Opinion of the Economic and Social Committee on the 'Proposal for a Directive of the European Parliament and of the Council on the promotion of electricity from renewable energy sources in the internal electricity market'
Date: 2000-09-20
Institutions: European Economic and Social Committee
Subjects: electrical energy, energy policy, energy production, environmental protection, renewable energy, single market

20.12.2000

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Official Journal of the European Communities

C 367/5

Opinion of the Economic and Social Committee on the ‘Proposal for a Directive of the European
Parliament and of the Council on the promotion of electricity from renewable energy sources in
the internal electricity market’

(2000/C 367/02)

On 26 June 2000 the Council decided to consult the Economic and Social Committee, under Article 262
of the Treaty establishing the European Community, on the above-mentioned proposal.

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 8 September 2000. The
rapporteur was Mrs Sirkeinen.

At its 375th plenary session2000 (meeting of 20 September) the Economic and Social Committee
adopted the following opinion with 105 votes to 1 and 4 abstentions.

1.

Introduction

1.1.
The Economic and Social Committee follows with
great concern the developments in the EU and Member States
towards meeting the obligations of the Kyoto Protocol, in
order to combat global climate change. As energy production
and use is a major source of carbon dioxide emissions in the
EU and increased use of renewable energy sources is one of
the possibilities to curb these emissions,
the Committee
appreciates that the Commission has finally, as one key action
in this area, presented its draft Directive concerning renewable
energy sources in the internal electricity market.

1.2.
The White Paper ‘Energy for the future: renewable
sources of energy’ (1) set an indicative objective of doubling the
share of renewable energy from 6 % to 12 % of the gross
inland energy consumption by 2010. This share was further
translated into a specific share for the consumption of
electricity from renewable energy sources, RES-E, now updated
to 22,1 %. The White Paper also established a comprehensive
Action Plan, including as one of many measures a Directive on
RES-E in the internal electricity market. In its Opinion the
Committee supported in general the thrust and the goals of
the White Paper, even if it found the objective of 12 % very
ambitious, and underlined the need for substantial measures
in order to meet the goal.

1.3.
The European Council at Lisbon in March 2000
decided to speed up the development of the internal market
for electricity, established by the Directive of 1996. A well

functioning internal market partly supports the goal of increas-
ing RES-E while enhancing efficient use of resources (2),
economies of scale and better ground for R&D and innovation.
The internal electricity market can work well only if all actors
have a level playing field in different Member States,
i.e.
competition and intra-EU-trade must not be distorted by
national actions like restrictions, support schemes, etc.

1.4.
Several Member States have established systems to
increase the share of RES-E in their national electricity
consumption. Public financial support in different forms is
often substantial. This is justified by the need to compensate
for the public support given to traditional energy sources, in
some cases directly as subsidy and in any case by not
internalising all external costs in the prices.

1.5.
The problem to be solved in a balanced way is in brief
the following. How to speed up development and market share
of RES-E and at the same time ensure the proper functioning
of the internal electricity market and not unduly increase the
cost burden on state and consumers.

2.

The Commission proposal

2.1.
The basic aim of the proposed Directive is to create a
framework which will facilitate the medium-term significant
increase in renewable generated electricity (‘RES-E’) within the
EU. The promotion of renewable sources of energy is a high
Community priority, for reasons of security and diversification
of energy supply, for reasons of environmental protection,
economic and social cohesion.

(1) Communication from the Commission: Energy for the future:
Renewable Energy Sources-White Paper for a Community Strategy
and Action Plan. COM (97) 599 final, 26.11.1997. ESC opinion
— OJ C 214, 10.7.1998, p. 56.

(2) COM(1998) 246 final. Opinion of the Economic and Social
Committee on the ‘Communication from the Commission: Energy
Efficiency in the European Community — Towards a strategy for
the rational use of energy’. OJ C 407, 28.12.1998.

