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WW200910, Brussels in brief

Concerns remain for renewables sector over ETS New Entrants’ Reserve

09.10.2009

The renewables sector still has a range of concerns about the European Commission’s New Entrants’ Reserve, or “NER300”. These revolve around the balance between renewables and carbon capture and storage, financing, and costs per MWh.

The NER300 is a system of 300 million free Emissions Trading System (ETS) allowances that will help finance demonstration projects of innovative renewable energy technology and carbon capture and storage (CCS).

In a recent position paper, the European Renewable Energy Council (EREC) discussed some of these issues and proposed solutions. EREC argues that a 50/50 split is needed in the allowances between renewable projects and CCS. Renewables projects should be prioritised as they completely avoid all types of emissions rather than merely reducing the damage carbon released by burning coal can cause. They can also be deployed immediately, unlike CCS projects – and rapid action is essential to keep temperature rises to 2° above pre-industrial levels, as recommended by the IPCC and the EU.

EREC argues for upfront financing of renewables projects, due to the large investment costs such projects face and to encourage investors.

The other main issue is linked to the selection process: the Commission wants to go for the project asking for the smallest amount of funding in each renewable category (wind currently appears in five categories). This could lead to the elimination of projects whose cost per MWh is considered too high. There is an inherent contradiction in asking for high innovation and then following a selection process that will penalise highly innovative proposals. The risk is that this will drive down the size of projects, and potentially push them away from greater economies of scale. EREC would prefer to see projects ranked by quality and feasibility as well as cost per MWh.

The NER300 funding will most likely be distributed through two calls for tender. At first, the EU will only allocate part of the allowances, leaving room for assessment before the second call is issued.

The revised ETS directive states that the 300 allowances will only be available until the end of 2015.

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