COMMISSION STAFF WORKING DOCUMENT EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITEE OF THE REGIONS Renewable Energy: a major player in the European energy market
Date: 2012-06-06
Institutions: European Commission
Subjects: energy distribution, innovation, renewable energy, research and development, single market, sustainable development, technical cooperation, trans-European network

EUROPEAN COMMISSION 

Brussels, 6.6.2012  
SWD(2012) 163 final 

COMMISSION STAFF WORKING DOCUMENT 

EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT 

Accompanying the document 

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN 
PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL 
COMMITTEE AND THE COMMITEE OF THE REGIONS 

Renewable Energy: a major player in the European energy market 

{COM(2012) 271 final} 
{SWD(2012) 149 final} 
{SWD(2012) 164 final} 

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COMMISSION STAFF WORKING DOCUMENT 

EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT 

Accompanying the document 

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN 
PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL 
COMMITTEE AND THE COMMITEE OF THE REGIONS 

Renewable Energy: a major player in the European energy market 

1. 

WHAT IS THE PROBLEM? 

Over  the  last  few  years,  driven  by  economies  of  scale  and  technology  improvement, 
renewable energy sources (RES) has deployed at faster rate than previously foreseen. This is 
welcome,  showing  the  positive  effects  of  the  EU  renewable  energy  policy.  In  response  to 
these  trends,  Member  States  have  increasingly  reformed  support  schemes  for  renewables  to 
ensure  cost-effectiveness  and  market  integration.  Sometimes  the  manner  in  which  such 
reforms have  been undertaken  has  failed to follow European best practice, creating investor 
uncertainty  across  Europe.  In  addition,  the  current  financial  and  economic  crisis  has  made 
investors more cautious about investing in capital intensive energy markets, and in particular 
in the policy-dependent renewable energy sector.  

Against this context, it is increasingly clear that the EU 2020 renewable energy target may not 
in  itself  be  sufficient  to  promote  the  necessary  long-term  investments  that  will  allow  for 
further  cost  reduction  and  a  greater  share  of  renewable  energy  post-2020.  Clarity  about  the 
future direction of EU policy has thus become more important for investors and the business 
community in order to make long-term investment decisions in the renewables sector today. 

Directive  2009/28/EC  on  renewable  energy  (the  Directive)  requires  the  Commission  to 
present  a  post-2020  Renewable  Energy  Roadmap  only  in  2018,  taking  into  account 
technological development and the experience gained from the Directive implementation. In 
addition, it contains a requirement for the Commission to review certain specific provisions of 
the Directive (notably regarding the greenhouse gas (GHG) saving thresholds for biofuels and 
bioliquids,  the  measures  and  the  impact  of  biofuels  and  bioliquids  and  the  so-called 
cooperation  mechanisms)  by  2014.  However,  considering  the  investment  uncertainity 
described above, the Commission sense a growing belief amongst stakeholders that planning 
for the post-2020 period requires consideration already today. 

More  specifically,  the  following  six  challenges  need  to  be  addressed  in  order  to  facilitate  a 
greater share of renewable energy the EU energy mix in the coming decades: 

•  Uncertainty  of  future  policy  framework.  As  currently  framed,  the  EU  renewable  energy 
policy framework effectively ends in 2020, a mere eight years away. Post-2020, there are 
no renewable energy objectives and no decarbonisation targets other than those under the 
ETS and a political, rather than legal, EU Council objective to achieve 80-95% greenhouse 
gas reductions by 2050 if other developed countries take similar action.  

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•  Viability  of  financial  incentives.  Member  States  have  introduced  a  number  of  different 
support scheme that raise concerns from the perspective of the single market. In addition, a 
rise  in  expenditure  (partly  caused  by  a  boom  in  installations  resulting  from  falling 
photovoltaic per unit costs) is generating doubts about their financial viability. 

•  Consistency with market arrangements. Concerns have arisen about the ability of current 
internal  market  arrangements  to  effectively  address  the  investment  characteristics  of 
renewables  and  to  allow  for  renewable  generators  to  effectively  respond  to  market  price 
signals, thus creating inefficiencies in market operation. 

•  The adequacy of energy infrastructure. The majority of the existing power grid was built in 
an  era  in  which  electricity  systems  were  predominately  national,  power  generation  was 
sited  relatively  close  to  the  points  of  consumption  and  power  flows  and  supplies  were 
relatively controlled. With the rising proportion of electricity from renewable energy, these 
conditions are unlikely to hold and may lead to suboptimal integration of renewables. 

•  Uncertainty  about  future  technologies.  A  wide  range  of  innovative  renewable  energy 
technologies  will  be  needed  to  achieve  the  transition  to  a  sustainable  and  secure  energy 
sector,  together  with  major  changes  to  modernise  infrastructure  management  and 
development. However, bringing such renewables technologies to the commercial market-
place is challenging and cannot be achieved by the market alone.  

