the promotion of res in electricity sector in european...
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Master Thesis
MSc. In EU Business and Law
The Promotion of RES in Electricity Sector in
European Union: Case Study of Lithuania
Business and Social Sciences, Aarhus University, 2012
Department of Law
Academic Advisor: Birgitte Egelund Olesen
Candidate: Vilma Leonaviciene
2
Contents Abbreviations ........................................................................................................................... 3
I. Introduction ...................................................................................................................... 4
1.1 Introduction to the subject .............................................................................................. 4
1.1 Problem statement ........................................................................................................... 6
1.2 Delimitations ............................................................................................................. 7
1.4 Methodology ................................................................................................................... 7
1.5 Structure of the thesis ...................................................................................................... 7
II. Renewable Energy Sources (RES) in the European Union ................................................... 8
2.1 RES and CO2 .................................................................................................................... 8
2.2 Energy policy of the European Union ............................................................................. 10
2.3 RES policy and the European Union ............................................................................... 13
2.4 RES and the environmental law ..................................................................................... 14
III. Promotion of Renewable Energy Sources(RES) ............................................................ 16
3.1 RES Directive ................................................................................................................. 16
3.2 Promotion measures of RES ......................................................................................... 18
3.2.1 RES support schemes .............................................................................................. 20
3.2.2 Statistical transfers between the Member States .................................................... 21
3.2.3 Member States' joint projects and cooperation with third countries ....................... 23
3.2.4 Joint Support Schemes............................................................................................ 25
3.2.5 Information and Training ........................................................................................ 26
3.2.6 State Aid ................................................................................................................. 27
3.2.7 Shortcomings of the Directive ................................................................................. 29
IV. RES-Electricity sector ......................................................................................................... 31
4.1 Electricity in EU ............................................................................................................. 32
4.2 RES-E support schemes ................................................................................................. 34
4.2.1 Feed-in tariff systems ............................................................................................. 35
4.2.2 Feed-in premium systems ....................................................................................... 37
4.2.3 Renewable or quota obligations ............................................................................. 39
4.2.4 Tax incentives or exemptions .................................................................................. 40
4.2.5 Tenders .................................................................................................................. 41
4.3 The performance of support schemes ........................................................................... 42
4.4. Barriers of RES promotion ............................................................................................ 45
V. RES and Lithuania ............................................................................................................ 46
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5.1 RES promotion policy in Lithuania and its compliance with EU law ................................ 46
5.2 RES support schemes in Lithuania.................................................................................. 49
5.3 Support schemes in Lithuania according the renewable energy technology ................... 51
5.4 Performance of the support schemes in Lithuania ......................................................... 53
VI. Conclusion ......................................................................................................................... 54
References .............................................................................................................................. 58
Appendixes ............................................................................................................................. 62
Appendix 1 .......................................................................................................................... 63
Appendix 2 .......................................................................................................................... 64
Appendix 3 .......................................................................................................................... 65
Appendix 4 .......................................................................................................................... 66
Appendix 5 .......................................................................................................................... 67
Appendix 6 .......................................................................................................................... 68
Abbreviations
CJEU – Court of Justice of the European Union
4
EU – European Union
FIT – feed-in tarrif
FIP – feed in premium
GHG – greenhouse gas
RES – renewable energy sources
RO - renewable obligations
TEU - Treaty of European Union
TFEU – Treaty of Formation of European Union
I. Introduction
1.1 Introduction to the subject
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The European Union, establishing a common internal market, has set itself the
following objectives to promote sustainable development based on balanced economic
growth and price stability, a highly competitive social market economy aiming at full
employment and social progress, and a high level of environmental protection and
improvement of environmental quality. It shall promote scientific and technological
progress1. In order to achieve these objectives, taking into consideration the increasing
the climate change, the European Union (also referred to as the EU) sets as a high
priority, the promotion of the production of the energy from renewable energy sources
(also referred to as RES) and efficient usage of energy in Member States. Treaty on
European Union Article 194 paragraph 1 c) states that ‘the development of the internal
market functioning and the need to preserve and improve the environment, Union policy
on energy, according to solidarity between Member States, aims to promote energy
efficiency and energy saving and new and renewable forms of energy.’
There is no doubt that climate change is one of the largest threats to planet. It is likely
that if Earth's temperature rises by more than 2 ° C above pre-industrial levels, climate
change would become irreversible and it would have serious long term consequences.
As most of the climate change is caused by the use of fossil fuels for energy production,
therefore the EU has taken an integrated energy and climate change policy. An
integrated energy and climate change policy puts a milestone in the transformation of
current energy generation and its usage patterns.
European Union Commission and the Council has established a number of new
legislation in order to encourage RES production, consumption and development of new
technologies. The EU has also established ambitious plans for the Member States. In
23/04/2009 the European Parliament and Commission released the Directive
2009/28/EC on the promotion of renewable energy sources and amending and
subsequently repealing Directives 2001/77/EC and 2003/30/EC (also referred to as the
promotion of RES Directive). It states that the renewable energy should constitute 20%
overall Community energy consumption by year 2020 and 10% of biofuels in transport.
Renewable energy resources have considerable potential and could theoretically almost
unlimited supply of relatively clean and mostly local energy2. Moreover it has a great
1 Treaty of EU, art. 3, OJ, C83/13. 2 WEC, Renewable Energy Sources, Report, World Energy Council, 2003
6
potential to decrease greenhouse gas emissions. However the use of RES is not at the
level as one might expect. So the question is what prevents the production of RES for
greater development.
Economic theory and practice show that there are significant market barriers and market
failures that are hindering the development of renewable energy resources. To compete
with conventional technologies, such as fossil and nuclear fuels, renewable energy has
to overcome two major barriers: 1) underdeveloped infrastructure, and 2) the lack of
economies of scale in production. When developing the new RES a heavy investment in
infrastructure, when it is in the infant stage of development, is required. For example,
the RES projects will require to find acceptable sites, which meet the requirements for
the development of RES. In many Member States regulation for traditional energy
sources is well-established in the contrary to RES.
To overcome these barriers and to create appropriate conditions for the promotion of
RES in the production and consumption each Member State should address it on a
national level, while following the EU guidelines and recommendations on this matter
in order to form a uniform policy. For promotion of RES the Directive provides
measures such as - support schemes and mutual collaboration (statistical transfers, joint
projects between Member States, joint support schemes, and joint projects with third
countries). However the list is not exhaustive neither in primary nor secondary EU law.
Each Member State has discretion to choose the promotion schemes that are most
suitable for its energy production in order to reach RES targets.
1.1 Problem statement
The focus of the thesis will be on the promotion of the renewable energy sources in the
European Union and Lithuania in the electricity sector.
As European Union is aiming for the competitive, efficient and secure energy
production, what are the steps taken to reach it? And what is done at national and
supranational level?
What are the support mechanisms deployed regarding RES-E? And which of them are
proving to be more effective than others? What is the experience of the Member States?
.
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1.2 Delimitations
The policy of the Renewable energy is very wide therefore in accordance for the
objectives of this thesis, the analysis is delimited to the promotion aspects of the
renewable energy in electricity sector. Thus, renewable energy technologies that are
more deployed in sectors of heating and cooling or transport are not discussed in this
paper.
1.4 Methodology
The purpose is to conduct an analysis of RES promotion in European Union and
especially of one of the Member States, Lithuania.
Therefore, both primary and secondary legislation sources will be used. The legislation
at national and supranational level will be taken into account. Primarily, the Directive
2009/28/EC of the European Parliament and of the Council of 23 April 2009 on the
promotion of the use of energy from renewable sources and amending and subsequently
repealing Directives 2001/77/EC and 2003/30/Ec. Furthermore, relevant case law will
be analysed.
Various guidelines, policies, reports and studies, issued by the Commission will be
overviewed. As well as scholarly studies and articles discussed.
Methods of the descriptive and comparative analysis will be deployed.
1.5 Structure of the thesis
Chapter 2 starts with the introduction of the renewable energy sources and the climate
change issues followed by the historical overview of the energy policy of the European
Union. Furthermore, the introduction of renewable energy policy is introduced. And the
interplay between renewable energy and environmental law issues is presented.
In the chapter 3 of the thesis the Directive 2009/28/EC of the European Parliament and
of the Council of 23 April 2009 on the promotion of the use of energy from renewable
sources and amending and subsequently repealing Directives 2001/77/EC and
8
2003/30/EC is presented. Here the different support schemes will be treated in light of
the Directive.
Chapter 4 will move on to the Renewable Energy Policy in the electricity sector
presenting an extensive comparative analysis of support schemes as fee-in tarrifs, quota
obligations, tenders and other. Also the efficiency and effectiveness of the instruments
is followed by the barriers regarding RES.
In the chapter 5 the RES-E of the Member State Lithuania is discussed.
II. Renewable Energy Sources (RES) in the European Union
2.1 RES and CO2
According to Commission, energy is the life blood of our society. The well-being of our
people, industry and economy depends on safe, secure, sustainable and affordable
energy. At the same time, energy related emissions account for almost 80% of the EU's
total greenhouse gas emissions. The energy challenge is thus one of the greatest tests
which Europe has to face. It will take decades to steer our energy systems onto a more
secure and sustainable path3. Therefore, it is of a great importance to focus on the enegy
production from renewable energy sources.
