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# 52012SC0149

**COMMISSION STAFF WORKING PAPER IMPACT ASSESSMENT Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS Renewable energy: a major player in the European energy market /\* SWD/2012/0149 final \*/**

  

COMMISSION STAFF WORKING PAPER

IMPACT ASSESSMENT

Accompanying the document

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

Renewable energy: a major player
in the European energy market

TABLE OF CONTENTS

1........... Section 1: Procedural issues and
consultation of interested parties.................................... 4

1.1........ Organisation and timing................................................................................................... 4

1.2........ Consultation and expertise.............................................................................................. 4

1.3........ Opinion of the IAB......................................................................................................... 6

2........... Section 2: Problem definition........................................................................................... 7

2.1........ Context.......................................................................................................................... 7

2.2........ What is
the problem?.................................................................................................... 10

2.3........ Underlying
drivers of the problem.................................................................................. 11

2.4........ Business
as usual developments..................................................................................... 15

2.5........ EU's
right to act............................................................................................................ 16

2.6........ Who is
affected?........................................................................................................... 17

3........... Section 3: Objectives.................................................................................................... 17

3.1........ General objectives........................................................................................................ 17

3.2........ Specific objectives........................................................................................................ 17

3.3........ Operational objectives.................................................................................................. 17

3.4........ Consistency with other European
policies...................................................................... 18

4........... Section 4: Policy options............................................................................................... 18

4.1........ Policy options............................................................................................................... 19

4.1.1..... Option 1: Business as usual........................................................................................... 19

4.1.2..... Option 2: Decarbonisation without
renewable energy targets post-2020......................... 19

4.1.3..... Option 3: Binding national
renewable energy targets post-2020 and coordinated support 21

4.1.4..... Option 4: EU renewable energy
target and harmonised measures................................... 21

5........... Section 5: Analysis of impacts....................................................................................... 22

5.1........ Economic impacts......................................................................................................... 23

5.2........ Environmental impacts.................................................................................................. 28

5.3........ Social impacts.............................................................................................................. 31

6........... Section 6: Comparing the options.................................................................................. 33

6.1........ Effectiveness................................................................................................................. 33

6.2........ Efficiency...................................................................................................................... 35

6.3........ Coherence.................................................................................................................... 35

6.4........ Overall summary........................................................................................................... 36

7........... Section 7: Monitoring and
evaluation............................................................................. 38

Annex 1: Results of the public consultation................................................................................... 39

Annex 2: Primes modelling used for the Energy
Roadmap 2050................................................... 46

1.           Section
1: Procedural issues and consultation of interested parties

Identification:
Lead DG: DG ENER. Agenda planning/WP reference: 2012/ENER/001

1.1.        Organisation
and timing

The
Impact Assessment (IA) work started in autumn 2011. An Impact Assessment
Steering Group (IASG) was established in November 2011 and met 3 times until
February 2012 to discuss the various sections of the IA, including: problem
definition, objectives, policy options, assessment of impacts and comparison of
options. The IASG included the following DGs: AGRI, BUDG, CLIMA, COMP, ECFIN,
EMPL, ENTR, ENV, INFSO, JRC, MARE, MARKT, MOVE, REGIO, RTD, SANCO, SG, and
TAXUD.

1.2.        Consultation
and expertise

On 6 December 2011, the Directorate General for Energy launched a
public consultation on the 2012 Renewable Energy Strategy. The public
consultation was based on an online questionnaire with 10 sections and 33
questions, some requiring comments and others in the form of multiple choices.
The public consultation was open until 7 February 2012. Some 400 contributions
were received. Most contributions were received from industry (including
utilities and other energy suppliers, technology providers and energy consumers),
followed by individuals; NGOs (including consumers and environmental groups but
also think tanks, trade and research associations); and public authorities
(both from the state and regional/local level). Given the participation from a
broad spectrum of organisations as well as citizens, this public consultation
offers insights into a large range of stakeholder opinions. All Commission's
minimum consultation standards were met. The results of the public consultation
are summarised below (see Annex 1).

A) General policy approach: A clear majority of stakeholders expressed support for a post-2020
renewable energy target, with most participants in favour of mandatory target.
In particular, renewable energy technology manufactures, renewables project
developers and environmental NGOs vastly support mandatory targets. A number of
utilities are not in favour of renewable energy targets although mostly of
voluntary/indicative nature. Only 14% of respondents considered specific
mandatory targets unnecessary.

B) Financial incentives: There was wide support for making support schemes more market
oriented, but most respondents considered that national control over support
schemes should nevertheless be maintained. Public authorities were considerably
more sceptical than both industry and NGOs about the need to establish common
EU benchmarks for support levels. The need for financial incentives beyond 2020
was seen in a differentiated way, with most respondents considering that
support should be phased out for mature technologies.

C) Administrative procedures: Stakeholders identified the length and complexity of administrative
procedures relating to authorisation, certification and licensing as a key
obstacle to further growth of renewables. Only very few respondents (8%)
considered that the requirements contained in the RES directive are sufficient
to address all administrative barriers. Most participants either called for
more direct intervention into national procedures or even for more
harmonisation or mutual recognition in this field.

D) Grid integration of electricity
from renewable energy sources: Respondents
considered that obstacles for grid connection of renewables were likely to
persist after 2020. Grid connection rules (39% of respondents), followed by
balancing and cost-sharing rules (both 29%) were identified as key issues. The
curtailment regime was regarded as less problematic (23%). A minority
anticipated that all obstacles related to grid access for renewables would be
removed in a post-2020 perspective (19%). The need to
increase flexibility to enable electricity systems to cope with a higher share
of variable renewable supply was confirmed. The most favoured options were
demand-side management, infrastructure development (both 45%) and an increased
level of storage (40%). Capacity payments for new back-up generation received
less support (only 21%).

E) Market integration: Exposing renewable generation to balancing risk or introducing
direct marketing of electricity from renewable sources were mentioned as ways
to improve renewables market integration. A shift towards feed-in premiums also
scores high amongst stakeholder views, although some respondents also argued in
favour of the introduction of quota systems. Respondents also saw a need to
move away from today's market model based on short-run marginal cost pricing
(only 8% considered this future-proof). Most respondents considered it
necessary to move towards reflecting full costs (33%) or towards energy service
markets where revenues would be earned from more than just selling electricity
(25%).

F) Renewables in Heating and
Cooling: In this section costs or lack of financial
support were most often cited as main obstacles for stronger renewables
penetration (43% of all respondents). Other obstacles that received a lot of
attention were lack of awareness or unfavourable building regulations. On the
most promising pathways for heating and cooling, solar thermal received the
most support among the respondents (44%), clearly ahead of biomass which was
named similarly often as geothermal (both by around 33%). Electrification on
the basis of a higher share of renewables in electricity production received
somewhat less support (24%).

G) Renewables in Transport: For this sector the respondents saw the
costs of a further deployment as the most challenging problem (39%). This goes
along with a lack of the necessary infrastructure and the need to set standards
more quickly. A big concern among the respondents was whether sustainably
produced biofuels can be supplied on a big scale and also to public acceptance
linked to sustainability concerns such as indirect land-use change. As a way
forward, a high number of respondents proposed to increase the share of RES via
electrification. Regarding transport sectors most respondents cited road
transport for passengers (46%) and rail transport (44%) as promising for
stronger renewables penetration; prospects for air and water transport were
considered less favourable.

H) Sustainability: Asked about the need for additional sustainability criteria in the
period post-2020, a clear majority of respondents confirmed that in their view
sustainability criteria should in the future be applied to both all biomass and
fossil fuels (51%). Besides, around 19% considered that additional criteria
would be necessary to ensure only the best performing biomass was promoted.

I) Regional and international
dimensions: Here a slight majority of respondents
considered that current rules for cooperation between Member States were not
sufficient or had to be supplemented to become operational (41% over 34% who
considered the current arrangements sufficient). More detailed guidance on the
use of the flexibility mechanisms was frequently requested from the Commission.
Cooperation between the EU and third countries on the development of renewables
was seen positively, with a clear majority of respondents favouring further
promotion of such cooperation (58% over 30% who favoured focusing exclusively
on EU domestic resources). More respondents favoured an approach based on
agreements between the EU and third countries rather than bilateral agreements
to be concluded by Member States (45% over 19%).

J) Technology development: Concerning the key challenges for the technologies currently
covered by European Industrial Initiatives (wind, solar and bio-energy in the
area of renewable energy) most respondent identified technology performance and
cost-competitiveness as most important (46% of respondents), ahead of issues
linked to system integration (39%) and industrial manufacturing and supply
chain issues (20%). When asked about technologies other
than those covered by today's industrial initiatives that had the potential for
industrial scale application in a post-2020 perspective, the fields most often
mentioned were storage technologies, ocean energies such as wave and tidal and
various forms of geothermal energy.

In addition to the public consultation, the Directorate General for
Energy met numerous stakeholders individually and received many reports on the
topic of renewable energy policy post-2012. Furthermore, on 24 February 2012 a
public conference was held in Brussels in order to present the first outcomes
of the public consultation and further discuss with a wide range of
stakeholders the following key themes: ‘grid and market integration of renewable
energy’, ‘regional and international cooperation’, ‘sustainable growth of
renewable energies in transport and heating and cooling’, and ‘technology
innovation and development’. The conference featured intervention from
distinguished speakers representing a wide range of stakeholders, including
from industry, NGOs, the Council and the European Parliament.

1.3.        Opinion
of the IAB

The first draft Impact Assessment (IA) report was presented to the
Impact Assessment Board (IAB) on 28 March 2012. The IAB asked to further
strengthen and improve the IA document by i) better explaining the policy
context and the problem definition; ii) strengthening description of policy
options; iii) improving the assessment of impacts; and finally iv) including
more specific on the results of the stakeholder consultation.

The revised IA report addresses the IAB comments in the
following way: section 1.3 includes a summary of the public consultation
results; section 2.1 further explains the rationale for bringing forward the
present communication, and clarifies the linkages and the coherence of this
initiative with other EU policies; section 2.2 describes in more detail the
specific challenges affecting future renewable energy growth in the EU, including
investors' uncertainty and the cost-effectiveness and market integration of
support schemes. The objectives of this initiative were further refined. In
addition, a table summarising how the various policy options relate to the
underlying drivers and further information on stakeholder view were included in
section 4. Section 5 includes a more structured and detailed qualitative
analysis of the economic, environmental and social impacts, which is complemented
where appropriate by related quantitative analysis from the Energy Roadmap 2050
modelling and from relevant literature. Furthermore, policy coherence was
further discussed in section 6. Finally, more information on the results of the
public consultation and on the Primes model was added in the Annexes.

2.           Section
2: Problem definition

2.1.        Context

The EU renewable energy policy started with the adoption
of the European Commission's 1997 White Paper[1]
which laid down a Community strategy and action plan for doubling the share of
renewable energy in the EU's gross internal energy consumption from 6% to 12%
by 2010. This has been driven by the need to address key challenges affecting
the EU energy sector, including: deteriorating security and diversity of energy
supplies, weak competitiveness, and energy-related GHG emissions (see Box 1).

Box 1: Key challenges for the EU energy sector

·
Deteriorating security of energy supply. The EU is increasingly competing with other importing countries and
regions for energy supplies, given that its own domestic energy production is
on the decline. With more than half of the energy consumed in the EU coming
from third countries, the EU is already the world's largest energy importer.
Today, the EU imports more than 80% of the oil and more than 60% of the gas it
consumes. If the current trends continue, import levels could reach more than
70% of the EU overall energy needs by 2030.

·
Low diversity of energy supply. The EU's geographical location puts it in close proximity of a
number of energy-producing regions as well as at the intersection of important supply
routes. Countries in the EU's neighbourhood already account for the majority of
EU's imports in oil and gas. Russia, Norway and Algeria represent together 85%
of the EU natural gas imports and almost 50% of the crude oil imports. This
reliance on a limited number of fuels and technologies and suppliers generates
supply and price risks, price rises and price volatility. Countering such
trends, the increased growth of renewable energy significantly increases the
diversity of fuels and suppliers, generally with a strong indigenous component.

·
Weak competitiveness. The combination of soaring energy consumption in emerging
economies and the gradual depletion of fossil fuel supplies are inevitably
pushing up energy prices. Already today oil prices exceed €90 per barrel
despite the financial and economic crisis. Market volatility and medium and
long term price risks increase costs and uncertainty for European industry,
which can be mitigated through indigenous, more stably priced renewable energy sources.

·
Climate change from excessive greenhouse gas
emissions. Whereas the EU as a whole has seen its
GHG emissions decrease over the last 2 decades[2],
they are not in line with the reduction pathway required to achieve the EU and
international goal of limiting global mean temperature increase below 2°C and
avoid dangerous climate change. Despite reduction in carbon intensity, the
energy sector remains the single largest source of EU GHG emissions. Attaining
the 2°C objective will require a dramatic reduction in the GHG emissions of the
energy system, which means reducing energy consumption and increasing
significantly the use of renewables and other low-carbon energy sources.
Renewable energy could reduce exposure to climate change risks, and so provide
climate adaptation benefits as well as climate change mitigation.

The White Paper was followed in
2001 by the "Renewable Electricity Directive"[3] and in 2003 by the
"Biofuels Directive"[4]
which set respectively national indicative targets such
that the EU would reach a share of renewable energy in electricity generation
of 21% by 2010[5]
and a share of renewable energy replacing petrol and diesel in transport of
5.75% by 2010. As the Commission noted in earlier reports[6], the 2010 targets have not been
met. This inadequate rate of progress, and the need to foster a more balanced
renewable energy development in all Member States and technologies, was among
the reasons that prompted a change in policy approach marked by the adoption of
the Renewable Energy Directive (hereafter: the RES Directive) [7], as a key component of the 2008
Climate and Energy package.

The RES Directive covers energy consumption as a whole, including
the heating and cooling sectors. For the first time, it lays down legally
binding rather than indicative national targets such that the EU achieves a 20%
share of renewable energy by 2020. It also contains a much-reinforced set of
provisions to facilitate the development of renewable energy, such as a legal
requirement for the Member States to prepare National Renewable Energy Action
Plans (NREAPs) – ie detailed roadmaps to reach the RES targets, reform planning
regimes, and develop electricity grids.

This comprehensive and binding
regulatory framework is proving catalytic in driving
forward renewable energy growth in line with the ambitious targets that the EU
has set itself. As shown in Figure 1, MS project that renewable energy will
grow at a faster pace in the years up to 2020 than in the past (6% during
2010-2020 compared to 4.5% in 2000-2010). As a result, the overall share of
renewable energy in the EU will exceed the 20% target in 2020.

