ENERGY

Green Energy in Europe

Strategic Prospects to 2010

Copyright 2002 Business Insights Ltd This Management Report is published by Business Insights Ltd. All rights reserved. Reproduction or redistribution of this Management Report in any form for any purpose is expressly prohibited without the prior consent of Business Insights Ltd. The views expressed in this Management Report are those of the publisher, not of Business Insights. Business Insights Ltd accepts no liability for the accuracy or completeness of the information, advice or comment contained in this Management Report nor for any actions taken in reliance thereon. While information, advice or comment is believed to be correct at the time of publication, no responsibility can be accepted by Business Insights Ltd for its completeness or accuracy. Printed and bound in Great Britain by MBA Group Limited, MBA House, Garman Road, London N17 0HW. www.mba-group.com

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About the authors

The authors consultants, researchers and journalists from Ecofys and its subsidiary Greenprices hold senior positions in the green energy market in Europe. Greenprices is the most important green electricity information platform in Europe, both for industry professionals and consumers. Journalists publish a Greenprices Newsletter every month. Ecofys researchers and consultants supply market information to their clients, such as authorities, utilities and large consumers. Recently they were commissioned to produce a comprehensive European overview of renewable energy policies for the European Commission.

The research programme for this report includes expert views from consultants and researchers, both from within the international offices of Ecofys/Greenprices and from outside, such as the RECS organisation. It also included price surveys among the green energy offerings and certificate systems in 15 EU Member States and elsewhere, investigated by RECS and Greenprices.

The editor, Rolf de Vos, has been a business-to-business journalist in the field of energy and the environment for 15 years.

Greenprices.com is an intermediary on European green energy markets. As an independent information platform, Greenprices provides product and price overviews of electricity suppliers in the Netherlands, Germany, the UK and other European countries, green electricity news and, both alone and in conjunction with other companies, publishes information about the developments of the European green electricity market. Greenprices.com offers the opportunity to national and international players on the energy market to present themselves to a wide audience. Greenprices.com was launched in February 2000 as an initiative of Ecofys BV.

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Greenprices P.O. Box 8408, NL-3503 RK, Utrecht, The Netherlands Tel. +31 30 2808 489 Fax: + 31 30 2808 301 info@greenprices.com

http://www.greenprices.com

Ecofys BV is a leading international company in the field of renewable energy and energy efficiency, with offices in Utrecht (NL), Cologne, Nuremburg, Berlin (DE), Bristol (UK), Poznan (PL) and Brussels (BE). Over 200 employees work on the development of projects and products, consulting and research, with the mission: a sustainable energy supply for everyone. Ecofys is part of the Econcern Group.

Ecofys BV P.O. Box 8408, NL-3503 RK, Utrecht, The Netherlands Tel. +31 30 2808 300 Fax: + 31 30 2808 301 ecofys@ecofys.com

http://www.ecofys.com

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Table of Contents
Green Energy in Europe

Strategic Prospects to 2010

Executive Summary 14

Glossary

18

Chapter 1
Changing chains

Introduction

22
23 25

How to read this report

Chapter 2

Technologies

28
30 30 30 31 32 33 33 34 36 36 37 38 38 39 40 41 41 41 42 42 42

Wind Energy Installed capacity and targets Costs Developments Barriers Biomass and waste Variety of resources Resource potential Logistics Conversion technologies Costs and developments Trends Barriers Solar energy Resource potential Barriers Costs and developments Trends in RD&D Hydropower Resource potential Costs and developments v

Technologies Trends in RD&D Barriers Ocean Energies Tidal and marine current energy Wave energy Shoreline Offshore and near shore Geothermal energy Potential Costs and developments Technologies Trends in RD&D Barriers Summary costs

43 44 45 46 47 48 48 49 49 50 50 50 51 51 51

Chapter 3
Introduction EU Policy Electricity Biofuels Promotional tools Fixed feed-in tariffs Purchase obligations Tendering Fiscal instruments

Key Issues

55
55 55 55 57 58 59 60 61 62 65 68 69 70 72 73 75 77 79 80 81 82 82 82 83 83 84 84

Labelling and certification National systems Double counting International green energy trade Green reciprocity Renewable Energy Certificate System - RECS Green certificates and emissions trading Are waste and biomass green energy sources? Marketing green electricity Configurations Business to business Verification Green energy drivers and resistors Resistors Drivers Availability of renewable energy sources Political support (EU, national, regional and/or local) Long-term stable business climate

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Simplicity in administration Awareness

84 85

Chapter 4
Introduction

Key Data

87
87 88 97 97 99 100 101 102 103 104 105

Renewable electricity production Will policies be maintained? Renewable electricity production versus country targets Production per renewable energy source per country Hydro (>10MW) Hydro (<10MWe) Photovoltaics Wind offshore Wind onshore Growth in country/technology combinations

Chapter 5

Major Players

108
108 108 110 110 111 113 113 114

Introduction Supply chain Other green energy stakeholders in Europe Technology Utilities and trade Certification Authorities NGOs

Chapter 6
Introduction United Kingdom Market volume

Country Profiles

116
116 116 116 116 118 118 119 120 121 121 123

Renewables are growing but the target is high Policy context Stimulating production: the Renewables Obligation The Climate Change Levy Eligible renewable energy sources Retailing green energy Voluntary schemes Germany

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Market volume Increasing and for a good reason Targets Policy context Europes most generous scheme Instruments and levels of compensation Retailing green energy Market liberalisation Figures The Netherlands Market volume A modest contribution of renewables Policy context Innovative and generous, but stable? Instruments and levels of compensation Eligibility Retailing green energy Market liberalisation Voluntary market Main features Prospects Spain Market volume Policy context Feed in tariff Financial support programmes Retailing green energy Market liberalisation Belgium Market volume Federal and regional targets for RES-E Policy context Green certificates Federal level Flemish region Walloon region Brussels Capital region Other RE support measures Retailing green energy Market liberalisation Voluntary market Denmark Market volume Targets Policy context Support scheme and level of stimulation Retailing green energy Liberalisation Italy viii

123 123 124 125 125 126 126 126 126 127 128 128 128 128 129 131 131 131 133 133 133 134 134 135 135 136 137 137 138 138 139 139 139 139 140 140 141 141 141 141 142 142 142 143 143 143 144 144 144

Market volume Policy context Instruments Eligibility Retailing green energy Market liberalisation Main features France Market volume Falling short of expectations Policy context Focus Instruments and levels of compensation Retailing green energy Market liberalisation Green energy retail Sweden Market volume Policy context Eligibility Retailing green energy Finland Market volume Targets Policy context Retailing green energy Market liberalisation Retail of green energy Ireland Market volume Policy context Support for renewables and levels of compensation Eligibility Retailing green energy Market liberalisation Austria Market volume Hydro power dominates Policy context Retailing green energy Market liberalisation Prospects Portugal Market volume Policy context Imported fossil fuels, national production dominated by renewables Greece Market volume

144 146 146 147 147 147 148 149 150 150 151 151 152 153 153 153 153 153 154 155 156 156 156 157 158 158 158 158 159 159 160 160 161 161 161 163 163 163 164 165 165 165 166 166 167 167 169 169

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Policy context Luxembourg Market volume Policy context Hungary Market volume Policy context Retailing green energy Market liberalisation Poland Market volume Policy context Policy support for renewables Eligibility Retailing green energy Market liberalisation Retail of green energy

170 171 171 172 172 172 173 174 174 174 174 175 175 176 177 177 177

Chapter 7

Future Outlook

179
179 179 181 182 183

Green electricity market: A long way to go Support instruments: from technology-based to market-based Highlights: Spain and Germany are most promising markets for growth Emerging markets: Green fuels, gases, heat The European market: booming

Appendix
Overview of green energy suppliers Germany The Netherlands The UK

187
187 187 190 190

List of Figures
Figure 2.1: Figure 2.2: Figure 2.3: Figure 2.4: Figure 3.5: Figure 3.6: Figure 3.7: Biomass sources Logistical steps within a biomass energy system Biomass conversion routes Principle of operation of a shoreline Oscillating Water Column device Economic efficiency of support instruments versus effectiveness The principle of a renewable energy certificate system Green certificates trading in Europe 34 36 37 49 64 67 72

Figure 3.8: Figure 4.9: Figure 4.10: Figure 4.11: Figure 4.12: Figure 4.13: Figure 4.14: Figure 4.15: Figure 4.16: Figure 4.17: Figure 4.18: Figure 4.19: Figure 4.20: Figure 4.21: Figure 4.22: Figure 4.23: Figure 5.24: Figure 5.25: Figure 6.26: Figure 7.27:

RECS counts some 130 members in Europe, including most major utilities 74 Expected development of renewable electricity production in the European Union (optimistic outlook) 89 Electricity production from renewable sources per technology (target excluding large hydro) 90 Expected development RES-E production per country (optimistic outlook) 91 Total renewable electricity production in Europe, 19992010 92 Renewable electricity production in Germany, 19902010 and indicative national target (optimistic outlook) 93 Renewable electricity production and indicative targets in Spain, 19902010 and indicative national target (optimistic outlook) 94 Renewable electricity production in 2010 vs. national targets (Indicative target calculated from European Energy Outlook scenario) 97 Biomass production per country, 19992010 (optimistic outlook) 99 Large hydro production (>10 MWe) per country, 19992010 (optimistic outlook) 100 Small hydro production (<10 MWe) per country, 19992010 (optimistic outlook) 101 Photovoltaic (PV) production per country, 19992010 (optimistic outlook) 102 Wind offshore electricity generated per country, 19992010 (optimistic outlook) 103 Wind onshore electricity generated per country, 19992010 (optimistic outlook) 104 Largest expected growth of technology/country combinations, 1999-2003 (optimistic outlook) 105 Largest expected growth of technology/country combinations 2003-2010 (optimistic outlook) 106 The green energy supply chain and its participants 108 The flow of certificates along the green energy supply chain 110 Renewable energy production in Finalnd, 1998 & 2010 157 Policy shift from technology-based to market-based renewable stimulation 180

List of Tables
Table 2.1: Table 2.2: Table 3.3: Table 3.4: Table 3.5: Table 4.6: Table 5.7: Table 6.8: Table 6.9: Table 6.10: Table 6.11: Table 6.12: Table 6.13: Table 6.14: Table 6.15: Table 6.16: Categories of renewable energy conversion technologies (WEA 2001) 29 Summarised indicative costs for investment and generation of electricity per technology 52 Indicative EU targets for renewable electricity (RES-E) per member state 56 Choice of support schemes per member state 59 Overview of certificate systems and green certificates trade 71 Absolute growth of electricity from renewable sources per country 92 Largest utilities in Europe, 19992000 112 Installed renewables capacity by source in the UK, 2000 117 UK RES-E targets, 20052020 117 Expected increase in the UK Renewables Obligation, 20012011 118 Eligible renewable energy sources in the UK 120 UK market liberalisation, 19901999 121 Green electricity voluntary market in the UK, December 2001 122 Production of electricity from renewable sources in Germany, 1999 124 Share of renewables in German electricity production, 19992010 124 Indicative targets for the production of renewable electricity by the German Federal Ministry 125

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Table 6.17: Table 6.18: Table 6.19: Table 6.20: Table 6.21: Table 6.22: Table 6.23: Table 6.24: Table 6.25: Table 6.26: Table 6.27: Table 6.28: Table 6.29: Table 6.30:

Table 6.31: Table 6.32: Table 6.33: Table 6.34: Table 6.35: Table 6.36: Table 6.37: Table 6.38: Table 6.39: Table 6.40: Table 6.41: Table 6.42: Table 6.43: Table 6.44: Table 6.45: Table 6.46: Table 6.47: Table 6.48: Table 6.49: Table 6.50: Table 6.51: Table 6.52: Table 6.53: Table 6.54: Table 6.55:

Feed-in tariffs for eligible renewable energy sources in Germany 126 Green electricity voluntary market in Germany, 20002001 127 Renewable electricity production and imports in the Netherlands, 2000 128 The Netherlads RES-E targets, 20002020 128 The evolution of REB in the Netherlands, 19962002 130 Eligible renewable energy sources 131 Market liberalisation in the Netherlands 132 The green electricity market in the Netherlands, 2002 133 Renewable electricity production in Spain, 2000 and targets, 2010 134 Options for RES within the special regime for electricity sales in Spain: prime rate + pool price or fixed price 136 Renewable electricity generation in Belgium, 19992010 138 Estimated production RES-E, 20032010 138 RES-E targets for Belgian regions, 2004 & 2010 139 Fixed minimum prices to be accorded to green electricity and/or certificates in Belgium 140 Renewable electricity generation in Denmark, 19992010 143 Electricity production in Italy by sources, 19992010 145 Growth in the share of RES-E in electricity production in Italy, 19902010 145 RES-E targets in Italy, 1998 & 2010 145 Eligible RES sources in Italy 147 Italian market liberalisation, 19992003 148 Renewable electricity generation in France, 20002010 150 RES-E targets in France, 19992010 151 Eligible sources 152 Renewable electricity generation in Sweden, 19992010 154 Swedish Energy Agency subsidy programme 154 Estimates of the potential production of renewable electricity in Sweden to 2010 155 Technologies proposed for eligibility from 2003 in the Swedish quota-based scheme 155 Renewable electricity production in Finland, 1999 157 Results of Irelands Alternative Energy Requirement Programme 160 Irish market liberalisation, 20002005 163 RES-E production in Austria 164 Renewable electricity production in Portugal, 1999 166 Installed capacity for electricity production and scheduled investments in Portugal, 20012010 168 Renewable electricity production in Greece, 1998 169 Renewable electricity production in Luxembourg, 1999 171 Renewable electricity production in Hungary, 1996 173 Renewable energy production in Poland, 1999 175 Progression of the Polish RES quota, 20022010 176 Eligible RES sources, Poland 176

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Executive Summary

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Executive Summary
Recent years have seen the development of a fledgling green energy market, backed by policies for fuel diversification, security of supply, climate change and other environmental aspects. Project developers, generators, traders and suppliers now operate in a dynamic liberalised market. Small and large consumers recognise renewable energy as both a premium product and as a possibility to contribute to an environmentally sound energy supply. Accordingly, suppliers are responding to this demand with new marketing strategies.

The most important form of green energy that is subject to a more or less liberalised market green electricity currently represents a volume of about 400 billion kWh a year in the EU, and is already valued at tens of billions of Euros annually. There are many differentiated ways in which national or even local markets for green electricity develop. Regardless of the different marketing tools and support mechanisms in place, each of the EU green energy markets seems set for future growth.

As the internal EU energy market undergoes a period of liberalisation, participants are seeking new business opportunities. Big players need to raise the profile and awareness of green energy among their customers, whereas small newcomers are trying to get a piece of the action. The identification of commercial opportunities requires knowledge of marketing tools, support mechanisms, legislation procedures and competitive dynamics. The market is competitive and new brands are developing rapidly, reflecting the need to invest to gain market share in such a young market that could potentially bring substantial rewards in the future.

Although cross border trade is a hot topic currently gaining much attention, for the most part the markets are still nationally oriented.

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Key findings: The main drivers behind the fast development of the green energy market are policies, such as the EUs indicative target for renewables to command a 22% share of total electricity production in 2010. This can be regarded as a minimum, as some national governments have set higher targets. However, this report suggests that these targets will not be met with current policy instruments. Extra instruments will be required, and there are several strong arguments security of supply by a growth of indigenous sources, the Kyoto protocol to implement them. The market is organising itself. Because the greenness of electricity cannot be determined by any physical properties, there has to be another way to assure the customer that his purchase really is green energy. A trade system of certificates makes it possible to have two parallel markets: one for plain electricity, one for the greenness traded in certificates. Running alongside national systems for certification already in place, there is an important international system initiated by energy companies and governments: the Renewable Energy Certificate System (RECS). This system is favoured by big market players and policy makers to facilitate international trade of green electricity. As certificates offer a solution to many trading problems, a harmonised certificate system is likely to be implemented in the next few years. It is also expected that almost all renewable electricity will be traded in a certificate market. Assuming that the EU meets its target of an estimated 700 TWh in 2010, and assuming the lower limit price of certificates of about 40 /MWh, the total market value of green certificates in 2010 will be approximately 28 billion Euro annually. But there are also barriers to be overcome. As support mechanisms act to level the prices of green energy with those of grey electricity, there are a number of institutional and practical barriers which have to be recognised before trade can start. For instance licensing wind turbines can pose a problem, having a major

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impact in several countries, and electricity from certain forms of biomass and waste is a sensitive issue for a section of customers and environmental organisations. In order to optimise their market share, players must be able to navigate their way through diverse national systems in the pursuit of new business opportunities.

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Glossary

17

Glossary
BIG/CC Biomass Integrated Gasifier/Combustion Combination

Certificate (Green-)

Guarantee of origin of green energy, with the status of a bond or security paper. The certificates, officially issued by issuing bodies, are needed to prove the greenness of green energy, e.g. to comply with an obligation or to receive tax exemption. Certificates can be traded apart from the physical green energy.

CHP

Combined heat and power generation

DG ENV

Environment Directorate-General of the European Commission

DG RES

Research Directorate-General of the European Commission

DG TREN

Directorate-General for Energy and transport of the European Commission

EC

European Commission

EFET

European Federation of Energy Traders

Electricity Directive

Directive 2001/77/EC on the promotion of electricity produced from renewable energy sources in the internal electricity market, introduced by the EC on Sep. 27th 2001. Goal: the share of electricity from renewable sources in the EU is 22% in 2010. All member states have set indicative national (not obligatory) targets.

EP

European Parliament

ETSO

European

Transmission

System

Operators.

Organisation

representing

the

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Transmission System Operator member companies.

Eurec

European organisation for the promotion of renewable energy research and development.

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FP6

Sixth EU Framework Program for research and development

Generator

Operator of a plant or device generating secondary energy carriers such as electricity.

Green electricity

Predominant form of green energy

Green energy

Secondary energy carriers (electricity, gas, heat) that are converted from renewable, sustainable and clean primary energy sources. It is a commodity (tradable product) that is being transported by grids, pipelines, networks or any other transport medium. Compared to other energy forms, green energy has a premium value and is therefore often sold separately as a premium product. It also can be included in the usual sales mix of energy.

Green gas

Form of green energy

Green heat

Form of green energy

Issuing body

Official organisation that issues green energy certificates, in return for evidence of supplied amounts of energy. The issuing body (IB) is de facto also responsible for auditing certificate trading and for consuming certificates.

IFIEC

Organisation of 13 federations of industrial energy users and self-generators of power. IFIEC-Europe represents between 75% and 80% of the industrial energy consumption in Europe.

Kyoto Protocol

International agreement on climate policy. The industrialised countries agree to reduce greenhouse gas emission within the budget period 2008-2012.

Label

Guarantee of origin of the supplied energy. A label contains information on sources and origin of the supplied amount of energy.

LEC

Levy Exemption Certificate (UK)

NGO

Non-governmental organisation (usually applied to environmental NGOs)

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Premium

Added value of green energy

Purchase combination

Association of customers, for a stronger negotiation position.

RD&D

Research, development and dissemination

Reciprocity

The requirement that conditions for import and export (in this case of electricity) between countries should be mutual.

RECS

Renewable Energy Certificates System: international initiative to come to an internationally harmonised system for certification and certificates trade.

RES-E

Renewable Energy Sources- Electricity

ROC

Renewable Obligation Certificate (UK)

Supplier

Energy company that supplies energy to the (end) customer

Trader

Intermediate player between generators, suppliers and customers

TSO

Transport or Transmission System Operator: Operator of the grid.

UCTE

Union for the Co-ordination of Transmission of Electricity (UCTE). Co-ordinates the interests of transmission system operators in 20 European countries.

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CHAPTER 1

Introduction

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Chapter 1

Introduction

Guided principally by global, continental and local commitments to protect the environment, renewable energy is becoming increasingly important. One area that proves that renewable energy is becoming economically viable and an important product of trade as opposed to a product with a purely notional value is the field of green energy. Many, if not all, utilities in Europe are selling green energy as a special product to their customers and there already are millions of customers buyers. Furthermore, there are some utilities that exclusively sell green energy.

As liberalisation spreads throughout European energy markets, many new participants are entering this field, such as brokers, traders, project developers and other new and non-traditional suppliers. Amongst customers, interest in green energy is growing even faster, stimulated by market forces as well as companies and governments policies. For instance, the European Commission target is a 22% share of renewables in the total EU electricity consumption by 2010. Concurrently, customers are taking ever more interest in buying green energy.

Although simplified, these are the main reasons that green energy markets already have multi billion Euro values, and will continue to grow further in future.

Green energy is defined as secondary energy carriers (electricity, gas, heat) that are converted from renewable, sustainable and clean primary energy sources. It is a commodity (tradable product) transported by grids, pipelines, networks or any other transport medium. Compared to other energy forms, green energy has a premium value and is therefore often sold separately as a premium product. It can, however, also be included in the more usual energy sales and marketing mix.

For the purposes of this report, one extra distinction is made, in that the predominant green energy product is currently green electricity. For this reason, in this report, the focus will be on green electricity. Whilst some attention will necessarily be paid to
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other secondary energy carriers like biofuels, biogas, methanol, syngas, heat or steam, these forms of green energy are traded in several places, which are mostly pilot projects and are not yet widespread.

Changing chains
The traditional supply-to-use energy chain was short and orderly: from generator via utility to customer. For the most part the chain was nationally organised and seldom crossed borders and the customer usually was restricted to buying energy from his local utility. Stimulated by market liberalisation, the supply-to-use chain for green energy has become more complex (and certainly more international) in recent years. It seems inevitable that this process will continue over the next few years.

Firstly, new generators have entered the market. Project developers, co-operative associations and non-energy companies identified opportunities in the field of renewable energy supply, for reasons that can widely vary, from straightforward business opportunities to image building purposes or from an idealistic point of view. As renewable energy projects tend to be less capital intensive than regular power plants, the threshold for new players is relatively low. Whereas these new suppliers entered certain niche markets, the traditional key players became aware that they also had to develop new business in this area, in order to maintain their preferred supplier status over the longer-term.

As the liberalisation of the European energy market forced third party access to grid and networks, new suppliers (also called utilities or trading companies) entered. The obligation that grid and transport system operators (TSOs), often national monopolies, had to offer entrance at fixed prices usually under the supervision of a national regulator lowered the threshold in this section of the value chain. Because the energy market for green electricity in certain countries became liberalised earlier than that of

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grey electricity, the green energy market was considered an ideal entry point into the general energy trading business.

In these new circumstances, exchange markets were established. Because relations between generators, suppliers and end-users become very complicated, brokers and other intermediaries contribute a great deal to the portfolio management of these parties.

One of the especially important tasks in green energy markets is to certify that energy sold as green really merits that label. Therefore certification institutes or issuing bodies came into being.

Given their current value and future potential, it is of no surprise to find that financial institutions and investment banks are keenly interested in these growing markets.

Liberalisation altered the role of the customers. Except for the very energy intensive industrial branches, the customers generally were until recently unable to select their supplier. Liberalisation however broke up the monopoly position of utilities and promoted competitiveness. Although this didnt cause lower prices in all cases, the battle for the customer caused that companies truly had to think about marketing their retail energy products. Green energy is one of the products with which utilities strengthen their retail marketing.

As a further demonstration of their improved position, customers sometimes now organise themselves into purchase combinations, in order to achieve a stronger bargaining position. Some of these combinations specifically ask for green energy, and demand certificates to prove the greenness.

In this way, customers have become an increasingly important player in the supply chain. Generally, the freedom of choice enjoyed by end-users influences the whole chain and, by labelling all energy, customers can ultimately decide which supply investments will be

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most profitable. However, such labelling, which must necessarily be international in its scope, is still far from being established.

All of the changes outlined above have, to a greater or lesser extent, been induced by energy and climate policies of the European, national and local authorities, as they have sought to stimulate trade, production and consumption of renewable energy in several possible combinations. On the other hand, voluntary green energy pricing schemes have proved popular because customers are clearly interested in sound, clean and sustainable products. Thirdly, the market, which was once populated by pioneers and inventors in back barns, became more and more professional and developed into a billion Euro business.