The Renewable Energy Working Party of the International Energy Agency set down the
following broad definition: “Renewable Energy is derived from natural processes that
are replenished constantly. In its various forms, it derives directly or indirectly from the
sun, or from heat generated deep within the earth. Included in the definition is energy
generated from solar, wind, biofuels, geothermal, hydropower and ocean resources, and
biofuels and hydrogen derived from renewable resources4 .” As stated in Article 2
paragraph a of the Directive 2009/28/EC ‘energy from renewable sources’ means
energy from renewable non-fossil sources, namely wind, solar, aerothermal, geothermal,
3 Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, ‘Energy 2020 A strategy for competitive, sustainable and secure energy’, SEC(2010) 134 4 International Energy Agency (2011), Renewables Information 2011, OECD Publishing.
doi: 10.1787/renew-2011-en
9
hydrothermal and ocean energy, hydropower, biomass, landfill gas, sewage treatment
plant gas and biogases5 . Therefore, in this paper the renewable products are: hydro
(large, medium and small), geothermal, solar photovoltaic, solar thermal, tide, wave,
ocean, wind, solid biofuels, biogases, liquid biofuels and renewable municipal waste. It
follows that total renewables does not include electricity generated with hydro pumped
storage6.
Regarding the trend of global emissions of carbon dioxide (CO2) – the main cause of
global warming- it rose by 3% last year to a new record of 34 billion tonnes, according
to the annual report Trends in global CO2 emissions by the European Commission’s
Joint Research Centre (JRC) and the Netherlands Environmental Assessment Agency
(PBL)7 .
As it is stated in the study, in the EU CO2 emissions dropped by 3% to 7.5 tonnes per
capita. Emissions in the US and Japan fell 2%. OECD countries now account for one-
third of global CO2 emissions – the same share as that of China and India combined.
The top global emitters in 2011 were China (29%), the United States (16%), the EU
(11%), India (6%), the Russian Federation (5%) and Japan (4%).
On the other hand, growth in renewable energy is accelerating. It took solar and wind
energy and biofuels 12 years from 1992 to double their share of global energy
production from 0.5% to 1%, but only six more years to double it again to 2.1% by
2011. This represents about 800 million tonnes of CO2 emissions avoided, or the
equivalent of Germany's total CO2 emissions in 20118 .
In terms of energy, it is recognised that current energy trends are not sustainable and
that a better balance must be found between the three Es – energy security, economic
development and protection of the environment9. As energy is part of many
environmental problems, including climate change, it must be part of the solution.
Therefore international institutions have been engaged for more than a decade on
designing cost-effective approaches to reduce CO2 emissions, from the international
5 Directive 2009/28/EC of the European Parliament and of the Council of 23 April 2009 on the promotion
of the use of energy from renewable sources and amending and subsequently repealing Directives 2001/77/EC and 2003/30/EC 6 Ibid, paragraph 30 7 Trends in Global CO2 Emissions, Report, 2012
8 Ibid.
9 International Energy Agency, https://www.iea.org/subjectqueries/keyresult.asp?KEYWORD_ID=4139
10
policy architecture (including trading mechanisms) to energy efficiency policy and the
promotion of renewable energy usage.
2.2 Energy policy of the European Union
Historically, as it is stated in the study ‘Energy Policy: From the ECSC to the Energy
Roadmap 205010
’, in 1951 the “Treaty establishing the European Coal and Steel
Community” (ECSC) was signed, marking the beginning of the integration of Europe.
With the establishment of the ECSC, a common customs union was set up. With the
establishment of the European Atomic Energy Community (EURATOM) six years later
another early institution of European cooperation was energy based.
Fossil fuels still represent roughly three quarters of the EU energy mix, with oil having
the highest share (37%), followed by gas (24%) and coal (16%). Nuclear energy counts
for 14% of energy consumption. Renewable energy sources are growing and represent
almost 9% of the energy mix in 200911
.
A push towards energy cooperation was triggered by the oil crises in 1973/74. As a
consequence, in 1974 the “Council Resolution concerning a new energy policy strategy
for the Community” was passed12
.
Over the following years the issue of environmental protection became more prominent
in Europe, but this did not yet translate into European legislation, especially as climate
change was not yet high on the agenda. But with the first assessment report of the
Intergovernmental Panel on Climate Change (IPCC) published in 1990, the following
reports of the IPCC, the “Earth Summit” in Rio in 1992, and the adoption of the Kyoto
protocol in 1997, climate change and thus energy issues came strong on the global
agenda leading to a more favourable atmosphere for ambitious goals.
According to the study13
, it wasn't until March 2007 that EU heads of state and
governments endorsed the first EU “energy action plan”. Following a series of
10 EU Energy Policy: From the ECSC to the Energy Roadmap 2050 11 European Commission: Eurostat pocketbooks.Energy, transport and environment indicators. Publications, Office of the European Union, Luxembourg, 2011 12
Council Resolution of 17 September 1974 concerning a new energy policy strategy for the Community. Official Journal C153 , 09/07/1975 P. 0001 – 0002
11
discussions over the previous years, the Commission’s “An energy policy for Europe”
strategy marks the beginning of a more integrated European energy policy, which
gained considerable momentum since then. The action plan laid out the three major
challenges for European energy policy, which form the core of the common energy
policy till today: sustainability, security of supply, and competitiveness.
The plan included a range of other working areas, most prominently the completion of
the internal market for gas and electricity, issues concerning security of supply, internal
energy policies and energy technologies. The Council invited the Commission to come
forward with proposals in order to regulate the respective areas. The action plan was
complemented with changes in EU legislation shortly afterwards: the Lisbon Treaty
finally included a title on energy. The article12 first refers to the “functioning of the
internal market” sticking to its roots, but then enumerates several innovations:
(a) ensure the functioning of the energy market;
(b) ensure security of energy supply in the Union;
(c) promote energy efficiency and energy saving and the development
of new and renewable forms of energy;
(d) promote the interconnection of energy networks14
.
The most innovative point, (b) refers to ensuring energy security in the EU, which was
traditionally the preserve of Member States. Energy mix, energy foreign policy and the
conditions for exploiting its energy resources, however, remain in the hand of the nation
state. Decisions on legislative proposals built on Art. 194 TEU are made according to
the ordinary legislative procedure. Measures that are “primarily of fiscal nature” will be
decided by the council unanimously; the parliament will be consulted in these cases, but
cannot veto the process. Following the clear requests of the Council for an action plan
the Commission set to work and drafted a list of proposals, among them the third
“Internal Energy Market Package” (2007). Proposals that already in 2009 resulted in
13
EU Energy Policy: From the ECSC to the Energy Roadmap 2050 14
European Union: Consolidated Treaties. Charter of Fundamental Rights. Publications Office of the European Union, Luxembourg, 2010
12
directives included proposals concerning emissions trading, the promotion of renewable
energies , and Carbon Capture and Storage (CCS)15
.
According to the issued roadmap16
, in order to reach these goals the Commission also
laid out quantifiable targets. Only two months later the reply came in form of the
Council Conclusions. In its “action plan 2007-2009” the Council adopted (and slightly
altered) many of the Commission's proposals, among them the famous – and catchy –
“20/20/20” targets, which defined European energy policy in recent years. These targets
refer to three 20% goals, to be reached until 2020:
A reduction in EU greenhouse gas emissions of at least 20% below 1990 levels
(to be increased to 30% in the event that other industrial countries and
economically more advanced developing countries also contribute adequately)
20% of EU energy consumption to come from renewable resources and
a 20% reduction in primary energy use compared with projected levels, to be
achieved by improving energy efficiency17
.
In January 2008 the European Commission proposed binding legislation to implement
the 20-20-20 targets. This ‘climate and energy package’ was agreed by the European
Parliament and Council in December 2008 and became law in June 2009.
As stated in the EC Climate Action frontpage18
, the core of the package comprises four
pieces of complementary legislation:
A revision and strengthening of the Emissions Trading System (ETS), the EU's
key tool for cutting emissions cost-effectively. A single EU-wide cap on
emission allowances will apply from 2013 and will be cut annually, reducing the
number of allowances available to businesses to 21% below the 2005 level in
2020. The free allocation of allowances will be progressively replaced by
15 Directive 2009/28/EC 16
EU Energy Policy: From the ECSC to the Energy Roadmap 2050 17
The EU climate and energy package, http://ec.europa.eu/clima/policies/package/index_en.htm 18 Ibid.
13
auctioning, and the sectors and gases covered by the system will be somewhat
expanded.
An 'Effort Sharing Decision’ governing emissions from sectors not covered by
the EU ETS, such as transport, housing, agriculture and waste. Under the
Decision each Member State has agreed to a binding national emissions
limitation target for 2020 which reflects its relative wealth. The targets range
from an emissions reduction of 20% by the richest Member States to an increase
in emissions of 20% by the poorest. These national targets will cut the EU’s
overall emissions from the non-ETS sectors by 10% by 2020 compared with
2005 levels.
