Directive 2001/77/EC laid down a framework for the promotion of electricity produced from renewable energy sources (RES) in the European Union. This framework was subsequently strengthened by Directive 2009/28/EC (Renewable Energy Directive) which requires Member States to establish mandatory national targets consistent with an overall EU wide target that by 2020 aims for 20 percent of the energy consumed within the European Union to come from renewable sources.

In January 2014 the Commission proposed in the 2030 Framework that the EU wide target for renewable energy be raised to at least 27 percent by 2030 (45 percent in the case of electricity generated from RES). Note that no new binding national targets are proposed for Member States.

The Renewable Energy Directive also required Member States to grant priority access or guaranteed access to their electricity grids for energy produced from RES.

To date, progress towards meeting the national targets has largely been through the implementation of national support schemes. Member States have implemented a variety of renewable energy support schemes, the most popular being price based schemes such as Feed-in Tariffs (FITs) and Feed-in Premiums (FIPs) and quota based obligations supported by tradable Green Certificates. Because the majority of these schemes are financed through the pass-through of suppliers’ costs to end users, as the level of support has increased, the volume of the debate regarding their affordability has risen commensurately.

At the same time, many Member States have reviewed the effectiveness of their renewable energy support instruments and have implemented reforms to their support schemes as they seek to reduce the cost of financing their national renewable energy targets. Most controversially, Spain and Italy have introduced/are proposing retrospective adjustments to their respective support schemes that have resulted in actual/threatened legal action by affected investors.

Consistent with the targets contained in the Renewable Energy Directive, the 2020 strategy and the 2030 Framework, in April 2014 the Commission published revised State Aid Guidelines (Guidelines) setting out the conditions that renewable energy support schemes must meet to be considered compatible with the rules of the internal market.

The Guidelines move renewable energy support schemes towards market-based allocation mechanisms, such as auctions and other competitive bidding processes and will require the recipients of such support to be subject to market obligations such as balancing (although outsourcing is permitted). With effect from 1January 2016, generators are expected to sell renewable energy directly in the market and to receive support in the form of a 'top-up' payment above the market price. This would suggest that FITs will no longer be compatible as they insulate generators from market pricing risk unlike FIPs and Green Certificates. Under the Guidelines, projects over 1MW in size will have to take part in a technology-neutral competitive bidding process (although there will be a transitional period during 2015/2016 where this requirement will be limited to five percent of planned new renewable energy capacity) and technology specific bidding processes are permitted in certain circumstances. Generators will also no longer receive support when electricity prices are negative, a situation that has often arisen in mainland Europe during exceptionally sunny periods.

In addition, the ability of national schemes to exclude participants from other Member States that is allowed under the Renewables Directive was recently called into question in a case referred to the Court of Justice of the EU by the Swedish courts. Ålands Vindkraft, operator of a wind farm in the Åland Islands, applied to participate in the Swedish “green certificate” scheme. Although connected to the Swedish grid, the project was in Finnish territory, and its application was refused on that ground, pursuant to the relevant Swedish law.

The Advocate General, who gave his opinion on the case on 28 January 2014, came to the conclusion that schemes that restrict the availability of subsidy to home-grown renewables, and the provisions of the Renewables Directive that ostensibly permit such restrictions were inconsistent with the EU Treaties’ rules on the free movement of goods and did not fall within any of the public interest exceptions that case-law has recognized as capable of overriding the right of free movement. In this case the overriding interest was supposedly the protection of the environment: the promotion of renewable generation reduces greenhouse gas emissions and helps to avoid harmful climate change.

But the Advocate General could not see how preventing the import of “foreign” green electricity helped the environment.

The Court’s judgment, delivered by the full Grand Chamber of 15 judges, declined to follow the Advocate General in those parts of his reasoning which were more disturbing for the status quo in EU renewable support schemes. The Court agreed that legislation such as the Swedish law is capable of impeding imports of electricity and so is in principle incompatible with the free movement rules. But it found that this restriction could be objectively justified. Without confronting head-on the question of how the overriding interest of environmental protection is served by a restriction on imports, it concluded that the Swedish scheme as a whole served an environmentally beneficial purpose and found that Sweden could legitimately consider that the territorial limitation in its law did not go beyond what was necessary to attain the objective of increasing the production and consumption of green electricity in the EU.