How to read this report

In this report, you will find a comprehensive overview of market trends in green energy in Europe 2002. You will benefit from the identification and analysis of business opportunities, the present market situation within each EU member state, policy measures and promoting instruments, market distortions, regulations and business partners and competitors. This report is intended to give the reader a solid background and to act as a decision-making support for investing in (parts of) the European green energy market.

Chapter 2 introduces the relevant technologies to exploit renewable energy sources, ranked by source.

Chapter 3 discusses the issues that are important parameters for market development, such as policies, support instruments, institutional barriers and certification and labelling.

Chapter 4 provides some key figures and data on the development of the green energy market in the EU.
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Chapter 5 provides analysis of the major players and the competitive dynamic in this field.

In Chapter 6 the 15 EU member states are covered in detail separately, and an overview of another two future member states is provided.

Finally, Chapter 7 provides an outlook on the future development of green energy worldwide, with particular focus on Europe.

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CHAPTER 2

Technologies

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Chapter 2

Technologies

Following the definition of green energy provided in the previous chapter (page 22), it is important to define which energy sources can be called clean, sustainable and renewable, and which sources cannot. Sources may be renewable and not totally clean, and sources may be clean and not renewable. The most animated discussions are about environmental impacts of large-scale hydro and of biomass and waste (for further elaboration on these discussions, see the respective paragraphs and the Key Issues chapter).

However, in most cases the renewable and clean properties of the energy are undisputed. In 2001, the UN Development Program, the UN Department of Economic and Social Affairs and the World Energy Council published a comprehensive list of renewable energy conversion technologies in their World Energy Assessment. This report will follow that list (see Table 2.1) and use it as the basis to identify the technologies relevant to the European green energy market.

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Table 2.1: Categories of renewable energy conversion technologies (WEA 2001)

Renewable source Biomass Combustion(domestic) Combustion(industrial) Gasification/power production Gasification/fuel production Hydrolysis and fermentation Pyrolysis /production of liquid fuels Pyrolysis /production of solid fuels Extraction Digestion Wind Water pumping and battery charging Onshore wind turbines Offshore wind turbines Solar Photovoltaic solar energy conversion Solar thermal electricity Low-temperature solar energy use Passive solar energy use Artificial photosynthesis Hydropower Geothermal Marine Tidal energy Wave energy Current energy Ocean thermal energy conversion Salinity gradient/osmotic energy Marine biomass production Source: Ecofys, Greenprices Secondary energy carrier Heat (cooking, space heating) Process heat, steam, electricity Electricity, heat (CHP). Hydrocarbons, methanol, H2 Ethanol Bio-oils Charcoal Biodiesel Biogas Movement, power Electricity Electricity Electricity Heat, steam, electricity Heat (water and space heating, cooking, drying) & cold Heat, cold, light, ventilation H2 or hydrogen rich fuels Power, electricity Heat, steam, electricity Electricity Electricity Electricity Heat, electricity Electricity Fuels Business Insights

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Wind Energy
Wind energy is the fastest growing green energy source gloablly. Europe is the world's largest market for wind turbines and approximately 90% of the world's wind turbine manufacturers are European, with a combined annual turnover of over one billion Euros.

The installed capacity in Europe has increased by about 40% per year over the past six years. Wind energy projects across Europe currently produce enough electricity to meet the domestic needs of 5 million people.

Installed capacity and targets According to the European Wind Energy Association (EWEA), by the end of 2001 the world total installed wind capacity amounted to 24 GW, with about 17 GW installed in the EU. The most progressive European countries producing electricity from wind energy are Germany, Spain and Denmark, with 8.7 GW, 3.3 GW and 2.4 GW installed capacity respectively. In 2001, the recorded growth in the EU was 4.5 GW, of which Germany realised an impressive 2.6 GW.

Because of the spectacular growth in the last few years, EWEA increased the target for installed capacity in Europe by the year 2010 from 40 GW (set in 1997) to 60 GW (set in September 2000), of which 5 GW is projected offshore. The current EWEA target for the year 2020 is 150 GW, of which 50 GW is offshore.

Costs At the best sites, the costs of wind energy are directly competitive to fossil fuel power production. For less favourable sites, wind energy can still compete if the environmental advantages are taken into account, e.g. by ecotaxes or subsidies.

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Typical capital costs are 1,000 Euro per kW installed capacity for a site on land. The main determinants of the cost of establishing a wind energy project are: The wind turbines (ex factory); wind farm realisation; project development.

The distribution of costs for a moderate size (< 8MW), land based wind farm over the three categories listed above is typically 80%, 15%, and 5%, respectively.

Current offshore (pilot) projects are constructed for approximately 1,700 Euro per kW, a figure expected to fall to 1,500 Euro per kW installed capacity for the first commercial offshore projects. A sharp increase in the cost of the support structure and the electrical infrastructure account for the larger part of the additional costs compared to a site on land.

There is clearly potential for further cost reduction, with expected technology developments being larger wind turbines and improved designs. The ultimate goal of all cost reducing R&D effort, as formulated in the EUREC Position Paper on Wind Energy (2000), is to reduce the cost of wind electricity generation by 15% in the short-term (2005) and up to 50% by the year 2020.

In terms of power generation, this means that the price range for onshore wind energy is from 5 (best UK sites) to 9 Eurocent/kWh (German sites). For offshore wind, only pilot experience is available to date. The price range is now 79 Eurocents/kWh, with a realisable short-term cost reduction of 30% and a further 25% in future.

Developments Market demand is favouring larger wind turbines. Currently, the average size of wind turbines installed in Europe is around 1 MW, a doubling over the past five years. The
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arguments for increased turbine size are mainly based on economies of scale, which holds especially true for the development of offshore sites with the need for multi MW machines. On land, another advantage of the larger machines is the reduced visual impact per unit installed capacity.

Currently, the largest commercially available wind turbines are in the 2.53.0 MW range, while prototypes up to 5.0 MW are already being constructed.

Other trends in RD&D are the reduction of weights and loads (e.g. flexible components and the variable speed generator), the reduction of the number of components (e.g. the direct drive generator), improvements in grid integration and power quality (e.g. power electronics) and improved materials (e.g. for blades).

Barriers Several non-technical problems resist the uptake of large-scale wind energy projects. Perceived environmental and negative social impacts are important barriers and include the visual impacts, acoustic noise emissions, effect on birds, all of which make finding sites for wind farms difficult. The same issues also contribute to the lengthy planning procedure that is the rule rather than the exception in several countries.

New sites for wind farms are being sought, with specific focus offshore and in hilly and mountainous areas.

The value of wind energy is another important issue that needs to be addressed. Variable electricity output due to fluctuating wind speeds with limited predictability has a negative impact on the value of the produced electricity. Uncertainty about the future of subsidy schemes in the various countries contributes to the instability that hinders project financing initiatives.

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Biomass and waste

There are a wide variety of biomass energy systems available, using different types of biomass and producing various kinds of secondary energy carriers. In each biomass energy system, one can distinguish between the resources, logistics and biomass energy conversion.

Variety of resources Biomass is usually defined as all forms of plant-derived material that is part of a short carbon cycle, thus excluding fossilised material. As an energy source, it can be used in a renewable way if the rate of harvest is equal to or lower than the rate of regrowth. This makes energy from energy plantations and from residues of agriculture and sustainable forestry a form of renewable energy.

The basic principle behind the production of biomass is the process of photosynthesis organic matter is produced by plants capturing CO2 from the atmosphere. The harvested part of the carbon is re-emitted to the atmosphere during the conversion into secondary energy carriers. Therefore, the combination of photosynthesis and energy conversion is, in principle, CO2 neutral, except for some fossil fueled harvesting, processing and transport.

There are many forms of biomass, ranging from very wet streams with a very low heating value, like animal manure, to very dry streams with a much higher heating value, like air dried wood. Also, the chemical composition varies between different sources of biomass. As an energy source, biomass must compete with other applications (Figure 2.1), except when it is cultivated as a dedicated energy crop (e.g. willows, miscanthus, rapeseed, grain).

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Figure 2.1: Biomass sources

Land-use / primary prod.
Land for food/feed

Harvest
Food/feed harvest 2

Processing
Food processing 4 Animal production 5

End-use

Food consumption

Pasture land

7 Material consumption 8

Land for forestry/fibre production

Forest harvest 3 Primary residues

Material production 6 Secondary residues

Tertiary residues

Land for energy crops

Energy crop harvest

Energy conversion

Energy consumption

The various types of biomass sources: 1. energy crops; 2.agricultural residues, 3. forest residues; 4. food processing residues; 5. animal manure; 6. material processing residues; 7. food consumption waste; 8. non-food organic waste. The black arrows represent the main product flows; the dotted lines show potential non-energetic uses of the various residues; the grey arrows represent the potential energetic use of the resources; the dotted area indicates the use of land. Source: Ecofys, Greenprices Business Insights

Resource potential The vast majority (>90%) of the biomass energy in the EU is applied as heat. In Scandinavian countries in particular, district heating plants are the big consumers of biomass, whereas elsewhere biomass is used in household furnaces. This situation will continue for a number of years to come, although biomass electricity production is expected to grow faster than heat production. Moreover, heat is not an energy product for which the consumer is free to choose his own supplier (yet). This means that until now biomass heat does not fit into green energy schemes. Nevertheless, there is always the possibility to sell green heat in the same way that green electricity is sold sell the joules and with it the equivalent of green certificates, to assure that the same amount of green heat is generated elsewhere.
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Besides heat and electricity, there is also potential to use biomass in biofuels for transportation. Recently, the European Commission accepted a proposal for an action plan and two directives on the promotion of biofuels. The proposals state that as of 2010 at least 5.75 % of all transportation fuels sold within the EU must be biofuels. Member states will be allowed to apply lower rates of excise duty on biofuels or fuel mixes with biofuels. These plans form part of a more comprehensive target of a 20% share of alternative transportation fuels by the year 2020.

This target will require enormous efforts from oil companies, retailers, authorities and, last but not least, consumers. Already there are examples of voluntary schemes for green fuels, although these are not yet biomass-based.

Current EU statistics state that in 1999 almost 2 EJ of biomass energy (heat plus electricity) was produced. The EU targets a doubling of this contribution in 2010. Estimates from resource studies into the future potential contribution of biomass energy to the world energy supply vary widely, from 50 to 450 EJ in 2050, with residues as the most economically viable resources, and, in the longer-term, a major role for energy crops.

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Logistics Arising from the wide diversity of resources and conversion technologies, and of the low energy density of biomass (heating value 14 MJ/kg for air dried wood, coal 24 MJ/kg, natural gas 38 MJ/kg and fuel oil 40 MJ/kg), logistics are an important issue surronding biomass energy. Transportation is relatively expensive, which calls for size reduction, transport, drying and storage (Figure 2.2).

Figure 2.2: Logistical steps within a biomass energy system

Size reduction

Biomass resource

Storage

Transport

Energy conversion

Drying

Source: Ecofys, Greenprices

Business Insights

Conversion technologies Basically all types of energy carriers can be produced from biomass: electric energy, mechanical energy, heat, light, liquid and gaseous fuels, and convenient forms of solid fuels. The relevant conversion technologies (Figure 2.3) can be grouped into four main categories: Thermochemical conversion: combustion (excess of oxygen), gasification (less oxygen), and pyrolysis and hydrothermolysis (no oxygen); biochemical conversion: anaerobic digestion and fermentation; extraction, e.g. oil from rapeseed; solid densification: such as briquetting and pelletisation.

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Figure 2.3: Biomass conversion routes

solid biomass hydrolysis solid densification solid dense biomass biogas syngas / producer gas FischerTropsch CxHy H2/methanol synthesis H2 / methanol crude bio-oil upgrading seed based oil esterification anaerobic digestion gasification pyrolysis hydrothermolysis extraction xylose/ glucose fermentation ethanol / H2 O distillation

upgrading

methane

biodiesel

ethanol

combustion furnace LP flue gas heat exchange hot air hot water

combustion gas turbine HP flue gas mechanical drive turbine steam mechanical energy

combustion engine

electro-chemical fuel cel

mechanical drive motor

electricity generation

light

electricity

In rectangles are the energy conversion processes; ellipses represent energy carriers. The grey shaded area shows the liquid and gaseous fuels, the dotted areas show the solid energy carriers. The horizontally striped area represents various forms of heat, the blocked area shows energy in the form of light and the vertically striped areas mechanical and electrical energy. Source: Ecofys, Greenprices Business Insights

Costs and developments Costs of biomass resources can vary significantly, from negative values for residues up to high levels for energy crops. The latter is expensive (>5/GJ) in industrialised countries, but can be as low as 1.5/GJ in developing countries.

Estimates of biomass electricity costs depend on fuel prices and local requirements and cost levels. Therefore only rough estimates can be given. With biomass prices of about 2
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/GJ, state of the art combustion technology at a scale of 2560 MWe can result in a cost of electricity of around 0.050.07 /kWh produced. Co-combustion, particularly at efficient coal fired power plants, can obtain lower cost figures. Should Biomass Integrated Gasification/Combined Combustion (BIG/CC) technology become available commercially, the cost of electricity could drop further to about 0.04 /kWh, due largely to higher electrical efficiencies. Decentralised power production from biomass is generally more expensive, but may enable the productive utilisation of a large part of the produced heat in the case of combined heat and power (CHP) production.

Trends The most promising conversion technology is the co-combustion of biomass. Its benefits are self-evident: economies of scale, due to the huge amounts of biomass that can be used. The recently drawn-up covenant between the Dutch government and coal-fired power stations for co-combustion forms a convincing confirmation of this trend, as well as the Danish preference to build fluidised bed combustors for both coal and biomass. Co-gasification is another important trend, with the same economies of scale benefits. Nevertheless, in some cases, stand alone biomass plants are viable.

As for biofuels, the production of methanol from woody fuels, the Fischer-Tropsch method to produce biodiesel and the production of biofuels from syngas (the product of gasification) warrants a lot of attention.

Fermentation processes would appear to be most viable in the production of biogas that can be added to transport systems for natural gas.

Barriers As already mentioned, the technological problems that come with the relative low energy density of biomass and with the wide variety of sources and conversion methods;

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biomass energy chains can be complex and may include a number of participants (e.g. agricultural, forestry, transportation, waste treatment, energy sector). One consequence of this is that biomass is generally subject to a wide range of policies and regulations; a fundamental barrier to the development of biomass as a green energy source is the appreciation of its renewability and its sustainability, in short its greenness. (See chapter page 77).

Solar energy
There are three forms of solar energy: Solar thermal heat; solar thermal electricity; photovoltaics.

As in biomass, solar energy heat is also the predominant secondary energy carrier. However, most of this heat is used on the spot, and therefore has no significance for the energy trade market. It may become of some importance for the trade in green certificates (see Key Issues).

Solar thermal electricity is still in the research and demonstration stage, but is expected to become an important energy source around the Mediterranean region in the mid-term.

Photovoltaic conversion of sunlight (also known as PV) is, for now, the only relevant form of solar green energy, with a very small contribution, to the trade market. However, its relative growth is substantial. Since 1996 the global market for photovoltaic cells has grown at an average of 33% annually. In Europe the increase in 2000 was 46%, mainly because of the expanding German market, where approximately
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44 MW was installed in 2000, mainly in on-grid distributed systems. In 2001, this market volume was expected to increase by over 50% to around 70 MW.

Resource potential Diverse studies have predicted a great future for PV. Shell foresees PV as being able to provide for 10% of the worlds energy consumption in 2050, while the International Energy Agency (IEA) calculates that integrated PV could cover 60% of the electricity consumption in several IEA member states. Actual growth in the PV market has exceeded 30% per year since 1996.

Although the main barrier to its uptake is the cost of energy, PV can count on a great deal of support programmes. The steady growth in thesector since 1996 shows that fluctuations in national governmental policies level out on a global scale.

The most established market is Germany, where a high feed-in tariff is implemented by law and the sales infrastructure is well developed. Luxembourg has a similar support programme as Germany but is a far smaller market. Other promising markets are Spain, where a German-like feed-in tariff operates; Italy, where a 50MW rooftop programme is being launched; and the Netherlands, with a new investment subsidy of up to 4.3 Euro/Wp for households and housing associations.

Other countries, such as the UK and Belgium are currently considering PV programmes.

The business opportunities mainly lie in selling 0.55.0kW PV systems to private customers, who generally face the highest electricity tariffs. In principle, larger utilityside systems are also possible in countries with a high feed-in tariff, such as Germany and Spain, although these kind of systems are evaluated against different accounting principles and therefore have to be built at lower prices per watt.

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Barriers The fact that the PV market in Europe is based on government support poses a serious risk for investors. Whilst in Germany the support is established by law, where this is not the case the government policy may change with the political climate of the countrys parliament. Such instabuility acts as a significant deterrent to large-scale, long-term investment.

Costs and developments System costs are currently range from 57 Euro/Wp, depending on system size and design. Prices stagnated in 2001 due to rapidly increasing demand in the German market, and have set out on a downward course during the first half of 2002. Costs per kWh depend on the regional solar resources and vary from around 0.30 Eurocent/kWh and higher in Spain, to 0.60 Eurocent/kWh and higher in northern Europe, based upon a 20-year system lifetime.

Despite these relatively high prices per kWh, PV often forms part of green energy packages, accounting for up to 5% of the total volume, although this would appear to be mainly for image purposes. PV electricity is more likely to play a role as a direct source to feed the electrical home system or grid.

Trends in RD&D Mass-produced solar cells are traditionally semiconductor devices made of silicon. RD&D focuses on scaling up the mass production technologies for multi- and singlecrystalline solar modules (85% market share), on improving thin film cells and production technology (amorphous silicon, CdTe and CIS). Focus is also on the development of third- and fourth-generation solar cells, such as dye sensitized and organic solar cells. Whilst these do promise to be a lot less expensive, they are still some years away from industrial production.

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Hydropower
Hydropower the conversion of potential energy of water into secondary energy carriers by means of hydraulic systems has throughout history played an important role in providing first mechanical, then electrical power. Of the various forms of renewable energy, hydropower is the single largest contributor, representing some 8090% of total global renewable electricity production. However, (large) hydro has a rather poor image with governments and agencies, is often excluded from (voluntary) green energy schemes and is therefore not enjoying the boom in increased deployment as is being ebjoyed by wind energy. The main reasons for this are the environmental effects of large hydro and, paradoxically, the distortion of the renewables market by the low prices per kWh of hydro.

Resource potential Global installed capacity amounts to 700 GW (IEA 2001), generating some 20% of the worlds electricity. As stated above, hydropower contributes 8090% of total global RE production. According to the World Energy Council, Europe has an installed capacity of 210 GW (figures from 1996, including central and eastern Europe). Taking only the EU countries, the installed capacity (small and large scale) is just under 95 GW.

The most important European countries producing electricity from hydropower are Norway, Sweden, Austria, France, Italy, Spain and Switzerland. Only 28% of the economic potential and 18% of the technically feasible hydro potential have been developed worldwide to date. However, in Europe, 70% of the economically feasible potential is already being used. This is the main reason why hydropower growth in the EU in coming years will be very moderate.

Costs and developments Hydropower is by far the most well-established renewable resource for electricity generation and commercial investment. It is a mature and reliable technology and

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represents an efficient way to generate electricity: most plants run at high efficiencies and load factors, approximately 3,5005,000 hours a year. Consequently, plants often produce electricity at very low costs (below 0.01 /kWh).

The typical capital cost is 2,000 Euro/kW installed capacity. The key factors affecting the economics of a hydropower development are: A large initial capital outlay; a long life time for the scheme; high reliability and availability; low running cost (usually around 2-3% of capital project cost); no annual fuel costs.

High-head sites are generally cheaper per kW than low-head (low-fall) sites, primarily because of the fixed overheads.

Technologies Hydropower schemes are usually divided into two categories: large-scale (above 10MW) and small-scale (below 10MW, including mini and micro power schemes).

Most of the effort in developing hydropower has focused on the exploitation of heads of 5 metres or more (often much more). Location with such heads represents the most highly concentrated form of renewable energy resource. If such a head is not available naturally, i.e. in the form of a waterfall of a significant drop over a short distance, it may be created artificially by cutting streams and building a reservoir. This involves substantial modification of the local environment and high cost for the civil works.

Certain hydroelectric schemes can be used as energy storage devices. Such pumped storage schemes usually require two similar-sized reservoirs at different heights. When
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available, excess energy from the grid is used to pump water from the lower to the higher reservoir. In times of high electricity demand, water flows from the upper reservoir and is converted to electricity as in a conventional scheme. Pumped storage schemes are used to store surplus energy from conventional fossil fuelled plants and nuclear power plants, and, in future, will also be applied to store PV, wind or other forms of renewable energy. The benefits of such systems can include rapid peak load response and stabilisation of the network.

Turbines can be described as either impulse or reaction types. Generally, impulse turbines are high-head, low flow rate machines such as the Pelton and Turgo wheels. Reaction turbines operate at lower heads and higher flow rates, examples being the Kaplan and bulb turbines. In between there are the Francis and cross flow turbines.

Trends in RD&D Generally speaking, the most attractive sites in all countries have already been developed. Therefore, with fewer and fewer high-head sites remaining, there is growing interest in small-scale and lower-head sites, and in retrofitting and upgrading existing sites. Lower-head sites are of course statistically much more common: there are many thousands more kilometres of rivers with low hydraulic gradients. Reflecting this situation, in recent years considerable research effort has gone into the development of more efficient and economic technologies to exploit low-head hydro.

Furthermore, there is a growing international interest in the development of small-scale hydropower (SHP) because it does not have the same kind of adverse effects on the local environment as large hydro. SHP is, in most cases, 'run-of-river'; in other words any dam or barrage is quite small, usually just a weir, and generally little or no water is stored. The engineering work involved merely serves to regulate the level of the water at the intake to the hydro-plant. Other advantages are: Small hydro is an indigenous source of energy which can reduce dependency on imported fuels;

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it can provide a local energy supply, contributing to rural economic development; it has minimal environmental and social impact; the approval and licensing process is often simpler than for large installations; construction periods are relatively short.

Barriers Some disadvantages of hydropower are: The technology is very site specific; the place of generation is often not the place of demand; the lack of knwoledge regarding small-scale hydro leads to delays in its implementation; large dams prevent the natural migration of fish; large dams usually displace people and animals; large dams stop the natural flushing of rivers and streams, thereby reducing the deposit of silt downstream, leading to silt build up; reservoirs may emit significant amounts of methane.

The Implementing Agreement on Hydropower Technologies [] commenced in 1995 with the objective of improving the technical and institutional aspects of the existing hydropower industry, and increasing the future deployment of hydropower in an environmentally and socially responsible manner.

Projects include:

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The development of recommendations for best practices for upgrading existing hydropower facilities, with a focus on installations with a capacity of more than 10 MW; technological, organisational and regulatory issues related to small hydro projects (from 50 kW to 10 MW in capacity); developing recommendations for environmental impact assessments of hydropower project and criteria for application of associated mitigation measures; preparation of methods and tools for education and training in hydropower.

Ocean Energies
The oceans cover more than two thirds of the surface of our planet and represent a potential, chemical and kinetic energy resource, which theoretically is far larger than the entire human race could possibly use. The huge size of the marine energy resource is to some extent academic, as most of the energy available is either too diffuse for economic exploitation or located too far from the end-use sites. However, there are places where the different types of marine energy tend to be concentrated that may be located a feasible distance from prospective markets. In such cases, prospects for future exploitation are good.

There are seven quite different marine energy resources that could be developed, as follows: Tidal and marine currents; wave energy; OTEC (Ocean thermal energy conversion); tidal barrages;

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salinity gradient/osmotic energy; marine biomass fuels.

From the above list, the only two with serious short- to medium-term prospects to meet European green energy needs are tidal and marine currents and wave energy. These two resources are discussed below.

Tidal and marine current energy Marine currents are mainly driven by the rise and fall of the tides, but also by differences in seawater composition and by oceanic circulation. The mechanisms for exploiting this kinetic energy resource are similar to thos for wind energy. An advantage of the marine energy resource is that it is generally predictable since the drivers tend to be gravitational rather than meteorological.

