Download - Policies for renewable energy in the European Union and its member states: an overview

Policies for renewable energy in the EuropeanUnion and its member states: an overview

Thomas B. JohanssonInternational Institute for Industrial Environmental Economics, University of Lund

P.O. Box 196, 221 00 Lund, SwedenE-mail: [email protected]

Wim TurkenburgUtrecht University, Dept. of STS, Copernicus Institute for Sustainable Development and Innovation

Padualaan 14, NL-3584 CH Utrecht, the Netherlands

There are considerable concerns in Europe over security of energy supply, environmental issues,competitiveness of the European economies, and regional development. Increased use of energycarriers produced from domestic, renewable flows of energy is seen as an instrument to supportobjectives in these areas. The developments are supported by Europe-wide targets for a renewable share of primary en-ergy, power generation, and renewable fuels, as well as policies, mostly at the national level. Thesereflect the fact that unguided energy markets cannot be expected to deliver on public goods. Also,such markets result in sub-optimal use of energy sources due to ‘‘market’’ and ‘‘system’’ failures. Renewable energy flows in Europe are large in comparison with commercial energy demand.Technologies exist to tap these flows, at costs that often are competitive if the evaluation includesexternal costs and benefits, and subsidies to conventional energy are eliminated. If renewable energyis to grow to a much larger fraction of energy supply, there must be a combination of efficient andeffective policy instruments to reach the guiding objectives, an appropriate technical and regulatoryinfrastructure, clear and efficient administrative procedures, public acceptance, RD&D leading toinnovation, new technologies entering the marketplace, and a cadre of professionals to design, buildand operate renewable energy systems. This article examines these issues and policy options, againsta background of renewable energy use varying considerably between countries in Europe, mostlyowing to differences in policies for renewable energy.

1. IntroductionEnergy policy came to the fore in Europe with the oilcrisis of the 1970s. Before then, governments had largelypaid attention to electrification and created large inte-grated monopolies that generated, transmitted and distrib-uted electricity. In most countries in Western Europegovernments were engaged in nuclear power develop-ment. In some countries governments also involved them-selves in the supply of oil, coal and/or natural gas.Renewable energy sources, with the exception of hydro-power in countries having significant hydropower poten-tial, attracted very little interest. Starting in the ’70s, thishas changed.

Nowadays, there are considerable concerns in Europeover security of energy supply, environmental issues,competitiveness of the European economies, and regionaldevelopment. Imports of oil and natural gas are projectedto grow from, respectively, 80 % and 46 % of total con-sumption in 2000 to 93 % and 73 %, respectively, in 2020[DG TREN, 2003]. Increased use of energy carriers pro-duced from domestic, renewable flows of energy is oneway to reduce import dependence. The other major option

is to increase the efficiencies of energy and material use[Jochem et al., 2002].

Support for renewable energy technology developmenthas also been seen as a way to build a competitive indus-try that will have a global market, as alternatives to con-ventional energy sources are increasingly sought.Regional development could be supported by the use ofland-intensive renewables, primarily biomass.

Urban air pollution has been significantly alleviated inEurope in the last few decades. However, concerns remainabout small particulates in the air (the so-called PM2.5,particles with a diameter smaller than 2.5 micrometres)and other pollutants being estimated to cause significantdamage. The European Union (EU) was one of the strong-est proponents of the Kyoto Protocol, and assumed, forthe first commitment period, 2008-2012, an emission re-duction obligation of 8 % below the 1990 level. Althoughthis represents a significant first step, much deeper globalemission reductions would have to follow to achievethe objective of the United Nations Framework Con-vention on Climate Change (UNFCCC). To achieve thefirst commitments, the EU member states have shared

Energy for Sustainable Development l Volume VIII No. 1 l March 2004

Overview

5

the responsibilities between member states in the so-calledEuropean bubble[1]. Increased use of renewable energywould help to reduce these environmental challenges.

Interest in energy issues has grown not only in Europe,but also worldwide. Energy was one of the most intenselydebated subjects at the World Summit on Sustainable De-velopment (WSSD) in Johannesburg (2002). In the end,general agreement was reached on a text that significantlyadvances the attention given to energy in the context ofsustainable development. Globally, access to modernforms of energy for the 2 billion people without them isthe primary objective, in addition to the challenges men-tioned above. These developments followed years of ef-forts to focus on energy as an instrument for sustainabledevelopment, which intensified after the United NationsConference on Environment and Development (UNCED)in 1992 [Goldemberg and Johansson, 2004].

The required magnitude of change of current energysystems and their developments is huge indeed. Access tomodern forms of energy, especially electricity for all pur-poses and clean fuels for cooking, to the 2 billion peoplewithout them -- and the additional 3 billion people pro-jected to increase world population by 2020 -- is a majorchallenge in itself. To meet these needs and at the sametime meet growing needs of energy services for a growingworld economy, maintain energy supply security, and im-prove the environment is an even bigger challenge.

One of the most difficult environmental issues is themitigation of dangerous anthropogenic climate change,which, to reach the objective of UNFCCC, calls for a re-duction of carbon dioxide emissions by more than 50 %(compared to 1990) in the second half of this century froma global energy system that is 80 % reliant on fossil fuels.The use of fossil fuels contributes almost 80 % of theemissions of the most important greenhouse gas, carbondioxide (CO2).

For a broad integrated analysis of energy and the chal-lenge of sustainability, see [Goldemberg, 2000].

Energy for sustainable development has three major pil-lars: (1) more efficient use of energy, especially at thepoint of end-use, (2) increased utilization of renewableenergy, and (3) accelerated development and deploymentof new energy technologies -- particularly next-genera-tion fossil fuel technologies that produce near-zeroharmful emissions and open up opportunities for CO2

sequestration.Also with respect to renewable energy, there were major

developments at WSSD. The Plan of Implementation, inParagraph 19, calls on the international community to:

‘‘Diversify energy supply by developing advanced,cleaner, more efficient, affordable and cost-effective en-ergy technologies, including fossil fuel technologies andrenewable energy technologies, hydro included, and theirtransfer to developing countries on concessional terms asmutually agreed. With a sense of urgency, substantiallyincrease the global share of renewable energy sourceswith the objective of increasing its contribution to totalenergy supply, recognising the role of national and volun-tary regional targets as well as initiatives, where they

exist, and ensuring that energy policies are supportive todeveloping countries’ efforts to eradicate poverty, andregularly evaluate available data to review progress to thisend’’ (emphasis added).

Proposals were made at WSSD to adopt global targetsfor renewable energy. However, no agreement wasreached. At WSSD, the Johannesburg Renewable En-ergy Coalition (JREC) was formed. It now has 86 statesas members. The objective is to continue to advancethe use of renewable energy. At the WSSD, the GermanChancellor Gerhard Schröder invited delegates toWSSD to an international conference on renewable en-ergy. This event is being prepared through a series ofregional conferences. The main conference will be heldin Bonn, Germany, June 1-4, 2004[2]. This special issueof Energy for Sustainable Development is an input tothe conference.

In this special issue and its overview and summary, weconcentrate on the policy experiences and policy needs inEurope to increase the use of renewable energy.

Section 2 presents the potential contribution of re-newables to primary energy supplies in Europe (focusedupon the EU-15, the 15 countries of the European Union).Next, an overview is presented of targets set for 2010 topromote the development of renewable energy sources(RES). In addition, a summary is presented of experienceswith renewable energy policy-making in the EU and anumber of countries that are dealt with in this special is-sue. From these studies and a number of other energy andenvironmental policy evaluations, lessons that can belearned as well as policy issues that are critical to promoterenewables are presented. Also, conclusions are drawnabout policy instruments that can be used to reach ambi-tious renewable energy goals.

It is hoped that this issue of Energy for SustainableDevelopment and its overview also provides lessons, con-clusions and recommendations about policies and policyinstruments to promote the development and use of RESin other parts of the world.

2. Energy demand, renewable energy flows inEurope, and technologies to use them

2.1. Present and future energy consumption in EuropePrimary energy consumption in the EU-15 was 62.8 EJ(1500 million tonnes of oil equivalent, Mtoe) in 2001.Contributions from different sources for 1990 and 2000are shown in Table 1, together with projections in a base-line scenario to 2030. Electricity generation was 2600TWh in 2000 and is, in this scenario, projected to growto 3800 TWh in 2030.

In the baseline scenario for the EU-15, presented byDG TREN [2003], population is expected to grow from379 million in 2000 to 389 million in 2030, remaining,thus, essentially stable. Gross domestic product (GDP) isprojected to grow from 8.545 trillion euros in 2000 to16.920 trillion euros in 2030, corresponding to an averagegrowth rate of 2.3 % per year. The energy intensity isprojected to decline from 7.1 to 4.3 PJ per million (M)euros in the same period. The contribution of renewables


Overview

6

would remain below 10 %, missing the target set by theEU (see Section 3).2.2. Present and future contribution of renewableenergy sources in EuropeIt is generally recognised that renewable energy flows inEurope are very large, of the order of a thousand timesthe commercial energy use in Europe.

Taking into account geographical and land-use condi-tions as well as technical and economic concerns, Hoog-wijk [2004] investigated the global and regional potentialof biomass, wind and solar PV energy. The results onbiomass are shown in Table 2, indicating that in the year2050 the potential of energy crops to contribute to theworld primary energy consumption, as projected in thedifferent marker scenarios A1, A2, B1 and B2 of the In-tergovernmental Panel on Climate Change (IPCC), pub-lished in its Special Report on Emission Scenarios[Nakicenovic et al., 2000], may range from 0.3 in Sce-nario A2 and 0.4 in B2 to 0.5 in A1 and 0.6 in B1. ForWestern Europe (‘‘OECD Europe’’) this figure ranges from10 to 20 %, and for Eastern Europe from 30 to 50 %.For other regions in the world, notably Oceania, the for-mer USSR, Canada, South America and East Africa, muchhigher ratios (above 1) are found, indicating that in thelonger term most of the biomass used in Europe mightoriginate from these regions.

From Table 3 it can be concluded that onshore, theglobal technical potential of wind energy is about 7 times

Table 1. Gross inland energy consumption (in EJ) in the EuropeanUnion (EU-15), and projected consumption in the baseline scenario

1990 2000 2010 2020 2030

Solids 12.69 8.88 6.99 7.54 9.34

Oil 22.86 24.58 25.00 25.42 25.33

Natural gas 9.30 14.19 19.09 22.19 23.28

Nuclear 7.58 9.34 9.63 8.33 7.54

Electricity 0.08 0.17 0.13 0.13 0.13

Renewables 2.76 3.68 5.11 5.82 6.45

Total 55.31 60.84 65.99 69.38 72.02

of which

Hydro 0.93 1.16 1.18 1.24 1.26

Biomass 1.24 1.51 2.14 2.45 2.75

Waste 0.50 0.78 1.02 1.10 1.06

Wind 0.004 0.08 0.56 0.76 0.99

Solar and others 0.004 0.013 0.06 0.10 0.19

Geothermal 0.09 0.138 0.16 0.17 0.20

Total renewables 2.76 3.68 5.11 5.82 6.45

Renewables as %of total inlandconsumption

5.0 6.1 7.8 8.4 8.9

Source: DG TREN, 2003

Table 2. Potential future contribution of primary biomass to world energy consumption and consumption in Western and Eastern Europe

Waste and residuesin 2020-2050

(EJ/yr)[1]

Energy crops in 2050 (EJ/yr)[2]

Below 1 $/GJ below 2 $/GJ below 4 $/GJ Total geographicalpotential

Western Europe[4] NA[3] 0 3-6 9-15 9-16

Eastern Europe[5] NA[3] 0 6-8 6-9 8-9

Total world 30-90 8-16 129-272 177-438 302-675

Source: Hoogwijk, 2004

Notes

1. Estimates from literature; the figures include forest and crop residues, in some studies also animal and municipal solid wastes.

