetingtheneedsofbusinessenergyconsumersbenefitseveryonesinceitsupportsthetrendstoempowerenergyconsumersacrossEurope.Akeymeasureofthesuccessofthecurrentreformagenda,inparticulartheMarketDesignInitiativeandtherevisiontotheRenewableEnergyDirective,will,therefore,betheextenttowhichtheneedsofthebusinesscommunityaremet.However,itisalsoimportanttorecognizethatthiscorporateinitiativeprovidesdirectevidenceofsupportacrossmainstreambusinessesfortheneedtotransformtheenergysystemandthissupportisimportantforpolicymakerslookingtodriveforwardthetransition.ThisreportexploreshowEUpolicymakerscanrisetothechallengeandleveragethisopportunity.
Thefirstsectionconsidershowtheinterestsofthoseconsumerscurrentlyseekingtosourcetheirelectricitywithrenewableenergycanbebetterservedandhowthisishelpfulinsupportinganambitiousandprogressivepolicyagenda.Thesecondsectiongoesontoexplorehowprogressiveconsumerscanbecomemoredirectagentsforchange,helpingtodriveforwardthetransformationratherthansimplyreinforcingtheactionsofpolicymakers.
REINFORCINGCURRENTPOLICY
Consumerswiththeaspirationtosource100%oftheirelectricityneedsfromrenewablegenerationcanfulfilthisobjectivethroughanumberofroutes:— Productionofrenewableelectricityfromtheirownfacilities.Thesecanbegrid-connectedandonsite
oroffsite,orentirelyoffthegrid.Thisrenewablegenerationwouldthenbeusedtooffsettotaldemand.
— Purchasedrenewableelectricitysourcedfromgeneratorsandsuppliersinthemarket.Thisincludesdirectpurchasesfromspecificgenerators(e.g.powerpurchaseagreements),whichcanbelocated
2http://re100.org/
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onsiteoroffsite.Italsoincludesretailpurchasesfromsuppliersandutilities,andthepurchaseofstand-alone(“unbundled”)REGOs3.
Thefirstofthesecaninvolvealltheactivitiesassociatedwithprojectdevelopmentincludingadetailedunderstandingoflocalplanningandpermittinglawsaswellasthetechnicalcompetencetomanagepotentiallycomplexprojects.Thesefirstoptionstend,therefore,toberestrictedtothemostsophisticatedenergyconsumers(althoughtherearesimpleself-generationoptionsavailableforallconsumerssuchastheinstallationofrooftopsolarpanels).Thesecondisamoreconventionalenergyprocurementactivityinwhichchoiceandcompetitionbetweenprovidersarethekeydriversofvaluetoenergyconsumers.
Ingeneral,consumerinterestsarebestservedbyreducingthecomplexityandcostofmeetingtheirenergyneeds.Asimplerprocesswillimproveaccessibilitytorenewableenergyforawiderrangeofconsumerswhilstreducingcostsisclearlyimportantforallconsumers,particularlyforbusinessesoperatinginhighlycompetitiveenvironments.
ImprovingambitionandbecomingaworldleaderinrenewableenergyThemostimportantissueforconsumerswishingtoprocure100%renewableelectricityisthatpolicyambitionforthegrowthofrenewablegenerationremainsstrongacrosstheEU.ThiswillensurethatEUmemberstateswillremainincentivizedtoencouragedevelopmentofrenewableenergyprojectsthroughasupportiveplanningandpermittingregimeandremunerationmechanismsthatarestableandpredictable.Itshouldalsoleadtoeffectiveprogramsfortheretirementoffossilfuelledgenerationassets.Thegreaterthevolumeofrenewableelectricitythatisavailableforsaleinmarketsacrossalltimescales,thegreatertheliquidityinrenewableelectricityproductsforconsumers.Thiswillreducecostsanddriveinnovationamongstintermediarieslookingtoimprovetheattractivenessoftheirproducts.Itshouldalsomakeiteasierforthoseconsumerswishingtodirectlydeveloptheirownrenewablegenerationtoestablishanacceptablebusinesscaseasgovernmentsseektoensurethathighleveltargetsareachieved.
TheEUhasagreedatargetofproducing27%ofenergyfromrenewablesourcesby2030,whichequatestoaround50%renewableshareofelectricitygeneration,andiscurrentlyconsideringhowtochangetheRenewableEnergyDirectivetoensurethisobjectiveisdelivered.Itisimportantforconsumerswishingtoprocurerenewableelectricitycost-effectivelythatthisinitiativeissuccessfuland,ideally,leadstomoreambitioustargetsforrenewableenergybeingestablishedinfuture.