In most places, the movement of seawater is too slow and the energy available is too diffuse to permit practical energy exploitation. However there are locations where water velocity is speeded up by a reduction in cross-section of the flow area, such as straits between islands and the mainland, around the ends of headlands, in estuaries, etc. The main siting requirement is a location having flows exceeding about 1.5 m/s for a reasonable period with sufficient depth of water to cover a reasonable size of turbine (perhaps 1530 metres).

A 1996 study funded by the European Commission that evaluated the tidal current energy potential for 106 locations around Europe estimated an exploitable resource from just those sites of 48 TWh/yr.

Most work in this field dates has been carried out within the last 10 years or so. Notable technological developments have taken place in the following countries: the US, Canada, the UK, Australia and Japan.

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The various turbine rotor options can generally be categorised as those devices that rely mainly on drag forces and those that rely predominantly on lift forces, the latter category being most promising due to its inherent higher efficiency.

Examples of drag devices include the traditional waterwheel and the Savonius type rotor. Lift devices can be classified by horizontal axis rotors and vertical axis rotors (similar to the Darrieus type rotor).

Wave energy Ocean waves are caused by winds as they blow across the surface of the sea. The energy that waves contain can be harnessed and used to produce electricity. Due to the direction of the prevailing winds and the size of the Atlantic Ocean, the UK and northwestern Europe have one of the largest wave energy resources in the world.

The wave energy resource can be subdivided into two categories: shoreline and offshore.

Shoreline The main device deployed worldwide is the Oscillating Water Column (OWC). This consists of a partially submerged, hollow structure that is open to the sea below the water line. This encloses a column of air on top of a column of water. Waves alternately compress and depressurise the air column. This trapped air is allowed to flow to and from the atmosphere via a Wells turbine, which has the ability to rotate in the same direction regardless of the direction of the airflow. The rotation of the turbine is used to generate electricity. In the UK, Wavegen is working to develop a proposal for a cluster of OWC-based wave power stations in the Western Isles.

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Figure 2.4: Principle of operation of a shoreline Oscillating Water Column device

Source: Ecofys, Greenprices

Business Insights

Offshore and near shore Offshore wave devices exploit the more powerful wave regimes available in deep water. Several different types of offshore device have been developed, but none has yet been deployed commercially.

The Archimedes Wave Swing (AWS) is a recent development in Europe. It should be ready for installation off the coast of Portugal this year (2002). The AWS is a joint project headed by Teamwork Technology and Nuon (both from the Netherlands). The AWS consists of an upper part (the floater) which moves up and down in the wave while the lower part (the basement or pontoon) stays in position. The periodic changing of pressure in a wave initiates the movement of the upper part. The floater is pushed down under a wave peak and moves up under a wave trough. To be able to do this, the interior of the system is pressurised with air and serves as an air spring. A movement of the floater of approximately 7 metres occurs with a wave measuring just 1 metre. The power take off consists of a linear electrical generator.

Geothermal energy
Geothermal energy is generally defined as heat stored within the Earth. This heat originates from the Earths molten interior and from the decay of radioactive materials. Down to the depths accessible by drilling with modern technology, the average
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geothermal gradient is about 2.53.0 C/100 metre. Geothermal energy can be used for electricity generation or as a direct heat source. In Europe, the usage of geothermal energy for electricity production is very limited. About 98% of the total electricity production from geothermal sources in Europe comes from Italy. In 1998, 4,214 GWh of electricity was produced from geothermal sources in Italy and 4,295 GWh Europewide, which represents 1.2% of the total electricity produced from renewable sources.

Potential The potential contribution from geothermal energy in European renewable energy supply will be very limited until 2010. Little production increase is expected in Italy, while Germany has set a national target of 2,000 GWh of electricity from geothermal sources. This represents a total growth in geothermal energy of between 4050% Europe-wide. Relative growth is therefore reasonable, but absolute growth is very limited.

Costs and developments The unit costs of power from geothermal sources currently range from 2.5 to over 11.0 Eurocents per kilowatt-hour. For most of Europe the development of the technology is in research/demonstration phase. As mentioned, only in Italy, has geothermal energy been introduced in the market on a large scale.

Technologies Geothermal energy can be acquired by two wells, which are used to obtain warm water or steam from earth layers (geothermal aquifers) or by heat exchangers that are placed in drilled holes (hot dry rock (HDR)). For electricity production, a minimum temperature of 90C is required.

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Trends in RD&D There is considerable interest and research in technology to generate electricity from HDR geothermal resources. In this process, water is injected into the geothermal well and then recovered as steam, which is used to drive turbine generator sets. However, as the technology is still experimental it is not yet ready for commercial deployment.

Barriers Extracting geothermal energy can have adverse environmental impacts, particularly air pollution from radon gas, hydrogen sulphide, methane, ammonia, and carbon dioxide emissions. Many of these impacts, however, can be controlled with technology that reinjects waste gases or fluids back into the geothermal well.

There are others problems like the mineral deposits on the components, and the need to drill new wells after a few years of use. It is important to note that geothermal energy is renewable only if the rate of extraction is less than the recharge rate. Currently, few geothermal projects for generating electricity meet this requirement.

Summary costs
The following table provides a summary of the indicative costs for investment and generation of electricity for the technologies covered in this chapter of the report.

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Table 2.2: Summarised indicative costs for investment and generation of electricity per technology
Technology Wind onshore Wind offshore /kW 1,000 1,700 (expected to drop to1,500) 1,6001,800 57 /Wp /kWh 0.050.07 0.070.09 (short term reduction of 25% possible) 0.050.07 0.300.60 (south to north Europe) 0.020.10 0.030.11
Business Insights

Biomass (2 /GJ input) Photovoltaic (PV)

Hydropower Geothermal energy

Source: Ecofys, Greenprices

2,000 2,900

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53

CHAPTER 3

Key Issues

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Chapter 3
Introduction

Key Issues

This chapter of the report focuses on some of the key issues relating to the deployment of renewable energy in Europe. The six main issues discussed are: The EU policy towards renewable energy; promotional tools; labelling and certification; the appreciation of biomass and waste as green energy sources; the marketing of green electricity; barriers and success factors for green energy.

EU Policy
In 1996, the European Commission issued a Green Paper on Renewable Energy, which was discussed and converted into a White Paper one year later. In this resultant White Paper, the EU set a goal of doubling the total share of renewable energy in total EU energy consumption from 6% in 1997 to 12% in 2010. Subsequently, differentiated targets were set for specific secondary energy carriers, like electricity and transport fuels.

Electricity On 27 September 2001, the European Commission introduced Directive 2001/77/EC on the promotion of electricity produced from renewable energy sources in the internal

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electricity market. The goal of this directive is to increase the share of electricity from renewable sources in the EU from 14% in 1997 to 22% in 2010. The directive does not specify how the member states should achieve this target. The Directive sets national targets for penetration of electricity from renewable energy sources in all member states, see Table 3.3. It is stated explicitly that these targets are indicative and not obligatory.

Table 3.3: Indicative EU targets for renewable electricity (RES-E) per member state
RES-E TWh 1997 Indicative targets Austria Belgium Denmark Finland France Germany Greece Ireland Italy Luxembourg Netherlands Portugal Spain Sweden United Kingdom EU
Source: Ecofys, Greenprices

RES-E % 1997

RES-E % 2010

39.05 0.86 3.21 19.03 66.00 24.91 3.94 0.84 46.46 0.14 3.45 14.30 37.15 72.03 7.04 338.41

70.0 1.1 8.7 24.7 15.0 4.5 8.6 3.6 16.0 2.1 3.5 38.5 19.9 49.1 1.7 13.9%

78.1 6.0 29.0 31.5 21.0 12.5 20.1 13.2 25.0 5.7 9.0 39.0 29.4 60.0 10.0 22%
Business Insights

The targets set by the EU are percentages, based on the national production of renewable electricity (RES-E) divided by the gross national electricity consumption. The targets are, in principle, to be achieved by national renewables production, although certificates of origin may be used to facilitate and monitor trade between member states. When member statesacknowledge each others certified production, imported production may be used to comply with the agreed indicative targets. De facto, the indicative targets per member statesare on green electricity consumption. The overall EU target of 22%, however, is on production. But as long as there is only trade within the internal market, this production target doubles as a consumption target as well. This
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leaves little room for taking imports from outside the EU into account. It remains unclear in what way future member states will have to comply with the overall target.

In practice, before 2002 renewable electricity imports in Europe were restricted to large-scale hydro and some voluntary demand of green energy (see also Chapter 4). The Netherlands is the first country to start with large-scale import of non-hydro green electricity. The reason for this is, as of January 2002 foreign green electricity has been eligible for Dutch green certificates and thus enjoys the benefits of the Dutch support schemes.

Other countries are also discussing the opening of borders, although in most countries foreign green electricity is not (yet) eligible for the main drivers for the renewable energy markets (e.g. the obligation or tax exemption). Therefore importing green energy is rather expensive, except for large-scale hydro, since this is already profitable without government support.

Biofuels In November 2001, the European Commission approved a proposal for the promotion of alternative transporting fuels. This proposal formulated a target to replace 20% of transport fuels (diesel and petrol) with alternative fuels by the year 2010. In the shortterm, biofuels will be the most important alternative. Natural gas and hydrogen/fuel cells will become increasingly prominent over the longer-term.

The Commissions proposal includes an action plan and two Directives. In the first proposed Directive, the European Commission sets (indicative) targets for biofuels at 2.0% of the sold quantities of transport fuels in 2005, and 5.75% in 2010. Recently, the European Parliament discussed this target and proposed higher targets, increasing the figure to 10% in 2010. A second draft Directive permits member states to promote biofuels by lowering taxes. The first initiatives for tax exemptions for biofuels have already been taken, such as in Germany. These proposals are still subject to discussion.

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This initiative is strongly backed by the agricultural communities in Europe, who see potential new sources of revenue. In addition, there is a covenant between the European authorities and the motor industry that works towards cleaner cars. Thirdly, several oil companies are planning plants to produce biofuels. At present this market like the green energy markets for renewable gas and heat is still too young to warrant inclusion in this green energy market overview. However, given the enormous potential in these markets, this situation will surely change in the years to come.

Promotional tools
The Directive on the promotion of electricity produced from renewable energy sources in the internal electricity market (2001/77/EC) requires each member state to take appropriate measures to achieve these targets without prescribing the most appropriate means to do so. In 2005, all support mechanisms put in place by the member states will be assessed. Should there be evidence that most targets will not be met, the Commission may then decide to propose a Community-wide support framework for renewables.

In the meantime, each member state has selected a support mechanism or a combination of two or more instruments to support the production of electricity from renewable energy sources. There are several approaches, including feed-in tariffs, fiscal incentives, competitive tender schemes, voluntary green pricing and mandatory requirements (such as purchase obligations).

Seven EU countries have selected feed-in tariffs to promote their renewable energy sector. As of 1 January 2003, there will be five countries with a system of purchase obligations in place.

The use of obligations (quota-based) has been spreading over the last two years, with Belgium and Sweden following the example of the plans of the Italian, Austrian and UK governments.

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Table 3.4: Choice of support schemes per member state

Country Austria Major strategy Obligation (4% new renewables, 8% small hydro by 2007) All regions are expected to switch from feedin tariff to system of tradable green certificates with quota with associated penalties, and minimum fixed tariffs or fixed prices for green certificates. Feed-in tariffs Additional instruments Rebates and feed-in biomass, PV and wind tariffs for

Belgium

Investment subsidies for innovative energy technologies

Denmark

Tax relief e.g. CO2 tax, income tax exemptions, compensation schemes Rebates Fiscal measures Soft loans, local rebates, green tariffs Subsidies and tax deduction CO2 tax, tax relief Tax relief Compensation schemes Feed-in tariffs, fiscal measures Rebate, compensation schemes Compensation schemes, third party financing Feed-in tariffs for small generators (to be phased out) Pollution tax relief, green tariffs.

Finland France Germany Greece Ireland Italy Luxembourg The Netherlands Portugal Spain

Tax relief Feed in tariff High feed-in tariffs Feed-in tariffs Tendering Obligation Feed-in tariffs Tax exemption Feed-in tariffs High feed-in tariffs

Sweden

Obligation and tax relief

UK

Obligation (10% by 2010), tradable green certificates, tax exemption

Source: Ecofys, Greenprices

Business Insights

Fixed feed-in tariffs a) Some countries have feed-in tariffs in place: Austria, Denmark, France, Germany, Spain.

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b) Definition: utilities have the obligation to connect local renewable power generation to the grid and to pay those generators a guaranteed price, i.e. feed-in tariff.

c) Strength: provides security for investors by guaranteeing revenues with a long-term perspective to production capacity for renewable energy.

d) Weaknesses:

No reflection of market price signals;

no incentive to reduce production costs. In Germany, it has been proven that wind turbine generators operate at costs between 1530% more than in countries where no feed-in tariffs exist.

e) Compatibility with EU rules: Feed-in tariffs do not yet allow for trade and it is difficult to imagine how they could at a later stage incorporate the possibility of international trade. However, the case brought forward by PreussenElektra to the European court of justice has, for the moment, concluded the debate on the acceptability of feed-in tariffs according to European rules on state-aid.

Purchase obligations a) Some countries have a renewable energy obligation in place: Sweden, Italy, the UK, Belgium and Austria.

b) Definition: a state ordinance places an obligation on a category of energy market players (consumer, producer, supplier) to source part or whole of the energy it consumes, produces or supplies from renewable energy sources. These individual obligations are in line with the level of consumption, production or sales of the previous year. This instrument is introduced in parallel with a common quota to be achieved by a certain date.

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Strongly related to the obligation is the issue of penalties and fines in case of noncompliance. The level of the fines directly influences the market prices of green energy.

c) Strength: Obligations in terms of a percentage or quota give market participants the freedom of choice to select the most efficient way to meet the target.

d) Weakness:

Instruments have only recently been introduced on the market, and there is limited experience of their use;

investment decision time-lags can create constraints on the market and push prices up;

choice of the player under obligation is a politically sensitive issue.

e) Compatibility with EU rules: the UK scheme, for example, was granted state-aid approval. This is in line with EU-level objectives to move towards more market-based instruments for the support of renewables.

Tendering Another instrument is the bidding or tendering scheme for new renewable capacity.

a) One country with a tendering scheme in place: Ireland.

b) Definition: an Authority allocates a fund for building new renewable capacity and puts out a tender for future generators of renewable energy. After the tender timeframe has expired, the authority ranks the tenders, if possible by category of renewable source, and gives grants to those parties who are eligible and are the cheapest.

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c) Strength: Market based, efficient, competitive.

d) Weaknesses:

Although it offers economic efficiency, the system has demonstrated rather low effectiveness to date. The Irish Alternative Energy Requirement (AERII) dedicated to biomass failed in 1995 and AER IV (1997) on CHP resulted in 8 MW contracted instead of the 25 MW forecast;

licensing procedures hindered or even blocked the building of large amounts of renewable capacity offered to the British Non Fossil Fuel Obligation (NFFO) tendering rounds. Tenders should account for this problem.

the EU indicated targets for renewable energy relate to the consumption of renewables and not its production. Thus consumption-oriented instruments are preferred.

e) Compatibility with EU rules: compatible. Competition between parties, incentive for reduction of costs.

Fiscal instruments a) Some countries with a tax incentive in place: The Netherlands (small and medium energy consumers) and the UK (business consumers).

b) Definition: a tax is levied on the consumption of energy for all consumers (with the exception of energy-intensive industries, which are granted separate treatment and targets). Exemption from this tax is granted to end-users fulfilling their energy requirements with electricity or heat from renewable energy sources. The advantage of such an approach is that it is aimed directly at the consumption of renewable

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energies. Tax incentives make green pricing of green energy less expensive, and in some cases even beneficial compared to grey energy.

c) Strength: market based, can be fine tuned per category if results lag.

d) Weakness:

No guarantee of results, in terms of quantitative targets;

possible leakage of funds to existing foreign projects (for example of the Netherlands experience with the REB);

e) Compatibility: not discriminating against parties, different kind of suppliers.

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Figure 3.5: Economic efficiency of support instruments versus effectiveness

Feed-in tariff

Obligations

Effectiveness

Fiscal support

Tenders

Economic efficiency
The efficiency and effectiveness strongly depend on the actual implementation (e.g. height of levy, available budget, fines in cases of obligation, etc.). The positions are estimates of experiences and inherent properties of the instruments. Source: Ecofys, Greenprices Business Insights

The effectiveness of the aforementioned support instruments can be measured in a qualitative sense, utilising the following criteria:

Effectiveness: How successful is an instrument in stimulating the production and/or the uptake of electricity from renewable energy sources? Clearly, tools like the feed-in tariff are effective in stimulating the installation of new production capacity. In the past, however, the success of tendering schemes was not guaranteed.

Economic efficiency: Support instruments could reflect the external costs of electricity production avoided by using renewables and compensate for the difference in production costs between renewables and grey electricity. The closer the level compensated comes to the actual difference in production costs, the more economically

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efficient an instrument is. Economic efficiency can also be assessed from the progression of the compensation level over time.

Compatibility with EU rules for internal market: In the same way that the market for electricity in the EU falls more and more within the regulatory framework of the EU regarding the free movement of goods and state aid practices, it is to be expected that those rules will increasingly apply to electricity produced from renewable energy sources. Granting access to imported renewable energy from other EU member states is likely to form part of the checklist for compatibility with the internal rules. It is therefore important to determine the extent to which the different support schemes comply with these requirements.

Labelling and certification

In order to be eligible for supporting schemes and obligatory quotas and to be qualified for voluntary green energy schemes, the origin of the electricity has to be fully known.

Roughly, there are four ways in which traders provide proof of their green trade: Labels/guarantees of origin; tradable certificates; quality mark; disclosure of fuel portfolios.

In an ideal green energy market place, all kWhs (even grey ones) are labelled and their greenness is guaranteed. Such labels contain the origin of the produced amount of electricity by place, date and source. Certainly in the case of a renewable obligation (e.g. a mandatory green share in electricity sales), relevant parties in the market have to prove that they meet the obligation. Also in the case of tax exemption or other promotion
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instruments on green energy production, some kind of guarantee of greenness has to be handed over to the authorities.

No label will stick to an electron, allowing for the introduction of green certificates that are traded on a parallel market (Figure 3.6). Next to the common electricity market, the greenness is traded by selling and buying certificates. Green certificates are issued by the issuing body, which guarantees the greenness of the electricity.

Sometimes the electricity and the greenness are directly linked, so the buyer or trader purchases both an amount of electricity and the same amount of green certificates simultaneously. However, this link is not mandatory. Traders that are subject to some obligation can match the compulsory green share of their electricity sales by purchasing the corresponding amount of green certificates. This implies that green certificates have a value on their own, in addition to the market value of the kWh. The certificate value roughly represents the environmental benefits of green energy.

According to their content and function, every certificate is a label, but not every label is a certificate. A certificate is an extended label, because the main purpose of a label is to contain information and a certificate is a tradeable good. Of course labels have an added value for the purchaser, but in general a label is less robust than a certificate: it does not have the status of a bond or security paper. A certificate can have the function of a label as it provides the requested information.

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Figure 3.6: The principle of a renewable energy certificate system

RESproducers

additional benefits over non-renewable (e.g. ecological)

certificate markets

electricity Electricity kWh W

electricity markets

Figure 6.2 The principle of a renewable energy certificate system

Source: Ecofys, Greenprices

Business Insights

Labelling of electricity in general has become a hot topic in discussions within the European Council, Parliament and Commission. At present, customers who buy electricity cannot validate how the electricity purchased has been generated. In many cases, the supplier cannot either, because he often buys the electricity from a trader or wholesaler, who again buys the electricity from a generator. Some stakeholders in the electricity market, such as NGOs, but also green politicians, are seeking to label all electricity generated within the EU. Labelling is seen as a means of preventing dumping electricity with poor environmental performance on the market. Therefore, it is difficult for a customer or trader to track how the electricity has actually been generated, since all electricity combines on the grid and it is very hard to get an overview of all the sources.

Recently, the EU has been debating labelling all electricity within its community. There are clear signs that labelling is gaining support, but in practice labelling will not be introduced for at least another two or three years (20042005). Meanwhile, certain authorities stress that suppliers must make their purchase portfolio transparent, possibly for an annual inspection.

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As labels and certificates are still new and not widely used, the green energy market has already become acquainted with quality marks. These are trademarks or stamps (sometimes mistaken as labels), issued by NGOs such as the WWF, local environmental organisations or by supply companies themselves, and used by suppliers or trading companies to convince customers of the undisputed greenness of their product. Such marks have been used as marketing instruments in voluntary green energy schemes. Because until recently only small amounts of green energy were traded, NGOs could easily track down the supplying generators to validate their quality mark. However, in a dynamic, growing market, certificates and labels will be indispensable. The issuing NGOs will certainly require such information, because they will not risk their reputation by attaching their name to a questionable product.

Criteria for attaching such quality marks can differ from those for certificates or labels. When establishing a new green brand of energy, suppliers can decide that, for example, biomass has to be excluded, because customers might question the emissions of biomass conversion and choose only wind and solar energy. In such circumstances, the quality mark must ensure that a consumer buys only wind and solar energy.

National systems Two properties of green certificates facilitate green electricity imports and exports. Firstly, certificates guarantee the green quality via the issuing body, which is generally a certification institute of indisputable reputation. Secondly, the virtual nature stimulates import and export, because trade happens without any physical transport of electricity.

However, international green certification has not yet been widely adopted. This is the main reason why markets remain nationally oriented. In some cases, governments do accept certificates for tax exemption or obligations (the UK, the Netherlands and Sweden from 1-1-2003), but they are mostly national certificates. Harmonisation of these systems is still some years away. Therefore, except for transmission losses and pumped storage, renewable consumption figures for different countries roughly equal the production figures (excluding large hydro).
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The only exemption so far is the Netherlands, which allows imports from reciprocal countries (UK, Germany, Sweden, Finland, Austria), as long as the foreign certificates are accepted and adopted by the national issuing body (Groencertificatenbeheer). Reciprocal countries are those whose electricity market is similarly liberalised (end-users are free to choose their supplier), which means that imports from such a country should be subject to the same rules as exports and vice versa. Moreover, the trade in certificates must be linked to physical imports to qualify for tax exemption.

In 2002, because green energy production in the Netherlands has been unable to match booming demand (see the country report on the Netherlands, page 116), more than 50% of the Dutch RES-E consumption is imported currently.

Double counting An important issue relating to renewable energy production is double counting. Double counting occurs when the additional green benefits from producing renewable energy are accounted and compensated for more by more than one promotional instrument, for instance in two different countries.

Possible forms in which double counting could occur on the green energy market are: Selling the greenness of renewable electricity twice, both by selling the physical electricity and again by selling the green certificate; selling both the green certificate, which holds all the greenness and separately selling the CO2, SO2 or NOx credits; count and/or obtain a contribution for the greenness at both the supply and demand ends of the market. For example, green electricity is produced in a country where it receives a fixed price (feed-in). If the accompanying certificate is not withdrawn from the market, it is possible that is could be re-used abroad, for example, to obtain a tax exemption;

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counting the environmental benefits twice on the demand side. This can happen if a certificate is issued in one country and exported to two different countries. Another example is that a supplier reports the price of green energy for its whole customer base, while selling it with a premium to voluntary green electricity customers.

The main reason for double counting is that promoting instruments for renewable energy are quite diverse. There are many different programmes aimed at different technologies in different countries. Especially in the case of the export of green energy, the risk of double counting increases, because there is not always sufficient insight into what type of support has been obtained in other countries.

The best way to prevent this double counting is to adopt an integral and far-reaching system of green certification, whereby certificates issued by a reliable, trusted organisation are redeemed when the corresponding green energy is purchased.

International green energy trade With the Directive 96/92/EC on the liberalised internal energy market, the European Parliament has opened the way towards international competition in the electricity sector. However, with electricity from renewable energy, international trade becomes problematic, because of the different (mostly nationally focused) support schemes.