•  Public  acceptance  and  sustainability.  Generally,  renewables  enjoy  widespread  public 
support because of their distributed nature and environmental and socio-economic benefits. 
However, growing concerns about land-use and other environmental impacts of large-scale 
renewable energy projects could potentially become a barrier to future growth. 

The  Communication  that  this  Impact  Assessment  accompanies  looks  at  both  the  challenges 
and possible solutions with the view to facilitate the integration of renewable energy into the 
single  market.  It  also  sets  the  framework  for  determining  what  policy  regime  is  necessary 
post-2020 to enable greater share of renewable energy in the EU's energy mix.  

2. 

ANALYSIS OF SUBSIDIARITY AND EU ADDED VALUE  

The  EU's  competence  in  the  area  of  renewable  energy  is  set  out  in  the  Treaty  on  the 
Functioning  of  European  Union,  Article  192  (environment),  Articles  114  (internal  market) 
and Article 194 (energy). From an economic perspective, many energy system developments 
can be achieved on an EU-wide basis, encompassing both EU and Member State action while 
duly considering the respective competences.  

3. 

POLICY OBJECTIVES 

The  general  objective  of  this  intervention  is  to  ensure  that  renewable  energy  contributes 
significantly to security and diversity of energy supply, competitiveness, and environment and 
climate  protection,  but  also  supports  economic  growth,  employment  creation,  regional 
development and innovation in the EU. To achieve this, the following specific objectives are 
proposed:  i)  reduce  uncertainty  for  investors  and  the  business  community,  ii)  improve 
viability  and  cost-effectiveness  of  support  schemes,  iii)  facilitate  consistency  with  market 
arrangements, iv) provide adequacy of energy infrastructure, v) foster technology innovation 
and development, and vi) ensure wider public acceptance and address sustainability.  

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4. 

POLICY OPTIONS  

The aim of this IA is to analyse the environmental, economic and social impacts of selected 
policy  options  compared  to  the  current  situation.  Taking  into  consideration  stakeholders 
views, the following four policy options were identified and analysed:  

•  Business  as  usual  (BAU).  This  option  implies  no  new  EU  policy  promoting  renewable 
energy  after  2020.  Renewables  would  continue  to  benefit  from  to  the  current  ETS 
legislation. 

•  Decarbonisation  without  renewable  energy  targets  post-2020.  This  option  implies  a 
strengthened GHG reduction target and/or policies fully compatible with the long-term EU 
decarbonisation goals, without setting specific a post-2020 renewables target. 

•  Binding  renewable  energy  targets  post-2020  and  coordinated  support.  This  option  would 
update  the  2008  Climate  and  Energy  Package,  by  setting  EU  and  national  renewables 
targets for 2030, along with EU objectives on GHG emissions and energy efficiency. 

•  EU renewable energy target and harmonised measures. This option sees the establishment 
of  an  EU-wide  renewable  energy  target  backed-up  by  a  harmonised  support  scheme  and 
electricity system management.  

5. 

ASSESSMENT OF IMPACTS 

Economic impacts 

The overall economic impact of increasing the share of renewable energy in the energy mix is 
the outcome of multiple interlinked and counterbalancing mechanisms. First, the deployment 
of  renewables  creates  economic  activity.  Second,  increased  consumption  of  indigenous 
renewable  sources  reduces  fossil  fuel  imports,  thus  increasing  energy  security.  Third,  it 
promotes energy innovation, which is key for ensuring the development of sufficient different 
technologies  enabling  the  long-term  cost-effective  decarbonisation  of  the  energy  sector. 
Energy innovation is also important in economic terms, as it create competitive advantages on 
international  markets  with  associated  growth  and  export  opportunities.  On  the  other  hand, 
renewable  energy  expansion  can  also  displace  investment  (and  employment)  in  the 
conventional  sector  with  the  associated  negative  impacts.  In  addition,  the  cost  of  financial 
support for renewables can result in higher energy prices, which may impact on energy users' 
bills and affect the competitiveness of energy-intensive industries. 

The analysis shows that options 2, 3 and 4 are likely to lead to positive economic impacts, as 
they  will  promote  (to  a  varying  degree)  significant  investments  in  renewables  technologies 
which have the potential to generate new industries, jobs and economic growth. In addition, 
they  will  help  lowering  expenditure  on  imported  fuels  which  may  also  protect  the  EU 
economy against external energy price shocks, although options 3 and 4 may result in higher 
import savings than option 2. Meanwhile, financial incentives for renewables under options 3 
and  4  may  increase  costs  for  consumers,  although  this  is  likely  to  be  at  least  partially 
compensated  by  the  merit  order  effect  that  reduces  wholesale  electricity  prices.  On  the 
contrary, option 1 has higher fuel costs which do not generate much economic growth; it will 
however require fewer public investments in developing and deploying renewable energy.  

