COMMISSION STAFF WORKING DOCUMENT Review of European and national financing of renewable energy in accordance with Article 23(7) of Directive 2009/28/EC    Accompanying document to the    COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL    Renewable Energy: Progressing towards the 2020 target   {COM(2011) 31 final}
Date: 2011-01-31
Institutions: European Commission
Subjects: common strategy, energy policy, energy site, energy supply

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EUROPEAN COMMISSION 

Brussels, 31.1.2011 
SEC(2011) 131 final 

COMMISSION STAFF WORKING DOCUMENT 

Review of European and national financing of renewable energy in accordance with 
Article 23(7) of Directive 2009/28/EC  

Accompanying document to the  

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN 
PARLIAMENT AND THE COUNCIL  

Renewable Energy: Progressing towards the 2020 target 

{COM(2011) 31 final}

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1. 

INTRODUCTION 

Renewable  energy  has  always  been  a  part  of  Europe's  industrial  development.  For  centuries, 
biomass (wood) provided us with heating for our homes, hydro and wind energy have provided 
us with power for our industry. Today, renewable energy continues to be the sole source of truly 
sustainable  energy  available  to  us  and  Europe  continues  to  lead  the  world  in  improving  the 
technologies and in manufacturing the equipment1.  

In 2009, Europe's leaders agreed to a new European framework for promoting renewable energy, 
including legally binding national targets for 2020, such that the EU will reach a 20% share of 
renewable  energy  overall.  This  agreement  and  the  subsequent  legislation2  were  part  of  the 
Energy  and  Climate  Package,  showing EU leadership  and commitment to tackling  the climate 
threat. Renewable energy is a core element in the fight against climate change as it is an ideal 
energy  source  to  decarbonise  the  generation  of  energy,  as  well  as  a  means  of  improving  the 
security of our energy supply. Instead of relying on centralised power sources run on imported 
fossil fuels, rising use of renewable energy allows us to draw  on distributed and inexhaustible 
sources of energy local to the communities that use the energy, diversifying fuels and sources of 
energy.  Such  industries  also  create  jobs,  for  equipment  manufacturers,  installers,  technicians, 
builders  and  engineers.  The  industry  currently  employs  over  1.5  million  people  and  by  2020 
could employ nearly 3 million more3.  

Providing the stable regulatory environment necessary to encourage investment in this industry, 
in all Member States, is not easy. Changes are needed to planning and building regimes and to 
electricity grids. In addition, the financing of the growth of the renewables sector needs more 
attention.  Striving  to  compete  with  incumbent  energy  companies,  technologies and traditional 
infrastructure,  with  fossil  fuels  and  nuclear  power  still  receiving  four  times  the  level  of 
subsidies4,  renewable  energy  is  often  more  expensive  than  traditional  sources.  However  the 
traditional sources must be replaced, if we are to enjoy the net benefits of a clean and sustainable 
energy system.  

The  benefits  of  encouraging  the  renewables  industry  were  widely  acknowledged  as  the  global 
financial  crisis  took  hold  in  2009,  when  "clean  tech"  stimulus  packages  worth  billions  were 
implemented  in  the  United  States  and  China,  as  well  as  in  the  EU5.  Indeed  the  growth  of  the 
sector in the US, China other Asian countries shows that the sector is seen as a crucial industry 
for the future. As noted in the new EU Energy Strategy6, the challenge facing Europe is to stay at 
the forefront of this industry, to ensure it grows, at a time when governments are simultaneously 
faced with the need to curtail government spending. This is one of the challenges addressed in 
the EU 2020 Strategy for Jobs and Growth7. Much can be done to remove the non-cost barriers 
to  the  growth  of  renewable  energy,  but  more  can  also  be  done  to  ensure  that  the  public 
funding that is spent on renewable energy is used cost effectively.  

1 
2 
3 
4 

5 
6 
7 

See "Patents and clean energy: bridging the gap between evidence and policy", UNEP, EPO, ICTSD 
Directive 2009/28/EC 
Commission (ECOFYS) EmployRES study, gross employment effects. 
Globally, the IEA has estimated 2009 fossil fuel subsidies at $312bn 
(http://www.worldenergyoutlook.org/subsidies.asp), and the most recent figures for the EU (EU15) put fossil fuel 
subsidies at €21.7bn compared to €5.3bn for renewable energy 
(EEA Technical report 1/2004). 
European Economic Recover Package: http://ec.europa.eu/energy/eepr/index_en.htm 
COM(2010)639/3 Energy 2020: a strategy for competitive sustainable and secure energy 
European Council conclusions 25/26 March 2010 

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For over a decade a few Member States have driven the development of renewable energy. They 
invested heavily, first in research and development, then in building demonstration plants, and 
finally in supporting wide spread deployment of renewable energy equipment. These countries, 
led by Germany, Denmark and Spain, now have major renewable energy companies, operating 
globally.  However  their  growth  was  spurred  by  national  sources  of  financing,  chiefly  from 
domestic  energy  consumers  paying  slightly  higher  energy  bills  to  cover  the  extra  cost  of 
developing the renewable energy8. Now, this kind of growth and commitment must occur across 
all Member States, if they are to reach their targets. Most of this extra investment will be borne 
by energy companies, who pass on some of the cost to their consumers. As acknowledged above, 
there  are  costs  associated  with  achieving  our  renewable  energy  objectives9,  but  these  are 
dominated by the clear net benefits of reducing emissions, diversifying our energy supplies and 
generating  jobs  and  economic  growth.  We  cannot  revert  to  our  old  ways,  and  every  delay  in 
modernising our energy sector adds to the costs10. 

