Select Committee on European Scrutiny Twenty-Sixth Report


PROMOTION OF ELECTRICITY FROM RENEWABLE ENERGY SOURCES


(21349)

9312/00

COM(00) 279


Draft Council Directive on the promotion of electricity from renewable energy sources in the internal electricity market.

    

Legal base: Article 95 EC; co-decision; qualified majority voting
Document originated: 10 May 2000
Forwarded to the Council: 5 June 2000
Deposited in Parliament: 23 June 2000
Department: Trade and Industry
Basis of consideration: EM of 7 July 2000
Previous Committee Report: None
To be discussed in Council: December 2000
Committee's assessment: Legally and politically important
Committee's decision: Not cleared; further information requested

Background

  2.1  According to the Commission, the promotion of renewable sources of energy is a high Community priority, partly in order to diversify supply and help integrate the environmental concerns into energy policy, but more particularly because of the "substantial contribution" which it says such measures can make towards meeting the Community's Kyoto commitments to reduce greenhouse gases. It goes on to recall that, in its November 1997 White Paper[7] setting out a Community strategy and action plan in this area, it had suggested that 12% of the gross inland energy consumption in the Community as a whole should be met in this way by 2010. It says that, expressed purely in terms of electricity consumption, this figure implies that 22.1% of production should be from renewable sources (RES-E). The Commission has now put forward a proposed Directive setting out ways in which this aim might be achieved.

The current proposal

  2.2  The Commission first explores the case for and against setting binding RES-E[8] targets for all Member States. However, whilst it concludes that this could facilitate the Kyoto objective, it says there are good arguments for maintaining a large degree of flexibility, thus enabling Member States to identify the strategy best suited to their own climate change commitments. That said, it also believes that a Directive is needed in order to provide the framework necessary to increase the rôle of RES-E throughout the Community. With this in mind, it has proposed that Member States should be obliged every five years to set year-by-year national targets for their future domestic consumption of RES-E over the next 10 years, in terms of kWH consumed or as a percentage of electricity consumption for the next 10 years. Member States would also be required to publish on an annual basis their national objectives and the measures they have taken to meet these. In the case of the UK, the indicative target suggested by the Commission would be 10%, as compared with the Community average of 22.1%. Those for other Member States would range from 5.7% for Luxembourg to 78.1% in the case of Austria (see Annex to this paragraph). The Commission suggests that this approach would be fully in accordance with subsidiarity, in that, so long as the Kyoto commitments were met, it would leave the mix of RES-E sources to individual Member States. However, somewhat surprisingly in view of its intention to propose mandatory national targets if it considers the actions taken by Member States are inconsistent with Community targets, the Commission also appears to make this same claim in relation to Member States' overall objectives.

  2.3  The proposal also deals with a number of other issues which would arise from the central aim of the Directive. These are set out in the following paragraphs.

Incentives towards RES-E use

  2.4  The Commission points out that Member States use a number of different mechanisms to support RES-E, such as investment aids, tax exemptions, and direct price support, and that, although costs are coming down rapidly, support is expected to remain necessary in the medium term. It goes on to say that price support is the principal tool, and is based either on quota-based systems (as in the UK) where a given quantity of RES-E receives price support, or through fixed price schemes, which in practice set a limit for RES-E in the Member States concerned. The Commission considers that these schemes have generally been very successful in bringing about a substantial increase in the share of RES-E , and that it will be necessary to reinforce them as long as electricity prices do not fully reflect the environmental costs of the energy sources used. It also suggests that, although it would ultimately be desirable to have a Community-wide market for RES-E, this is not feasible at present. Similarly, although the Commission goes on to explore the possibility of providing the framework for a gradual move in that direction — for example, by requiring Member States to allow foreign suppliers to participate in their national support schemes, or by having a single type of support scheme in all Member States — it again concludes that this would be premature, not least because insufficient information is available at this stage about the relative effectiveness of the different national schemes.

  2.5  The Commission does, however, put up three markers. First, that direct price support schemes should in the medium term be adapted to the principles of the single market, and that this will require all existing forms of support to be taken into account, including those to conventional sources of electricity. Secondly, that it will, in any event, be necessary for it to assess the compatibility of any measures with the Community's state aid rules. Thirdly, that progress "has to be made" in adopting its 1997 proposal[9] for a Council Directive to restructure the Community framework for the taxation of energy products.