Binding national targets for renewable energy which collectively will lift the
average renewable share across the EU to 20% by 2020 (more than double the
2006 level of 9.2%). The national targets range from a renewables share of 10%
in Malta to 49% in Sweden. The targets will contribute to decreasing the EU’s
dependence on imported energy and to reducing greenhouse gas emissions.
A legal framework to promote the development and safe use of carbon capture
and storage (CCS). CCS is a promising family of technologies that capture the
carbon dioxide emitted by industrial processes and store it in underground
geological formations where it cannot contribute to global warming. Although
the different components of CCS are already deployed at commercial scale, the
technical and economic viability of its use as an integrated system has yet to be
shown. The EU therefore plans to set up a network of CCS demonstration plants
by 2015 to test its viability, with the aim of commercial update of CCS by
around 2020. Revised EU guidelines on state aid for environmental protection,
issued at the same time as the legislative package was proposed, enable
governments to provide financial support for CCS pilot plants.
The climate and energy package creates pressure to improve energy efficiency but does
not address it directly. This is being done through the EU’s energy efficiency action
plan.
2.3 RES policy and the European Union
14
Despite the challenges posed by the financial and economic crisis, RES investment has
increased even further over the last two years. The European Climate Package is one of
the key factors that contributed to this development. The Commission has introduced
full auctioning post 2012, thus exposing fossil power generation to the full cost of
carbon allowances19
.
As a result, it has become less attractive for utilities to continue to pursue conventional
power projects, and attention has shifted to renewable energy options. The renewable
energy trajectory was set and accepted by all European governments, the European
Commission and the European Parliament in April 2009 (2009/28/EC). It involves
binding RES targets for each member state, based on an equal RES share increase
modulated by member state GDP. This provides a clear framework and vision for
renewable technologies20
.
The Directive was adopted in April 2009 in Strasbourg on 23 and Member States
committed to the provisions of the Directive by December 2010. Directive 2009/28/EC
of the European Parliament and of the Council of 23 April 2009 on the promotion of the
use of energy from renewable sources amended and subsequently repealed Directives
2001/77/EC and 2003/30/EC.
Implementing the 2020 RES Directive has taken another step forward with the
formulation of the National Renewable Energy Action Plans (NREAPs), which outline
the national strategies concerning support schemes, cooperation mechanisms and barrier
mitigation, in particular with respect to grid-related and administrative issues. In
addition, a detailed reporting framework for the European Commission and member
states has been drawn up to ensure that these strategies are well established and
coordinated21
.
2.4 RES and the environmental law
19
Ragwitz, M. et al, ‘Review report on support schemes for renewable electricity and heating in Europe’ 20
Ibid. 21 Ibid.
15
RES is important in many areas - economy, energy, environment, climate change
policy, etc. However, it should be noted that the importance of EU's renewable energy
resources is determined by the growing climate change and related environmental
problems.
After the Treaty of Lisbon in the preamble to the Treaty on European Union energy,
unlike the domestic market and the environment, was not included among the main EU
goals. However, it is obvious that the environment is now seen as more important than
the EU target of energy (and thereby the promotion of renewable energy sources), but in
many cases, the EU's environmental policies are closely related to the renewable energy
policy. It should be noted that the Lisbon Treaty, Article 2, paragraph 174 of the Treaty
on European Union has introduced a new Title XXI "Energy" and its Article 194, which
established the basic objectives of the EU energy sector, including the promotion of
RES.
However, not much smaller contribution to the promotion of RES has the Treaty on the
Functioning of the Title XX for environmental policy. As one of the four EU
environmental policy objectives, there is identified an efficient and sustainable
utilization of natural resources (Article 191, paragraph 1). This objective is, inter alia,
long-term use of natural resources. In the same section of Article 192 paragraph 2 c)
provides that the Council adopts the measures within its competence affecting the
Member States, the choice between different energy sources and their total energy
supply structure.
EU environmental law and the promotion of RES are closely related areas in the
legislative sense. Recently the EU environmental law has been brought to a lot of
attention in terms of adoption of legislation in this area, as well the formation of CJEU
practice. Some authors believe that increasing level of environment protection create the
situations where in order to keep this goal it prevails over other objectives of the EU. It
should be noted that the CJEE has repeatedly affirmed that the environment is certainly
a key objective of the EU (e.g. CJEU in Case 240/83 Procureur de la République before
ADBHU, as well as in Case 302/86 Commission v Denmark). However the Court has
not approved environment as the priority goal. It is confirmed that the environmental
protection as a fundamental objective of the EU, may be grounds for limiting the
freedoms which form the basis of the single market, i.e. free movement of goods and
16
services . Given the fact that renewable energy resources in this promotion is also
considered one of the priority objectives of the Union (CJEU has not addressed the
question whether the promotion of RES should be recognized as a key EU objective),
the question is how to deal with the situation where any environmental law is starting to
compete with the RES targets.
In addition, it is provided in the paragraph 44 of the preamble of the RES Directive that
the coherence between the objectives of this Directive and the Community’s other
environmental legislation should be ensured. In particular, during the assessment,
planning or licensing procedures for renewable energy installations, Member States
should take account of all Community environmental legislation and the contribution
made by renewable energy sources towards meeting environmental and climate change
objectives, in particular when compared to non-renewable energy installations22
.
III. Promotion of Renewable Energy Sources(RES)
3.1 RES Directive
The Directive is part of a package of energy and climate change legislation which
provides a legislative framework for Community targets for greenhouse gas emission
savings. It encourages energy efficiency, energy consumption from renewable sources,
the improvement of energy supply and the economic stimulation of a dynamic sector in
which Europe is setting an example23
.
There can be employed a variety of measures in order to promote usage of renewable
energy resources and energy production. They can be a market-based instruments,
fiscal, financial instruments, research, innovation and promotion of appropriate
information, reduction of administrative barriers and many others. However, in this
paper, only the measures that are established in Directive 2009/28/EC will be discussed.
22
Directive 2009/28/EC 23 http://europa.eu/legislation_summaries/energy/renewable_energy/en0009_en.htm
17
This Directive establishes a common framework for the promotion of energy from
renewable sources. It sets mandatory national targets for the overall share of energy
from renewable sources in gross final consumption of energy and for the share of
energy from renewable sources in transport. It lays down rules relating to statistical
transfers between Member States, joint projects between Member States and with third
countries, guarantees of origin, administrative procedures, information and training, and
access to the electricity grid for energy from renewable sources.
As already mentioned, the Directive was adopted in April 2009 in Strasbourg on 23 and
Member States committed to the provisions of the Directive by December 2010.
Directive 2009/28/EC of the European Parliament and of the Council of 23 April 2009
on the promotion of the use of energy from renewable sources amended and
subsequently repealed Directive 2001/77/EC of the European Parliament and of the
Council of 27 September 2001 on the promotion of electricity produced from renewable
energy sources in the internal electricity market and Directive 2003/30/EC of the
European Parliament and of the Council of 8 May 2003 on the promotion of the use of
biofuels or other renewable fuels for transport.
As mentioned, the RES Directive established a common framework of the promotion of
the use of renewable energy sources setting out the obligations - to the 2020 renewable
energy should account for 20% of the overall Community energy consumption, while
all Member States, acting efficiently, to achieve by 2020 a 10% biofuels in transport
petrol and diesel, as well as to 2020 to improve energy efficiency by 20%24
.
Preparation of the Directive by the European Commission faced many challenges. It had
to oblige Member States to achieve 20% renewable energy target, but at the same time
had to ensure that the effective use of available European resource, and a fair way to
allocate costs between Member States.
Basis for adoption of the Directive was EC Treaty Article 95 and Article 175 Part 1.
And, as already mentioned in this paper, it is clear that the promotion of RES in the EU
law is very much influenced by the current environmental issues and law.
Environmental objectives are also presented as a priority in the first paragraph in the
preamble of the Directive, which states that the use and promotion of RES is a
24 Directive 2009/28/EC
18
prerequisite for reducing greenhouse gas emissions and to implement the Kyoto
Protocol targets. Meanwhile, the energy policy goals, such as energy supply security
referred to in the same paragraph, second sentence, as an additional benefit derived
from effective implementation of the RES promotion.
Each Member State shall ensure that the share of energy from renewable sources,
calculated in accordance with Articles 5 to 11, in gross final consumption of energy in
2020 is at least its national overall target for the share of energy from renewable sources
in that year, as set out in the third column of the table in part A of Annex I. Such
mandatory national overall targets are consistent with a target of at least a 20 % share of
energy from renewable sources in the Community’s gross final consumption of energy
in 2020. In order to achieve the targets laid down in this Article more easily, each
Member State shall promote and encourage energy efficiency and energy saving.
However the goal of 20% of total EU energy consumption produced from renewable
sources is to be reached by different capabilities of each Member State (the difference
between the Member States' individual goals is often significant – e.g.: Malta to reach
10%, while Sweden 49% level). Each Member State shall increase the total final energy
consumption by 5.5% derived from renewable energy resources and the remaining
difference to the overall 20% target is apportioned among Member States, taking into
account the size of their GDP, and other objective circumstances .
