EN

Brussels, 24.4.2009

COM(2009) 192 final

COMMUNICATION FROM THE COMMISSION TO THE COUNCIL AND THE EUROPEAN PARLIAMENT

The Renewable Energy Progress Report:

Commission Report in accordance with Article 3 of Directive 2001/77/EC, Article 4(2) of Directive 2003/30/EC and on the implementation of the EU Biomass Action Plan, COM(2005)628

{SEC(2009) 503 final}

1. Introduction

In 1997 the Commission published a White Paper on renewable energy [1] which announced a target to double the European Union's renewable energy share to 12% by 2010. The creation of this renewable energy policy was founded on the need to address sustainability concerns surrounding climate change and air pollution, improve the security of Europe's energy supply and develop Europe's competitiveness and industrial and technological innovation. The White Paper also announced a renewable energy strategy and action plan, highlighting the need to develop all renewable energy resources, create stable policy frameworks and improve planning regimes and electricity grid access for renewable energy.

A key element of the action plan was the establishment of European legislation to provide a stable policy framework and clarify the expected development of renewable energy in each Member State. The two key pieces of legislation (Directives 2001/77/EC and 2003/30/EC) set indicative 2010 targets for all Member States and required actions to improve the growth, development and access of renewable energy. In addition, a Biomass Action Plan was adopted in 2005 [2] to focus attention on the specific need for Member States to develop Europe's biomass resources.

Regular assessments and reports have been prepared on the EU's progress towards its 2010 targets and on its efforts in general to develop renewable energy. The reports issued in 2007 as well as the Renewable Energy Roadmap [3], highlighted the slow progress Member States were making and the likelihood that the EU as a whole would fail to reach its 2010 target. The Roadmap explained possible reasons for this, which included the merely indicative nature of the national targets and the uncertain investment environment provided by the existing legal framework. The Commission therefore proposed a new, more rigorous framework to drive forward the development of renewable energy and more solid, legally binding targets for 2020. Following wide public consultation in 2007 and the endorsement of the European Council [4] and Parliament, [5] the Commission proposed new legislation covering all renewable energy and set new targets for 2020 to ensure a stable regulatory framework for the decade ahead. This new Renewable Energy Directive has now been agreed [6].

The purpose of this report is to provide information on progress since the 2007 reports, as required under the two current Directives (2001/77/EC and 2003/30/EC), focusing on data from 2004 to 2006 or 2007 [7]. The report also sets the scene for the future by describing the state of progress in developing renewable energy today and explaining how the new framework will drive forward the growth of renewable energy, including biomass, in the immediate years ahead.

2. Electricity from renewable energy sources

Article 3(4) of Directive 2001/77/EC requires the Commission to publish biannual reports on its assessment of Member States' progress towards their national indicative renewable energy targets. The last report [8] highlighted that whilst good progress had been made in recent years, the EU was expected to reach a renewable electricity share of 19% by 2010 rather than the 21% [9] target. It found that so far the bulk of growth had come from wind power in a limited number of Member States. Moreover it noted that it had been necessary to initiate infringement proceedings against some Member States.

Since that report, growth rates of green electricity have increased: Eurostat data shows a share of 15.7% [10] for the EU in 2006, up from 14.5% in 2004, however Commission analysis still suggests the 2010 21% target will not be reached without significant additional effort.

The progress made towards the 2010 target (columns and left hand axis) and the change in Member State's renewable electricity shares 2004-2006 (points, right hand axis).

(...PICT...)

Source: based on normalised Eurostat 2006 data and 2010 targets

From the above graph it is clear that Member States span the full breadth of performance: Hungary and Germany [11] have already reached their target, whereas several countries still have to make all their efforts in the next two years, highlighting the need to take quick and effective action to begin development. With six member States increasing their shares by over 2 percentage points (Germany, for instance, increasing from 10.6% to 12.6%), over the last two years the EU share of renewable electricity has increased by almost 1.5 percentage points (14.4% to 15.7%). However this disguises the poor recent efforts of some seven countries whose shares have stagnated or actually declined [12].

The growth of renewable electricity has been driven by a small number of Member States and the range of technologies used [13] has also been limited:

(...PICT...)