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2.2.
In order to achieve the Directive’s objectives, Member
States will therefore have to set and meet national targets for
the domestic future consumption of RES-E which are consist-
ent with the White Paper on renewables and national commit-
ments to reduce greenhouse gas emissions in the light of
the Kyoto obligations. The Commission presents indicative
national targets in Annex I of the Draft Directive.

2.3.
The Directive puts an obligation on the Commission
to monitor the application of support schemes in favour of
generators of electricity from renewable as well as conventional
energy sources in Member States and, no later than 5 years
after the entry into force of this Directive, to present a report
on the experience gained with the application and the co-
existence of different support schemes in Member States.

2.4.
Besides, the proposed Directive foresees a number of
accompanying measures intended to create a level playing field
and facilitate the penetration of RES-E in the internal electricity
market, notably regarding administrative procedures and grid
system issues.

2.5.
The Directive proposes that all Member States take the
necessary measures to ensure that the consumption of RES-E
develops in line with the above energy and environmental
objectives. Member States will therefore be obliged:

— to set and meet on a yearly basis national targets for
domestic future consumption of RES-E in terms of kWh
consumed or as a percentage of electricity consumption
for the next 10 years. These targets shall be compatible
with the objectives outlined in the White Paper on RES;

— to publish, on an annual basis, their domestic objectives
and the measures taken and to be taken at national level
in order to meet these objectives.

2.6.
Therefore, the Directive contains a provision whereby
Member States shall take the necessary measures to ensure
that transmission system operators and distribution system
operators in their territory grant priority access to the trans-
mission and distribution of electricity from renewable energy
sources.

3.2.
RES has a significant role to play in combating climate
change. This role is, however, only partial and rather small in
the overall challenge of achieving the goals set at Kyoto. RES
is a high Community priority also for reasons of security and
diversification of energy supply as well as economic and social
cohesion. Furthermore, RES have their applications in heat
generation and CHP, which may be economically more
efficient and viable than electricity generation under some
circumstances. To set a realistic framework for these proposed
actions the Commission should develop an overall, very long
term energy vision.

3.3.
It should be borne in mind that the proposed Directive
under consideration constitutes only one part of the EU actions
towards enhancing RES, that of the relation between RES-E
and the internal electricity market. There are numerous other
actions ongoing or under preparation as listed in the White
Paper.

3.4.
The Commission should consider the fact that sensitis-
ing consumers (industry, businesses and citizens) to the use of
alternative sources of energy is also a means to promote
renewable electricity. A natural demand for renewable elec-
tricity should even be a primary objective, constituting a
healthy market situation.

4. Objectives on the consumption of electricity from

renewable energy sources

4.1.
The Committee again emphasises the need for strong
action in order to make optimal use of the potential of RES-E.
Member States have, however, at present different shares of
RES in their energy mix and the use of each form of RES varies
considerably due to differences in geography, climate and the
economy. The same variable picture is true for the potential to
increase the use of RES.

3. General comments

The legal base of the draft Directive is Article 95 of the
3.1.
EC Treaty, dealing with the internal market. The Committee
agrees with this as the objective of this Directive is to ensure
possibilities of
increasing the share of RES-E in a well
functioning internal electricity market. However, the Com-
mittee considers that the Article 95 is not enough to impose
binding targets on Member States.

Each Member State has committed itself to national
4.2.
targets within the EU burden sharing concerning the Kyoto
Protocol. Governments are to plan and implement
their
individual programmes in order to meet their Kyoto targets.
The role of different sectors of the economy, different measures
within each sector and instruments used will vary between
States. Binding sectoral targets at EU level as well as their
transposition into national targets are difficult to incorporate
in this approach. One could even argue that they are in clear
conflict with subsidiarity vis-à-vis meeting the targets of the
Kyoto protocol burden sharing as well as the Member States
right to decide upon its own energy mix.

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4.3.
Situations may arise where a Member State attains its
Kyoto targets, but does not meet the RES-E levels imposed in
In this light, the Committee feels that the
the Directive.
Commission should spell out more clearly how the wider
targets of the Kyoto protocol on the one hand and the sector-
specific RES-E targets on the other hand interact with each
other. Two parallel sets of targets may reduce the clarity of the
objectives that will have to be met by Member States.

