Structure of the presentation

Dr. Corinna Klessmann, Dr. Isabelle de Lovinfosse

19.09.2012

Converging support schemes in Europe?Best practice design criteria for effective and efficient future RES-E support

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Structure of the presentation

Lessons on RES-E support schemes in Europe

1. Status of RES-E support schemes in Europe

2. Progress of MS achieving the RES targets

3. Lessons learnt and best practices in designing RES-E support schemes

Routes towards convergence

4. Recapitulation of the European debate on convergence

5. Benefits and challenges of convergence

6. Options for convergence

7. Conclusions

21/04/23 Dr. Corinna Klessmann, Dr. Isabelle de Lovinfosse

Isabelle de Lovinfosse

Corinna Klessmann

Main sources:

• European projects: RE-Shaping (2009-2012), Financing RE in the European Energy Market (2010-2011),

Renewable energy progress and biofuels sustainability (2012), Beyond 2020 (ongoing)

• Projects for national governments: International Feed-in Cooperation (ongoing), Implementing

Cooperation Mechanisms (2009-2012), FIT tracker (2011)

• Dissertation Klessmann (2012)

© ECOFYS | | 21/04/23 Dr. Corinna Klessmann, Dr. Isabelle de Lovinfosse

Still diversity of support schemes in Europe but with some converging trends

Source: Ecofys based onRagwitz et al. (2012). RE-Shaping Ecofys et al. (2012). RE progress and biofuels sustainability.

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Still diversity of support schemes in Europe but with some converging trends

Diversity of support schemes in Europe is shown by different colours and patterns, but some converging trends have been observed:

• Use of combination of instruments instead of one size fits all (e.g. FIT for small scale, auctions for offshore wind) – many patterns instead of plain

• Diffusion of feed-in premiums across Europe as compromise between revenue security of investors and RES-E exposure to market signals

• Moratoriums and uncertainties on the future of support schemes because of public deficits (e.g. Spain, Portugal, Latvia, Bulgaria, Czech Republic)

• Joint support schemes (e.g. Sweden and Norway)


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Lessons from MS experience tell us how to design effective and efficient RES-E support schemes


Provide reliable framework: frequent and unexpected policy changes undermine investor confidence

• Policy changes transparent and predictable (e.g. automatic degression, clear formula for quota setting, pre-set revision agenda)

• No retroactive changes• Long term political commitment• Guarantee support level for long term • Consultation with stakeholders

Lessons learnt Best practice design criteria

Reflect and limit investment risks: risk-conscious (triple-A) policies

increase growth and reduce support costs by up to 50%

• Tailor support scheme to RE market deployment status and electricity market readiness

• No abrupt or retroactive policy changes• Avoid rigid budget or capacity caps• Simple, transparent permitting process • Priority grid access and dispatch• Quota: long term horizon and serious penalties• Government facilitates access to capital (e.g.

participation, financial guarantees, loans)

Adjust level of support to technology and market conditions

• Apply technology specific support levels• Calculate level of support based on LCOE, so

support neither too low nor too high• Planned and transparent adjustments based on

technology and market changes

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Supporting RES-E is and will remain challenging. How can convergence help?


Financial and economic crisis in Europe puts pressure on government budgets, consumers’ bills and access

to finance

•Reducing RES-E support costs by streamlining best-practice criteria • Joint European effort to attract more investments

Challenges Potential role of convergence

Impact of high RES-E deployment rates on the electricity system and markets

•Trans-European grid development• Integration of European electricity markets•Coordinated reforms of electricity market regulations

With RES-E becoming mainstream, growing opposition against RES-E (from

incumbent electricity actors and the public)

Coordinated EU-wide effort on transparent and fair communication on the short and long term benefits & costs of RES-E growth

© ECOFYS | |

Structure of the presentation

Lessons on RES-E support schemes in Europe

1. Status of RES-E support schemes in Europe

2. Progress of MS achieving the RES targets

3. Lessons learnt and best practices in designing RES-E support schemes

Routes towards convergence

4. Recapitulation of the European debate on convergence

5. Benefits and challenges of convergence

6. Options for convergence

7. Conclusions


Isabelle de Lovinfosse

Corinna Klessmann

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The focus of the European RE policy debate has moved from harmonisation to coordination and cooperation


COM (1998) 167

on harmonisation

requirements:

propose common

rules for RES-E

COM(2005) 627:

Too early to

harmonise;

optimisation and

coordination

Beyond

2020?