Need to mention the fact that the new directive is the first to combine previously
separate legislation areas such as electricity, heating and cooling and transport. The
Directive also lays down rules for the exchange of statistical data between Member
States, common project between the Member States and third countries, guarantees of
origin, administrative procedures, information, training and access to electricity
networks for the electricity produced from renewable sources. It also defines
sustainability criteria for biofuels and bioliquids.
3.2 Promotion measures of RES
19
The right to identify measures to achieve the objectives of energy policy is established
to the European Parliament and the Council. Although it should be mentioned that these
measures are be adopted after consulting with the Economic and Social Committee and
the Committee of the Regions.
Promotion of RES at the EU level, as already mentioned, is governed by the new
Directive 2009/28/EC on the promotion of renewable energy. Additionally this area is
also regulated by other EU legislation - the European Parliament and Council
Regulation (EC) 397/2009 on the European Regional Development Fund as regards the
eligibility of energy efficiency and renewable energy investments in housing, 2003-06-
26 of the European Parliament and Council Directive 2003/54/EC on the distribution
and supply of electricity within the electricity internal market, as well as other
secondary legislation - the Commission's guidance, communications, decisions,
recommendations, and by the decisions of Court of Justice of the EU (CJEU).
In order to reach the targets set in the Directive, Member States may, inter alia, apply
the following measures25
:
(a) support schemes;
(b)measures of cooperation between different Member States and with third countries
for achieving their national overall targets in accordance with Articles 5 to 11.
Since this list is not exhaustive, Member States shall have the right to decide, in
accordance with articles 5 to 11 of this Directive, to which extent they support energy
from renewable sources which is produced in a different Member State. Article 2
stipulates that Member States shall establish effective measures to ensure that the
amount of renewable energy consumption is in compliance with the guidelines in the
Annex 1 of the Directive. It follows that the choice of effective measures is left to the
discretion of each Member State. Attention is drawn to the fact that the Member States
discretion is established in the Treaty on European Union Article 194 paragraph 2 of
Part 2, which states that the European Parliament and the measures "shall not affect
Member States' right to determine its energy resources, its choice between different
energy sources and the general structure of energy supply ".
25 Directive 2009/28/EC
20
3.2.1 RES support schemes
The definition of support schemes is provided in the Article 2 of the Directive, and is
defined as: ‘Support scheme’ means any instrument, scheme or mechanism applied by a
Member State or a group of Member State, that promotes the use of energy from
renewable sources
The definition states that the support can lead to increased price at which such energy
can be sold, reducing the energy costs. This includes support for investments, tax
exemptions or reductions, tax refunds, aid schemes for renewable energy obligations to
carry out, including a scheme under which the use of green certificates and direct price
support schemes, including a fixed feed-in tariffs and premium payments. The
obligation to consume renewable energy has been identified as one of the support
schemes. The renewable energy potential in each Member State is different, therefore
different support schemes are being employed in different States. Most Member States
apply support schemes under which support is provided only to the renewable energy
produced in their territory. In order for a national support scheme to function properly,
it is essential that Member States would be able to control the impact of national support
schemes and its costs, taking into account their different potential. One of the key
measures to achieve the goals of the Directive 2009/28/EC is to ensure the national
support schemes proper functioning under the Directive 2001/77/EC. This would result
in maintained investor confidence. And also the Member States could develop effective
national measures.
RES promotion Directive aims to facilitate cross-border assistance in the form of
renewable energy, without affecting national support schemes. It sets binding
mechanisms of cooperation between Member States in which they are given the
opportunity to agree how much each Member State supports the energy production in
another Member State and the extent to which the production of energy from renewable
resources should be included in one or the other Member State's overall national target.
In order to ensure the efficacy of both measures i.e. national support schemes and
cooperation mechanisms, it is essential that Member States could decide whether their
national support schemes for renewable energy will be applied to energy produced in
21
other Member States, and to which extent they apply and be able to agree on the
application of this Directive in co-operation mechanisms.
The list of support schemes provided in the directive is relatively broad. It provides
incentives which include both financial and fiscal and market measures. Support
schemes can be regulatory in nature, providing targets and/or obligations. They may
provide financial support for investment or operation of the plant. There is also a non-
binding measures, such as information, education, awareness-raising campaigns26
.
European Environmental Policy Institute believes that the measures mentioned in the
Directive for the promotion of energy derived from renewable resources, in many
Member States in particular will be based on financial support schemes. It is expected
that the majority of support schemes will be implemented in the form of investment
promotion, and in the form of sold certificates and payment of purchase27
.
In the draft of the resolution for renewable energy Lithuanian government defines
renewable energy support schemes as the sum of incentives that encourages the use of
renewable energy, reducing the operating costs of renewable resources, increasing the
sales price of the energy produced by the renewable sources, obligation to use
renewable energy sources and the energy produced, as well as the other measures to
promote the use of renewable energy resources for energy production and (or) the
quantity of energy consumption.
The Directive, as already mentioned, also provides joint support schemes, in cases when
two or more member states decides to join their national support schemes or partly
coordinates their activities. In such cases, a certain amount of renewable energy
produced from a participating Member State, may be included in other Member States
overall national target.
3.2.2 Statistical transfers between the Member States
Statistical transfer means that Member States may agree on the renewable energy
transmission from one Member State to another, adding the amount of energy
transmitted to the latter Member State’s national target. The Directive does not specify
26
Directive 2009/28/EC 27 European Environmental Policy Institute, “The National Renewable Energy Action Plan" 2009
22
to which sectors (electricity, heating and cooling or transport) energy produced this
Article shall apply.
One of the advantages of such cooperation mechanism, as compared with other RES
directive envisaged cooperation mechanisms is statistical transfers are a simple
mechanism that does not require creating a new and potentially complex cross-border
support scheme. Contrarily to other incentive mechanism for cooperation, statistical
transfers between Member States do not have a direct impact on national RES support
schemes. In addition, Member States, acting as the seller may recover the cost of
supporting its domestic production of RES and in so doing, receive financial benefits,
which may contribute to their national support schemes.
However, this cooperation mechanism has some disadvantages. It depends largely on
behaviour of the 'active' Member States, producing an additional Renewable energy,
which can be sold to other Member States. If this initiative is only practiced by a few
Member States, the risk is that the statistical transfer mechanism will not be very
flexible mechanism to reach Member States targets. Renewable energy is transmitted
only ex post, after production. This means that the Member States still need to ensure
that they achieve their national (intermediate) targets28
. Thus, the potential buyers face
the risk that neither party will be willing or able to sell power came year 2020. RES
development depends on the place that the national support schemes occupy in the
exporting Member State. Therefore, countries offering low or ineffective support
schemes would not exploit full potential of cost-effective RES. This could reduce the
overall cost of support for RES and RES goals, respectively, throughout Europe29
.
Member States may choose short-term (e.g. 1 year) or long-term (e.g. 15 years)
contracts for the statistical transfers. . Long-term contracts could be negatively assessed
from the legal point of view. The mechanism is not set to resolve disputes of non-
compliance when the exporting country does not provide the amount of energy, which
was agreed to transfer. In principle, this risk coverage usually is taken care by the
28
Directive 2009/28/EC Art. 6,pgh. 1: "A statistical transfer shall not affect the achievement of the national target of the Member State making the transfer”. This condition is not as strong as previously suggested by the European Commission. The previous suggestion was to ensure that only those Member States whose share of energy from renewable sources equalled or exceeded the indicative trajectory would be allowed to pass Renewable energy in another Member State 29 Klessmann,C. et al. ‘Design options for cooperation mechanisms under the new European Renewable Energy Directive’, 2010
23
exporting country, however part of the commitment should be assumed and by
importing countries. However, the objectives of the division of risk between the parties
must be established by mutual agreement.
In order to divide the risk between the parties concluded multilateral agreements, such
as in the case where there is more than one exporting country, if one party fails to meet
the obligations the importing country can expect this to offset by other exporters.
Arguments in favour of multilateral arrangements may reduce the risk and increased
stability. On the other hand, multilateral agreements are much more complex. The
liability issues also arise, for example, when a group of countries does not reach the
mutual goal. One possible solution would be to combine the advantages of both
alternatives. In this case the party should make separate arrangements with other
participating countries.
As the Directive 2009/28/EC provides only very general requirements for statistical
transfers, Member States retain considerable freedom in implementing this incentive
mechanism.
3.2.3 Member States' joint projects and cooperation with third countries
Two or more Member States may cooperate on all types of joint projects related to
electricity, heating and cooling (the transport sector is not included) in production of
energy from renewable energy sources. Such cooperation may include the private
operators. One Member State may provide financial support for RES projects carried
out in another Member State, and energy output (or part thereof) is included in the
sponsoring Member State's national overall target. Joint projects between Member
States shall not apply to fuels derived from RES projects. . The Directive provides the
possibility to carry out such projects with third countries, however, these provisions
apply only to projects related solely to the electrical energy production from renewable
energy sources (either transportation or heating and cooling are not included).
The directive defines only the general rules however the practical implementation of
these mechanisms is left to Member States. Member States have begun discussions on
the implementation of these mechanisms, but no results have been achieved so far.
According to the forecast made by Member States in year 2009, a relatively small
amount of energy is expected to be supported by the cooperation instruments. Only five
24
Member States expected that a total lack of energy was up to 2 Mt in 2020 i.e. less than
1% of all renewable energy required by year 2020. Ten Member States expect a surplus
of 5.5 Mt in 2020, which represents approximately 2% of the total renewable energy
needed by year 202030
.