5.2.
In enhancing the use of RES-E, account must also be
taken of the limits to the potential use of many forms of RES-
E. Biomass has its limitations due to land use and alternative
end use. Hydropower is dependent on rainfall. Wind and solar
energy have to be balanced by other generation, suitable for
regulation. In particular, in the case of biomass serious natural
and economic equilibria must not be disrupted artificially.

The Commission refers to the use of highly sophisti-
4.4.
cated modelling as a base for setting the indicative national
targets for each Member State. However, it remains unclear
which country-specific criteria have been used, not least in the
light of close study of the national figures. Consequently it is
difficult to discuss the ‘fairness’ of this burden sharing as such.

4.5.
The Commission does not directly propose binding
national targets for RES-E, but in effect the proposed approach
seems to lead to that. The Committee sees a need to re-evaluate
the proposal on this point. Also the legal character of an
‘indicative target’ is unclear and should be clarified, including
the question of possible sanctions in cases of non-compliance.

4.6.
to put
The Committee agrees with the proposal
obligations on Member States to publish objectives and
measures as well as to report on progress and on the
Commission to make an annual assessment report. However,
in the Committee’s view the national reports should be based
on their Kyoto obligations and measures to meet them as a
whole, not cover RES-E in isolation. The Commissions’
assessment should have the same approach — is the Member
State acting towards meeting its overall obligation, and is the
role of RES-E viably dealt with in that context.

5.

Support mechanisms

RES can and should contribute to sustainable develop-
5.1.
ment. All energy production and use has, however, impacts
on the environment. Different types of RES have substantially
different kinds and levels of environmental impacts. In order
to achieve the best effects for sustainability it is, therefore,
necessary to establish a specific environmental or ecobalance
for each RES technology. This environmental evaluation
should also take into account especially indirect impacts on
climate change. On the basis of these balances priority support
can then be given to RES technologies with a particularly
positive ecobalance and a corresponding potential to replace
fossil energy.

The argument that all external costs must be internali-
5.3.
sed in energy prices and thus level out the playing field for
RES, is important and pertinent. The problem is, however, that
so far there is no scientifically founded and generally accepted
method to do this. Efforts in this area are vital and must
continue. Meanwhile, and probably for a long time, support to
renewable energy sources is needed. This should be generally
acceptable as long as the absolute amount of such kinds of
support is not disproportionate to the scale of overall cost of
energy.

5.4.
The ESC took in its Opinion on the Commission
Working Document the view that a proactive creation of a
single market through Community action would be needed.
This entails that the direct support schemes comply with a
number of basic requirements in such a way as to ensure the
different schemes are sufficiently compatible with one another,
permitting effective trade and, thus, competition. To postpone
the definition of a harmonised framework for support to RES-
E until 2005 as mooted by the Commission is accordingly a
matter of some concern to the Committee.

5.5. Without incentives, the RES share may remain static
or even decline. Member States already have various schemes
to enhance RES-E but to act in line with the targets in the
White Paper and the draft Directive they have to strengthen
their efforts considerably. When by 2005 the share of RES-E is
due to rise considerably, there is a clear risk of a distorting
impact on the market.

Investments in the power field are made for decades.
5.5.1.
It is therefore essential to give actors in the electricity market
certainty on operating conditions for at least the medium
term.

5.5.2.
Also, after establishing and operating their schemes
for years, Members States will certainly be reluctant to change.
In particular, when changing a support and thus operating
framework, the problem of stranded investments usually rises.

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5.5.3.
The ESC naturally supports the Commission when it
points out that State aid rules apply in this area also. But, as
the Commission itself notes, even under these rules national
systems can offer different conditions. This could lead distor-
tion of the market when RES producers will try to benefit from
the national system offering the best conditions and thus
possibly to aid competition.