Guarantee of origin

  2.6  The Commission says that, given consumer demand for "clean" electricity, and in order to permit trade in RES-E to take place effectively, a guarantee of origin system is necessary to allow purchasers to be certain their electricity has been produced from renewable sources. However, whilst it again suggests that a single Community system would in many ways be the most effective approach, it proposes that each Member State should for the time being be responsible for issuing the guarantees. It says these should be mutually recognised by the Member States, specify the energy sources used, and state whether the capacity of any hydroelectric installations used is above or below 10 MW (see paragraph 2.9 below). The Commission also goes on to point out that guarantees will be susceptible to fraud, and that Member States should therefore be obliged to put in place mechanisms to ensure their reliability (and to report to the Commission annually on the measures they have taken). The Commission in turn will produce a regular overall report, and a group of national experts would consider any improvements that might be appropriate.

Administrative and planning procedures

  2.7  The Commission suggests that administrative and planning procedures constitute a major barrier to the further development of RES-E, and that, although the Electricity Directive (96/92/EC)[10] provides for certain basic rules, these can place a significant burden on RES-E producers, given their smaller size. Consequently, although it once more rules out at this stage a harmonised approach, it is proposing that all Member States should be required to review existing requirements so as to reduce potential barriers to RES-E production, by such means as setting up a single point for applications, establishing deadlines for approvals, providing a "fast track" approval system for RES-E producers, and identifying suitable sites for generating RES electricity. The Commission says it will also produce a report within two years of the entry into force of the Directive outlining what further action might be taken.

Grid connection

  2.8  The Commission stresses the importance to RES-E producers of being sure that they can feed in electricity to the grid, and its proposal therefore requires Member States to take the necessary measures to ensure that they are granted priority access by transmission and distribution system operators. It also points out that connection costs, for example for wind power in remote areas, can be high, and so inhibit development, particularly for smaller operators. It therefore says that charges put on renewable generators related to the grid system should reflect the economic costs and benefits associated with the connection; and it points out that, whilst the Electricity Directive ensures that Member States' rules on the connection of generators to the grid are non-discriminatory and published, a comparable provision does not exist for the distribution system. However, it rules out the suggestion that the connection costs of renewable generators should be borne by the grid operator, on the grounds that this would encourage non-economic installations. It also believes that mandatory rules on cost-sharing would be inappropriate at a European level, provided Member States comply with a number of general principles.

Hydroelectric installations

  2.9  The Commission suggests that, although hydroelectric power is clearly a renewable source of energy, and should thus be included for the purposes of national targets, large plants with a capacity above 10 MW are in general competitive and do not need particular support. Consequently, although such plants should be included within the guarantee system, any certificates should specify whether capacity is above or below the 10 MW threshold, so as to allow the exclusion of large hydro from a harmonised support system.

Further action

  2.10  Because the Commission believes that developments in this area need to be closely monitored, and action taken if the results are inadequate, it says it will produce detailed reports to the Council on the implementation of the Directive. A report will, if necessary, be presented two years after its entry into force, and in any event no later than 31 December 2004. A final report will be made no later than 1 January 2009.

The Government's view

  2.11  In her Explanatory Memorandum of 7 July 2000, the Minister for Energy and Competitiveness in Europe at the Department of Trade and Industry (The Rt. Hon. Helen Liddell) says that the promotion of renewable energy sources is a high priority for the Government, and that it supports the general thrust of the proposal to promote renewables in the single electricity market. She adds that the Government has already proposed a target of 5% RES-E by 2003, and 10% by 2010, subject to the cost to consumers being acceptable. She also points out that the arrangements already in place through the successive NFFO[11] Orders should deliver the 2003 target, but that the provisions of the Utilities Bill, which place obligations on suppliers of electricity, are needed to achieve 10% by 2010.

  2.12  She then goes on to highlight a number of issues which arise in connection with the proposal, as follows:

Definition of renewables

The Minister says that by 2010 one-third of the UK's electricity from renewables could come from municipal solid waste and landfill gas, but that, in contrast to the Commission's 1997 White Paper, these are excluded from the definition in the draft Directive. She points out that waste from such sources is less expensive than other RES, and would displace the more polluting fossil fuel capacity in electricity generation, whilst its exclusion would make it much more difficult for the UK to meet its indicative target of 10%. It would also impose a burden on industry additional to the UK's national programme because a greater amount of renewable energy would need to be generated from more expensive sources, such as energy crops or offshore wind.

Targets

The Minister points out that, although the targets in the draft Directive are said to be indicative, the Commission contemplates introducing binding targets. She suggests that this is a cause for concern, particularly when the targets proposed appear to take no account of the costs involved, and she adds that, although the Government recognises that increased RES-E will entail costs to consumers, their acceptability must be fully considered.