Thenewrenewableenergytargetfor2030willbebindingatEUlevelonlyandfulfilledcollectivelythroughMemberStatecontributionstowardstargetachievement.ItisvitalforbusinesseswithoperationsacrosstheEUthattheabsenceofMemberStatespecifictargetsdoesnotleadtoadestabilizationintheoveralleffortstoachievethetargetsandcreatepocketsoflowrenewablepenetration(orcheap,butunsustainable,optionssuchasco-firinglargevolumesofbiomassincoal-firedpowerplants).Inthisregard,itisimportantthatthe2020targetsfortheshareofrenewableenergyassetoutinthecurrentRenewableEnergyDirectivemustcontinuetoapplyafter2020andshouldconstitutetheminimumbaselineforthecontributionofMemberStatestothe2030EUREStarget.Moreover,itisimportanttoclarifythatallMemberStatesneedtomakeacontributiontowardsachievementofthecollectiveEUtarget.TheRenewableEnergyDirectiveshould,therefore,setoutthemethodologythatwillapplyintheeventofpledgesnotaddinguptothetarget.Forexample,MemberStatescouldberequiredto
3RenewableElectricityGuaranteeofOrigin:AllEUmemberstatesareobligedbytheRenewableDirectivetohaveanauditableREGOsysteminplace.REGOshavenodirectvaluebutprovideauditableevidencethatenableconsumerstotracetheirelectricityconsumptiontorenewablegeneration.
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contributeeitherinkind(bydevelopingREScapacitythemselves)orfinanciallytofillaneventualgapbetweentheirpledgedcontributionandtheirexpectedfaircontributiontothecollectiveEUtarget.
AlongsidetherevisiontotheRenewableEnergyDirective,theEUisconsideringhowtodevelopelectricitymarketstoefficientlyaccommodateincreasingvolumesofrenewablegeneration.Renewableenergymustbegiventhehighestpriorityingridplanning.Thismeansthatmeasuressuchasprioritydispatch4forrenewablegeneratorsshouldbemaintained,or,alternatively,thatMemberStatesputinplaceothereffectiveprocessestoavoidunnecessarycurtailmentofrenewablegeneration.
PromotingthesinglemarketforenergyLargeconsumerswithbusinesspremisesacrosstheEUfaceapatchworkofdifferentregulationsrelatingtotheprocurementofrenewablegenerationthataddcomplexityandreducethesynergiesavailablefrompurchasingacrossEurope.Thoseconsumerswishingtodeveloptheirownrenewablegenerationprojectsmustunderstandaraftofdifferentplanningandpermittingprocesses,networkaccessarrangementsand,importantly,arangeofdifferentsupportmechanismsthatwillbecriticaltoindividualprojectbusinesscases.ThecurrentRenewableEnergyDirectiveleavesMemberStateswithwidediscretiononhowtosetupandoperatenationalrenewableenergyframeworksandtheupcomingrevisionisanopportunitytoputinplaceamoreharmonizedapproach.Thechangesshould,therefore,includea‘CommonRuleBook’fornationalrenewableenergyframeworks.Itshouldestablishbasicdesignprinciplesofnationalrenewableenergyframeworksandameansforensuringthefurthermarketintegrationofrenewablesaswellassettingoutaprocessandroadmapfortheprogressiveconvergenceofnationalrenewableenergyframeworksoverthe2020-2030decade.
TheissueofconsistencyacrosstheEUisequallyrelevantforconsumersbuyingpowerviapowerpurchaseagreementsorfromintermediaries.Individualcontractswillalwaysbemarket-specificandsignificanteffortcanbeinvolvedinfinalizingeachnewdeal.Thenewmarketdesignisanopportunitytoreducethiscomplexitybyestablishingtemplatesfortheprocurementofrenewableelectricitybycorporatebuyersthatcanthenbeusedatmultiplesmallandlargeconsumptionsitesspreadacrossoneormorejurisdictions.
Itisalsoimportanttorecognizethatdistributionnetworkcostsareanincreasinglyimportantcomponentofmanyrenewableenergyprojectsandyetthetermsforconnectingto,andusing,thedistributionsystemvariessignificantlyacrosstheEU.Themarketdesigninitiativeshouldmandateacommondistributionnetworkframeworkthatwillprovidemoreconsistencyforconsumerswishingtodeveloprenewableenergyprojects.