Source: "Promotion and growth of renewable energy sources and systems" Final Report, Ecofys et al. (hydropower excluded)

It is clear that the greatest growth has occurred in the use of solid biomass and in wind. When the national breakdown of these technologies is examined, it is again clear that a few Member States are responsible for the bulk of the EU's progress, with other Member States making limited or even no progress at all.

(...PICT...)

Source: "Promotion and growth of renewable energy sources and systems" Final Report, Ecofys et al.

2.1. Reasons for differing rates of progress

Earlier analysis of Member States' different support schemes(...)14 shows that stability is a critical feature of an effective system, in order to facilitate investment. Consequently, "stop-and-go" regimes that run out of budget, as well as policy and rule changes hamper the development of renewable electricity. Despite some improvements, such as the development of premium feed in tariffs and more detailed technology banding, it remains essential to improve support schemes, particularly for those Member States with slow rates of progress.

Several non-cost related barriers are also significant constraints on the growth of renewable electricity. It is for this reason that Directive 2001/77/EC requires actions to be taken to improve consumer information (the creation of guarantees of origin), reform administrative procedures and ensure better grid access for renewable electricity.

Examination of the guarantee of origin regime reveals that it has still not been implemented fully by all Member States, with problems of reliability, double counting and the risk of disclosure of the same energy to two different groups of consumers. This has undermined the consumer market for renewable electricity in general; a market which could have been a further source of revenues and hence investment.

Whilst Directive 2001/77/EC allows Member States to agree to transfers of guarantees of origin to count towards another Member State's target (enabling a member State to reach its target more cost effectively), no such agreements have been established and no such transfers have occurred.

The administrative procedures associated with planning and developing renewable energy capacity have been the subject of careful examination in previous Commission reports [14]. However little progress appears to have been made on any of the Commission's recommendations of administrative reforms. Procedures continue to be complicated, with multiple authorities requiring consultation when applying for construction, development or environmental permits. Surveys suggest that the time lags involved and the uncertainty of the process remain major bottlenecks.

The problems of gaining connection to the electricity grid often result from a lack of adequate rules on grid connection and from a failure to dedicate sufficient administrative resources to process applications. Technical problems are also disruptive, with limited capacity of the grid to incorporate more variable renewable electricity and a general lack of strategy to address the problem. There are also financial constraints, with different, and often opaque connection charging rules and risk of discrimination against smaller distributed power generators compared to large incumbent conventional energy producers.

The issues associated with grid access highlight the role that large power producers play in the less than perfectly competitive internal market. The inadequacies of the energy market highlighted recently in the Commission's third internal energy market package [15] have also contributed to the difficulties for producers of renewable electricity to gain access to the market and to compete fairly. This issue has also been addressed by the Commission and the timely adoption and implementation of the package will ensure significant steps are taken to level the energy market playing field.

2.2. Infringement procedures

The above reasons for the slow progress in developing renewable electricity are not new. Directive 2001/77/EC addresses them explicitly. However, despite the Directive and the monitoring and guidance of the European Commission, some Member States have failed to take adequate measures. Since 2004, the Commission has been obliged to start 61 legal proceedings against Member States for non-compliance with the Directive. Italy has had the most cases, with 13, followed by Spain with 6, Austria with 4 and the Czech Republic, France, Latvia and Poland with 3 each. Of these 61 cases, 16 have not yet been resolved. The European Commission will continue to monitor Member States' compliance with the Directive and will open infringement cases wherever necessary. However the poor progress and number of infringement proceedings also implies that the legal framework is not sufficiently strong. This is one reason for the new Directive on renewable energy.

3. Renewable energy in the transport sector

The Directive on renewable energy in transport (Directive 2003/30/EC) required Member States to set targets for the share of renewable energy replacing petrol and diesel in transport in 2005 and 2010, taking as their starting point reference values of 2% and 5.75% respectively. It is known as the "Biofuels Directive" since in practice, biofuels are expected to contribute all but a tiny proportion of the renewable energy used in this sector up to 2010.

The progress report of January 2007 [16] showed that in 2005, biofuels achieved a share of 1% in the EU, with only Germany and Sweden reaching the reference targets.