These issues and the political conclusions are contained in the Communication which this report 
accompanies11. This report provides the analytical background to the Communication. It reviews 
the instruments available for filling this investment need and the European and national support 
instruments used, and contains suggestions for reform and improvement. In so doing, the report 
complies with the requirements of Article 23(7) of Directive 2009/28/EC. It also explores actions 
to improve cooperation regarding national renewable energy support schemes, to ensure they are 
consistent with technological progress and do not hinder innovation or competitiveness. 

2. 

POLICY CONTEXT 

Whilst  Member  States  have  legally  committed  to  achieving  their  2020  targets,  to  simplifying 
their  planning  regimes  and  ensuring  renewables  are  integrated  into  the  electricity  grid,  the 
challenges remain huge. The Commission and European Council have included the target as part 
of  the  aforementioned  Europe  2020  Strategy  and  the  new  Energy  2020  strategy  calls  for  a 
continent-wide approach12, highlighting how important it is for Member States to work together 
to achieve these goals. The Commission's recent Communication on energy infrastructure13 has 
also  explored  the  need  for  infrastructure  in  light  of  the  growing  share  of  renewable  energy  in 
Europe's  electricity  mix.  The  Communication  finds  that  the  short  term  costs  of  investing  in 
electricity  grid  infrastructure  are  far  outweighed  by  the  benefits  of  creating  an  integrated 
European electricity market capable of sustaining a future de-carbonised electricity sector. The 
urgency  of  the  need  for  action  has  been  highlighted  most  recently  in  the  IEA's  2010  World 
Energy Outlook.  

Whilst  energy  infrastructure  has  traditionally  been  funded  by  the  private  sector  or  national 
governments,  European  intervention  and  funding  for  infrastructure  projects  of  European 
importance can help create a more efficient energy network and create significant cost savings 

8 

9 

10 

11 
12 
13 

Today, the cost of renewable energy in Germany (which produces the greatest amount of renewable 
electricity) is estimated at €0.0205/kWh. 
The Commission's Renewable Energy Roadmap, which first proposed the 20% target, estimated the 
additional annual costs for the EU as between €10bn-€18bn (COM(2006)848.  
The IEA noted that "Every year of delay adds an extra USD 500 billion to the investment needed" (IEA 
press release 6 October 2009) 
COM (2011)xxx Renewable Energy: progressing towards the 2020 target. 
COM(2010)639/3 Energy 2020: a strategy for competitive sustainable and secure energy 
COM(2010) 677 Energy infrastructure priorities for 2020 and beyond - A Blueprint for an integrated 
European energy network  

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for Europe13. Similarly, European intervention to promote efficiency in the achievement of the 
renewable energy targets could save billions of Euro. 

3. 

RISING ENERGY INVESTMENT NEEDS 

The  Commission's  Communication  on  renewable  energy11  (which  this  report  accompanies) 
highlights the major investment required for meeting our energy needs in the future. The analysis 
undertaken for the Commission in preparing this report14 found that annual capital investment in 
renewable  energy  (including  62%  of  new  power  investment)  would  need  to  rapidly  double  to 
€70bn to ensure we achieve our goals. So whilst  the production cost of most renewable energy 
technologies is declining (wind production costs have declined by 20% over the 9 years to 2006 
and  solar  PV  by  57%15),  the  growing  scale  and  market  share  of  the  renewable  energy  sector 
requires additional funding to fill the gap. Moreover, whilst some forms of renewable electricity 
generation have already reached "grid parity" (off grid wind and PV, large hydro, biomass/waste 
plants, in good circumstances, can be as cheap as grid electricity), widespread grid parity (and 
the consequent phasing out of subsidies) will only occur after 2020. 

In addition to the choice of technology, location and scale, the financing instrument used can also 
affect costs.  Supporting investment can reduce  capital costs; certain  types  of  operating  support 
can reduce project revenue risks and so reduce costs; coordinated action across Member States 
can  help  exploit  resources  more  efficiently  and  so  create  savings.  Analysis  undertaken  for  the 
Commission  suggests  that  choosing  more  efficient  technologies  and  sites,  mitigating  risk  and 
coordinating resource development across Europe rather than from a national perspective, could 
reduce costs by as much as 10%16; reducing the annual investment need from €70bn to €62bn. 
For this reason it is important to explore the whole toolbox of instruments available to us. 

4. 

THE FINANCING TOOLBOX 

For all industry, investment requires capital expenditure to generate production and revenues 
to  cover  costs.  Renewable  energies  have  much  lower  operating  costs  (no  fuel  costs  for  most 
technologies) but proportionately higher capital costs and the financing of renewable energy has 
to  take  this  into  account.  To  expand  renewable  energy  deployment  and  meet  the  investment 
gap,  efforts  can  be  directed  via  direct  or  indirect  support,  to  lowering  the  cost  of  capital  by 
reducing  technology,  plant  and  construction  costs,  or  by  raising  more  revenues  through 
support measures, to cover costs. 

reducing capital costs 

covering generating costs through revenues 

Grants:  taxpayer  funded  aid,  often  for 
innovative demonstration projects.  

