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Subsidization of renewable
energyGreen certificates
An introductionUniversity of Oslo, may 6th 2011
Carl Jørgen Basberg Johannessen
Higher executive officer
Norges vassdrags- og energidirektorat
Agenda
■ Purpose
■ Different types of subsidies
■ Green Certificates
■ How do they work
■ Why do we need them
■ Future oppurtunities
26.05.2011
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Norges vassdrags- og energidirektorat
Purpose & background
■ Fossil energy sources
■ Coal = 40 EUR / MWh
■ Gas = 49 EUR / MWh
■ Oil = 90 EUR / MWh
■ Nuclear = 35 EUR / MWh
■ Renewable energy sources
■ Hydro = 5 EUR / MWh
■ Wind = 75 EUR / MWh
■ OS Wind = 200 EUR / MWh
■ Solar = 125 EUR / MWh
■ Bio = 125 EUR / MWh
■ Wave = +++++
■ Tidal = +++++
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Norges vassdrags- og energidirektorat
Purpose & background
■ Why do we subsidize?
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Norges vassdrags- og energidirektorat
How do we subsidize?
■ Direct or indirect
subsidies?
■ What’s beneficial for
society?
■ What’s fair with respect to
competition?
■ Discussion: How do you
think energy should be
subsidized??
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Norges vassdrags- og energidirektorat
How do we subsidize?
■ Feed in tariffs
■ Contribution per MWh
■ Technology specific
■ Difficult to set the right
tariff
■ Can allow expensive
technologies to produce
■ Efficient way to subsidize,
used in over 60 countries
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■ Green certificates
■ Market based subsidy
system
■ Can be compulsory or
voluntary
■ Market decides the price
■ Most efficient technology
will produce first
Norges vassdrags- og energidirektorat
How do we subsidize?
■ R&D support
■ Strategic public
procurement
■ Taxes that increases the
price of fossil energy
■ Tax cuts for green energy
■ Public relation campaigns
(free marketing)
■ Guarantees of origin
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Norges vassdrags- og energidirektorat
Experience from
other countries
■ Main driver: environmental concerns &
climate change
■ A combination is most common
■ SWE, UK and ITA use certificates
■ No production support in FIN, but fiscal
support
■ Conclusion = feed in tariffs is most effective,
but differences between countries
■ Investments in renewable energy is way
more risky and will rely on public support
schemes for years
•2008 Study from ECON
•SWE
•DEN
•GER
•UK
•AUT
•FIN
•ITA
•FRA
•NED
•ESP
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Norges vassdrags- og energidirektorat 26.05.2011
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Green Certificates
■ Norway will enter a common market with Sweden in 2012.
■ Objective: As a support scheme, contribute to more
renewable energy in the market through promoting the
most efficient projects, independent of technology.
■ The size of the support will be decided by the market
(supply and demand)
■ Each certificate is valid for 15 years and the support
scheme will issue certificates until 2020.
■ Objective: 26,4 TWh of new renewable energy within 2020.
Norges vassdrags- og energidirektorat 26.05.2011
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GC’s – How do they work??
■ Producers of new renewable energy will receive a GC per
MWh delivered to the market.
■ The government will decide a specific share of GC’s, which
all suppliers of energy have to buy each year within a
specific date.
■ The share is a percentage of total sales.
■ If the suppliers fails to comply with the procurement of
certificates – they will be fined. Average certificate price *
150 %
Norges vassdrags- og energidirektorat 26.05.2011
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GC’s – The quota
0,0 %
5,0 %
10,0 %
15,0 %
20,0 %
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
Proposed quota
Quota
0,00 TWh
5,00 TWh
10,00 TWh
15,00 TWh
20,00 TWh
Generation
Generation
Norges vassdrags- og energidirektorat
GC’s – How do we do this practically?
1. The government
decides the quota
2. The government
issues certificates
3. The suppliers have to
buy certificates
4. Price is decided in
the market
5. The supplier bills the
customer
6. Increased quota and
on again…….
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Norges vassdrags- og energidirektorat
GC’s – price formation
Without GC With GC
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D(g)
A B
PC
PE
S(g)
Price
Quantity
D(g)
A
PE
S(g)
Price
Quantity
Price el + Price GC = Prod.cost
Norges vassdrags- og energidirektorat
GC’s - Price formation
Price formation Events
1. The government decides
a quota (B)
2. Producers enters the
marked
3. Price is decided in
intersection quota-
supply-demand
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D(g)
A B
PC
PE
S(g)Price
Quantity
Norges vassdrags- og energidirektorat
Who decides the
price??
In theory: SIMPLE
• Production cost to the last
producer
Complications:
• Competition between
producers within same
technology
• Financial behavior
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D(g)
A B
PC
PE
S(g)
Price
Quantity
Windfall profits
Norges vassdrags- og energidirektorat
Erfaringer fra Sverige
■ Brukte noe tid på å tilpasse seg
■ For lav kvoteplikt innledningsvis = lav pris
• Mange hadde ventet på sertifikatene
• Varmekraftverk begynte på biobrensel
■ Stigende priser mot 2008
• Billigste teknologi utbygget
■ Finanskrisen – redusert forbruk
• Absolutt andel redusert – for mange sertifikater
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Norges vassdrags- og energidirektorat
Konklusjon
■ Systemet fremmer effektivitet
• Grønn energi produseres der den gir mest per input
■ Samarbeid = et mer solid marked og bedre forutsigbarhet
■ Teknologier vil modnes
■ Suksessfaktorer:
• Forutsigbarhet og tillit
• Tålmodighet
• Huske på hva som faktisk er målsetningen!
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