prepared by jenny winkler...jenny winkler 2 1st training course: fundamentals of energy regulation...

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EU Policy on Renewables

Development

Prepared by

Jenny Winkler

2 1st Training Course: Fundamentals of Energy Regulation

May 23 – May 25, 2018 • Nicosia, Cyprus

Agenda

1. 2020 targets and policy

2. 2030 targets and policy



2020 targets and policy

Pictures; GuentherHH on Flickr and

Armin Kübelbeck, CC-BY-SA,

Wikimedia Commons



Climate and energy targets 2020

At least 20% reduction in greenhouse gas emissions compared to

1990

Energy savings of 20% or more

At least 20% of renewables in final energy consumption.



Interactions between targets

GHG emissions target (% reduction compared to

baseline year)

Energy efficiency target (% reduction compared to baseline FED

and TPED)

Reduced need for curbing emissions using other

technologies

Reduced requirements for absolute energy generation from

renewables

Instrument: ETS ETS certificate price

reduction if too high or not considered adequately

Uncertainty regarding industrial development if not clear

Lock-in effects in high carbon technologies

Renewable energy target (% of FED)



Instruments for reaching the 2020 targets

Effort sharing

EU-ETS

National binding RES targets

National RES support

EU efficiency policies

National efficiency policies



Effort sharing

.



EU-ETS

.

Design details

Sectors: iron and steel, minerals, energy, and pulp and paper

Not included: transport (air and land), non-industry sectors

Target: 20% reduction by 2020 (compared to 1990)

The National Allocation Plans (NAP) indicate how many emission allowances the

MS intend to issue

NAPs also show how distribution to the installations subject to emissions

trading

2005-2007: phase I / trial phase, free allocation of certificates

2008-2020: phase II and III, (partial) auctioning of certificates

Offsetting possible with JI and CDM (Kyoto protocol)

Problems

Over-allocation of certificates (in combination with economic crisis)

Windfall profits through uniform pricing

High price volatility

Low incentives to stimulate cost reductions on the long-term

6



National renewable energy targets

.

Flatrate appoach adjusted by GDP per

capita



Target achievement (expected 2011)

Source: EREC 2011



Renewable shares in EU countries

Source: EU Energy Union Indicators



Renewable support policies in EU countries

Source: EU Energy Union Indicators



Support schemes

Before RED I long discussion about harmonization of support schemes

FIT versus Quota

Technology-specific vs. technology neutral

Administrative vs. market-based

Agreement: too little evidence to agree on one scheme



Comparison of different support schemes

Analysis project „Beyond 2020“

Source: Steinhilber et al. 2013



New Guidelines on Environmental and

Energy State Aid for 2014–2020

DG Competition sets new rules for supporting renewables

Market-based support

Market–based determination of support levels (with exemptions for small plants)

Market participaton of renewables (with exemptions for small plants)

No incentive to generate at times of negative prices

Technology-neutral support (with exemptions)

Inclusion of plants from other countries in support schemes

Result: Trend towards auctions (will be explained in more detail in my

presentation about Germany)



2030 targets and policy

Pictures; GuentherHH on Flickr and

Armin Kübelbeck, CC-BY-SA,

Wikimedia Commons



Timing of trilogue

11/06 Energy Council

Trilogue

Trilogue

Council position

EC Council EP

RES Targets (Art 4)

Target: At least 27%; Linear trajectory

Target: at least 27%; Non-linear trajectory; reference point of at least 24% of total increase by 2023; 40% by 2025; 60% by 2027 (indicative trajectories, shall add up to the Union reference points in 2023, [ ] 2025 and 2027 [ ] )

Target: At least 35%; Progressive, close to linear trajectory: 20% for 2021-22 45% for 2023-25 70% for 2025-27

@ Fh-ISI | 04/04/2018

Governance - Targets

1st Training Course: Fundamentals of Energy Regulation


@ Fh-ISI | 04/04/2018

Governance - Trajectories

Non-linear reference points in council, but no significant “dent” (i.e. no risky/excessive delay of RES deployment; less delay than in 2020 minimum trajectory).

EP more ambitious than EC (but some flexibility) No “corridors”/mechanism for reaching higher Union shares?