R&D grants: grants, often for research into 

(starting point: energy prices covering costs) 

Regulated  prices:  feed  in  tariffs,  giving  energy 
producers  a  fixed  financial  payment  per  unit  of 
electricity or heat produced from renewable energy 

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16 

ECOFYS, Ernst & Young, Fraunhofer ISI, TU Vienna, 2010. The least cost electricity investment 
component of this, consistent with the analysis of COM(2010)677 ranges from €310bn-370bn. 
EWEA "The economics of wind energy" and EPIA "Set for 2020" 
Green X analysis of annual capital investment needs ranging from €70bn to €61.9bn see ECOFYS et al. 
These cost reductions occur if trade in renewable energy were to occur across the single market, rather 
than in protected national markets. 

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innovative, immature technologies. 

Public loans: offer cheaper access to capital due 
to  public  funds  used  to  bear  greater  risk. 
Particularly  useful  for  SMEs  who  are  less  able 
to access capital. 

Equity  funds:  private  medium  risk  investors, 
expecting relatively high returns, for later stage 
of  projects  and  more  mature  technologies,  and 
investment periods of 3-5 years.  

Venture  capital:  private  equity  investment  for 
financing  technology  innovation,  with  active 
involvement of the fund mangers in the project.  

Mezzanine  funds:  loans  that  take  more  risk 
than  normal  ("senior")  debt  but  less  risk  than 
equity;  expecting  relatively  short  term  and 
variable but high return. 

Guarantees: offer of compensating payment to 
a  lender  or  an  investor  in  case  of  payment 
default by a project developer.  

Contingent  grants  or  loans:  support  that  is 
converted into a loan when a project turns out to 
be successful, or treated as a grant if the project 
encounters financial difficulties. 

sources. Often fixed for 10-20 years, differentiated 
by technology and phased out. 

Regulated  premiums:  feed  in  premiums,  giving 
energy producers a fixed financial payment per unit 
of  electricity  or  heat  produced  from  renewable 
energy  sources  for  the  green  value;  the  producer 
receiving the market price for the physical energy.  

Quota/certificates:  impose  a  minimum  share  or 
quota of renewables in the electricity, transport fuel 
or  heating  fuel  mix,  which  can  be  met  either 
through physical production (common for biofuels) 
or  through  purchasing  "green  certificates",  virtual, 
rather  than  physical  energy.  The  producer  of  the 
green  energy  is  paid  for  the  green  certificates  by 
the supplier or other facing the obligation. 

Fiscal incentives: tax exemptions or tax credits for 
investments in renewable energy projects. 

Tenders:  A  government  call  for  tender  for  a 
renewable  energy  project,  often  specifying  the 
capacity/production/technology/site.  The  winner  is 
generally  granted  a  long  term  power  purchasing 
agreement at a competitive price.  

The  choice  of  instrument  to  help  reduce  renewable  energy  costs  depends  on  the  state  of 
technology  and  project  development17.  All  of  these  instruments  can  play  a  role  in  the  right 
circumstances.  They  alleviate  different  forms  of  project  risk  –  technology,  construction, 
regulatory – and depend in particular on the maturity of a project or technology. R&D funding 
for instance traditionally consists of grants for significant portions of project capital costs, as 
the  cost  and  uncertainty  surrounding  the  technology  render  them  too  risky  for  the  private 
sector  to  finance  alone.  Once  a  technology  is  more  established  grants  can  still  be  useful  to 
finance  demonstration  projects,  and  venture  capital  –  bearing  high  risks  –  can  become 
available when technology is nearly established.  

Once a technology is capable of being deployed but not yet competitive, support tends to shift 
from  capital  to  operating  support  and  here  again  there  is  a  continuum  of  instruments, 
depending on circumstances.  

For some sectors and technology, where the scope of operations is quite large and the number 
of  market  participants  quite  small,  public  tenders  for  a  given  production  of  energy  can  be 
appropriate.  For  micro  energy  systems  functioning  at  household  level,  investment  grants  or 

17 

See  "Support  schemes  for  renewable  electricity  in  the  EU"  European  Commission  Economic  Papers 
408,  April  2010  and  "Financing  Renewable  energy  in  the  European  Energy  market",  ECOFYS  et  al, 
October 2010 for details. 

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tax credits (e.g. for solar water heaters) are still quite common. The most significant form of 
operating  support  for  electricity,  heating  and  transport  are  feed  in  tariffs  and  obligations. 
Reviewing the relationship between project risk and instrument choice, the empirical evidence 
suggests  that  the  more  reliable  revenue  stream  provided  by feed in  tariffs  is generally more 
effective in driving renewable energy growth, particularly for a broad range of technologies. 
Quota  obligations  and  tradable  green  certificates  often  suffer  from  revenue  volatility  and 
require  payment  of  a  risk  premium,  which  appears  to  make  them  both  less  effective  and 
efficient.  

5. 

NATIONAL SUPPORT FOR RENEWABLE ENERGY 

Member States' use of different instruments for electricity, heating and transport (biofuels). 