Figure 1: Renewable energy share (% of
total gross final energy consumption). Source: PRIMES 2011

The RES Directive has created the world's
most ambitious policy framework for renewable energy deployment up to 2020. But
its is clear that this represents only an early step in what will be a long
road towards decarbonization of the European energy sector. In order to keep climate change below 2°C, both the European Council
and Parliament have already set the objective of reducing greenhouse gas
emissions by 80-95% by 2050, compared to 1990 levels, in the context of
necessary reductions by developed countries as a group[8].

In 2011, the Commission published a 'Roadmap for moving to a
competitive low carbon economy in 2050' [9]
which makes the economic case for decarbonisation and
shows that the targeted 80-95% GHG emissions reduction by 2050 will have to be
met largely domestically. Intermediate milestones for a cost-efficient pathway,
e.g. 40% domestic reduction by 2030, and sectoral milestones expressed as
ranges of GHG emissions reductions in 2030 and 2050 were put forward.

This initiative was followed by two sectoral roadmaps
exploring the dynamics of decarbonisation within the transport and energy
sectors and its interplay with other sectoral objectives. The 'Roadmap to a
Single European Transport Area – Towards a competitive and resource efficient
transport system[10] aims to introduce
profound changes in passenger and freight transport patterns, resulting in a
competitive transport sector which allows increased mobility, cuts CO2
emissions to 60% below 1990 levels by 2050 and breaks the transport system's
dependence on oil.

The Energy Roadmap 2050[11],
published in December 2011, investigates possible pathways for a transition
towards a low-carbon energy system. It identifies a higher penetration of
renewable energy beyond 2020 as a major pre-requisite for a more sustainable and secure energy
system. More specifically, it shows that renewables
will supply the biggest share of EU final energy consumption in 2050[12]. Therefore, post-2020
renewables are set to play a central role in Europe's energy mix, moving from
technology development to mass production and deployment, from small-scale to
large-scale, from financial support to grid parity and competitiveness. This
changing nature of renewables points to need for start reflecting on how to
adjust policy in parallel to market development, build
on using the full potential of the existing EU renewable legislation.

The Communication that this Impact Assessment
accompanies is linked to initiatives to deliver on a
resource Efficient Europe, one of the seven flagships of the Europe 2020
strategy[13].
It aims at further developing the analysis presented in the Energy Roadmap
2050, with particular attention to the challenges and the related policy
solutions that are needed to enable a greater share of renewables in the EU
energy mix, while prompting cost-effectiveness, a European approach, and
greater market integration.

2.2.        What is the problem?

Since the adoption of
the RES Directive in 2009, the EU renewable energy sector has developed faster
than foreseen. Many Member States have experienced rapid growth in the
deployment of renewable energy technologies and as a result 18 Member States
are currently ahead of their renewable energy trajectory as set out in the
Directive. Driven by economies of scale and technology improvement, unit costs
of different renewable technologies have decreased by up to 50%, This is
particularly the case for solar PV. In view of the EU´s ambitions to
significantly increase its share of renewable energy this development is to be
welcomed.

During the same period, the EU has undergone a serious financial and
economic crisis, which has put pressure onto business and communities across
Europe, as well as causing huge stress on public finances. This has made
national and international investors cautious about investing in capital
intensive energy markets, and in particular in the policy-dependent renewable
energy sector. The economic downturn has also contributed to low carbon prices,
which in turn has weakened the incentive to invest in renewables.

The rapid fall in costs for renewable energy technologies and the
boom in renewable energy installations, has in some cases lead to increased
aggregate costs for electricity consumers (and in some cases taxpayers). At a
time of economic austerity, such cost increases can be difficult to manage, and
the risk of over compensation to energy producers has risen. In response to
such events, Member States have increasingly reduced incentives and reformed
support schemes for renewables to ensure cost-effectiveness and market
integration. Again, this is to be welcomed. However, sometimes the manner in
which such reforms have been undertaken has failed to follow European best
practice, creating investor uncertainty across Europe.

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 renewabe energy post-2020. For instance, the testing facilities, cable production, factories
and ships needed for building offshore wind power plants not only need time to
be developed, but their investment profiles change significantly according to
policy frameworks: payback periods to 2020 (8 years) change investment
decisions, compared to payback periods of 18 years (to 2030). Clarity about the
future direction of EU renewable energy policy is thus crucial in order to
provide the renewables sector with predictability. Recognizing this issue, a
number of MS have already set milestones for renewable energy share post-2020.
For instance, in 2011 Germany adopted the goal of increase renewable power
share to 50% by 2030, rising to 60% by 2040 and 80% by 2050[14], while in 2012 Denmark committed to covering 100% of its national energy supply
with renewable by 2050[15].

The RES 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 GHG
savings 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 fast-evolving economic, technology and regulatory
environment described above, the Commission senses a growing belief amongst
stakeholders that planning for the post-2020 period requires consideration
already today.

The Communication that this Impact Assessment accompanies looks at both
the challenges and possible solutions in terms of energy market opening,
support scheme reform, modified electricity market arrangements, optimised
infrastructure management and sustainability that are required 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 Europe's
renewable energy production continues to grow to 2030 and beyond. All of
this is meant to provide clear signals to Member States, investors, and
citizens about the EU’s long-term commitment to the promotion of cost-effective
deployment of renewable energy.

2.3.        Underlying drivers of the problem

The RES Directive is based on the rationale that a positive
framework for renewable energy development is necessary due to a number of
market and regulatory failures or imperfections. These include
non-internalisation of negative externalities of conventional energy forms, the
presence of subsidies for other energy forms, imperfect market structures,
regulatory barriers, the status of many renewable technologies as "infant
industries" together with significant inertia of the system, and barriers
related to information and public perception. While some of these issues will
be increasingly addressed by 2020 through on-going policy initiatives[16], the following six challenges
need to be addressed in the coming years in order to facilitate a greater share
of renewable energy the EU energy mix post-2020.

(1) Uncertainty of future policy framework

The RES Directive established a clear, stable and robust regulatory
framework, notably based on legally binding national targets for renewable
energy by 2020, which has created the required conditions for a period of major
growth and investment in the sector in Europe. Whilst the framework is still
relatively young, current analysis suggests that it has been successful in
promoting MS action to remove barriers to and support the development of
renewable energy. The case is similar for carbon emissions, technology
development such as carbon capture and storage, and energy efficiency measures.
These are all issues which require strong and continued government intervention
for significant development to occur.

As currently framed, however, the EU renewable energy policy
framework effectively ends in 2020, a mere eight years away. Post-2020, there
are no renewables objectives and no decarbonisation targets other than a
decreasing EU Emission Trading Scheme (ETS) cap by a linear factor of 1.74% per
year 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. Carbon pricing can provide an incentive for deployment of the more
mature renewable energy technologies across Europe. In particular a
strengthened ETS is a necessary condition for promoting renewables post-2020
but it may not be sufficient, particularly for speeding up the
commercialization of innovative renewable energy technologies. The uncertainty
about renewable energy market volumes post-2020 and the related support schemes
may therefore lead to commercialization problems for new capital intensive
renewables technologies where investments are marked by long lead times.

(2) Viability of financing incentives

Whilst multiple financial, institutional, structural, administrative
and technological barriers hinder the development of renewable energy,
financial incentives have often been used to overcome all such constraints.
These have consisted of R&D support, investment aid and operating support.
This multitude of different support schemes raise concerns from the perspective
of the single market as it could undermine system efficiency for achieving EU
objectives and raise costs[17].
In addition, a rise in expenditure (partly caused by a boom in installations
resulting from falling photovoltaic per unit costs) is generating concerns on
the cost-effectiveness and on their possible impacts on energy consumers[18].

The cooperation mechanisms established by the RES Directive address
the need to improve the cost-effectiveness, convergence and market integration
of national support schemes, with the view to increase the efficiency
with which Europe develops its renewable energy resources[19]. However, further EU action
may be necessary in the coming years, depending on the rate of technology cost
reductions, policy and regulatory reform at national level and the scale of
future renewable energy growth.

(3) Consistency of market arrangements

Current power market
arrangements were created in an electricity sector characterised by centralised
conventional power plants running on gas and coal. Wholesale electricity prices
tend to be based on short-run marginal costs (with significant legacy capital,
average costs were low) and are largely driven by changes in fossil fuel
prices. Most forms of renewable power generation, by contrast, have high
upfront capital costs but low operational costs (with the exception of
bioenergy). As the proportion of renewable generation within the electricity
market increases, if wholesale power prices remain based on short run marginal
costs, prices will fall and investments covered only by electricity sales
revenues will struggle to cover costs. This might lead to concerns about the ability of investors
to recover capital and fixed operating costs. In addition, current renewable
electricity purchasing arrangements do not always allow for renewable
generators to effectively respond to market price signals, thus creating inefficiencies
in market operation.

In some Member States these challenges have led to calls for the
introduction of ‘capacity payments’ (mechanisms to remunerate the provision of
capacity in addition to the electricity sold) to help covering fixed costs.
Other Member States and market participants have been more sceptical about the
introduction of such payments and see them undermining price signals in the
market. Against this background, the question arises on how to address capacity
challenges in a way that does not lead to new distortions in the internal
electricity market.

(4) Adequacy of energy infrastructure

Most of Europe’s large-scale renewable energy is located at its
periphery (including wind and wave power in the northern seas, biomass in the
Northern/Eastern Europe and solar power around the Mediterranean), away from
centres of consumption. Making best use of this potential will require greater
volumes of electricity crossing national borders. Transmission expansion
throughout Europe is a fundamental enabler for integrating power markets and is
the most cost effective means to accommodate higher levels of diverse renewable
energy in a secure and robust power system. In addition, the distribution grid
also needs to become much smarter to deal with significant new forms of
distributed generation such as solar PV and to facilitate increased demand
response. With more decentralized generation, smart grids, new networks users
(e.g. electric vehicles) and demand side management, there is also a greater
need for more integrated view on transmission, distribution and storage.

The EU energy infrastructure policy, including the proposed
regulation on trans-European energy infrastructure,[20] addresses the need to improve
Europe's transmission and distribution networks to enable the growth of
electricity from renewable energy sources as well as to facilitate the
integration of the European single market by 2020[21]. However, stakeholders in the
finance community are starting to raise concerns such investments will be difficult
to realize in the current economic environment. Therefore further measures may
be necessary, depending on the rate of infrastructure development, the
coordination of network planning and the scale of future renewable energy
growth.

(5) Uncertainty about innovative technologies

The 2050 Energy Roadmap highlighted how a continuous up-take of
breakthrough renewable energy technologies[22]
will be needed throughout the period to 2050 to achieve the transition to a
sustainable and secure energy sector. However, bringing these new renewables to
the commercial market-place is challenging and cannot be achieved by the market
alone. Creating new technologies requires large and cutting-edge research
infrastructures. Their up-scaling to commercial stage demands significant
capital investments with risks that are too large for venture capital and too
high for the traditional banking sector. All in all, higher public and private
investment in R&D technological innovation are crucial in speeding up
energy innovation.

The EU Strategic Energy Technology (SET) Plan addresses the main
bottlenecks energy technologies are facing from the technology creation stage
to the first-of-a-kind commercialisation and system integration stage through a
better integration and coordination of research and innovation capacities and
leverage of resources. Horizon 2020, the proposed framework programme for
research and innovation for the period 2014-2020, will be key in catalysing
these efforts. Reinforcing the capacity of the market to systematically promote
the latest breakthrough innovations and their diffusion will be one of the
central issues for the post-2020 horizon.

(6) Public acceptance and sustainability

Public acceptance of renewable energies is fundamental to further
increasing their share in the overall energy supply[23]. Generally,
renewable energy generation enjoys widespread public support because of its
distributed nature and its global and local environmental and socio-economic
benefits. However, a lack of such support for building large-scale renewable energy
installations or related energy infrastructure (both at
transmission and distribution level) is often causing a
slowing down of their planning and permitting processes, potentially becoming a barrier to renewables growth.

While the RES Directive and the Fuel Quality Directive
introduced the world's first mandatory sustainability criteria for biofuels and
bioliquids, concerns have been raised about the need to further strengthen such scheme as bioenergy demand is set to be a significant
component of the renewables increase post-2020. In this context, the Commission
will soon report both on the issue of indirect land use change emissions and on
the need for EU sustainability criteria for solid and gaseous biomass used in
electricity and/or heating and cooling. The rationale for a specific renewables target in transports will also need to be
looked closely at in the context of the post-2020 regime. Existing EU policy
initiative, including the energy infrastructure package, will help in
streamlining authorisation procedures for international energy interconnectors,
but further measures may be needed, also to ensure public
acceptance of the roll-out of smart-grid applications.

2.4.        Business as usual developments

This chapter looks at how renewable energy share would develop
post-2020, under a business-as-usual scenario (BAU) where no further EU policy
actions is taken. The analysis builds considerably on
the Current Policy Initiatives (CPI) scenario described in the Impact
Assessment of the Roadmap Energy 2050. The CPI scenario reflects the
continuation of current EU climate and energy policies (including the RES
Directive, the latest Commission legislative proposals on energy efficiency,
energy taxation and energy infrastructure) and also takes into account recent
energy policy developments (higher energy import prices and effects of nuclear
accident in Japan).

Therefore, the BAU scenario assumes the
achievement of the overall GHG target, ETS cap and non-ETS national targets by
2020 but thereafter GHG reductions fall short of what is required to mitigate
climate change with a view to reaching the 2 °C objective. Import dependency,
in particular for gas, increases over the projection period and electricity
prices and energy costs also rise. So despite efforts over recent years, the
long term effects of our current and planned policies (including the RES
Directive) are not sufficient to achieve the ambitious 2050 decarbonisation
objective set by the Council, and to improve both security of supply and
competitiveness. Below the main energy trends of the BAU scenario are
described.

Energy developments

Under the BAU scenario, primary energy demand falls by
5% in 2020, and it continues slightly to decrease in 2030 (-5.8%) and in 2050
(-8.4%). Final energy consumption in 2020 is below that expected under earlier,
2007 projections, further decreasing significantly up to 2050 as more efficient
technologies have by then reached market maturity and so reduced energy
demand. The sectorial break-down of demand remains broadly stable with
transport remaining the biggest single consumer accounting for 32% in 2050; the
industrial share increases slightly while that of households declines a bit.
Further energy savings are brought about mainly by energy efficiency measures
for households and services sector and efficiency improvements in energy
transformation in the short to medium term, leading to further declines in
final energy demand which remains 4-6% below the BAU scenario.