Because of the different support schemes, different prices occur for renewable energy. Moreover, in countries where support mechanisms have led to high prices, an international green certificates standard will meet a lot of resistance, because it stimulates competition and may diminish the companies benefits.

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Table 3.5: Overview of certificate systems and green certificates trade

Country Main features of regional & international certificates systems Obligation Market players Period of validity of certificates Market status

Austria

Started Oct. 01. On suppliers. Certificates are traded Obligation of 8% together with electricity. small-scale (<10 MW) hydro power. -Flanders: to start 2002 On suppliers. Different targets -Walloon: starts 2002/3 per region. -Brussels start date n/a -RECS: in development for voluntary market. Certificates traded separately from electricity.

Trade between 15 Twice per year. The Energy Exchange Austria regional suppliers facilitates trade in small-scale and 1,200 generators hydro certificates. (& external traders). Trade between 20-50 generators and 5 suppliers. Main suppliers are Electrabel and SPE. Flanders, Brussels & federal certificates: yearly. No marketplace currently.

Belgium

Main obstacles for a liquid marketplace are Electrabels dominant market position and the fragmented nature of the Walloon region: market (separate regional per trimester. markets).

Italy

Started Jan 2002. Producers & Certificates are traded importers. together with electricity Obligation of 2% new (entered into service after 1999) RES-E (6% from 2006, 8% from 2008)

Yearly. Trade between producers (& importers). GRTN supplies certificates (owner renewable capacity). Enel (50%), Montedison/EDF (25%) & autoproducers (25%) demand. Trade between Monthly. suppliers & traders. (mainly NUON, Essent, Eneco, Shell, Vattenfall, TXU, Electrabel, NRE, REMU, Reliant)

Gestorimercato, (100% owned by issuing body & main supplier of certificates GRTN) has set up a certificate exchange. Mainly as a service to enable small producers to buy certificates.

Netherlands Certificate trading coupled with financial incentive for final consumers. In place since July 2001. Certificates are traded together with electricity Sweden Planned start in 2003

Suppliers. Tax exemption.

No marketplace for certificates available. Trade is done bilaterally.

Suppliers. Obligation of 6% in 2003 (15% in 2015)

Trade between generators (Vattenfall (49%), Sydkraft (19%) Birka Energi (15%)) & 200 network utilities

Unknown.

None specific for certificates. Nordpool for electricity trading.

United Kingdom

Voluntary system in place. Mandatory system started in April 2002.

Suppliers. Trade between Obligation of 3% generators & (yearly increasing suppliers. with avg.1%)

Yearly

No marketplace currently. Non-Fossil Purchasing Agency has contract to purchase most green electricity with certificates & then auctions them to utilities.

Renewable energy certificate system (RECS)

Test-phase. Technical possible to trade. Main problem is lack of demand.

-Short-term: Endusers for green marketing purposes. -Long-term: Suppliers to satisfy obligation or tax redemption

-Suppliers -Consumers -Generators -Traders

Depended on what the certificates are used for.

No marketplace currently. Future potential of RECS depends on policy developments. Increase in reciprocity agreements expected (Netherlands was first to open up borders).

Source: Ecofys, Greenprices

Business Insights

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Figure 3.7: Green certificates trading in Europe

NL Certificate market Wind: 5 Eurocents UK Certificate market Wind: 1-5.5 Eurocents AT Certificate market Wind: 3-8 Eurocents S Certificate market FI Certificate market Wind: 0.7 Eurocents BE Certificate market Wind: 5-9 Eurocents

D Certificate market Wind: 6-9 Eurocents IT Certificate market Wind: 0-6 Eurocents

European Certificate Market

Dominated by national markets, the Netherlands is the only country with (large-scale) import. For each country the market price of certificates in Eurocents for a kWh of wind energy is shown. The price difference is the main driver for imports and exports (price indications by RECS) Source: Ecofys, Greenprices Business Insights

Green reciprocity One solution some countries have introduced for the problems with international trade is to allow imports from countries that have compatible schemes and allow reciprocal imports of green certificates. This situation is referred to as green reciprocity.

However, in most cases, the extent of the compatibility would need to be defined. Compatibility does not necessarily mean that the type of support scheme (or technologies supported in each country) for the demand of renewables needs to be the same. In an agreement of green reciprocity, one can imagine that a feed-in tariff could be compatible with a system based on a purchase obligation for electricity from renewable sources.

Reciprocal conditions should ensure: Stability of both schemes. The import of certificates should not disturb either of the two markets or distort prevailing prices. A primary condition should be the assurance that the level at which the demand for green certificates is pitched is
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higher in each country than the supply of certificates in that country at a certain start date. This prevents an unequal sharing of the burden; single-counting of environmental benefits. This could translate into a Memorandum of Understanding between governments regarding the integration or not of CO2 benefits into the renewable energy certificate with according rules on the redemption of those benefits when counting them towards a national target for emission reduction. common renewable energy declarations, issuing and redemption rules, trade registration databases and a secured communication between the central monitoring offices of both countries.

Renewable Energy Certificate System - RECS One important initiative on the field of certification taken a few years ago by several stakeholders on the green energy market, is the international RECS: Renewable Energy Certificate System. This initiative advocates a certification standard by providing a methodology for trading, possibly separate from the physical electricity. RECS is trying to deal with international trade problems by issuing certificates for all renewable energy. The certificate displays the origin of the country and the type of support that was given. Once RECS, or a similar standard certification, is applied by all parties by the same principle of certification, registration and redemption after use, one important barrier for international trade of green energy will be removed. The RECS objectives are clearly in line with the EU goal of establishing an internal green energy market. This concordance has been recognised by many market participants and several governments.

International harmonisation of support reduces the risk of double counting. RECS works towards harmonising the administrative procedure for giving support. Within the current support systems, RECS wants to register the support by issuing certificates for any type of support. In this way, it is clear how and where support is given.

Below is a brief description of how RECS operates.

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After green electricity is generated, the electricity is given a certificate, which is a label with information on, for example, technology, location and capacity of generator. This certificate, which is a digital label, then contains all the green benefits of renewable electricity over conventional electricity.

As a result, the electricity and the certificates can be traded on separate markets. Suppliers can then buy electricity (from any source) and use certificates to make it green. This seems contradictory to customers, but is not, because if the labelling system works correctly, it guarantees that for every kWh green energy sold to a final customer, one kWh green energy is also generated.

Figure 3.8: RECS counts some 130 members in Europe, including most major utilities

Test phase countries (Oct. 2001)

Additional members (Switzerland and Spain from May 31 2002)

Source: Ecofys, Greenprices

Business Insights

A big advantage of RECS is that it can support multiple support schemes. RECS certificates can, for example, be used in feed-in systems. In this case, a fixed price is always paid for the RECS certificate. RECS can also be used to ensure Guarantee of

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Origin, which is required for renewable energy as stated by directive 2001/77/EC. Finally, RECS can be used for all labelling purposes. Its strong international presence is important (see Figure 3.8) as a means of ensuring that same labelling standards are applied all over Europe.

The Netherlands is the first country to use RECS for importing foreign certificates. From March 2002, the Dutch government has agreed that RECS issuing bodies can play a role outside its national borders.

Green certificates and emissions trading Currently many changes are appearing in the energy field. One of the developments is the introduction of new instruments related to energy and environmental policy goals. Among these are emissions trading schemes and green certificate systems. Both systems aim to meet the targets set in an efficient way and to optimise the distribution of associated costs among market players. Both markets also require similar functions to be carried out, such as issuing and redemption of certificates, monitoring and verification. Furthermore, emission reductions are an important benefit of renewable energy. Since all these parallels are present, the question arises whether the two systems should be integrated or not. This section will now discuss advantages and disadvantages of integrating the systems and keeping them separate.

Within Europe several systems for CO2 emissions trade are (planned to be) implemented. These include: The EU proposal to start an EU-wide emissions trading scheme by 2005 (concentrating at first only on CO2 emissions from major emitting sources); national systems introduced in Denmark (obligatory CO2 emission trading scheme for electricity sector; period 2000-2003 ) and the UK (wider voluntary system started in April 2002);

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national systems planned in Norway, Sweden, France, Netherlands, Slovakia and Switzerland; international companies BP and Shell have operated their own intra-company systems, since 1998 and 2000, respectively .

One of the main values of renewable energy and the associated green certificates is of course the fact that its production does not lead to direct CO2 emissions. In this respect, it has to compete with all other options to reduce emissions, many of which have substantially lower specific costs. CO2 emission reduction in itself is now traded at prices below 10 /tonne CO2. In contrast, a green certificate price of 2050 /MWh typically corresponds to 40100 /tonne CO2 (the exact value depends on the generation system where the green energy is fed in). The fact that governments and individuals are willing to pay this higher price reflects additional benefits of renewable energy generation and support for its further development as an essential CO2 emission reduction technology for the longer-term future (i.e. the period beyond the first budget period 20082012 of the Kyoto protocol). However, it also reflects the relative appeal of renewable energy technology.

Whereas national green certificate systems have already been implemented in many European countries, many European governments face difficulties in setting up a national emission trading scheme. Also the EU decided to start with a system that covers part of Europes GHG emissions (for instance excluding non-CO2 GHG emissions and emissions from the chemical sector). The main reason for exclusion is the large number of small emitting sources and the corresponding high administrative complexity. Among the complex issues that need to be settled within an emissions trading system are the definition of baselines (What would emissions have been if the project had not been carried out? How many GHG emissions does the proposed project reduce?), validation and verification of baselines and emission reductions. Moreover, clear rules need to be set for issuing and redemption of emission reduction certificates.

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Are waste and biomass green energy sources?

There is some dispute regarding the status of biomass and waste as sources of green energy. Notwithstanding the carbon-neutral character of biomass because of the short lifecycle emissions can occur during the conversion step into electricity, heat, fuels or gas. Moreover, biomass and renewable waste often are combusted in mixtures with nonrenewable waste. Therefore, a key barrier to the development of biomass as a green energy source is the social and political perception of its renewability and its sustainability, in short its greenness.

There are three definitions of sustainability, with a strong interconnection: The more or less scientific definition of sustainability and renewable sources; the eligibility of biomass and waste for governmental support schemes and regulations; the perception among customers and other stakeholders (e.g. environmental organisations).

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The academic definition mainly concerns environmental impacts, methodological principles of lifecycle analysis (LCA) and system borders. There is little fundamental academic discussion regarding the question of whether biomass can be a sustainable energy resource or not. Regarding the green energy market, the second aspect is much more important. Leading the governmental appraisal is the definition of biomass used by the European Commission in the aforementioned directive on the promotion of electricity from renewable sources:

Biomass shall mean the biodegradable fraction of products, waste and residues from agriculture [..], forestry and related industries, as well as the biodegradable fraction of industrial and municipal waste.

However, the same directive states that:

Support for renewable energy sources should be consistent with other Community objections, in particular respect for the waste treatment hierarchy.

This means that prevention and recycling are preferential to waste incineration. However, this definition only concerns supporting schemes, and does not extend to other regulations. Concerning emission regimes for energy generation from biomass and waste, the EU applies more rigid definitions of biomass. For instance, the definition of biomass in the Directive 2001/80/EG concerning emission for big combustion plants excludes polluted wood, which falls under Directive 2000/76/EG concerning waste incineration. Because of subsidiarity, member states are allowed to apply more rigid emission regimes for certain components, such as mercury or nitrogen-oxides. The differentation of emission regimes also has an impact on local licensing processes.

Ultimately public awareness about greenness determines whether or not biomass and waste can be sold as green energy products. In this instance, local and international environmental NGOs play an important role. Incidentally, there have been disputes relating to certain biomass flows such as animal waste (because energy production may sustain the bio-industry) and polluted wood (because of the perceived risk of pollution).
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The disputed greenness of biomass and waste may force green energy retailers to restrict their choice of biomass energy suppliers.

Discussions of this kind are particularly dynamic, which makes it hard to predict in which way the biomass and waste energy market will develop. In some countries there is already a trend towards differentiation in green energy products, so that customers can choose the green energy of their choice.

Marketing green electricity

The voluntary demand for green energy is a relatively new phenomenon. In the mid1990s, several individual energy companies in Germany, the Netherlands and the UK began to offer their customers the option to pay a premium for green electricity and thus stimulate the production of electricity by renewable energy sources.

The voluntary demand for green electricity is now increasing in Europe and elsewhere. The most active companies in this field can be located in the aforementioned states, and also in Sweden, Finland, Ireland, Switzerland, Austria, the US, Canada, Japan and Australia, where energy companies have launched green electricity products. Hand in hand with the ongoing liberalisation, energy companies are using their green electricity offerings as an additional marketing tool to both keep their current customers and attract new ones.

At present there are some 1.3 million private green electricity customers in Europe, and several hundreds of business customers, with a combined annual green consumption of more than 4.5 TWh.

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Configurations In general, there are several configurations in which voluntary green pricing schemes for households are set, such as: Fiscal incentives to make green electricity prices competitive relative to grey power; obligations for green supply; feed-in tariffs.

The first situation applies to the Netherlands. In this market, the liberalisation of the green energy market as of 1st July 2001 (stage 1 in the liberalisation of the total energy market for domestic customers), in combination with the tax exemption for green energy, boosted the demand for green energy. The tax exemption currently represents a value of approximately 6 Eurocents per kilowatt-hour. The number of customers buying green energy increased from about 200,000 to more than 900,000 customers by May 2002, accounting for 13% of all Dutch households.

In the UK, suppliers are faced with an obligation to increase the renewable share of their total sales. To verify this, they must obtain Renewable Obligation Certificates (ROCs). It is not yet clear what will happen to the eligibility of imported renewable electricity in terms of ROCs.

Running alongside this system, there are also voluntary schemes, although these are apparently much less profitable. In the UK, 12 energy companies are currently offering green energy. With about 50,000 customers at the beginning of 2002 less than 0.5% of all residential electricity customers voluntary demand for green energy in the UK is still very modest.

Thirdly, a voluntary scheme can exist next to a fixed feed-in tariff. In Germany, project developers are supported by long-term contracts for the feed-in of the generated

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kilowatt-hours into the grid. Voluntary schemes must compete with this feed-in tariff, because no double counting is allowed.

In Germany, the first green energy offerings where launched around 1995. Although the energy market had been deregulated in 1998, the voluntary demand for green energy failed to grow rapidly. The number of customers increased from 100,000 in 2000 to about 300,000 customers by the end of 2001, including over 1,000 non-domestic customers mainly local authorities and public institutions like municipalities and schools. At present, over 160 different suppliers offer something in the region of 190 different green energy products.

In addition to country-specific schemes, in February 2002 the first global green energy initiative was launched. WorldWideGreen.com offers green certificates to customers all over the world in order to green their electricity consumption. A green certificate ensures that a certain amount of electricity has been produced by a certain renewable energy source (e.g. wind, solar, hydropower or biomass) and can be traded separately from the physical electricity. Currently, WorldWideGreen.com offers wind certificates for 3 Eurocents per kWh and solar certificates for 80 Eurocents per kWh, originating mainly from Texas and Australia.

Business to business Whilst households may have their own reasons for choosing green energy, companies and other non-domestic users also often see benefits in purchasing green energy. The main three reasons identified for this are: Image building: use the purchase in marketing the core business products; as part of corporate sustainability policy, e.g. reducing emissions of greenhouse gases by energy efficiency and renewable energy; as an example to citizens, to propagate sustainable policies (for departments, municipalities, etc.).

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Verification A liberalised electricity market is clearly the main driver behind marketing tools, and thus for green electricity schemes. However, it is no prerequisite for voluntary schemes. Even when the customer is free to choose his own supplier, the utility can choose to diversify its product portfolio by adding green electricity. In such circumstances, the product is a mere service, instead of a marketing tool.

Because green electricity is a product with a special quality standard, companies have to gain customers confidence. The first movers of green electricity approached nature and environmental organisations to support their green energy offerings. For example, in 1995 the Dutch utility, PNEM (now Essent), launched a pilot scheme to sell green energy with support by the World Wide Fund for Nature (WWF). The WWF verified the green energy production and sales. Furthermore, in 1999 this particular NGO set up a national campaign for the further promotion of green energy with the slogan 'Don't let the North Pole melt... Go for green energy!'

Transparency is still an issue for the customer, who wants to be sure that his purchases really are green. This sometimes relates to queries of the status of biomass or (large) hydro as true renewable sources of energy. Increasingly, labelling energy is becoming an issue, while certificates can secure that the premium energy sources are additional (and not already existing).

Green energy drivers and resistors

Resistors Apart from being clean and sustainable, renewable energy generation is mostly characterised by low energy densities, meaning that the installations that convert solar, wind, hydro and geothermal energy into secondary energy carriers are relatively large. This firstly raises all kinds of technological barriers, which are described in Chapter 2. In addition to the extensive spatial claims, renewable energy conversion devices also have
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environmental drawbacks, such as changes in the micro-climate alongside big hydro reservoirs or endangerment of bird life at huge wind energy sites.

There are also resistors of a more political and administrative character, such as complex environmental planning and long public enquiry and consenting procedures. Such barriers do not actually differ from the licensing problems experienced by project developers of conventional energy plants, but, because of the low energy density, a project developer must go through a lot of bureaucratic wrangling for just a few megawatts. Although some countries are trying to smooth and standardise these procedures, little progress on this issue has been made to date.

Furthermore, procedures and support systems are often complicated by vague liability borders between local, national and sometimes even international authorities. For instance, in Austria national targets for renewable energy must be met by the Lnder (provinces). This means that the national target of 8% domestic small-scale hydro in 2010 is divided among the Lnder. Nevertheless the Lnder operate different support schemes, based on different feed-in tariffs. Until now the market has been dominated by regional monopolies, although as the Austrian market follows EU Directives on liberalisation the future situation will require concerted harmonisation efforts.

Because credibility is one of the key issues related to green energy, any double counting, or other kind of fraud will have significant counterproductive implications for the green energy trade. Suppliers should realise that much of the value of green energy lies in this credibility factor and should not risk any devaluation of this quality.

Drivers Availability of renewable energy sources Of course the existence of natural resources for renewable energy is a prerequisite for a successful deployment of green energy. The circumstances for wind, solar and geothermal energy can widely vary. The raw materials for biomass energies are less

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sensitive to geographical restrictions because cheap energy crops could very well compensate for higher transportation costs.

As a spin off of this, the existence of a national industry (e.g. wind turbine industry in Denmark and Germany) may be a driver of success too.

Political support (EU, national, regional and/or local) A key driver behind the development of renewable energy is strong political support, translated into concrete, long-term energy plans, energy targets and policies and measures.

Long-term stable business climate Besides direct financial benefits, financial stimulants have to provide a stable business climate over the long-term. A stable income (e.g. feed-in tariff, other grants) over a longer period of time boosts investments, and thus the deployment of renewable energy. Guaranteed income creates an attractive business climate that attracts investors.

In terms of effectiveness, feed-in tariffs have shown to be most successful for the rapid deployment of green energy. However, this generates high costs for governments (and thus society). Tender agreements (such as those operating in France, Ireland or the UK, for example) have been less successful. Green certificates are considered to be costeffective instruments for deploying renewable energy, although they do not boost the production of renewable energy as fast as feed-in tariffs do.

Simplicity in administration It is also important that the support schemes are not too complex. Complex administrative procedures for deploying renewable energy can have a negative effect on attracting investors.

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Awareness Another success factor is awareness of the goal of renewable energy and of the existence of support schemes. High awareness amongst citizens of a country or region is likely to result in increased political support for renewable energy or plans to promote renewable energy. For example, in Germany, there is much more support for renewable energy than in France.

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CHAPTER 4

Key Data

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Chapter 4

Key Data

Introduction
This chapter of the report provides the key data relating to renewable electricity production and consumption in the European Union. Both historical developments and a future outlook are presented.

The projection of the renewable energy production to 2003/2010 is based on an analysis of existing policies in all EU member states, including common EU policies. In the projection, it is assumed that governmental (national) policies currently in place will be prolonged until 2010, even if that date is after the foreseen expiration date of the current policy or after the current budget period. In the figures, this will be referred to as the optimistic outlook. In some cases, there will be a comparison with a conservative outlook, which can be regarded as a lower limit, as it is based on policy decisions that have already been taken.

This emphasises the inherent uncertainty that underpins this analysis, in that countries may decide not to continue their renewable energy policies. Such a situation would be likely to lead to lower outcomes. These risks are analysed on page 97.

The outlooks refer to 2003 and 2010, two reference years that are important for EU policies. The Campaign for Take-Off, the EUs program for stimulating renewables, uses 2003 as an end year, while the more recent Directives concerning stimulating Green Energy and Electricity set their targets for 2010.

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Renewable electricity production

On the following page, Figure 4.9 shows the total electricity production from renewable sources (RES-E) in the EU until 1999 and expected production in 2003 and 2010, based on the optimistic outlook and the 22% production target for 2010 (Directive 01/77/EC).

The conclusion to be drawn from Figure 4.9 is that the main source of renewable energy until 2010 will remain large hydropower generation.

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Figure 4.9: Expected development of renewable electricity production in the European Union (optimistic outlook)
600

500
EU

400

Wave and tide Geothermal Hydro-large (>10 MWe)

TWhe

300

Hydro-small (<10 MWe) Wind-offshore Wind-onshore

200

Biom ass Photovoltaic

100

0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2003 2010 EU Target

Based on the assumption that current government policies will continue till 2003/2010. The EU target is calculated from the indicative target of 22%, in combination with forecast consumption. Source: Ecofys, Greenprices Business Insights

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Figure 4.10: Electricity production from renewable sources per technology (target excluding large hydro)
400 350 300 250 TWhe 200 150 100 50 0

EU Wave and tide Geothermal Hydro-small (<10 MWe) Wind-offshore Wind-onshore Biom ass Photovoltaic

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2003

2010

EU Target

Source: Ecofys, Greenprices

Business Insights

If hydro is excluded it becomes clear that large growth is expected for wind and biomass technologies in particular (Figure 4.10).

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Figure 4.11: Expected development RES-E production per country (optimistic outlook)
700 600 500 400 300 200 100 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2003 2010 EU Target UK SE PT NL LU IT TWhe IE GR FR FI EU ES DK DE BE AT

Source: Ecofys, Greenprices

Business Insights

Figure 4.10, Figure 4.11 and Figure 4.12 demonstrate thateven in the optimistic outlook scenario the EU target will not be met. Furthermore, the figures show that the largest absolute growth is expected to occur in Germany, France, Spain and Sweden (Table 4.6).

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Figure 4.12: Total renewable electricity production in Europe, 19992010

120 100 80 TWhe 60 40 20 0 AT BE DE DK ES FI FR GR Country 1999 2003 2010 IE IT LU NL PT SE UK

Source: Ecofys, Greenprices

Business Insights

For Spain and Germany, key drivers behind this growth are the high feed-in tariffs for wind, biomass and PV.

Table 4.6: Absolute growth of electricity from renewable sources per country
Country Germany (DE) Spain (ES) France (FR) Sweden (SE) UK
Source: Ecofys, Greenprices RES-E production growth 1999-2010 (optimistic outlook) TWh

39.8 34.7 27.1 18.9 12.1

Business Insights

The developments and national targets for renewable energy production in Spain and Germany are shown in Figure 4.13 and Figure 4.14. Spain is primarily focusing on increased electricity from biomass and wind to reach its targets and Germany is investing in wind production. Both Spain and Germany have high feed-in tariffs, set for a long period of time, helping to create a stable business climate for investors.

