Source: EURLEX
Language: en
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# 52012SC0163

**COMMISSION STAFF WORKING DOCUMENT EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITEE OF THE REGIONS Renewable Energy: a major player in the European energy market /\* SWD/2012/0163 final \*/**

  

COMMISSION STAFF WORKING
DOCUMENT

EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT

Accompanying the document

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

Renewable Energy: a major player
in the European energy market

1.           What is the problem?

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

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

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

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

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

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

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

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

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

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

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

2.           Analysis of subsidiarity
and EU added value

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

3.           Policy Objectives

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

4.           POLICY OPTIONS

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

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

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

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

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

5.           ASSESSMENT OF IMPACTS

Economic impacts

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

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

Environmental impacts

Renewable energy deployment has the potential to reduce
significantly greenhouse emissions. Past analysis shows
that all policy options explored but the BAU scenario achieve 80% GHG reduction
and close to 85% energy related CO2 reductions in 2050 compared to 1990. Options 2, 3 and 4, combined with effective adaptation measures,
have also the potential to improve the climate resilience of the EU energy
system. In particular, decentralisation of electricity generation plays an important
role in decreasing overall network and system vulnerability to climate-related
disasters. Local biodiversity is likely to be impacted directly and indirectly
by renewable energy infrastructure. Option 2 and 4 may results in higher
impacts, as more construction of overhead power lines will be needed to connect
the best sites (including in 3rd countries) with consumption
centres. However, these potentially negative consequences can be avoided if the
infrastructure development follows well established environmental rules.

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

Social impacts

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

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

6.           COMPARISON
OF OPTIONS

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

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

In terms of efficiency, the analysis indicates that broadly
similar levels of total system costs for all options but the BAU scenario.
While the efficiency of option 3 depends on the progress in removing the
existing inconsistencies between national support schemes, the
cost-effectiveness focus of option 2 may help reducing the overall cost of the
policy, as well as lowering the administrative burden associated with managing
multiple targets. The analysis shows that in practice option 4 could have a
lower efficiency than theoretically expected.

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

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

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

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

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

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

Table 1:
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.           Monitoring and evaluation

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

Indicator || Relevance

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

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

Level of ETS carbon prices || Effectiveness of carbon markets

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

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

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

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

The production costs of various renewable energy technologies || Efficiency, cost minimising

The economic availability of sustainable biomass || Renewable energy development

The rate of market coupling || Efficiency, market integration

The economic availability of sustainable biomass || Renewable energy development

The rate of market coupling || Efficiency, market integration

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