It will be interesting to see whether the restriction of renewable energy support schemes to national projects will survive the move to EU wide targets under the 2030 Framework.

There follows a review of the reforms of the national support schemes of the following Member States: France, Spain, Germany, UK, Poland and Romania.

France

In France, the two main sources of renewable energy are biomass and hydropower. In 2012, energy from RES accounted for 13.4 percent of the gross final energy consumption (16.6 percent in electricity, 16.3 percent in heating and cooling and 7.1percent in transport).

To date, renewable energy provides 18.6 percent of electricity generation. Hydropower has traditionally been the main source (13.8 percent) followed by wind (2.9 percent) and solar PV (0.8 percent).

According to a report published by RTE, the French electricity transmission system operator, for

2013, the installed hydropower capacity was around 25,400 MW. Meanwhile, the installed wind power capacity grew by 8.4 percent to 8,150 MW and the photovoltaic capacity reached 4,300 MW up 20.9 percent from the previous year. The installed capacity of other sources of renewable energy including biomass was around 1,500 MW.

In order to promote renewable energy, the French Government has put in place two support mechanisms:

  • An FIT mechanism under which the legacy operator, Electricité de France, has the duty to conclude a power purchase contract with every renewable energy producer that operates a plant meeting certain requirements depending on the renewable energy contemplated; in this case the purchase tariff is determined by ministerial orders. FITs currently apply to the following sectors: hydropower, wind power, photovoltaic, geothermal sources and biomass. The scheme is financed through a compulsory contribution (contribution au service public de l’électricité) by all electricity consumers.
  • A competitive tendering procedure. Under article L. 311-1of the energy code, the public authority may launch a tendering procedure if anticipated production capacity fails to meet the objectives of the multi-year plan for electricity production investment. Using this procedure France has carried out an ambitious offshore wind power program off the north and west coasts. The first phase of the program includes the installation of 2,000 MW capacity with the first wind turbines scheduled to be operational by 2017. Several large scale biomass and solar PV projects have also been procured using this procedure.

    In May 2014, the French administrative Supreme Court, the Conseil d’Etat, ruled that the 2008 FIT Ministerial Order relating to on-shore wind projects should be cancelled as it constituted an unauthorized state aid, since the order had not been notified to the European Commission. After the notification of a new Ministerial Order at the end of 2013, the European Commission issued a decision in March 2014 stating that the French scheme providing support to the production of electricity from on-shore wind installations does indeed constitute state aid, but one that is compatible with EU state aid rules.

In addition, the French Government has recently submitted to parliament a bill on a new national energy model. The draft law aims:

  • to reduce by 40 percent greenhouse gas emissions by 2030;
  • to reduce by 30 percent the consumption of fossil fuelled energy by 2030;
  • to reduce the share of nuclear generation to 50 percent by 2025;
  • to increase the share of renewable energy to 32 percent of gross final energy consumption by 2030; and
  • to reduce by 50 percent final energy consumption by 2050.

Spain

The renewable energy industry is facing serious challenges in Spain:

Under the current situation where existing renewable energy projects are struggling to service their existing debt, there is little appetite from financial institutions to finance new projects and limited availability of funds to refinance existing projects.

Spain has around 100,000 MW of installed capacity, but its current electricity demand is around only half of that level.

Since 2004 the RES legal regime has been subject to complex regulatory changes. Initially those were designed to shape the regulatory regime, but more recently these have had one goal in mind: to reduce the electricity tariff deficit, as its scale has now become disproportionate (€ 30 billion).

However, cuts and reductions have been insufficient to address the electricity tariff deficit. As a consequence, the Spanish Government from July 2013 to June 2014 has approved regulations reforming the RES sector (Act 24/2013, Royal Decree Law 9/2013, RDL 431/2014, Ministerial Order 1045/2014) The reforms abolish the existing FIT based support system and introduce a new remuneration regime for renewable energy, cogeneration and waste facilities that offers developers a reasonable return on their investment costs (7.4 percent annually, before taxes) across the operational life of the asset and which is retroactive in character.