The progress made towards the national 2010 targets (columns and left hand axis) and the change in Member State's renewable transport fuel shares 2004-2006 (points, right hand axis).

(...PICT...)

Source: Member States 2006 and 2007 reports, and EurObserver Biofuels Barometer

Biofuels production progressed much faster in 2006 and 2007 than in earlier years. In 2007 the use of biofuels in road transport was 2.6% (8.1 Mtoe). Biofuels' share grew by 1.6 percentage points between 2005 and 2007, compared with 0.5 percentage points between 2003 and 2005. If growth continues at this rate, a share of 5% will be achieved in 2010.

In 2007 biodiesel accounted for 75% (6.1 Mtoe) of renewable fuels in transport, of which 26% was imported. Bioethanol constituted 15% (1.24 Mtoe), of which 31% was imported. The remaining 10% was pure vegetable oil consumed in Germany, Ireland and the Netherlands and biogas in Sweden. There was no reported consumption of other types of renewable energy in transport. The use of hydrogen from any source remains insignificant; little electricity from renewable energy sources is used in road transport.

Imported bioethanol has played a significant role on the European market for some time, reflecting lower production costs of tropical sugar cane ethanol notably in Brazil. Net bioethanol imports increased from 171 Ktoe in 2005 to 397 Ktoe in 2007. The EU trade balance of biodiesel changed from positive in 2005 (355 Ktoe exported) to negative in 2007 (1.8 Mtoe of biodiesel imported). A major cause of this change was cheaper soy oil methyl ester from the United States. There was reason to believe that this pricing reflects the fact that the biofuel benefited from subsidies in the United States and undercut the prices (and even the costs) of European production. On an official complaint from the European biodiesel industry the European Commission started a formal investigation in June 2008 and in March 2009 imposed provisional anti-dumping duties and countervailing duties.

3.1 Reasons for differing rates of progress

The more rapid development of biofuels since 2005 reflects the widespread development of support systems at Member State level. Tax relief and biofuel obligations remain the two most common instruments used by Member States to promote biofuels. In 2005-2006 all Member States, except Finland, used excise tax exemptions as the main support measure, while biofuel obligations were only used by 3 countries. Since 2007 more than half of Member States have adopted obligations to blend, in most cases combined with partial but increasing levels of taxation. Some countries use a quota mechanism and tender. This mechanism allows Governments to decide the amount of biofuels that has to be supplied each year, thus creating some regulation of the market.

The good progress resulting from tax exemptions and new measures such as biofuels obligations are still in evidence today. The Member States which saw above-average progress in biofuel use between 2005 and 2007 (see above graph) reflect this. It can also be seen from the graph that nine Member States are making little or no progress towards their national targets, raising concern about whether those targets will in fact be achieved.

3.2. Infringement procedures

Since 2005, the Commission has started 62 legal proceedings against Member States for non-compliance with the Directive, many of which were for failure to comply with reporting obligations or failure to set national objectives incompliance with the references values of the Directive. Of these cases Italy, Greece and Finland have had the most with 5 each, followed by France, Denmark and Ireland with 4 and Hungary, Austria, Luxembourg, Portugal and the Slovak Republic with 3. These cases have been successfully resolved. The European Commission will continue to monitor Member States' progress towards their targets.

3.3. Economic and environmental impacts

Under the provisions of Directive 2003/30/EC, this progress report should cover a number of economic and environmental aspects associated with the development of biofuels.

From an economic point of view, increased use of biofuels has contributed to security of supply by decreasing fossil fuel and diversifying fuel consumption in the EU. In 2007 the use of biofuels in the EU replaced 1593 million litres of gasoline and 7730 million litres of diesel. This is almost 3% of the total EU fuel consumption in road transport. With the 2010 (and 2020) targets this share will of course rise.

Biomass and biofuel sectors have also contributed to the EU economy by generating additional jobs. In 2005, non-grid biomass use accounted for 600,000 employees, biomass grid and biofuels contributed over 100,000 employees and biogas around 50,000. In addition, agriculture and forestry play an important role in supplying the fuel for biomass technologies. Agricultural activity related to the renewable energy sector generates gross value added of well over €9bn per year [17].