AT  BE  BG  CY  CZ  DE  DK  EE  ES 

FI  FR  GR  HU 

IE 

IT  LT  LU  LV  MT  NL 

PL 

PT  RO  SE 

SI  SK  UK 

FIT 

x 

x 

x 

x 

x 

x 

x 

x 

  X 

x 

x 

x  x 

x 

x 

x 

x 

x 

x 

x  x 

Premium 

Quota 
obligation 

Investment 
grants 

Tax 
exemptions 

Fiscal 
incentives 

Investment 
grants 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

  x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x  x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x  x 

Tax 
exemptions 

x 

x 

x 

  X 

x 

x 

x 

x 

x 

  x 

Financial 
incentives 

Premiums 

Quota 
obligation 

Tax 
exemptions 

x 

x 

x 

  X 

x 

  X 

x 

x 

x 

x 

x 

x 

x 

x  X 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x  x 

x 

x 

x 

x 

x 

x 

x 

x 

  X 

x 

x 

x  x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x  x 

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What  is  most  striking  about  the  above  table  is  how  Member  States  use  a  range  of  different 
instruments.  As  discussed  in  Chapter  4,  the  use  of  multiple  instruments  can  be  appropriate, 
given  the  different  economic  status  of  all  the  different  technologies,  in  terms  of  maturity, 
users, climatic conditions and markets.  

In  the  electricity  market,  21  Member  States  now  use  feed  in  tariffs  at  least  for  some 
technologies and some market segments; seven use feed in premiums and six use quotas. The 
use  of  multiple  instruments  or  the  adaptation  of  instruments  also  reflects  Member  States' 
efforts  to  improve  the  efficacy  of  the  instrument  in  a  gradual  manner  without  causing  too 
much disruption to the market. Changes in recent years have seen a blurring of the traditional 

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dichotomy of tradable certificates (setting quantity not price) and feed in tariff (setting price 
not quantity): Technology specific rules have been introduced in quota regimes, optional feed 
in  premiums  are  made  available  in  more  mature  markets  where  project  risk  is  lower, 
modifying the means of financing (in particular budget/off budget choices) and creating new 
feed  in  tariffs  for  new  technologies  since  the  stable  financial  revenues  from  feed  in  tariffs 
appear  to  be  more  effective  and  efficient  in  promoting  green  electricity18).  In  addition, 
Member States make smaller annual changes – to the quotas, to the tariff or premium rates, to 
the  lifetime  of  the  support,  and  to  aspects  of  eligibility.  All  of  these  changes  improve  the 
efficiency of the instrument. But more needs to be done. The move to market integration, in 
particular  the  evolution  to  feed  in  premiums  is  too  slow  and  too  fragmented.  As  the  EU 
Energy  Strategy  notes,  we  need  a  greater  convergence  of  national  support  schemes  and  to 
move to a more pan-European trade in renewable energy19. 

As  shown  by  the  National  Renewable  Energy  Action  Plans,  most  Member  States  have 
continued to focus on national resources and could achieve their 2020 targets on their own. 
They  have  not  sought  to  reduce costs  by  developing  cheaper  resources  in  other  parts  of  the 
single market. The analysis cited above16 makes clear that billions of Euro could be saved if 
Member States treated renewable energy as a commodity in a single European market rather 
than  in  national  markets.  Given  the  fiscal  constraints  Member  States  currently  face,  with 
combined government deficits of €868bn, every effo rt should be made to minimise costs. The 
first  step  to  such  a  change  is  the  use  of  the  new  cooperation  mechanisms  created  by  the 
Renewable Energy Directive. 

These cooperation mechanisms are a means of allowing Member States to benefit from a form 
of  trade  of  renewable  energy  whilst  still  maintaining  control  over  their  national  support 
schemes and the achievement of their national targets.  

Historically, Member States have been keen to develop their own resources (contributing to 
their own emissions reductions, reducing fossil fuel imports and generating jobs) rather than 
develop  the  cheapest  renewable  energy  sources.  However,  as  the  cheaper  renewable  energy 
potentials  are  exploited  and  costs  start  to  rise,  the  need  to  seek  out  cheaper  renewables  in 
other Member States will rise. For this reason, the Directive created a number of “cooperation 
mechanisms” that allow a cross-financing between Member States for the achievement of the 
EU target. 

Article  6  of  the  Directive  creates  “statistical  transfers”.  These  are  agreements  between 
Member States to transfer a quantity of renewable energy produced in one Member State to 
another Member State for target compliance purposes. The transfer is purely virtual; there is 
no accompanying energy flow. 

This mechanism exists so that Member States with considerable renewable energy sources, or 
with effective support schemes that help develop such sources cost effectively, can offer any 
renewable energy production surplus to their requirements (either to their target or trajectory) 
to  other  Member  States.  The  “other”  Member  States  interested  in  purchasing  such  transfers 
would  be  those  with  limited  domestic  renewable  energy  sources  or  with  inadequate  support 
schemes for developing the available domestic resources. The transfers would normally be for 

18 
19 

See "Financing Renewable energy in the European Energy market", ECOFYS et al, October 2010 
COM(2010)639/3 Energy 2020: a strategy for competitive sustainable and secure energy, p10 

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Member States wanting to comply with their targets, or until their own domestic resources can 
be brought into production at a later stage. 

A  second  mechanism  is  the  “joint  project”,  a  broad  concept  covering  the  building  or  co-
financing  of  infrastructure  or  even  an  energy  purchase  agreement.  The  intention  behind  the 
mechanism is the same as for statistical transfers: to help build new plants and infrastructure 
in  a  Member  State  and  sharing  the  resulting  energy  towards  two  or  more  Member  States’ 
national targets, in order to reduce the overall cost of reaching the targets. 