Background and Motivation

Suggestions for 2030 targets

No nationally binding targets for renewable energies

Pledging approach: Evaluation with benchmarks

What do the 2030 targets mean for Germany and other MS? What

are the consequences?

EU Commission Concil of the EU European Parliament

2030 targets for renewable energies

27% 27% 35%

2030 targets for energy efficiency

30% 30% 35%

Estimation of national contributions to target achievement considering the

EP benchmark formula for different target combinations



Relation Targets Renewable Energy and

Efficiency

Basis: 30% RES-targets and 30% energy efficiency targets

Increasing the energy efficiency target leads to lower ambition levels regarding renewable energies (in absolute terms)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

RES-target without RERE-target without RES Combined targets

tota

l dem

and

RES-target

total demand total

demand

RE-saving RE-saving

total demand

RES-target



Methodology and Assumptions

2020-targest according to RED (2009/28/EC) of the Member States

will be achieved

Estimation based on Impact Assessment of the EU Commission (SWD

(2016) 410final): Reference and EUCO

Distribution to Member States based on EP-proposal for benchmarks

(RED II, Annex Ia)

Flat-rate contribution 30%

Economic potential

GDP per head : 30%

Geographic and natural restrictions

Potential-based : 30%

Contribution based on interconnector capacity: 10%

74

105

61

91

0

20

40

60

80

100

120

30% RES by 2030 33% RES by 2030

RE

S d

ep

loym

ent

[Mto

e]

30% Energy Efficiency 33% Energy Efficiency

For comparison: 2010-2020

Impact of the Energy Efficiency Target on Renewable Energy - EU

Higher energy efficiency target lower ambition level for renewable energies

Council proposal of RES 27% and EE 30% Significant decrease in the addition of renewable energies (40 Mtoe net addition)

To maintain the current rate of expansion Increase RES-target 30-33%

Development Renewable Energies

(absolute)


(net addition)

310 341

296 326

0

50

100

150

200

250

300

350

400

30% RES by 2030 33% RES by 2030

RE

S d

ep

loym

en

t [M

toe]


Status Quo (2015) 2020 RES target

Effort Sharing of the proposed Targets : Impact on Germany - Share of Renewables

30,0

%

27,4

%

33,0

%

30,2

%

16,7% 14,6%

20,0% 18,0%

27,1% 23,1%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

55%

60%

65%

70%

EU28 Germany

RE

S s

hare

in

gro

ss fin

al e

ne

rgy d

em

and

[%

]

30% RES by 2030 33% RES by 2030 Status Quo (2015)

2020 RES target 27% RES by 2030

27%-comparison corresponds to "least cost" development, not the BM formula

Compared with the EU, the share of renewables in DE is lower

Renewable target of 33% at EU level Benchmark renewable approx. 30% (according to EP proposal)

Lower ambition level new BM formula compared to 2020 logic

28

,6%

31,7

%

Germany –

2020-Logic

11

17

9

14

02468

1012141618

30% RES by 2030 33% RES by 2030

RE

S d

ep

loym

ent

[Mto

e]


For comparison: 2010-2020

Impact of the Energy Efficiency Target on Renewable Energy - Germany

Reduction of renewable development by 3.5%-3.9% with an increase in the target level energy efficiency from 30% to 33%

Effects on the rate of expansion of renewable energies in DE are more drastic than at EU level

Only a combination of 30% energy efficiency and 33% renewables target is at the current level of of capacity being added


(absolute)


(net addition)

51

56

49 54

0

10

20

30

40

50

60

30% RES by 2030 33% RES by 2030

RE

S d

ep

loym

en

t [M

toe]


Status Quo (2015) 2020 RES target



Conclusions on target levels and

distibution

EU level

Council proposal of RES 27% and RE 30% implies reduction in the

rate of expansion of renewable energies

At the country level, this can also mean an increase in the rate of

expansion

To maintain the current rate of expansion of renewable energies at

EU level, a target of at least 33% would be needed

Germany

Application calculation logic BM leads to lower absolute

contribution of renewable energy than 2020 logic

Increasing the target level above 27% is desirable in order to

maintain the absolute ambition level for renewable energy

@ Fh-ISI | 04/04/2018

Gap filler and gap avoider instruments



Gap filler:

If EU targets not reached by national contributions, gap filler instruments are required

example: EU-level tenders

open questions:

what kind of instrument?

targeted technologies and locations?