Return rates are calculated with reference to the average performance in the secondary market of 10-year Spanish Government bonds, plus 300 basis points.

This has led to the cancellation of the incentive for some plants, such as onshore wind farms that became operational before 2005.

The revised support system will see a €1.7 billion reduction in incentives paid to the sector this year, according to the Spanish Government.

Germany

Germany has doubled the renewable share of its total electricity consumption in the past years, reaching a share of the renewable energy production and consumption of 23 percent in 2012.

It forecasts an increase by 2025 well ahead of the 50 percent target for 2030, and closing in on official goals of 65 percent in 2040 and 80 percent in 2050.

Some areas are moving faster: in 2010, four German states were 43–52 percent wind powered for the whole year. And in the spring of 2012, half of all German electricity was renewable, nearing Spain’s 61percent record set in April 2012.

In fact, in 2011the German nuclear shutdown was entirely displaced by year-end, three-fifths due to renewable growth; by mid-2012, the share of nuclear energy in the electricity market had decreased from 22 to 15 percent, mainly as a consequence of shutting down the first eight reactors, whereas the share of renewables had gone up by four percentage points to 22 percent. Efficiency gains cut the total energy used by 5.3 percent, electricity consumption by 1.4 percent, and carbon dioxide emissions by 2.8 percent . Wholesale electricity prices fell 10–15 percent. Germany remained a net exporter of electricity, and during the February 2012 cold snap exported nearly three GW to power- starved France.

However, Germany is reverting to fossil fuels to a certain degree to support the renewable capacity as wind power and solar energy cannot supply base load power on their own after the phase-out of nuclear power.

Germany’s grid remained the most reliable in Europe and keeps improving the energy infrastructure to adequately connect industrial sites in south Germany to the windy north.

German policy makers recently worked on making the Renewable Energy Sources Act ready for the future. The revised and amended Act will enter into force on 1August 2014, with a focus on sticking to the priority connection to the grid, readjusting the feed-in tariff (i.e. reducing it for most sources while mostly keeping up the tariffs for offshore wind), and implementing a pilot tender scheme for PV ground mounted systems.

UK

The UK’s deployment of renewable electricity generating technologies (notably wind) has increased significantly in the last few years, but although it is making steady progress towards its 2020 Directive target of delivering 15 percent of energy from RES (in 2012, it had achieved four percent) and—from some perspectives is well placed to meet it—it remains to be seen whether it will do so.

  • A significant number of projects, particularly smaller onshore wind sites in England and Wales, fail to obtain development consent. The process for granting consent (or planning permission) is becoming increasingly politicized, and it is almost inevitable in some cases that political decision-makers give greater weight to those who oppose developments that are said to be out of keeping with the landscape. A number of offshore schemes have been refused consent or have been scaled back or discontinued because of the constraints imposed by EU nature conservation legislation (e.g. out of concerns about their impact on bird life).
  • There is growing public concern about the cost of subsidies for renewables. This is exacerbated by the fact that over the next few years generating capacity margins in the UK are expected to fall to very low levels and the addition of substantial amounts of intermittent renewable capacity is perceived as contributing to the risk that "the lights will go out", rather than as helping to mitigate it. (Both Government policy and public opinion are ambivalent about biomass / energy from waste, which is for practical purposes the only non-intermittent renewable technology deployable at scale in the UK at present.) At the same time, the form of renewable generation that appears to enjoy the greatest levels of public support—as well as potentially having the greatest potential to add very significant amounts of capacity—is offshore wind, which is also currently one of the most expensive renewable technologies to build.
  • The Government is in the process of launching a massive reform of the way that renewables are subsidized, by replacing a Green Certificate scheme (the Renewables Obligation) with a new regime of Contracts for Difference (CfDs, a kind of FIPthat provides a guaranteed premium over a reference wholesale electricity price for a fixed period). Reflecting concerns about the cost of renewables and European Commission concerns about the distortions which subsidies bring to the EU single market in electricity (leading to a requirement for many subsidies to be allocated by competitive auction), the new regime offers less certainty about whether and at what level individual projects will be subsidized. Much will depend on whether investors and financiers are prepared to accept these risks. Although the reform program began almost four years ago, many of the key details of the CfD regime are only now being finalized, a few months before it is due to be launched. Moreover, although the generic CfD scheme and specific investment contracts for offshore wind projects have recently received state aid approval from the European Commission, certain large scale biomass projects are still waiting for clearance before they can proceed.