One key difference between joint projects and statistical transfers is the proposed inclusion of 
“private entities” in joint projects. A private entity such as a power generator, infrastructure 
company, energy equipment manufacturer, a banking consortium can identify projects in any 
Member State. Financing such a project could occur under the normal and existing domestic 
arrangements, but if such arrangements are insufficient, because the support is too low or does 
not qualify according to domestic priorities, the project would not be built. In such a case, the 
project  developer  could  broker  an  agreement  whereby  another  Member  State  agrees  to  help 
finance  the  project;  again,  this  could  be  through  loans,  grants,  tenders  or  access  to  national 
support schemes such as feed-in tariffs or green-certificate regimes. In exchange for this co-
financing, the Member State would receive credit for a share of the renewable energy that was 
produced as a result of the project.  

In  addition  to  the  cooperation  mechanisms  available  to  Member  States,  the  Directive  also 
creates an instrument that would enable third countries to take part in developing renewable 
energy  sources  and  contributing  to  the  EU  target.  Accordingly,  “joint  projects”  between 
Member States and third countries – similar in structure to the joint projects between Member 
States–  can  be  established.  However,  whilst  joint  projects  between  Member  States  can  be 
purely “virtual trade” arrangements, joint projects with third countries have strict conditions 
attached to them to ensure that the arrangements generate new renewable energy production 
of electricity that is actually consumed in the EU. In particular, as proof of importation, the 
Directive requires that: 

•  the  electricity  is  firmly  nominated  to  the  allocated  interconnection  capacity  by  all 
responsible  Transmission  System  Operators  in  the  country  of  origin,  the  country  of 
destination and, if relevant, each third country of transit; 

•  the  electricity  is  firmly  registered  in  the  schedule  of  balance  by  the  responsible 

Transmission System Operator on the Community side of an interconnector; and 

•  the  nominated  capacity  and  the  production  of  electricity  from  the  designated  installation 

refer to the same period of time. 

In addition, the energy that is produced and exported to the EU under the agreement may not 
receive operating support. This rule is applied to reduce the risk of paying double subsidies 
and over-compensating producers.  

The  third  element  of  the  cooperation  mechanisms  established  under  the  Directive  is  called 
“joint support schemes”. Member States may agree to join or coordinate their national support 
schemes (e.g. a common feed-in tariff or green-certificate/obligation regime). In the event of 
the  joining  of  schemes,  the  renewable  energy  produced  under  such  conditions  is  considered 
“pooled” and shared out either as a “statistical transfer” or according to an agreed distribution 

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rule. Sweden and Norway's recent announcement of a joint green certificate support scheme 
to begin in 2012 is the first example of the use of this mechanism. 

5.1. 

Improving the functioning of national systems for supporting renewable energy 

Whilst there has been some convergence and improvement in the efficiency of some Member 
States'  instruments  in  the  electricity  sector,  there  has  not  been  any  coordination,  and  past 
recommendations  of  the  Commission  have  not  often  been  acted  upon20.  The  continued 
existence  of  multiple  different  national  support  regimes  shows  little  sign  of  change.  This 
means  investors  and  other  market  operators  must  deal  with  a  wide  range  of  changes,  small 
and  large,  occasional  or  regular,  in  27  Member  States.  This  exacerbates  the  differences  and 
distortions between Member States' electricity markets and ignores the benefits of operating 
in  a  single  European  electricity  market.  Given  the  growing  importance  of  the  share  of 
renewable energy in the European electricity mix21, this is a concern. As a consequence, there 
is a need for further reform of electricity market support schemes.  

As  investor  and  market  confidence  in  the  renewable  energy  sector  depends  heavily  on  the 
regulatory  framework,  the  reform  of  support  mechanisms  must  be  managed  carefully. 
Retroactive  changes  to  support  schemes  in  particular  should  be  avoided  given  their  negative 
effect on investor confidence. It is for this reason that Member States created the cooperation 
mechanisms of the new Renewable Energy Directive, allowing Member States to control how 
their  renewable  energy  resources  are  jointly  developed,  co-financed,  and  their  support 
schemes  joined  or  harmonised.  Thus  as  the  level  playing  field  of  a  single  energy  market  is 
created, renewable energy will be able to participate and compete. 

as 

common 

technology  banding, 

The forums and projects established by the Commission to help Member States develop the 
cooperation mechanisms22 can also be used to steer other aspects of national support schemes 
calculation 
such 
methodologies/indices, conversion of feed in tariffs to feed in premiums as technologies mature 
and  ongoing  work  on  the  creation  of  regional  clusters  for  joint  support  schemes,  such  as  that 
under  development  between  Norway  and  Sweden.  The  mechanisms  also  provide  scope  for 
supporting  the  development  of  renewable  energy  production  in  third  countries,  such  as  in  the 
Mediterranean  Solar  Plan  and  DESERTEC  initiative.  Thus  the  framework  to  make  real 
progress towards a European support scheme regime now exists.  

revision  dates, 

annual 

cost 

In the heating sector, the predominance of investment grants is due to Member States' focus on 
household  installations  of  small  solar  thermal  or  solar  photovoltaic  units.  Given  the  cost 
reductions  that  have  occurred  in  micro  units  in  recent  years,  Member  States  could  start  to 
consider regulatory rather than financial solutions at the household level. For example, Article 
13(4) of the Renewable Energy Directive includes rules for building regulations or codes to 
include  minimum  levels  of  renewable  energy  in  buildings,  ensuring  growth  through 
regulatory  rather  than  financial  means.  Recent  regional  examples  of  such  rules  (e.g.  in 
Catalonia)  suggest  major  savings  can  be  achieved  by  such  means23.  Given  its  local  nature, 

