EWEA - The European Wind Energy Association

Wind power is a newcomer to a long established electricity market with rigid structures. The existing market structures do not recognise the environmental advantages of wind energy - see the section on environment. New entrants to the electricity market face substantial barriers in terms of capital costs. They have to compete with conventional plants that were built decades ago, and operated and maintained by government funds, through state-owned utilities in a monopoly market. In addition, incumbent electricity players tend to be powerful vertically-integrated companies. New technologies experience several obstacles when entering the market and often have to struggle to gain grid access and obtain transparent and fair connection cost.

The EU acknowledged these problems and set up a specific legal framework for renewable energies, including wind, which seeks to overcome such barriers. Currently, the main tool for the integration of electricity producing renewable energies, including wind, is the EC Directive 2001/77/EC of the European Parliament and of the Council of 27 September 2001 on the promotion of electricity produced from renewable energy sources in the internal electricity market. Its purpose is “to promote an increase in the contribution of renewable energy sources to electricity production in the internal market for electricity and to create a basis for a future Community framework thereof”. The 2001 Directive will be replaced by the recently agreed Renewable Energy Directive during 2010 and 2011 (varying on the article number). Details of the recently agreed Renewable Energy Directive can be found here.

The 2001 Directive contains an indicative target of 21% of final electricity demand in the EU to be covered by renewable energy sources by 2010, and regulates the electricity markets in which they operate. Some key aspects of the RES-E directive are the:

• streamlining of administrative procedures that precede the installation of a new plant;
• application of support schemes that compensate renewable electricity for its positive environmental impacts and its contribution to the security of supply;
• publication of guarantees of origin; and
• regulation of transparent mechanisms to bear the costs of technical adaptation.

The 2001 RES-E directive was until the Renewable Energy Directive was agreed at the end of 2008 by far the single most globally important case of legislation for wind energy. The EU Directive had no noticeable impact on wind energy development in the three pioneer countries (Germany, Spain and Denmark) as they introduced national legislation several years before the Directive was established. However, the EU legislation sparked the adaptation of legal frameworks in the remaining EU countries, and several countries outside Europe, for investments in wind power and other renewable electricity sources. European companies are global leaders in wind power and Europe is reaping commercial benefits from exports and environmental benefits, and at the same time creating employment and fostering innovation.

In April 2009 the European Commission reported that a stronger legal framework than the 2001 Directive was necessary and that "Today more than ever, it is clear that the development of Europe's renewable energy resources is a crucial element in the battle against climate change. It is part of the solution in the struggle to improve the security and reliability of our energy supply. And, in the current economic situation, the development of renewable energy technology industries will be a welcome source of wealth and job creation." It concluded that "Whilst some recent progress has been achieved, the rate of growth remains slow and the barriers to growth, across all sectors, remain high in most Member States."

The European Wind Energy Association believes that the 2001 RES-E directive constitutes the world’s most significant existing piece of legislation for renewable electricity, and is the key factor explaining the success of renewable energies, including wind, worldwide. Thanks to the RES-E directive, Europe has become the world leader in renewable energy technology. Europe has benefited commercially from exports, through reduced energy import dependence, a better environment and the creation of thousands of high quality jobs.

In addition, EWEA considers sector-specific targets for EU Member States (as they stand in the RES-E directive) a fundamental prerequisite for an effective strategy to boost the share of renewable energy. National Sector-specific targets are needed to account for the different nature of the various technologies, as well as their divergent requirements, in terms of infrastructure and monitoring.

Support mechanisms for RES electricity

The RES-E Directive gives Member States the possibility to choose from different support mechanisms for the promotion of RES, that produce electricity. There are two main tools: feed-in tariffs (either fixed price or premium over the “pool”) and green certificates. Other possibilities, such as public tendering, investment incentives or tax exemptions are also applied by a few countries or are combined with one of the two main tools.

In January 2008 the Commission published a report on national support mechanisms employed by Member States.