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Figure 4.13: Renewable electricity production in Germany, 19902010 and indicative national target (optimistic outlook)

80

National target
70 60 50 TWhe 40 30 20 10 0

Wave and tide Geotherm al Hydro-large (>10 MWe) Hydro-small (<10 MWe) Wind-offshore Wind-onshore Biomass Photovoltaic

N at io na l

20 10 ta rg et 20 10

19 90

19 92

19 93

19 95

19 97

19 98

20 03

19 91

19 94

19 96

19 99

Source: Ecofys, Greenprices

Business Insights

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Figure 4.14: Renewable electricity production and indicative targets in Spain, 19902010 and indicative national target (optimistic outlook)

80
National target

70
Wave and tide

60
Geothermal

50
Hydro-large (>10 MWe)

TWhe

40 30 20 10 0

Hydro-small (<10 MWe) Wind-offshore Wind-onshore Biomass Photovoltaic

90

91

92

93

94

95

96

97

98

99

03

10 20 tio na lt ar ge

19

19

19

19

19

19

19

19

19

19

20

94

Na

t2

01

Source: Ecofys, Greenprices

Business Insights

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Spain has a large amount of readily exploitable biomass resources, from both domestic and industrial sectors. Example of fuels used are olive oil residues, grape/wine residues, rice husks, wood wastes and wood residues. Besides the high potential, Spain also has a guaranteed market for the electricity produced at attractive rates and the availability of investment subsidies (see also page 134). Taken together these factors encourage a good business climate for biomass production.

In France, feed-in tariffs and tendering, although uncertain, would create favourable conditions for wind energy, while Sweden will start a purchase obligation with a certificate system in 2003 that should be enough guarantee for the competitiveness of biomass and wind energy.

The conclusion to be drawn from this section of the report is that, in the optimistic outlook, whereby policies continue unchanged, Spain is on course to meet its indicative national target.

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Will policies be maintained?

Renewable electricity production versus country targets In Figure 4.15, a comparison is made of the projected production per country with the indicative targets set by the EU. The indicative target is calculated from the European Energy Outlook. In this figure, we distinguish the effect of existing policies (conservative outlook) and the effect of a possible continuation of these policies (optimistic outlook).

Figure 4.15: Renewable electricity production in 2010 vs. national targets (Indicative target calculated from European Energy Outlook scenario)

140

120

Indicative target optimistic outlook conservative outlook

100

Implemented 1999

80 TWhe 60 40 20 0 AT BE DE DK ES FI FR GR IE IT LU NL PT SE UK

Source: Ecofys, Greenprices

Business Insights

The figure shows that with a conservative outlook, based purely on existing policies, none of the countries will reach their indicative targets. Taking the optimistic view that
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these policies will be maintained, Denmark, Spain, Ireland, Luxembourg and the Netherlands will reach their targets. From the figure, it is evident that France, Italy and the UK will narrowly miss their targets. It therefore seems likely that additional policies will have to be implemented in order to boost renewable energy production.

Also, the above figure shows that the expected growth in Germany in the conservative outlook is quite considerable, since it is based on existing long-term policies, while the growth in Spain is less certain, since it depends on the prolongation of policies currently in place.

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Production per renewable energy source per country

Figure 4.16 illustrates that significant increases in electricity production from biomass are expected in Germany, Spain and Sweden. It should also benoted that for other countries such as Austria, Denmark, the Netherlands, France and the UK, the relative growth is also quite considerable.

Figure 4.16: Biomass production per country, 19992010 (optimistic outlook)

18 16 14 12 TWhe 10 8 6 4 2 0 AT BE DE DK ES FI FR GR Country 1999 2003 2010 IE IT LU NL PT SE UK

Source: Ecofys, Greenprices

Business Insights

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Hydro (>10MW) Little growth is expected in large-scale hydro to 2010. Reasons for this are market saturation and stricter environmental regulation. However, some growth is still likely to occur in France, Italy and Portugal, which may be considerable in absolute terms, but is limited in relative terms .

Figure 4.17: Large hydro production (>10 MWe) per country, 19992010 (optimistic outlook)

80 70 60 TWhe 50 40 30 20 10 0 AT BE DE DK ES FI FR GR Country 1999 2003 2010 IE IT LU NL PT SE UK

Source: Ecofys, Greenprices

Business Insights

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Hydro (<10MWe) Small-scale hydro is not wholly competitive with fossil fuels and therefore requires support. Some future potential for small-scale hydro that could still be realised with government support. As Figure 4.18 illustrates, growth is mainly expected in Germany, Spain, France and Greece.

Figure 4.18: Small hydro production (<10 MWe) per country, 19992010 (optimistic outlook)

10 9 8 7 TWhe 6 5 4 3 2 1 0 AT BE DE DK ES FI FR GR Country IE IT LU NL PT SE UK

1999

2003

2010

Source: Ecofys, Greenprices

Business Insights

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Photovoltaics Although the total contribution of electricity generated with photovoltaics (PV) to the total renewable electricity production in Europe is still small, there is relatively large growth expected to 2010, driven largely by growth in Germany. Other countries with a significant PV output are mainly the southern European countries Greece, Italy and Spain. The Netherlands also has relatively a large amount of PV, which is the result of proactive policies. It should be noted that a large part of PV capacity is used on the spot, and not traded as green electricity.

Figure 4.19: Photovoltaic (PV) production per country, 19992010 (optimistic outlook)

300 250 200 GWhe 150 100 50 0 AT BE DE DK ES FI FR GR Country 1999 2003 2010 IE IT LU NL PT SE UK

Source: Ecofys, Greenprices

Business Insights

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Wind offshore The production of electricity from offshore wind parks is relatively new and has only been realised in near shore pilot schemes. Figure 4.20 illustrates that in 1999 no offshore parks had been established. However, in the future the production of offshore wind energy will increase. Germany and Denmark are forerunners in this arena, although the UK is also to start building offshore wind parks. Note that likely developments in France remain uncertain.

Figure 4.20: Wind offshore electricity generated per country, 19992010 (optimistic outlook)

7 6 5 TWhe 4 3 2 1 0 AT BE DE DK ES FI FR GR IE Country 1999 2003 2010 IT LU NL PT SE UK

Source: Ecofys, Greenprices

Business Insights

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Wind onshore Below, Figure 4.21 illustrates wind onshore electricity generated by country for the period 19992010,

Figure 4.21: Wind onshore electricity generated per country, 19992010 (optimistic outlook)

30 25 20 TWhe 15 10 5 0 AT BE DE DK ES FI FR GR Country 1999 2003 2010 IE IT LU NL PT SE UK

Source: Ecofys, Greenprices

Business Insights

The development of wind energy in Europe has definitely been a success story, which is also shown in the figures in the beginning of the chapter. Especially in Germany a lot of windfarms have been established as a result of the high feed-in tariffs in the country and it is expected that the amount of wind energy will continue to grow. It is interesting to note that so far the wind industry has always exceeded most prognoses for the expansion of wind production and it is likely that this will continue for some time.

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Growth in country/technology combinations

The largest absolute growth of country/technology combinations are shown in Figure 4.22 and Figure 4.23 for two horizons: 2003 and 2010. The figures provide an indication of in which country or technology the largest growth can be expected.

Figure 4.22: Largest expected growth of technology/country combinations, 1999-2003 (optimistic outlook)

14 12 10 TWhe 8 6 4 2 0
in don ES sh or W e in don sh or e SE Bi om DK as W s in don sh or e D E Bi om as s ES Bi om as s FI Bi om as s N L Bi om IT as FI W s Hy in ddr on osh la rg or e e (> 10 M W e) U K Bi om as s

DE

Source: Ecofys, Greenprices

Business Insights

The largest growth between 1999 and 2003 is expected to come from wind energy in Germany. High feed-in tariffs guaranteed over a long period will result in a significant level of investments in this sector.

Wind energy in Spain is shown to be the sector due for the second largest absolute growth. Whilst Spain has high potential for renewable energy production, so far only a limited amount of this potential has been realised.

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It is also interesting note the Netherlands and Portugal feature in Figure 4.23, as these economies are a lot smaller than Germany, France or Sweden. These countries have set challenging targets, as will be explained in Chapter 6.

Figure 4.23: Largest expected growth of technology/country combinations 2003-2010 (optimistic outlook)

16 14 12 10 TWhe 8 6 4 2 0

Bi om as s

Bi om as s

Bi om as s

as s

re

ho re

ho re

re

re

sh o

re

Bi om

-o ns

-o ns

on

-o n

-o n

-o n

W in d-

DE

in d

ES

SE

in d

in d

in d

PT

FR

ES

SE

Source: Ecofys, Greenprices

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Business Insights

in do

in d

ns ho

sh o

sh o

sh o

re

CHAPTER 5

Major Players

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Chapter 5
Introduction

Major Players

Figure 5.24 below illustrates the green energy supply chain and the players involved. The roles of all of these players and organisations are described in this chapter.

Supply chain The green energy supply chain and the interconnection of its participants are shown in the figure below.

Figure 5.24: The green energy supply chain and its participants
EU

Federations

National governments

NGOs

1.Project developers

UTILITIES 3.Traders 2.Generators Brokers Exchanges

4.Suppliers

5.Consumers

Research organisations

Consultants

Financial institutions

Source: Ecofys, Greenprices

Business Insights

The supply chain is initiated by project developers, which may be one of many different parties, for example a utility, a consultant or a private building company. Most large

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projects are still established by utilities, although many projects (wind farms in the Netherlands, small hydro in Austria) are privately owned.

The generators or producers can again be utilities or private owners. Often the generator is the same party as the project developer. Sometimes external parties are hired for project development. Again, utilities dominate the generation of electricity.

As the liberalisation of energy markets has gained momentum, the character of electricity trade has changed markedly. The need for marketing has increased massively since the time when energy companies were monopolies. Under the pressure of liberalisation laws, the distinction between generation, trade and supply has become clearer and clearer. New energy suppliers enter the market, buy energy and directly sell it to customers at very sharp prices. These companies are flexible and competitive and do not have a burden of layers of bureaucracy that characterised the larger, more established utilities. This has forced the big utilities to transform their operations to remain competitive and to maximise the benefits linked to their economies of scale. For an overview of the green energy suppliers in several EU countries, see the Appendix.

Traders, brokers and exchanges facilitate this trade and each fulfils an intermediary role on their own. In addition, financial institutions and investment banks are of course eager to be of service to all these parties.

Running in parallel to the green energy markets, is the market for green certificates. Green certificates are used to convert grey energy into green energy and a supplier basically needs to purchase both the electricity and the certificates, not necessarily linked to each other.

The following figure shows the flows of certificates between different players in the certificate supply chain.

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Figure 5.25: The flow of certificates along the green energy supply chain

WIND FARM CONSUMER WIND FARM TRADER ELECTR. SUPPL. ELECTR. SUPPL. CONSUMER

WIND FARM BIOMASS PLANT

CONSUMER

TRADER

Source: Ecofys, Greenprices

Business Insights

Certificates are bought and sold in many different settings, with many different players. Normally, certificates are obtained by generators via the issuing body. Generators sell them to traders, who eventually sell them to suppliers. In most cases, suppliers need to redeem the certificates, in order to meet their obligations, to be eligible for tax exemption or to establish a green trade mark for a voluntary scheme. In special cases, (large) consumers may also buy certificates, for instance to be sure that their green energy purchases are new and unique and that there is no double counting involved.

Other green energy stakeholders in Europe Besides the players that are directly trading green energy on the market, a number of non-governmental organisations (NGOs), companies and authorities are involved in the development of the green energy trade market.

Technology For every renewable technology there is a European or global NGO or association of generators, traders and professionals in that field, with the clear objective of representing the interests of the technology community at an international level. Some organisations, like the International Hydropower Organisation, are more focused on

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knowledge advancement and promoting good practice, whereas some others, like the EWEA (European Wind Energy Association 15,000 members) have the promotion of awareness among the general public, the media, decision makers and politicians as their main objective.

Besides the sector organisations, the EUREC Agency wants to strengthen and rationalise the European RD&D efforts on all renewable energy technologies. As an independent association, it groups about 40 prominent RD&D groups from the EU. Because many of the technologies are still young and developing, R&D organisations are a key player in the field of green energy.

Utilities and trade Two special organisations must be mentioned in this area:

Eurelectric is the Union of the Electricity Industry in Europe. Eurelectric seeks to contribute to the competitiveness of the power industry and to provide effective representation in public affairs;

EFET is the European Federation of Energy Traders, and has built its profile with the ongoing liberalisation of the European energy markets. EFET is a group of more than 60 energy trading companies from 15 European countries dedicated to stimulating and promoting energy trading throughout Europe.

There are also several sector organisations, like IFIEC (large industrial consumers, representing 80% of the industrial consumption in Europe), UCTE and ETSO (both organisations of system operators).

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For the largest utilities in Europe (1999-2000), see Table 5.7.

Table 5.7: Largest utilities in Europe, 19992000

Company EDF Enel E.ON Energie RWE Endesa Vattenfall Electrabel Iberdrola British Energy EnBW VEAG Innogy PowerGen Fortum PPC Essent Statkraft EDP Unin Fenosa Verbund Sydkraft Atel Nuon Steag Birka Energi Norsk Hydro Energy PVO EPZ Edison HEW NOK ESB CNR Elsam UNA Energi E2 TVO Epon Bewag BKW FMB Energie Hidrocantbrico Eneco Wienstrom EZH Oslo Energi EOS Viridian Graninge Helsinki Energy STEWEAG Source: www.prospex.co.uk Country France Italy Germany Germany Spain Sweden Belgium Spain UK Germany Germany UK UK Finland Greece Netherlands Norway Portugal Spain Austria Sweden Switzerland Netherlands Germany Sweden Norway Finland Netherlands Italy Germany Switzerland Ireland France Denmark Netherlands Denmark Finland Netherlands Germany Switzerland Spain Netherlands Austria Netherlands Norway Switzerland UK Sweden Finland Austria Sales (TWh) 473.6 230.5 183.7 181.5 148.5 86.9 72.3 65.3 63.0 54.7 49.5 48.3 47.0 43.8 40.4 35.5 35.0 33.6 33.5 30.1 29.3 29.1 27.0 26.2 24.0 22.2 22.2 21.4 21.0 20.7 20.1 18.6 18.2 15.2 14.6 14.2 14.2 13.1 13.1 11.8 11.5 11.4 9.1 8.5 8.2 7.9 7.3 6.8 6.7 6.2 Business Insights

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Certification RECS is the most important international initiative on the harmonisation of certification systems (see page 65). RECS, the Europe-wide initiative to establish and promote a international renewable certificate market, currently has over 160 members, including energy companies, consultants and grid operators. At present all EU member countries except Luxembourg, Portugal, Greece, Norway and Switzerland are participating in the RECS test phase, which started in 2001 and continues to the end of 2002.

An important role in certification in general, not only RECS is played by the issuing bodies. These issuing bodies, such as the German ko-Institut or the British Ofgem are acknowledged by authorities as the official certification institutes.

Authorities The main drivers of green energy trade are authorities, both on an international and a national or even local level. The European Commission (i.e. DG TREN, Transport and Energy, DG ENV, Environment, and DG RES, Research) is the most important body on an EU-wide basis. The ECs ambitions regarding green energy are described in Chapter 3. The EC runs all kinds of programs on information, RD&D, implementation and technology transfer concerning renewables.

Examples of these programs are as follows: Altener; Save; the Framework Programs for R&D; the upcoming overall Intelligent Energy for Europe program for 2003-2006, in which green energy is expected to play an important role.

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In renewable policymaking, the European Parliament has proved to be of great importance, for example by initiating the Campaign for Take-Off (of renewable energy) in 1996.

National governments are embedding EU Directives in their national legislation (see Chapter 3). Because of the differences, however, international trade is difficult.

Last but not least, local authorities are very influential regarding renewable energy projects. Local legislation and policies can be pivotal to the construction of generation plants. Although harmonisation is still some distance away, there are several national platforms for local authorities, mostly run by governmental agencies, in order to exchange experiences and project information. There are some international platforms in existence, such as Energie-Cits and CURE (Communities Using Renewable Energies).

NGOs The development of the green energy market can be partly attributed to the work of NGOs. Of course environmental NGOs like WWF, Greenpeace and Friends of the Earth (UK) are advocates of environmentally sound renewables. On the one hand they are trying to convince households and companies to switch to green electricity and occasionally they even sell green energy themselves. On a different level they are also lobbying with governments, trying to convince them to promote more RES-E in their respective countries and to set favourable conditions.

In the early days of green energy, NGOs were heavily involved in the branding of several green energy trade marks. Subsequently, as the green energy market has grown, monitoring the input of green energy has become a complex matter. At present NGOs play the part of consumers organisations, by publishing league tables of green energy suppliers, for example.

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CHAPTER 6

Country Profiles

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Chapter 6

Country Profiles

Introduction
This chapter contains an overview of the policies, perspectives, main players and key renewable electricity data for the fifteen EU member states. The analysis also extends to cover two accession countries Poland and Hungary.

United Kingdom
The year 2001 was a busy year for both policy-makers and electricity suppliers in the UK. April 2001 marked the introduction of the new energy tax on business consumers energy use and the exemption for those who buy green. Almost exactly one year later, the Renewables Obligation came to change the picture dramatically (see page 123).

Market volume Renewables are growing but the target is high In 2000, 2.8% of the electricity generated and consumed in the UK originated from renewable energy sources. Table 6.8 details the breakdown of UK renewable energy capacity by source.

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Table 6.8: Installed renewables capacity by source in the UK, 2000

Source Wind Small hydro Landfill gas Waste (renewable part) Other Total Source: Ofgem, 2000 Capacity (MW) 404 158 383 152 48 1,145 Business Insights

Taking an optimistic outlook (assuming prolongation of current policies), wind capacity is forecast grow to some 3,600 MW (1,000 MW offshore) by 2010 and electricity production from biomass and (the renewable part of ) waste will more than double. Whether or not the UK will be able to meet its European indicative target of 10% electricity consumption by 2010 is the object of much speculation. Regional planning difficulties and the complex effects of the New Electricity Trading Arrangements for gas and electricity stand in the way of renewables development. Furthermore, the UKs main potential lies in new technological domains such as offshore wind and marine technologies, which are still at the demonstration phase and will take some time to become fully competitive.

Table 6.9: UK RES-E targets, 20052020

RES-E share of consumption 2001 (%) 2.8 Source: Ofgem, 2000 Target 2005 5.0 Target 2010 10.0 Proposed target 2020 20.0 Business Insights

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Policy context To hit this challenging target, the UK government has adopted two main instruments aimed at accelerating the growth of the installed capacity for renewables production: the Climate Change Levy and the Renewables Obligation.

Stimulating production: the Renewables Obligation The main incentive currently available for generators of electricity form renewable sources is the Renewables Obligation (RO), introduced in April 2002. This supersedes the Non-Fossil Fuel Obligation (NFFO) and the Scottish Renewables Obligation (SRO).

Under the Utilities Act 2000 all licensed electricity suppliers in the UK are obliged by law to purchase a proportion of their previous year's consumption from renewable sources.

Electricity suppliers are expected to source 3% of their total electricity sales from renewable sources in the period 2002 to 2003. The evolution of the quota is indicated in the table below.

Table 6.10: Expected increase in the UK Renewables Obligation, 20012011

Period 2001/2002 2002/2003 2003/2004 2004/2005 2005/2006 2006/2007 2007/2008 2008/2009 2009/2010 2010/2011 Source: Ofgem, 2000 Estimated sales by licensed suppliers (TWh) 310.9 313.6 316.2 318.7 320.6 312.4 322.2 323.0 323.8 324.3 Total obligation (TWh) 9.4 13.5 15.6 17.7 21.5 25.4 29.4 31.5 33.6 Total obligation as % of sales 3.0 4.3 4.9 5.5 6.7 7.9 9.1 9.7 10.4 Business Insights

As yet, the full effects of the Renewables Obligation remain unknown. Short-term RO targets are likely to be met with existing capacity inherited from the NFFO rounds.
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However, after 2004 there the supply of renewables will come under strain and prices are likely to spiral up. Especially since, for the time being at least, the UK government is excluding the possibility of covering the demand with foreign renewable electricity.

The Climate Change Levy The uptake of electricity from renewable sources is now encouraged on the corporate market by the Climate Change Levy (CCL) introduced by the Government on 1 April 2001. The CCL is charged on all energy supplied to industrial and commercial users, as well as for agriculture, public administration, and other services (with certain exceptions for energy intensive industries).

The level for electricity consumption is currently set at 0.7 Eurocent/kWh. It is estimated that this will result in a 715% increase in the costs of electricity for organisations subject to the tax. The purchase of electricity from renewable energy sources is however exempt from the tax.

Presentation of a Levy Exemption Certificate (LEC) as evidence of renewable electricity purchases is mandatory. This is clearly an incentive for large organisations to switch to green energy, as the switch becomes economically beneficial. Procter and Gamble UK, NHS Scotland, Co-operative Bank, the University of Edinburgh, and many other business customers, local authorities, and public services (healthcare, public buildings, etc.) have switched to a green electricity supplier in order to claim exemption from the CCL. Greenprices latest estimates established that, in November 2001, large customers accounted for 591 million kWh of green electricity consumed.

The advantage of this system is that in parallel with the development of new capacity, business customers uptake of green power improves the image of renewables and of green energy with the public (green energy is not only a reliable source of power but it is also cost effective).

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Eligible renewable energy sources Table 6.11 provides a listing of eligible renewable energy sources in the UK.

Table 6.11: Eligible renewable energy sources in the UK

Source Landfill gas Sewage gas Energy from waste Hydro >20MW Hydro <20MW On-shore wind Off-shore wind Agricultural and forestry residues Energy crops Wave power Photovoltaics ROCs + + +* N* + + + + + + + LECs
+

+ +* N* + + + + + + +

* Technologies eligible under certain conditions (see below).

Source: Ecofys, Greenprices Business Insights

Base on the data in the table above, the following are all conditions that must be met for specified technologies to confirm their eligibility in the UK: Energy from waste: only the non-fossil derived element of mixed waste is eligible; co-firing biomass: Eligible until 31 March 2011 for up to 25% of a suppliers obligation. From 1 April 2006, at least 75% of biomass fuels must come from energy crops; hydro is eligible up to 20 MW. This is mainly due to most large-scale hydro plants are now coming to the point when they need refurbishment. Allowing 20 MW plants into the scheme ensures that such refurbishment will be provided for. Plants of a capacity greater than 20 MW will be included if they are commissioned after the obligation comes into force.

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Retailing green energy Table 6.12 details the key UK market liberalistion events over the period, 19901999.

Table 6.12: UK market liberalisation, 19901999

Type of customer Large-sized customer Medium-sized customer Green electricity customer Households and SMEs
Source: Ecofys, Greenprices

Specification Annual use larger than 1 MW Annual use larger than 100 kW 100% green electricity All others

Date market opening 1990 1994 May 1999 May 1999

Business Insights

Voluntary schemes The preliminary results of voluntary schemes are encouraging. The count, by Future Energy in April 2001, showed that only 20,000 customers were receiving green power, or had signed up for a green fund. In December 2001, Greenprices published the results of its latest customer count in the UK and identified 45,150 domestic customers for green electricity, representing a total of 149 million kWh of green energy consumed per year. This indicates that the voluntary market for households has grown by 125%.

There are currently 13 suppliers offering customers the option to choose green power. While have been offering a green product for several years, the introduction of new products has been accompanied by new communication strategies, which have completely changed the face of the green power market in the UK. Green products now feature in dedicated sections of energy companies websites, marketing teams and mass publicity: bilboard advertising, direct mailing, telemarketers, etc. In the fast moving UK electricity market, where 100,000 customers a week are switching electricity supplier, green energy seems to have finally become a differentiation tool.

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Table 6.13: Green electricity voluntary market in the UK, December 2001
Total number of domestic customers Total quantity sold (domestic customers) (GWh)* Large green energy customers, annual use (GWh)**
* Estimation based on average annual electricity consumption per household of 3300 kWh. ** Information based on Greenprices Top 25.

45,150 149 591

Source: Ecofys, Greenprices

Business Insights

It is of course too early to draw firm conclusions about the green power market in the UK. The impression of activity and growth must be confirmed and the market must evolve and mature to incorporate stable structures that will boost customer confidence.

Green energy for domestic customers in the UK also needs to face and overcome two major challenges: The current absence of safeguards on the market following the Energy Saving Trusts decision to stop its current scheme, Future Energy, and reconsider formulae for accreditation. In the meantime, guidelines recently issued by Ofgem could serve as a guide for best practice, although an independent scheme that checks all existing products and their claims is much needed. Customers confidence is fragile and could be broken by fraudulent activities and deals; the effect of the Renewables Obligation on the availability of renewables supply.

