Renewable Power Sources and Incentives in Europe
The prediction of global warming led the European Commission to set, for the EU members, the goal of cutting greenhouse gas emissions 40 percent from 1990 levels by 2030, and defined mandatory levels for the percentage of wind, solar and other types of renewable power sources in the energy mix.
Under the European Union's Roadmap 2050 decarbonization goals, most policy scenarios would require a 30 percent share for renewable sources in Europe's energy mix by 2030, up from the soon-to-expire 2020 binding target of 20 percent.
Directive 2001/77/EC on Electricity Production from Renewable Energy Sources (RES Directive), which set the renewable energy sources (RES-E), targets triggered national support strategies. All EU member states introduced policies to support the market introduction of RES-E, while in parallel most of them started improving the corresponding administrative conditions related to grid connections, geographic distribution, etc.
A number of support instruments are currently in use in the EU countries such as feed-in tariffs (FITs), quota-based tradable green certificates, investment subsidies and tax cuts.
All of the above have been implemented on a national level in order to fulfill the national targets as set in the RES-E directives. The most common incentive schemes within the EU countries are:
Feed-in tariffs (FITs) are generation-based, price-driven incentives. The grid operator is obliged to buy the electricity produced by the renewable source either at a price determined by the RES-E national or regional system. Therefore, the federal or regional government regulates the tariff rate, which usually takes the form of a fixed amount per produced MWh or an additional premium on top of the electricity market price. In addition, the duration of the incentive scheme is guaranteed from the date the RES-E plant is connected to the grid, and it represents an important parameter when evaluating the actual financial incentive. FITs allow technology-specific promotion (usually for the construction of the RES-E plant, the parts used are manufactured in the EU) and acknowledge future cost reduction by applying dynamically decreasing tariffs. It should be noted that the reduced tariffs apply only to new plants and do not apply retroactively to plants built before the decrease took place. Thus the tariff in effect at the moment the RES-E plant was connected to the grid will apply for the duration of the investment.
Quota obligations based on Tradable Green Certificates (TGCs) are production-based, quantity-driven incentives. The government defines the percentage (quota) of the total electricity production to be produced by RES-E sources and obliges the conventional electricity producers to buy a predetermined number of green certificates per MWh produced, while RES-E producers get from the government a number of green certificates depending on the RES-E type (photovoltaic, wind, hydroelectric, biomass etc.). The green certificates are traded in a market regulated by the government or the energy authority and their price is set following demand and supply (forced by the quota set by the government). Therefore the financial support to the RES-E producers arises from the sale of the TGCs in addition to the revenues from the sale of the produced electricity in the power market.
Variations of the above systems have been applied in most of the EU countries with different FITs, different quotas for the TGCs and with different incentives – i.e. higher tariffs or more TGCs – for the various types of RES-E production.
It is worth mentioning that the countries of the south, with much higher solar irradiation and steady and ideal wind speed, implemented much higher FITs and or TGCs.
Given the fact that the cost of both FITs and TGCs is transferred to the electricity bill of the end consumer, gradually the electricity cost increased. Hence countries like Italy and Spain which maintained such high incentives were forced to reduce their incentives. Spain was obliged to reduce retroactively its incentives and in 2011 Italy reduced theirs dramatically. In 2012 Italy stopped them altogether for the photovoltaic plants.
Other countries followed: Bulgaria, Poland and lately Romania have reduced the number of TGCs. UK is skeptical as to whether it will abide with the proposed increase by the European Commission of the RES-E energy sources until 2030, claiming that the emissions reduction can be achieved by modernizing its conventional generation plants, by increasing their efficiency and capturing the produced CO2.
In view of the above, it becomes apparent that the incentive schemes need to be revised and a more pragmatic approach should be implemented. Nevertheless, governments should realize that renewable energy is clean and sustainable. The sun will continue shining and consequently the winds blowing well after all other known fuels are exhausted.
George Venetsanos, Vice President, Solutions Business Development at ContourGlobal, has worked in Business Development and Management Information Systems and SAP in a number of fields such as shipping, oil exploration, aerospace, and media and tourism. He has done extensive work on Energy Management and Renewable Energy, especially regarding the implementation of solar systems, solar plants and Quad Gen Cogeneration plants.