The net greenhouse gas savings achieved in the EU from biofuels placed on the market and consumed in 2006 and 2007 amounted to 9.7 and 14.0Mt CO2-eq [18] respectively. This estimate takes into account that most EU biofuel consumption has been fulfilled through the re-use of recently abandoned agricultural land or through slowing down the rate of land abandonment in the EU. This is not necessarily true of imported biofuel or biofuel made from imported raw materials, and the share of imported biofuel has been growing (albeit to a large extent as a result of U.S. subsidies for biodiesel exports). In this context, the Commission is currently analysing the issue of indirect land use change and possible policy responses.

Biofuel production also contributes to increased intensification of agricultural production in the EU, which can increase pressure on the use of land with high biodiversity value and soil carbon stock and use of fertiliser. However it can also reduce the rate of land abandonment, with positive effects on erosion and fire prevention, landscape and biodiversity maintenance. Under the new Renewable Energy Directive and Fuel Quality Directive, economic operators and Member States are required to report in more detail on land use change and other environmental impacts from increased production of biofuels. Further details of the analysis of economic and environmental effects can be found in the accompanying staff working document.

While this analysis confirms the positive impact of the policy to date, it is essential that planned further biofuels growth is accompanied by sustainability criteria. Such criteria are included in the new Renewable Energy Directive and Fuel Quality Directive, covering minimum requirements for greenhouse gas savings and requirements to avoid damaging land use change.

3.4. Further measures needed in the transport sector

In addition to biofuels policies, in the last two years the Community has taken a number of other initiatives to make the European transport sector greener. These include the CO2 from cars regulation [19] (for reductions in passenger car emissions) and the Directive on the Promotion of Clean and Energy Efficient Road Transport Vehicles [20] (creating "green" public procurement rules for vehicles). In 2008 the Commission adopted the Greening Transport strategy [21] that should encourage the use of cleaner vehicles and improved logistics.

Increasing the share of renewable energy use in transport and the energy efficiency of engine and vehicle technologies will remain key EU priorities, to reduce the high oil dependence in the transport sector. While progress is needed most rapidly in the road transport sector (due to its size and rapid growth rate) developments in other modes, notably aviation, are also important.

4. Renewable energy used in heating and cooling

Whilst not covered by European legislation, a complete assessment of the development of renewable energy in Europe requires that the heating and cooling sector is also evaluated. This sector is responsible for approximately 50% of all final energy consumption and 60% of all renewable final energy consumption. It is dominated by biomass, but also includes solar thermal and geothermal energy.

Despite the relatively high share of renewable energy used in the sector, it is far from achieving its potential. Indeed, heating and cooling has been neglected as a sector for renewable energy growth in most Member States, partly as a result of the absence of a clear legislative framework and incentives as well as the existence of non-market barriers.

The share of renewable energy in the heating sector in 2006 (columns and left hand axis) and the (stagnant) growth between 2004 and 2006 for all but three Member States (points, right hand axis).

(...PICT...)

Source: Eurostat

4.1. The role of the EU's bioenergy sector

The heating and cooling sector depends on different renewable energy sources, but is dominated by the use of biomass. In fact, biomass is the largest single renewable energy source in absolute terms and is expected to contribute to around two-thirds of the expected renewable energy share in 2020 (PRIMES [22] projections) in terms of primary energy consumption [23]. Moreover it is important to note that biomass can be used in production of heating, electricity as well as in the form of 'biofuels' i.e. the use of biomass in transport. This is why the EU produced the Biomass Action Plan (BAP) in 2005 which highlighted the need for coordination of policy, and why this report reviews progress in the biomass sector.

In 2006, 88 Mtoe of biomass was consumed for energy purposes (primary energy consumption) within the EU-27, representing an 8% increase from 2005. This achievement is still a long way from reaching the EU's biomass potential identified in the EU Biomass Action Plan, which estimated that biomass could contribute around 150 Mtoe of our energy needs by 2010.

The BAP highlighted 33 actions for increasing the use of biomass including cross-cutting measures affecting biomass supply, financing and research [24] and the production of national biomass action plans. However the few submitted so far [25], whilst acknowledging the importance of biomass, differ substantially, making comparisons of strategies difficult, and give limited consideration to the mobilisation of new biomass resources [26].