Proposal RES

directive

COM(2008) 19:

Harmonised GO

trade

COM(2012) 271:

Guidance on best

practice support

and on increased

cooperation

Aim of convergence: creating an internal market for electricity

1996 2003 2009 2014

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Converging national support schemes holds many benefits but also some risks and challenges


Potential benefits Potential challenges/risks

Support scheme design

Joint RES-E support methodology could lead to increased transparency and stability

RES-E investors could reduce their transaction costs and tap economies of scale; increased competition

Increased RE investments and reduced support costs per MWh

Reduced sovereignty of Member States needs to be accepted by national Parliaments

Support schemes could be less suited to overcome local market barriers

Windfall profits and increased support costs if cross-country support level is not well adjusted

RES allocatio

n

Tapping low-cost potentials

Greater flexibility and lower cost for reaching national RES targets

Increased efficiency of European RES target achievement

Decoupling of costs and benefits of RES-E; challenge of balancing costs and benefits between Member States

Negligence of domestic benefits could lead to loss of public acceptance and reduced willingness to pay for RES

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European cooperation can reduce the support costs for reaching European RE targets but uniform harmonisation would increase costs


Changes in support costs for reaching the 2020 target

(average yearly consumer expenditures for new RES installations)

Sources:Resch et al. (2009). futures-e.Ecofys et al. (2011). Financing RE in the European Energy Market.

€ b

n/y

ear

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Convergence of RES-E support needs to build on converging electricity markets


Electricity market framework

Support framework

Common (best) practice

Cooperation Coordination Harmonisation



Convergence of RES-E market conditions

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Current steps for converging support frameworks mainly focus on best practice exchange. Steps towards implementing joint principles/design elements.


Support framework



Member States

exchange (Concerted Action, IFIC,

etc.)

EC: Best practice guidance

Future: Minimum design standards

for RES-E support?

EC: Guidelines to

facilitate trade

Some MS discuss coop

mechs

Joint support scheme SE-NO; Italy...

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The integration of European electricity markets is ongoing but not yet completed. Market adjustments for integrating large shares of variable RES-E.


Transmission network

development

Electricity market framework



Cooperation of regulators

(ACER)

RES-E priority or guaranteed grid access &

priority dispatch

Future: Increase “readiness” for RES-E through alignment of electricity market

regulations (gate closure, balancing markets, etc.); incentives for flexibility options?

Multi-country market

coupling

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There are multiple support elements that benefit from joint principles and coordination


Alignment to institutional, regulatory and market framework

Level/limitation of investment risk (market revenue risk, policy risk, etc.)

Support level & underlying

methodology

Supportscheme

Common calculation

methodology for LCOE

& reference electricity

pricesCommon risk

mitigation &

allocation rules

(e.g. for policy

adjustments)

Joint ambitions

& growth

pathways

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Conclusions

Applying best practice RES-E support principles is key for further RES-E growth in Europe. Increased exchange, cooperation and EC guidance can help streamline best practice principles across Europe.

Convergence of RES-E support is only part of the solution and bears some risks. Uniform harmonisation of RES-E support is not the solution: it would lead to higher support costs and loss of public support for RES-E.


How can we create public acceptance for joint RES-E policy efforts and cost sharing in Europe?

Structure of the presentation

Documents

lovinfosse isabelle

rese support costs

rese support schemesroutes

converging support schemes

future of support schemes

rese exposure

europestatus of res

res targetslessons