Renewable energy share is raising very slowly post-2020 to reach
only 25% in 2030 and just over 29% in 2050. The sector’s growth declines from
6% per year in the current decade, to only by 1% per year between 2020-2050.
This trend is due to the assumed phasing out of operational aid to mature
renewable energy technologies. The share of renewables in transport also shows
very slow growth, increasing from 10% in 2020 – as required by the RES
directive – to a mere 13% by 2050. Similarly, the pace of electrification in
the transport sector is projected to remain slow in the BAU scenario: electric
propulsion in road transport does not make significant inroads by 2050.

Although consumption of fossil fuels decreases and an increasing
share of energy is from renewable energy, the share of energy imports still
rises, though only slightly (by 6% from 2005 to 2050). This is because the development of renewable energy is not fast
enough to compensate for the drop in domestic supply of fossil fuels. Import
dependency rises from 54%, reaching 58% in 2030 and flattening out to 2050 due
to increased domestic renewable energy production.

Average electricity prices rise up to 2030 and stabilise thereafter.
The price increase up to 2030 is due to three main elements: high fuel prices
due to the world recovery after the economic crisis, ETS carbon prices and
support to renewables. Post-2020, electricity prices remain stable because of
the techno-economic improvements of various power generation technologies that
limit the effects of higher input fuel prices and CO2 prices. Total costs of
energy (including capital costs, energy purchases and direct efficiency
investment costs) are rising fast over the projection period but are not
equally distributed across sectors. Energy related expenditures in households rise
strongly while the growth of
energy related costs for services and industry is more moderate. Energy costs
are rising faster than GDP and represent around 15.3% of GDP in 2030 (up from
10.5% in 2005) and 14.6% in 2050. The faster rate of growth relative to GDP
reflects significant investments needs in energy production, transmission and
distribution as well as demand based energy efficiency measures.

Environmental developments

Under the BAU scenario, greenhouse gas emissions fall by 26% in 2030 and 41% in 2050,
achieving only half of the contribution necessary to limit climate change to
2°C[24].
The substitution of the use of fossil fuels would be partially achieved by
greater use of biomass. Whilst current EU law sets sustainability criteria for
the production of biofuels and bioliquids, emissions from indirect land use
change are not taken into account in the current regime and the use of biomass
in electricity and heating/cooling is not so far addressed at EU level. At the
same time, national and EU measures promoting biomass sustainability such as
forest management laws and processes and environmental policies (e.g. EU
post-2020 biodiversity strategy) are in place across the Union but they do not
apply to third countries, which are expected to contribute significantly to EU
biomass supply post 2020. This is the situation reflected in the business as
usual scenarios. The lack of a coherent EU sustainability scheme may lead to
increased pressures on land use and biodiversity. This is even more likely when
biomass imports are considered, where the issue can be even more sensitive in
certain third countries where there is a lack of forest management policies or
ineffective implementation.

Social developments

The vast majority of literature[25]
indicates that renewable deployment is associated with net job creation. For
fuel-free renewable energy technologies, the greatest number of jobs is
generally concentrated in the installation, manufacturing, and administration
phase, while for fuel-based technologies such as bioenergy, biomass feedstock
production and distribution account for the largest share. While labour
productivity evolves over time, studies have shown that renewables are
currently more labour-intensive than fossil fuel technologies. Against this
backdrop, under the business as usual scenario new job creation can be expected
mainly in the period up to 2020 when the current renewable energy framework
generates strong growth of the sector. Post-2020, as a consequence of the low
growth rates in renewable energy markets, net job creation would be reduced
significantly, especially if the EU would quickly loose its global
technological lead on renewables.

2.5.        EU's right to act

The
EU's competence in the area of energy is set out in the Treaty on the Functioning
of European Union, Article 192 (environment), Articles 114 (internal market)
and Article 194 (energy)[26].
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. The European market can encourage the
most cost-effective renewable energy production; facilitate the balancing of
the electricity system and reduce the need for back-up capacity and energy
storage. The large scale investments needed to harness a number of renewable
energy sources (e.g. off-shore wind, second generation biofuels) are also more
feasible and cost effective in EU-wide markets. Finally, the large R&D
budgets needed for developing innovative renewable energy technologies can be
mobilized and organized more-effectively at the European scale rather than at
national level.

2.6.        Who is affected?

The
energy industry, including but not limited to the renewable energy sector, will
be directly concerned as it will need to develop and deploy the needed
renewable energy technologies in the coming years as well as integrate them
into the single energy market. Consumers will be affected by overall energy
expenditure (resulting from the combination of energy prices and amount of
energy used) as well as by energy-related investments such as house renovation,
new types of vehicles, more efficient appliances etc. Public
authorities will also need to engage in discussions about the pros, cons and
trade-offs of different policy options (higher and geographically concentrated
renewable energy development will require additional energy infrastructure
investments; supply of sustainable biomass will require enhance agriculture and
forestry practices, etc.). Changes in the role of
renewables within the EU energy mix will also have a direct influence on third
country fuel suppliers.

3.           Section
3: Objectives

3.1.        General
objectives

The
general objective of this intervention is to ensure that EU renewable energy
policy contributes significantly to: the 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.

3.2.        Specific
objectives

More
specifically, in order to achieve the general objectives, this initiative aims
to: i) reduce uncertainty for investors and the business community, ii) improve
viability and cost-effectiveness of financial incentives, iii) facilitate
consistency with market arrangements, iv) provide adequate energy
infrastructure, v) foster technology innovation and development, vi) and ensure
wider public acceptance and address sustainability considerations.

3.3.        Operational
objectives

The operational objective is to give insight on how the EU renewable
energy policy framework could develop beyond 2020, with the view to: a) inform
market actors (technology providers, operators, investors) and other
stakeholders (central governments, local authorities, NGOs and citizens) about
the possible future policy orientations at the EU level for enabling higher
penetration of renewables in the EU energy mix; b) show trade-offs among policy
objectives as well as among different renewable energy development pathway;
and, c) support the policy debate on the need, ambition and timing of possible
renewable energy milestones for the post 2020 period.

3.4.        Consistency
with other European policies

The
Renewable Energy Strategy fits into the overall framework of decarbonisation as
designed by the Europe 2020 flagship initiatives 'Resource Efficient Europe'
and the Commission's Communications on 'Roadmap for moving to a competitive low
carbon economy in 2050' and 'Energy Roadmap 2050'. The objectives of this
intervention are coherent with the objectives of medium term strategy as
defined in the Commission's Communications 'Europe 2020' and 'Energy 2020', the
EU objective to reduce GHG emissions by 80 to 95% in 2050 compared to 1990, as
well as with energy policy objectives as described in the Lisbon Treaty. This
initiative seeks synergies and complementarities with a number of other EU
policies and initiatives such as the EU Emission Trading Scheme, the Internal
Energy Market development, the Common Agriculture Policy and the EU Sorest
Strategy, the Bioeconomy Strategy and Action Plan and the Resource Efficiency
Roadmap. It is clear that the evolution of the renewable energy policy must
evolve in conjunction with energy market, energy efficiency and climate action
policy discussions, with the view to maximize synergies and minimize possible
overlaps.

4.           Section
4: Policy options

Table 1 below summarise the policy options identified in this impact
assessment and further described in this section. They respond to the problem
definition described in section 2.2, addressing the six underlining drivers
described in section 2.3 with a selected number of key policy measures which
are grouped in coherent policy packages that are characterised by an increasing
level of policy ambition and EU integration. Additional policy elements that
are necessary to promote renewable energy post-2020 include, for instance:
phase-out of support mechanisms or subsidies for conventional, non-renewable
energy sources; better financing possibilities for renewable energies; public
procurement obligations, etc. For keeping the assessment manageable, these
measures have not been included in the studied options but they could be
subject to future analysis.

Table 1: Key features of policy options

Policy options || (1) Business as usual || (2) Decarbonisation with no renewables targets || (3) Post-2020 national renewables targets/ coordinated support || (4) Post-2020 EU renewable target/ harmonised measures

Underlining drivers || || || ||

Policy uncertainty || No new RES/GHG targets || New GHG targets post-2020, no specific RES targets || Post-2020 national RES targets + new carbon and energy efficiency goals || Post-2020 EU-wide RES target + new carbon and energy efficiency goals

Support viability || Phase out of RES support || Phase out of national support schemes || Enhanced coordination and cooperation amongst MS || EU-wide harmonized support schemes

Market arrangements consistency || No new measures || Renewables fully exposed to market risks || Accelerated exposure to market risks || Common balancing and capacity markets

Infrastructure adequacy || No new measures || New measures, connections with 3rd countries || New measures, connections with 3rd countries || New measures, connections with 3rd countries

Innovative technologies uncertainty || No new measures || Enhanced R&D financing through carbon markets || Enhanced R&D financing through carbon markets || Enhanced R&D financing through carbon markets

Public acceptance/ sustainability || No new measures || Sustainability criteria applied to all bioenergy uses || Sustainability criteria applied to all bioenergy uses || Sustainability criteria applied to all bioenergy uses

4.1.        Policy options

4.1.1.     Option
1: Business as usual

As explored in 2.5., option 1 would imply no new EU policy
framework promoting renewable energy after 2020, when the current EU
renewable energy target of 20% ends. Renewable energy would continue to benefit
from to the current greenhouse gas reduction framework for post-2020. This
consists of the directive on the EU Emissions Trading System, which will
continue to reduce the emissions cap for the ETS sectors by a linear factor
1.74% each year beyond 2020. The planned coordinated and partially EU-financed
development of energy infrastructure, including power grids, should improve and
will be able to keep pace with the projected low growth of renewable energy
share.

The strong growth in renewable energy up to 2020 is expected to
continue to bring down the cost of renewable energy technologies. As different
technologies mature, support can be phased out, or at least renewable
energy producers can be integrated into the market with reforms to support
schemes that expose renewable energy production to market risks. Once the
energy market for established renewable energy technologies is liberalised and
competitive, only new renewable energy technologies that still clearly need
support would not be exposed to full market risk. With no further renewable
energy support or policy objective, the development of international
renewable energy sources (e.g. in North Africa and in the European
neighbourhood), currently facilitated by the renewable energy Directive's
"cooperation mechanisms", would slow down for want of European
incentives.

Concerning the sustainability of renewable energy, in most
instances, the environmental impact of energy related activities, including
renewable energy, are addressed through horizontal measures. At EU level these
include requirements for strategic environmental assessments, environmental
impact assessments, compliance with EU biodiversity and environmental
legislation as a whole. This strong European environmental framework is usually
capable of addressing the public's concerns regarding sustainability. However,
with the expected increase in biofuel generation due to the current 10%
renewable energy in transport target by 2020, dedicated sustainability criteria
have been introduced for biofuel and bioliquids under the RES Directive, Fuel
Quality Directive (FQD) and are also applicable under the EU ETS. Under this
option, given that the current sustainability scheme for biofuels is closely
linked to the enforcement of the EU renewable energy target for transports, it
is unclear how it would apply to biofuels used post-2020. Their impact depends
on the future evolution of the targets of the FQD, which could be considered as
remaining at current level for the purposes of this business as usual scenario.
In addition, it assumed that solid and gaseous biomass would remain exempted
from sustainability standards.

This option would not be in line with the views expressed by a clear
majority of stakeholders which support some form of dedicated target for
renewable energy post-2020. Only 14% of respondents considered such a target
unnecessary. Among those favouring renewable energy targets, a clear majority
supported mandatory over indicative targets (39% over 14%).

4.1.2.     Option
2: Decarbonisation without renewable energy targets post-2020

Option 2 would imply strengthened GHG reduction
targets and/or policies fully compatible with the long-term decarbonisation
goal of reducing EU GHG emissions by 80% to 95% by 2050 compared to 1990, e.g.
along milestones as outlined in the Low Carbon Economy Roadmap. For the ETS
sectors, this could imply reductions compared to 2005 by around 45% by 2030 and
around 90% in 2050, which is beyond the current ETS linear reduction factor of
1.74% that would lead to just over 70% reduction in 2050. For non-ETS sectors,
this could imply additional policies and measures which lead to GHG emission
reductions compared to 2005 by around 30% in 2030 and around 70% in 2050, going
well beyond current non-ETS policies. Also GHG emissions from Land Use, Land
Use Change and Forestry (LULUCF) would be appropriately covered by the policy
framework.

Under this option, no specific post-2020 renewable
energy objectives would be set. However, this option
would include binding EU measures addressing the non-cost barriers to
investments in renewable energy. These measures could be developed for the
specific conditions in the electricity, heating and cooling sectors, reflecting
on grid access and authorisation regimes for new entrants, both for electricity
and gas. They would also include a strengthening of existing provisions
contained in the 2009 RES Directive, aimed at fostering the use of renewable
energy in new and renovated buildings, at developing low carbon district
heating networks, and introducing standardised product certification regimes.

As with option 1, the absence of a post-2020 renewable
energy specific target would end or reduce operational incentives for
renewable energy, thus no further EU policy action aimed at promoting more
cost-effective and integrated national support schemes would be needed[27]. Concerning infrastructure, further growth in renewable energy production, particularly if it is
concentrated in few regions with the most cost-effective resources, could
require supplementary measures on energy infrastructure beyond current
policy initiatives[28].
Such measures would depend on the location of renewable energy growth and
subsequent impact on electricity or other infrastructure. It would also depend
on expectations regarding imports of renewable energy from neighbouring
countries. For instance, greater efforts in developing appropriate energy
infrastructure are needed in order to allow for imports from North Africa
post-2020.

Additional policy elements of this option would include enhanced
EU R&D and demonstration support for low carbon energy technologies,
building on a philosophy exemplified in the NER 300 programme using a part of
ETS auctioning revenues for such purposes[29],
and the Horizon 2020 research and innovation framework programme approach and EU-wide
binding sustainability criteria in line with GHG emission reduction
objectives for all biomass for energy purposes, which effectively
exclude adverse GHG emission effects including effects via indirect land use
change, whether it used in electricity, heating or transport. It should be
noted, however, that the implementation of such criteria on those energy users
that would be neither covered by the EU ETS, by the Fuel Quality Directive nor
the future LULUCF policy framework could raise some administrative challenges,
given that currently compliance is closely linked to financial incentives and
target achievement.

As stated above, a large majority of stakeholders
support a dedicated renewable energy target for 2030. However, it should be
noted that a number of stakeholders support a strengthened GHG reduction regime
as the main tool for promoting low-carbon energy source, including renewables. Other
aspects of this option which are clearly in line with the majority view of
stakeholders include the need for additional measures to address the non-cost
barriers to renewables and the application of EU-wide sustainability criteria
to all biomass uses.

