1 Introduction: Policy pathways for a harmonisation of RES(-E) support in Europe

This section summarises the outcomes of the detailed elaboration of feasible pathways for the harmonisation of RES(-E) support in Europe. In order to define the policy pathways, we conducted an extensive literature review, including work already performed by the members of the research team, as well as a stakeholder consultation and a consortium-internal cross-check.

Pathways are defined at two levels. A first level involves degrees of harmonisation: i.e. at which legislative/administrative level the decisions on instruments and design elements are taken, and whether there are national RES-E targets in addition to a European target. On a second level, there are some components of the pathways that need to be harmonised: instruments, design elements, framework conditions and other elements, including the use of cooperation mechanisms and cost-allocation alternatives. The combination of all these components under different degrees of harmonisation results in a broad set of different pathways for analysis and evaluation.

1.1 Classification of policy concepts

In the debate on the convergence of support schemes for RES, different concepts such as “convergence”, “coordination”, “cooperation”, and “harmonisation” are used and sometimes conflated. As a result, we have aimed to provide further clarification on the terminology, in accordance with Gephart et al (2012), classifying and defining the meanings of the different concepts:

• “Convergence” simply means that policies (and possibly related regulations) are becoming similar in different Member States (MSs). Thus, the following concepts can be classified as means to achieve the overarching goal of convergence;

• “Coordination” might refer to knowledge exchange between governments and possible alignment of certain elements of a support scheme;

• “Cooperation” either refers to governments loosely working together or it might refer to the RES Directive (2009/28/EC) and its inherent possibilities to establish statistical transfers of renewable energy, joint renewable energy projects (among MSs or with third countries) or joint support schemes (that is, merged support schemes) as specified in Articles 6, 7, 9 and 11 of the Directive. All of these concepts have different implications: e.g. regarding who initiates the convergence (top-down or bottom-up), regarding different levels of the binding nature of a given instrument and different levels of detail;

• “Harmonisation” is generally regarded as a top-down implementation of common, binding provisions concerning the support of RES-E throughout the EU (Bergmann et al 2008). However, harmonisation admits many possibilities concerning what needs to be harmonised and how, along a continuum from “Full” to “Minimum” harmonisation, depending on the combination of “what” options (i.e., targets, support scheme, design elements, support level) and “how” options (i.e., whether decisions are taken at EU or MS level). Different levels of harmonisation can, in principle, be combined within the same instrument.
  
  

1.2 Degrees of harmonisation

In order to keep the discussion on the pathways manageable, we consider four alternatives here, as illustrated in Table 1. We focus on several critical aspects, which from our work in this project have been useful for the definition of pathways: i.e. whether there are MS targets in addition to the EU-wide target, and at what administrative level the decision on instruments and design elements (and, particularly, support levels) is taken (EU or MS). A brief description of the different alternatives follows 1. We have considered four major degrees of harmonisation. Obviously, there might be other possibilities within the wide range of alternatives, but we believe that the ones selected cover the major aspects of harmonisation 2.

Table 1     Degrees of harmonisation considered in this report.

• Full harmonisation involves the setting up of EU-wide targets (no MS targets), an EU-wide support scheme, harmonisation of framework conditions and harmonisation of the design elements of the support scheme selected. There is a very limited role to be played by the MSs. Full harmonisation involves harmonisation of: the level of support; support schemes; and the legal framework as a whole, including regulatory issues. An EU-wide socialisation of the costs of support takes place. The focus on Full harmonisation is justified because this seems to have been a long-term aspiration of the European Commission. As observed by Guillon (2010), the European Commission has repeatedly mentioned that harmonisation remains a long-term goal (European Parliament and Council, 2001 and/or European Commission 2005, 2008). Notwithstanding this, while Full harmonisation remains a long-term aspiration, lower degrees of harmonisation are also possible and it is very difficult at this stage to tell what will be the final degree of harmonisation. Thus, we also consider softer degrees of harmonisation.

• Medium harmonisation would be very close to Full harmonisation. There is also one EU-wide instrument and EU support level, but countries may provide additional (albeit limited) support for specific technologies, either within the EU-wide support scheme (i.e., additional remuneration based on local benefits under feed-in tariffs or premia) or as an additional instrument to the EU-wide support scheme (i.e., investment subsidies or soft loans). The latter option would be more feasible in the case of quotas with TGC or tendering schemes, since it would be very difficult or even impossible for MSs to provide additional support directly incorporated into an EU-wide TGC or tendering scheme. Countries may be willing to provide additional support depending upon the local benefits of RES-E. It should be taken into account that having additional support per country would mean that the EU target may be exceeded (since the EU-support level is set to reach those targets). Alternatively, the EU support level may be set taking into account the amount of RES-E that MSs are willing to have and may inform the Commission on the level of support and amount of RES-E that it would like to promote. The level of EU-wide support would thus be set interactively. Another option would be to have (indicative) national targets and use Art. 6 cooperation mechanisms (statistical transfers) to redistribute the additional RES-E capacity across countries. But no MS targets have been assumed in this scenario because an EU-wide support scheme with a single support level would render MS targets meaningless.