There are a number of advantages of joint projects. They provide an opportunity to
further develop the potential of RES in countries that do not have enough opportunities
to develop it in accordance with their national support schemes. In addition, joint
projects increase flexibility in the choice of incentives for Member States when
implementing their national RES goals. Member States can actively initiate a joint
project with another Member State, thus ensuring adequate production of its RES
targets. Joint projects in principle allow the inclusion of private entities which, as a rule,
are more likely to realistically assess their own capabilities rather than the governments.
However, the government has to develop joint projects before the private entities can
get involved. This may be regarded as an obstacle to rapid development of the project;
however it ensures the public and consumer interests are being respected.
The joint projects have some disadvantages. First, if the joint project is consistent with
the host country's national support scheme, the domestic support scheme’s efficiency
and effectiveness can be significantly reduced. In addition, investments to the
innovative technologies, required to achieve 2020 objectives, are higher, but this may be
one of the factors hindering joint project agreements31
. In this context, the development
of new technologies may generally be refused unless it is intended by national support
schemes. The negative aspect of the joint projects is that they complicate the European
renewable energy sources in terms of support and intervention in the national support
schemes. In general the negative aspect of the joint projects is that they complicate
support for the European renewable energy sources and intervene in the national support
schemes.
31 Ibid.
25
3.2.4 Joint Support Schemes
Article 11 from the Directive provides the possibility for two or more Member States to
combine their national support schemes for RES together. Paragraph 1 from article 11
states that two or more Member States may decide on a voluntary basis, to join their
national support schemes and partly coordinate their activities. In such cases, a certain
amount of renewable energy produced from a participating Member State, may be
included in the other Member States national overall target.
Article 11 provides for two alternatives to achieve how distribute RES in such case. The
Member States may, subject to Article 11 paragraph 1 chapter a) “make a statistical
transfer of specified amounts of energy from renewable sources from one Member State
to another” or “set up a distribution rule agreed by participating Member States that
allocates amounts of energy from renewable sources between the participating Member
States” (Chapter b from Paragraph 11). Generally both versions are quite similar and
interrelated. Under chapter (a) using statistical transfers, joint support scheme would
still need to implement certain internal rules for the distribution, as expressly provided
in chapter (b). ). In both cases, the participating Member States should agree on certain
internal rules on the distribution and transfer of the agreed cost-sharing amounts RES.
Joint support schemes have advantages over other cooperation mechanisms: they allow
a better comparison of the available potential of RES and the objectives of creating the
same financial incentives for RES projects in all participating Member States. In this
context, it is expected that projects will be carried out economically the most suitable
areas. In addition, the joint support Schemes has considerable future prospects of
creating a more coordinated and harmonized EU system of support32
.
Here are some disadvantages that joint support schemes have: they require intensive
coordination between Member States as they have to share their sovereignty through
joint support schemes. For example, the two Member States to bring such schemes have
to solve relevant legal issues, develop rules, requirements, without prejudice to each
other's interests. Joint support schemes provide less flexibility when regulating the
production of RES imports or exports of the Member States in respect of their real
32
ibid
26
objectives33
. To adjust the joint support schemes to the required level can take quite a
long time therefore they might become ineffective for certain projects.
In the case of joint support schemes the Member States are being distinguished to
electricity or heating/cooling importing or exporting countries. Any additional costs
incurred by the exporting Member State shall be compensated at the expense of the
importing country. In order to achieve that there must be set clear accounting rules. It
should be noted that it is necessary to prepare an agreement on the RES production
records that would make joint decisions on the implementation of national RES targets,
prior to the statement of expenditure for support schemes. The focus should be given to
situations where non-compliance with mandatory RES objectives at the individual and
the total (in support of the Member States participating in the scheme of the group)
level. This problem can be addressed in several ways, such as for example:
Combining the total quota systems with commercial certificates;
Combining the agreed action plans that provide for the future deployment of
RES;
Encouragement of the "soft tools” that provide technical and / or administrative
assistance
3.2.5 Information and Training
Efficient use of energy requires factors that motivate, encourage and reinforce rational
and responsible consumer’s behaviour. Institutional capacity, awareness and clear,
credible and accessible information on the energy-efficient technologies and techniques
are important factors that encourage rational consumer’s behavior. Therefore
information and training play a vital role in educating consumers34
. . Article 14 of
Directive 2009/28/EC states that Member States must ensure that information on
support measures available to all relevant stakeholders, such as builders, installers,
architects and suppliers of the heating/cooling and electricity equipment and systems
and vehicles, where renewable energy can be used. Equally, Member States must ensure
that all relevant stakeholders, in particular, designers and architects, providing guidance
33
ibid 34
Commission Communication on Energy Efficiency Action Plan,’ Realizing the Potential’, Brussels, 19.10.2006 COM (2006) 545 final
27
to planning, designing, building and renovating industrial or residential areas, can
properly consider the optimal combination of renewable energy sources and high
efficiency technologies. Member States with the participation of local and regional
authorities under the provisions of the Directive must undertake measures in order to
develop appropriate information, awareness, orientation and training programs so that
citizens can be informed about the renewable energy development and its benefits.
These provisions are very important given that the RES promotion and development is
often limited or stopped precisely because of public opposition, which arises for net
being fully informed.
3.2.6 State Aid
The main objective of the incentive schemes is to help to create a reliable and profitable
market, which would be attractive for the businesses and new technologies developers.
Reliable and profitable market would attract businesses and individuals and encourage
them to risk their time, effort and money for new technology development. The
potential profitability of the projects should outweigh the risks related with the
renewable energy. It is therefore very important to ensure the stability of the incentive
schemes, so that investors could confidently predict the expected return over a specific
period of time35
. To achieve these goals for renewable energy are subject to various
support schemes such as exemptions, subsidies, fixed feed-in tariffs set and so on. Thus
more favourable conditions for energy from renewable energy sources compared to
traditional are created. As it is stated in the RES Directive Member States shall have the
right to require energy producers, energy suppliers and consumers to produce, supply
and consume a certain amount of energy of renewable energy. All of these factors can
be considered as state aid, which Article 107 in TFEU prohibits as it can distort
competition and is incompatible with the internal market. . But on the other hand, the
RES incentives encourage and increase competition in the energy market, which is
emphasized by the Commission.
Part 1 of the TFEU Article 107 defines state aid as ”any aid granted by a Member State
or through State resources in any form whatsoever which distorts or threatens to distort
competition by favouring certain undertakings or the production of certain goods shall,
35Simanavicius,N., ’Development of Alternative Energy Efficiency’, Vilnius 2009
28
in so far as it affects trade between Member States, be incompatible with the internal
market”. According to the settled practice the state aid has a broader meaning compared
to subsidies as it embraces not only positive contributions, but also various forms of
actions aimed to reduce costs, which the company normally experience. As shown in
the general description of the state aid, countries such measures as direct36
and indirect37
taxation and social contributions38
could be treated as state aid.
Obviously, for example, the obligation (as part of measures to promote RES) to
purchase electricity produced from renewable energy resources at set minimum prices,
provide economic benefits to this type of energy producers, guaranteeing them higher
incomes than would not be obtained without these provisions. This raises the legitimate
question whether the concept of State aid could be included into national legislation,
giving a person the right to a benefit either directly or indirectly.
This aspect the case of PreussenElektra39
has a very important role. This case is
concerned with a German national law, which bonded all the electricity supply
companies to buy all the renewable electricity produced in the area. The CJEU was
asked Court was asked whether the State's legislation, which, firstly, require private
electricity companies to purchase all the electricity produced from RES at a minimum
price that are higher than the real economic value, and secondly, distribute the financial
burden of that obligation between those electricity supply undertakings and a higher
level operators of private production of electricity system, which constitutes State aid
under Article 87 paragraph 1. The decision of the court stated that the obligation for the
electricity supply undertakings to buy electricity from RES at a fixed minimum price
does not cause any direct or indirect transfer of State resources for this type of
electricity producers. Therefore, for this duty caused the financial breakdown of costs
between private electricity supply companies or other private companies are not the
direct or indirect transfer of State resources. The fact that the purchase obligation is
prescribed by law and some businesses gain undeniable benefits does not mean that it
constitutes State aid in the sense of Article 87 paragraph 1. Hence the obligation on
private companies to buy Renewable energy for a fixed minimum price (which is the
36 Cases Teritorio Historico de Alava – Diputation Foral de Alava and others against the Comosion (C-186/02 P, C-187/02 P, C-188/02 P and C-188/02 P) 37
20/11/2003 Commission decision GEMO (C-126/01) 38
The conclusion of general advocate C. Stix-Hackl (combined cases C-128/03 and C-129/03) 39 Case C-379/98, PreussenElektra AG v Schleswag AG
29
most common form of support for RES promotion scheme), which is often higher than
the real economic value of the power of this kind cannot be considered state aid.