4.1.3.     Option
3: Binding national renewable energy targets post-2020 and coordinated support

Option 3 would imply a continuation of the current
energy and climate policy approach embodied in the Europe 2020 Strategy, by
maintaining the three interlinked and mutually reinforcing EU targets on GHG
emissions, renewable energy and energy efficiency. This would therefore imply
setting EU and national renewable energy targets for 2030, consistent
with the long-term EU climate objectives as outlined in option 2 but in addition
ensuring specific growth in renewable energy to address security and diversity
of supply goals, innovative technology deployment and competitive industrial
development.

This option would also include a more active
convergence of national support schemes for renewable energy,
building on and further strengthening the cooperation mechanisms laid down in
the RES Directive. As described in section 3, there is an ongoing debate on the
viability of financial support for renewables, both in terms of the levels of
incentives and the scheme design, and on their impacts on energy consumers.
Financial incentives are increasingly being revised downwards in several Member
States to reflect falling costs due to economies of scale and technology
development. To the extent that support will be necessary for non-mature and
innovative renewable energy technologies, further EU action will be needed to
ensure that stronger growth of renewable energy occurs in a cost-effective
fashion. This could take the form of EU guidelines on financial support, common
cost methodologies, as well as further operationalization of the cooperation
mechanisms established by the RES directive, including enhanced cooperation
with neighbouring countries.

As in option 2, this option would also imply additional
measures on energy infrastructure and enhanced EU R&D support
for renewable energy technologies and, aligned to the further expected demand
rise, EU-wide binding sustainability criteria in line with GHG emission
reduction objectives for all biomass for energy purposes, which
effectively exclude adverse GHG emission effects including effects via indirect
land use change..

To a large extent, this option reflects the majority
view, expressed in the public consultation. As explained above, stakeholders
largely support the introduction of post-2020 renewable energy targets, while
they believe that support schemes management should remain under MS control. At
the same time, many consider as necessary the on-going reform of national
support schemes through introduction of market elements, tariff down-ward
revision and ultimately phasing out support for mature technologies.

4.1.4.     Option
4: EU renewable energy target and harmonised measures

Besides strengthened administrative/planning regimes (cf. infrastructure
package) as in option 3, option 4 would imply the establishment of a EU-wide
renewable energy target backed-up by a harmonised support scheme for
renewable energy (if and where support is still necessary) and harmonised
electricity system management. A strong European approach to renewable energy
development implies that full and open trading of renewable energy
occurs across all member States. Combined with the ongoing developments of
integrating renewable energy producers into the European market, this option
implies that all producers face market prices, that any distortions resulting
from national approaches are removed, and that the target is achieved in the
theoretically most cost-effective manner. An example is this is given by the
current technology neutral Swedish-Norwegian tradable certificate regime. Under
such approach a joint support scheme based on a technology neutral premium or
green certificate regime, all participating Member States would pay the same
premium for a MWh of electricity from renewable energy sources, thus equalising
costs across the EU. Such a scheme could be established based on joint support
schemes.

An additional element for such a policy option would be the
extension of such a harmonised regime to the production of renewable energy
in neighbouring countries. Then, irrespective of the trade in electricity,
the green energy could be purchased via a certificate trading scheme. The
inclusion of 3rd countries within the same EU framework would be
intended to facilitate the growth of renewable energy even beyond the EU's
borders, in a cost effective manner. As with option 3, infrastructure needs
beyond the current 2020 infrastructure package would depend on the expected or
intended renewable energy targets and the extent to which the broader (beyond
EU) cost effective development of renewables modified the EU energy mix and
location.

This policy option also assumes a common EU approach to market
arrangements. It is clearly the intention of the EU to ensure the completion
of the internal market well before 2020[30]
and to harmonise a number of network codes, framework guidelines and other grid
management practices. The extent and success of this harmonisation, the
infrastructure needs associated with the energy mix expected to be generated by
an EU-wide approach to renewable energy development, and the convergence of
support schemes for renewable energy all have implications for electricity
market arrangements. As in option 2, this option would also see an enhanced EU
R&D support for renewable energy technologies and EU-wide binding
sustainability criteria in line with GHG emission reduction objectives for
all biomass for energy purposes, which effectively exclude adverse GHG
emission effects including effects via indirect land use change.

The full EU harmonisation of support schemes envisaged in this
option is supported by a number of stakeholders, mainly energy traders and
utilities. Overall, the majority of respondents to the public consultation (54%)
believe that national control over support schemes should continue. A EU requirement
to open support schemes to producers from third countries as envisaged under
this option would be particularly controversial (supported by only 11%).

5.           Section
5: Analysis of impacts

This chapter analyses - proportionally to the nature of the document
proposed[31]
- the economic, environmental and social impacts of the four policy options
discussed in chapter 4. The analysis is mainly qualitative but, where possible,
it
is complemented by quantitative data drawn from the
Primes modelling carried out for the Energy Roadmap (see Annex 2 for more
details). More specifically, it is assumed that the four policy options
considered in this document broadly correspond to 4 scenarios analysed in the
Roadmap Impact Assessment. Accordingly, option 1 (business as usual) is to a
large extent reflected in the Energy Roadmap reference scenario (CPI); option 2
'Decarbonisation without renewable energy targets post-2020' is reflected by
the 'Diversified supply technologies (DST)' scenario where renewable growth is
driven only by carbon prices; option 3 'Post-2020 renewable energy targets' and
option 4 'EU-wide renewable target and full trading' are reflected in the range
of renewable energy shares modelled in the 'Energy efficiency' scenario and in
the 'High Renewables' scenario of the Roadmap. For further information
regarding the assumptions used in the Energy Roadmap please see Annex 2.

5.1.        Economic
impacts

The overall economic impact of renewable
energy policy is the outcome of multiples interlinked and counterbalancing
mechanisms. First, the deployment of renewables creates economic activity
in the renewable energy sectors. For instance, in Germany investments in
renewable energy facilities have increased significantly between 2005 and 2010,
respectively from 10.3 to 26.6 billion euros. Over the same time, total demand
for facilities and components (including exports), operation and maintenance as
well as biomass fuels grew from 13.7 billion to 35.5 billion euros[32]. Activities in non-energy
sectors of the economy can also benefit from renewable energy growth, through
the supply of intermediate inputs or manufacturing equipment (e.g. steel
industry producing wind turbines or shipping sector for seagoing vessels) which will contribute to increase the aggregate final demand. By
defining the market volumes for renewables, options 3 and 4 could lead
to greater direct or indirect economic activity related to renewables than option
2.

Second, increased consumption of indigenous
renewable energy reduces the demand for conventional energy, including fossil
fuel imports, thus increasing energy security. For instance, the
Energy Roadmap shows that the combined effect of significant penetration of
renewables and increased energy efficiency will be able to reduce the
expenditure for fossil fuel imports and thereby the total external fuel bill of
the EU. Compared to the business as usual scenario, the EU economy could save
in 2050 between 518 and 550 billion euros (08). By promoting strong action to
develop renewables and energy efficiency, options 3 and 4 would lead to
relatively greater reduction in expenditure on fossil fuel imports that option
2.

It should be recalled that other aspects of security of energy
supply, such as fuel and supplier diversity, are not captured in the simple
indicator of import dependency. Current analysis is difficult to use to
quantify the scope and benefits of a more secure and diverse energy supply.
However, it would appear that a short-term cost minimising decarbonisation approach
as contained in option 2 should encourage carbon emissions, but does not
offer incentives regarding the diversity or sources of a given energy mix. It
therefore does not reflect any of the external cost of security and diversity
of energy supply and thus stimulate relatively less any such benefits. In all
cases, EU security of supply would increase as a result of an increased use of
renewable energies: even in the case of goods and technologies imported from
third countries, energy generation actually takes places in the EU. However, in
a broader sense, EU security of supply also strongly depends on the domestic
sourcing of renewable energy inputs and on the mastery of associated
technologies. Hence, EU security of supply would benefit from framework
conditions allowing for a competitive, EU-based renewable energy industry to
maintain its position as a world leader in the long run.

Third, renewable energy deployment 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 – fact that it is often not quantified in
macro-economic studies about the costs/benefits of renewable energy[33]. Options
3-4 involve significant improvement in efficiency and cost parameters of
the new technologies due to greater economies of scale and faster learning
curves compared to the BAU scenario. The strengthening
of the carbon price under option 2 could reduce the relative cost of new
technology options, while ETS revenues could partly address funding for
innovative companies and projects that fall into the ‘commercialization gap’.

However technology development or innovation driven only by carbon
prices focuses narrowly on lowest cost, near-to-market technologies at the
expense of a broader range of technologies which could be competitive in the
medium term. In other words, option 2 is likely to maximize short-term
CO2 reductions and minimize short-term costs, creating innovation
incentives for existing technologies, but not addressing longer-term technology
development and innovation, to the detriment of renewable energy technologies
that are still some distance away from being competitive, such as wave and
tidal energy or second/third generation biofuels[34]. In
this respect, the cost-minimization focus of option 2 (and option 4 to
the extent it is technology neutral within the renewables sector) would appear
less directed at spurring innovation than option 3.

Lead-market research suggests that early
investment in the renewables sector allows a given economy to capitalize on growing
global markets, with positive impacts on domestic growth. For instance,
historically the EU has been a major exporter of renewable energy technology
and expertise. However, as renewable energy industries develop internationally
it is not clear that this advantage would be maintained automatically. As the
European sector evolves, greater specialisation and development of expertise
could result, together with greater trade. There are implications both for the
renewable technology and fuel providers, as both grow and become exposed to
greater international competition. All in all, renewable energy export
opportunities will strongly depend on the elimination of trade barriers in and
free access to key emerging renewable energy markets such as in China, India,
and Brazil.

On the other hand, renewable energy expansion can also displace
investment (and employment) in the conventional energy sector with the
associated negative sectorial 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. This repercussion can lead to the so-called 'budget effect'
whereby additional costs of renewables somehow constrain the budget available
for the purchase of non-energy goods or services, leading to economic
contraction. The Roadmap modelling shows that average prices of electricity are
expected rising compared to 2005 under all options, including the BAU
scenario. It also shows that due to renewables and energy efficiency promotion,
energy intensive industries may face particularly high energy costs for their
highly energy consuming production processes.

This said, an important aspect to be considered in this discussion
is the ‘price effect’ of renewable electricity,
which can help to reduce the average power cost by affecting the wholesale
price. Typically, supply is made up of various power technologies: wind, hydro,
nuclear, combined heat and power plants, coal and natural gas plants. In a
power market, the supply curve (the 'merit-order' curve) and goes from the
least to the most expensive units, reflecting marginal variable costs (mostly
fuel costs). Because renewable electricity has low variable costs it is first
on the merit order curve and the size of the remaining demand to be purchased
on the spot market is reduced. Under the "merit order" principle,
plants with the lowest costs are used first to meet demand, with more costly
plants being brought on line later if needed. The most expensive conventional
power plants are therefore no longer needed to meet demand. If the price is set
by cheaper plants rather than by the most expensive conventional plants, then
the average cost of electricity decreases, and this is called the ‘merit-order
effect’.

A few empirical analyses have attempted to estimate this
merit‐order effect. For example, Sensfuss et al (2008) [35] calculate that the volume of the merit‐order effect would
have been EUR 5 billion in 2006 in Germany if the entire electricity demand of
a single hour was purchased at the corresponding spot market price. Meanwhile,
the cost of incentives for renewables in that same year totalled EUR 5.6
billion. The same authors estimate the value of the kilowatt hour produced by
renewables (i.e. the costs avoided by substitution of electricity from
other sources) at around EUR 2.5 billion, leaving EUR 3.1 billion as the true
extra cost of RE support incentives. Of these, 0.6 billion are directly paid by
final consumers, while the remainder EUR2.5 billion are basically paid by
utilities through a decrease of their infra‐marginal rents due
to the merit‐order effect. In this way, the merit‐order effect
transfers wealth from utilities to deregulated customers. In reality, not all
electricity is sold on the spot market in Germany, and bilateral contracts
mitigate this result. Furthermore, the lower price paid by deregulated
customers does not represent a lower cost for producing electricity. The
overall cost of wind kilowatt hours remains higher than some competitors, even
if the gap has considerably narrowed in the last decade. Utilities may
ultimately find ways to pass part of these costs to customers.

A more recent study on wind power in Ireland provides even more
striking results. Clifford et al (2011)[36],
using a detailed model of the all‐Island Single Electricity Market, show
that the wind generation expected in 2011 will reduce Ireland’s wholesale
market cost of electricity by around EUR 74 million. This is approximately
equivalent to the sum of the Public Service Obligation (financing the feed‐in
tariff for wind) cost, estimated as EUR 50 million, and the increased
“constraint” (or balancing) costs incurred due to wind in 2011. The reduction
of Ireland’s dependence on fossil fuels and the CO2 emission cuts cost nothing
in this case, despite the persistence of the support scheme which ensures
recovery of the long‐term costs of electricity generation from the wind even when the
market prices are low.

A quantitative assessment of the macroeconomic impacts of a
supportive renewable energy policy framework (option 3 and 4), was
performed by a peer-reviewed study by Ragwitz et al (2009) for the European
Commission[37].
Using an input-output model (Multireg) to assess the effect of developments
in the RES sector on other economic sectors, and two macro-economic models
(Nemesis and Astra), they found that achieving the EU 20% renewable energy
target will lead to a net GDP increase of 0.23-0.25% in comparison with a
scenario where all renewables support policies were abandoned. A continuation
of a EU-wide specific renewable energy framework post-2020 (assuming a 30%
renewables share) would result in a net GDP growth by 0.36-0.40% by 2030 in
case of moderate development of renewables technologies exports, which could
increase to 0.44% in case of more optimistic export assumptions. According to
this research, the increase in GDP is most strongly influenced by both the
renewable energy investments and the improved trade balance.

These findings were echoed in a recent study by Balzejczak et al
(2011)[38]
for the German Institute of Economic Research, assessing both economic-wide and
sectoral impacts of renewable energy expansion in Germany. Using an econometric
model that evaluates the net economic outcomes by taking account of various
inter-related economic mechanisms, they found that the expansion of renewable
energy in Germany by 2030 has a positive net effect on economic activity,
particularly thanks to increased investment activity.

An additional indicator of economic impacts is represented by the total
energy system costs, which consist in costs for the
entire energy system including capital cost (for energy using equipment,
appliances, and vehicles), fuel and electricity costs, and direct efficiency
investment cost (house insulation, control system, energy management, etc.).
They exclude disutility costs and auction payments. Reporting data from the
Roadmap modelling, Table 2 shows that system costs of all options are
basically similar up to 2030. The ratio of energy
system costs to GDP is similar across all options scenarios.