Ultimately,thebiggestvalueofthesingleenergymarketrestsintheabilitytotradeelectricityfreelyacrosstheEU.Thiswillensurethatelectricityisproducedwhereitischeapestandnotrestrictedtolocalmarkets.Thisisextremelyimportantforrenewablegenerationsincetheresourceavailabilityvariessignificantlyacrossthecontinent.Windturbineslocatedonthenorthwesterncoastscanproducemanytimestheoutputofthoselocatedinthecenterofthecontinentwhilstsimilardifferentialsexistforsolarproducedinthesouthcomparedtothenorth.
Consumersshouldbeabletoprocurerenewableelectricityfromthecheapestregionsandeasilyarrangethenecessarytransportationcontractstoensurethiselectricitycanbeconsumedwhereneeded.At
4 Prioritydispatchwasintroducedtooffsetthebiasesthatexistinamarketinitiallydesignedforfossil-fuelledgeneratorsandensuresthatoutputfromrenewablegenerationisthelasttobecurtailedassystemoperatorsseektomaintainthestabilityandsecurityofthepowersystem.Thisprovidesassurancestorenewabledevelopersthattheoutputfromtheirprojectwillbemaximized.
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present,thisisextremelycomplicatedandonlypracticableinregionswhereMemberStatessharethesamemarketarrangements(e.g.Nordpoolregion).Onepotentialwaytoencouragemoreinter-statetradingwouldbetoestablishlong-termtransmissionaccessregimesthatwouldenableconsumerstoaccesselectricitygeneratedelsewhereviacross-borderinterconnection.Financialtransmissionrights,whichwouldspecifythesource/generationzoneandsink/loadzoneoftheelectricitytrade,wouldpresentanappropriatesolution5.ThenewmarketdesignshouldincludeproposalsforfacilitatingthefreetradeinrenewableelectricityacrosstheEUtoenableconsumerstoaccessthecheapestavailablerenewableresources.
ConsumerfocusedmarketTheelectricitysystemwasdesignedwiththeobjectiveofensuringsufficientelectricitywouldbeproducedbylargepowerstationsconnectedtothetransmissionnetworktomeetthedemandfromconsumers.Whilstthisstillremainsimportant,ithascreatedasetofrulesandregulationsthatcanmakeitdifficultforconsumerstoproduceelectricitytomeettheirownneedsandsellsurplusestoothersatareasonablerate.Thisissueisnotonlyrelevantforlargeandsophisticatedbusinessconsumers,butincreasinglyimportantforthelargenumbersofsmallerconsumersseekingtogeneratetheirownrenewableelectricity.
Theregulatoryframeworkmustrecognizethischangingsituationandensureappropriaterightsandobligationsareinplace.TherevisedRenewableEnergyDirectiveshouldestablishbasicprinciplesofcustomerparticipationthatincludetheenforceablerighttoindividuallyorcollectivelyproduceandconsumetheirownelectricity,aswellastherightofaccesstothegridtosellsurpluselectricityunderfairconditions.
AGENTSFORCHANGE
Increasingpolicyambitionforrenewableenergydeploymentwillremainimportantoverthecomingdecadesandprogressivebusinesseshaveakeyroletoplayinencouragingandsupportingmovesbypolicymakersinthisdirection.However,itmaybepossibleforconsumerstoplayamoredirectroleindrivingforwardtheenergytransitionthroughtheirdemandforrenewableelectricityandtheassociatedproductsandservicesthatwillformpartofamodern,cleanandefficientenergysystem.Thiswouldrequirethatthedemandfromconsumersforrenewableelectricitybeginstodrivedeploymentatalevelthatwouldgobeyondthetargetsbeingsetbygovernments.