Should the UK green energy market overcome these obstacles, it could grow to a comparable size to both its German and Dutch counterparts.

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Germany
Whilst Germany has been a leader in dynamically libersalising its electricity market , the countrys approach to renewable energies has been less emphatic. On the one hand, production is performing well thanks to the generous feed-in tariff, which enables renewable power plants to keep running without making losses. On the other, consumption levels fail to convince that German green power is likely to rise above the niche market categorisation.

Market volume Increasing and for a good reason The capacity for renewable energy production has been growing rapidly over recent years and will continue to grow in the coming decade. Electricity production from renewable sources is predicted to rise from 30.4 TWh in 1999 to 64.4 TWh in 2010 (optimistic outlook: 70 TWh). In 2000, total production of electricity from renewable sources in Germany was 34.1 TWh.

In 2001, wind power surged ahead in Germany like never before. A total of 2,079 additional turbines representing 2,659 MW were installed. The installed capacity of the 11,438 wind turbines amounted to 8,754 MW in total. The additionally installed capacity accounted for a growth rate of 43% on 2000 figures. Unfortunately, however, 2001 was also an unusually weak year in terms of wind forces and yields fell as much as 20% short of expectations.

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Table 6.14: Production of electricity from renewable sources in Germany, 1999

Source Hydro (small plus large) Waste and biomass Wind Total
Source: Ecofys, Greenprices

Production 1999 (TWh) 19.7 5.2 5.5 30.4

(2001: 14) (2000: 37)

Business Insights

Targets The target for renewable electricity productions share of total electricity generation in Germany has been set at 12.5% for 2010 and at 50% for 2050 as a long-term-goal. Although policies are in place supporting renewable electricity production, the actual development to date indicates that the target will not be met completely. In 1999, the share was 5.5%.

Table 6.15: Share of renewables in German electricity production, 19992010

RES-E share 1999 (%) Germany
Source: Ecofys, Greenprices

Target RES-E share 2010 12.5 %

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5.5 %

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The target values provided in Table 6.16 do not comply with the indicative 12.5% target from the EU Directive.

Table 6.16: Indicative targets for the production of renewable electricity by the German Federal Ministry
Base value 2000 (TWh/year) Hydropower Wind PV Biomass (incl. biogas, landfill gas, sewage gas) Geothermal RES Electricity total
Source: Ecofys, Greenprices

Target value 2010 (TWh/year) 25.0 31.0 1.0 8.0 2.0 67.0
Business Insights

22.0 10.0 0.1 1.5 33.6

Policy context Europes most generous scheme The Federal Ministry of Environment published targets per renewable technology, showing strong belief in wind development.

The policies have so far resulted in high growth rates for solar thermal technologies, PV and wind energy. Biomass is also expected to grow significantly in the near future. The development of both small hydro and geothermal energy, however, lags behind the technical potential of each.

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Instruments and levels of compensation The main instrument in place is the EEG (Erneuerbare-Energien-Gesetz) feed-in tariff introduced in April 2000, which assures payment for electricity produced from renewable power plants for a period of 20 years. Grid owners are obliged to buy the electricity from these eligible renewable plants. Besides this there is the 100,000 roof program, which provides low interest loans for investors in PV.

Table 6.17: Feed-in tariffs for eligible renewable energy sources in Germany
Eligible source Biomass Capacity restriction Euro/kWh 2001 10.23 9.21 8.70 50.62 9.10 8.95 7.16 7.67 7.67 Euro/kWh 2002 10.13 9.12 8.61 48.09 8.96 8.95 7.16 7.67 7.55
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<500 kW <5 MW >5 MW20 MW PV Wind Geothermal <20 MW >20 MW Hydropower <5 MW Landfill gas, firedamp, sewage gas <5 kW
Source: Ecofys, Greenprices

Retailing green energy Market liberalisation The transposition of European Directive 96/92/EC was covered in the Electricity Law of April 1998, which provided for an immediate opening of the market with no transition of threshold for consumers and/or distributors. Since that date the German electricity market has been fully liberalised. Full price competition started in August 1999.

Figures The green electricity market in Germany has existed since 1996. Although the market grew by 27% over 2001, Germany slipped from its position as the leader in terms of

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green electricity voluntary customers. The figure of approximately 303,000 German customers buying green, is barely a third of the current market.

The main reason for this is the lack of incentive for domestic consumers and SMEs to switch to green, in contrast to the Dutch situation.

German support for renewable energy is clearly production-oriented. Although electricity consumption is taxed in the same way as it is in the Netherlands, green energy sales are not exempted from this eco-tax.

In 2002, the level of the eco-tax is EUR 0.0179 per kWh consumed.

Table 6.18: Green electricity voluntary market in Germany, 20002001

Customers green energy (Dec 2000) Customers for green energy (Dec 2001) Total quantity purchased (2001), rough estimation
Source: Ecofys, Greenprices

239,000 303,000 690 GWh

Business Insights

There are currently approximately 160 to 180 suppliers offering green power to their customers. Of this group, only 16 supply on a nationwide basis. The average price of these offerings is 0.17 Euro/kWh to which a base price of 68.71 Euro/year needs to be added.

The Netherlands
Over 2001, Europe has focused on developments in the Netherlands. The forerunner in terms of renewable energy policies, the Dutch government has taken the bold step of opening its generous support scheme for electricity from renewable sources to foreign production.

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Market volume A modest contribution of renewables In 2000, renewable electricity represented approximately 2.5% of the total electricity production, more than double the contribution in 1990. This share is expected to be in the 69% range in 2010. Of total renewable electricity prodution, 55% is from biomass and waste installations, followed by a large contribution of imports and wind energy. The contribution of other options such as solar boilers, heat pumps and solar photovoltaics is small (less than 2%).

Table 6.19: Renewable electricity production and imports in the Netherlands, 2000
Source Wind Hydro (< 15 MW) Biomass PV Imports Total
Source: Ecofys, Greenprices

Production (GWh) 829 141 1,585 6 1,400 2,562

Expected 2010 (optimistic view) 3,450 110 8,400 30 11,990

Business Insights

Table 6.20: The Netherlads RES-E targets, 20002020

RES-E share 2000 (%) The Netherlands 2.7 Target RES-E share 2010 (%) 9 Target RES-E share 2020 (%) 17
Business Insights

Source: Ecofys, Greenprices

Policy context Innovative and generous, but stable? Biomass, wind and solar thermal are the three technologies most supported by the Dutch government.

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Since 1 January 2002, both large and small hydropower have been excluded from the tax exemption system (REB) on small consumers and small and medium enterprises purchasing green energy. However, as with with other technologies, small-scale hydro production still receives incentives.

In line with the EU target of 9% electricity consumption from renewable sources by 2010, the demand for green power is stimulated via a system of fiscal incentives.

Instruments and levels of compensation The main instruments utilised in the Netherlands at present are: For producers of renewable energy: Doorsluis (Forwarding). Introduced by article 36 o) of the Environmental Tax Law (Wet Belastingen op Milieugrondslag, WBM). It diverts part of the funds collected via the REB (see below) to the generators of renewable electricity. The level of compensation is 1.9215 Eurocent/kWh in 2001; for consumers of electricity from renewable sources: Regulatory Energy Tax (REB). The tax is levied on the consumption of electricity and natural gas of households and small and medium-sized enterprises by the tax authorities via the electricity supplier. The level of the REB and its progression since introduction in 1996 are described below.

Both instruments offer generous compensations, extending to imports of kilowatt-hours from existing installations. As a result, imports now account for a large share of green electricity consumption (maybe some 50%).

Basing investment solely on the REB incentives is risky. While many foreign and Dutch companies have made profits with these instruments (reflected by the large contribution of imports to the green energy market), this profitable environment is subject to revision, probably in the second half of 2002. This has been stated in the Coalition Agreement of the new government.

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Other support instruments include: The accelerated depreciation of environmental investments (VAMIL) has positive effects for entrepreneurs cash. Is a decisive factor in 30% of new projects started; the interest gained from investments in renewables projects are exempted from income tax via the so-called green funds; the feed-in tariff for small-scale production is gradually being reduced. companies can subtract investments in renewables from their profit taxes (EIA); non-profit organisations can benefit from similar subsidies.

Although these instruments contribute less to the profitability of green energy, they offer a greater stability than the REB. Nevertheless, these instrruments are also subject to changes, in order to diminish the free-rider effect.

Table 6.21: The evolution of REB in the Netherlands, 19962002

REB electricity excl. VAT (Euro/kWh) 1996 <800 80010,000 10,00050,000 50,00010,000,000 >10,000,000 0 0.0133 0.0133 0 0

1997 0 0.0133 0.0133 0 0

1998 0 0.0133 0.0133 0 0

1999 0 0.0223 0.0145 0.0009 0

2000 0 0.0369 0.0159 0.0022 0

2001 0.0578 0.0578 0.0192 0.0059 0

2002 0.0601 0.0601 0.02 0.0061 0

Source: Ecofys, Greenprices

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Eligibility The regulatory document entitled Environmental Tax Law (Wet Belastingen op Milieugrondslag, WBM) specifies the sources eligible as renewable energies in article 36 i) and article 36 o) as detailed in Table 6.22.

Table 6.22: Eligible renewable energy sources

Eligible sources Wind Small-scale hydro (<15MW)*. Solar Biomass Specifications + Eligible for 36o not for 36i + The amount eligible depends on the amount of biodegradable components used as inputs 50 % of waste incineration is regarded as renewables under 36o and 36i
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Waste incineration

Source: Environmental Tax Law (Wet Belastingen op Milieugrondslag, WBM)

Retailing green energy Market liberalisation Although the previous schedule was to open another segment of the electricity market to competition in 2007, this date was advanced to 1 January 2004. In fact, the Dutch government may actually decide to adopt the start date of October 1st 2003.

A first step towards full liberalisation has been the two-phase opening of the green market. In the first phase, the liberalisation of the Dutch green energy market consisted of administrative changes only: a customer switching to another supplier would get the invoice from the new supplier. The regional energy company continued the physical electricity supply and the new supplier only supplied the green certificates on top. As of 1 January 2002, the green energy market has been fully liberalised and the green

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energy companies will be responsible for both the purchase of green certificates and the physical electricity supply.

Table 6.23: Market liberalisation in the Netherlands

Type of customer Large-sized customer Green electricity customer Specification Annual >2MW 100% green electricity Date market opening Aug. 1998 Jul 2001-Phase 1 Jan 2001-Phase 2 Medium-sized customer Annual use <2MW and connection >3.8Amp. Households and SMEs All others Oct 2003 (?) 100% Jan. 2002 79% Share of market opening 33% 46%*

* This figure is an estimate of the share of the green power market in the near future. The following formula was applied. The green electricity market is estimated to represent 35 % of the whole market for small customers. The small customer electricity market represents itself 38 % of the whole electricity market in the Netherlands. The green power market would then represent 13 % of the total Dutch electricity market.

Source: Ecofys, Greenprices

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Voluntary market The market for retail green electricity (voluntary) in the Netherlands is the largest in Europe. As of May 2002, 900,000 customers were buying green power, representing a volume of almost 3 billion kWh. Sales of green energy have been growing exponentially (46%) since 1 July 2001, the date of opening of the green segment of the electricity market. No doubt the fiscal incentive has played a significant role in this drastic increase.

Table 6.24: The green electricity market in the Netherlands, 2002

Total number of customers Total quantity sold (GWh)* Large green energy customers, annually use (GWh)**
* **

900,000 3,000 >300

Estimation based on average annual electricity consumption per household of 3300 kWh. No actual information is available concerning green energy sold to large customers like Ministries, industries etc. Based on the Greenprices Top25 of large users, the annual use is estimated to be at least 300 GWh. A large part (at present is imported.

Source: Ecofys, Greenprices

Business Insights

Main features As yet, there is no labelling initiative in place in the Netherlands. There are, however, discussions ongoing at the Ministerial level about introducing a disclosure system, through which suppliers would have to reveal to customers the supplied mix. This could provide a new stimulus for green offerings.

Prospects Stability of the REB-based scheme. Less generous for imports? Introduction of a CO2 trading scheme within a few years, according to a recent advisory committee proposal; impact of policy changes in other countries, especially Sweden and the UK; disclosure scheme for electricity.

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Spain
Spain has stated the objective of doubling the participation of renewable energy sources (RES) in the national energy balance from 6% in 1998 to 12% in 2010. A plan for achieving this objective sets ambitious targets for biomass, wind and solar technologies.

Market volume In 2000, renewable energy sources accounted for 81.5 GWh or 5.6% of the total primary energy consumption in Spain. The largest components of the existing RES portfolio are biomass (60%, including waste derived fuels, biogas and biofuels) and large scale (>10MW) hydro schemes (30%). Nevertheless wind power has seen the most dramatic growth in recent years, from 834 MW installed capacity in 1998 to 2,269 MW in 2000

In terms of grid connected electricity generation, renewable energy sources including all hydro power accounted for 16.9% of the total generation and 4.9% if large-scale hydro plants (>10MW) are excluded.

Table 6.25: Renewable electricity production in Spain, 2000 and targets, 2010
Source Generation (TWh) 2000 (total 225 TWh) 26.9 4.3 1.8 4.9 0.022 38.0 (19.2%) National target 2010

Large Scale Hydro (>10 MW) Small Scale Hydro (<10MW) Biomass and Municipal Solid Waste Wind Solar Photovoltaic Total
Source: Ecofys, Greenprices

30.7 6.6 60.6 21.0 0.221 119.1 (29.4%)

Business Insights

The annual increase in total primary energy consumption, between 1998 and 2000 was over 4% per annum and exceeded expectations, indicating that more renewable capacity will be needed to achieve the relative 2010 targets for renewables. Thus the success of
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the plan in terms of the percentage objective strongly depends on improvements in energy efficiency and the promotion of energy savings.

The plans aim to increase the importance of electricity generation in the RES portfolio relative to thermal uses (from a little more than 50% in 2000 to 68.6% in 2010). In absolute terms this is an increase from 38 TWh in 2000 to 119.1 TWh in 2010. In terms of electricity use, if the planned targets are achieved, more than 29.4% (the EU target) of Spains electricity will be produced from renewables (including large hydro) in 2010, even if energy demand continues to increase at present rates.

Policy context The context for the development renewable energy sources in Spain is the Plan for the promotion of renewable energy in Spain. Current national incentives are based on different and specific prime rates for the sale of electricity from renewable sources with particularly attractive rates for small-scale photovoltaic plants (0.36/kWh). Effort is also being directed into removing administrative obstacles to the development of renewables. This mechanism has proved successful in stimulating investment in renewable energy sources.

Feed in tariff The primary instrument to promote investment in renewable energy sources for electricity supply is the special regime of prime rates or feed in tariffs. These range from 0.036/kWh for wind schemes to 0.36/kWh for small-scale (<5kWp) photovoltaic schemes. Prime rates are paid in addition to the market or pool price for electricity, on average 0.036/kWh.

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Table 6.26: Options for RES within the special regime for electricity sales in Spain: prime rate + pool price or fixed price
2001 Prime rate ( cents/kWh) 2.77 2.56 2.88 <=10MW >10 MW <=50MW <= 5 kWp >5kWp 2.99 2.99/0 36.06 18.03 2001 Fixed price ( cents/kWh) 6.15 5.94 6.26 6.36 0.00 39.67 21.64
Business Insights

Eligible Energy Source

Primary Biomass Secondary Biomass Wind Mini Hydro

Solar photovoltaic

Source: Ecofys, Greenprices

Financial support programmes Subsidy schemes for energy technologies including RES are periodically launched nationally by the Institute for the Diversification and Saving of Energy (IDAE), who also manages a third party finance scheme for renewables in collaboration with the Official Credit Institute (ICO). Eligibility of renewable energy sources varies according to the specific schemes. In addition, the aforementioned renewable energy sources are also eligible for proposals under the national programme for the promotion of technical research (PROFIT).

Regionally, the Autonomous Communities (Andalucia, Aragn, Catalonia, etc.) also promote and support schemes that vary in function according to their individual priorities and tend to involve capital cost subsidy.

At the municipal level, in addition to the legislative initiatives described above, other support schemes exist. These tend to involve reductions or rebates of municipal taxes and charges in relation to construction. These various schemes are not mutually exclusive: projects may gain financial support from a variety of sources.

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Retailing green energy Market liberalisation The Spanish energy market will open to full retail trade of electricity in 2003. Under the current system this will not immediately affect renewable energy development as this is driven by the prime rates and guaranteed fixed prices schemes. It will, however, stimulate product differentiation by electricity traders and the emergence of a market for green energy. In this respect there are certain doubts still to be resolved. Amongst these is the question of whether a move towards tradeable renewable energy certificates is compatible with the current price support mechanisms.

As yet no information is available regarding initiatives for voluntary green electricity premium schemes, indicating that none have been taken.

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Belgium
In Belgium, renewable energy is a competence of the regional governments (Flemish, Walloon and Brussels-Capital Region), except for offshore wind energy. Each region has its own targets and policy.

Market volume Belgium has an indicative target to reach of 6% of its electricity consumption from renewables by 2010. At present this figure is in the region of 1%.

Table 6.27: Renewable electricity generation in Belgium, 19992010

Source Installed capacity in 1999 (MW) 42.9 59.6 0 9.3 58 (kWp) n/a n/a Production in 1999 (GWh) 145 197 0 13.3 n/a 440 795 Expected production in 2010 * (GWh) 134 200 1,500 376 n/a 529 2,739

Large Scale Hydro (>10 MW) Small Scale Hydro (<10MW) Wind offshore Wind onshore Solar Photovoltaic Biomass Total *optimistic outlook
Source: Ecofys, Greenprices

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At present, Belgian renewable energy supply is predominantly based on biomass. The growth in RES-E production capacity will depend largely on wind, including the planned construction of offshore wind turbine parks.

Table 6.28: Estimated production RES-E, 20032010

Estimated production RES-E Conservative outlook Optimistic outlook
Source: Ecofys, Greenprices

2003 (GWh) 863 1,013

2010 (GWh) 1,300 2,739

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Federal and regional targets for RES-E At federal level specific targets are set for green electricity a non-binding target of 6% overall green electricity consumption for 2010 has been established.

The three regions have also set targets for green electricity consumption applicable to the low-voltage network only. These targets for 2010 are 5% (binding) for the Flemish Region, 12% (binding) for the Walloon Region (for electricity for renewables and CHP) and a target will soon be put forward by the Brussels Capital Region. The following table shows the green electricity targets set by the different regions for 2004 and 2010.

Table 6.29: RES-E targets for Belgian regions, 2004 & 2010
Region Flemish Region Walloon Region (Renewables & CHP) Brussels-Capital Region
Source: Ecofys, Greenprices

2004 3% 4.1%

2010 5% 12% n/a

Business Insights

Although detailed green electricity targets and timetables for the Brussels Capital Region have not yet been established by law, the region does intend to implement a green electricity obligation similar to the other two regions. In the Brussels Capital region, the potential for RES is very limited, and will therefore be based on import from other regions.

Policy context Green certificates Federal level The federal government announced a Royal Decree guaranteeing fixed minimum prices to be accorded to green electricity and/or certificates. The minimum prices proposed are shown in the following table.

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Table 6.30: Fixed minimum prices to be accorded to green electricity and/or certificates in Belgium
Renewable energy source Minimum tariff (c/kWh) 9 5 5 15 2
Business Insights

Wind offshore Wind onshore Hydro Solar Other RE (including biomass)

Source: Ecofys, Greenprices

Flemish region On 28 September 2001 the Flemish government adopted the liberalisation decree. The decree establishes a green certificates system, and has been operational since the beginning of July 2002. These certificates will be used to determine compliance of electricity suppliers in meeting the renewable electricity targets (set out above) in Flanders. Non-compliance is met with a penalty of 7.5 c/kWh in 2002, 10 c/kWh in 2003 and 12.5 c/kWh from 2004 onwards. Obligations are imposed on the electricity suppliers.

Only Flemish green certificates are eligible for meeting the obligation. The decree foresees the liberalisation of the energy market for those customers that want to buy green electricity. Redemption of green certificates is required to sell green electricity to end-users. In Flanders, electricity from renewable sources will be exempt from distribution costs. These measures will provide an incentive for increased demand for green energy.

Walloon region The Walloon government will also be introducing a system of tradeable green certificates to support the production of green electricity in the region expected to be implemented by 2003. It is envisaged that non-compliance penalties will be of the order of 7.5 c/kWh in 2002 and 10 c/kWh for 2003 onwards. Obligations can only be met
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using certificates originating from the Walloon region. Both renewables and CHP are included in the system.

Brussels Capital region The Brussels Capital region is also expected to establish a system of green certificates similar to that of the other two regions. Although the details of such a system have not yet been specified, it is envisaged that the system will be set for implementation in 2003.

Other RE support measures Under the 1994 National Action Programme for the reduction of CO2 emissions, renewable electricity was supported via fixed tariff agreements, in the form of bilateral contracts, between green electricity producers and buyers. Under the programme, which is slated to run until the introduction of the green certificates system, projects implemented before 2003 benefit from green tariffs for 10 years after first injection of electricity into the network.

Furthermore, additional support programmes for renewable energy may also exist within each region. These are generally in the form of investment subsidies.

Retailing green energy Market liberalisation The Belgian electricity market opened to competition for large and medium industrial consumers in 1999 and 2000 respectively. In December 2000, the federal government opened the market to competition for consumers with a consumption of more than 20 GWh. From 31 December 2002, this threshold will be lowered to electricity uses of more than 10 GWh/year. From 31 December 2004 all customers at high voltage will be in a liberalised electricity market. Flanders will stay ahead of the federal and other regional liberalisation, because all residential customers in the region will be free to choose their suppliers from 1 July 2003.

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Voluntary market Ecopower, a financing co-operation for renewable energy projects, is investigating the possibility of supplying its 600 shareholders with green electricity. The company plans to start a pilot with 10 of its shareholders, to test customer switching between suppliers. An extended pilot with 100 shareholders is expected in autumn 2002. Customers will be provided with the green certificates received from Ecopowers own wind energy projects. On the basis of its current project portfolio, Ecopower will eventually be able to supply green power to about 3,000 households.

Denmark
Denmark has become the global market leader in producing wind turbines due to a very favourable policy climate for renewable energy over recent years. As a result, Denmark has one of the highest shares of wind turbine electricity generation capacity in the world. Following the most recent elections in Denmark, policy shifts have changed this situation it is expected that the increase in wind capacity will slow down.

Market volume By the end of 2001 wind turbines with a total capacity of 2,317 MW had been erected in Denmark. The average capacity of a Danish wind turbine has increased from 179 kW to just under 700 kW during the past 10 years. In the same period, the average energy production per square meter rotor area has increased from 719 kWh/m2 to 1,037 kWh/m2.

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In 1999, 426 wind turbines were erected with a total capacity of just under 325 MW. In 1999, an equal amount of 1 MW and 600 kW wind turbines were erected 59 of each.

Table 6.31: Renewable electricity generation in Denmark, 19992010

Source Installed capacity in 1999 (MW) 0 13 1,771 0 n/a n/a Production in 1999 (GWh) 0 31.4 3,029 0 1,751 4,811.4 Expected production in 2010 * (GWh) 0 35.4 14,900 1.2 3,765 18,702

Hydro >10 MW Hydro <10 MW Wind Solar photovoltaic Biomass Total * optimistic outlook
Source: Ecofys, Greenprices

Business Insights

Targets The Danish Government's Energy Action Plan (Energy 21) aims at increasing the share of renewable energy sources in the Danish energy supply to 1214% in the year 2005 and to approximately 35% in the year 2030. At present, the share of renewables covers approximately 9% of the total energy consumption in Denmark. The renewable share of electricity currently stands at 18%.

Policy context Support scheme and level of stimulation 2002 has been the year of spectacular changes of attitude of the government towards renewable energies. A new system of purchase obligation based on tradeable green certificates was due to be introduced in January 2002, however, the government decided to freeze these plans. This decision was made after severe criticism from the Danish Minister for the Environment and Energy during a public hearing on the Danish electricity reform (September 2001).