It should be noted that significant differences among the identified
options occur only after 2030, reflecting mainly
increased investments in transport equipment as the major transition to
electric and plug in hybrids vehicles is projected after 2030. Additional
system cost difference are also linked to significant expansion of renewables-
based power generation capacity post-2030, which is likely to necessitate
additional DC lines mainly to transport wind electricity from the North Sea to
the centre of Europe and grid reinforcement in the Mediterranean countries to
exploit their solar PV potentials, as well overall more storage facilities.
Furthermore, increased uptake of energy efficiency and
energy saving technologies and practices brings additional costs, although it
will help minimize the risk of possible negative impacts of raising energy
costs on businesses and households.

Using the Green-X model, Resch (2010)[39] has analysed in more detail
the costs of the financing elements of option 3 compared to option 4. In
a harmonised technology neutral support framework, where producers of renewable
energy are rewarded through the sale of green certificates across a European
market, intuitively costs are reduced, since renewable energy sources are
exploited where they are most optimal. However, the analysis finds that several
factors raise the average annual support costs of this option by 12% (€43.2bn
compared with €70.3bn).

In particular, when the certificate price is set by the last (most
expensive) unit of renewable energy, all the renewable energy receives that
price, irrespective of their cost. Thus all but the most expensive technologies
receive over compensation. In other words, there is a risk that windfall
profits are paid to all producers with costs lower than the final price-setting
technology. Empirical analysis[40]
of renewable energy support schemes has found that an extra risk premium is
paid to producers for greater exposure to market and price risk. Finally, the
extra infrastructure expenditure resulting from greater concentration of
production (e.g. wind production in the north and solar production in the
south, needing transport to consumption centres) also raises costs.

As discussed in the IA of the Energy Roadmap 2050, the increased bioenergy utilization might have impacts on prices for
biomass from agriculture and forest-based industries either directly through
increased demand for energy use, or through increased demand for land and thus
higher land prices. As most of the biomass used for energy has competing uses
(food and feed, renewable raw materials), food prices and input costs of other
biomass-using industries are likely to increase.

In conclusion, options 2-4 are
likely to lead to positive economic impacts, as they will promote (to a varying
degree) significant investments in the renewable energy technologies with that
have the potential to generate new industries and jobs. In addition, they will
help lowering expenditure on imported fuels which may also protect the EU
economy against external energy price shocks, although options 3-4 may
result in high import savings than option 2. Meanwhile, financial
incentives for renewables under options 3-4 may increase costs for
consumers (with option 4 having relatively higher costs), although this is
likely to be 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, meanwhile it will require
fewer public and private investments in developing and deploying renewable
energy technologies.

5.2.        Environmental
impacts

An increased share of renewable energy in the EU final
consumption has the potential to reduce significantly greenhouse emissions. As discussed in the Impact Assessment to the Energy Roadmap 2050, all
policy options explored but the BAU scenario achieve 80% GHG reduction and
close to 85% energy related CO2 reductions in 2050 compared to 1990, as well as
equal cumulative emissions over the projection period. In 2030, energy-related
CO2 emissions are between 38-41% lower, and total GHG emissions reductions are
lower by 40-42%. Local air
pollution is also expected to decrease significantly, as this often goes hand
in hand with GHG emissions. However, in some cases (where small unregulated
biomass plants increase significantly), particulate matter (PM) and gaseous
emissions could rise, causing local air pollution, although this risk can be
mitigated by emission standards for small boilers as well as increased use of
efficient and modern district heating. Overall, air quality effects can be
expected to remain positive[41].

All options are likely to
affect directly the local biodiversity due to the construction of energy
infrastructure, particularly overhead power lines. Some short-term disturbances
to animals and destruction of plants and habitats may occur during construction
work, and some permanent displacements of animals and destruction of habitats might
take place due to underground cables and electricity pylons. Further, overhead
electricity lines might make it necessary to keep open vegetation in corridors
in wooded areas and cause habitat fragmentation to animal and plant species and
disturbances to birds. These impacts will vary depending on the project, but
are considered to be rather limited outside wooded areas for electricity line
projects, as, due to the size of electricity pylons only small areas are
affected, and underground impacts of cables are expected to be less important
due to the limited existence of wildlife in those areas. Under all options all
environmental laws must be complied with. Option 2 and 4 may have higher
impacts, in so far they are likely to prioritize deployment of renewable energy
projects in the best sites which are often far from consumption centres. This
will require additional high-voltage transmission lines, including interconnectors
with neighbouring countries.

However, all in all, if the infrastructure development
follows well established environmental rules (including Strategic Environmental
Assessment and Environmental Impact Assessment), these potentially negative consequences
can be limited. Therefore, the pathways as such do not necessarily lead to
biodiversity problems, as this will depend on implementation, but it is
important to engage all stakeholders, including local communities, at an early
stage of the planning, which must be carried out in a strategic manner.

Higher share of renewable energy in post-2020 period
would imply an increase in bioenergy consumption and an obvious rise in demand
for biomass feedstock. . The Impact Assessment to the Energy Roadmap 2050 gives
an indication of the biomass supply needed to achieve the decarbonisation
target by 2030, ranging from 214 to 236 Mtoe depending on the level of
renewable energy share. Whilst today biowaste and residues from forestry and
agriculture have an important untapped potential, it is likely that up to until
2020 most of these bioenergy streams will be utilized (either locally or for
exports). Therefore it is expected that beyond-2020 additional biomass
production would be mainly based on dedicated energy crops, a fact that will
require additional amounts of agricultural land.

Several studies have tried to estimate the potentially
available amount of biomass in Europe and worldwide for 2030 and beyond. For
instance, the European Environment Agency (EEA) estimated
the amount of potentially available biomass in 2030 in the range of 12±2
exajoules, depending on the strictness of application of environmental criteria[42]. Based
on peer-reviewed data, the 2011 IPCC Report on Renewable Energy[43] mentions a plausible global
potential in the range of 100-300 exajoules, depending on the assumptions regarding the realisation of new
production methods. This range corresponds to
approximately 2500-7000 Mtoe by 2050. A
conservative approach would therefore take the lower end of this range to
assess the potentially available supply of sustainable biomass. Given the many
new initiatives and technologies required to realise the 2050 potential, it can
be assumed that about 100-200 exjajoules (or about 2500-5000 Mtoe) could be
realistically available by 2030 on the world market. Considering the
development of renewable energy and bio-economy based policies in other
countries, it can be assumed that a fourth of the global potential is likely to
be available for the European market, equal to a potential of about 625-1250
Mtoe by 2030. While this indicates that it is possible to increase the use of
sustainable biomass to meet energy and other uses, the concrete realization
will require significant and long-term investment in the agriculture and
forestry sectors over the coming years, with the objective of increasing
productivity in a sustainable manner.

It should be recalled that land use impacts of increased biomass use
will depend on number of assumptions and uncertainties. One main source of
uncertainty is the underlying assumption regarding the amount of unused
agricultural land available for the cultivation of bioenergy crops, and to what
extent natural grasslands contribute to this potential. In particular,
assumptions regarding future agricultural productivity and future consumption
of animal products have a great impact on the results. Furthermore, the
uncertainty in the amounts of available waste and residue resources from
agriculture strongly depends on the still uncertain future demand from other
uses such as animal feed, renewable raw material and fertilizers. The same can
be said for forestry biomass feedstock that has multiple uses, i.e. material,
fibre and energy production[44].
Another source of uncertainty is represented by the potential to further
improve crop yields for all uses (food, feed, energy and renewable raw
materials), as the amount of available agricultural land depends on the yields
which can be achieved. Finally, an important factor is the application of
sustainability criteria, aimed to exclude biomass for energy purposes on the
market that is produced under environmentally harmful conditions.

The limited availability of sustainable biomass resource may also
require a prioritisation of its application. Biomass should be used primarily
in those sectors where there are no other renewable energy alternatives. These
include, for instance, biofuels for heavy trucks, shipping and aviation, but
also high temperature bioheat for industry. Outside the energy sector, the use
of biomass as bulk chemical is the only option for the production of renewable
raw materials. A post-2020 renewable energy strategy should therefore focus on
stimulating these prioritised biomass applications and short term decision
should be ideally in line with these long-term considerations.

CO2 emissions related to land use, land use change and forestry
(LULUCF) due to increased bioenergy use have been also discussed in the Impact
Assessment accompanying the Low carbon roadmap[45].
In this respect, the Commission has recently tabled a proposal for monitor
LULUCF emissions in the EU. Those taking place in third countries will need to
be addressed in the framework of the global climate change negotiations.

Given the above, by increasing the use of bioenergy and the demand
for biomass raw material, options 3 and 4 (and option 2 to a minor
extent) will result in higher risks of significant direct and indirect land use
impacts. But these could be reduced by applying robust sustainability criteria
for all bioenergy uses, building on (and further strengthening) the mandatory
criteria currently applying to biofuels and bioliquids. In addition, policy
measures are needed to facilitate significant improvements in agriculture and forestry
productivity and land-use efficiency in general, as well as to promote
internationally action to reduce deforestation and forest degradation (REDD)[46]. On the contrary, under option
1 it is likely that a growing demand of biomass for energy could lead to
increased risks of a non-sustainable supply and overexploitation of natural
resources in absence of sustainability rules for all biomass for energy uses,
including solid and gaseous biomass.

Options 2-4 include a possible 6-7%
increase in hydropower, which could have impacts in terms of depletion of freshwater
resources, from changes in river morphology,
combined with higher fertilizer inputs resulting from
the increased cultivation of dedicated energy crops. In a context of increasing water stress due to demographic,
socio-economic pressures and climate change[47],
if not addressed these impacts could exacerbate already
existing water shortages and jeopardize the recovery of good status of surface
and groundwater availability. It is expected, however, that these risks are
minimized under all options by the effective implementation of existing EU and
national freshwater management policies such as Water Framework Directive.

With its effects on e.g. water and air temperatures, precipitation,
sea level, as well as occurrence of floods and storms, climate change has the
potential to influence energy generation. Nuclear and fossil power plants’
operations are sensitive to temperature (i.e. mainly impacts on efficiency) and
precipitation (i.e. mainly impacts on cooling water supply) changes. Moreover,
precipitation changes may show increasing or decreasing trends, depending on
the geographical area and the season, leading to considerable changes in
discharge regimes for hydro-generation. Other renewable sources of energy, such
as wind or solar power, may also be affected by a changing climate, and there
are potentially important impacts on bioenergy (production)[48]. Overall options 2-4,
combined with effective adaptation measures, have 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 natural (and other) disasters.

5.3.        Social
impacts

The transition to higher shares of renewables will imply significant
new opportunities for new and better jobs directly or indirectly related to the
growing renewable energy sector. Studies on gross employment impacts of
renewable energy policy have been conducted for several countries and renewable
energy technologies, including Germany[49],
the UK[50],
the EU[51]
and the US[52]
and they all show positive figures. For instance, by the end of 2010, the EU
renewable energy industry employed over 1.1 million people, with the solid
biomass sector being the top employer with more than 273,000 jobs, followed by
the PV and wind power sectors with respectively over 268,000 and 253,000 jobs[53]. More
sophisticated studies go beyond gross employment
impacts to calculate net job impacts. This
research usually require sophisticated approaches to
model complex economic and sectoral inter-linkages, accounting for a reduction in demand for conventional generation, the effects
of government expenditures on renewables in the economy, and electricity price
impacts. In general, these comprehensive analyses show that net employment
impacts are sensitive to assumptions regarding future energy prices, strategies
for addressing greenhouse gas (GHG) emissions reductions, and the capacity to
export technology.

In their study for the European Commission, Ragwitz et al. (2011)
have assessed both gross and net employment impacts of the EU renewable energy
policy. They calculated that the total gross employment in the EU renewables
sector could amount to 2.8 million people in 2020 and could increase to 3.4
million people by 2030, assuming an extension of the EU renewable energy
framework post-2020 and with optimistic export expectations. A strong development in knowledge-intensive renewable energy
technologies such as offshore wind power, ocean energy, solar PV and thermal
electricity is responsible for roughly half of the estimated gross employment
increase. The study also shows that about two thirds of the jobs created in the
renewable energy sector are based on small and medium-sized enterprises (SME).
Compared to gross employment, the net employment effects are smaller yet
positive. Even considering the negative impacts on replaced investments in
conventional energy technologies as well as the dampening effect of the higher
costs of renewable energies compared to conventional ones, a strong renewable
energy policy framework would result in up to 656,000
net jobs in 2030, depending on the export potential
assumptions.

Other sectoral studies, such as the PV Employment Study[54], have come to similar
findings. Under a scenario with 35 GW of annual new installed PV capacity in
the EU-27, the net positive employment effects would amount to 162,000 jobs by
2030. While today the major source of employment stems from the PV
manufacturing, this study suggest that in the future most jobs will be created
in the operation and management (O&M) of PV systems and in servicing
activities. The creation of indirect jobs will also be considerably high,
accounting for 39% of the total employment creation. Lehr
et al (2011) provide more recent net employment estimates for Germany. They use
scenario calculations based on a combination of an econometric input-output
model, an ecological model and a model for international linkages. According to
this study, net employment effects in 2030 are positive throughout all scenario
analysed. The largest job gains occur in a scenario with high fossil fuel
prices and strong exports of renewable energy technologies and components.

The above research suggests that in order to maintain a positive employment balance in the future, it
is crucial to uphold and improve the competitive position of European
manufactures of renewable energy technology, by ensuring both sustained
domestic demand and also access to foreign markets. Consequently, by actively
promoting innovative renewable energy technologies, option 3 may have
higher employment benefits that option 2, which thorough 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[55].
In addition, by providing financial and other incentives it can offer the
needed key tool to establish domestic manufacturing facilities and encourage
demand for local components, thus helping to establish
domestic manufacturing capacity with potential for
access to export markets. Option 4, where a share of renewable energy will be developed in third
countries, may have lower (although still sizable) employment benefits.

On the other hand, deployment of renewable energy will imply restructuring
within the energy sector and certain jobs will be lost. Given that the most polluting industries account for a relatively
small share of total employment, the adjustment pressures will be concentrated
on a small portion of the total workforce. The top emitting industries in the
EU have some common characteristics in terms of employment, such as high share
of older workers and low mobility, both within their sector and outside it,
which may increase the costs of adjustment. For instance, the share of workers
in electricity (NACE 40) that move to another sector of occupation is less than
2 % and the job-to-job separation rate is around 4 %. Equivalent figures for
agriculture and hotels and restaurants surpass 4 % and 16 % respectively. In
contrast to that, two electricity sectors (NACE 40 and 23) occupy more highly
skilled workers than the average economy and especially as other top polluting
industries. One of the reasons is implementation of various innovations in
environmental technologies in recent years (renewable energy, energy
efficiency, fuel efficiency and biotechnology)
[56].
In addition, it should be noted that a wide range of
skills are required in the renewable energy sector. In order to achieve
deployment targets and maximise job benefits, it is necessary to facilitate and
increase education and training. A large-scale shift to renewable energy will
require some skills similar to those needed in the conventional energy
workforce and other skills that are specific to certain renewable technologies.

