Renewables: EU State of Play

Member States should enhance cooperation in order to reach renewable energy targets, according to the Commission Communication on the progress made on renewable energy in the EU, published on the 31 January.
 
This Communication presents an overview of the renewable energy industry in Europe, its prospects to 2020 and addresses the challenges for the development of the sector. The Commission Communication is accompanied by three reports: 
• A Commission staff working document presenting the recent progress in developing renewable energy sources and technical evaluation of the use of biofuels and other renewable fuels in transport in accordance with the Renewable Electricity Directive and the Biofuels Directive
• A report on the operation of the mass balance verification method for the biofuels and bioliquids sustainability scheme in accordance with the Renewable Energy Directive
• A review of European and national financing of renewable energy in accordance with the Renewable Energy Directive
These documents form the Commission's response to its reporting requirements on renewable energy.

A 20% target by 2020

The 2009 Renewable Energy Directive provides legally binding targets and a regulatory framework for the development of the renewable energy in Europe. The previous EU legislation (Renewable Electricity Directive and the Biofuels Directive) set out only indicative targets for renewable energy for 2010 and only a few Member States managed to reach them. The new Directive covers energy consumption as a whole, including for heating and cooling, and lays down legally binding national targets such that the EU achieves a 20% share of renewable energy by 2020. It also contains the requirement for the Member States to prepare National Renewable Energy Action Plans, reform planning regimes, and develop electricity grids.

Further efforts are needed both for renewable energy infrastructure and for energy infrastructure overall.

• Higher Growth Rates

Renewable energy will grow at a faster pace in the years up to 2020 than in the past and almost half of the Member States are planning to exceed their own targets. If all these production forecasts are fulfilled, the overall share of renewable energy in the EU will exceed the 20% target in 2020. As regards energy efficiency, in 2020 EU energy consumption is projected to be 95% of the 2005 level. Combined Member States expect to more than double their total renewable energy consumption in 2020 (from 103 Mtoe in 2005 to 217 Mtoe).

• More Renewable Electricity

Renewable energy should constitute 37% of EU's electricity mix by 2020. The projected expansion of electricity from renewable sources highlights the need to accelerate the modernisation of the electricity grid. Electricity systems have to become more interconnected and flexible, and new infrastructure development will be necessary, including the deployment of smart grid technologies. Another challenge is to connect the offshore potentials developing the electricity network both off- and onshore.

• Heating and Cooling

As for the heating and cooling sector, biomass will remain the dominant technology, with 50% of the growth up to 2020 occurring in energy produced from this source.
In the heating sector, the predominance of Member States' investment grants focuses on household installations of small solar thermal or solar photovoltaic units. Member States could start to consider regulatory rather than financial solutions at the household level. Given its local nature, support for micro heating systems can exploit distributed forms of energy that develop a local community's biomass, solar or geothermal resources

• Transport

In order for Member States to meet their 10% renewable energy in transport target, first generation biofuels will be the predominant energy source over the period to 2020. In 2010 the Commission has provided guidelines for the application of biofuels sustainability criteria. The report annexed to the communication contains the verification method for compliance with the sustainability criteria. 
Achieving the 2020 targets in an economical and resource efficient manner needs more investment in research for advanced renewable energy technologies, and lowering the costs of offshore wind, photovoltaic power, electric cars and second generation biofuels.

Better financing of renewable energy

More than one trillion euros is needed between today and 2020 to achieve the EU energy policy goals. Priority should be given to renewable electricity investments – achieving levels higher than the 62% of all new power installations in 2009.  Today annual capital investment in renewable energy averages €35bn, but this would need to double to € 70bn.
 
More can be done to ensure that the money spent on renewable energy is used cost effectively. Effective selection and coordination of financing tools at national and EU level is essential. The choice of a financing instrument to support renewable energy development depends on the state of technology and project development. Different financial instruments are used in all Member States to develop renewable energy (grants, loans, guarantees, tenders, feed in tariffs, certificate regimes) but their management needs to be improved. Investors need greater coherence, clarity and certainty.

Member State support systems

The major part of financial support for renewable energy is delivered at national level and a range of different instruments are used by Member States to provide it. The use of multiple instruments can be appropriate, given the different status of all the different technologies. However, the choice of instruments should be clearly framed in order not to create confusion and negative consequences for investors.
Some Member States have developed private financing mechanisms that both attract capital and increase local acceptance of renewable energy projects.

Cooperation mechanisms

Most Member States continue to focus on national resources to achieve the 2020 targets on their own. According to the Commission’s estimations up to € 10 billion annually could be saved if Member States treated renewable energy as a commodity in a single European market rather than in national markets. A greater convergence of national support schemes to facilitate trade and move towards a more pan-European approach to development of renewable energy sources must be pursued.
 
This integrated approach can already begin with the development of the new cooperation mechanisms created by the Renewable Energy Directive by which Member States can join together to develop renewable energy sources: 
• "statistical transfers" whereby one Member State with a surplus of renewable energy can "sell" it statistically to another Member State, whose renewable energy sources may be more expensive
• "joint projects" whereby a new renewable energy project in one Member State can be co-financed by another Member State and the production shared statistically between the two
• "joint support schemes" whereby two or more Member States agree to harmonise all or part of their support system
 
The Commission will assess the effective functioning of the support schemes and cooperation mechanisms in the 2014 when Directive will be reviewed. The Commission will prepare guidelines for more harmonised reforms and facilitate the development of cooperation mechanisms.

Improvement of the existing framework

At EU level, the financial support given to renewables is relatively low. For the period 2007-2009, funds spent on renewable energy amounted to roughly €9.8bn. The instruments used for financing renewable energy by the Commission, jointly managed with Member States, and those managed with other institutions will all be reviewed in light of the forthcoming planning of the next European Financial Framework. The Commission also intends to come forward with a proposal to revise the Energy Taxation Directive. The Commission will also examine opportunities for using EU and national funds to attract private capital into energy projects of European interest on local, regional, national and European levels. A major new source of financial support for renewables at the EU level is the "NER 300 programme", established under the Emissions Trading Directive. EU funds should be directed to ensure cost effective renewable energy development and providing technical assistance while ensuring the most effective means of lowering the cost of capital investments in the sector, including in collaboration with the EIB and provision of technical assistance. 
At national level, any revision of financing instruments should avoid creating investor uncertainty and takes into account other Member States' policies to ensure an approach coherent with the creation of a genuine European market. The Commission will support national cooperation on financing renewables, based on the new framework for Member State cooperation contained in the Renewable Energy Directive and promote the integration of renewable energy into the European market. The Commission therefore invites Member States to
• implement the National Renewable Energy Action Plans
• streamline infrastructure planning regimes while respecting existing EU environmental legislation and strive to conform to best practice
• make faster progress in developing the electricity grid to balance higher shares of renewable energy
• develop cooperation mechanisms and start integrating renewable energy into the European market
• ensure that any reforms of existing national support schemes will guarantee the stability for investors, avoiding retroactive changes

Next steps

The Commission has presented the Communication on renewable energy to the European Parliament and the Council. On 4 February 2011 the Council will meet to discuss energy policy issues and is expected to underline the EU's commitment to different environment and energy targets through a number of operational conclusions on issues like renewables, energy efficiency and integrated and interconnected market.