5.9.
To the Committee’s knowledge new Community guide-
lines on State aid for environmental protection are presently
under preparation in the Commission, but there has been no
transparency regarding either the preparation process or the
contents. It is of crucial importance that these guidelines are
drafted in a manner to comply with the draft Directive.

5.6.
The Commission rightly points out that there is not
yet enough experience to decide on one common EU-wide
support system.
In absence of a common approach and
system, the Committee however sees that some principles
should be established as soon as possible. In the Committee’s
view a possibility could be to set a cap on national support.
For each technology a maximum support amount, for instance
as a relative amount in relation to market prices or as euros
per kWh, could be set at EU level, taking into account the true
environmental quality, efficiency and availability of power
produced by each technology. In the end, it is the absolute
support given, or equivalent assistance in other ways, that has
impact on competition.

5.7.
The Committee agrees with the principles set out in
Article 4 of the draft Directive, which should in any case apply
the
to support schemes.
Commission has taken on board its proposal, presented in the
opinion on the Working Document, to take into account the
characteristics of the different renewable technologies.

is in particular pleased,

that

It

6. Guarantee of origin

6.1.
The Committee agrees in general with the Com-
mission’s proposal that Member States set up systems for
certification of the origin of RES-E. The measures to ensure
accuracy and reliability of such systems are of vital importance.
In addition, the Committee would like to stress two points.

6.1.1.
In a functioning internal electricity market there will
to which a certain unit of
be limitations to the extent
electricity sold can be traced from generator to end user. Some
classification, i.e. different brands of electricity, will probably
be marketed by the exchanges but there has for practical
reasons to be a limited amount of brands. This means that
certification of every single source or form of generation will
have no practical meaning in the market and should therefore
not be required.

6.1.2.
In order to facilitate mutual recognition of certificates
as well as possible future trade in the internal market, it seems
essential that the certification systems in Member States are,
from the start,
fully compatible with one another. The
Commission must ensure the compatibility of national certifi-
cation systems.

In addition, the Committee proposes the following

5.8.
principles to be taken into consideration:

7. Administration and planning

— the financial burden on public funds and, in particular,
the cost burden on the energy user must, be affordable,
proportional and fairly distributed;

7.1.

The Committee agrees with the proposal on this point.

— compensation should decrease over time to take into
account techno-economic development, no technology
can be supported continually in the long term;

8. Grid connection

— schemes should as far as possible be designed so as to

leave the final decision to the market;

— all support schemes must be fully transparent

8.1.
Given the special features of RES-E and its most usual
generators, this part of the proposal is of vital importance.
Also, the roles of grid and system operators in different
Member States are different both legally and operationally. It
seems that this part of the draft Directive needs further
clarification, taking particular account of the role and of
operators. The Committee sees need for clarification on at
least three points.

— no support scheme should offer income to a generator
without normal market risk, which all generators have to
bear.

Different dispatching systems (central dispatching vs.
8.1.1.
market based) should be considered in the proposal. Some may
in practice render priority access impossible or unnecessary.

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8.1.2.
Unlimited priority access can cause serious problems,
in particular in isolated systems, if the share of RES-E of total
electricity generation is high and back-up generation capacity
is not sufficient.

Article 7.2 does not give clear guidance on how costs
8.1.3.
and benefits generated by renewable energy installations
should be divided and borne. It is important that the costs of
grid connection are equitably distributed between parties
involved.

8.1.4.
unclear and should have been explained by the Commission.

In Article 7.5, the concept of two-way metering is

9. Definitions

The Committee finds it correct, as it stated in its
9.1.
Opinion on the working document, that the Directive does
not give a definition on renewable energy sources as such but
gives in Article 2 definitions only for the purpose of this
Directive.