WhilstRE100membersareleadingthewayindemonstratingthebusinessimperativeandachievabilityofsourcingelectricityexclusivelyfromrenewables,nowisthetimetomakethisopportunityaccessibletoa
5Currently,inlinewiththecross-borderEuropeanmarketdesign(i.e.TargetModel),countriesthatexchangerenewableenergyarerequiredtospecifyindividualcross-borderinterconnectorsalonga“hypothetical”routeoftheelectricityflowbetweencountryofexportandcountryofimport.Then,theappropriatecapacityonalltheinterconnectorsspecifiedwouldneedtobereservedforthistradetobefirm,throughpurchasingPhysicalTransmissionRights(PTRs).Itiswellrecognizedthatthisapproachisinherentlyinefficientandwillcreatebarriersformarketintegration,particularityinthecontextofrenewableenergyexchange.AsarguedinarecentreportfortheEuropeanUnion(“PhysicalandFinancialCapacityRightsforCross-BorderTrade”,reportforEUCommission,Sept2011),FinancialTransmissionRights(FTRs)couldprovideasolutiontothisproblem,astheypresentanobligationbetweentradingpartieswhichwouldonlyspecifythesource/generationzoneandsink/loadzoneoftheelectricitytrade,butnotallmultipleinterconnectorsthatmightlinkthesezonestogether.OneofthekeyadvantagesofFTRsoverPTRsisthatcontractsforexchangeofpowerindifferentdirectionscanbenetted,sothattheabsolutevalueofthetotalvolumeofcontractsfromonecountrytotheothercangreatlyexceedtheactualcross-bordernetworkcapacity,considerablyenhancingcompetitionineachmarket.
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muchbroaderrangeofconsumers.Theeasiestwaytoencouragewideappealacrossallcategoriesofconsumerswouldbebyensuringthatmeetingelectricityneedsfromrenewablesourcesbecomesthecheapestandsimplestoption.Currently,itgenerallyrequiresmoreefforttoseek100%renewableelectricitysuppliesthantoprocureastandardproductderivedfromamixofrenewableandnon-renewablesources.Thissituationcouldbereversed.
Ratherthanrelyingonacertificationschemeforrenewableelectricity(REGOs),itwouldbepossibletocreateacertificationschemefornon-renewableelectricity.Thiswouldenablethesaleofrenewableelectricitytobecomethe‘default’optionforconsumers,withthosewishingtopurchasenon-renewableelectricityhavingtoactively‘opt-in’.Thiscouldcreateahugelysignificantcustomer-leddriveforthedecarbonizationoftheelectricitysystemsincethemarketfornon-renewableelectricitycoulddecreasesignificantly.EUpolicymakersshould,therefore,recognizethechangingenergymixontheelectricitysystemandconsiderensuringrenewablesbecomethedefaultsupplyoptionthroughimplementingacertificationschemefornon-renewableratherthanrenewableelectricity.
However,thetransformationoftheelectricitysystemwillneedtogobeyondsimplyincreasingtheproportionofrenewableelectricitysupplies.Thesystemwillneedtobecomefarmoreflexibletoensurealltherenewableelectricityisefficientlyutilized.Thisflexibilitycanarisefromanumberofsourcesincludingstoragetechnologies(e.g.batteries)andincreasingtheabilitytotransferpowerbetweenregions(includinginterconnectionsbetweencountries).However,perhapsthelargestpotentialnewsourceofflexibilitywillarisefromconsumersactivelyshiftingtheirelectricitydemandinresponsetoinstructionorshorttermprices(so-calleddemandsideresponse).
Astheabilitytomeetdemandfrom100%renewablegenerationbecomesacredibleaspirationforawiderangeofconsumers,thereistheopportunityforthemoreprogressiveandsophisticatedconsumerstohelpdrivethewiderelectricitysystemtransformationandencourageamuchmoreflexibleenergysystem.Currently,consumersattemptingtomeetdemandfrom100%renewablegenerationwillachievebalanceovertimescalesoftypicallyaroundayearsincethisfitswellwithannualcompanyreportingcycles.However,thisinevitablymeansthatformostofthetime,theconsumerwilleitherbe‘toppingup’electricitysupplyintheshortertermmarkets,usingamixofrenewableandnon-renewableelectricity,or‘spilling’excesspurchasesofrenewablegeneration.
Itispossibleforconsumerstotarget100%renewableelectricitysupplyovermuchshortertimescalesand,ultimately,ineveryindividualsettlementperiod.However,thisrequiresthatrobustsystemsfortheautomatedadjustmentofdemandarewidelyavailable,alongwithliquidshorttermmarketsinproducts(e.g.storage)thatwillallowsupplyanddemandtobebalanced.
Progressiveelectricityconsumershavetheopportunitytotakethenextstepandseek100%renewableelectricitysupplyateachmomentintime.Indoingso,theywouldbecomeagentsforchangeinhelpingtodriveforwardthedeploymentinsmartbuildingtechnologiesthatwillsignificantlyincreasetheflexibilityofdemand.However,itisimportantforpolicymakerstorecognizethatconsumerscanbeencouragedtotakethisnextstepbyusingthemarketdesigninitiativetopromoteamuchmoreflexiblepowersystembyencouragingavailabilityofservicessuchasdemandresponseandstorage.
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