2. Assuming different scenarios on land use following the marker scenarios A1, A2, B1 and B2 of Nakicenovic et al., [2000].

3. No figure available.

4. Includes Andorra, Austria, Denmark, Faroe Islands, Finland, France, Germany, Gibraltar, Greece, Holy See, Iceland, Ireland, Italy, Liechtenstein, Luxembourg, Malta, Monaco, Neth-erlands, Norway, Portugal, San Marino, Spain, Sweden, Switzerland, and United Kingdom.

5. Includes Albania, Bosnia-Herzegovina, Bulgaria, Croatia, Czech Republic, Hungary, Macedonia, Poland, Romania, Slovakia, Slovenia, and Yugoslavia.

Table 3. Technical potential of electricity production from wind energy and solar PV systems based onpresent-day conversion technologies

Wind electricityoffshore

(103 TWh/yr)

Wind electricity onshore (103 TWh/yr)[1] Solar PV electricity (103 TWh/yr)[1]

Below 0.07$/kWh

Below 0.10$/kWh

Total potential Below 0.5$/kWh

Below 0.7$/kWh

Total potential

Western Europe 8.5 1.2 2.5 4.1 0 0.9 4.1

Eastern Europe NP[2] 0.01 0.1 0.4 0 0.01 1.1

Total world 37 21 53 96 75 310 372

Source: Hoogwijk, 2004

Notes

1. Cost figure includes direct generation costs only (lifetime 20 years, interest rate 10 %)

2. No figure presented (but small).


Overview

7

the present world electricity consumption and offshoremore than twice this consumption. For Western Europethis ratio is about 1.6 onshore and about 3.3 offshore.

The table also shows that for solar PV the technicalpotential to produce electricity can be estimated at about25 times the present world electricity consumption. ForWestern Europe this ratio is about 1.6. As indicated in thetable, the costs of solar PV are at present very high. How-ever, it may be possible to reduce these costs by, in thelong term, a factor of 7-10.

There are very large differences between countries re-garding the penetration of renewable energy at present.Hydropower has long been well established, and contrib-utes 12 % of EU electricity supplies, with contributionsreaching 90 % in (non-EU member) Norway, 70 % inAustria, and 50 % in Sweden. The growth of wind andsolar energy has been exceeding 30 % per year for a dec-ade in Germany, with similar results in Denmark andSpain for shorter periods. The use of bioenergy has beenimpressive in Austria, Finland, and Sweden, althoughgrowth rates have been more modest; bioenergy now rep-resents 20-30 % of primary energy consumption in thesecountries. Renewable energy contributed 6.1 % of grossinland consumption of energy in the EU-15, and 14 % ofelectricity, in 2000.

There is a need to better understand local renewableenergy flows and their potential use. Methodologies toestimate the local renewable energy flows and to createintegrated (holistic) and sustainable solutions need to bedisseminated.It is generally recognised that:• renewable energy flows can be used directly, e.g., pas-

sive solar heating, or indirectly, through conversion toheat, electricity or fuels;

• a wide variety of technologies exists that can utilizethe renewable energy flows;

• there is a large scope for tapping local renewable en-ergy flows, for example using heat pumps, building-integrated PV, passive solar, and demand-side systems;and

• making use of these opportunities requires integrationof renewable energy aspects in rules and proceduresin, among others, the building sector and heat markets.

Substantial cost reductions in the past few decades incombination with government policies have made a num-ber of renewable energy technologies (RETs) competitivewith fossil-fuel technologies in specific applications. Thepresent status of ‘‘new’’ renewables, indicated in Table 4,shows that substantial cost reductions can still be achievedfor most technologies. However, making these RETs fullycompetitive will require further research, technology de-velopment and market deployment and an increase in pro-duction capacities to mass production levels [Johanssonet al., 2004].

Because many RETs are small in scale and modular,and also not fully developed, they are good candidates forcontinued cost-cutting. Such cost reduction can be illus-trated using experience curves which describe how cost de-clines with cumulative production, where cumulativeproduction is used as an approximation for the accumulatedexperience in producing and employing a certain technol-ogy (see Figure 1). The experience curves only show thecost reduction of conversion technologies. The cost reduc-tion of the energy carrier (heat, electricity or fuel) ob-tained by these technologies will be greater owing toadditional elements of cost reduction such as improvedperformance of technologies, reduced installations costs,and so on. For some intermittent resources, such as wind

Figure 1. Experience curves for photovoltaics, wind turbines, and ethanol production

Sources: for wind turbines, Neij et al., 2003; for photovoltaic modules, Parente et al., 2002; for ethanol, Goldemberg et al., 2004


Overview

8

and solar power, cost reductions of generated electricitymay level off when all ‘‘good sites’’ are occupied and newtechnologies have to be placed in less windy or sunnysites. Also the need for back-up or storage capacity athigh penetration levels, leading to increasing costs, is amatter of concern.

Wind power in coastal and other windy regions is apromising energy source. In Europe, several countries areinterested in developing the huge offshore wind energypotential. A coherent approach of these national activitiescould lead to synergies and cost reductions, as well as abetter protection of the marine environment. Thereforesuch an approach is recommended.

Other potentially attractive options include low-tem-perature solar heat production, and solar electricity pro-duction in remote applications.

Wind and solar thermal or electric sources are not fullypredictable. However, they can contribute to grid-con-

nected electricity supplies in appropriate hybrid configu-rations. Intermittent renewables can reliably provide 10to 30 % of total electricity supplies in the area coveredby a sufficiently strong transmission grid if operated inconjunction with hydropower or fuel-based power genera-tion. Emerging storage possibilities (such as compressed airenergy storage) and new strategies for operating grids offerpromise that the role of intermittent technologies can be ex-tended much further. However, the need for back-up or stor-age capacity at high penetration levels, leading to increasingcosts, is a matter of concern [Turkenburg et al., 2000].

Modern, distributed forms of biomass energy carrierscan be economically produced with minimal or even posi-tive environmental impacts through perennial crops. Theproduction and use of biomass is currently helping to cre-ate international bioenergy markets, stimulated by policiesto reduce carbon dioxide emissions. Cost reductions arealso to be expected. Bioenergy is, however, a complex energy

Table 4. Status of renewable energy technologies and their world energy supplies in 2001 (cost in US$-2000)

Technology Increase inenergy

production inpast five years(% per year)

Operatingcapacity,end 2001

Capacityfactor(%)

Energyproduction

in 2001

Turnkeyinvestmentcosts (2001US$/kW)

Currentenergy cost

Potential futureenergy cost

Biomass energy

Electricity ~ 2.5 ~ 40 GWe 25-80 ~ 170 TWh (e) 500-6,000 3-12 ¢/kWh 4-10 ¢/kWh

Heat[1] ~ 2 ~ 210 GWth 25-80 ~ 730 TWh (th) 170-1,000 1-6 ¢/kWh 1-5 ¢/kWh

Ethanol ~ 2 ~ 19 Gl ~ 450 PJ 8-25 $/GJ 6-10 $/GJ

Bio-diesel ~ 1 ~ 1.2 Gl ~ 45 PJ 15-25 $/GJ 10-15 $/GJ

Wind electricity ~ 30 23 GWe 20-40 43 TWh (e) 850-1,700 4-12 ¢/kWh 3-10 ¢/kWh

Solar photovoltaic electricity ~ 30 1.1 GWe 6-20 1 TWh (e) 5,000-18,000 25-160 ¢/kWh 5 or 6-25 ¢/kWh

Solar thermal electricity ~ 2 0.4 GWe 20-35 0.9 TWh (e) 2,500-6,000 12-34 ¢/kWh 4-20 ¢/kWh

Low-temperature solar heat ~ 10 57 GWth

(95 Mm2)8-20 57 TWh (th) 300-1,700 2-25 ¢/kWh 2-10 ¢/kWh

Hydro energy

Large ~ 2 690 GWe 35-60 2,600 TWh (e) 1,000-3,500 2-10 ¢/kWh 2-10 ¢/kWh

Small ~ 3 25 GWe 20-90 100 TWh (e) 700-8,000 2-12 ¢/kWh 2-10 ¢/kWh

Geothermal energy

Electricity ~ 3 8 GWe 45-90 53 TWh (e) 800-3,000 2-10 ¢/kWh 1 or 2-8 ¢/kWh

Heat ~ 10 16 GWth 20-70 55 TWh (th) 200-2,000 0.5-5 ¢/kWh 0.5-5 ¢/kWh

Marine energy

Tidal barrage 0 0.3 GWe 20-30 0.6 TWh (e) 1,700-2,500 8-15 ¢/kWh 8-15 ¢/kWh

Wave _ exp. phase 20-35 0 2,000-5,000 10-30 ¢/kWh 5-10 ¢/kWh

Tidal stream/ current _ exp. phase 25-40 0 2,000-5,000 10-25 ¢/kWh 4-10 ¢/kWh

OTEC _ exp. phase 70-80 0 8,000-20,000 15-40 ¢/kWh 7-20 ¢/kWh

Source: W.C. Turkenburg, unpublished material, based on literature about field experiences, on global, regional and national statistics, and on inputs from experts in different renewableenergy fields including: Faaij, Fraenkel, Fridleifsson, Hamelinck, Geyer, Mills, Moreira, Sinke, and Van der Ree.

Note

1. Heat embodied in steam (or hot water in district heating), often produced by combined heat and power systems using forest residues, black liquor, or bagasse.


Overview

9

field. It can be differentiated into different subsystems in-cluding different resources, supply systems, conversionssystems, and energy carriers. Each subsystem includes dif-ferent technologies with individual learning processes forcost reductions. The development of bioenergy will insome cases be based on modular technology developmentbut in other cases be more like conventional technologiesfor heat and power production [Turkenburg et al., 2000].

3. National and EU targets for the use of renewableenergy sources

Considering the challenges of sustainable developmentdiscussed at WSSD, and the resource and technology situ-ation such as summarized in Section 2, the EU has settargets for renewable energy utilization. Its contributionto primary energy supply in the EU-15 is to grow from6 % in 1997 to 12 % by 2010 [EU, 1997], and for elec-tricity from 14 % to 22 % by 2010 [EU, 2001].