20 
21 
22 

23 

See for instance SEC(2008)57 Chapter 4. 
The 16% share today is expected to rise to 33% in 2020. 
These  include  the  Concerted  Action  on  the  Implementation  of  the  Renewable  Energy  Directive, 
Member  States'  "International  feed  in  cooperation  group"  and  numerous  projects  under  the  Intelligent 
Energy Europe Programme. 
See SEC(2008)85-2 Annex to the Commission's impact assessment on the energy and climate package, 
p122 

EN 

9 

   EN 

 
                                                 
support for micro heating systems can exploit distributed forms of energy that develop a local 
community's biomass, solar or geothermal resources. 

The scope for any large scale heating from renewable energy sources is only now beginning 
to be explored in most Member States, partly because it is only now included in the European 
regulatory framework (the 20% target). Projects could include developing combined heat and 
power plants and/or district heating systems based on geothermal, biogas or biomass energy 
sources. In this context, Member States could start developing new instruments or extending 
existing  instruments  to  heat  production  from  renewable  sources.  In  Sweden,  for  example 
(where Stockholm's district heating system serves 80% of households and sourced 80% from 
renewable  energy),  the  Local  Investment  Programme  and  Climate  Investment  Programme 
promote further household uptake. Whilst commercial heat production occurs in a very local 
market,  it  is  still  sensible  for  Member  States  to  discuss  their  different  experiences  in 
developing this energy  source, and again the Concerted Action under the Intelligent Energy 
Europe Programme provides a forum for such coordination discussions.  

In  the  transport  sector,  a  mixture  of  instruments  is  also  used  to  support  the  development  of 
renewable energy, chiefly biodiesel and bioethanol. Quota systems require the use of biofuels for 
a given fraction of the road transport fuel mix. The fuels themselves are freely tradable across the 
EU. The extra cost of the biofuel is then part of the price of petrol or diesel and passed on to 
consumers.  In  17  Member  States  this  quota  regime  is  supplemented  by  tax  credits,  whereby 
expenditure on biofuels is tax deductible. This supplement is therefore additional support funded 
by taxpayers. The empirical evidence regarding this sector shows that biofuels growth is more 
effective in those Member States where both instruments are applied24.  

In  all  three  sectors  it  is  important  that  greater  efforts  are  made  to  improve  the  efficiency  and 
coordination of national instruments. For this reason the Communication on renewable energy11 
notes  that  the  Commission  will  promote  a  more  harmonised  approach  on  the  basis  of  best 
practice, through its state aid scrutiny, review of national support schemes and through guidance 
with  the  implementation  of  the  Renewable  Energy  Directive  and  its  cooperation  mechanisms. 
Bearing  in  mind  the  scope  for  reviewing  cooperation  mechanisms  given  in  Article  23  of  the 
Directive in 2014 (prior to the preparation of a post 2020 renewable energy roadmap in 2018), it 
is  important  that  the  Commission  take  an  active  role  in  their  development.  Containing  costs, 
helping  to  develop  the  European  renewable  energy  market,  it  will  be  important  for  the 
Commission to help share the lessons of national experiences. 

Separately,  producers  of  renewable  electricity  can  also  generate  revenues  in  the  consumer 
market,  from  the  sale  of  "guarantees  of  origin".  Electricity  suppliers  can  buy  and  use  these 
guarantees to demonstrate to consumers the share of renewable energy in their electricity mix. 

6. 

EU SUPPORT FOR RENEWABLE ENERGY 

Current  EU  funding  for  renewable  energy  has  been  provided  through  equity,  project  grants  or 
loans.  These  have  been  in  the  form  of  debt  assistance  from  the  European  Investment  Bank  to 
help the achievement of European energy and environmental goals and from the EU Research 
budget addressing the European dimension of energy technology development. 

24 

See SEC(2009)503 Section 2.3. 

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10 

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Despite the strong political support, ambitious European policy and legal framework (albeit with 
lagged implementation in some Member States), the EU financial support given to renewables is 
relatively low. For the period 2007-2009, funds spent on renewable energy amounted to roughly 
€9.8bn , (€3.26bn/a), the bulk of which in the form of  loans from the European Investment Bank. 
During this period the financial support was made up of: 

•  €8.4bn in loans and assistance from the European Investment Bank; 

•  €565m from the European Economic Recovery Plan; 

•  €110m  for  the  "Intelligent  Energy  Europe"  Programme,  which  co-funds  analysis  and 

policy research in renewable energy; 

€499m  of  EU  Structural  and  Cohesion  Funds  were   allocated  by  Member  States,  to  projects 
and demonstrations of renewable energy (with a total of approximately €4.8 billion planned for 
2007-2013)25; 

•  €250m from the EU R&D Framework Programme; 

•  In addition, the EIP GIF budgeted €151M in  venture capital or loan guarantees; 

•  Separately, the European Bank for Reconstruction and Development granted SEI loans of 

approximately €140M  

A  major  new  source  of  financial  support  for  renewables  at  the  EU  level  is  the  "NER  300 
programme",  established  under  the  Emissions  Trading  Directive  2003/87/EC.  This  will 
support the demonstration of CCS and innovative renewables at commercial scale and aims to 
co-fund  at  least  34  innovative  renewable  energy  projects  in  the  EU.  The  programme  will 
provide  around  €4.5  billion  of  co-funding  (match ing  funding  from  industry  and  Member 
States).26 The Commission has launched the first Call for Proposals comprising 200 million of 
the  300  million  allowances  under  the  NER300  programme  in  November  2010.27  The 
European Investment Bank will support the Commission in implementing the programme. 