Financial distribution by member state/ burden sharing?

Gap avoider:

Measures to ensure adequate levels of ambition by MS

Measures to bring MS to fulfill their indicative targets

Key problem: How to make non-binding targets to a certain degree binding

EC Council EP

Article 9: EC recommendations

Commission may issue recommendations on the draft plans to Member States

Commission may issue recommendations within 4 months of the date of reception of the draft plan (recommendations and opinions shall have no binding force)

The Commission shall issue country-specific recommendations in order to… ensure collective achievement, improve policies and suggest adoption of additional policies

Member States shall take utmost account of any recommendations

Member States shall take [] due account of any recommendations

Member States shall take utmost account of any recommendations

@ Fh-ISI | 04/04/2018

Governance – avoiding the gap

Language on recommendations weakened in Council position, but strengthened in EP



EC Council EP

Regional cooperation (Art 11)

- MS shall cooperate to meet the targets, objectives and contributions of NECPs - Before submitting draft NECPs, MS shall [ ] identify opportunities for cooperation and consult neighbouring MS - COM shall facilitate coop.

- MS shall cooperate to meet the targets, objectives and contributions of NECPs - Before submitting draft NECPs, MS shall [ ] identify opportunities for cooperation and consult neighbouring MS - Where necessary, COM shall facilitate coop.

- Cooperation at macro-regional and regional level, utmost consideration all existing and potential forms of cooperation - Before submitting, draft NECP, identify opportunities & consult neighb. MS - COM shall identify opportunities for cooperation and may issue recommendations

@ Fh-ISI | 04/04/2018

Governance– avoiding the gap

Language on regional cooperation weakened but mostly confirmed in Council position. EP wants to strengthens role of COM and of macro-regions.



EC Council EP

Article 27: implementation gap / reference points (Art 25)

2023: If linear Union trajectory is not collectively met, Member States shall implement additional measures (H&C, T, financial plattform) EC to take into account early contributions

If reference points were not collectively met (2023, 2025, 2027), MS below national reference points shall ensure by 2026, 2028, 2030 that gap compared to their indicative Union trajectory is covered by implementing additional measures

If MS not making sufficient progress (not complying with its reference points in 2022, 2025 & 2027): shall cover gap by additional measures (promote RES, plattform) - EC to take into account early contributions - EC shall take additional measures at Union level to ensure Union binding traj.

@ Fh-ISI | 04/04/2018


Council: National contributions are more binding than in EC proposal (implementation not compared to benchmark but compared to national reference points = share of national contribution/pledge)

Three instead of one reference points. Potentially more pressure and immediate reactions in case of implementation gap than in 2020 framework.



EC Council EP

Article 13: Updated NECPs

By 1 January 2024, and every 10 years thereafter, Member States shall notify an update of the latest NECP (draft update 1 year before) Modification of targets requires increased ambition

Update by June 2024 (draft 1 year before) Modification of targets requires equal or increased ambition Nothing prevents MS from making changes and adaptations in national policies set out or referred to in their NECP at any time.

Article deleted (New NECP every 5 years instead of updates)

@ Fh-ISI | 04/04/2018


Positive (but also absolutely necessary): no decrease in ambition level. Investor security might require policy stability (and not just on ambition level regarding

headline targets); on the other hand, the value of NECPs increases if they are updated based on actual developments 1st Training Course: Fundamentals of Energy Regulation


EC Council EP

Article 27: ambition gap

- If contributions insufficient for EU target: measures at Union level - Take into consideration the level of ambition

- If contributions of MS insufficient for EU target, EC may issue non-quantitative recommendations (to MS whose contributions are insufficient) to increase their ambition. - EC to adopt implementing acts to establish methodology for assessment of ambition level (with MS) - EC shall propose [ ] measures and make use of relevant empowerments at Union level

- On the basis of the draft NECP, EC may request MS whose targets are deemed insufficient to increase their amibition - On the basis of NECP: If contributions insufficient for EU target: measures at Union level

@ Fh-ISI | 04/04/2018


Positive: EC recommendations and benchmarks included in Council and EP version; Non-quantitative recommendations on ambition level? EC and EP: Union measures already in case of insufficient ambition Council: Unclarity on EU measures if ambition level remains too low: What are

„empowerments at Union level“? When to be used?



