Opinion of the Economic and Social Committee on the 'Commission working document 'Electricity from renewable energy sources and the internal electricity market''
Date: 1999-10-20
Institutions: European Economic and Social Committee
Subjects: electrical energy, electricity supply, energy industry, renewable energy, single market, technical standard

C 368/6

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Official Journal of the European Communities

20.12.1999

Opinion of the Economic and Social Committee on the ‘Commission working document
“Electricity from renewable energy sources and the internal electricity market”’

(1999/C 368/03)

On 16 April 1999 the Commission decided to consult the Economic and Social Committee, under
Article 262 of the Treaty establishing the European Community, on the above-mentioned document.

The Section for Transport, Energy, Infrastructure and the Information Society, which was responsible for
preparing the Committee’s work on the subject, adopted its opinion on 5 October 1999. The rapporteur
was Mr Morgan.

At its 367th plenary session on 20 and 21 October 1999 (meeting of 20 October) the Economic and
Social Committee adopted the following opinion by 107 votes to one with four abstentions.

1.

Introduction

1.1.
The Economic and Social Committee welcomes the
Commission’s Working Document as the first substantive
initiative following the publication of the White Paper ‘Energy
for the future: renewable sources of energy’ (1). (It is also glad
to see that the Commission Staff Working Paper ‘Energy for
the future: renewable sources of energy (Community Strategy
and Action Plan) — Campaign for Take-Off’, SEC(1999) 504,
has been published.)

1.2.
The thrust of the Working Document is towards
harmonisation for the internal electricity market (2). Concern
is expressed that the contemporaneous existence of different
support schemes appears likely to result in distortion of trade
and competition. The role of renewables in the EU will clearly
increase in the coming years, given the Kyoto commitments.
Thus, potential market distortions will accordingly increase.
Whilst the trade and competition distorting effects of different
renewable support schemes is rather limited at present, given
the limited EU market share of electricity from renewable
sources, this negative effect appears likely to significantly
increase in the coming years.

1.3.
It is the opinion of the ESC that this concern with
harmonisation is valid within the context of a liberalised
energy market. Progress can best be made towards the EU’s
goals if each technology is subject to a separate support
regime.

2. The Commission’s approach: fundamental options

The objectives of the Community and Member States,

2.1.
as stated in the document are listed below:

— The establishment of regulatory framework that is (i) ra-
tional and efficiency enhancing (and thus cost reducing
and innovation promoting), (ii) long term (i.e. not subject
to frequent regulatory change), and (iii) effective in produc-
ing significant growth in renewable sourced electricity.

— A gradual and progressive movement towards any such
regulatory framework to ensure that progress made to date
in increasing renewable levels is not jeopardised and those
key environmental objectives are met.

— A significant push, across the Community, by all Member
States to increase renewable penetration in all EU markets,
thus increasing economies of scale particularly in manufac-
turing costs, and thus driving down costs.

— A number of measures to facilitate access of RES-E to the
internal electricity market. Such measures, which should
be taken by all Member States, should, for example, aim at
ensuring that planning, administrative and grid connection
rules reduce to the minimum constraints in these areas on
the growth of renewable sourced electricity in the EU.

2.2.
In large measure the ESC agrees with these objectives.
It is essential to have a stable framework. The document
presents two options for the development of regulation:

2.2.1. O p t i o n 1 : G r a d u a l a c h i e v e m e n t o f a n
c o n t i n u e d

i n t e r n a l m a r k e t
a p p l i c a t i o n o f t h e E U T r e a t y r u l e s

t h r o u g h

(1) Energy for the future: renewable sources of energy. White Paper
for a Community strategy and action plan, COM(1997) 599 final;
ESC opinion, OJ C 214, 10.7.1998.

(2) Directive 96/92/EC concerning rules for the internal market in
electricity, OJ L 27, 30.1.1997; see ESC opinion, OJ C 73,
15.3.1993.

Under this option, each Member State would continue to freely
choose the support system that it views as most appropriate
in the light of its particular circumstances; subject, however, to

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the continued application of the EU Treaty rules, notably those
with respect to state aid. The arguments in favour of such an
option include the following:

— The physical conditions relevant to the development of
renewable generated electricity differ significantly across
the EU. It might be considered appropriate to limit the
pro-active development of a single market in this area to
ensure that each Member State takes the measures most
appropriate to its particular situation.

promote electricity generation from renewable energy sources
in the future. However these do not address the massive
legal, cultural and technological changes needed to bring
the programme to fruition. Ultimately the development of
renewables will depend on acceptance by society as a whole
— both the community and planners. In this respect, the
Member States and EU institutions could play an important
role in co-ordinating educational schemes, thus helping the
public to make an informed choice between environmental
impacts at the local level and at other levels e.g. the threat of
global warming.