Poland

Over the past 10 years, renewable energy sources (RES) have become an important part of Poland’s energy market as evidenced by the dynamic growth in investments in this sector. In particular a large number of wind farms have been established by Polish energy companies and foreign investors entering the Polish market.

These dynamics were not jeopardized to any real extent by the economic crisis that now seems to be behind us.

Instead, the brakes are being put on investor enterprise and confidence by the recession on the green certificate market and the Government’s reluctance to introduce new rules in the RES sector.

However, now that the Government is going to put new RES legislation before Parliament, this state of insecurity will probably change. In April 2014 the Government approved a long-awaited Bill that sets out new long-term subsidies for renewable energy, aiming to cut costs to consumers and to help the coal-reliant country meet European climate targets. The legislation is expected to be passed in the Fall.

Under the Bill, developers and owners of new renewable facilities can sell energy at auctions at a fixed price that would be guaranteed for 15 years. The proposal would also set a ceiling on the subsidy. Moreover, it would allow renewable electricity producers that are already operating to keep their current subsidies or choose to join the above mentioned auctions on a voluntary basis (subject to the exemptions listed in the Bill). Energy produced from existing facilities will be sold at auctions dedicated to this category of facility and the producer will not be required to go through the pre-qualification process to take part in such auctions, but they will have to provide bank guarantees or deposits of 30 Polish zloty/1KW installed.

New projects may seek support exclusively via the auction mechanism, with auctions organized and conducted by the Energy Regulator at least once a year (and separate auctions for sources with a capacity up to 1MW or in excess of 1MW). The winning bidders shall be those offering the cheapest energy. The price of energy will be determined based on the reference price set by the Minister of Economy at least 60 days before the scheduled date of the auction, in compliance with the rules set out in the Bill on Renewable Energy Sources.

Poland generates around 90 percent of its electricity from coal and must increase renewable energy production to at least 15 percent of the total by 2020 to meet EU rules on carbon emissions. The Polish Government has calculated that by 2020 the cost of its current subsidy system would rise to 7.5-11.5 billion zlotys per year (US$2.5- US$3.8 billion).

Given the above developments, a rapid acceleration of investment in the next few months is expected, as those installations which commence energy generation before the new RES legislation comes into force will have the opportunity to choose their preferred support system – the green certificates system. The final shape of the RES Bill remains uncertain, as following its adoption by the Council of Ministers it must now be passed by Parliament. The RES Bill will also be subject to approval by the European Commission due to the state aid provided for therein.

Romania

Law 220/2008, which originally transposed EU Directive 2009/28/ CE, was subsequently improved by amendment Law 139/2010 and Emergency Regulation 88/2011.

In June 2014, Romania reached a total of 4,458 MW of installed RES capacity, of which wind represents 2,616 MW and solar PV capacity 1,208 MW. Of the 1,208 MW of solar PV capacity, 834 MW comes from new photovoltaic capacity installed in 2013. The dramatic growth in the PV facilities installed is seen as a huge success for solar energy, given that PV capacity at the end of 2012 was only 28 MW.

The Government decided to decrease the global RES mandatory quota for 2014 and have wind certificates down to 0.5 per MW until 2017 and to 0.25 per MW starting 2018, from two in 2013 for all wind projects finished after January 2014, while solar PV certificates were decreased to three per MW, from six last year, for all photovoltaic projects finished after 1January 2014. The measure will only affect projects finished after January 2014, although older projects also faced subsidy cuts after a green certificate suspension was approved in June 2013 suspending one of the two green certificates in the case of wind energy producers and two of the six green certificates in the case of PV energy producers per MWh fed into the grid. The green certificate suspension began on 1July 2013.

The Government’s main aim is to restrain electricity price spikes as a result of the deployment of renewable energies and to respond to pressure from energy-intensive consumers to reduce the costs of RES energy. Thus, subject to European Commission clearance, a number of the 300 energy-intensive consumers will be granted exemptions of up to 85 percent of the cost of green certificates.