Figure 2 shows the supply of energy from renewableenergy sources to the energy consumption of the EU-15whereas Figure 3 presents the production of electricityfrom renewables. Targets set for 2010 are indicated aswell as projections for 2020 presented by the EuropeanRenewable Energy Council [EREC, 2003].

For different target numbers by country in the case ofrenewable electricity sources (RES-E), see Table 5. Tar-gets vary significantly between countries, depending ontechnical and economic potential, and policy priorities.Progress on achieving these targets has been uneven asshown in the table.

It is widely acknowledged that significant additional pol-icy efforts will be required to reach the targets and to meettheir underlying objectives. Further promotion of the devel-

opment and use of RES is needed. Also more attentionshould be paid to options to reduce total energy consump-tion in the long term by improving the efficiency of en-ergy and material uses [Jochem et al., 2002; Ragwitz etal., 2004].

The European Union’s 2003 Renewable Fuels (RF) Di-rective obliges member states to set national indicativetargets for minimum penetration rates of biofuels (includ-ing hydrogen from renewables) in automotive fuel mar-kets. Two targets are indicated, 2 % by 2005 and 5.75 %by 2010, starting from a value close to zero in 2000.Member states should turn the directive into national leg-islation by the end of 2004.

In addition, to accelerate the growth of the market forRES heating and cooling, the Directive on the Energy Per-formance of Buildings [European Union, 2002b] and the(draft) Directive on the Promotion of Co-generation ofUseful Heat and Electricity [European Union, 2002a] pro-vide starting-points.

Recently, the European Conference for Renewable En-ergy ‘‘Intelligent Policy Options’’ (Berlin, January 19-21,2004) urged ‘‘EU institutions to start a political processof setting ambitious, time bound targets for increasing theshare of renewable energy in final energy consumptionaddressing the medium (2020) and long term time framesin due time’’. The conference stated that ‘‘a target valueof at least 20 % of gross inland energy consumption by2020 for the EU is achievable’’.

4. Main points and observations by country

Given this set of challenges and opportunities (Sections1 and 2), as well as the emphasis on renewable energy inEurope (Section 3), it is interesting to explore the policy

Figure 2. Contribution of renewables to gross inland energy consumption in the EU-15: historic values, targets for 2010, and projection for 2020Source: EREC, 2003


Overview

10

options that have been used and those that are considered.The following summaries are based directly on the articlescontained in this special issue of Energy for SustainableDevelopment.4.1. DenmarkWind power has been the main element in Danish renew-able energy policy, although public support has also beengiven to the development of biogas and solar collectors,resulting in rather modest penetration.

The penetration of wind power in Denmark has beenvery fast. It is estimated that wind power covered about19 % of the Danish electricity consumption in 2003. Thisrelative contribution to national electricity production isa factor of three higher than the coverage in Germany andSpain and an order of magnitude higher than for any othernation.

The fast penetration of wind power in Denmark hasbeen due to several factors. The most important factor inthe nineties has been the regulated favourable feed-in tar-iff for electricity from renewables, including wind.

After the liberalization of energy markets in Europe inthe last part of the nineties, Danish renewable energy poli-cies have been undergoing radical changes. A new energyact from 1999 has outlined a change from the feed-inmodel to a model based on trading of green certificates.The change was decided because the Danish governmentanticipated a EU decision in favour of the certificate trad-ing model.

However, such a decision has not come about and thetransition to the new model has turned out to be morecomplex than foreseen. As a consequence, complicatedtransition rules for renewables have been introduced. Thishas created considerable uncertainty for investors in wind

power and has led to a significant reduction in invest-ments in wind power plants during recent years.

The change of Danish government at the end of 2001resulted in radical changes of Danish renewable energypolicy. Government economic support for the develop-ment and demonstration of renewable energy systems hasbeen abolished to a large extent. Instead, the developmentis supposed to rely on the commercial market.4.2. FinlandAn increase in the use of bioenergy has been among themain priorities of energy policy in Finland since the firstenergy crisis in 1973. Initial drivers were security of en-ergy supply, increase of employment opportunities in ruralareas, new use for set-aside fields, complemented in the1990s by efforts to reduce greenhouse gas emissions.Promotion incentives that included investment subsidies,taxes on fossil fuels, research and development, and dis-semination activities were implemented with good results:in 20 years the annual use of peat increased from nearlynil to 80 PJ in 1996, and the increase in the annual useof wood fuels in the same period was also 80 PJ. (Notethat, contrary to the Finnish government, the EU does notdefine peat as a renewable energy source.)

In 2002, bioenergy, excluding peat, covered 20 % ofthe total primary energy consumption and 10 % of theelectricity demand in Finland, which are the highest fig-ures in the industrialised countries. The available techni-cal biomass resources would enable even the doubling ofthe current utilisation of bioenergy without decreasing theproduction volume of the wood-processing industry.

Research and development on bioenergy was intensivebecause technologies practicable for local conditions werenot available and the competitiveness of bioenergy was

Figure 3. Contribution of renewables to electricity generation in the EU-15; historic values, targets for 2010, and projections for 2020Source: EREC, 2003


Overview

11

poor except for wood residues from the forest industry.The climate strategy of Finland from 1999 includes the

Action Plan on Renewable Energy Sources. National tar-gets of RES for 2010 are 27 % (385 PJ) of the primaryenergy consumption and 31.5 % (27 TWh) of the elec-tricity demand, up from 22 % and 27 %, respectively, in1997.

National promotion incentives are currently being up-dated because deregulation of the energy market, the EUand worldwide mechanisms, such as emission allowancetrading, green certificates and Kyoto mechanisms, willradically change the market for RES.4.3. GermanyThe development of renewable energy in Germany hasbeen a great success: 9 % share for green electricity in2002, world leader in terms of installed wind capacityamounting to 13.5 GW in October 2003 (nearly 40 % of

the global capacity), second largest installed photovoltaiccapacity in the world (nearly 350 MW at the end of Sep-tember 2003), European leader in the sale of bio-diesel(550,000 tonnes (t) per year at the end of 2002) and interms of solar heating systems with 5.2 million m2 of in-stalled systems at the end of 2002. A comprehensive pro-motion approach that was launched at the beginning ofthe 1990s and further strengthened in the late 1990s ledto these developments. Basic elements of this approachare, among others, a combination of policy instruments,favourable feed-in tariffs, and security of support to re-duce investment risks. The developments in Germanyhave been impressive. However, it is uncertain whetherthe high levels of support provided will be available inthe long term too.

Fixed remuneration is paid to electricity based on RES,leading to the market breakthrough for wind energy. Beside

Table 5. Targets for electricity production from renewable energy sources (in %) in the EU-15, and progress to date

1999 2002 2003 2010

Actual Actual Actual EU targets Optimisticscenario[1]

Realisticscenario[2]

Austria 71.9 64.5 57 78.1 61 58

Belgium 1 1 1.2 6.0 6 3

Denmark 13 20 NA 29 24 22

Germany[3] 6 7.6[4] 7.5[4] (7.9[5]) 12.5 15 12

Finland 24 23[6] NA 31.5 26[7] 25

France 15 16.7 14.1[6] 21 19 18

Greece 10 8.4[8] NA 20.1 14.5 12

Ireland 5 4.8 NA 13.2 11 8

Italy 17 18.3[10] 17.6[10] 22.0 17-20 17

Luxembourg 3 2.4 2.6 5.7 5 4

Netherlands 2 2.7 5.2 9.0 7 6

Portugal 36 20.4[8] 37.5[9] 39.0 37 34

Spain 19 16.7[8] 23.3[9] 29.4 30 24

Sweden 52 48 41[8] 60.0 60 55

United Kingdom 2 2.9 NA 10.0 10 7

EU-15 14.5 14.8 NA 22.4 20.4 17.8

Source: based on [EREF, 2004]

Notes

1. Based on the assumption that all goes according to national plans, including all legal and administrative instruments for their execution enforced and no modifications threateningplanning.

2. Business-as-usual, based on real world in respective countries, assumptions according to reality.

3. German values for 2002 and 2003 based on calculations.

4. Not corrected for average hydro and wind year.

5. Including biomass share of waste incineration.

6. Preliminary or estimated figure.

7. The Finnish government has according to its report to the EC lowered its 2010 target to 26 %.

8. Value is dependent on hydropower: this year was a dry year; for 2010 an average year is assumed.

9. Value is dependent on hydropower: this year was a wet year; for 2010 an average year is assumed.

10. Renewable national production-related consumption, excluding 12 TWh/year imports and industrial wastes.


Overview

12

this key promotion measure there have been several otherprogrammes, which supported RES through investmentsubsidies (in the form of grants or soft loans), tax exemp-tions (within the scope of the environmental tax reform)or in a more indirect way, through the decision to phaseout nuclear energy, by means of information dissemina-tion (i.e., the renewable energy (RE) initiative of the fed-eral government) and corporate financing schemes in thecase of wind energy.4.4. ItalyItaly has an important, largely untapped potential of re-newable energy. Measures to promote the diffusion ofRES in Italy have been taken by the central governmentand, lately, by regional governments. The trend has beenfrom direct government intervention to market-orientedinstruments (particularly the tradable green certificates)passing through subsidies, assured take-up prices, andvoluntary agreements. However, removal of barriers toRES diffusion still has a long way to go.

Positive results have been achieved especially throughthe instrument, which has been offered for a limited pe-riod of time, of favourable assured take-up prices of elec-tricity. This system is now being replaced by a greencertificate system, which has positive elements of origi-nality compared with similar schemes in other countries,but the results of which it is too early to judge. In thelast few years, wind energy and biomass (residues, wastesand biofuel) especially have grown rapidly. Solar water-heating has not taken off, despite favourable conditions.

On the negative side are bureaucratic and institutionalbarriers, insufficient information to the public, decreasein funding of R&D and the minor role played by the na-tional industry. Conflicts -- or at least, uncertainty in thedistribution -- of powers concerning energy between cen-tral and regional governments have also acted as a brake.4.5. SwedenSweden has a long-standing political commitment to thedevelopment of renewable energy, although driving forceshave changed over time. The focus has shifted from re-ducing oil dependence to phasing out nuclear power, and,in the past 10 years, to reducing greenhouse gas emis-sions. Sweden is endowed with rich RES. The wind andbioenergy potential alone, about 100-200 TWh and 700PJ, respectively, each correspond to more than one-thirdof present primary energy use. In 2001, about 0.5 TWhof wind electricity was produced and 336 PJ of biomassfor energy was used.