Problems confronting the growth of biomass include administrative and non market barriers, such as the need for clearer and harmonised definition of terms (notably for biomass and waste) and bottlenecks arising from long and legally complicated procedures for processing permits (see the accompanying Staff Working Document for more detail). Such concerns will be addressed by the new Directive on renewable energy. It requires Member States to report on their plans for biomass resource development (using harmonised data) and requires the Commission to report on requirements for a sustainability scheme for energy uses of biomass and, if appropriate, to propose such a scheme.

5. Conclusion

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 is for these reasons that the European Union developed a renewable energy policy, and adopted renewable energy legislation.

This report has reviewed the progress made in developing renewable energy. Its analysis bears out the need for a stronger legal framework of the kind that the Community has recently decided to put in place in the form of the Renewable Energy Directive.

Europe is still likely to fail to meet its 2010 renewable energy targets, despite the legislation, the recommendations, the exhortations and even legal proceedings against some Member States. That said, there has been limited recent progress. In the electricity sector new policy measures have resulted in substantial growth in some Member States, six of whom achieved an increase in their share of at least 2 percentage points since 2004. At the same time, seven Member States' renewable electricity shares have actually stagnated or shrunk since 2004. In the transport sector, quite a widespread change to the use of obligation measures rather than just taxation measures has contributed to an increase in the EU share of 1.6 percentage points since 2004, driven by growth in shares of over 2% in 7 Member States.

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. Europe is unlikely to reach either the target for the share of electricity from renewable energy sources or the target for the share of renewable energy in transport. The European Commission will continue to take legal action to ensure compliance with the existing Directives and so improve progress towards the 2010 targets.

SUMMARY OF MEMBER STATES' PROGRESS IN DEVELOPING RENEWABLE ENERGY

| Electricity | Biofuels |

| 2006 share (%) | 2010 target (%) | recent growth | progress made | 2007 share (%) | 2010 target (%) | recent growth | progress made |

Austria | 61.6 | 78.1 | | | | | | |

Belgium | 3.9 | 6 | | | 1.1 | 5.75 | | |

Bulgaria | 6.8 | 11 | | | [27] | 5.75 | | |

Cyprus | 0.0 | 6 | | | | | | |

Czech Rep. | 4.1 | 8 | | | | | | |

Denmark | 25.9 | 29 | | | 0.1 | 5.75 | | |

Estonia | 1.5 | 5.1 | | | | | | |

Finland | 26.5 | 31.5 | | | | | | |

France | 14.3 | 21 | | | | | | |

Germany | 12.6 | 12.5 | | | 7.4 | 5.75 | | |

Greece | 8.8 | 20.1 | | | | | | |

Hungary | 3.7 | 3.6 | | | 0.2 | 5.75 | | |

Ireland | 8.6 | 13.2 | | | 0.6 | 5.75 | | |

Italy | 18.3 | 22.5 | | | 0.5 | 5.75 | | |

Latvia | 40.4 | 49.3 | | | | | | |

Lithuania | 3.9 | 7 | | | | | | |

| | | | | 1.5 | 5.75 | | |

Malta | 0.0 | 5 | | | | | | |

Netherlands | 7.9 | 9 | | | 2.0 | 5.75 | | |

Poland | 3.1 | 7.5 | | | | | | |

Portugal | 31.2 | 39 | | | | | | |

Romania | 28.1 | 33 | | | | | | |

Slovakia | 16.0 | 31 | | | | | | |

Slovenia | 28.3 | 33.6 | | | | | | |

Spain | 19.1 | 29.4 | | | | | | |

Sweden | 52.3 | 60.0 | | | 4.0 | 5.75 | | |

UK | 4.6 | 10 | | | | | | |

Source: Eurostat 2006: share of energy from renewable sources as a percentage of final energy consumption with normalised hydro generation (including consumption of the energy branch for electricity and heat generation and distribution losses).