In the case of PreussenElektra CJEU held that the requirement for the electricity
suppliers to purchase the entire electricity generated from renewable sources in the
territory was a measure that have equivalent result as it limited the resources that these
traders could purchase from producers in other Member States. Nevertheless, the Court
held that German law was incompatible with Article 28 EC, however, the Court
suggested that such a restriction can be justified. The court noted that the use of
electricity production from renewable energy sources, which is aimed to promote by
such legislation as the German legislation, has environmental benefits, because it
contributes to reduction of greenhouse gases, which are a major cause of climate
change, which is committed to tackle the European Community and the Member States.
Promoting the use of electricity production from RES is one of the priorities of the
Community and its Member States as it helps in implementing the obligations assumed
under the United Nations Framework Convention on Climate Change. According to the
Court, it has to be taken into consideration the fact that this policy also seeks to protect
human, animal and plant health and life. Explaining that his decision was based on
Article 30 or the mandatory requirements, he concluded that "under current Community
law," national German law was compatible with Article 28 EC. Although the
arguments are not entirely clear, the PreussenElektra case may be grounds to assert that
environmental protection is a mandatory requirement or – basically - that environmental
protection can be "cleared" the interpretation of Article 30 (now Article 36 TFEU) the
public health of the derogation.
3.2.7 Shortcomings of the Directive
Despite the fact that the new directive established a truly ambitious objectives for
Member States, uniformed the requirements and criteria for renewable energy, has
provided highly flexible implementation of the measures (each Member State may
provide such incentives are most relevant to its political, economic, administrative
situation, technology and research the general level), there are also some disadvantages.
First to mention is that there are no direct sanctions against countries that fail to fulfil
30
their mandatory requirements of the Directive, which makes it possible to abuse this
loophole.
Member States have a number of obligations under the new Directive on the promotion
of RES. They were obliged to submit their national renewable energy action plans, to
set national targets for renewable energy, transport, electricity and heating and cooling
by 2010 30 June (Article 4 (1)), as well as to provide a progress report by 2011 and then
do it every two years (Article 22). If a Member State fall below the indicative trajectory,
it must submit a modified national action plan, where would be provided "adequate and
proportionate measures" to help a Member State to regain access to the indicative
trajectory of Article 4 (4).
Thus, the Directive Member States established high binding targets, but, unfortunately,
did not provide for effective enforcement and monitoring systems. Article 23 only
establishes the possibility for the Commission to monitor and analyse how the Member
States fulfil their obligations, to evaluate the report, make proposals to the European
Parliament and the Council. The Commission also may in certain cases exempt Member
States from certain obligations, taking into account the specific circumstances or may
reduce the extent of those obligations. For example, the aforementioned Article 6
provides that "The Commission is examining the effectiveness of measures by Member
States ...", but the directive does not indicate what action may be taken against a
Member State, which generally does not take any action, or intentionally apply
completely ineffective measures to achieve the objectives of the directive and so on.
Member States are not concerned to support renewable energy (e.g. for the reasons that
fossil fuel reward with greater economic benefits, or political interest), a national
renewable energy plan can significantly lower the targets than required in the Directive
without any objective justification.
However, it should be noted that the Commission is not entirely powerless. It has the
ability to launch infringement procedures against Member States for not fulfilling their
obligations under the Directive. As observed by Emese Kottasz40
(European
Commission Energy and Transport DG), the Commission may start an infringement
procedure that is based on such grounds as: (1) the Member State has not eligible
40
Kottasz,E., DG TREN, Regulatory policy & promotion of renewable energy. Sustainability criteria for
biomass, Brussels, 2009
31
National Action Plan, (2) did not meet all the mandatory requirements of the Directive,
(3) high deviation from the plan or indicated trajectory, or (4) the complaint from the
citizen of the improper implementation or enforcement EU Directive in the Member
State.
Unfortunately, these procedures are very complicated. Infringement proceedings may be
initiated by the Commission of the Treaty on European Union Article 258. . In this case,
the Commission shall deliver a reasoned opinion on the matter after giving the State
concerned the opportunity to present their observations and comments. Article 259
TFEU provides such as the right to Member States, which suspect that another Member
State failed to fulfil its obligations. Before a Member State brings an action against
another Member State, it shall bring the matter before the Commission and the
Commission once again expresses a "reasoned opinion", having regard to the positions
set forth on both sides.
If a Member State within the prescribed time limit shall not consider the opinion of the
Commission, both of the above-mentioned cases may be referred to the European Court
of Justice. As provided for in Article 260 of the TFEU, if the Court finds that a Member
State failed to fulfil its duties actually required, the State shall take the necessary
measures to comply with the judgment of the Court. If the Court finds that the Member
State has failed to fulfil its first judgment it may impose a lump sum or penalty
payment. However, once again a Member State must be able to submit its comments.
It is obvious that the infringement procedure involving several players and a lot of
complicated steps and procedures may last for years. Therefore, as a measure of the
Member States' obligations under the Directive to ensure compliance with this
procedure is not very efficient.
However, the difficulties associated with their obligations under the RES promotion of
enforcement of the Directive should not be overestimated. Implementation of the
Directive's objectives should be appropriate and "softer" measures (such as pressure on
Member States in the public domain), together with the procedures and the violation of
sanctions and various combination of both EU and national level.
IV. RES-Electricity sector
32
A series of Directives have been issued in the last years addressing the EU policy for
renewables and energy efficiency, aimed at driving the national policies towards
common targets:
- directive 2009/28/EC, substituting directive 2001/77/EC, on the promotion of
renewables;
- directive 2002/91/EC on certification of energy performance of buildings;
- directive 2003/30/EC on promotion of biofuels;
- directive 2004/8/EC on the growth of cogeneration
- directive 2006/32/EC on Energy efficiency in final uses.
All these documents set a favourable framework for new investments in the sector of
renewable energy and energy efficiency, even if the EU policy remains fragmented and
constrained by many different targets. As an example, the present tax systems are quite
diverse and this can harm the competition among companies at the EU level. Directive
2001/77/EC required from the EU Member States a minimum level of taxation related
to the environmental impact of different fuels, in order to reduce the effect of
environmental externalities, but a coherence can be hardly found. With the 2009 set of
Directives issued on April 23, a new reference picture has been designed, trying to give
coherence to the intervention on energy and transport policy, energy research and
environmental regulations41
.
4.1 Electricity in EU
There is a great potential of the renewable energy sources in the territory of the EU. The
World Energy Council has carried out a survey42
where the potential of renewable
energy sources is discussed. In appendixes from 1 to 4 of this paper the maps of
different resource can be seen.
Between 1990 and 2009, the development of RES-E generation in the EU shows a
rising trend (see Figure 1). Hydropower still represents the dominant RES, but has
become less important during the last years. This is caused by a strong development of
41
Lorenzoni, A., The Support Schemes for the Growth of Renewable Energy, Working Paper n. 33, 2010 42 WEC, 2004 Survey of Energy Resources, World Energy Council, Elsevier, Oxford,2004
33
emerging RES-E technologies, such as on-shore wind and biomass. Changing
meteorological conditionals led to some fluctuations in the electricity output from
hydropower plants43
.
Figure 1. Market development of RES in the electricity sector (EU-27)
Source: Ragwitz, M. et al, ‘Review report on support schemes for renewable electricity
and heating in Europe’, 2011
Focussing on the development of emerging RES-E (all RES-E technologies with the
exception of hydropower), electricity generation increased more than tenfold from 19
TWh in 1990 to about 250 TWh in 2009 as a consequence of policy efforts undertaken
at European and national levels (see Figure 2). In particular, wind on-shore and the use
of solid biomass contributed significantly to this development. Moreover, in recent
years also PV deployment is increasing significantly44
Figure 2. Market development of 'new' RES in the electricity sector (EU-27)
43
Ragwitz, M. et al, ‘Review report on support schemes for renewable electricity and heating in Europe’, 2011 44 Ibid.
34
Source: Ragwitz, M. et al, ‘Review report on support schemes for renewable electricity
and heating in Europe’, 2011
4.2 RES-E support schemes Observing the evolution of the main support schemes in the electricity sector (see
Figure 3), it becomes clear that feed-in tariffs (FIT), feed-in premiums (FIP) and quota
obligation systems and combinations of these dominate the applied support schemes.
The latter is applied in Belgium, Italy, Sweden, the United Kingdom, Poland and
Romania, often in combination with FIT for small-scale projects or specific
technologies (BE, IT, UK). Thus, Belgium offers minimum tariffs for each technology
as an alternative to the revenues from the TGC trade and the electricity market price.
Italy offers feed-in tariffs for small-scale applications below 1 MW and the United
Kingdom started to make feed-in tariffs available for small-scale applications in spring
2010. Policy schemes such as tender schemes are not used anymore in any member state
as dominating policy scheme, but they are used in certain MS for specific
projects/technologies (e.g. wind off-shore in Denmark). Further policy measures such as
production tax incentives and investment grants represent the dominating policy
measure in Finland and in Malta. In some other countries, they are used as a kind of
supplementary support, which contributes in some cases (e.g. tax incentives in the
Netherlands) essentially to the economic viability of projects45
.