— As mentioned above, one argument in favour of a fixed-
price feed-in tariff system, is its possible appropriateness
to ensure the rapid take-off of renewables generation from
very low levels, which is the existing situation for most EU
Member States.

So, while the Committee agrees with the goal of
3.4.
effective trade and competition,
in the framework of a
Community-wide electricity market, any proposals for har-
monisation should be dealt with on a technology-by-
technology basis.

2.2.2. O p t i o n 2 : P r o a c t i v e c r e a t i o n o f a s i n -
g l e m a r k e t t h r o u g h C o m m u n i t y a c t i o n

Under this approach one might envisage the adoption of a
basic Community framework, probably in the form of a
Directive. Member States would have to ensure that, after an
appropriate transitional period, their direct support schemes
for renewable generated electricity would comply with a
number of basic requirements, in such a manner that would
ensure that the different schemes were sufficiently compatible
with one another, permitting effective trade and, thus, compe-
tition.

The ESC inclines towards option 2.

2.3.
outlined in section 5.

Its opinion is

3. The ESC’s approach: technology focus

3.5.
In the first instance the development of the necessary
renewable generation capacity needs to be promoted in order
to achieve sustainability. In parallel, the regulation of each
technology should be harmonised so that the benefits of
internal market scale can be achieved.

3.6.
A further vital factor specific to each technology is
R&D. There is support available in the Fifth Framework
Programme (1) but this must be targeted, directed,
led and
disseminated in an effective way appropriate to each tech-
nology.

For maximum impact,

3.7.
the development of many
technologies needs to go hand-in-hand with related energy
saving schemes. Regulatory regimes need to take this consider-
ation into account.

3.8. The main technologies

An examination of the main technologies shows the different
and specific challenges that each has to face and also demon-
strates the need for some harmonisation of the way in which
these challenges are addressed.

3.1. We are profoundly influenced by the vast differences
between the various technologies. The ESC believes that there
is a case for a separate regulatory regime for each renewable
technology.

3.8.1. W i n d

3.2.
There are fundamental differences between Member
States in the scope and opportunity for exploiting the different
technologies. As a matter of priority, the Committee feels that
it is important for Member States to scope and scale the
potential they each have for each of these technologies.

Local planning permission is vital for the development of wind
farms. State, regional and local governments must streamline
the processes needed to allow the generation of electricity
from wind.
from
the environmental. Grid connection contracts need to be
harmonised as do the provisions related to supply interruption.

is also necessary to secure support

It

3.3.
The Working Document focuses on the various regu-
latory mechanisms which Member States can employ to

(1) ‘Fifth Framework Programme for RTD (1998-2002) — Specific

programmes’; ESC opinion, OJ C 407, 28.12.1998, p. 123.

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3.8.2. B i o m a s s

3.9.2. P r i c i n g

The need for Member States and the EU to adapt the CAP for
electrical generation from biomass has been well rehearsed. In
view of the timescales involved in the production of certain
crops, coherent contractual relationships need to be established
between farmers, generators and the electricity grids. As far as
forest products are concerned, the management and organis-
ation of the processes needs to be considered. Overall it would
be important to maintain the health and fertility of the land.

In order to stimulate the establishment of CHP
3.8.2.1.
(combined heat and power or co-generation) (1) at facilities
based on heat and power generation using renewable energy
sources, consideration needs to be given to facilitating planning
approvals for industrial, urban and suburban development.

3.8.3. S o l a r p o w e r

Each technology generates electricity (and/or heat) at different
costs and involves different considerations as far as subsidies
are concerned. This is particularly so since the rate at which
the price of RES electricity comes down will be different for
the different RE technologies.

3.9.3. S t a t e a i d s

The development of each technology has been heavily subsi-
dised so far. There will need to be a lot more public investment
and direction before RES electricity is fully competitive. In
order to encourage the development of the internal electricity
market it is likely that a co-ordinated state aids regime will be
needed for each technology.

Solar power is constantly evolving technically and its exploi-
tation is dependent on planning, building regulations and
linkages to energy efficiency programmes.