Renewable energy policy during the 1970s and 1980sfocussed on strong efforts in technology research, devel-opment and demonstration (RD&D). Market developmenttook off mainly during the 1990s when taxes and subsi-dies created favourable economic conditions for new in-vestments and fuel-switching. The relatively slowdevelopment of wind power can be ascribed to the lackof strong commitment, continuity, and a clear strategy andapproach in Swedish government efforts for the estab-lishment and expansion of wind power -- a situation thathas been exacerbated by relatively low electricity prices.In contrast, the use of biomass for energy increased sub-

stantially during the 1990s, specifically wood fuels fordistrict heating that increased from 13 PJ in 1990 to 65PJ in 2001. A system with high carbon dioxide taxes, 28euros/t CO2 in 1991 and 84 euros/t CO2 in 2003, for fuelsfor heating but no taxes on fuels for electricity productioncreated strong incentives for fuel-switching in districtheating, but not for biomass-based cogeneration. A quota-based renewable electricity certificate system was intro-duced in 2003 to replace earlier subsidy schemes. In thenext few years it is expected to stimulate mainly the de-velopment of biomass-based cogeneration.4.6. United KingdomThe United Kingdom has considerable potential to in-crease the contribution to its primary energy supply froma mix of RETs, starting from a very low base (1.2 %)today. Wind energy, particularly in the offshore, andbiomass for electricity are the likeliest sources for majordevelopment in the next 15 years. Today, all RETs aremarginal to uneconomic in competition with conventionalfossil energy sources in the UK. Prospects for improvingon this situation have increased since 2000, when policymeasures such as the Renewables Obligation (RO) andcapital grants to support RD&D plants for a wide rangeof RETs were introduced. At the same time, the competi-tive climate for independent electricity generators has be-come tougher since new electricity trading arrangementswere formalised in 2000. Very challenging targets for thecontribution from RETs to the UK’s energy supply,namely 10 % by the year 2010 and 20 % by 2020, havebeen articulated by the government. Awareness-buildingfor the public, as for the building and investing commu-nities, is equally important, as up to 30 % of RET projectsfail at the devolved planning consent stage.4.7. The European UnionThe EU promotes renewable energy sources as a meansto reduce oil imports and environmental burdens, increasecompetitiveness, and enhance regional development. In1997, a general target of RES contributing 12 % of pri-mary energy by 2010, up from 6 % in 1997, was set. Arecent intergovernmental conference proposed a target of20 % RE by 2020. Directives on the promotion of (1)electricity produced from renewable energy sources (theRES-E Directive), setting national targets to reach 22 %of electricity coming from RES in 2010, up from 14 %in 2001, and (2) the use of biofuels and other renewablefuels for transportation (the RF Directive), setting a bio-fuel target of 5.75 % in 2010, are particularly important.In addition, to further develop national policies to reachthese targets, there is a debate on whether or not furthersteps towards EU-wide harmonisation of national re-newables support systems should be taken. This debate isquite relevant to the drafting of the evaluation report, duein October 2005, by the commission on the implementa-tion of the RES-E Directive. Some major near-term pri-orities for implementation of the RES-E and RFDirectives are identified in the paper on the EU in thisspecial issue.

It is argued that requirements for the emergence of asingle energy market, improvement of the international


Overview

13

competitiveness of the EU economy, and acceleratingcost-reducing innovations in the renewables-related indus-tries all point to the desirability of Union-wide harmoni-sation. This approach should allow, though, fortechnology-specific cost considerations. However, an EU-wide choice of one specific type of support scheme mightnot be realisable in the near term. A first step in reducingmarket fragmentation could be compatible accounting sys-tems for guarantees of origin, which consequently mayassume a key role in facilitating trade.

5. Renewable energy policy issues

There is at present significant support for renewable en-ergy by the EU and most of its member states. The de-velopment is supported by the Europe-wide targets forrenewables and by mostly national policies. This reflectsthe fact that unguided energy markets cannot be expectedto deliver on public goods such as long-term security ofsupply and environmental protection.If renewable energy is to grow to a much larger fractionof energy supply, there must be:1. sufficient renewable energy sources;2. visible demand;3. technical and regulatory infrastructure;4. clear and efficient administrative procedures, and pub-

lic acceptance;5. innovation and new technology entering the market-

place;6. a cadre of professionals to design, build and operate

renewable energy systems;7. integrated policies in a number of sectors; and8. a combination of policy instruments to reach the guid-

ing objectives in an effective and efficient manner.The use of RES varies considerably between countries inthe EU. This is in spite of the fact that renewable energyflows are large in all countries, although some are morerichly endowed than others. The difference in renewableenergy endowments do not fully explain these differencesin utilization. For example, the wind energy regimes inGermany are not as strong as in the UK or Ireland, or onthe west coasts of France or Portugal, where wind energydevelopment is much more limited. Clearly other factorsplay important roles.

When interest in renewable energy increased in the1970s and 1980s, in response to energy security and en-vironmental concerns, public support was forthcoming,primarily in the form of investment subsidies and RD&Defforts. Demonstration projects received some importantattention, but were nevertheless limited. Support to buydown costs of RETs was almost absent. The cost of cre-ating incentives for renewable energy was covered fromgovernment budgets.

In the 1980s and 1990s some countries tried newmechanisms to create incentives to market actors withoutputting a direct burden on the public purse. All electricityusers largely carried the cost of the incentives throughfeed-in tariffs that remunerated producers of renewableelectricity well above energy costs in the marketplace,e.g., in Denmark, Germany and Spain, as well as for the

renewable energy certificates as used in, e.g., the UK andSweden.

The EU targets for renewable energy appear distant inthe light of developments so far (see Table 5). In thissection and the next of this article we shall touch upon anumber of policy elements that must be considered to en-hance the use of renewable energy in the European Unionto meet the targets. In addition it should be noted that,for renewables to reach high percentages of contributionto primary energy, efforts to improve the efficiency ofenergy use are also essential.5.1. On the concepts of ‘‘costs’’, ‘‘competitiveness’’ and‘‘market imperfections’’The costs and competitiveness of RETs are relevant forhow they will fare in the marketplace. The degree of be-ing, in a word, ‘‘competitive’’ is one important parameterfor investors and customers in the marketplace. Actionsby market actors depend on the direct and indirect costsof the energy carriers from different RETs as comparedto those of their competitors, as well as the local marketconditions and the direct and indirect subsidies (includingthe degree to which external costs are reflected in the mar-ketplace) and taxes.

Knowledge about costs in terms of euros/GJ oreuros/kWh generated from different RES is generallyavailable (Table 4). It has been well established that costsare being reduced as RD&D and investments increase.The costs are reduced much faster than those of theircompetitors based on the use of fossil fuels. These learn-ing effects are summarized in graphs such as presentedin Figure 1.

Without any subsidy and without accounting for exter-nal effects, renewable energy is at present competitive inthe marketplace in some situations only. Prime examplesinclude hydropower in many countries and local use ofbiomass.

An examination of the marketplace and the conditionsthere is essential in understanding the competitiveness ofRETs. A summary is presented in [Goldemberg and Jo-hansson, 2004]. RETs have to compete in the markets forheat, power and fuels. The main competitors are fossil-fuel-based systems and nuclear energy. These systemshave been in use for decades, if not longer, and their tech-nologies have matured. Costs have been reduced over theyears, as research, development, and learning have takenplace. Renewables, especially new renewables such aswind, solar and modern biomass, have not enjoyed a bene-fit of this nature over a prolonged period.

There are also a number of conditions in the market-place that disfavour renewables. It is found that on aglobal level government subsidies in the energy sector areof the order of $ 250 billion per year, with $ 9 billionper year going to renewables [De Moor, 2001; Van Beersand De Moor, 2001]. Additionally, external costs are notwell reflected in the marketplace. The external costs forair pollution from coal-fired power stations in Europehave been estimated by the European Commission to beof the same order as the private cost for power generation,that is 0.04-0.05 euros/kWh, a subsidy of 50 % of the


Overview

14

total cost [ExternE, 2003]. External costs from carbon di-oxide emissions may be much greater, however.

These are two major market imperfections that must beaddressed if sustainability objectives are to be met. Carb-on taxes such as that in Sweden (raised since its inceptionto 84 euros/t CO2 in 2003) have shown that a significantpenetration of renewables is achieved in markets that arenot exempted from this tax.

The decisions on taxes and subsidies as well as othermarket conditions are thus extremely significant for theanswer to the question of how to increase the role of re-newables as part of a sustainable development strategy.Considering the relatively small differences in direct costsfor at least some renewables (mainly wind and biomass),the answer is largely determined by political decisions,not by resource availability or costs for the capture anddelivery of renewable energy per se.5.2. Who pays for the introduction of new renewableenergy technologies?Private investors generally plan to recover investmentsneeded for the introduction of new technologies over alimited period of time, and with a profit. These invest-ments also include development costs and introductorylosses, when incomes from earlier sales were not suffi-cient to cover costs. As markets expand learning bringsdown cost. This works well if the investment is not toolarge and the time period allotted to recover it not toolong. Investors have generally found that many RETs willrequire considerable periods of time, and are associatedwith a significant risk. Thus, investments are not takingplace at a rate commensurate with the needs renewableenergy development is intended to address.

However, for some RETs there are impressive invest-ments going on. These tend to be associated with situ-ations where there are supporting policies sufficient toreduce risks and make an investment attractive to the in-vestor. These policies do one or more of the following.1. Shift some of the investment costs away from the in-

vestor, e.g., to the public sector.2. Guarantee access to a market.3. Guarantee a certain market size.4. Guarantee a certain price on any quantity delivered.How to find money for such support has been a controversialquestion. Before liberalization of energy and electricity mar-kets, governments tended to provide funds over annualbudgets, or through instructions to government-owned or -controlled institutions. In the end, the taxpayers paid.

Charging these costs to taxpayers was seen as legiti-mate because of the public benefits that were expected.However, as globalisation put increasingly stronger pres-sure on government budgets, maintaining this regime be-came more and more difficult. Interest thus turned tohaving these costs paid by customers, by adding them tothe price of the energy. This approach has been used inseveral countries, through different support mechanisms,including feed-in tariffs and quota-based mechanisms.5.3. Developing a time-bound policy supportive ofrenewablesTo be successful, the accelerated diffusion of renewables

must be defensible not only on environmental and secu-rity-of-supply grounds, but also on economic grounds. Acomparison with other available sources, now and in thefuture, shows that in terms of total costs to society, theuse of RES -- especially wind, biomass and geothermalenergy sources and in some situations also solar energysources -- is likely to be very reasonable. Even so, anddespite the exceptionally high degree of public support ofrenewables, it may be difficult to maintain a supportivepolicy for the time period required, i.e., a few more dec-ades. Established actors tend to accord priority, particu-larly in a policy environment marked by liberalization, toshort-term profitability over long-term strategies, as dis-cussed by Jacobsson and Lauber [2004]. As an examplethey refer to the Danish turnaround on renewable energyafter the 2001 election, showing that processes of renew-able energy technology diffusion are not deterministic butsubject to influence by many random events and politicalchanges. In this situation, the directives approach of theEU, setting targets for the longer-term contribution of re-newables, seems a powerful policy tool if combined withan action programme, provided that targets are set at am-bitious but realistic levels and become mandatory to coun-teract non-compliance.5.4. Financing of renewable energy investmentsThe investments required to sustain rapid growth of re-newable energy utilization are large. At present, the re-newable energy investments in Europe are 10 billion eurosper year. This is a significant investment, but small incomparison to projected investments of 13 trillion eurosover the next 30 years [IEA, 2003]. Sixty per cent of thiswould go to the electricity sector, and half of that amountto transmission and distribution networks.