EC Council EP

Art 27: benchmarks

No explicit benchmarks for ambition level; MS shall take into account circumstances, such as: - Equitable distribution - Economic potential - Geographical and natural

constraints - Power interconnections

Benchmarks for ambition level to be defined in implementing acts; Based on objective criteria = „any relevant circumstances“ (Art 5), such as: economic conditions and potential, GDP per capita, and potential for cost-effective deployment, early efforts

Benchmarks for ambition level Annex with benchmark formula: • Flat rate (30%) • GDP per capita (30%) • RES potential (30%) • Interconnectivity (10%)

@ Fh-ISI | 04/04/2018

Governance - – avoiding the gap:

Benchmarks

Council + EP: Improvement compared to EC proposal: benchmarks are in. Council: Potential risk: uncertainty how benchmarks will be defined in the end EP: Formula creates most certainty, but strong weight of potential (30%) likely to create

opposition by some MS



EC Council EP

Article 27: implementation gap / reference points (Art 25)

2023: If linear Union trajectory is not collectively met, Member States shall implement additional measures (H&C, T, financial plattform) EC to take into account early contributions

If reference points were not collectively met (2023, 2025, 2027), MS below national reference points shall ensure by 2026, 2028, 2030 that gap compared to their indicative Union trajectory is covered by implementing additional measures

If MS not making sufficient progress (not complying with its reference points in 2022, 2025 & 2027): shall cover gap by additional measures (promote RES, plattform) - EC to take into account early contributions - EC shall take additional measures at Union level to ensure Union binding traj.

@ Fh-ISI | 04/04/2018

Governance – filling the gap

Council: National contributions are more binding than in EC proposal (implementation not compared to benchmark but compared to national reference points = share of national contribution/pledge)

Three instead of one reference points. Potentially more pressure and immediate reactions in case of implementation gap than in 2020 framework.



EC / Council / EP

Additional issues

- Financing plattform further defined - Political Monitoring of governance system (EC presentations to council) - EC to be assisted by Energy Union and Climate Change Committees. - NECP templates largely remained the same

@ Fh-ISI | 04/04/2018

Governance – Additional Issues

Potential risk: MS completely free to reject RES installations on their ground (should

potentially have to provide reasons for rejection?) Unclear how committees are composed, how they work, and what their role will be. NECP structure relatively strong (compared to attempts to weaken them)



Article 4 Financial support for RES-E

• Principle of direct marketing, exception for small plants (2020: <250 kW, 2026: 150 kW)*

• Support “shall” be granted by sliding or fixed market premium, but specific conditions for small-scale installations, demo-projects

• Principle of market-based and technology-neutral support (competitive bidding)

• Exemptions due to limiting competition (grid/system development, long-term potential, energy mix diversification, distortions raw material markets, system integration costs)

• Regional diversification possible to ensure cost-efficient system integration

• No more requirement for assessing the effectiveness every 4 years (?)

@ Fh-ISI | 04/04/2018

RED II

Support Schemes – General

*Electricity regulation



European Parliament

• Technology-specific support allowed due to potential, system integration and grid stability

• Exemption for installation <500kW, wind 3MW, no tender for capacity > 1MW, 6 MW (wind)

• When using tenders MS shall use prequalification, stakeholder consultation, publish past realization rates to achieve high realization rates

• MS shall publish long-term schedule 5 years.

• Special support for small island regions

• requires analysis of tender by EC every 3 years

@ Fh-ISI | 04/04/2018

RED II

Support Schemes – General

*Electricity regulation



Article 5 Opening of support schemes for RES-E

• MS shall decide extent to which support schemes are opened

• MS “encouraged” to open at least 10% (2021-2025) and 15% (2026-2030). Deviation possible due to limited interconnectivity

• Proof of physical import possible (without changing cross-zonal schedules and capacity allocation)

• EC shall assess costs and benefits by 2025

Pro: Softer formulation, but link to interconnectivity, Con: Risk for new Aland-decision?