Key to "smiley" grades

progress made towards target | 0-33% | 34-66% | 67-100%; |

'04 - '06/'07 growth | ≤ 0 percentage point change | > 0 – 1 percentage point change | > 1 percentage point change |

| | | |

[28], will provide a welcome strengthening of the legal framework. The National Action Plans that Member States will have to prepare by 2010 will mean that all Member States, including those which so far have made very limited progress towards agreed EU objectives, will have to establish a clear plan as to how they intend to achieve their targets for renewable energy and for renewable energy in transport. They will have to explain how they intend to reform building codes and planning regimes to increase the use of renewable energy and to improve access conditions to the electricity grid. They will have to set out national sectoral targets, the measures and support schemes to be used to reach the targets, the specific measures for the promotion of the use of energy from biomass, the intended use of (statistical) transfers of renewable energy from other Member States and their assessment of the role different technologies will play in reaching the targets. And they will have to implement and monitor biofuel sustainability criteria to ensure biofuels clearly contribute to our environmental objectives.

With all of these elements, the Directive will provide a stable policy regime for the rapid development of renewable energy in the EU for the next twelve years. Europe is now in a far better and stronger position to facilitate the development of its renewable energy resources, and in so doing to directly address the key energy concerns of the 21st century.

[1] COM(1997)599 "Energy for the future: renewable sources of energy"

[2] COM(2005)628 "Biomass Action Plan"

[3] COM(2006)848 "Renewable Energy Roadmap

[4] Council of the European Union conclusions Doc. 7224/1/07 REV 1, 2 May 2007

[5] European Parliament report A6-0287/2007, 20/07/2007

[6] In parallel the Commission modified the Community Guidelines on state aid for environmental protection (OJ C 82, 1.4.2008 p1). Moreover the General Block Exemption Regulation (OJ L 214, 9.8.2008 p3) allows block exemptions under certain conditions. Both measures are relevant for state aid for renewable energy.

[7] Biofuels data exist for 2007, but consistent 2007 electricity data does not yet exist for all Member States. For this reason, the latest, 2006, Eurostat data are used for electricity.

[8] COM(2006)849 "Report on progress in renewable energy".

[9] This is a 21% target for electricity from renewable energy sources in 2010. It is not to be confused with the 2020 target established by the new Directive on renewable energy, which is for a 20% share of all energy (not just electricity). Commission estimates suggest that this overall 20% share in 2020 will require around a 33% share of renewable energy in the electricity sector.

[10] Based on normalised hydropower following a methodology of Eurostat (which may differ from the methods applied in some Member States).

[11] However Hungary's share of renewable electricity actually declined between 2005 and 2006.

[12] Although the case of Latvia is driven more by rapidly rising electricity demand than by the slight decline in electricity production from renewable energy sources.

[13] Hydropower has been almost constant and is excluded from the graph of the growth.

[14] SEC(2008)57 "The support of electricity from renewable energy sources".

[15] Including COM(2007)531 "A Proposal for a Regulation amending Regulation (EC) No 1228/2003 on conditions for access to the network for cross-border exchanges in electricity."

[16] COM (2006)845 Biofuels Progress Report.

[17] Employ RES project, Fraunhofer ISI et al., forthcoming (commissioned by European Commission).

[18] The figure is derived by the JEC method.

[19] On 17 December 2008 the negotiations to adopt a Regulation on CO2 from cars were successfully concluded at first reading.

[20] This was adopted by the European Council and the Parliament in October 2008.

[21] COM(2008)433. Communication on Greening Transport.

[22] SEC(2008)85 Annex to the Impact Assessment accompanying the 2008 energy and climate package.

[23] Primary energy consumption refers to the consumption of energy sources like biomass before conversion; final energy consumption refers to energy after conversion (electricity, heat, transport fuel).

[24] Explored further in the Staff Working Paper accompanying this report

[25] http://ec.europa.eu/energy/renewables/bioenergy/national_biomass_action_plans_en.htm

[26] Mobilisation of more biomass is important given the competition for uses of biomass, in particular wood, with wood processing industries.

[27] This figure is preliminary. As Bulgaria's growth rate has not been confirmed it has not been considered as one of the Member States with an above average growth rate for biofuels.

[28] New Directive http://www.europarl.europa.eu/sce/data/amend_motions_texts/doc/P6_AMA%282008%290369%28210-210%29_EN.doc

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