Investors are sensitive to policy and regulatory condi-tions. However, ‘‘financial institutions view themselvesmore as instruments of change rather than initiators’’[UNEP, 2002]. The design and implementation of theseconditions are the task of the public sector, nationally andinternationally, in consultation with major stakeholders.

Considerable work has been done on financing of re-newable energy [Sonntag-O’Brien and Usher, 2004]. Inthe end there is a competition for investment capital be-tween sectors in society. Energy investments have to com-pete to secure the investments that are needed to avoidenergy supply becoming a constraint on socio-economicdevelopment. Within the energy sector, there is competi-tion between the traditional fossil fuel options and re-newables. As discussed above, this will be stronglyinfluenced by the rules and regulations that affect inves-tors. The issue is to create market conditions that reflectsocial responsibilities, which is not how the free marketfunctions, and provide incentives and opportunities for in-vestors to meet their economic goals. This task rests withthe public policy-makers.

There is now evidence that policies can be shaped to gen-erate major investments. In several countries, includingGermany, Spain, Denmark, Sweden and Finland, govern-ments have set conditions that have led to significant in-vestments in renewable energy.


Overview

15

5.5. Administrative and planning issuesAdequate incentives in the marketplace are a necessarycondition for investments in RETs to take place. However,regulatory and non-regulatory barriers could jeopardizethe implementation of projects.

One major barrier to the future development of RE mar-kets is the administrative procedures that have to be fol-lowed before a new renewable electricity plant can bebuilt. The need to simplify administrative procedures isidentified and addressed in the RES-E Directive of theEU and it will be important to ensure that member statesdo implement this component of the directive.

As RETs make use of dispersed energy flows, large ar-eas are involved in their use at the outset. Concentrationof the renewable energy flows to the more intensive useof human beings occurs through dams for hydropower,forestry and agriculture for bioenergy, wind power plants,etc. In addition to this, facilities need to be built for trans-formation and generation of energy carriers for the differ-ent energy markets. The large-scale use of land, directlyor indirectly, means that many people are affected as thefacilities need siting, and landscapes are changed.

People’s attitudes to renewable energy installations varywidely. As an example, wind energy in Denmark has ex-panded largely without public opposition to the siting ofwind power plants, while in the UK, the Netherlands andSweden, planned siting has met with considerable oppo-sition. The situation in Germany falls between these twoextremes, with the majority of the population in favourof wind energy development but with local opposition pre-sent. Factors likely to have influenced this in Denmarkare the local ownership of wind power plants, the favour-able attitude of governments at different levels, and lead-ers of utilities and industries, factors that have been muchweaker in countries such as Sweden, France and theNetherlands.5.6. Energy policy-making at the national versusEuropean level[3]

The last five to ten years have seen a rejuvenation of theEuropean Commission as an institution exercising nowa-days very considerable influence upon the developmentof both the energy supply and end-use sectors. However,at present there is no formalised EU common energy pol-icy, as the Intergovernmental Conference in June 1997 didnot reach agreement on the inclusion of an Energy Chap-ter in the Amsterdam Treaty. Subsequent attempts to datehave been no more successful in this regard. However,the Amsterdam Treaty established the requirement for EUpolicy to contribute to sustainable development. Thiscommitment has underpinned the EU’s policy trajectoryin the energy, environment, transport, and other relatedfields.

The formal, legal competence of the European Com-mission in energy policy thus remains constrained, despitethe creation of the single European market. This maychange with the upcoming European ConstitutionalTreaty, of which a draft is under development and discus-sion. Article III-157 of this draft specifically addresses anEU dimension to energy policy. It reads thus.

‘‘In establishing an internal market, and with regard forthe need to preserve and improve the environment, Unionpolicy shall aim to:a) ensure the functioning of the energy market,b) ensure security of energy supply in the Union, andc) promote energy efficiency and savings and the devel-

opment of new and renewable forms of energy.’’One comment that can be made on this article is that inthe case of renewables not only development is importantbut also commercialisation and market penetration of re-newable forms of energy.

Environmental imperatives -- such as the issue of cli-mate change due to human-induced greenhouse gas emis-sions -- might provide a justification for even further‘‘reach’’ in EU energy policy-making, with the Commis-sion seeking to increase its legal competence beyond itsexisting spheres of influence.

The guiding principle here is that, where economies ofscale or scope can be identified, policy should be estab-lished at the highest level whenever judged appropriateand politically feasible. This would justify the need forpolicy measures such as energy market liberalisation di-rectives, directives in the area of energy efficiency im-provement and the development and application ofrenewables, appliance-labelling schemes, and co-ordinatedresponses to international climate change negotiations tobe addressed at the EU level.

Of much importance in the post-Kyoto period (the pe-riod after 1997) is the means by which energy and envi-ronment regulation will be more closely harmonised, asthese two regulatory frameworks have developed largelyin isolation from one another. Greater integration is es-sential for consistency.

Also, within the EU further harmonisation of policy in-struments supporting the transition to more sustainable de-velopment is to be expected because of (1) sharing andevaluating experience of the efficacy of measures, and (2)the expected progressive re-alignment of at least somepolicy instruments with the introduction of emission trad-ing systems in Europe.

Nevertheless, the principle of subsidiarity remains ofgreat importance to most member states. Whether sub-sidiarity can survive the full liberalisation of the energymarket, the growing cross-border ownership of energycompanies and the handling of issues such as energysecurity and climate change will be an interesting ques-tion over the next decade. On the other hand, there ismuch pressure to identify additional roles for policy ac-tivities at the national, local or municipal level, recog-nising that the implementation of national and EUenergy policy goals is often best handled at the localor national levels. Especially the European approachwould become or remain mainly goal-oriented; thiswould reinforce the scope for more detailed nationaldesign and implementation, with promotion of re-newables as an example.5.7. Institutional arrangements at the internationallevel to support renewable energy developmentAt the international level many actors deal directly or


Overview

16

indirectly with renewable energy, including the WorldBank Group and other regional development banks, re-gional organisations, such as the International EnergyAgency (IEA) and Organizacion Latinoamericana de En-ergia (OLADE), Association of Southeast Asian Nations(ASEAN), the Global Environment Facility (GEF), theUnited Nations system, many non-governmental organi-sations (NGOs), the research community and the privatesector. However, almost none of these are focussed onrenewable energy.

Because of extensive subsidies to conventional energysources (see section 5.1) and -- in most countries -- weakreflection, or none at all, of external costs by taxes orregulations, renewable energy at present is more expen-sive in the marketplace than many competitors. Policymeasures to advance renewables will likely lead marketactors to experience some changes in relative competi-tiveness in the marketplace. Thus, it is essential to workinternationally to avoid too large differences in the com-petitive conditions. There is a need for global advocacyat the government level to help shape the national policyenvironment. Trade issues, both for equipment and pri-mary energy, are important. Developments in the differentrenewable energy areas need to be monitored and infor-mation made freely available.

EUROSOLAR has been advocating the creation of anInternational Renewable Energy Agency (IRENA)[EUROSOLAR, 2003]. The discussion of an internationalinstitutional arrangement has been reviewed recently bySteiner et al. [2004]. They envision a two-pronged proc-ess. First a non-binding code of conduct/code of bestpractices related to renewable energy should be devel-oped through a process involving all stakeholders. Adevelopment to a binding set of rules might follow at alater stage. Second, an institutional platform is seen asrequired.

Although there is general reluctance to create new in-stitutions, it remains a fact that renewable energy devel-opment is key to addressing a number of major challengesfacing the world. This must happen in a world where thereis no institutional home for renewable energy, and wherethe vested interest of market actors for conventional en-ergy benefits from all the advantages of incumbency inthe marketplace. Clearly, the situation of renewablesneeds to be strengthened. The EU is well placed to takethe lead, as there is already a strong commitment, and theimpact of RE developments in the non-EU world wouldhave significant global impact on the issues that drive thedevelopment of renewable energy in the EU: energy se-curity, creation of jobs, protection of the environment, andglobal warming.5.8. Promotion of renewables by integrated policiesPolicies in sectors outside the energy sector may have adecisive influence on the utilization of RES. Policies inthese sectors should be developed in concert with RESpolicies to achieve maximum effect.

For biomass, the streams of biomass from agriculture,forestry, and waste represent a significant amount of en-ergy, the use of which will be influenced by policies in

these areas. Land-use regulation, including the CommonAgricultural Policy (CAP), strongly influences bioenergyavailability.

In the transportation sector, biofuels make a useful con-tribution depending on regulations.

In the buildings sector, both for commercial and resi-dential buildings, policies related to district heating, activeand passive solar energy, and energy efficiency are im-portant in determining the need for purchased conven-tional energy.5.9. Energy in the development cooperation of theEuropean UnionAll member states of the European Union are engaged indevelopment cooperation. As part of the cooperation, mostof them have programmes on energy, now increasinglyoriented towards energy for sustainable development fol-lowing the WSSD agreements. This could be an importantvehicle to promote the development of RES in developingcountries, to contribute to meeting the Millennium Devel-opment Goals (MDGs). As examples, two activities of theEU will be mentioned here.5.9.1. The EU Energy Initiative for PovertyEradication and Sustainable DevelopmentThe EU allocates sizable funding for development coop-eration. The EU and its member states have annual budg-ets of the order of 700 million euros for energy activitiesin development cooperation. Increasing attention is nowgiven to energy for sustainable development, includingrenewables. The EU Energy Initiative for Poverty Eradi-cation and Sustainable Development (EUEI) was launchedat the WSSD in Johannesburg (2002) with the objectiveto ‘‘facilitate the achievement of the Millennium Devel-opment Goal of halving the number of people in extremepoverty and other MDGs by 2015, through the provisionof adequate, affordable, sustainable energy services...’’5.9.2. The Johannesburg Renewable Energy CoalitionThis coalition was formed through a joint declaration ofmore than 70 member states of the United Nations, andhas a present membership of 86 nations. The declarationbriefly outlines ‘‘The Way Forward on Renewable Energy’’[JREC, 2002]. The intention is to go beyond the agree-ment reached in the outcomes of the WSSD in order toachieve sustainable development, inter alia by reducingpoverty, pollution and greenhouse gases. The signatoriescommit themselves to ‘‘substantially increase the globalshare of renewable energy sources, with regular reviewof progress, on the basis of clear and ambitious timebound targets set at the national, regional, and hopefullyat the global level’’. Targets are considered important toguide investments and develop the markets for RETs.

6. Policy instruments

The transition toward a renewables-intensive energy sup-ply is a complex journey, involving multiple socialgroups, dynamics at multiple levels, and co-evolutionbetween heterogeneous elements. This should make usmodest about the potential of public authorities to managethis transition (see [Geels, 2002]). First, public authoritiesare only one of the social groups involved. Although they


Overview

17

can influence ‘‘the rules of the game’’, they are by nomeans all-powerful, having limited means to influencestrategies of other social groups (e.g., corporations, uni-versities, consumers, and social groups). Second, publicauthorities are not one homogeneous actor, but frag-mented. Fragmentation occurs across departments andacross levels, each one having different responsibilitiesand interests. Third, it is difficult for anybody to overseeand control the complexity of a transition. Fourth, tech-nological transitions are not linear processes, but open andindeterminate as they depend on actors involved, theirstrategies and interactions. Because of this indeterminacywe have to temper high expectations about public authori-ties managing technological transitions.