In their study employment and economic impacts of renewable energy
expansion in Germany, Balzejczak et al (2011) found that employment benefits are more likely to be maximised where there are
active labour market interventions to support acquisition of necessary skills. If labour markets are rigid and additional works cannot be easily
mobilized from the pool of unemployed people, this can impact net employment
effects. This result highlights the importance of labour market policies as a
supplement to renewable energy expansion, for instance, in the form of measures
to increase labour market participation. This study also indicates that
renewable energy deployment triggers sectoral restructuring, as renewables
growth results in a re-allocation of economic resources. In particular, fixed
and human capital is being invested in renewable technologies instead than in
conventional energy. This underlines the need for labour market policies,
in particular for additional qualification measures.

Affordability of energy services is another indicator for assessing social impacts of renewable
energy policies, particularly on households. According
to the Roadmap modeling, all policy options show significant fuel savings
compared to BAU scenario but also higher costs for stationary energy uses, due
to highly efficient appliances and building insulation. Options 3 and 4 (that imply ambitious energy efficiency
measures) may result in higher costs for energy services by 2030 compared to
options 1 and 2. Therefore, policy measures will be needed to minimize possible
affordability challenges for vulnerable consumers that may not be able to
afford the necessary upfront investment to obtain later savings.

6.           Section
6: Comparing the options

This section provides an assessment of how the analysed policy
options will contribute to the realisation of the policy objectives, as set in
Section 3, in light of the following evaluation criteria:

·
Effectiveness: the extent to which policy options analysed achieve the general and
specific policy objectives of this intervention;

·
Efficiency: the extent to which the specific objectives can be achieved at
least cost;

·
Coherence: the extent to which the identified policy options are likely to
limit trade-offs across the economic, social, and environmental domains and the
relevant EU policies.

6.1.        Effectiveness

To recall, the specific objectives of this intervention include: a)
reduce investors uncertainty, b) improve viability of financing incentives, c)
facilitate consistency with market arrangements, c) provide adequacy of energy
infrastructure, e) promote technology innovation, f) and ensure sustainability
and public acceptance.

Concerning investors' uncertainty, option 1 would not help
addressing it, as it does not provide clear policy framework post-2020.
Currently only a general, horizontal framework exists for the EU ETS. By
building on and further strengthening the existing EU ETS regime, option 2
would help creating a long-term framework for investment decisions into
renewable and other low carbon energy solutions provided that it delivers the
right market signals to investors through appropriate carbon prices. Renewable
energy-specific targets and measures as contained in options 3 and 4 would
provide investors and the business community with a higher degree of visibility
on the future market volumes for renewable energy technologies. In addition, it
would again maintain a sense of continuity with the existing policy and
regulatory framework which realizes in a number of interlinked policy
instruments (ETS, RES targets, energy efficiency measures, SET Plan and R&D
programmes etc.) to maximise the chances of policy success.

Under option 1, the ongoing reforms and cost reductions regarding
renewable energy support schemes should result in significant improvements in
their overall viability and consistency with the internal market,
and considerable phasing out of support. Option 1 also presupposes the
internal market will be completed shortly and that national approaches to
market arrangements and capacity needs are similarly compatible with the
internal market. Under option 2, support schemes for renewable energy would
also decline rapidly, since decarbonisation would be driven by carbon prices
alone. Under option 3, while Member States would continue using support schemes
for those renewable energy technologies that are not competitive, a more active
convergence would be pursued at EU level such that the schemes would be time
limited, share a common framework and be consistent with market principles. In
option 4, a single EU-wide support scheme would be applied for the target
framework, which would have the potential to reduce tendencies towards
distortion of competition and achieving EU targets with the minimum amount of
aid, in compliance with State aid principles. However, as noted above, this
could risk raising support scheme costs and undermining their viability,
however it would normally be a clear means of fully integrating renewable
energy into the internal market[57].
On the other hand, a greater role for cheaper renewable energy sources in
neighbouring countries such as in North Africa and the Balkans would
potentially also keep cost of RES support lower.

Concerning the development of adequate energy infrastructure,
the policy options assessed broadly rely on the implementation of the current
infrastructure package providing a clearer, stronger European framework for
planning, coordinating and developing energy infrastructure as well as better
national and European instruments for financing the infrastructure. Thus under
the BAU scenario, no further measures are envisaged post 2020. Under options
2-4, partly depending on the stringency of either the GHG savings or renewable
energy targets (or both), further efforts and harmonisation of infrastructure
planning may be needed, with the view to ensuring even greater coherence and
cooperation in the development of European infrastructure as well as extension
of European infrastructure to create greater connectivity with neighbouring
countries, and so facilitate greater regional renewable energy cooperation and
development. Significant infrastructure action may be needed to allow green
power imports from 3rd countries.

Under policy options 1, 2 and 3 it is expected that electricity
market arrangements evolve in a manner consistent with the internal market
and with the development of a liquid trading market, open to all undertakings
capable of providing flexibility in managing both supply and demand. This is a
condition for a level playing field and competitive energy market in which
renewable energy producers are expected to compete. Under option 4, this
tendency would be reinforced as necessary, to ensure a harmonised European
approach that was compatible and consistent with internal market objectives.

Technology specific policies include
both R&D support, which would be enhanced under options 2, 3 and 4; and
"market pull" policies that would bring new technologies into the
market for mass deployment. Option 2 is technologically wholly neutral and thus
its "market pull" is limited to current, cost effective technologies.
Option 4, whilst creating instruments to promote renewable energy in general,
would again, focus on the most cost effective renewable energy technologies and
not expressly drive technology innovation. Option 3 would facilitate Member
States applying more technology specific initiatives and so spur "market
pull" innovation (as opposed to solely R&D).

Sustainability concerns are not
adequately addressed under option 1, but would be effectively addressed under
options 2, 3 and 4: there is no expectation that any significant further development
of renewable energy could occur without further measures to ensure the
sustainability of biomass production and use. The effects on biomass use and
the implications for the further development of the sustainability framework
need further analysis which will occur prior to any post 2020 renewable energy
policy framework decisions. Regarding the acceptability of
infrastructure/generation plant, public acceptance concerns would be addressed
in accordance with the provisions of the RES Directive, the infrastructure
package and existing environmental legislation.

6.2.        Efficiency

Overall system costs should be minimised, for achieving the multiple
objectives in a satisfactory manner, rather than one objective in isolation.
The present analysis indicates broadly similar levels of system costs for
options 2, 3 and 4[58].
By establishing a single GHG reduction target and using the EU ETS and other
GHG-related measures in non-ETS sectors, option 2 has
an intuitive appeal in particular because it would allow the market the
flexibility to choose the most cost-effective technologies and other cost
effective means of achieving the goal of decarbonisation. This in turn should help reducing the overall cost of the policy,
as well as lowering the administrative burden associated with managing multiple
targets. However, since it does not ensure other policy objectives are met
(however imprecise they may be), it does not necessarily ensure the effective
achievement of key components of EU energy policy, including energy security
and diversity and the promotion of innovative energy technologies in a
competitive renewable energy industry.

This said, the extent to which the instruments created under option
2 could contribute to energy policy objectives (technological innovation and a
competitive energy sector) requires more detailed analysis. Option 3 is
effective to meet GHG and renewable energy objectives but could still incur
higher costs if progress is slow to remove inconsistencies between national
schemes. The analysis shows that option 4 is also less efficient that theoretically
expected.

6.3.        Coherence

When assessing the coherence of policy
options it is important to recall the findings of the impact assessment to the
Climate and Energy package, which analysed the role that different instruments
(the EU ETS, national GHG reduction targets, energy efficiency measures, a new
framework for carbon capture and storage and the RES Directive) play in
achieving multiple objectives. It acknowledged that strong and stable carbon price
signal should drive a range of emissions reduction measures in a well
operating energy market. However, price signals may not be reaching all players
(in particular households) and may not provide the required long-term
incentives for product energy efficiency and technology development. As a
result, the need was found for other, more direct methods – i.e. renewables and
energy efficiency specific regimes – to ensure that efforts were made in all
sectors such that long-term energy sustainability can occur at an affordable
cost.

Notwithstanding the above, the BAU trends established by the current
regulatory framework (including energy market liberalisation, reform of
electricity market arrangements and renewable energy support schemes, R&D
initiatives and ETS pricing) are further enhancing policy coherence, however
without specific measures to achieve post-2020 energy related objectives. While
option 2 chiefly focus on emissions reductions and does not address
specifically other energy policy objectives, a strengthened EU emission trading
scheme as key pillar of option 2 would appear to be coherent with the existing
energy policy framework, drawing on the benefits of an internal market and
respecting subsidiarity on energy technology supply choices. For other
climate-related policies, the extent of the coherence with the development of
the internal energy market depends very much on post-2020 policy design. Option
3 and 4 could continue the policy approach initiated with the 2008 Climate and
Energy Package, while providing further assurance that the multiple energy
policy objectives would be equally pursued and all sectors would contribute
effectively to the long-term decarbonisation effort at an affordable cost. This
said, building on the experience of the recent years, more detailed analysis of
policy instrument interactions is appropriate for assessing related aspects of
coherence but this is beyond the scope of this assessment and will be conducted
in the context of future specific policy proposals.

6.4.        Overall
summary

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 for renewables, issues of cost-effectiveness and market
integration of support schemes will be addressed by the end of the decade.
Similarly, energy infrastructure development would continue as currently
planned, which would be sufficient to integrate the expected low growth in
renewables. Finally this option does nothing to enhance growth, employment
creation and energy technology innovation and to ensure sustainability and
public acceptance issues.

·
Decarbonisation without renewable energy
targets post-2020. This option would facilitate
more visibility regarding renewable energy 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 renewable energies, through
appropriate carbon pricing. By applying a European market integrated approach,
it could help improving support schemes cost-effectiveness, facilitate market
integration and provide sufficient infrastructure. The technology-neutral
nature of the policy instruments included in this option could also have a
weaker impact on energy technology innovation compared to other options that
include specific energy technology measures. This option would effectively help
minimizing sustainability and public acceptance issues.

·
Binding renewable energy targets post-2020
and coordinated support. Depending on the ambition
of targets, it could help provide investors' and the business community with
greater certainty on future market volumes for renewable energy technologies.
It would also promote –in a predictable way– further cost-effectiveness and
convergence of national support schemes and foster greater research and
development of innovative technologies. This option would also effectively help
minimizing sustainability and public acceptance issues, by promoting a more
balanced and regionally equilibrated deployment of renewables, including for
auto-consumption.

·
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 market
exposure to producers and it is likely to promote more concentrated and distant
centralised renewable energy generation, 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 minimized by a strengthen sustainability framework.

Table 4: Comparison of analysed options
against the baseline

Criteria || Options || 1: No new EU action || 2: GHG targets/ no RES target || 3: post 2020 national RES targets || 4: EU RES target and harmonised measures ||

Effectiveness || Policy certainty || = || + || ++ || ++

Support viability || = || ++ || + || +

Infrastructure adequacy || = || ++ || ++ || +

Internal market || = || ++ || + || ++

Technology innovation || = || + || ++ || +

Sust./public acceptance || = || + || + || +

Efficiency || System costs || = || = || = || = ||

Coherence || with other EU policies || = || + || + || + ||

Legend =
equivalent; + improvement; - deterioration.

7.           Section
7: Monitoring and evaluation

This
impact assessment has highlighted that there are major expectations of the current
policy framework delivering improvements that will help ensure EU energy and
climate goals are achieved. Key elements are the timely, complete, and
effective implementation of the renewable energy Directive, and energy market
liberalisation and the adoption of the energy efficiency Directive, the
infrastructure package, and the EU ETS and other sectoral climate legislation.
Progress on these elements will be closely monitored to ensure that the EU
stays on track to achieve its 2020 climate and energy objectives and so is
capable of building on that framework to achieve its medium to long term goals.

Core
indicators for meeting the objectives of this initiative include:

Indicator || Relevance

Share of renewable energy sources in EU final energy consumption || Renewable energy development

Reduction of GHG gas emissions in the EU || GHG emissions reductions

Level of ETS carbon prices || Effectiveness of carbon markets

Origin of biofuels and bioliquids consumed in the EU and || Sustainability

Biofuels impacts on land use, food availability and biomass prices || Sustainability

The amount of MS financial support for RES || Efficiency, cost minimising

The use of the cooperation mechanisms laid down in the RES Directive || Efficiency, cost minimising

The production costs of various RES technologies || Efficiency, cost minimising

The economic availability of sustainable biomass || Renewable energy development

The rate of market coupling || Efficiency, market integration

Reporting and monitoring systems for the
above mentioned indicators are available at EU level. More specifically, under
the renewable energy Directive Member States are required to submit regular
progress reports,
including amongst other information on sectoral and overall share of renewable
energy, the functioning of support schemes and other measure to promote energy
from renewables, the development in the availability and use of biomass
resources for energy purposes, the estimated net GHG emissions related to
renewable energy use. Additional EU legislation has already established
reporting requirements related to GHG emissions and carbon prices.

Annex 1: Results
of the public consultation

1          Introduction

The Commission is preparing a Renewable Energy Strategy to be
adopted in the second quarter of 2012. This will complement a Communication on
the Internal Energy Market also planned for this year which will also help
inform the evolution of the EU's wider energy policies following on from the
Energy 2050 Roadmap.

The main purpose of the Communication on renewable energy will be to
examine the conditions that might be necessary for a further development of
renewable energy in a medium term perspective – i.e. until 2030. This will
cover the three pillars of energy policy (sustainability, security of supply
and competitiveness) and be consistent with the long-term decarbonisation
scenarios presented in the 2050 Roadmap which all point to a substantially
increased share of renewable energy sources. There is a need to ensure a
cost-effective development of renewable energy potential, as well as to ensure
that their further expansion happens in line with the requirements for system
stability (electricity) and is consistent with other Union policies, notably
climate mitigation, the internal market, international cooperation, technology
development and protection of the environment, including biodiversity.