Annual  EU  budgets  are  prepared  in  the  context  of  a  multi-annual  financial  framework,  the 
seven year "EU financial framework" plan, currently for 2007-2013. Today's EU expenditure 
thus occurs on the basis of a strategic document concluded in 2005 with a mix of instruments 
ranging from traditional grants to loans, loan guarantees and venture capital. Discussions are 
now  beginning  on  EU  spending  priorities  in  the  next  financial  perspectives  period,  post-
201328.  

6.1. 

Improving EU expenditure on renewable energy 

European  energy  policy  has  changed  significantly  over  the  last  five  years.  There  has  been  a 
broad  acknowledgement  that  a  more  active  European  pursuit  of  our  common  policy  goals  is 
more effective on the global stage and in the global economy. For this reason, a reorientation of 

25 

26 
27 

28 

EN 

See COM(2010)110, 31.3.2010, "Cohesion policy: Strategic Report 2010 on the implementation of the 
programmes 2007-2013". 
See Commission Decision 2010/670/EU of 6.11.2010, OJ L 290, p. 39. 
9.11.2010, 
OJ 
http://ec.europa.eu/clima/funding/ner300/index_en.htm  
See COM(2010)700 Final. 

information 

available 

further 

302, 

at: 

4, 

p. 

is 

C 

11 

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EU budget priorities is appropriate. This is possible both in terms of more focused use of existing 
instruments and in developing new European instruments.  

Structural  Funds  and  Cohesion  Funds  constitute  a  significant  part  of  EU  expenditure,  with 
planned  support  for  renewable  energy  activities  for  the  period  2007-2013  of  aproximately 
€4.8  billion.  As  stated  in  the  Communication  "Regional  Policy  contributing  to  sustainable 
growth in Europe 2020"29, the deployment of renewable energy can be an important driver of 
local  economic  development,  especially  in  rural  and  coastal  areas,  outermost  regions  and 
islands. In this framework, local and regional authorities need to see investment in renewable 
energy  as  strategic  investment  securing  employment  and  regional  development.  To  reap  the 
full benefit of local renewable energy potential, local and regional authorities should address 
renewable energy in a full life-cycle, developing integrated regional supply chains according 
to  the  local  renewable  energy  potential.  Such  investment  has  cross-sectoral  benefits  at  local 
and regional level from agriculture and forestry (biomass for energy) to SMEs, industry and 
the  construction  sectors.  Currently,  the  Commission  is  reflecting  on  the  future  of  Cohesion 
Policy. The Budget Review as well as the Conclusions of the 5th Cohesion Report30 conclude 
that  Cohesion  Policy  needs  to  concentrate  on  the  Europe  2020  objectives  and  targets, 
including the renewable energy target.  

The  European  Agricultural  Fund  for  Rural  Development  (EAFRD)  also  finances 
development  programmes  of  the  Member  States  and  in  particular  the  rural  part.  This  can  also 
include  renewable  energy  projects,  in  particular  support  for  the  stimulation  of  biomass 
production through energy crops or forestry. 

Another  large  element  of  European  budget  expenditure  is  on  research  and  technology 
development.  The  EU  R&D  budget  (€48bn   FP7)  helps  to  integrate  national  research  agendas 
across Europe. It facilitates the creation of the European Research Area and finances research in 
a  wide  range  of  disciplines.  R&D  has  a  long  history  of  public  support  and  clear  economic 
justification for European funding. EU budget expenditure in this area drives forward European 
policy  priorities  through  research  and  maximises  positive  spill  over  effects  from  national 
research. The Commission has established the field of energy as a clear priority for the future. 
The  European  Strategic  Energy  Technology  Plan  (SET-Plan)31  sets  out  a  vision  of  how 
Europe  can  continue  to  lead  the  world  in  the  development  of  a  diverse  portfolio  of  clean, 
efficient and low-carbon energy technologies. More recently, the Commission has presented 
detailed  analysis  of  the  financing  needs  of  clean  energy  R&D32.  It  estimates  that  a  further 
€50bn  is  needed  over  the  next  te n  years  and  concludes  that  "stronger  intervention  at  the 
European  level  could  be  one  of  the  most  effective  ways  to  bring  forward  the  desired  broad 
portfolio  of  technologies".  Together  with  the  private  sector  the  Commission  has  been 
establishing European Industrial Initiatives for key renewable energy technologies (European 
wind,  solar  and  grid  Initiatives)  and  proposing  to  reinforce  the  successful  financial 
instruments already used at the European level. 