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This goes even further since, on 29 January 2002, the new liberal/conservative Danish governments presented its draft budget for 2002 and subsequent years. All R&D programmes, financial support, agencies aimed at developing or supporting the further development of renewable energies will be cancelled, generating a budget cut of 20 million Euro. This amount will be spent on hospitals and programmes aimed at senior citizens. One example of the programmes cancelled is the plan for large-scale offshore wind (no more guaranteed tariffs).

As a result, the indicative target for Denmark set by the EU will not be met, as seemed likely prior to the cancellation of the support programs. In the worst case scenario the indicative target will not be met.

Retailing green energy Liberalisation The Danish electricity market is 90% open, yet is dominated by two companies with a combined market share of 75%. The market will be fully opened in 2003.

Italy
Although Italy is, in absolute terms, the largest producer of renewable energy in Europe, the current share of renewables in Italy is still relatively small in comparison to other European countries and given the geographical disposition of Italy.

Market volume The main renewable energy source in Italy is currently hydropower. However, compared to other renewable sources, little increase in hydro capacity is expected to 2010. Investments will largely focus on biomass. Although the use of solar and wind energy increased by 10%, between 1999 and 2000 their contribution remains marginal.

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Table 6.32: Electricity production in Italy by sources, 19992010

Source Production in TWh 1999 45.3 4.4 0.4 1.5 51.6 Expected production in TWh 2010 47.8 6.0 3.2 3.1 60.1

Hydro Geothermal Wind and PV Biomass and biodegradable waste Total * optimistic outlook
Source: Ecofys, Greenprices

Business Insights

Table 6.33: Growth in the share of RES-E in electricity production in Italy, 19902010
1990 1995 1997 1998 1999 2010 (target) 25

Share of RES-E in electricity production (%)

Source: Ecofys, Greenprices

16

18

19

19

20

Business Insights

Renewable electricity production grew from 43.9 TWh in 1990 to 51.6 TWh in 1999, representing an increase of 17.5%.

Table 6.34: RES-E targets in Italy, 1998 & 2010

RES-E share of electricity consumption Target 2010 (%) 25
Business Insights

Calculated 1998 (%) 16

Source: Ecofys, Greenprices

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Policy context Instruments Prior to 1999, Italy promoted renewable energies by guaranteeing fixed prices for the electricity produced from renewable sources during a plants first eight years of operation.

The Bersani Decree (1999) introduced a new system based on green certificates combined with a mandatory quota of the amount of electricity produced from renewable sources. The Decree sets the quota on both producers and importers of energy in quantities exceeding 100 GWh. It is fixed at the level of 2% of the amount produced or imported. This quota will increase to 6% in 2006 and 8% in 2008. The electricity must be delivered by new, re-powered or refurbished renewable production plants. Compliance to this obligation is under the supervision of Terna (grid owner under the responsibility of GRTN).

Certificates are only issued for plants with production of more than 50 MWh/year. Certificates on the obligatory market have a size of 100 MWh, which discriminates against such sources as PV. PV is provided with support via the 10,000 photovoltaic roofs and facades programme. In this programme, the state subsidises 75% of capital expenses by private individuals and public bodies to promote the diffusion of small photovoltaic units.

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Eligibility Eligibility differs between the Energia Verde (labelling) initiative for green energy and the quota fulfilment criteria. The following table summarises the sources and their eligibility for either or both of the programmes. For the quota fulfilment, certificates are accepted on the express conditions that they come from new or refurbished renewables production plants.

Table 6.35: Eligible RES sources in Italy

Sources Hydro Photovoltaic Wind Tide, wave Biomass, waste Energia Verde + + + + Sustainable biomass and biofuels from agriculture and forest residues + + + Quota fulfilment Natural inflow/no pumped storage If plant produces >50MWh/year + + Existing thermal plants fed by biomass or waste are also allowed in the scheme.

Solar thermal Geothermal Biogas

Source: Ecofys, Greenprices

Business Insights

Retailing green energy Market liberalisation As stated previously, liberalisation of the electricity market began in April 1999 with the Bersani Decree. The system is co-ordinated by the Authority for Electrical Energy and Natural Gas, an independent body that holds competence on prices and transmission fares. In 2002, the transition period should be completed and Enel will have sold its excess productive capacity and urban area distribution networks.

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Table 6.36: Italian market liberalisation, 19992003

Type of customer >30 GWh >20 GWh >9 GWh Full market opening
Source: Ecofys, Greenprices

Date market opening 1999 2000 2002 2003

Business Insights

Main features The green label, Energia Verde, was launched in July 2001 and first applied to a Christmas lighting project in December 2001. It is still in its early stages of development and a total of 10 TWh of green energy has been submitted for labelling.

Developed by renewable energy generators Enel Greenpower (formerly) ERGA and APER, with the co-operation of NGOs (WWF, Legambiente) and consumers associations, the Energia Verde label will be assigned to producers who can demonstrate that their electricity generation comes integrally from renewable sources. Consumers can also be granted the label if they cover their entire electricity needs with green power, i.e. redeem a number of certificates equal to their total electricity consumption. Control over the use of the logo and the management of the label will be in the hands of a Guarantee Committee, formed by environment and consumer representatives. Royalties collected from the use of the label will be directed to pilot projects aiming at promoting a widespread use of renewables.

To date, there are no active green pricing schemes in Italy, mainly because of the fact that the liberalisation is still in its infancy. The reform of the electricity prices is, however, underway (delibera 204/99) and should be completed by 1 January 2003. Administrative prices will be replaced by a system of pricing options into which green pricing can fit into the categories of further pricing options (domestic consumers) or special pricing options (other categories of consumers). This reform introduces

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flexibility to allow for prices to adapt to specific demand of consumers (such as environmental concern).

However, a study led by APER showed that producers of green energy would, in the current model, prefer to use their energy in the form of certificates to cover their quota or to sell them to other obligated companies rather than offer the output of their production for green pricing schemes. The value of green pricing will be limited (for customers protection and the willingness of consumers to pay) at approximately 3.8 Eurocent/kWh, while the value of certificates is currently estimated at 5.76.2 Eurocent/kWh.

France
When compared to the demographic weight of France (17%) in the context of the EU, the contribution of renewable energies to the overall energy mix is only significant for hydro (21%) and biomass from woody sources (20%). The development of other technologies clearly lags behind. France contributes only 2% of wind and solar production in Europe.

Despite significant potential for development of wind power in France, production remains disappointingly low, with only 78 MW of installed capacity at the end of 2001.

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Market volume Falling short of expectations The current objective set for France in the context of the application of the renewable electricity Directive seems difficult to achieve. It would require French power production from renewable sources to grow from 68 TWh in 1999 to 107 in 2010. The biggest contributions to this growth are expected from: Small hydro: whereas the technology has experienced zero growth for the past few years, a programme of new installations and refurbishment of existing capacity is expected to deliver an additional 4 TWh by 2010, double the current capacity; wind: predictions show that half of what is expected from wind is economically and technically achievable; it is expected that the contribution of solar PV will remain marginal.

Table 6.37: Renewable electricity generation in France, 20002010

Source Installed capacity in 2000 (MW) 19,395 1,644 66 0.241 n/a n/a Production in 2000 (GWh) 60,145 6,018 169 <1 2,709 69,065 Expected production in 2010* (GWh) 62,474 7,160 21,000 5 4,940 95,579

Hydro >10 MW Hydro <10 MW Wind Solar Photovoltaic Biomass Total

* Optimistic outlook Source: Ecofys, Greenprices

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Table 6.38: RES-E targets in France, 19992010

Renewable share of electricity consumption (including large hydro) 1999 actual (%) 2010 target (%) 15
Source: Ecofys, Greenprices

21
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Policy context France benefits from geographic conditions that strongly favour technologies such as wind and is well positioned for a period of rapid development of its renewable electricity sources. Until now, France has been using competitive tendering for promoting RES-E (see the section on Promotional tools), which is less effective than feed-in tariffs. However, in June 2001, France has introduced feed-in tariffs and as a result the production from France is expected to increase.

However, EDF holds a very dominant position in the country, with large amounts of (non CO2 emitting) nuclear plants. Moreover, the French population is not convincingly in favour of renewable energy production.

Focus As indicated above, the focus of governments policy on renewable energies is as the follows: Refurbishment of existing small hydro; expansion of biogas; take-off of wind power and exploitation of potential.

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Instruments and levels of compensation A new basis for the stimulation of the renewables sector was provided by the French Electricity Law published in February 2000.

Two support mechanisms were introduced: Call for tenders (the Long-Term Investment Programme). Although the programme is not yet operational, it could in future apply to offshore wind. EDF (the incumbent utility) can compete, but should it fail to win the tender, it will be required to buy electricity generated by the winning party; feed-in tariff. It is limited to plants with a capacity not exceeding 12MW. Prices and conditions are now official for wind, landfill gas, small hydro and PV. Tariffs for biomass and geothermal are still under discussion.

Table 6.39: Eligible sources

Source Compensation level (first 5 years) Eurocent/kWh 8.38 5.49* (>600 kVA) or 6.10* (<500 kVA) 5.75 (<2 MW) or 4.50 (>6 MW)** 4.50** Compensation level (next 10 years) Eurocent/kWh 3.05-8.38 (depending on wind speed) Idem Idem Idem Contract duration (years) 15 20 15 15

Wind Hydro Landfill gas MSW incineration PV *

15.2 (Continental) Idem 30.5 (French overseas localities)

A certain amount of compensation will be added to both values during winter months (up to 1.52 Eurocent/kWh) ** Addition of up to 0.3 Eurocent/kWh in the case of cogeneration. Source: Ecofys, Greenprices Business Insights

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Retailing green energy Market liberalisation Since the adoption of the Law n. 2000-108 dated February 2000, a regulator has been in place for the French electricity market (Commission de Rgulation dElectricit). The network is in the hands of RTE, part of the EDF group, destined to become an independent entity. The minimum requirements of the EU Electricity Directive are being applied, with only 30% of the market open to competition and no date chosen as yet for full liberalisation of the market. Eligible consumers are those whose consumption exceeds 16 GWh/year.

Green energy retail As yet, there is no such offering on the French market. However, EDF is gaining experience in this market via its participation in companies such as London Electricity (UK) and EnBW (Germany), both active in the green energy segment of their respective markets.

Sweden
In terms of renewable development, Sweden has been overshadowed by neighbouring Denmark. However, 2001 witnessed the investigation of possible support schemes, whose results should change the face of the market significantly. Plans are currently being made to introduce a system of green certificates.

Market volume Renewable energy sources contribute a large share of the Swedish electricity mix, thanks to hydropower, which in recent years represented half of the total electricity production.

The wind resources have been steadily increasing so that in 2000 the contribution of wind turbines was 0.41 TWh. 2% of the electricity production is also based on biomass.
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While biomass is an important source for heating households, in 1998 renewable energy accounted for 26% of the primary energy supply.

Table 6.40: Renewable electricity generation in Sweden, 19992010

Source Installed capacity in 1999 (MW) 16,192 215 5,026 21,433 Production in 1999 (GWh) 70.4 0.4 2.6 73.2 Expected production in 2010* (GWh) 73.3 5.4 13.3 92.2

Hydro Wind Biomass Total

* Optimistic outlook Source: Ecofys, Greenprices

Business Insights

Policy context Currently the main support behind an increase in renewables implementation comes in the form of investment subsidies and favourable taxation. There is also a price support scheme in place for small-scale production.

A subsidy programme put in place by the Swedish Energy Agency (STEM) in 1997 will continue to run until June 2002. This support aims at wind, co-generation and small hydro.

Table 6.41: Swedish Energy Agency subsidy programme

Technology Target 2002 (TWh) 0.75 0.5 0.25 Share of investment covered by subsidy 25% 15% 15% Total amount available (million Euro) 52.25 34.83 17.42
Business Insights

Co-generation Wind Small-hydro

Source: Ecofys, Greenprices

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In October 2001, the Swedish Investigation Committee published its recommendations for a purchase obligation coupled with a certificate system. The level of the obligation should start at 6.4% in 2003 and increase steadily until 15.2% in 2010. If this is maintained as proposed, the renewable electricity market could increase to 16 TWh in 2010. The system will be in operation from 1 January 2003 with a transitional regulation for existing wind power.

Table 6.42: Estimates of the potential production of renewable electricity in Sweden to 2010
Sources Expansion of existing plants New plants Wind Hydro CHP from biomass Industrial back-pressure Total
Source: Ecofys, Greenprices

Potential (TWh) 5.2

3.0 1.0 2.0 1.5 7.5

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Eligibility In the proposed quota-based scheme (from 2003), the technologies listed in the following table are proposed for eligibility.

Table 6.43: Technologies proposed for eligibility from 2003 in the Swedish quota-based scheme
Sources Biofuels Small hydro Increased capacity of existing plants New plants (wind, PV, etc)
Source: Ecofys, Greenprices

Specifications

Existing <1.5 MW If undertaken after 1 July 2002 Commissioned after 2002

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Retailing green energy Market Liberalisation The electricity market in Sweden was liberalised in January 1996. A new Electricity Act came into effect on 1 January 2002.

Retail of green energy The Association for Nature Protection applies its label, Bra Miljval, on electricity from renewable sources, provided that the electricity meets the criteria set by the Association. Since November 1995, suppliers to apply for the label, which is common to the nature conservation NGOs of Norway, Sweden and Finland.

Hydropower facilities constructed prior to 1996, PV, wind and biomass are recognised renewable sources under the label.

Finland
Finland has been focusing on energy reduction and renewable electricity production for many years. In 1990, it became the first country in the world to introduce a carbon tax. Of total Finnish electricity production in 1999, 26% came from renewable energy sources, mainly large-scale hydro and biomass. Finland has an energy intensive industry, with many plants autoproducing electricity. Renewables also account for a large share of CHP production in Finlnd (over 30%).

Market volume Along with Austria and Denmark, Finland is one of the EU member states that generates the highest proportion of electricity from renewable sources. The use of biomass is highest in Finland, where it accounted for 14% of the electricity generation in 1998.

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Table 6.44: Renewable electricity production in Finland, 1999

Source Production 1999 (GWhe) 8,352 49 997 11,783 21,182 80,557
Business Insights

Biomass Wind-onshore Hydro-small (< 10 Mwe) Hydro-large (> 10 Mwe) Total renewable electricity production (National electricity consumption (GWh)
Source: Ecofys, Greenprices

Targets The Finnish governments national targets for 2010 are shown Figure 6.26 below. It is clear that most growth is expected from biomass, and, to a lesser extent, from wind and small-scale hydro.

Figure 6.26: Renewable energy production in Finalnd, 1998 & 2010

Renewable electricity production '98 vs '10

14,000 12,000 10,000 GWhe 8,000 6,000 4,000 2,000 0
Biomass: Generated electricity (GWhe) Wind-onshore: Generated electricity (GWh) Hydro-small (< 10 MWe): Generated electricity (GWhe)

1998 Production 2010 National target

Source: Ecofys, Greenprices

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Policy context The main instrument for supporting renewable electricity in Finland is the energy tax. The tax scheme consists of duties on traffic and heating fuels and electricity. The tax is differentiated according to the carbon content of the fuel to promote environmental protection.

In addition to the energy tax scheme, some other instruments are available to promote the use of renewable energy sources in Finland. There is an accelerated depreciation for environmental investments, equivalent to a maximum of 25% of the purchase price for four years. Also, there is a waste charge on municipal and industrial waste disposed in landfills. Finally, an eco-label called 'Norppa' (Saimaa ringed seal) is available to supply companies producing electricity. Suppliers may only sell the amount of eco-labelled electricity that their renewable power sources can generate.

However, it is now apparent that the supporting schemes in place are not yet sufficient to meet the Finnish targets.

Retailing green energy Market liberalisation The EU directive on liberalisation of the electricity market was embedded in Finnish legislation in June 1995 with the introduction of The Finnish Electricity Act. In 1996, the electricity exchange, EL-EX, came into being and was later integrated into the Scandinavian NordPool. In January 1997, the Finnish market was completely opened.

Retail of green energy There is a modest amount of voluntary demand for green power in Finland. Several utilities offer green power at mark-up tariffs of FIM 0.020.04 per kWh. The Society for Nature Protection Finland issues green energy certificates for the production of renewable energy that customers can use for marketing purposes.

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Ireland
In Ireland, the contribution of renewables to the total energy production is modest (3% in 1999, 5% of power generation). The sources most used to date are hydro, wood and, more recently, wind. The national renewable energy strategy is guided by the Alternative Energy Requirement Programme (AER). The responsible Ministry for renewable energy has set the target for renewables at 3.75% (share in total energy consumption) in 2005, with a working target for an additional 500 MWe power generating capacity between 20002005.

Market volume In 1995, Ireland set a target of increasing installed renewable electricity generation capacity from the existing 235 MW to 290 MW in 1998. This target was reached after the first AER round (see below), leading to a new target of 480 MW in total at the end of 1999. The share of renewables in the Irish energy mix is relatively low mainly as a result of the predominance of natural gas (15 % in 1990, 20 % in 1996 and 30 % in 2010). The share of gas within electricity production is also expected to triple its 1998 level by the year 2010.

The projections predict this share to remain at 3%. At present, around 5% of Irelands electricity is generated from renewable sources. In 1999, the country set itself a target of 12% from such sources by 2005. A strategy was subsequently defined in the Government Green Paper on Sustainable Energy published in 1999.

The level of interest for renewable energy is however high, with the last AER bidding process being significantly over-subscribed. While the department of Public Enterprise was seeking to get a total of 225 MW of electricity from renewables, a total of 370 MW was in fact tendered. Other developments include the recent go-ahead given to one company, Airtricity (the former Eirtricity), to build the worlds largest offshore wind farm, which should, with its capacity of 520 MW, meet around 10% of the countrys needs.
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Table 6.45: Results of Irelands Alternative Energy Requirement Programme

Category Target capacity MW 30 10 15 Offers MW 73 4 12 Result MW 45.8 2.3 11.8 Price range (/kWh) 5.435.6 5.6 5.6

AER-I (1995) 10 windfarms 10 small-scale hydro 6 landfill gas/waste AER-I for existing Wind Hydro AER-III (1997) 8 large windfarms 8 small windfarms 10 small-scale hydro 3 landfill gas/waste AER-IV (CHP) AER-V (2002) Large windfarms Small windfarms Small-scale hydro Biomass
Source: Ecofys, Greenprices

Existing Existing

Existing Existing

6.51 8.44

5.335.59 4.575.33

65 25 3 7 35 255

102 37 4 17

84 37 3 3 18

3.093.9 3.854.2 4.855.45 4.61

367 318 35 0.9 8

Business Insights

AER-II which was specified for waste and biomass only did not proceed due to difficulties with planning permission. AER-IV concentrated only on CHP.

Policy context Support for renewables and levels of compensation Since 1994, support for the development of new capacity of renewables generation was done via the AER Programmes, whereby successful bidders are granted 15 years power purchasing contracts for the output of their generation plant.

Under the AER Programmes, generators of renewable energy can apply for a license to build, own, operate and supply electricity to the Electricity Supply Board (ESB). The

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costs of the AER are covered by a levy on all consumers. Each AER round targets a different source of renewable energy.

In 1999, a Renewable Energy Strategy Group issued advice on the strategy for intensifying wind energy deployment in Ireland. Based on this report, the AER-V heavily concentrated on stimulating wind energy developments

Section 62 of the Finance Act (1998) allows for tax exemption up to 50% of the invested capital for projects of new capacity installation for renewables production. This measure has been effective since March 1999. However, whilst it is still difficult to assess the impact of this measure on the developments of renewables in Ireland, the certainty it offers investors and the high level of reduction on investments are likely to guarantee the success of this instrument.

Eligibility Eligibility of sources for the AER power purchasing contracts depends on the technology targeted by the government for the round. For the tax exemption however, support is granted for solar, hydro, wind and biomass sources.

Retailing green energy Market liberalisation The Directive requires that approximately 28% of the Irish electricity market be opened up to competition, increasing to about 32% by February 2003. This will allow independent electricity generators and/or suppliers to contract directly with designated eligible customers for the supply of electricity.

In Ireland, an eligible customer is one who consumes more than 4 GWh of electricity per year, of whom there are approximately 320 currently. The Regulation Act of 1999 allowed for the opening of the green segment of the Irish market in February 2000. By the end of April 2001, approximately 7,000 customers had switched to green.

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Table 6.46: Irish market liberalisation, 20002005

Category of consumer >4GWh Green consumers 33%-44% Full liberalisation
Source: Ecofys, Greenprices

Date of opening February 2000 End 2000 2002 2005

Business Insights

Austria
Austria is the EU member state with the largest share of renewable energy production in its total electricity production (72% in 1999). Its main source of renewable electricity is hydro power, which accounted for 96% of total renewable production in 1999. In second place comes biomass, accounting for 4% of total renewable electricity production in 1998. Other sources make only marginal contributions.

Market volume Hydro power dominates Hydro power clearly dominates electricity production in Austria. Although hydro is currently the largest source of RES-E generation in Europe, its growth potential is only limited. The reason for this is that large scale hydro production is already profitable and therefore many locations with potential for hydro power have already been utilised.

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Table 6.47: RES-E production in Austria

Source Production 1999 (GWh) 2 1,734 51 4,150 35,460 71 41,539 % Forecast production 2003 (GWh) 6 2,500 188 4,255 34,455 175 41,579 % Forecast production 2010 (GWh)* 37 3,500 313 4,406 34,455 465 43,176 %

Photovoltaic Biomass Wind-onshore Hydro <10 MWe Hydro >10 MWe Geothermal Total * Optimistic outlook

0 4 0 10 85 0 100

0 6 1 10 83 0 100

0 8 1 10 81 1 100

Source: Ecofys, Greenprices

Business Insights

The forecast production in 2010 is about 62% of the total elelctricity production. However, the indicative EU target for 2010 for Austria is 78% of its electricity from renewables. Growth is mainly expected in biomass, where production is expected to double, and little increase is predicted in small hydro power.

Policy context In July 2000, the new electricity law, Elektrizittswirtschafts- und organisationsgesetz (EIWOG) was approved by the Austrian Parliament and came into force on October 1 2000. The law introduced a feed in regulation for renewable electricity on a federal level. Criticisms of the law have been expressed, however, for not imposing coherent rules for the whole of Austria. The law only provides a framework regulation and leaves ample space for regulations on the level of the provinces (Lnder). Many provinces tended to interpret the law in a very restrictive manner and planned to set the minimum target of 4 % from renewables of the ElWOG as the maximum quota of renewable electricity which the network operators have to buy paying the feed in tariffs. So far, five Lnder have imposed maximum quotas, although the conformity of these regulations with the ElWOG will probably be challenged in court.

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Electricity and natural gas are subject to the electricity tax and the natural gas tax. The electricity tax amounts to 0.015 /kWh and also applies to electricity for renewable energies, a point that has been criticised. A share of approximately of one eighth of the funds generated by the electricity tax is distributed by the federal state to the provinces for climate protection measures. However, the allocation of the funds at a provincial level falls totally under the responsibility of the provinces themselves, meaning they can be used for other purposes as well; At the provincial (Lnder) level, a large number of different incentives focused at the promotion of renewable energies and energy efficiency exist. A guide to the support programmes was published in 2000 by the Austrian Energy Agency (EVA, 2000), with particular focus on solar energy, but also on biomass and heat pumps. The large number of support programme poses difficulties when trying to ascertain the extent of overall support for renewable energy sources in Austria. Each federal state designs its own support programme, with specific regulations concerning the type of energy that is supported, the type of conversion system (especially for biomass) and the amount of support. Furthermore, every programme has its own detailed regulations on technical standards or approvals that have to be fulfilled. Most of these support programmes for specific technologies have at least one common feature that support is granted as a subsidy on the investment costs.

Retailing green energy Market liberalisation The Austrian electricity market has been fully open to competition since October 2001.

Prospects Increase in biomass production expected (1998:1,700 GWh, 2003:2,500 GWh, 2010:3,500 GWh); increased trade expected in small-scale hydro certificate after the introduction of a certificate system in 2001 (effective in 2002);

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very little increase in hydro production expected.