European Parliament

• Flexibility for MS: “This Directive aims at facilitating cross-border support of energy from renewable sources without affecting national support schemes in a disproportionate manner.”

• Reasons for not opening: insufficient interconnection, resources, negative impact on energy security

@ Fh-ISI | 04/04/2018

RED II

Opening And Stability



Article 6 Stability of financial support

• Adaptation of support level now possible, if embedded in original support scheme.

European Parliament

• “Support schemes should be predictable and stable and avoid frequent or retroactive changes.”

• Requires long-term planning an announcement, at least 9 months. Transitional period. Compensation if economics significantly worsened.

@ Fh-ISI | 04/04/2018

RED II

Opening And Stability



Article 7 Calculation methodology

• Gross final consumption includes RES self-consumption and consumption from energy communities

• The EC shall define (in Implementing Act) an interim methodology for calculating quantity of RES for cooling and district cooling by end of 2018

• (Delegating Act): further development of methodology by end of 2021

• Methodology shall include minimum seasonal performance factors for heat pumps operating in reverse mode

European Parliament

• suggests factor of 2 for RES in aviation, 1,2 for maritime sector, RES-E for road vehicles: 2.5

@ Fh-ISI | 04/04/2018

RED II

Calculation Methodology



Articles 8, 9, 10, 11, 12, 13

• Prolongation of cooperation mechanisms to 2030 and beyond

• Facilitation of statistical transfers: Establishment of European Union Renewable Development Platform (ERDP) for monitoring shortfalls or overachievment and prices (in Delegating Act)

European Parliament

• The EC shall assist MS (provide quantitative data on costs/benefits, encourage exchange of best practices, develop template for cooperation agreements)

@ Fh-ISI | 04/04/2018

Cooperation Mechanisms



Typically higher generation costs due to small plant size

potentially higher acceptance and additional financing sources for renewable energy

analysis for Germany shows very little potential for grid cost savings (highly depending on location)

@ Fh-ISI | 04/04/2018

Self-Consumption - Effects



@ Fh-ISI | 04/04/2018

Self-Consumption - Macroeconomic vs.

private optimum



Electricity retail price

Generation costs

Grid fees

Other fees/ta

xes

Generation costs

Costs for self consumers Costs of SC for society

Generation costs

Grid fees

Other fees/ta

xes

Article 21 Renewable self-consumers

• No disproportionate procedures and changes and “ensuring they contribute in an adequate and balanced way to cost sharing”

• considered self-consumers in relation to self-produced/consumed RES-E. Quantity threshold (<10MWh HH, 500MWh legal persons) has been removed

• Remuneration of feed-in should reflect market value (and support schemes)

European Parliament

• Renewable self-consumers are entitled

• to consume their self-generated renewable electricity, which remains within their premises, without liability for any charge, fee, or tax;

• to install/operate electricity storage systems combined with installations generating renewable electricity for self-consumption without liability for any charge, including taxation and double grid fees for stored electricity

• broader definition of joint self-consumption: residential area, industrial services, distribution system

• requires MS to assess barriers and potential for self-consumption

@ Fh-ISI | 04/04/2018

RED II

Self-Consumption



Aim: comparing different revenues / return on investment levels for different self-

consumption cases in different countries in case of “full exemption”

Assumptions:

• “full exemption” from levies/taxes/charges

• Retail prices constant over time, based on Eurostat statistics 2017

• Wholesale price: moderate development based on Primes assumptions (Reference Scenario 2016)

• No support for excess RES fed into the grid (only wholesale price as a revenue)

Aim and Assumptions

Different possible definitions and sizes of

SC

Single Family Home

Apartment block Small district Services Industry Residential Area

Plant size (kW) 5 10 30 100 750 10.000

Self-consumption-ratio 35 60% 60% 85% 85% 60%



10% 10%

7% 6% 6% 5%

4% 4% 3%

2% 2% 2% 1% 1%

0% 0% -1%

-2% -2% -2%

-2% -4%

-4%

0%

4%

8%

12%

16%

20%

PT ES IT CY GR DK DE BE MT IE FR AT RO SI LV BG UK HR NL SE HU PL SK LU LT CZ FI EE

Inte

rnal

rat

e o

f re

turn

[%]