• Soft harmonisation. This harmonisation alternative would be closer to Minimum harmonisation than to Full harmonisation. There is an EU-wide target, but also national targets consistent with the EU target. Countries have to implement domestically the support scheme that has been decided at EU level. However, countries may use whatever design element they deem best and support levels may differ across countries 3. There might be some design elements imposed at the EU level.

• At the other end of the spectrum, under Minimum harmonisation, EU-wide targets as well as national targets are set by the EU. MSs decide on both the type of support scheme that they apply and its design elements. MSs may set whatever support level they deem most appropriate. There might be minimum design elements set by the EU (e.g. authorisation procedures and an obligation to support different technologies).
  
  

1.3 Policy instruments

RES-E promotion has traditionally been based on three main (primary) mechanisms: feed-in tariffs (FITs), quotas with tradable green certificates (TGCs) and tendering (see del Río and Gual 2004, Ragwitz et al 2007, Schaeffer et al 2000, and Huber et al 2004 for further details).

• Feed-in tariffs offer financial support per kWh generated, paid in the form of guaranteed (premium) prices and combined with a purchase obligation by the utilities. The costs are usually borne by consumers.The most relevant distinction is between fixed feed-in tariff (FITs) and fixed premium (FIP) systems. The former provides total payments per kWh of electricity of renewable origin while the latter provides a payment per kWh on top of the electricity wholesale-market price (Sijm 2002). Each has its pros and cons: in general, while FIPs are usually considered more market-compatible, FITs provide greater certainty for investors.

• TGCs are certificates that canbe sold in the market, allowing RES-E generatorsto obtain revenue. This is additionalto the revenue from their sales ofelectricity fed intothe grid. Therefore, RES-E generators benefit from two streams of revenue from two different markets: the market price of electricity, plus the market price of TGCs multiplied by the number of kWh of renewable electricity fed into the grid (Schaefer et al 2000). Theissuing (supply) of TGCs takes place forevery MWh of RES-E, while demand generally originates from an obligation. Electricity distribution companies must surrender a number of TGCs as a share of their annual consumption. Otherwise, they will have to pay a penalty. The TGC price results from the interaction of supply and demand, and depends on the level of the quota (Q) and the marginal costs of RES-E generation (MCRE). The expected TGC price (PTGG) covers the gap between the marginal cost of renewable electricity generation at the quota level and the price of electricity (Pe). Pe and PTGG move in opposite directions: an increase in Pe reduces the TGC price accordingly.

• Tendering. The government invites RES-E generators to compete for either a certain financial budget or a certain capacity of RES-E generation. Within each technology band the cheapest bids per kWh are awarded contracts and receive the guaranteed remuneration (Schaeffer et al., 2000). The operator pays the bid price per kWh. A fund financed by a levy on electricity consumers or taxpayers covers the difference between this bid price and the market price of electricity.
  
  

1.4 Identified policy pathways

Combining the degrees of harmonisation with the instruments and relevant design elements leads to several policy paths for a harmonisation of RES(-E) support in Europe. Banded and unbanded TGCs, premium and fixed FITs are currently widely-used instruments in the EU MSs. Tendering schemes are not widespread, but there is a trend in some countries to use them for large-scale RES projects. Unbanded TGCs were initially adopted in the U.K. and Italy, but concerns about the lack of incentives for the deployment of less mature technologies led to a shift to banded TGCs. Unbanded TGCs are still present in Belgium, Poland, Romania and Sweden. A uniform quota is still proposed by those arguing in favour of inter-technology competition (i.e., competition between different renewable energy technologies to meet the target, even if this means technologies with different maturity levels). However, it is widely acknowledged that this technology neutrality would involve the dominance of mature technologies without allowing immature technologies to penetrate the market. The costs of immature technologies (partly) depend on their diffusion; this would mean that their costs would make them unattractive for adoption, since these technologies will be needed in the future for cost-effective compliance with RES-E (and CO2) targets. Their advancement along their learning curves (through diffusion) is required, which calls for technological diversity and, thus, justifies a banded TGC.

Table 2 summarises the policy pathways considered that have been analysed in a detailed manner within the course of this project. The list of identified pathways has become significantly longer than initially proposed: taking into account the aforementioned policy paths and the design elements, their combination may lead to several alternatives for the design of the pathway. In this section, we consider the possible combinations in greater depth.

Accordingly, 15 policy pathways are proposed, taking into account the main RES-E support instruments (TGCs, FITs and tendering), their main design elements and different degrees of harmonisation. Within those policy packages, further choices have to be made regarding some design elements and the role of MSs: see subsequent sections for our recommendations in this respect.


Table 2          Overview on proposed policy pathways.