On 6 December 2011, as part of the process of preparation of the
Renewable Energy Strategy the Directorate General for Energy launched a public
consultation. The public consultation was based on an online questionnaire
which contained numerous questions subdivided under the following chapters:

(1)
General policy approach

(2)
Financial support

(3)
Administrative procedures

(4)
Grid integration of electricity from renewable
energy sources

(5)
Market integration

(6)
Renewables in Heating and Cooling

(7)
Renewables in transport

(8)
Sustainability

(9)
Regional and international dimensions

(10)
Technology development

The public consultation was open until 7 February 2012. More than
400 contributions were received. Most contributions were received from
industry, followed by individuals, NGOs and public authorities. Member States
as such did not participate in the public consultation. The individual
contributions have been published on the public consultation webpage[59].

Participation in the consultation came
from a broad spectrum of organisations as well as citizens:

Likewise participation followed a fairly broad geographical spread,
with all Member States except from Malta and Cyprus being represented:

In conclusion, this public consultation therefore offers insights
into a large range of stakeholder opinions.

2.         General policy approach

This section inquired about the attitude of participants towards the
general policy approach to be adopted for the post-2020 framework. The first
question asked whether they saw a role for new targets for renewable energy
sources post-2020. A clear majority of stakeholders expressed support for some
form of dedicated target for renewable energy post-2020. Only 14% of
respondents considered this unnecessary. The relatively highest shares of
opponents of new targets are in the categories of NGOs, individuals and others,
whereas only a very small percentage of industry participants (9%) and none of
the participating public authorities considered targets unnecessary. Among
those favouring targets, a clear majority supported mandatory over indicative
targets (39% over 14%). Likewise relatively few participants favoured an
approach based exclusively on sectoral targets (only 10%).

There was also a question in this section about which other policy
elements would be necessary to promote renewable energies post 2020. With
multiple answers possible, two elements were clearly singled out as most
important: enhanced focus on R&D as well as enhanced facilitation policies
such as faster and easier permitting, improved grid access and availability of
more sites (both options supported by around 60% of respondents). Among the
options given public procurement obligations were seen as relatively least
important.

3          Financial Support

Replies on the need for financial support post-2020 showed that
respondents see a need for a more differentiated approach in that time frame. A
majority considered that support should be available for selected technologies
(57%) whereas only 13% favoured phasing out all support for renewables
post-2020. Most respondents predicted that some renewables technologies would
be competitive in that time frame and support should therefore be targeted to
those which will not have reached this stage yet. Operative support could be
provided for those relatively close to the market whereas at the very initial
stage of development R&D support might according to some respondents be
more appropriate. Technologies mentioned most often in this context were
various forms of ocean energy as well as geothermal. Offshore wind, new solar
applications as well as second generation biofuels were also mentioned. As for
the conditions under which support for renewables continued to be justified,
the absence of full internalisation of external costs, including through a
robust carbon price, as well as removal of all subsidies for conventional
generation were most often mentioned. On the other hand, some respondents
argued that limits to renewables support should be defined ex-ante e.g. in
terms of deployment volume, market penetration or time frame.

Replies on the need for more common approaches towards support
schemes were quite mixed. As to the level of support 36% considered these should
remain under exclusive national control, 22% considered benchmark values for
support at national level appropriate and 27% argued in favour of EU-level
benchmarks. The support for EU-wide benchmarks was slightly higher among
industry respondents than on average (34%). On the other hand, more than two
thirds of public authorities responded that support should remain under
exclusive national control. For the structure of support more respondents
rejected EU-wide alignment than supported it (45% over 37%). Again, strongest
opposition to alignment came from public authorities (67%), followed by NGOs
(46%), whereas a slight majority of industry respondents favoured structural
alignment (43% over 40%).

In general there was wide support for making support schemes more
market-oriented. As to which support schemes are most distortive, the majority
of respondents avoided a response with explicit reference to generic support
types, but rather referred to abstract principles and stressed that distortions
were highest in case of over-compensation, respectively lack of proper downward
adjustments of support levels. Nevertheless a number of respondents stressed
the importance of exposing renewables to market price signals in order to
reduce distortions and mentioned a move from feed-in tariffs to feed-in
premiums as a step in the right direction. Some respondents also referred to
priority access rules as well as non-exposure of renewables to balancing risk
as specifically distorting elements.

4          Administrative procedures

Asked about non-cost related obstacles to further renewables
penetration, the length and complexity of administrative procedures relating to
authorisation, certification and licensing was identified as a key obstacle to
further growth of renewables by most respondents (62%, multiple replies
possible). Lack of commonly agreed technical specifications and lack of
credible and certified training and qualification were the other biggest
obstacles seen in this category. From the side of the renewable energy sector
the absence of clear deadlines for authorisation procedures leading to
excessive lead times was stressed as a key problem.

As to the appropriate policy response only very few respondents
considered the approach of the current directive sufficient (8%). Most
participants either called for more direct intervention into national
procedures or even for more harmonisation or mutual recognition in this field.
A more European approach to authorisation procedures for infrastructure
projects of common interest was also welcomed in this context with reference to
the recent infrastructure package proposed by the Commission.

5          Grid integration of
electricity from renewable energy sources

In relation to the rules on grid access for renewables as laid down
in Article 16 of the current Directive, respondents were asked whether they
considered obstacles for grid connection of renewables were likely to persist
after 2020. Grid connection rules were mentioned most frequently in this
context (39%, multiple answers possible), followed by balancing and
cost-sharing rules (both 29%). The curtailment regime was regarded as less
problematic (23%). A minority anticipated that all obstacles related to grid
access for renewables would be removed in a post-2020 perspective (19%). This result
was mirrored by another question asking about which of the current rules of
Article 16 should be continued after 2020. The obligation on network operators
to develop the network as well as priority or guaranteed access were mentioned
frequently whereas priority dispatch and counteracting curtailment were
regarded as relatively less important.

The consultation also confirmed the need to increase flexibility to
enable electricity systems to cope with a higher share of renewable energy from
variable sources (i.e. wind and solar). Respondents were given several options
how this could be achieved. Increasing availability of demand response and
further improvement in infrastructure development and interconnections turned
out to be the most favoured options (both supported by 45% of respondents,
multiple replies possible). Increasing the availability of storage was also
regarded as an important option (40%). Among the diverse options given,
dedicated mechanisms to increase the availability of flexible generation
capacity (capacity payments) proved most controversial (only 21% in favour).
This was mirrored in some of the explanations received on market design issues
(see also section below) where respondents expressed reserves about capacity
mechanisms or stated that should they be considered necessary, they would in
any case have to be designed in a way so as not to introduce new distortions in
the internal market.

6          Market integration

In this chapter respondents stated that they saw a need to make
support schemes more market oriented. On how to achieve
more market integration two elements of reform to support schemes to expose
renewables more directly to market signals were most frequently quoted: a
requirement to trade renewables production on wholesale markets and an exposure
to balancing risk. In line with these preferences, when it comes to the
concrete support mechanisms to be used, many respondents argued for a gradual
shift away from feed-in tariffs towards premiums. There were also quite a few
respondents who considered quota systems in general more market oriented. As to
balancing responsibility some basic preconditions were frequently mentioned
that had to be in place to allow exposure in particular of wind power. This
included the possibility to trade close to real-time, including liquid
intra-day markets, as well as cost-reflective imbalance prices.

Respondents were also asked whether they considered today's market
design an appropriate framework for integrating a larger share of renewable
electricity. Only a small majority considered that the current wholesale market
model based on short-run marginal cost pricing was appropriate (8%). A frequent
reply was that wholesale markets would have to move towards reflecting full
costs (33%) although some respondents added that this could already be observed
in some successful markets. It was also stressed in that context that remaining
distortions in the market such as in particular price caps would have to be
removed. Moreover an evolution of electricity markets into energy service
markets where revenues would be earned from more than just selling electricity
was also regarded favourably (25%).

Finally, a number of respondents, especially from the NGOs, stressed
that they regarded the current market as grossly distorted by subsidies to
conventional and nuclear energy forms which would in any case have to be
removed to allow for renewables being successfully integrated into the market.

7          Renewables in Heating and Cooling

Asked about the main barriers against a stronger uptake of
renewables in the heating and cooling sector, costs or lack of financial
support was most often cited (43% of all respondents, multiple replies
possible). Other obstacles that received a lot of attention were lack of
awareness or unfavourable building regulations. Respondents also took the
opportunity to expand on a number of other problems for renewables in the
heating and cooling sectors. The decentralised nature of the sector was often
cited as a main barrier against a stronger uptake. Split incentives of market
actors, as e.g. in the case of landlords and tenants, are considered to make
the implementation of changes difficult and respondents see the need for a
comprehensive policy approach involving all administrative levels. Furthermore,
the respondents reported the lack of a supportive tax policy, which would
address the issue of cost competitiveness e.g. through a carbon component in
the price of heating fuels. A lack of education and training for installers to
ensure a sufficient number of qualified staff was also frequently mentioned.
Widespread in the submissions is the general notion that so far the political
attention is too much focussed on electricity, not reflecting the size and
potential of the heating and cooling sector.

On the most promising pathways for heating and cooling, perhaps
surprisingly solar thermal is the technology which received the most support
among the respondents to the public consultation (44%, multiple replies
possible), clearly ahead of biomass which was named similarly often as
geothermal (both by around 33%). Electrification on the basis of a higher share
of renewables in electricity production received somewhat less support (24%).
On biomass, respondents raised concerns about the limited availability, alongside
concerns on sustainability and the call to operate biomass facilities on
highest efficiency levels. Concerning other technologies, heat pumps and
heating & cooling storage are mentioned most often, with storage having the
potential for increasing grid stability. A high number of comments asked for a
neutral policy approach, which is not picking winning technologies beforehand.

8          Renewables in transport

Regarding the main barriers against a stronger uptake of renewable
energy in transport, the respondents see the costs of a further deployment as
the most challenging problem (39%, multiple replies possible). This goes along
with a lack of the necessary infrastructure – an issue which was raised to a
similar extent. For a faster increase of RES in transport, the respondents also
see the need to set standards more quickly – some ask the European Commission
to set deadlines to the industry in this respect, with a standard set by the
Commission as the fall back option. Another big concern among the respondents
was whether sustainably produced biofuels can be supplied on a big scale. As
well in this policy area, respondents ask for a long-term regulatory certainty
in the entire EU, given the high investment need for a major shift towards
renewable energy sources in the sector. Other concerns relate to public
acceptance, which can be linked to a lack of suitable information, but as well
to sustainability concerns such as indirect land-use change. As a way forward,
a high number of respondents proposed to increase the share of RES via
electrification and a modal shift, alongside a reduction of energy demand.

Regarding transport sectors where renewables penetration is most
likely to be successful, most respondents cited road transport for passengers
(46%, multiple replies possible) and rail transport (44%). Whereas good
transport by road was still regarded as relatively open to renewable
penetration, there was considerably more scepticism among respondents about the
possibility to expand the use of renewables in air and water transport.

9          Sustainability

Only one question was asked about the future of sustainability
criteria in the questionnaire, but the message coming from this was quite
clear. When asked about the need for additional sustainability criteria in the
period post-2020, a clear majority of respondents confirmed that in their view
sustainability criteria should in the future be applied to both all biomass and
fossil fuels (51%).

Besides, around 19% considered that additional criteria would be
necessary to ensure only the best performing biomass was promoted. Respondents
frequently pointed to increased competition for the limited resource biomass
and called for taking into account effects of its use on overall carbon stocks.
There were nevertheless diverging views in how far aspects of land-use change
should be reflected in sustainability criteria. Respondents also made reference
to existing regulations in the forestry sector as a basis for ensuring
sustainable biomass use. Overall, only a minority of respondents considered
that the implementation of the existing criteria was sufficient.

10        Regional and international dimensions

Given the lack of practical experience so far with application of
the cooperation mechanisms, a slight majority of respondents considered that
current rules for cooperation between Member States foreseen in Directive
2009/28/EC where not sufficient or had to be supplemented to become operational
(41% over 34% who considered the current arrangements sufficient). Most
frequently, more detailed guidance on the use of the flexibility mechanisms was
requested from the Commission, including on procedural aspects. Some
respondents also called for reinforced efforts to move to a more regional
planning when it comes to the use of renewables or at least considered more
visibility on the position of Member States towards target fulfilment useful.
Some industry respondents also asked that private sector initiatives should be
possible without relying explicitly on national governments. Finally, there
were also calls for an EU level joint framework rather than relying on purely
bilateral initiatives.

A similar point was also made regarding cooperation between the EU
and third countries on the development of renewables. In general this was seen
as quite a positive course of action, with a clear majority of respondents
favouring further promotion of such cooperation (58% over 30% who favoured
focusing exclusively on EU domestic resources). Again, more respondents
favoured an approach based on agreements between the EU and third countries
rather than bilateral agreements to be concluded by Member States (45% over
19%). Among the instruments that could be used to strengthen this dimension,
enhanced visibility and transparency for existing projects as well as forecast
of third country contributions were mentioned. Contributors also stressed the
need for enhanced infrastructure given that physical transfer of electricity is
a precondition for joint projects with third countries under Article 9 of the
Directive. This concerned not only interconnection between Europe and third
countries, but also enhanced interconnection within Europe. Beyond the
immediate use of the cooperation mechanisms there were also calls to promote
reciprocal investments and market access in bilateral dialogues with all
partners.

As far as the preferred partner regions for cooperation on renewable
energy is concerned, unsurprisingly North Africa was most often mentioned,
followed by other neighbours such as South East Europe (the Energy Community in
particular) and Norway. Nevertheless enhanced cooperation with further away
countries such as the US or China was also mentioned beyond the context of the
cooperation mechanisms.

11        Technology development

Based on the choices made for current SET plan, respondents were
asked where they saw the remaining key challenges for the technologies
currently covered by European Industrial Initiatives (wind, solar and
bio-energy in the area of renewable energy). Technology performance and
cost-competitiveness were identified as the most important elements in this
context (46% of respondents, multiple replies possible), ahead of issues linked
to system integration (39%) and industrial manufacturing and supply chain
issues (20%). A number of respondents also replied that it was not only about
system integration of new technologies, but also about a transformation of our
energy systems due to these new technologies. On the existing industrial
initiatives a number or comments were also received arguing for enhanced focus
on small-scale and more local applications; these respondents perceived the
current initiatives (still) to be too much focused on large scale technologies.
The need for more training and education programs linked to these technologies
was also underlined.

When asked about technologies other than those covered by today's
industrial initiatives that had the potential for industrial scale application
in a post-2020 perspective or should be in the focus of future research and
industry cooperation, the fields most often mentioned were storage
technologies, ocean energies such as wave and tidal and forms of geothermal
energy. On a more horizontal level, several themes were identified that would
also merit stronger focus. This concerned material research, dedicated
small-scale/distributed generation initiatives, flexible fuel car fleets in the
transport sector as well as waste heat utilisation schemes.