45 ibid
35
Figure 3. Main RES-E support instruments in the EU-27
Source: Ragwitz, M. et al, ‘Review report on support schemes for renewable electricity
and heating in Europe’, 2011
The more detail analysis is carried out in the chapter within the framework of two
studies, respectively ‘Financing Renewable Energy in the European Energy Market46
’
and ‘Regulatory Design for RES-E Support Mechanisms: Learning Curves, Market
Structure, and Burden-Sharing47
’
4.2.1 Feed-in tariff systems
According to the study ‘Financing Renewable Energy in the European Energy Market’,
Final report, By David de Jager et al , feed-in tariff (FIT) systems have been historically
46
http://ec.europa.eu/energy/renewables/studies/doc/renewables/2011_financing_renewable.pdf 47 http://web.mit.edu/ceepr/www/publications/workingpapers/2011-011.pdf
36
and currently still are the main instruments of support in the EU. They are used in the
following Member States: France, Germany, Spain, Greece, Ireland, Luxembourg,
Austria, Hungary, Portugal, Bulgaria, Cyprus, Malta, Lithuania, Latvia and Slovakia.
Most countries use a differentiation according to technology, which facilitates the
development of a range of technologies due to the different level of tariffs they receive.
However, a few countries, including Cyprus and Estonia do not differentiate according
to technologies and apply a common feed-in tariff for all technologies.
The advantage of tariffs, compared to feed-in premiums and quota obligations, lies in
the long-term certainty of receiving a fixed level support, which lowers investment risks
considerably. The costs of capital for RES investments observed in countries with
established tariff systems have proven to be significantly lower than in countries with
other instruments that involve higher risks of future returns on investments. Also, the
weighted average costs of capital are notably higher in countries with quota obligations,
compared to tariff-based systems. By guaranteeing the price and providing a secure
demand, feed-in tariffs reduce both the price and market risks, and create certainty for
the investor regarding the rate of return of a project. The lower cost for the investor
result lower average support cost for society.
The cost-efficiency of tariffs for society decreases when policy makers overestimate the
cost of producing renewable electricity. This is because the level of tariffs is based on
future expectations of the generation cost of renewable electricity. When these turn out
lower than expected, producers receive a windfall profit. It is therefore important that
tariffs are reviewed regularly in order to adjust the system to the latest available
generation cost projections and to stimulate technology learning. Furthermore,
payments should be guaranteed for a limited time period (approx. 15-20 years) that
allows recovery of the investment, but avoids windfall profits over the lifetime of the
plant.
In tariff systems, RES generators do not sell the produced electricity on the power
market, but a single buyer, e.g. the TSO, fulfils this role. Therefore the producers are
generally not stimulated to adjust their production according to the price signals on the
market (i.e. electricity demand), unless this is provided by other means (e.g. peak/off-
peak tariffs). This may be a disadvantage in terms of market compatibility.
37
Additionally, according to the study ‘Regulatory Design for RES-E Support
Mechanisms: Learning Curves, Market Structure, and Burden-Sharing’, by C. Batlle et
al , FIT provide the appropriate kind of support for RES-E technologies that have
moved beyond the R&D phase but that have not reached market maturity and a strong
presence in the system. Conversely, technologies such as solar PV have access to FIT in
numerous countries around the world. This has resulted in conditions of over-support
and overpayment for PVs, to the extent that the technological improvements can hardly
keep up with the regulatory enthusiasm for this RES-E.
Another disadvantage of FIT to be mentioned, according to C.Battle, is that is extremely
challenging to determine the right remuneration levels for RES-E. Specifically, there is
information asymmetry between the regulator in charge of setting the FIT and the
producers who will benefit—it is virtually impossible for the former to correctly assess
the costs of the latter. There is a distinct risk that FIT will either fall short and fail to
produce enough economic incentives for new RESE developers to enter the electricity
market, or that FIT will be too high and result in overinvestment at very high cost,
without necessarily resulting in a proportional technological improvement.
Finally, contrary to what it is often assumed, one must not ignore the fact that FIT are
subject to the customary regulatory risks, since they are just a regulatory instrument that
is backed-up by a regulatory commitment. Yet, as governments and political
preferences change, so the regulations that govern FIT might also change (although they
should not do so retroactively). In the Czech Republic, FIT were recently reduced
retroactively after the government determined that RES-E were enjoying unusually high
benefits, and a similar situation has taken place in the Spanish case for the case of solar
PV installations where recently retroactive measures have been implemented reducing
the remuneration that was committed in previous regulations.
4.2.2 Feed-in premium systems
According to David de Jager et al , feed-in premium (FIP) systems have gained ground
over the last years and are used as main support instruments in Denmark and the
Netherlands. In Spain, Czech Republic, Estonia and Slovenia premiums exist in parallel
to the tariff system. These Member States have introduced the possibility to choose
38
between feed-in tariffs and premiums for a selection of technologies. The flexibility and
coverage of the systems differs from country to country.
Premium systems provide a secure additional return for producers, while exposing them
to the electricity price risk. Compared to feed-in tariffs, premiums provide less certainty
for investors and hence, imply higher risk premiums and total costs of capital.
There are different design options for premium systems. Premiums that are linked to
electricity price developments, e.g. limited by cap and floor prices, provide higher
certainty and less risk of over-compensation than fixed premiums. The level of
premiums is based on future expectations regarding the generation costs of renewable
electricity and the average electricity market revenues. Therefore premium systems also
embody the risk of inducing additional costs for society and windfall profits for
producers when production costs are over-estimated, or electricity prices and learning
rates are underestimated by policy makers. Time limits and a regular review of cost
projections and adjustment of premiums based on these projections is therefore also
important in feed-in premium systems.
Both Denmark and the Netherlands have applied such practices. Denmark has put a cap
on the overall return for producers, thereby limiting societal costs. In the Netherlands
the level of the premium is determined annually and an overall cap is set on the total
cost of the support. In premium systems, the renewable electricity producer participates
in the wholesale electricity market. The advantage of premiums is therefore that
producers of renewables are stimulated to adjust their production according to the price
signals on the market (i.e. electricity demand), at least if they have fuel costs. This can
be beneficial for power system operation. As C.Battle et al states, this is true for RES-E
technologies that are ‘dispatchable,’ i.e. sources that can increase production in response
to high prices: biomass plants can burn more feedstock according to price signals, while
windmills are not able to do this.
Another risk to be mention, according the study of C. Battle et al. , is that as premiums
are granted on top of the market prices, FIP can create an incentive for generators not
just to avoid predicting generation but even to engage in gaming via the prediction,
which could lead to inefficient electricity dispatch and therefore to potentially higher
prices and higher premiums. The market risks associated with FIP result in more
barriers to entry for new RES-E developers and give a competitive advantage to
39
vertically integrated companies (e.g. generation and retail). Therefore, FIP create an
incentive for integration of different technologies, which is not necessarily a negative
outcome but can nonetheless create market power problems.
While this may not be of concern in systems where RES-E do not yet occupy a
prominent role, it does have an impact in countries such as Spain, where, as mentioned
above, wind already provides 15% of total electricity. Indeed, in the Spanish case FIP
replaced FIT in 2004. Before this year, many new small independent investors were
responsible for a very significant amount of wind installations. Notably, after the
change, it is the incumbent generators who own most new installations.
4.2.3 Renewable or quota obligations
As mentioned in the study of David de Jager et al renewable obligations (RO) have
been introduced in Belgium, Italy, Sweden, UK, Poland and Romania. In countries with
quota obligations, governments impose minimum shares of renewable electricity on
suppliers (or consumers and producers) that increase over time. If obligations are not
met, financial penalties are to be paid. Penalties are recycled back to suppliers in
proportion to how much renewable electricity they have supplied.
Obligations are combined with renewable obligation certificates (ROCs) that can be
traded. Hence, ROCs provide support in addition to the electricity price and used as
proof of compliance. A ROC represents the value of renewable electricity and facilitates
trade in the green property of electricity.
According to C. Battle et al, quota obligations are the most economically efficient
support for RES-E if properly deployed. Determining the target percentage for
renewable sources allows for market competition between RES-E developers and for a
better determination of energy prices. Moreover, certificate trading encourages overall
efficiency and gives generators some flexibility in other to meet government targets.
Trading can take place across different geographies and systems, thus increasing the
trans-national and trans-state efficiencies.
Quota obligations with certificates expose producers to market signals, which can be
beneficial from a power system operation perspective. Another related advantage of
quota obligations compared to feed-in tariff and premium systems, is the fact that
40
support is automatically phased out once the technology manages to compete. Tradable
certificates represent the value of the renewable electricity at a certain time. However,
the certificate prices are volatile to other market influences (e.g. exercise of market
power).
Uncertainty about the current and future price of certificates increases financial risks
faced by developers. This uncertainty can have a negative impact on the willingness to
invest. Because producers do not only sell their electricity on the market, but also their
certificates, the risk on the certificate market is added to the risk on the electricity
market. This uncertainty increases the level of risk premiums and cost of capital. As
these costs are usually transferred to consumers, the societal costs of renewable
electricity support are usually higher than under feed-in tariff and premium systems.
As discussed by Battle, C. et al, quota obligations usually do not differentiate across
technologies. As a result, generators and other stakeholders will likely prefer the most
cost efficient technologies.