3.9.4. G r i d c o n n e c t i o n

3.8.4. S m a l l h y d r o

The Commission’s exclusion of hydro projects exceeding
10 MW may have the unwelcome effect of deterring new
hydro schemes over 10 MW. It seems arbitrary and is likely to
introduce unnecessary distortions
into the market. For
instance, developers could be encouraged to divide larger
projects into units of less than 10 MW in order to qualify for
support. Further hydro-electric power projects may be needed
if the EU’s target of a 12 per cent penetration of energy
generated from renewable sources is to be met. Larger
projects will certainly raise planning and environmental issues.
However, funding should not extend beyond recovery of extra
costs over conventional schemes.

The issues will differ by technology. The two principle issues
relate to the distances over which connection must be made
(wind is often remotely located) and the possibility that supply
(e.g. of wind) may be interrupted. The scale of input may be
hugely different e.g. as between hydroelectricity and small-scale
embedded solar energy. The ESC supports an open and
transparent methodology for connection to the network and
standard connection rules for renewables.

3.9.5. T i m e s c a l e s

Before a project comes to fruition and before an economic
return is achieved a variety of contract issues specific to each
technology can arise.

3.9. For each technology therefore a number of specific issues need

to be addressed

4. Future issues

3.9.1. P l a n n i n g p e r m i s s i o n

4.1. Pricing options

Each technology involves different concerns and issues. The
EU should encourage Member States to adopt clear and
authoritative frameworks with guidance for all
involved,
whether developers, planning authorities or inspectors. One
option could be to foster a national planning system which
acts in a sympathetic fashion to renewable energy by zoning
areas where renewable technologies would be appropriate and
grid access less costly.

(1) see also: A Community strategy to promote combined heat and
power (CHP) and to dismantle barriers to its development
(COM(97) 514 final); ESC opinion, OJ C 157, 25.5.1998.

4.1.1. D e f i n i t i o n s

The Commission’s Document seeks to define RES electricity
so that only those renewables producers which need support
actually receive it. The ESC is concerned to promote the
concept of renewables as part of a general drive towards
sustainability. Accordingly the definition of renewables should
include all sources of renewable heat and power, while any
financial support regime, as it applies to renewable electricity
only, should by design only give support where it is needed.
This is achieved when each technology has its own regime.

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4.1.2. S u b s i d i e s / f i x e d p r i c i n g

4.2.

Implementation criteria

The use of guaranteed price subsidies and purchase obligations
at fixed prices, in some countries, has delivered large numbers
of renewable projects and supported product suppliers, but at
a relatively high cost. In particular the aim of degressive costs
is not always promoted in an optimum way because of price
subsidies. The Commission has shown that this approach does
not inherently encourage efficiency and long-term sustaina-
bility. There is a tendency for a fall-off in project starts
following removal of subsidies.

4.1.3. G r e e n t a r i f f s

it avoids distortion through subsidies;

Offering green tariff options is compatible with a competitive
it increases
market;
customer awareness of their indirect environmental impacts;
competing tariffs ensure efficiency gains are made. However,
it may be difficult to secure consumer acceptance of green
tariffs.

4.1.4. R e n e w a b l e e n e r g y c e r t i f i c a t e s

If there are to be subsidies, or exemptions from any energy
taxes, some form of policing system, including certification,
will be essential. This will also allow Member States and the
EU to monitor more accurately the amount of electricity
produced from renewables, while at the same time putting in
place a mechanism that could in future lead to trading.

4.1.4.1.
A certification system linked to a renewable energy
quota would enhance international trade in renewables and
create a level playing field; it gives incentives for the building
of projects in the most advantageous locations and it allows
greater flexibility in meeting any targets. Such a system would
require some regulation and central registration; investment
risks for project developers may be higher.

4.1.5. B i d d i n g s c h e m e s e . g . t h e U K ‘ N o n F o s -

s i l F u e l O b l i g a t i o n ’ ( N F F O )

technologies,

for a variety of

These schemes encourage efficiency, exert downward pressure
on prices, and lead to market convergence. Banded bidding
(see 3.9.2,
allows support
above). Long-term (but defined) contracts allow developers to
negotiate loan rates with financial
institutions still as yet
unfamiliar with such new (and perceived as financially risky)
technologies. However, bid success does not guarantee projects
receive planning consent (see 3.9.1, above); and network/grid
decisions are complicated by this uncertainty (see 3.9.3,
above).