Environmental impacts 

Renewable energy deployment has the potential to reduce significantly greenhouse emissions. 
Past analysis shows that all policy options explored but the BAU scenario achieve 80% GHG 

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reduction and close to 85% energy related CO2 reductions in 2050 compared to 1990. Options 
2, 3 and 4, combined with effective adaptation measures, have also the potential to improve 
the  climate  resilience  of  the  EU  energy  system.  In  particular,  decentralisation  of  electricity 
generation plays an important role in decreasing overall network and system vulnerability to 
climate-related disasters. Local biodiversity is likely to be impacted directly and indirectly by 
renewable  energy  infrastructure.  Option  2  and  4  may  results  in  higher  impacts,  as  more 
construction of overhead power lines will be needed to connect the best sites (including in 3rd 
countries)  with  consumption  centres.  However,  these  potentially  negative  consequences  can 
be avoided if the infrastructure development follows well established environmental rules.  

Growing  renewable  energy  shares  post-2020  will  require  increased  production  of  biomass 
feedstock,  which  may  lead  to  higher  risks  of  direct  and  indirect  land  use  change  impacts. 
However,  the  analysis  indicates  that  potentially  there  is  enough  availability  of  sustainable 
biomass to meet energy and other uses by 2030. Option 2, 3 and 4 could reduce such risks, by 
introducing  robust  sustainability  criteria  for  all  bioenergy  uses,  building  on  (and  further 
strengthening)  the  mandatory  criteria  currently  applying  to  biofuels  and  bioliquids.  In 
addition,  risks  can  be  further  decreased  by  facilitating  significant  and  sustainable 
improvements in agriculture and forest productivity, as well as promoting international action 
to reduce deforestation and forest degradation (REDD).  

Social impacts 

The transition to higher shares of renewables has the potential to create many new and better 
jobs.  By  the  end  of  2010,  the  EU  renewable  energy  industry  employed  over  1.1  million 
people.  While  renewable  energy  growth  also  triggers  sectoral  restructuring,  research  shows 
that net employment impacts of renewables policies are still positive. In particular, it is crucial 
to  uphold  and  improve  the  competitive  position  of  European  manufactures  of  renewable 
energy  technologies  by  ensuring  both  sustained  domestic  demand  and  access  to  foreign 
markets. 

Given the above, by actively promoting innovative renewable energy technologies, option 3 
may have higher employment benefits that option 2, which through its cost-based approach is 
likely  to  incentivise  only  mature  technologies.  To  the  extent  that  option  3  would  imply 
smoothing of renewable investment over time, it could also provide more stable employment 
for  workers,  helping  to  avoid  periods  of  serious  labour  shortages  for  employers.  Option  4, 
where  a  share  of  renewable  energy  will  be  developed  in  third  countries,  may  have  lower 
(although still sizable) employment benefits.  

6. 

COMPARISON OF OPTIONS 

The policy options were compared based on their effectiveness, efficiency and coherence. 

As  regards  effectiveness,  all  options  but  the  BAU  scenario  help  addressing  both  investors' 
uncertainty  as  well  as  concerns  about  cost-effectiveness  of  support  schemes  and  market 
integration  of  renewables.  While  all  these  options  would  enhance  technology  innovation 
through research & development measures, only option 3 would facilitate MS applying more 
technology  specific  initiatives  and  so  spur  "market  pull"  innovation  that  is  key  to  promote 
mass-scale  deployment  of  renewables.  All  options  but  1  would  result  in  higher  energy 
security and effectively address sustainability considerations. 

In terms of efficiency, the analysis indicates that broadly similar levels of total system costs 
for all options but the BAU scenario. While the efficiency of option 3 depends on the progress 
in  removing  the  existing  inconsistencies  between  national  support  schemes,  the  cost-

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effectiveness  focus  of  option  2  may  help  reducing  the  overall  cost  of  the  policy,  as  well  as 
lowering  the  administrative  burden  associated  with  managing  multiple  targets.  The  analysis 
shows that in practice option 4 could have a lower efficiency than theoretically expected.  

All  policy  options  are  coherent  with  the  other  EU  long-term  policy  objectives  (on  climate, 
environment,  transport  etc.).  There  is  not  a  clear  preferred  option  scoring  the  best  in  all 
criteria. More detailed analysis of policy instrument interactions is appropriate and it will be 
carried out in the context of possible future specific policy proposals. 