The Committee wonders, however, why biomass in
9.2.
particular has here been defined differently than in the White
Paper, without any explanation. This needs clarification. In
particular, organic residues from forest industries and separ-
ated recycled fuels should be included in the definition.
Naturally, avoiding and reducing waste as well as recycling are
primary objectives, but when this is not possible, energy
generation should be provided for instead of
landfill or
equivalent use. The potential harmfulness of incineration of
certain kinds of waste has been mitigated by the recent
Directive on waste incineration, so there should be no
environmental or health arguments against broadening the
definition of the draft Directive as proposed here.

9.3.
In Article 2.2 the treatment of hybrid plants is
ambiguous. The expression ‘in particular for back-up purposes’
should not mean any sort of restriction.

9.4.
The Committee agrees with the treatment of large
hydropower in the draft Directive as a whole. As large hydro
is in principle competitive there is no reason why it should
benefit from support systems. Still the question remains, how
to deal with large hydro if exceptionally it would be in need of
support measures. This could for instance sometimes be the
case when renewing and at the same time upgrading existing
plants.

10. Final provisions

Considering the approach of

10.1.
the draft Directive,
which identifies needs for Community action, but leaves key
issues to be decided upon only after some years, the extensive
system of reporting, review and assessment is needed. It is
naturally of vital importance, in this as in all other cases, that
Member States comply fully with the Directive. As the goals of
this Directive are to be seen as a part of a broader priority of
the Union, the follow-up should also be set into that context.
The Committee here refers to paragraph 4.6. above.

11. Socio-economic impacts

Inevitably,

the increased use of RES-E will have
11.1.
positive impact on the business sector in question. In particu-
lar, it is important to maintain and develop the leading position
EU business has in this area. This creates new jobs. The impact
on remote areas and in particular islands can be considerable.

11.2.
Liberalisation of the energy sector has caused some
job losses. Creation and durability of jobs in the renewables
sector is, for natural reasons, hard to predict. Because the new
jobs will have new skill demands, serious attention should be
paid to sufficient retraining and education. Concerning the
overall impact on employment, the Commission refers to one
report that is very positive about these consequences. In the
Committee’s view this important question should, however,
have been dealt with more profoundly on the basis of verified,
reliable data.

11.3.
The Commission states that its proposal will have
very limited financial repercussions on EU funds. But it is
surprising that the Commission has not in any way referred to
the costs for Member States and/or consumers. It is clear that
even rather high costs may be outweighed by benefits in the
long term. But as the draft Directive in its present form sets
very ambitious objectives while leaving free choice to Member
States in supporting the development, the costs may be both
very high and unevenly distributed. This should have been
properly dealt with by the Commission.

12. Summary

The Committee

— agrees with the legal base of the draft Directive but
considers that Article 95 does not provide for imposing
binding targets on Member States;

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— sees a significant but still only partial role for RES-E in
the overall challenge to achieve goals set at Kyoto, and
urges the Commission to develop a long term energy
vision;

— emphasises the need for strong action to make optimal
use of RES-E potential and agrees with obligations on
Member States to publish objectives and measures to this
end, but sees the imposing of practically binding targets
might be in conflict with subsidiarity applied to actions
in order to meet Kyoto targets;

— sees a clear need for incentives to increase the use of
RES-E but,
in order to avoid market distortions and
unacceptably high costs, proposes that some principles
for support should be established as soon as possible, for
instance in the form of a cap on national (effective)
support, taking into account the true environmental
quality, efficiency and availability of power produced by
each RES technology;

— agrees with the proposal on systems for certification of
origin of RES-E and points out that they should be
designed to fit an open electricity market while the
Commission must ensure the compatibility of national
systems;

— sees the part on grid connection to be central to the
proposed Directive and points out a need for clarification
on several points;

— agrees with the treatment of hydropower in the proposal
but does not agree with the changes made in the
the Directive relative to those in the
definitions of
previous White Paper, in particular concerning biomass
residuals from forest industries;

— is supportive to the positive economic impacts of the
proposal on the business sector in question but finds
the analysis concerning impacts on employment and
economic impacts on States and consumers very unsatis-
factory.

Brussels, 20 September 2000.

The President

of the Economic and Social Committee

Beatrice RANGONI MACHIAVELLI