Most respondents considered the EU's current R&D policy only
partially successful in promoting a broader technology portfolio. One of the
key challenges identified was to further facilitate the step from basic
research to deployment and commercialisation although the European Industrial
Initiatives were acknowledged as step in the right direction. An even stronger
coordination of national (and regional) research agendas and consolidation into
a more strategic European approach was also frequently mentioned. Other
perceived problems concerned a lack of funds or dedicated budget lines for
certain research priorities as well as high administrative burden for
participation in the EU's research programmes, in particular for industry.
Finally, an improvement in communication efforts to disseminate the results was
also considered necessary by some respondents.

Annex 2: Primes
modelling used for the Energy Roadmap 2050

The PRIMES model simulates the response of energy
consumers and the energy supply systems to different pathways of economic
development and exogenous constraints and drivers. It is a modelling system that
simulates a market equilibrium solution in the European Union and its member
states. The model determines the equilibrium by finding the prices of each
energy form such that the quantity producers find best to supply match the
quantity consumers wish to use. The equilibrium is forwarding looking and
includes dynamic relationships for capital accumulation and technology
vintages.

The model is behavioural formulating agents’ decisions
according to microeconomic theory, but it also represents in an explicit and
detailed way the available energy demand and supply technologies and pollution
abatement technologies. The system reflects considerations about market
competition economics, industry structure, energy /environmental policies and
regulation. These are conceived so as to influence market behaviour of energy
system agents. The modular structure of PRIMES reflects a distribution of
decision making among agents that decide individually about their supply,
demand, combined supply and demand, and prices. Then the market integrating
part of PRIMES simulates market clearing.

PRIMES is a partial equilibrium model simulating the
entire energy system both in demand and in supply; it contains a mixed
representations of bottom-up and top-down elements. The PRIMES model covers the
27 EU Member States as well as candidate and neighbour states (Norway,
Switzerland, Turkey, South East Europe). The timeframe of the model is 2000 to
2050 by five-year periods; the years up to 2005 are calibrated to Eurostat
data. The level of detail of the model is large as it contains:

·
12 industrial sectors, subdivided into 26
sub-sectors using energy in 12 generic processes (e.g. air compression,
furnaces)

·
5 tertiary sectors, using energy in 6 processes
(e.g. air conditioning, office equipment)

·
4 dwelling types using energy in 5 processes
(e.g. water heating, cooking) and 12 types of electrical durable goods (e.g.
refrigerator, washing machine, television)

·
4 transport modes, 10 transport means (e.g.
cars, buses, motorcycles, trucks, airplanes) and 10 vehicle technologies (e.g.
internal combustion engine, hybrid cars)

·
14 fossil fuel types, new fuel carriers
(hydrogen, biofuels) 10 renewable energy types

·
Main Supply System: power and steam generation
with 150 power and steam technologies and 240 grid interconnections

·
Other sub-systems: refineries, gas supply,
biomass supply, hydrogen supply, primary energy production

·
7 types of emissions from energy processing
(e.g. SO2, NOx, PM)

·
CO2 emissions from industrial processes

·
GHG emissions and abatement (using IIASA’s
marginal abatement cost curves for non CO2 GHGs).

Further information on the assumptions behind the
modelling done for the Energy Roadmap 2050 can be found in the Commission Staff
Working Paper SEC(2011) 1565, part 1 and 2.

[1]               COM (97) 599 final

[2]                      Excluding emissions from LULUCF (Land Use, Land Use Change and
Forestry)

[3]               Directive 2001/77/EC of 27 September 2001 on the promotion of electricity
produced from renewable energy sources

[4]               Directive 2003/30/EC of 8 May 2003 on the promotion of
the use of biofuels or other renewable fuels

[5]               The EU share of renewable energy in electricity
generation included in the Annex of Directive 2001/77/EC is 22%, but
following subsequent accessions has since then been amended to 21%.

[6]               Renewable Energy: Progressing towards the 2020
target, COM/2011/0031 final.

[7]               Directive 2009/28/EC of 23 April 2009 on the
promotion of the use of energy from renewable sources

[8]               European Council, Brussels,
29/30 October 2009, Presidency conclusions. 15265/1/09. European Parliament
resolution of 4 February 2009 on "2050: The future begins today –
Recommendations for the EU's future integrated policy on climate change;
resolution of 11 March 2009 on an EU strategy for a comprehensive climate
change agreement in Copenhagen and the adequate provision of financing for
climate change policy; resolution of 25 November 2009 on the EU strategy for
the Copenhagen Conference on Climate Change (COP 15)

[9]               COM(2011)112, 8 March

[10]             COM(2011)144, 28 March

[11]             COM(2011) 885/2

[12]             RES share is projected to rise substantially in all
scenarios analysed, achieving between 55% and 75% of total final energy
consumption in 2050, up from today's level at around 10%. RES share in
electricity consumption reaches even higher levels, with 64% in a
high-efficiency scenario and 97% in a high-renewables scenario.

[13]             COM(2011) 21, 26 January 2011.

[14]             German Federal Ministry of Environment (2011),
Germany’s Energy Concept, www.bmu.de/english/transformation\_of\_the\_energy\_system/faq/doc/47589.php#1

[15]             Danish Ministry of Climate, Energy and Building (2012)
Denmark Energy Agreement, 22 March 2012, www.kemin.dk/Documents/Presse/2012/Energiaftale/FAKTA%20UK%201.pdf

[16]             For example, policies include the ETS and the Large
Combustion Plant Directive for the non-internalisation of negative
externalities of conventional energy forms; the commitments to phase out coal
subsidies and the Energy Taxation Directive for the presence of subsidies for
other energy forms; the competition policy and the Third Package unbundling for
imperfect market structures; the Third Package again and the RES Directive
priority connection requirements for regulatory barriers; and the RES Directive
for information and public perception.

[17]             Investors are confronted with different criteria for
and levels of support as well as administrative procedures and grid access
conditions, all of which influence their production and site location
decisions. See SEC (2011)131.

[18]             Operational financial incentives are typically
supported by energy consumers through power and gas tariffs.

[19]             According to COM (2011)31 and SEC(2011)131, this will
be done through: the facilitation of the development of cooperation mechanisms
both between Member States and with third countries, the preparation of
guidelines for more harmonised reform of national renewable energy support
schemes, the promotion of reforms in the southern Mediterranean to facilitate
the growth of renewable energy and the scope for third country cooperation post
2020, the continued work with financial institutions to improve European
support for private investment in renewable energy projects, the increased 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.

[20]             COM(2011)658.

[21]             More specifically, transmission
System Operators (TSOs) are required to co-operate to elaborate regional and
European 10-year network development plans (TYNDP) for electricity and gas with
a focus on cross-border interconnections, in the framework of the European
Network of TSOs (ENTSO). The package also establishes an Agency for the
Co-operation of Energy Regulators (ACER) that – among other tasks – will have
to monitor the implementation of European TYNDPs. The third package finally
sets the target, where possible, to equip at least 80% of consumers with smart
meters by 2020 as a first step towards the implementation of smart grids.

[22]             Such transition will require significant advances in
renewable energy technologies such as deep off-shore wind resources, second
generation bio-fuels, biomass gasification, thin film photovoltaic, ocean
energy, direct steam generation concentrating solar plants and compressed air
energy storage.

[23]             See: Heras-Saizarbitoria et al. (2011), Public acceptance of renewables
and the media: an analysis of the Spanish PV solar experience,
Renewable and Sustainable Energy Reviews, Vol. 15/ 9, Pg. 4685-4696; and,
Zoellner et al. (2008), Public acceptance of renewable
energies: Results from case studies in Germany, Energy Policy, Vol. 36/ 11, Pg. 4136–4141.

[24]             This includes also some energy-related non-CO2
emissions, e.g. methane emissions from coal mining and losses in gas
distribution networks and F-Gas emissions related to air conditioning and
refrigeration. While the former are estimated to decrease under current trends,
the latter are projected to increase considerably. For a more detailed analysis
of the overall GHG reduction efforts needed and of trends in non-CO2 emissions
see the Impact Assessment of the Roadmap for moving to a competitive low carbon
economy in 2050 (SEC(2011)288).

[25]             IRENA
(International Renewable Energy Agency) (2012), Renewable Energy - Jobs Status,
Prospects & Policies, www.irena.org/DocumentDownloads/Publications/RenewableEnergyJobs.pdf.

[26]             Under Article 194 TFEU, Union policy on energy shall
aim at: (a) ensure the functioning of the energy market; (b) ensure security of
energy supply in the Union; (c) promote energy efficiency and energy saving and
the development of new and renewable forms of energy; and (d) promote the
interconnection of energy networks.

[27]             This option assumes that there will be no need to
introduce explicit capacity payments on energy only markets to ensure system
adequacy. This is because the wide spread application of smart technologies and
appliances will enable consumers to adjust their consumptions when needed.
Consumers will be offered appropriate supply schemes which mirror short term
energy prices on wholesale markets and as such provide them with sufficient
incentives to reduce or increase off-take instantaneously. This will make
investment in generation capacities obsolete which would otherwise be only
needed to serve periods of extreme peak demands.

[28]             Additional measures could consist of regulatory,
organisational or financial nature (e.g. regarding planning authorisation
regimes, European grid development coordination and EU funding for projects of
common interest).

[29]             Recommendations would be developed at EU level to
allocate parts of revenues generated from allowances auctioning towards support
to research and innovation activities, in particular financing first-of-a-kind
commercial demonstration projects.

[30]             European Council Conclusions, 4/2/11, note "The EU needs a fully functioning, interconnected and integrated
internal energy market. Legislation on the internal energy market must
therefore be speedily and fully implemented by Member States …. The internal
market should be completed by 2014"

[31]             In-depth impact assessments examining the impacts of
specific policy measures would be carried out for any follow up legislative
proposal.

[32]             BMU
(2011), Renewable energy sources in figures: national and international
developments, http://www.bmu.de/english/renewable\_energy/downloads/doc/5996.php

[33]             Lehr et al (2008), Renewable Energy and Employment in
Germany, Energy Policy 36, pg 108-117.

[34]             Centre for European Policy
Studies (2011), The EU Emissions Trading System and Climate Policy towards
2050: real incentives to reduce emissions and drive innovation?

[35]             Sensfuss et al. (2008), The merit-order effect: a
detailed analysis of the price effect of renewable electricity generation on
spot market prices in Germany. Energy Policy 36/ 8, pg. 3076–3084.

[36]             Clifford et al (2011), Impacts
of Wind Generation on Wholesale Electricity Costs in 2011, SEAI/EirGrid, Ireland

[37]             Ragwitz et al (2009), EmployRES: the impact of renewable energy policy on economic growth
and employment in the EU, Fraunhofer ISI et al. Report
for the European Commission. http://ec.europa.eu/energy/renewables/studies/doc/renewables/2009\_employ\_res\_report.pdf.

[38]             Blazejczak, 2011, Economic effects of renewable energy
expansion: a model-based analysis for Germany, Discussion Paper, German Institute
for Economic Research, www.diw.de/discussionpapers.

[39]             Resch et al (2010), Quo(ta) vadis, Europe? A
comparative assessment of two recent studies on the future development of
renewable electricity support in Europe, Report for the RE
SHAPING project, www.reshaping-res-policy.eu/downloads/Quo(ta)-vadis-Europe\_RE-Shaping-report.pdf.
See also background analysis carried out in the framework for "Beyond
2020"
project: www.res-policy-beyond2020.eu.

[40]             Ragwitz et al (2011), Financing renewable energy in the
European energy market, Report by Ecofys for the EC. http://ec.europa.eu/energy/renewables/studies/doc/renewables/2011\_financing\_renewable.pdf

[41]             For a detailed analysis see SEC
(2011)288, section 5.2.14.

[42]             EEA (2006), How much bioenergy
can Europe produce without harming the environment? European Environment
Agency, Copenhagen, EEA report no. 7/2006

[43]             IPCC (2011), IPCC Special Report on Renewable Energy
Sources and Climate Change Mitigation, prepared by Working Group III of the
Intergovernmental Panel on Climate Change, Cambridge University Press.

[44]             For on-going EC research on current and future demand
and supplies for wood resources, see: http://ec.europa.eu/enterprise/newsroom/cf/itemlongdetail.cfm?item\_id=5328

[45]             SEC(2011)288, sections 5.1.4,
5.2.7 and 5.2.10

[46]             This said, it should be also recalled that biomass
production can also have positive land use and biodiversity effects. For
instance, when the cultivation of perennial crops takes place on degraded land
it may have positive local impacts on net greenhouse gas emissions and
biodiversity.

[47]             See
the ClimWatAdapt project and on-going work for the preparation of the 2012
Blueprint to safeguard Europe's waters
(http://ec.europa.eu/environment/water/blueprint/index\_en.htm)

[48]             See e.g. Rademaekers, K. et al. (2011): Investment
needs for future adaptation measures in EU nuclear power plants and other
electricity generation technologies due to effects of climate change, Final
report (http://ec.europa.eu/energy/nuclear/studies/doc/2011\_03\_eur24769-en.pdf),
and ongoing work under the ClimateCost FP7 project (http://www.climatecost.cc) and under the
"Support to the EU Adaptation Strategy" DG CLIMA contract.

[49]             BUA (2011), Renewable Energy Sources in Figures - national and international
development.

[50]             Esteban et al (2011) Job retention in the British
offshore sector through greening of the North Sea energy industry,
Energy Policy, 39/ 3, Pg. 1543-1551

[51]             Ragwitz et al. 2009

[52]             Wei et al (2010), Putting renewables and
energy efficiency to work: How many jobs can the clean energy industry generate
in the US? Energy Policy, 38/2, pg. 919–931.

[53]             EurObserv'ER (2012), The State of Renewable Energies in
Europe, www.eurobserve-er.org

[54]             EPIA (2011), PV Employment Study, www.pvemployment.org

[55]             ILO/EU (2011), Skills and Occupational Needs in
Renewable Energy http://www.ilo.org/skills/pubs/WCMS\_166823/lang--en/index.htm

[56]             EU Employment and Social Situation, Quarterly Review
(2011) http://ec.europa.eu/social/main.jsp?langId=en&catId=89&newsId=1157&furtherNews=yes.

[57]             For all options it remains the case that support
schemes constituting State aid are subject to State aid control which aims to
ensure that the objectives is achieved with well-targeted aid which is limited
to the minimum and does not unduly distort competition.

[58]             It should be noted that the 2050 Roadmap analysis shows
that whilst the differences in policy option trends are relatively minor to
2030, differences appear beyond 2030 (higher costs associated with greater
technology innovation and diversity of technologies).

[59]             Address to be added.

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