For  certain  demonstration  projects  and  for  deploying  technologies  in  near  commercial, 
bankable projects, European funds have also been deployed using the European Investment 
Bank.  The  Bank  has  a  mission  to  support  projects  that  contribute  to  European  energy  and 

29 
30 

31 
32 

COM(2011) 17 final, adopted on 26 January 2011. 
COM(2010)642,  9.11.2010,  "Conclusions  of  the  fifth  report  on  economic,  social  and  territorial 
cohesion: the future of cohesion policy". 
COM(2007)723 A European Strategic Energy Technology Plan 
COM(2009)519 Investing in the Development of Low Carbon Technologies. 

EN 

12 

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environmental goals, and has contributed approximately €3bn per year for renewable energy 
projects  for  several  years.  The  Commission's  SET  Plan  also  called  for  the  reinforcement  of 
financial  instruments  involving  the  Bank,  such  as  the  RSFF,  the  Marguerite  Fund  and  the 
High Growth and Innovative SME Facility (GIF). In addition, the Commission and the Bank 
will  assess  optimal  financial  packages  for  large  demonstrations  and  market  replication 
projects,  to  develop  innovative  financial  instruments  to  promote  both  energy  efficiency  and 
renewable  energy.  At  the  national  level,  the  UK  Government's  plans  to  establish  a  Green 
Investment Bank highlight how Member States also see the need to address the capital access 
concerns of the renewable energy industry. In recent years a range of external funds for low 
carbon  technologies  have  been  developed,  such  as  the  Global  Energy  Efficiency  and 
Renewable  Energy  Fund  (GEEREF)  to  leverage  private  finance  into  renewable  energy 
projects through equity or debt. More recently, in its European Economic Recovery Package, 
the Commission financed over half a billion euros of grants to speed up the implementation of 
key renewable energy projects of European interest.  

With the wide range of European instruments used to finance renewable energy projects with 
a  European  dimension,  there  is  scope  for  ensuring  that  in  the  forthcoming  review  of  the 
European  financial  perspectives  maximum  use  is  made  of  these  targeted  and  effective 
instruments.  Indeed,  in  its  recent  budget  review28  the  Commission  emphasised  the  catalytic 
role European funds should play in leveraging public and private financial resources.  

In  this  context,  following  the  Commission's  proposal  for  the  next  multi-annual  financial 
framework,  the  Commission intends to  maximise  the  leverage  of  private capital into energy 
projects of regional European interest. It will strive to facilitate the uptake of the Renewable 
Energy Directive's cooperation mechanisms, the intended use of which is disappointingly low, 
according  to  the  National  Renewable  Energy  Action  Plans  recently  submitted  to  the 
Commission33.  This  would  improve  regional  cooperation  and  begin  the  harmonisation  of 
support schemes. It could ensure savings of as much as €10bn annually 16 and that renewable 
energy starts to be integrated into the European market. 

7. 

CONCLUSION AND ACTIONS 

Europe  has  established  the  regulatory  framework  for  creating  a  low  carbon  economy,  starting 
with  pricing  greenhouse  gas  emissions  and  a  major  drive  to  develop  renewable  energy 
technologies  and  deploying  them  in  all  sectors  of  our  economy.  Given  the  financing  gap  that 
needs to be filled to reach our targets, and the current fiscal constraints governments face, it is 
important  that  we  finance  renewable  energy  growth  as  efficiently  as  possible.  As  with  energy 
infrastructure, there is a need for European action, to speed up the efficient delivery of renewable 
energy production.  

At the national level, the reform of financing instruments occurs regularly, in a manner which 
generally  strives  to  avoid  creating  investor  uncertainty.  However  such  reforms  occur  in  an 
uncoordinated  manner.  The  Communication  on  renewable  energy11  therefore  notes  that  the 
Commission  intends  to  lead  national  cooperation  on  financing  renewables,  based  on  the  new 
framework for Member State cooperation contained in the Renewable Energy Directive. In this 
way the cost of achieving the targets whilst promoting the growth and future prosperity of the 
European renewable energy industry can be minimised.  

33 

http://ec.europa.eu/energy/renewables/transparency_platform/action_plan_en.htm  

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With European sources of financing, the current Budget Review will aim to maximise the impact 
of  EU  funds.  For  renewable  energy,  EU  funds,  including  those  of  the  European  Investment 
Bank, must facilitate cost effective renewable energy development and the lowering of the cost 
of capital investments in the sector.  

To ensure the achievement of these objectives, reflecting the conclusions of the Communication 
on renewable energy11, action could include: 

•  Preparation  of  guidelines  for  more  harmonised  reform  of  national  renewable  energy 

support schemes, through the use of the Directive's cooperation mechanisms. 

•  Facilitation of the development of cooperation mechanisms both between Member States 
and  with  third  countries  (e.g.  in  the  context  of  large  scale  industrial  renewable  energy 
initiatives such as the Mediterranean Solar Plan and Desertec Initiative). 

•  Promotion of reforms in the southern Mediterranean to facilitate the growth of renewable 

energy and the scope for third country cooperation post 2020 

•  The  review  of  European  Structural  Funds  and  Cohesion  Fund  in  the  context  of  the  EU 
Budget  Review  to  examine  the  scope  for  an  improved  contribution  of  the  funds  to  EU 
energy and climate targets in line with the Europe 2020 Strategy. 

•  Continued  work  with  financial  institutions  to  improve  European  support  for  private 

investment in renewable energy projects.  

•  Expanded use of innovative financial instruments as a device for achieving greater private 
sector  leverage  for  European  policy  priorities  and  maximising  the  EU  value  added  of 
financing in the energy sector. 

EN 

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