Portugal
Market volume The Portuguese energy market is mainly based on imports, with the main sources being fossil fuels (oil, coal and natural gas). Domestic production is minimal and mainly from renewable sources.

Energy consumption in Portugal is increasing rapidly and therefore the country is becoming even more dependent on imported energy. The main instruments to stimulate renewable energy in Portugal are subsidies and feed-in tariffs. The most important renewable energy sources currently are hydropower and biomass. The specified Portuguese target within the EU renewables electricity Directive is 39%. It is estimated that renewable electricity production in 2010 will be between 27%38%, which means that additional measures from the government will probably be required to further stimulate renewable electricity production.

Table 6.48: Renewable electricity production in Portugal, 1999

Source Production 1999 (GWhe) 1 1,238 123 589 13,004 80 15,035

Photovoltaic Biomass Wind-onshore Hydro-small (<10 MWe) Hydro-large (>10 MWe) Geothermal Total renewable electricity production (36% of national electricity consumption )
Source: Ecofys, Greenprices

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Policy context Imported fossil fuels, national production dominated by renewables The E4-program (Eficincia Energtica e Energias Endgenas, 154/27 September 2001) formulates the strategy and measures for renewable energy use and energy efficiency. The main instrument to finance the promotion of renewable energy is by an investment subsidy, within the operational programme for the Portuguese Economy (POE).

According to the programme, the outlook for the installed capacity for electricity production in 2010 is 15,000 MW, the indicative target is for 50% of the installed capacity to come from techniques based on fossil fuel combustion and the other 50% from techniques based on use of renewable sources. The capacity outlook for the various sources and the corresponding investments are presented in Table 6.49.

In 1988, Decree-Law no. 189/88 of 27.05.88 came into force. This was the first law to guarantee the access to the grid for independent power producers using renewable energy sources and co-generation. In 1999, the law was updated and the new decreeLaw no. 168/99 introduces a full change to the feed-in tariffs applicable to the sale of electricity from renewables, establishing the principles to account environmental benefits of power generation from renewable energy sources and creating an opportunity to implement green tariffs.

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Table 6.49: Installed capacity for electricity production and scheduled investments in Portugal, 20012010
Installed capacity 2001 (MW) Renewable Energy Mini hydro Wind Biomass Biogas Photovoltaics Wave and Tidal Municipal Solid Waste Large Hydro Sub total Combustible fossil fuels Natural gas Coal Fuel oil Cogeneration Gasoil Sub total Redes Electricas Total Installed capacity 2010 (MW) Scheduled investments (M 2001)

215 80 10 1 1 0 66 4,210 4,583

500 3,000 100 50 50 50 130 5,000 8,800

420 3,100 160 100 300 80 n.a. 800 4,960

1,240 1,870 1,614 1,200 334 6,258

2,800 1,870 1,500 1,700 0 7,870

640 0 0 400 0 1,04 3,000 9,000

Business Insights

10,840

16,750

Source: Programa E4, Ministry of Economic Affairs

Portugal is working to reduce the sharp growth in energy use and CO2 emissions, which are both continuing to rise. If Portugal wants to limit the level of greenhouse gas emissions to 27% above the 1990 level as it has promised to do under the Kyoto Protocol it will need to take further measures.

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Greece
The feed-in tariffs presented in law 2244/94 on Electricity from Renewables have been the main initiator for large-scale development of RES through private investments. In addition, the development law and the 2nd Community Support Framework (CSF) present subsidies equivalent to approximately 40% of the investment cost. This combination has generated great interest among investors. To date, investments have mainly focused on wind energy, as ti is the most cost effective renewable energy source in Greece.

However, there are some obstacles in place that have so far prevented large-scale deployment of renewable energy. These are the lack of the appropriate grid infrastructure, long bureaucratic procedures and the general malfunction of public administration.

Market volume The following table provides a breakdown of renewable energy production in Greece by technology.

Table 6.50: Renewable electricity production in Greece, 1998

Source Biomass Wind-onshore Hydro-small (<10 MWe) Hydro-large (>10 MWe) Geothermal Total renewable electricity production 9.6% of national electricity consumption
Source: Ecofys, Greenprices

Production 1998 (GWh) 2 109 182 4,446 30 4,769

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Policy context The 2244/94 law passed in 1994 introduced feed-in tariffs into the Greek market. The main features of the law are as follows: Self producers and independent producers are allowed to exploit RES in order to produce electrical power. The Public Power Corporation (PPC) (the sole electricity utility in Greece) is obliged to buy the electricity produced and is responsible for its distribution; the buy-back rate of electricity produced by RES is fixed at 90% of the consumer price in the autonomous systems (islands including Crete) and at 70% for the mainland system; long-term contracts (10-year duration with the option of extension) are ensured; self-producers are allowed to transport the produced energy from the power plant to the place of consumption; the term: 1994 with no end date determined as yet; the current feed-in tariffs are 0.073 Euro for the island systems and 0.057 Euro for the mainland system.

Furthermore, the third Community Support Framework (CSF) foresees a considerable budget for subsidies of RES investments. In addition there is budget available for the reinforcement of the high voltage electricity grid in areas where the RE potential is deemed to be significant. These new grid lines are required in order to enable a largescale deployment of RES in these areas.

The main danger is that the construction and reinforcement of the grid lines will be delayed, thereby delaying the development of RES in Greece. This fact, in combination with the administrative difficulties related mainly to the general malfunctioning of the Greek public sector, make achievement of the target a very difficult task. Further
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problems revolve around land acquisition, caused by the absence of a national cadastral map, which makes the ownership system in the country complicated. Significant delays (312 months) are commonplace during the process of issuing pre-approval decisions of siting by the Ministry of Environment, Physical Planning and Public Works.

Luxembourg
Luxembourg, being the smallest EU member country, has limited potential for renewable energy. Limited growth from the traditionally largest renewable source, hydro power, is expected over the coming years, since most of its potential has already been realised. However, biomass and wind are expected to grow relatively large, as a result of subsidies granted via the Framework Law.

Market volume The following table provides a breakdown of renewable energy production in Luxembourg by technology.

Table 6.51: Renewable electricity production in Luxembourg, 1999

Source Biomass Wind-onshore Hydro 10 MWe Total renewable electricity production Total gross national electricity consumption
Source: Ecofys, Greenprices

Production 1999 (GWhe) 24 18 118 160 5,922

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Policy context In Luxembourg, the main instruments for promotion of electricity from renewable energy are buy-back tariffs and direct subsidies.

The Skeleton or Framework Law of August 1993 (05.08.1993), which defines the main elements for implementing energy saving measures and for achieving RUE and RES objectives. The five targets of the Law are (EC, 1998): To guarantee a sufficient, secure and economic energy supply; to promote energy savings and the rational use of energy; to favour the use of RES, co-generation and the production of primary and secondary energy; to alleviate the negative impact of energy production and consumption on the environment; to co-ordinate all these activities in the framework of the EU

Hungary
As one of the EU Accession Countries, Hungary is an interesting example to look at from the renewables point of view.

Market volume Hungarys electricity inland electricity generation mainly comes from the Paks nuclear plant (around 40%) and fossil fuel plants (around 60%). Renewable electricity production has only a relative small share of the market (around 1%). Domestically generated electricity provides about 70% of the total electricity supply, with the other 30% being imported.

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The greatest potential in Hungary lies with energy production from combustible renewables and waste. This is because most of Hungarys land is either under agricultural cultivation or wooded. There is limited potential from other sources such as wind (low wind speeds) and hydro.

It is expected that in the (near) future, energy production from combustible renewables and waste will significantly increase in Hungary, fulfilling their high potential.

Table 6.52: Renewable electricity production in Hungary, 1996

Source Biomass Hydro Total renewable electricity production National electricity consumption
Source: Ecofys, Greenprices

Production 1996 (GWhe) 218 207 460 35,400

% 47% 53% 100%

Business Insights

Policy context The main incentives for promoting renewable energy in Hungary are indirect subsidies and interest-free loans for research and development activities. The main reason for promoting renewable energy in Hungary is to improve the local air quality. Reduction in CO2 emissions is a less pressing reason, because CO2 emissions are relatively low in Hungary.

The incentives come from the New Energy Policy (1993) and the Action Programme for Energy conservation (1994).

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Retailing green energy Market liberalisation Hungary is a potential candidate for joining the EU and has therefore been targeting market liberalisation since 1995. The government department steering liberalisation is the Hungarian Energy Office.

Currently, the sector is organised around the single buyer model. This means that any generator first needs to offer its output to MVM, the state-owned grid operator. Only if MVM do not need the electricity, then can it be offered directly to one of the six regional distribution companies. These regional distribution companies are obliged to buy at least 85% of their electricity from MVM.

At present, electricity prices in Hungary remain regulated.

The privatisation of the sector includes interesting business opportunities for western based utilities. In particular, German companies have expressed their interest in the Hungarian energy sector.

Poland
Market volume Due to several monitoring problems, it is difficult to estimate the volume of renewable energy consumption in Poland. Estimates vary from 2.55.1% of the primary energy consumption. The lower value seems more likely since estimates above 4% include the combustion of peat in the primary energy consumption. There is currently a national target of 7.5% of renewable energy in primary energy consumption by 2010, and 14% by 2020. (In this case, most statistics are on total energy production, not on power production).

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Table 6.53: Renewable energy production in Poland, 1999

Source Energy production from renewable sources in 1999 (%) 98.05 1.83 0.10 0.01 0.01 100 Production (PJ) 101.80 1.90 0.10 0.01 0.01 103.82
Business Insights

Biomass Hydro Geothermal Wind Solar Total

Source: Ecofys, Greenprices

Two renewable technologies can, in terms of production costs, currently compete with grey electricity: Small hydro (erected on existing dams): production costs approx. 0.06 Euro/kWh; landfill gas: production costs approx. 0.05 Euro/kWh.

Growth in renewable resources is expected in biomass, especially in combustion processes as a solid fuel (wood and straw) and in landfill gas technologies (mainly for generation of electricity from CHP).

Policy context Policy support for renewables On 15th December 2000, the Polish Ministry of Economy adopted an ordinance requiring purchase of minimum amounts of electricity from renewable energy sources. The ordinance stated that all energy companies were obliged to source 2.4% of their yearly electricity sales in 2001 from such sources.

This level will increase over the next decade to reach a level of 7.5% in 2010.

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Table 6.54: Progression of the Polish RES quota, 20022010

Year 2002 2003 2004 2005 2006 2007 2008 2009 2010 and subsequent years
Source: Ecofys, Greenprices

Quota (%) 2.50 2.65 2.85 3.10 3.60 4.20 5.00 6.00 7.50
Business Insights

Eligibility The table below lists the sources that are eligible for suppliers to meet their obligation.

Table 6.55: Eligible RES sources, Poland

Eligible sources Hydro Wind Biogas from animal waste, wastewater treatment, MSW (landfill methane gas) Biomass Biofuels Solar Geothermal
Source: Ecofys, Greenprices Business Insights

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Retailing green energy Market liberalisation The Energy Law provides conditions for gradual implementation of market mechanisms. Depending on the quantity of energy purchased, particular consumer groups will have the access to the grid between 19992005: Up until the end of 1998, the access to the grid was available to consumers with yearly electric energy purchases of of not less than 500 GWh (the largest 21 consumers with yearly total purchase of around 21.5 TWh); from 1 January 1999, access was granted to final consumers with yearly purchases of not less than 100 GWh (83 consumers with yearly total of around 37 TWh); from 1 January 2000 final consumers with yearly purchases of not less than 40 GWh (180 consumers with yearly total of around 43.5 TWh); from 1 January 2002 final consumers with yearly purchases of not less than 10 GWh (610 consumers with yearly total of around 51.5 TWh); from 1 January 2004 final consumers with yearly purchases of not less than 1 GWh (3,300 consumers with yearly total of around 60 TWh), from 5 December 2005 all consumers (around 14.5 million).

Retail of green energy At present, there are no sales of green energy recorded in Poland.

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CHAPTER 7

Future Outlook

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Chapter 7

Future Outlook

Green electricity market: A long way to go Looking at the market for renewable energy and its predominant tradeable form green electricity there is a big difference between the results of extrapolated existing policies and the (inter)national goals. According to the Key Data in Chapter 4, the total amount of renewable electricity produced would be at least 140 TWh below the target of almost 700 TWh/year the indicative target share of 22% for electricity in 2010.

However, it is certainly worth noting that growth from the present 400 TWh to 560 TWh will represent a considerable achievement. Nevertheless, policymakers, market players and consumers will have to individually and collectively make extra efforts to build and expand the green electricity market. To achieve this, the dynamics of the market will have to be enlarged by surplus policy and promotional instruments, dynamic cross-border trade, certification and labelling and internalising external costs contributing to the price of grey electricity.

This conclusion relating to the green electricity market can also be applied to green energy as a whole. The markets for green fuels, green heat and green gas are still very young and will require even greater efforts to meet the target of a 12% renewable share of total EU energy consumption by 2010.

Support instruments: from technology-based to market-based At present, most countries utilise a mixture of instruments to promote renewable energy. Over recent years, the requirement to exert a continued downward pressure on prices for renewable energy production has driven policymakers in Europe to move from technology-based approaches to more market-based approaches for renewable stimulation.

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Figure 7.27: Policy shift from technology-based to market-based renewable stimulation

Technology-based

Market-based

Investment subsidies

Feed-in tariff

Tendering schemes

Quotas

Voluntary green pricing

Source: Ecofys, Greenprices

Business Insights

The expectation is that this gradual movement towards market-based instruments will continue. Authorities international, national and local will continue searching for promotion instruments that fit best into market liberalisation trends. Nonetheless, instruments like investment subsidies and feed-in tariffs will still be required to implement promising technologies that are not yet competitive.

In this respect, there is in Europe significant interest in quota schemes and the corresponding quota trading. The trade in green certificates is an example of a much broader policy trend, namely the trade in emissions or emission reductions. For now it is difficult to identify how certificate trading will fit into schemes for trading greenhouse gas emissions. At present, despite the fact that most renewable energy sources remain relatively expensive options for greenhouse gas reduction options although this may change in the future a separate system for the promotion of green energy trade is bound to be established.

Quota schemes generate different business opportunities than those created by voluntary green pricing schemes. Because of their obligatory character, quota schemes do provide a clear development in market volumes. National targets are translated into obligations that are then translated into quotas. Whilst it depends on the corresponding support

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schemes how easily companies can comply with their obligations, market trade will ultimately be somewhere around the size of the formulated targets.

The outcome of voluntary green pricing schemes is much less clear. Marketing tools, portfolio management and ultimately the willingness of the customer to pay the green prices will fully determine the development of market size. However, the dependency on support mechanisms is less and hence the freedom to act is increased. In particular, two policy aspects are of great importance: the ongoing tendency to incorporate externalities like environmental effects into grey energy prices, and a mandatory international labelling of all energy. The European Commission is eager to make progress in both areas over the next few years.

Highlights: Spain and Germany are most promising markets for growth Some promising combinations of technologies and national markets are (in absolute markets volume): Wind onshore in Germany and Spain; biomass in Sweden, Germany and Spain; wind offshore in UK, the Netherlands, Ireland and Germany.

Germany is notable for the large amounts of renewable energy capacity already installed. German consumers in general are more environmentally aware than their counterparts in other markets. Added to these factors is the concerted governmental promotion of green electricity, highlighting Germany as an attractive green energy market over the short to mid-long term.

In France, the high potential for green electricity production and consumption is not matched by high leves of awareness among consumers.

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Most countries will need surplus (financial) instruments to meet targets. Moreover, in the mid-term such instruments are a prerequisite for desirable and acceptable green energy market development.

The growing international trade provides a wider range of opportunities for project developers and generators. They will get more freedom of choice where to build new installations (for instance where legislative procedures are relatively short), and where they sell the electricity (where prices are high). However, there is a danger that national governments will raise barriers to block these imports, in the light of domestic employment and indigenous security of supply.

Emerging markets: Green fuels, gases, heat This report has focused principally on the green electricity market in Europe, because this is the market where most trade is realised at present. However, this is by no means a static situation.

Over the mid-term (approximately three years) the most promising market would appear to be that for green fuels. According to the proposals of the European Commission at the end of 2001, there is a target to replace 20% of the transport fuels (diesel and petrol) by alternative fuels by the year 2010. In the short-term, biofuels will be the most important alternative. In one proposed Directive the European Commission sets targets for biofuels at 2% of the sold quantities of transport fuels in 2005, and 5.75% in 2010. Another draft Directive gives room to member states to promote biofuels by lowering taxes.

This initiative is strongly backed by the agricultural communities in Europe, who see potentially new sources of income. In addition, there is a covenant between the European authorities and the motor industry that moves towards cleaner motor cars. Thirdly, several oil companies have already committed to constructing plants to produce biofuels. First initiatives for tax exemptions have already been taken, e.g. in Germany.

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Plans for markets for green heat and gas have yet to be elaborated. Until now, only fairly academic studies have been carried out on the topic, so European Action Plans or Directives are unlikely any time soon. Discussions are ongoing in certain countries regarding the possibilities for promoting the use of green gas which is potentially a bigger market than green electricity. Markets for heat are usually small, not yet liberalised and therefore not yet very interesting for traders. In general, transfer of heat has only a limited reach because of associated energy losses.

However, there seems to be no reason why a market for green certificates for gas or heat should not develop. The benefits of green certificate trade in electricity make it is easy to imagine that similar schemes will apply to heat and gas: consumers buy certificates to make sure that somewhere the equivalent of their gas and heat consumption is generated from renewable sources. Moreover, promoting the use of biomass as a source of electricity and not as a source for biogas or heat where the potential is much greater would lead to inefficiency in expenditures. Undoubtedly, the European Commission will develop plans along these lines in the years to come and, as a consequence, this will impose a yet unknown effect on the market for green electricity from biomass.

The European market: booming Notwithstanding the creation of a European internal market for energy, the markets for green energy are nationally oriented and will remain that way for at least the next couple of years. This is due largely to the divergence of national support schemes, which, according to the EU Directive 2001/77/EC on the promotion of renewable electricity, will not be harmonised before 2007, if ever.

However, pressure will mount on authorities to allow the import and export of green energy. Trade barriers will gradually disappear under pressure from Brussels and the large players.

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In the absence of a harmonised European support scheme, the only way to create a level playing field for all green energy traders is by gradually levelling the financial support per kilowatt-hour, accompanied by an internationally approved system of certificates. In this regard, the international RECS initiative taken by certain countries and large companies promises to provide a solution to many cross-border problems. Furthermore, when it comes to certification, it will be an important step to labelling all electricity. Ultimately, the customer will be full informed and able to choose his own energy supplier.

It may, therefore, be expected that nearly all renewable electricity (except the renewable electricity used directly on the spot) in 2010 will be traded on a certificate market. If the EU complies with its indicative target to consume 22% of all electricity in 2010 as green electricity, some 700 TWh will be traded on the certificate market. Assuming the price of certificates will be at least 40 Euro per MWh, this represents a market valued at some 28 billion Euro in 2010.

These growth figures show a very strong resemblance to the development of the telecom market a few years ago. Whilst these green energy markets are all still emerging, they share one common risk in particular: their development strongly depends on government policies and their supporting instruments. Should these main drivers, for one reason or another, be withdrawn, the green energy markets are bound to shrink to very small volumes. However, there are no signs whatsoever indicating such a withdrawal is likely.

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Appendix

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Appendix
Overview of green energy suppliers
Germany
AVU-Aktiengesellschaft frVersorgungsunternehmen EMR GmbH Bad Honnef AG Emscher Lippe Energie GmbH best energy GmbH EnBW Ostwrtemberg Donau/Ries AG BEWAG AG Braunschweiger Versorgungs AG Deutsche Strom AG Dortmunder Energie u. Wasserversorgung GmbH Energie- und Wasserversorgung Rheine e.dis Energie Nord AG e.on Energie AG Elektrizittsversorgung Schifferstadt Elektrizittswerk Bad Homburg Elektrizittswerk Calw GmbH Energieversorgung Oberbaden GmbH Elektrizittswerk Rheinhessen AG energis GmbH Elektrizittswerk Wennemhle Schrger KG Elektrizittswerk Wesertal GmbH Elektrizittswerke Elsenztal Enni Energie Wasser Niederrhein GmbH Erlanger Stadtwerke AG Esag AG GmbH Energie- und Wasserversorgungs-GmbH Energieversorgung Leverkusen GmbH Energieversorgung Lohr-Karlstadt und Umgebung GmbH ODR EnBW VTG, die Energie AG Energie AG Iserlohn-Menden Energie Sachsen Brandenburg AG Elektromark AG

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EWAG Energie- und Wasserversorung EWE-Naturwatt GmbH EWS - Elektrizittswerke Schnau GmbH Freitaler Strom und Gas GmbH

Kraftwerk Farchant Lech-Elektrizittswerke AG LichtBlick - die Zukunft der Energie GmbH Main-Kraftwerke AG

Gas- und Elektrizittswerk Singen Mainova AG Gemeindewerke Gundelfingen Mrkische Energiepark GmbH Gemeindewerke Halstenbek MVV Energie AG Gemeindewerke Haloch NaturEnergie AG Gemeindewerke Lilienthal GmbH Naturstrom AG Gemeindewerke Wildeck Naturstrom Rheinland-Pfalz GEW Kln AG Neckarwerke Stuttgart AG GGEW Gruppen-Gas-und Elektrizittswerk Bergstrae AG Greenpeace energy e.G. Grn-Strom e.V. GSW Geminschaftswerke GmbH Kamen Boenen - Bergkamen Plambeck Energiekonzept AG HEAG NaturPur AG Rewag Regensburger Energie- und HEW AG Infra Frth GmbH Kraftbertragunswerke Rheinfelden AG Kraftversorgung Rhein-Wied AG Kraftwerk Altwrttemberg AG Wasserversorgung AG &Co KG RWE Energie AG Shell AG Stdtische Werke Kassel AG Stdtische Werke Krefeld AG N-ERGIE AG Nordharzer Kraftwerke GmbH Novastrom GmbH Pfalzwerke AG

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Stdtische Werke Lauf an der Pegnitz Stdtische Werke Magdeburg GmbH Stadtwerke Aschaffenburg Stadtwerke Augsburg Stadtwerke Bad Drkheim Stadtwerke Bad Salzuflen GmbH Stadtwerke Baden-Baden Stadtwerke Bad-Herrenalb Stadtwerke Barmstedt Stadtwerke Bielefeld GmbH Stadtwerke Bietigheim-Bissingen GmbH Stadtwerke Bochum GmbH Stadtwerke Bonn GmbH Stadtwerke Bretten GmbH Stadtwerke Brhl GmbH Stadtwerke Buxtehude Stadtwerke Cottbus GmbH Stadtwerke Diepholz GmbH Stadtwerke Dinkelsbhl

Stadtwerke Dbeln GmbH Stadtwerke Dsseldorf AG Stadtwerke Ebermannstadt Stadtwerke Eichsttt Stadtwerke Elmshorn Stadtwerke Emmerich GmbH Stadtwerke Erfurt GmbH Stadtwerke Ettlingen GmbH Stadtwerke FFB GmbH Stadtwerke Frankenthal GmbH Stadtwerke Frankfurt/Oder GmbH Stadtwerke Freising Stadtwerke Gaggenau Stadtwerke Germersheim Stadtwerke Gieen Stadtwerke Grlitz AG Stadtwerke Grnstadt Stadtwerke Hagen AG Stadtwerke Halle Gmb

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The Netherlands
Caplare Energy Cogas DELTA Echte Energie ENECO Energie Energiebedrijf.com Greenchoice United Consumers ESSENT Westland Energie Services NUON Yourenergy Nutsbedrijf Maastricht ONS OUREnergy REMU Rendo Shell Nederland Verkoopmaatschappij B.V.

The UK
Ecotricity Green Energy (UK) plc London Electricity group Northern Ireland Electricity (NIE) npower (Innogy group) Powergen Scottish and Southern Energy plc. (SSE) Scottish Power Seaboard Energy Ltd Servista.com TXU Energi Unit Energy Ltd.

Source: www.greenprices.com (June 2002).

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