From the above analysis, the ESC proposes the following
criteria as a basis for any ultimate EU regime, to be phased in
over time:

4.2.1.

I n t e r n a l c o m p e t i t i o n

In order to achieve cost effectiveness, there should be some
form of internal competition among renewable producers.

4.2.2. C o s t c o m p e t i t i v e n e s s

Any support for a technology should reduce over time, to lead
to cost competitiveness for the technology. A bidding system
would do this inherently or appropriate rules could be used in
other systems.

4.2.2.1.
The cost of any subsidy for renewables should be
compared with the cost of support to other schemes for the
reduction of CO2 emissions. Clearly support for renewables
should not be allowed to get seriously out of line.

4.2.3. T i m e l i m i t s f o r p r o j e c t f u n d i n g

This contributes to continued improvement of technologies
and to the concentration of resources on promising tech-
nologies. Also on individual projects, funding should not
extend beyond recovery of extra costs over conventional plant.

4.2.4. F o c u s o n m o s t p r o m i s i n g t e c h n o l o g i e s

The scheme should focus on those renewable technologies
most likely to reach competitiveness with conventional sources
in the short or medium term. Longer-term options should be
addressed through Fifth Framework Programme research.

4.2.5. O p e n a c c e s s

To maximise penetration, no potential investors and/or oper-
ators should be excluded from support schemes. Commercial
and industrial energy users and, particularly, intensive energy
users, should be encouraged to invest in renewable energy
systems to meet their own power, heat, cooling and air
conditioning needs.

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4.2.6. M i n i m u m b u r e a u c r a c y

To avoid waste of available funding, support schemes should
be non-bureaucratic and transparent.

4.2.7. G r i d

c o n n e c t i o n a n d

r e i n f o r c e m e n t

i s s u e s

There is an obvious need for harmonised, open and transparent
methodology for connection to the network and standard
connection rules for renewables. As a general principle, the
rules for network access applying to renewables should be the
same as those applying to any other generator. Renewable
generators should not be exempted from paying for those
network services which they receive. For instance, connection
should not be subsidised either by other network users or by
the network businesses themselves. Instead, true costs should
be included in the total project costs to be supported by
subsidy. Network operators should be able to recover the
additional costs incurred e.g. administration costs, network
studies and reinforcement.

5. Conclusion

The Commission’s Working Document asks two ques-

5.1.
tions in its conclusions:

— First, is Community action in the form of a Directive or
other initiative necessary to meet the EU’s objectives in
this area?

— Second, if so, what approach would be appropriate?

The ESC’s response to the general question of the
5.2.
appropriate regime is framed in the context of the two options
described in section 2.

— As far as option 1 is concerned, the Committee would
favour a gradual achievement of an internal market.
However, this is unlikely to be achieved unless a market-
wide regime is developed for each technology.

— Accordingly a version of option 2 is needed. There is a

Brussels, 20 October 1999.

case for the proactive creation of a number of separate
technology support regimes. This would advance the
internal market for each technology as far as their relative
maturities had already been proven. (see section 4.2.4)

5.3. Whatever instrument is chosen by the Commission to
achieve the goals of option 2, this by itself will not be enough
to meet the EU’s objectives for 12 per cent penetration of
renewables by 2010. For this the actions detailed in 5.4, 5.5
and 5.6 are also needed.

5.4.
A fundamental assessment of how the 12 per cent
target by year 2010 is going to be met in terms of each
technology across the EU as a whole is still needed.

5.5.
The EU, Member States and supply industries need to
make a commitment to this target and to the scale of this
undertaking e.g.:

— Member States and the Commission need to address the

CAP issue;

— Member States need to put in place planning regulations
and processes appropriate to the scale of the technological
penetration which is desired;

— the EU and the supply industry need to direct Fifth
Framework Programme funding to development priorities,
identified by Member State and by technology commit-
ment;

— Member States with the Commission need to develop
contract and pricing frameworks to promote an internal
market in each technology;

— the EU and the supply industry need to establish technical
standards for each technology so that the internal market
can be developed;

— essential drivers of demand and acceptance of RES heat
and power will be Member State publicity and information
dissemination.

5.6.
In parallel with all of the above, the EU and Member
States need to reformulate building regulations to meet
energy efficiency targets and encourage CHP, solar power and
photovoltaic technologies.

The President

of the Economic and Social Committee

Beatrice RANGONI MACHIAVELLI