Renewable electricity support schemes in Europe

Renewable electricity support schemes in Europe

Trends and perspectives

Dr. Corinna Klessmann

12/11/2014

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EU developments relevant for

renewable electricity (RES-E)

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EU developments relevant for RES-E

1. National RE support schemes will be continued (ECJ decision on Ålands

Vindkraft)

2. RES-E ambitions are likely to diverge towards 2030 but potentially more

(regional) cooperation between Member States

3. The new State Aid Guidelines by the European Commission will have a

major impact on national support scheme design

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1. National RE support schemes will be continued

(ECJ decision on Ålands Vindkraft)

> So far national support schemes only support installations on domestic

territory (except joint support scheme Sweden-Norway)

> European Court of Justice (ECJ) ruling on Ålands Vindkraft case (1st July

2014): no violation of free movement of goods

> Member States are allowed to limit their support schemes to their own

territories; ECJ stresses opportunity to cooperate under the current regime

of the RES Directive

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2. RES-E ambitions are likely to diverge towards 2030 but

potentially more (regional) cooperation between Member States

> European Council Conclusions 23.10.2014:

– EU-level binding target of at least 27% RES in final energy

– Member States contributions, but no nationally binding targets

– Member States are free to set their own higher national targets

– Governance structure will still be developed, but it should facilitate

coordination and regional cooperation

> Likely that RES-E ambitions will further diverge compared to 2020

framework

> Possibly more incentives or pressure for cooperation between Member

States

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© European Union, 2004-2014

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3. The new State Aid Guidelines by the European Commission

will have a major impact on national support scheme design

Requirements that will apply to all new support schemes (for state aid

clearance):

> RES-E generators sell their electricity directly in the market; support is paid

as a premium in addition to the market price

> RES-E generators are subject to standard balancing responsibilities

> Measures are put in place to ensure that generators have no incentive to

generate electricity under negative prices

> Aid is granted in a competitive bidding process (=auction)

> Exceptions for small installations and special conditions

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Support scheme design trends in the Member States

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Support scheme design trends in the Member States

1. Increased use of sliding feed-in premiums/contracts for difference,

abandoning feed-in tariff and quota schemes

2. Increased use of tenders/auctions

3. Limited opening of support schemes

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• FIT

• (sliding)FIP/CfD

• Quota

• Tenders/Auctions

• Other

Source: Ecofys

1. Increased use of sliding feed-in premiums/contracts for

difference, abandoning feed-in tariff and quota schemes

Countries that have recently

introduced sliding FIP/CfDs (or

plan to do so)

Countries that (plan to) phase

out their quota scheme

Countries that recently phased

out FITs

Note: The map only shows the main support instruments per country.

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The main support schemes expose RES-E producers to

different levels of risk

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Market price

RES-support

Green

certificate

revenues

FIT FIP

sliding/

Cfd

cap &

floor

fixed

Quota

Volume basedPrice based support

Source: Ecofys

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The main support schemes expose RES-E producers to

different levels of risk

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Market price

RES-support

Green

certificate

revenues

FIT FIP

sliding/

Cfd

cap &

floor

fixed

Quota

Electricity market

price risk

Green certificate

market risk

No market price risk

Limited market price risk

Full electricity market price risk

Certificate market price

risk

RES-E producer sells directly to the market

Volume based

Market integration

through TSO

Price based support

Source: Ecofys

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• FIT

• (sliding)FIP/CfD

• Quota

• Tenders/Auctions

• Other

Source: Ecofys

2. Increased use of tenders/auctions

Countries that have recently

introduced or are planning to

introduce tenders/auctions

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Some background on RES-E tenders/auctions

> A tender/auction is not a support scheme by itself; it can be combined with

all other support schemes, most commonly with FITs or FIPs

> In traditional FIT/FIP schemes, the support level is determined

administratively, usually based on estimated production cost (LCOE)

> In a tender/auction, the FIT/FIP is determined in a competitive procedure

(requirement for auction: demand for support greater than auction volume)

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Volume (e.g. in MW)

Pri

ce (

su

pp

ort

level)

Successful bids Unsuccessful bids

Tendered

volume

Clearing price

© Ecofys

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> Not all winning projects will be

implemented risk of low

effectiveness/deployment

> Higher risk for RES-E producers than

administrative FIT/FIP, favouring

bigger market actors

– Uncertainty in the preparation phase

– Sunk cost for unsuccessful bidders

– Penalty risk for successful bidders

> Risk of underbidding or winner‘s

curse leading to prices below costs

> Risk of strategic behaviour

(collusion) leading to high prices and

producer rents

> Control of maximum volume and

support cost

> Support level is determined by the

market, not the administration

> Competition between RES-E

producers may lower prices

(compared to administrative

FIT/FIPs)

> Potential to discover real

production cost of RES-E

Opportunities Challenges

Specific opportunities and challenges of tenders/auctions

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3. Limited opening of national support schemes

> Germany, Netherlands and the UK announced that they might partially open

their support scheme to foreign RES-E installations in the future

> Use of tenders/auctions allows for limited opening of support scheme

> Additional requirements for supporting RES-E from other countries

mentioned

– Cooperation mechanism with host country in place

– Connection to the electricity system of the importing country (UK) or

equal physical effect on power system (DE)

> The European Commission urges some Member States to partially open their

support scheme as compensation for “discriminating” renewables levy (e.g.

Germany, Denmark, Estonia)

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© thinkstockphotos/visdia

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Conclusion

> RES-E support schemes will continue to be organised nationally; no binding

national targets, but open questions regarding the governance of EU 2030

target

> The EU State Aid Guidelines will force Member States to align their national

support schemes: RES-E generators need to sell their electricity directly in

the market (phase-out of FIT) and default use of competitive bidding

(auctions)

> Already today one can observe a trend towards sliding feed-in premiums/

CfDs and auctions (independent of the guidelines)

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Questions?

Ecofys Germany GmbH

Am Karlsbad 11

10785 Berlin

Germany

Dr. Corinna Klessmann

T: +49 (0)30 297 735 79-0

E: [email protected]

I: www.ecofys.com

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Recent reports on RES-E policy in the EU

> Held et al. (2014). Design features of support schemes for renewable electricity. http://www.ecofys.com/en/publication/renewable-electricity-support-schemes-and-cooperation-mechanisms-in-/

> Klessmann et al. (2014). Cooperation between EU Member States under the RES Directive. http://www.ecofys.com/en/publication/renewable-electricity-support-schemes-and-cooperation-mechanisms-in-/

> Resch et al. (2014). Beyond2020 – Design and impact of a harmonised policy for renewable electricity in Europe. http://www.res-policy-beyond2020.eu/downloads.html

> Klessmann et al. (2013). Policy options for reducing the costs of reaching the European renewables target. Renewable Energy 57(2013), 390-430

> Ragwitz et al. (2012). RE-Shaping: Shaping an effective and

> efficient European renewable energy market. http://www.reshaping-res-policy.eu/

> Klessmann (2012). Increasing the effectiveness and efficiency of renewable energy support policies in the European Union. http://dspace.library.uu.nl/handle/1874/218063

> Rathmann et al. (2011). Towards triple-A policies: More renewable energy at lower cost. http://www.reshaping-res-policy.eu/downloads/Towards-triple-A-policies_RE-ShapingD16.pdf

> de Jager et al. (2011). Financing Renewable Energy in the European Energy Market. http://ec.europa.eu/energy/renewables/studies/doc/renewables/2011_financing_renewable.pdf

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