The  above  comparative  analysis  of  the  impacts  of  the  four  policy  options  assessed  can  be 
summarised as follows:  

•  Business as usual. This option would not address the current investors’ uncertainty about 
the  EU  renewable  energy  policy  post-2020.  As  this  scenario  assumes  a  phase  out  of 
incentives,  issues  of  cost-effectiveness  and  market  integration  of  renewables  will  be 
addressed  by  the  end  of  the  decade.  Similarly,  already  planned  energy  infrastructure 
development  would  be  sufficient  to  integrate  the  expected  low  deployment  rates.  Finally 
this  option  does  nothing  to  enhance  economic  growth,  employment  creation  and 
technology innovation, and to address sustainability and public acceptance issues. 

•  Decarbonisation without renewable energy targets post-2020. This option would facilitate 
more  visibility  regarding  market  developments  post-2020,  assuming  that  policy  tools 
addressing ETS and non-ETS sectors would be able to provide effective market signals in 
favour  of  renewables,  through  appropriate  carbon  pricing.  By  applying  a  EU  market 
integrated approach, it could help improving support schemes' cost-effectiveness, facilitate 
market  integration  and  provide  adequate  infrastructure.  The  technology-neutral  nature  of 
the  policy  instruments  included  in  this  option  could  also  have  a  weaker  impact  on 
technology innovation compared to other options that include specific energy technology 
measures. This option would effectively address sustainability and public acceptance. 

•  Binding renewable energy targets post-2020 and coordinated support. Depending on their 
ambition,  targets  could  help  provide  investors  and  the  business  community  with  greater 
certainty  on  future  market  volumes  for  renewable  energy  technologies.  They  would  also 
promote further cost-effectiveness and convergence of national support schemes and foster 
greater  research  and  development  of  innovative  technologies.  This  option  would  also 
effectively  address  sustainability  and  public  acceptance  issues,  by  promoting  a  more 
balanced and regionally equilibrated deployment of renewables.  

•  EU renewable energy target and harmonised measures. This option would also positively 
address  both  post-2020  policy  uncertainties,  while  promoting  reinforced  internal  market 
integration. It would provide technology-neutral support combined with producers' market 
exposure  and  it  is  likely  to  promote  more  concentrated  renewable  energy  deployment, 
rather  than  distributed  generation  nearer  centres  of  consumption.  As  a  result,  this  option 
could  risks  raising  support  scheme  and  infrastructure  costs,  as  well  as  public  acceptance 
issues. As in option 3, potential risks of unwanted side effects of bioenergy uses would be 
addressed by a strengthen sustainability framework. 

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Table 1: Comparison of analysed options against the baseline 

Criteria 

 Options 

1: No new 
EU action 

Effectiveness 

Policy certainty 
Support viability 
Infrastructure 
adequacy  
Internal market  
Technology 
innovation 
Sust./public 
acceptance 

Efficiency  System costs 
Coherence  with  other  EU 

policies  

= 
= 
= 

= 
= 

= 

= 
= 

2: GHG 
targets/ no 
RES target 
+ 
++ 
++ 

3: post 2020 
national RES 
targets 
++ 
+ 
++ 

++ 
+ 

+ 

= 
+ 

+ 
++ 

+ 

= 
+ 

Legend = equivalent; + improvement; - deterioration.  

4: EU RES target and 
harmonised measures 

++ 
+ 
+ 

++ 
+ 

+ 

= 
+ 

7. 

MONITORING AND EVALUATION 

For  the  monitoring  and  evaluation  it  is  proposed  that  the  Commission  closely  monitors  the 
following indicators to ensure that the EU stays on track to achieve its 2020 objectives and so 
is  capable  of  building  on  that  framework  to  achieve  its  post  2020  objectives.  Relevant 
reporting  and  monitoring  systems  are  available  at  EU  level,  including  through  the  biannual 
Commission reporting obligation under the renewable energy Directive.  

Indicator 

Relevance 

Share of renewable energy sources in EU final energy consumption 

Renewable energy development 

Reduction of GHG gas emissions in the EU  

Level of ETS carbon prices 

Origin of biofuels and bioliquids consumed in the EU 

Biofuels impacts on land use, food availability and biomass prices  

The amount of MS financial support for renewable energy 

The use of the cooperation mechanisms laid down in the RES Directive 

The production costs of various renewable energy technologies 

The economic availability of sustainable biomass 

The rate of market coupling 

The economic availability of sustainable biomass 

The rate of market coupling 

GHG emissions reductions 

Effectiveness of carbon markets 

Sustainability 

Sustainability 

Efficiency, cost minimising 

Efficiency, cost minimising 

Efficiency, cost minimising 

Renewable energy development 

Efficiency, market integration 

Renewable energy development 

Efficiency, market integration 

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