Internal rate of return for PV Self-consumption 2018 Single Family Home (5 kW)

Single Family Home– Internal Rate of

Return 2018

Average rate of return for RES projects in Europe

based on Primes (discount rate 7,5-8,5%)



19% 19%

15% 14%

13% 13% 12%

12% 11%

9% 9% 8% 8% 8% 8% 8%

7% 6% 6% 6% 6% 6% 5% 5% 5% 5% 5% 4%

-4%

0%

4%

8%

12%

16%

20%

PT ES IT CY DK GR DE MT BE IE AT FR LV BG RO SI NL UK LT PL SE HR HU CZ SK LU FI EE

Inte

rnal

rat

e o

f re

turn

[%]

Internal rate of return for PV Self-consumption 2028 Single Family Home (5 kW)

Single Family Home– Internal Rate of

Return 2028



14% 14% 14% 13%

11%

9% 8%

6% 6% 6% 5% 5% 5% 5% 4% 4% 3% 3%

2% 1% 1% 1% 1% 0%

-0% -2%

-3% -3% -4%

0%

4%

8%

12%

16%

20%

24%

28%

IT MT CY PT ES GR DE LV IE FR UK SK BE BG RO HR AT LT SI DK PL NL HU EE LU CZ FI SE

Inte

rnal

rat

e o

f re

turn

[%]

Internal rate of return for PV Self-consumption 2018 Services (100 kW)

Services – Internal Rate of Return 2018



24% 23% 23%

22%

20%

17% 16%

14% 13% 12% 12% 12% 11% 11% 11% 10% 10% 9%

8% 7% 7% 7% 7% 7% 6%

4% 3% 3%

-4%

0%

4%

8%

12%

16%

20%

24%

28%

IT MT CY PT ES GR DE LV IE FR UK SK BG BE RO HR AT LT SI PL DK NL HU EE LU CZ FI SE

Inte

rnal

rat

e o

f re

turn

[%]

Internal rate of return for PV Self-consumption 2028 Services (100 kW)

Services – Internal Rate of Return 2028



Article 23 Mainstreaming renewable energy in the heating and cooling installations • MS shall endeavour increase in share of RES H&C (+1pp annually indicative) • Contribution from waste heat and cold can be considered • MS with share of >=50% do not need any increase • If additions below 1pp, reasoning of MS and explanation is required • Options

• Physical quota • Direct mitigation measures through installation of efficient H&C systems in

buildings/industry • Indirect mitigation proven by certificates (measure realised by another player)

• MS may use structures from Article 7 EED • List of planned measures and annual reporting required European Parliament • requires blaming of MS if MS do not achieve increase • “should go hand in hand with a deep renovation of buildings”

@ Fh-ISI | 04/04/2018

RED II

Obligation on Heating & Cooling

Article 25 Mainstreaming RES in the transport sector

• RES-T target 14% by 2030

• Limitation to food/feed-crop based biofuels: 7% with possibility for MS to lower limit. Overall target may be reduced accordingly, if 1st generation is lower than 7%

• Sub quota for advanced biofuels: 3%

• Exemptions rules for CY, MT: Take into account inherent limitations. No concrete formula or specification.

• Multiplier: RES-E for road vehicles: 5 RES-E for rail: 2

• The EC shall adopt methodology to assess GHG-savings for RES-based PtX-fuels (Dec 2021)

European Parliament

• highlights relevance of advanced biofuels for aviation

• requires increased e-mobility, advanced technologies in rail and reduce energy consumption in transport including increase in energy efficiency of cars

• suggest fuel efficiency standards

@ Fh-ISI | 04/04/2018

RED II

Transport

W

THANK YOU

FOR YOUR ATTENTION!



E-mail: [email protected]

Web: www.isi.fraunhofer.de

prepared by jenny winkler...jenny winkler 2 1st training course: fundamentals of energy regulation...

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