Certificates of origin

The Minister says that, in order for these to pave the way for a tradeable system, two key issues need to be addressed. One is "double dipping", where a generator receives a premium price, and then sells green certificates, again at a premium price, in another Member State; whilst the other is the need for an arrangement to ensure that the purchaser of green electricity gets the credit for the reduction of CO2 emissions.

Planning

The Minister says that the Article in the proposal requiring Member States to review their legislative and regulatory framework is not entirely clear, and will need to be explored further. However, she suggests that it would appear to override some important planning principles, notably in suggesting preferential treatment for renewable energy projects, which are currently assessed (like all other development proposals) against all material planning considerations. She also points out that, under existing Community law, such projects will almost certainly require environmental impact assessments, which could extend the process if a developer did not act in a timely fashion.

Grid issues

The Minister says that, even though this might be thought desirable, it would be extremely difficult to ensure priority access for RES-E, and that, although the UK seeks to ensure that renewables are not disadvantaged, priority access could distort the electricity market.

  2.13  More generally, the Minister says that there has been preliminary consultation with industry, and that contact with relevant groups will be maintained during the negotiation. She also says that, although costs are difficult to quantify at this stage, a full Regulatory Impact Assessment will be carried out later this year on the Government target of 10% by 2010. In this connection, she suggests that the Directive would not, of itself, impose any additional costs for the UK, but that the costs are nevertheless substantial, and that the need to ensure these are acceptable has to be carefully considered. She also points out that additional costs would flow if the UK target proposed by the Commission was greater than that adopted nationally, and were to be legally binding, particularly if renewables from waste and landfill gas were not taken into account.

Conclusion

  2.14  Much of the current proposal arises from the Commission's 1997 White Paper on this subject, which was debated in European Standing Committee B in April 1998. Moreover, although the Commission clearly envisages that it will be necessary in due course to introduce a number of Community-wide provisions, the proposal as it stands is perhaps less prescriptive than might have been expected. On the other hand, it does give rise to a number of potential concerns which the Minister has highlighted in her Explanatory Memorandum, including the prospect of the Commission proposing mandatory national targets if it judges the action taken by Member States is not sufficient to meet Community targets, including its Kyoto commitments. The Minister has also drawn attention to the possible costs of the proposal, particularly if renewables from waste and landfill gas are not taken into account.

  2.15  We also ask the Minister to explain to what extent the proposed measures do in fact facilitate trade in electricity between Member States and invite her views on whether, had the proposal been regarded as an environmental measure and hence based on Article 175, the Council would have been obliged to act unanimously in accordance with the consultation procedure because the measures significantly affect Member States' choices between different energy sources.

  2.16  For these reasons, we are reserving judgement on this proposal and withholding clearance, pending an answer to our questions and further information from the Government on the extent to which the concerns it has registered are met during negotiations in Brussels. We will also be interested to see the Regulatory Impact Assessment which the Government intends to carry out later in the year. As we understand it, this is to be related to the Government's own objective for 2010, and it would be helpful if the Assessment could, so far as possible, take on board as well any variations which might arise as a consequence of this proposal being adopted.

  ANNEX

INDICATIVE MEMBER STATE TARGETS FOR CONTRIBUTION OF RES-E TO GROSS ELECTRICITY CONSUMPTION BY 2010


Percentage

TWh

Austria

78.1

55.3

Belgium

6.0

6.3

Denmark

29.0

12.9

Finland

35.0

33.7

France

21.0

112.9

Germany

12.5

76.4

Greece

20.1

14.5

Ireland

13.2

4.5

Italy

25.0

89.6

Luxembourg

5.7

0.5

Netherlands

12.0

15.9

Portugal

45.6

28.3

Spain

29.4

76.6

Sweden

60.0

97.5

UK

10.0

50.0

EU 15

22.1

674.9



7  (18762) 5140/98; see HC 155-xviii (1997-98), paragraph 2 (25 February 1998) and Official Report, European Standing Committee B, 1 April 1998. Back

8  Defined for the purposes of this Directive as electricity generated from renewable non-fossil fuels, and notably "wind, solar, geothermal, wave, tidal, hydroelectric installations with a capacity below 10 MW and biomass". Biomass is defined as products from agriculture and forestry, vegetable waste from agriculture, forestry and the food production industry, untreated wood waste and cork waste. Back

9  (17983) 6793/97; see HC 155-ii (1997-98), paragraph 8 (22 July 1997) and HC 155-xi (1997-98), paragraph 1 (17 December 1997). Back

10  OJ No. L 27, 30.1.97, p. 20. Back

11   Non Fossil Fuel Obligation. Back


 
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