Although there are reasons to be modest about thepower of governments, the country reports presented inthis special issue as well as the report on the EU indicatethat public authorities can have a decisive influence on thedevelopment of and market diffusion of RETs, dependingon the instruments and incentives used. Also it can beconcluded that without additional policy measures or in-tensification of those currently used, many EU membercountries are likely to fail to reach the national targets forthe contribution of renewables in the year 2010 as indi-cated by the EU (see Section 3 of the EU paper by Jansenand Uyterlinde in this issue). Here we will give an over-view of policy instruments that can be applied to accel-erate the development and diffusion of RETs. Also, someremarks are made about lessons learned considering theuse and attractiveness of specific instruments.6.1. Overview of policy instrumentsThere is a rich variety of roles governments can play tostimulate innovation. They may be grouped into threecategories [Popper et al., 1998]:• government as a financier of knowledge infrastructure,• government as a leader, stimulator and catalyst, and• government as a facilitator.Various policy instruments can be used to execute theseroles. Table 6 presents three categories and nine sub-cate-gories based on these roles. Also, examples of specificinstruments are given. The overview is based on a studyof RAND Europe published in 2000 [Frinking et al.,2000]. It should be noted that the indicated categories arenot exclusive. Moreover, policy instruments can be struc-tured in other ways as well.

A comprehensive treatment of many of the instrumentsmentioned in the table can be found in one of the thematicbackground papers written for the Bonn International Con-ference on Renewables, June 2004 [Sawin et al., 2004].6.2. Emphasis on combination of policy instrumentsIn June 2002, in Budapest, the Third Forum of the Euro-pean Network on Energy Research (ENER) took place todiscuss how renewable energy systems and technologiescould be successfully and effectively promoted. In total,eighteen conclusions and recommendations were formu-lated. One of the major conclusions is that sufficientprices for renewable energy carriers, long-term stabilityof support mechanisms, fair and easy access to the elec-tricity grid, and clear building codes are very crucial fac-

tors to be addressed by successful support mechanismsfor renewables [Haas et al., 2004]. This is in line withthe conclusions of Reiche and Bechberger [2004] whenanalysing the success conditions for an increased use ofrenewables. These conditions are: long-term planning se-curity for investors, technology-specific remuneration forgreen power, strong efforts in the field of power supplysystems (like grid extension and fair access to the grid),and appropriate measures to limit local resistance againstrenewable energy projects.

In recent years a reorientation of instruments to stimu-late sustainable technology development and innovationhas taken place. The current strategies push very much amulti-instrument approach rather than a single-instrumentapproach. This is clearly in line with the change in think-ing on innovation and technology development as a ‘‘pipe-line’’, in which a specific incentive leads to a specific effecttoward an approach that is more systems-oriented with re-gard to the output of innovation [Frinking et al., 2000].

Mitchell et al. [2004] argue that an important criterionto evaluate support mechanisms is risk reduction, in whichthey distinguish three different kinds of risk, namely,price, volume and balancing risk.

Different kinds of policies and policy instruments areneeded at different phases in technology development andimplementation [Geels, 2002]. In the start-up phase poli-cies stimulating experimentation, learning, network-build-ing and vision-building are needed as well as genericregulation and economic instruments to put pressure onthe existing regime. In the breakthrough and wide-diffu-sion phase policies are needed that push the new technol-ogy and help it against old technology. This may requireadjustments in regulations (e.g., grid entrance of re-newables), adoption subsidies, internalisation of externalcosts, development of new infrastructures, and creation ofmaintenance networks.

In addition, the set of instruments needed to acceleratethe development and deployment of RETs depends on thesector involved (agriculture, industry, transport, built en-vironment) and the cultural setting (e.g., region) of thedissemination of technologies and technological systems.

In conclusion (see [Haas et al., 2004]), there is no sin-gle, universally applicable ‘‘best’’ support mechanism forthe bundle of different RETs. A mix of policy instrumentsis needed, tailored to the particular RET and the specificnational situation, to promote the evolution of the RETfrom niche to mass markets. This policy needs to evolvewith the technology.6.3. Promoting wider diffusion of renewablesTwo main types of regulatory policies -- although oftenin combination with other policy instruments -- have beenused to overcome risks and promote the diffusion of RETsin electricity production. One guarantees price (FIT,feed-in tariff), another ensures market share through gov-ernment-mandated targets or quotas. With FITs, theauthorities set the price and the market determines thevolume that results. With quota markets, the authoritiesdetermine the volume, and the market determines theprice. A judgment on the choice of approach should include


Overview

18

considerations extending to the underlying rationale forpromoting renewables and the urgency of public policyresults in this area.

As discussed by Haas et al. [2004], with a given targetof a certain amount of renewables at a certain time, neo-classical economic theory predicts a EU-wide quota ex-clusively for new renewable energy installations with anaccompanying international trading scheme to be the mostefficient approach in terms of minimising additional costs.However, empirical evidence has shown (see the paper ofBechberger and Reiche in this issue) that in a real world

carefully designed stepped FITs are the more effective andthus more preferable instrument for a mature technologysuch as wind turbines. Mitchell et al. [2004] argue thatthe German feed-in tariff system is more effective in in-creasing the share of renewables than the RO approachof the UK, because it reduces the price, volume and bal-ancing risks for RES investors more effectively. Compre-hensive overviews of the pros and cons of the two policyapproaches are given in, e.g., one of the thematic back-ground papers of the Bonn conference Renewables 2004[Sawin et al., 2004] and in Meyer [2003].

Table 6. Categories of technology policy instruments

Main category of instruments Sub-category of instruments Examples of types of instruments

Financing knowledgeinfrastructure

Direct subsidies for selected actors -- Institutional funds

-- Programme funds

-- Project funds

-- Build-up of a supportive physical infrastructure

Supply of capital -- Loans given by governments

-- Government as co-investor

-- Public-privately-owned research institutes

Financial and economic incentives -- Loan guarantees (for bank loans; against losses)

-- Tax incentives

Leading, stimulating andcatalysing knowledgedissemination

Knowledge management and transferinstruments related to:

-- Centres of excellence

- Networking -- Awards

- Human capital -- Science parks

- Creating new business -- Information collection and dissemination

- Supporting business operations -- Consulting services

-- Networking instruments (e.g., intermediaries to bring actorstogether)

-- Joint research centres with foreign governments

-- Education and training

-- Target-setting

-- Portfolio standards

-- Subsidies with ‘‘sunset’’ clauses

Participatory instruments -- Mandatory ‘‘green procurement’’

-- Government demonstration projects

-- Public-private partnerships

Facilitating Laws and regulations -- Energy and environmental legislation

-- Intellectual property rights

-- New (re)regulation

-- Feed-in tariffs for renewablesemission trading schemes

Standards -- Voluntary agreements

-- Labelling systems

-- Performance standards

Economic instruments -- Taxation

-- Internalising external costs

-- Fees

-- Investment subsidies

-- Export credits

Source: Developed from Frinking et al., [2000]


Overview

19

The FIT approach has been challenged in the Euro-pean Court as an illegal subsidy. However, the Courtfound FIT acceptable as a means to promote renewableenergy. Since then, several countries, including Austria,Estonia, France, the Netherlands and the Czech Repub-lic have introduced FIT approaches. Among the new EUmember states too, Hungary, Slovakia, and Slovenia haveFIT policies. Quota systems are used in the enlarged EUby Belgium, Italy, Poland, Sweden, and the United King-dom [Reiche and Körner, 2003].

Such a country as the UK has promoted market-basedmechanisms with the goal of developing renewable energyat least cost to the customer. This is based on the beliefthat this is the most efficient way to produce competitivetechnologies and renewable energy actors, which canwork in the electricity market (see the paper by Brennandin this issue and [Mitchell et al., 2004]).6.4. On the gradual shift from basic research toimplementationFrom the country papers included here as well as otherstudies (e.g., [Frinking et al., 2000]) it can be concludedthat governments have shifted their attention from (basic)research toward funding more application-oriented activi-ties. As a result renewable energy industries have beencreated and a number of RETs have entered the market.However, the shift in attention also raises concerns. In thelong run a skilled labour force may become less available,undermining the technology development necessary to im-prove the performance and competitiveness of RETs. Inaddition, if breakthrough technologies are needed to sig-nificantly improve performance, investment in RD&D of-fers in general a more cost-effective approach. Thereforea proper balance is needed between funding R&D andfunding the implementation of RETs, especially when --as in the case of solar cell development -- achieving com-petitiveness requires major research investments.

The reduced attention for research is reflected in publicsector spending on energy RD&D in IEA countries asshown in Table 7. From this table one can also concludethat still only a small fraction of the spending on energy

RD&D is focused on renewables.Table 8 shows a breakdown of governmental research

spending on renewables in member states of the EU in1998. Compared to global figures, in Europe a higher, butstill low, fraction of energy R&D spending is allocated torenewables -- about 8 % globally versus 16 % for the EU-15. There is a wide variation between member states, bothin total spending and its allocation. In 1998 the share ofenergy RD&D spent on renewables ranged from nearly1 % in France to about 70 % in Portugal. The highestinvestments in renewable energy RD&D were made in thefollowing countries (in order): Germany, the Netherlands,Italy, Denmark, Spain, and Sweden. In general, solar PV,wind, and biomass received the largest renewable energyRD&D support.6.5. Target-led energy and environmental policies inthe EU and a wider use of framework directivesThe EU has gained much experience with framework di-rectives as regards environmental and energy legislation.Framework directives establish general objectives, work-ing procedures, and instruments, and launch a work pro-gramme. As indicated in Section 5.3, the use of targets topromote renewable energy in the EU seems to be a pow-erful approach if combined with action plans, providedthat targets are set at ambitious but realistic levels andbecome mandatory to counteract non-compliance.

Reflecting on the experience gained with these direc-tives in the EU, the European Environmental AdvisoryCouncil [EEAC, 2003] concludes that target-oriented ap-proaches are a preferable approach to manage diversity inan enlarged Europe, as they give clearer and politicallylegitimated orientation for the level of ambition of policiesfor different sectors, industries, other private actors, andregions. Moreover, for key technological choices such bind-ing long-term commitments are an indispensable driver ofinnovation. The EEAC also suggests the following.• Care should be taken that the objectives and principles

are formulated clearly, unambiguously and so as tomake commitments, as vagueness at the programminglevel shifts conflicts and decisions to secondary levels

Table 7. Reported public sector spending on energy RD&D in IEA countries (106 US$, 2000 prices and exchange rates)

Year 1975 1980 1985 1990 1995 2000[1]

Total 7,563 15,034 12,185 9,294 8,622 6,966

Renewables 208 1,914 843 563 670 525

- Solar PV 24 383 249 196 235 235

- Other solar technologies 49 659 154 92 94 57

- Wind 7 279 136 88 106 70

- Biomass 6 139 161 79 136 91

- Geothermal 118 435 130 95 83 53

- Others 4 120 13 13 15 20

Source: Turkenburg, 2002, based on IEA information

Note

1. Incomplete data


Overview

20

that may not be designed and legitimated to make suchdecisions.