The report points out that 18 Member States use feedin and premium systems, seven Member States use quota obligation (commonly known as tradable green certificate) systems, and two Member States use fiscal incentives primarily. The report states that in most cases Member States apply a combination of support schemes to realise renewable energy investments and that ten Member States have adapted their support schemes since 2005 in order to adopt best practice or otherwise optimise the efficiency of the system.

The report explains that "comparing the two main types of support schemes, namely quota obligations and feedin tariffs, historic observations from the EU Member States suggest that feed in tariffs achieve greater renewable energy penetration [effectiveness], and do so at lower costs [efficiency] for consumers."

Two-thirds of Member States are considered to have a level of support sufficient to cover generation costs for onshore wind.

In the report the Commission considers it inappropriate to harmonise support schemes for 4 main reasons:

• There is insufficient information to currently choose between quantity based and price based mechanisms;
• It would create a lot of uncertainty and disruption in the market;
•  It would be very difficult to differentiate between different costs for different technologies in different countries;
• It would deprive Member States of the ability to promote regional development

A "bottom-up" approach, whereby Member States link their support mechanisms bilaterally, is highlighted as "a reduction in the number of different support schemes could generate substantial economies of scale, simplify the regulatory environment and increase transparency for investors, and hence allow a more cost-effective achievement of the renewable targets."

Even where a Member State employs a good support scheme, its effectiveness can be hindered by a number of non-cost barriers, such as administrative procedures. The report notes that little progress on reducing administrative barriers has been made.

The report notes that "adequate development of network infrastructure is a precondition for the development of renewables" and that "project developers still face different grid-related barriers. These are for a large part related to insufficient grid capacity available, nonobjective and nontransparent procedures for grid connection, high grid connection costs as well as long lead times to obtain authorisation for grid connections."

It concludes that “major barriers to the growth and integration of renewable electricity remain.” The report also explains that the “harmonisation of support schemes could be a long term goal on economic efficiency, single market and state aid grounds, but that harmonisation in the short term is not appropriate.” Instead Member States should “continue to reform, optimise and coordinate their support schemes. Through adopting best practice or joining national schemes together. The Commission believes further use of premiums rather than fixed price feed in tariffs is desirable as Member States reform their support schemes and that a high priority should be given to removing administrative barriers and improving grid access for renewable energy producers.”

More information on support mechanisms can be found here: http://www.optres.fhg.de/

Competition issues in the internal electricity market

The electricity liberalisation directive was passed in December 1996 and repealed by Directive 2003/54/EC in July 2003, aiming for the liberalisation of the business sector by 1 July, 2004 and of the consumer sector by 1 July 2007. Within vertically integrated companies, the directive establishes legal separation between network (transmission and distribution) and other activities (generation, trade and supply), but not full ownership unbundling. EWEA strongly believes that full ownership unbundling is a prerequisite for effective competition in the internal electricity market.

EWEA therefore welcomed the adoption in 2009 of the Third Liberalisation Package which will help open European power markets and allow a higher penetration of renewables, particularly wind power. One drawback comes in the form of possible opt-outs to full ownership unbundling. National Regulatory Authorities will have to facilitate the integration of renewables into the power grid, and Transmission System Operators will have to grant electricity from renewable sources priority dispatch, confirming the requirement contained in the 2009 Renewable Energy Directive. This will help adjust the balance of the power markets, currently heavily tilted towards conventional fuels.

The preferred approach of ‘full unbundling’, as proposed by the European Commission and supported by EWEA has been retained in the final document. ‘Full unbundling’ means large vertically-integrated energy firms which control both electricity production and distribution assets would be entirely broken up. However, two ‘opt-out’ clauses appear in the final text. These both allow European energy companies to retain their network assets, with either an Independent Systems Operator (ISO) overseeing network activities, or the day-to-day grid management being put in the hands of an Independent Transmission Operator (ITO).

If a Member State chooses one of these alternatives to unbundling, it will be to the detriment of its 2020 binding renewables target and of the overall development of the internal energy market, as neither alternative will allow fully effective power market competition. Moreover, the opt-outs would both put a huge bureaucratic burden on the Member State and grid operator in question.