• Any decisions on targets and performance levelsshould be made by a political mechanism and not bya technical mechanism.

• Framework directives should contain a review and su-pervision mechanism, whereby the political levels cancorrect and repeal decisions made at the technical level.

6.6. Promoting knowledge transfer and public-privatepartnerships neededGovernments increasingly use a wider set of instrumentsto promote the dissemination of knowledge about tech-nology development and the establishment of public-pri-vate partnerships, to assist in overcoming informationgaps, involving smaller firms, demonstrating the cost-ef-fectiveness of RETs and benchmarking the all-round per-formance of new products. As indicated by Frinking etal. [2000], the programmes used to serve this purpose arevaried, but considerable emphasis is nowadays put on es-tablishing networks joining smaller and larger enterprises,private sector research, public research institutes, consult-ancy firms and other stakeholders, as well as providingguidelines and standards for business operations. This de-velopment is in agreement with one of the conclusionsof the Third Forum of the European Network on EnergyResearch (Budapest, June 2002) on how to promote re-newable energy systems, reading [Haas et al., 2004]:

‘‘Incentive-based promotion schemes alone are insuffi-cient to create a sustainable market development of re-newables. Innovative regulation and institutions fosteringinstitutional change, and training and education of therelevant actors are also of high importance’’.

7. Summary and conclusions

The conclusions of this overview are summarized in these15 points.1. There are considerable concerns in Europe over secu-

rity of energy supply, environmental issues, competi-tiveness of the European economies, and regionaldevelopment. Increased use of energy carriers pro-duced from domestic, renewable flows of energy isseen as an instrument to support objectives in theseareas.

2. Renewable energy flows in Europe are large in com-parison with commercial energy demand. Taking intoaccount geographical and land-use conditions as wellas technical concerns, the potential of energy cropsgrown in Western Europe to contribute to the longer-term energy needs of Western Europe may range from10 to 30 %. In addition important amounts of energycan be obtained from biomass redidues and from bio-degradable waste. Imports of biomass are to be ex-pected from, e.g., former USSR countries, SouthAmerica and East Africa. For wind energy onshore,

Table 8. Total government expenditure on energy and renewable energy RD&D in EU-15 in 1998 (106 US$, 2002 prices and exchange rates)

Total1998

RD&Don energy

Total 1998RD&D onrenewables

%share

ofrenewables

Biomass Wind SolarPV

Solarthermal electri-

city

Solarheating

andcooling

Geo-thermal

Ocean Hydro

Austria 27.067 9.710 36 4.494 0.560 1.794 0.129 1.582 0.395 0 0.748

Belgium 71.372 1.276 2 0.509 0.251 0.226 0.025 0.201 0 0 0.063

Denmark 44.504 18.593 43 5.039 7.277 0.732 0 2.899 1.802 0.844 0

Finland 82.530 8.240 10 5.930 0.907 0 0 0.659 0 0 0.744

France 518.337 3.748 0.7 1.529 0.375 1.304 0 0.149 0.345 0 0

Germany 272.971 96.938 36 5.980 19.683 33.586 6.080 9.966 1.644 0 0

Greece (’97)[1] 16.126 6.092 38 0.554 2.527 0.333 0.120 0.209 1.909 0.182 0.256

Ireland (’90)[1] 1.267 0.485 38 0.373 0.019 0 0 0 0.075 0 0

Italy 228.405 32.296 14 8.127 5.578 18.591 0 0 0 0 0

Luxembourg 0 0 - 0 0 0 0 0 0 0 0

Netherlands 149.461 40.317 27 10.128 6.868 21.295 0 1.335 0.593 0.099 0

Portugal 1.750 1.240 71 0.073 0.014 0.025 0 0.357 0.112 0.659 0

Spain 50.951 17.473 34 5.624 8.500 1.422 1.567 0.360 0 0 0

Sweden 47.959 12.258 26 6.164 3.509 0.623 0 1.744 0 0 0.218

UK 72.396 5.383 7.4 1.982 1.651 0.974 0 0.644 0 0 1.132

Eur. Comm.[1] NA NA NA NA NA NA NA NA NA NA NA

Total EU-15 1,585.099 254.026 16 56.506 57.719 80.905 8.011 20.105 6.875 1.784 3.161

Source: IEA, February 2004 (see http://library.iea.org/rda)

Note

1. No data available for 1998; from the European Commission also not for other years


Overview

21

the technical potential in Western Europe can be esti-mated at about twice the present electricity consump-tion, offshore about four times this consumption. Thetechnical potential of solar PV in Western Europe canbe estimated to be at least equivalent to the presentelectricity consumption. With respect to the use of windenergy sources offshore it is recommended that in duetime a coherent approach between interested countries bedeveloped, to achieve synergies, cost reductions and anoptimal protection of marine environments.

3. Technologies exist to tap these flows, at costs thatoften are competitive if the evaluation includes exter-nal costs and benefits, and subsidies to conventionalenergy are eliminated. For modern renewable energytechnologies there is room for ample cost reductions,requiring RD&D as well as market deployment in abalanced manner. Attention is needed for the integra-tion of intermittent renewable energy sources into theconventional system to maintain reliability, especiallyif penetration rates reach 10 to 30 %, requiring newstrategies for operating grids, and installation of stor-age possibilities, additional hydropower or fuel-basedpower plants. Higher penetration rates are technicallyfeasible with further investments in storage or back-upcapacity.

4. At present there is significant political support for re-newable energy in the EU and most of its memberstates. For some renewable energy technologies thereare impressive investments going on. These tend to beassociated with situations where supporting policiesare sufficient to reduce risks and to make an invest-ment attractive to the investor. The investments re-quired to sustain rapid growth of renewable energyutilization are large. At present, the renewable energyinvestments in Europe are 10 billion euros per year.

5. The use of renewable energy varies considerably be-tween countries in the EU. This is in spite of the factthat renewable energy flows are large in all countries,although some are more richly endowed than others.The differences in renewable energy endowments donot explain the differences in renewable energy utili-zation. Clearly other factors -- especially policies topromote renewables -- play important roles.

6. The promotion of renewables is supported by EU-widetargets for a renewable share of primary energy, powergeneration, and fuels, as well as different policies,mostly at the national level. This reflects the fact thatunguided energy markets cannot be expected to deliveron public goods, and they will also lead to sub-optimaluse of energy sources due to ‘‘market’’ and ‘‘system’’failures. The target-oriented approach in EU policy-making is a preferable approach to manage diversityin an enlarged Europe, as targets give clearer and po-litically legitimated orientation for the level of ambi-tion of policies for different sectors, industries, otherprivate actors and regions. Moreover, for key techno-logical choices such binding long-term commitmentsare an indispensable driver of innovation.

7. Progress on achieving the targets set by the EU has

been uneven. With present-day policies it is unlikelythat targets set for the year 2010 will be met. Newmeasures or a strengthening of existing measures areneeded to reach the targets and their underlying objec-tives. Also stronger emphasis on reducing primary en-ergy consumption by developing the huge potential toimprove the efficiency of energy use would help toachieve the targets.

8. If renewable energy is to grow to a much larger frac-tion of primary energy supply, there must be a com-bination of policy instruments, a technical andregulatory infrastructure, clear and efficient adminis-trative procedures, public acceptance, innovation andnew technology entering the marketplace, and a cadreof professionals to design, build and operate renewableenergy systems. Very crucial factors to be addressedby successful support mechanisms for renewables are:(a) sufficient prices for renewable energy carriers; (b)long-term stability of support mechanisms; (c) fair andeasy access to the electricity grid; (d) transparent andefficient procedures for obtaining necessary permits;and (e) clear building codes.

9. In recent years a reorientation of instruments to stimu-late sustainable technology development and innova-tion has taken place. The current strategies push amulti-instrument approach very much more than a sin-gle-instrument approach. This is clearly in line with asystem-oriented approach to innovation. Different kindof policies and policy instruments are needed at dif-ferent phases in technology development and imple-mentation. In addition, the set of instruments neededto accelerate the development and deployment of RETsdepends on the sector involved (agriculture, forestry,industry, transport, built environment) and the culturalsetting (e.g., region) of the dissemination of technolo-gies and technological systems. Within the EU furtherharmonisation of policy instruments supporting thetransition to more sustainable development, includingthe promotion of renewables, is to be expected.

10. Governments have shifted their attention from (basic)research toward funding more application-oriented ac-tivities. As a result renewable energy industries havebeen created and a number of RETs have entered themarket. However, the shift in attention also raises con-cerns. Therefore, a proper balance is needed betweenfunding R&D and funding the implementation ofRETs, especially when -- as in the case of solar celldevelopment -- achieving competitiveness requires ma-jor research investments. The share of energy RD&Dspent on renewables within EU member states rangesfrom about 1 % to 70 %. The average figure is 16 %.Given the objectives of the EU, it seems reasonableto increase this percentage substantially.

11. There is a need to establish a level playing-field inenergy markets. There are two major issues where con-ditions are unfair to renewables: subsidies to conven-tional energy sources and incorporation of externalcosts in market conditions.a. Globally, the subsidies to conventional energy, some


Overview

22

$ 200 billion more than to renewables per year, cre-ate unfair competition. This is compounded by re-newables also facing competitors with theadvantages of incumbency: established structuresand working methods, regulatory frameworks de-veloped to meet their needs, access to finance, morepredictable risks, established cadre of professionals,etc. Governments should review this situation andtake appropriate corrective action.

b. External costs, including health, safety, security,and environment, are typically much larger for con-ventional energy than for RE. The same often goesalso for benefits such as rural job creation and re-duced import dependence and reduced burdens onforeign exchange. In a fair marketplace these costsand benefits should be reflected through economicor regulatory means.

12. Two main types of regulatory policies have been used-- although often in combination with other policy in-struments -- to overcome risks and promote the diffu-sion of renewable energy technologies in electricityproduction. One guarantees price (FIT, feed-in tariff),another ensures market share through government-mandated targets or quotas. Empirical evidence sug-gests that in a real world carefully designed stepped FITsare the more effective and thus more preferable instru-ment for a mature technology such as wind turbines.

13. One major barrier to the future development of REmarkets is the administrative procedures that have tobe followed before a new renewable electricity plantcan be built. The need to simplify administrative pro-cedures is identified and addressed in the RES-E Di-rective of the EU and it will be important to ensurethat member states do implement this component ofthe directive.

14. Although there is general reluctance to create new in-stitutions, it remains a fact that renewable energy de-velopment is a key to addressing a number of majorchallenges facing the world. This must happen in aworld where there is no institutional home for renew-able energy, and where vested interests of market ac-tors for conventional energy, with all the advantagesincumbency brings in the marketplace, constitute astrong opponent to RE. Clearly, the institutional situ-ation of renewables needs to be strengthened and theEU is well placed to take the lead.

15. All member states of the EU are engaged in developmentcooperation. Most of them have programmes on energy,now increasingly oriented towards energy for sustainabledevelopment following the WSSD agreements. Thiscould be an important vehicle to promote the develop-ment of renewable energy sources in developing coun-tries, to contribute to meeting the MillenniumDevelopment Goals of the United Nations.

Notes

1. Under the Kyoto Protocol (Article 4, 1997) parties are allowed to meet their commit-ments jointly.

2. See http://www.renewables2004.de/

3. This section is based on [Chesshire, 2004].

References

Chesshire, J., 2004. An Evaluation of the European Context for a Transition Towards aSustainable Energy System, Council on Housing, Spatial Planning and the Environment(VROM Raad) and General Energy Council (Algemene Energie Raad) of the Netherlands,the Hague, the Netherlands (to be published).

De Moor, A., 2001. ‘‘Towards a grand deal on subsidies and climate change’’, Natural Re-sources Forum, 25 (2), May.

Directorate-General for Transport and Energy (of the European Union) (DG TREN), 2003.European Energy and Transport Trends to 2030 (Summary Energy Balances and Indicators,Appendix 2), Brussels.

European Environmental Advisory Council (EEAC), 2003. Environmental Governance inEurope, Lemma Publ., Utrecht, the Netherlands.

European Renewable Energy Council (EREC), 2003. Renewable Energy Target for Europe:20 % by 2020.

European Renewable Energies Federation (EREF), 2004. Missing Targets -- How EuropeanCountries are Failing to Achieve Its Renewable Electricity Targets, 2002, updated in March2004 (by personal communication by Dörte Fouquet).

European Union (EU), 1997. Energy for the Future: Renewable Sources of Energy, WhitePaper for a Community Strategy and Action Plan, Brussels, November.

European Union (EU), 2001. Directive of the European Parliament and of the Council onthe Promotion of Electricity Produced from Renewable Energy Sources in the Internal Elec-tricity Market, Brussels, August.

European Union (EU), 2002a. Draft Directive on the Promotion of Co-generation of UsefulHeat and Electricity, Brussels.

European Union (EU), 2002b. Directive 2002/91/EC of the European Parliament and of theCouncil on the Energy Performance of Buildings, Brussels, December.

European Association for Renewable Energy (EUROSOLAR), 2003. Memorandum for theEstablishment of an International Renewable Energy Agency (IRENA), http://www.world-council-for-renewable-energy.org/downloads/IRENA_Memo_English.pdf

ExternE, 2003. See the EU project ExternE website, http://externe.jrc.es/

Frinking, E., Kahan, J.P., and Pöyhönen, M., 2000. Stimulating Industrial Innovation forSustainability: an International Analysis, RAND Europe, RE-2000.15, 1 October, 52 pp.

Geels, F., 2002. Understanding the Dynamics of Technological Transitions: a Co-Evolution-ary and Socio-Technical Analysis, Ph.D. thesis, Twente University Press, Enschede, theNetherlands, 426 pp.

Goldemberg, J., (ed.). 2000. World Energy Assessment: Energy and the Challenge of Sus-tainability, United Nations Development Programme, United Nations Department of Eco-nomic and Social Affairs, and World Energy Council, New York, available athttp://www.undp.org/seed/eap/activities/wea/

Goldemberg, J., Coelho, S.T., Nastari, P.M., and Lucon, O., 2004. ‘‘Ethanol learning curve:the Brazilian experience’’, Biomass and Energy (submitted for publication).

Goldemberg, J., and Johansson, T.B., (eds.), 2004. Energy and the Challenge of Sustain-ability Overview: 2004 Update, United Nations Development Programme, United NationsDepartment of Economic and Social Affairs, and World Energy Council, available athttp://www.undp.org/seed/eap/activities/wea/

Haas., R., Eichhammer, W., Huber, C., Langniss, O., Lorenzoni, A., Madlener, R., Menan-teau, P., Morthorst, P.-E., Martins, A., Oniszk, A., Schleich, J., Smith, A., Vass, Z., andVerbruggen, A., 2004. ‘‘How to promote renewable energy systems successfully and effec-tively’’, Energy Policy (in press).

Hoogwijk, M., 2004. On the Global and Regional Potential of Renewable Energy Sources,Ph.D. thesis, Utrecht University, Utrecht, the Netherlands, 12 March, 256 pp. (ISBN:90-393-3640-7).

International Energy Association (IEA), 2003. World Energy Investment Outlook -- 2003,International Energy Association, Paris.

Jacobsson, S., and Lauber, V., 2004. ‘‘The politics and policy of energy system transforma-tion -- explaining the German diffusion of renewable energy technology’’, Energy Policy (tobe published).

Jochem, E., Favrat, D., Hungerbühler, K., von Rohr, P.R., Spreng, D., Wokaun, A., andZimmermann, M., 2002. Steps Towards a 2000 Watt Society; Developing a White Paper onResearch and Development of Energy Efficiency Technologies, PSI, EPFL, ETH Zürich, andEMPA, Zürich.

Johannesburg Renewable Energy Coalition (JREC), 2002. Seehttp://forum.europa.eu.int/Public/irc/env/ctf/library?l=/&vm=detailed&sb=Title

Johansson, T.B., McCormick, K., Neij, L., and Turkenburg, W.C., 2004. ‘‘The potentials ofrenewable energy’’, thematic background paper for the International Conference for Renew-able Energies, Bonn, Germany, June 1-4.

Meyer, N.I., 2003. ‘‘European schemes for promoting renewables in liberalised markets’’,Energy Policy, 31, pp. 665-676.

Mitchell, C., Bauknecht, D., and Connor, P.M., 2004. ‘‘Effectiveness through risk reduction:a comparison of the Renewable Obligation in England and Wales and the feed-in system


Overview

23

in Germany’’, Energy Policy (to be published).

Nakicenovic, N., Alcamo, J., Davis, G., de Vies, B., Fenhann, J., Gaffin, S., Gregory, K.,Grübler, A., Yong Jung, T., Kram, T., Lebre la Rovere, E., Michaelis, L., Mori, S., Morita,T., Pepper, W., Pitcher, H., Price, L., Riahi, K., Roehrl, A., Rogner, H.-H., Sankovski, A.,Schlesinger, M., Shukla, P., Smith, S., Swart, R., van Rooijen, S., Victor, N., and Dadi, Z.,2000. Special Report on Emission Scenarios, Special Report of Working Group III of theIntergovernmental Panel on Climate Change (IPCC), Cambridge University Press, Cam-bridge, United Kingdom, 2000.

Neij, L., Andersen, P.D., Durstewitz, M., Helby, P., Hoppe-Kilpper, M., and Morthorst, P.E.,2003. Experience Curves: A Tool for Energy Policy Assessment.

Parente, V., Zilles, R., and Goldemberg, J., 2002. ‘‘Comments on experience curves for PVmodules’’, Progress in Photovoltaics: Research and Applications, John Wiley & Sons.

Popper, S., Wagner, C., and Larson, E., 1998. New Forces at Work, RAND, Santa Monica, CA.

Ragwitz, M., Schleich, J., Huber, C., Resch, G., Faber, T., Voogt, M., Ruijgrok, W., andBodo, P., 2004. FORRES 2020: Analysis of Renewable Energy’s Evolution up to 2020,Fraunhofer-ISI, Karlsruhe, Germany, January.

Reiche, D., and Bechberger, M., 2004. ‘‘Policy differences in the promotion of renewableenergies in the EU Member States’’, Energy Policy (in press).

Reiche, D., and Körner, S., 2003. Gegen den Trend, Ökologisches Wirtschaften, 5/2003.

Sawin, J.L., Flavin, C., Chaurey, A., Babu, Y.D., Kumar, A., Stenvoll, T., and Muñoz, M.,2004. ‘‘National policy instruments: policy lessons for the advancement & diffusion of re-

newable energy technologies around the world’’, thematic background paper for the Inter-national Conference for Renewable Energies, Bonn, Germany, June 1-4 (see www.re-newables2004.de).Sonntag-O’Brien, V., and Usher, E., 2004. ‘‘Mobilising finance for renewable energies’’, the-matic background paper for the International Conference for Renewable Energies, Bonn,June (www.renewables2004.de).Steiner, A., Wälde, T., and Bradbrook, A., 2004. ‘‘International institutional arrangements:bundling the forces -- but how?’’, thematic background paper for the International Conferencefor Renewable Energies, Bonn, June (www.renewables2004.de).Turkenburg, W.C., 2002. ‘‘The innovation chain: policies to promote energy innovation’’, inJohansson, T.B., and Goldemberg, J., (eds.), Energy for Sustainable Development: a PolicyAgenda, International Institute for Industrial Environmental Economics, International EnergyInitiative, and United Nations Development Programme, New York, pp. 139-174.Turkenburg, W.C., Beurskens, J., Faaij, A., Fraenkel, P., Fridleifsson, I., Lysen, E., Mills, D.,Moreira, J.R., Nilsson, L.J., Schaap, A., and Sinke, W., 2000, ‘‘Renewable energy technolo-gies’’, in J. Goldemberg (ed.), World Energy Assessment; Energy and the Challenge ofSustainability, United Nations Development Programme, United Nations Department of Eco-nomic and Social Affairs, and World Energy Council, New York, pp. 219-272.United Nations Environment Programme (UNEP), 2002. UNEP Finance Initiatives ClimateChange Working Group, July.Van Beers, C., and De Moor, A., 2001. Public Subsidies and Policy Failures: How SubsidiesDistort the Natural Environment, Equity and Trade and How to Reform Them, Cheltenham,UK, Edward Elgar Publishers.

Subscribe now to Energy for Sustainable Development

Individual Institutional

India Rs. 120 Rs. 240

Other developing countries US$ 4* US$ 8*

Industrialised countries US$ 70* US$ 70*

* or equivalent amount in any convertible currency.

Subscriptions may be sent by cheque payable in India or remitted by wire transfer.For wire transfers, the remittance should be made payable to:Account No. CA-105, TIDE Account Energy for Sustainable DevelopmentCanara Bank, Indian Institute of Science branch, Bangalore, IndiaDestination Swift Code: CNRBINBBLFD (Canara Bank, Foreign Division, Bangalore)through any one of the following accounts:04-427-255 with Bankers Trust Company, New York, Swift Code: BKTRUS330001-120066-001 with Canara Bank, London, Swift Code: CNRBGB2L499080630-4711 with Dresdner Bank AG, Frankfurt, Swift Code: DRESDEFF16-187211-1121 with Union Bank of California International, Tokyo, Swift Code: BOFCJPJTPlease make sure to send us an e-mail or fax containing details of subscriber’s name,address and category of subscription.

Send a cheque in favour of‘‘Energy for Sustainable Development’’ to:Executive EditorEnergy for Sustainable Development25/5, Borebank Road, Benson TownBangalore--560 046, India

Subscription rates


Overview

24

Download - Policies for renewable energy in the European Union and its member states: an overview

Top Related