To fix this shortcoming, depending on the specific market and resource conditions, less
mature technologies would best be supported under a quota obligation system with
technology or band specifications. For example, technology specific certification
periods have been introduced in Italy. In the UK and Belgium, the government has
awarded technology-specific multiples of certificates, i.e. awarding solar developers
with double amount of certificates than wind ones.
4.2.4 Tax incentives or exemptions
As stated in the study of Jager, D. et al, tax incentives or exemptions are often
complementary to other types of renewable energy incentive programmes. They are
powerful and highly flexible policy tools that can be targeted to encourage specific
renewable energy technologies and to impact selected renewable energy market
participants, especially when used in combination with other policy instruments.
Some countries, including Spain, the Netherlands, Finland and Greece provide tax
incentives related to investments (including income tax deductions or credits for some
fraction of the capital investment made in renewable energy projects, or accelerated
41
depreciation). Other Member States, including Latvia, Poland, Slovakia, Sweden and
the UK, have devised production tax incentives that provide income tax deduction or
credits at a set rate per unit of produced renewable electricity, thereby reducing
operational costs.
However, the largest shortcoming of fiscal incentives is their instability: they usually
rely on government budgets and are thus subject to frequent political negotiations and
annual budget constraints.
Furthermore, as stated by Battle, C. et al, the most salient problem with fiscal incentives
is that they are beneficial only from an equity perspective. In other words, tax credits
and other incentives are most useful to RESE developers who have a large revenue
stream and can turn these mechanisms into cash for their own operations. Some RES-E
generators may choose to enter into ad-hoc, tax-oriented partnerships and joint ventures
with companies with higher profits who would find the fiscal incentives more
beneficial.
4.2.5 Tenders
As discussed by Jager,D. et al, tenders are used for larger-scale projects and most
commonly for offshore wind.
Tendering schemes for offshore wind are employed in the Netherlands, UK, Denmark
and Spain. Its advantages include the amount of attention it draws towards renewable
energy investment opportunities and the competitive element incorporated in its design.
Its handicap is that the overall number of projects actually implemented so far has
proven to be very low.
Nonetheless, according to C. Battle et al, tenders share many of the advantages from
FIT mechanisms: reduced risk for RES-E generators as a result of guaranteed
remuneration, comparatively low administrative and transaction costs (although larger
than FIT’s) and a reduction of barriers to entry. However, tenders have a distinct
advantage over FIT: they relieve the regulator from the task of having to identify the
costs associated with RES-E and instead it is the market participants who have to
‘reveal’ the appropriate support levels through bidding. In addition, the contracts that
usually come with a winning bid reduce long-term risk for RES-E generators.
42
Tenders effectively centralize the process for RES-E development in the overall system
and can thus facilitate economics of scale. In contrast to quota obligations , where
participants such as small retailers must observe and meet specific targets on an
individual basis, tenders offer an opportunity for market players to create partnerships
and succeed in building more cost effective and efficient RES-E projects.
On the cons side, tenders are most effective if the RES-E industry is mature enough to
profit from the bidding process and the benefits given to the winning bidder.
Overall, tenders can be extremely advantageous but require careful and flexible
regulatory and rule design in each power system. Currently, tenders appear to be the
unavoidable heirs to successful FIT programs. That is, if too many parties are interested
in participating in the RES-E market and benefitting from FIT, governments and
regulators soon find themselves with the difficult task of having to allocate limited
supports to a large pool of interested parties; there is thus no other option but to switch
to tenders. For example, in Spain, current FIT for wind have resulted in more than
40,000 MW applications to the System Operator of interested capacity when the
government target is only 2,000 MW per year.
4.3 The performance of support schemes
In COM (2005) 627, the Commission presented its assessment of the support schemes
using two main criteria; one criterion measuring effectiveness (i.e. ability to deliver an
increase of the share of renewable electricity consumed) and the other criterion
measuring efficiency (i.e. comparison of the total amount of support received and the
generation cost). In addition, the effectiveness of a policy was correlated with the
average expected profit from investments in renewable electricity using the same policy.
Correlating these gives an indication as to whether the success of a specific policy is
primarily based on high financial incentives, or whether other aspects have a crucial
impact on market diffusion48
.
48 Communication from the Commission, ‘The support of electricity from renewable energy sources, SEC(2005) 1571; Commission Staff Working Document , ‘The support of electricity from renewable energy sources’, Accompanying document to the Proposal for a Directive of the European Parliament and the Council on the promotion of the use of energy from renewable sources, COM(2008) 19 final
43
Comparing the two main types of support schemes, namely quota obligations and feed-
in tariffs, historic observations from EU Member States suggest that feed-in tariffs
achieve greater renewable energy penetration, and do so at lower costs for consumers.
The main conclusions on the effectiveness and efficiency of the support schemes, and
the observed effectiveness of the different support schemes compared with the level of
financial support as seen from the perspective of an investor, can be summarised as
follows49
:
Effectiveness:
The effectiveness indicator shows the increase of electricity generation compared to the
additional realisable mid-term potential to 2020 for a specific technology.
• The effectiveness of policies promoting wind energy, biogas and photovoltaics
technologies has been highest in countries using feed-in tariffs as their main support
scheme. However, not all feed-in schemes implemented in Member States have been
equally successful. For onshore wind energy, Denmark, Germany and Spain are
showing the highest effectiveness indictors for the period 1998-2006. High investment
security coupled with low administrative and regulatory barriers in these countries has
stimulated a strong and continuous growth of wind energy over the last decade.
Compared to 2005, important improvements can also be seen in other feed-in tariff
countries like Ireland and Portugal. Portugal increased its installed capacity by more
than 50% in 2006. The effectiveness of support to onshore wind in Belgium and the UK
has grown more strongly in 2005 and 2006 but is still comparatively low compared to
the above-mentioned countries with feed-in tariffs. The effectiveness indicators for the
new Member States show that progress has been generally much lower, with the
exception of Hungary and Latvia. Latvia showed the highest relative growth in the
period considered, followed by Hungary for the case of onshore wind.
• In general, the effectiveness indicator shows biogas and PV technologies have low
performance levels. For biogas, the highest growth can be seen in Austria, Denmark,
Germany, Greece and Luxembourg, all using feed-in tariff systems, and the UK, using a
tender until 2003 followed by a quota obligation with tradable green certificates. For PV
49 Ibid.
44
the strongest growth in recent years can be seen in Germany, followed by Spain, Italy
and Greece.
• The effectiveness of low cost options in the overall renewable electricity portfolio,
such as sewage gas and certain types of biomass has been particularly high in countries
with technology specific support schemes. However, some feed-in tariff systems have
also been successful at developing these options.
• The tendering system in Ireland, which in 2006 was replaced by feed-in tariffs,
showed moderate effectiveness before the year 2004. In France, the tenders for wind
and biogas have been less effective. The new tendering scheme in Denmark for offshore
has been until now been the most effective scheme to support this technology in Europe.
• Other support mechanisms, such as investment grants and tax rebates are difficult to
measure as these mechanisms are usually used as additional policy tools. The
combination of investment grants and tax rebates have proved to be very successful for
the development of solid biomass in Finland, but less effective for the development of
wind.
Efficiency:
The efficiency indicator compares the total amount received for renewable energy (level
of support) to the generation cost. The closer the level of support is to the generation
cost, the more efficient a support mechanism is in terms of covering the actual costs. If
the level of support is below the generation cost, which is the case in many of the
Member States, it is not effective as it is too low to trigger substantial investments in
renewable electricity generation.
How well the level of support is adapted to the generation costs varies between Member
States and also between technologies..
• Two thirds of the Member States are considered to have a level of support which is
considered sufficient to cover generation costs for both onshore wind and solid biomass.
This implies an improvement as only around 50% of the Member States were
considered to provide adequate support to these technologies in the Commission's report
in 2005. Increased levels of support can be observed in the Czech Republic, Estonia,
Greece, Portugal, Slovakia and Slovenia.
45
• For small hydro, two third of the Member States are considered to provide sufficient
support.
• For biogas, the level of support is considered to be either insufficient to cover
generation costs, or at the lower end of the cost range in more than half of the Member
States. Accordingly, the picture has not changed much since the previous report.
Although some Member States have improved their level of support, it is still
considered too low to successfully develop new generation.
• Although there has been a significant cost reduction in photovoltaic electricity, this
technology is generally poorly subsidised across the EU, with the exception of
Germany, Luxembourg, Netherlands, Italy, Spain, the Czech and Austria.
4.4. Barriers of RES promotion
As the main obstacles to effectively promote electricity production from RES can be
distinguished:
- Access to the network: Directive 2009/28/EC obliges renewable energy sources to full
access to the network. However, there are still some problems, since the accessibility of
renewable energy sources are often poor and unsolved technical obstacles for RES
decentralized nature, frequent interruptions, including remains discriminatory
connection charges.
- Market transparency and competition: the majority of network problems related to the
structure of the electricity market based on centralized power plants and vertically
integrated companies. In this area, progress is slow, but the Directive 2009/72/EC
requires Member States by 2012. 03 March. vertically integrated energy companies to
comply with the management of separation (called unbundling) , which should enhance
the competitiveness and transparency.
- Administrative burden: the analysis showed that in order to permit the installation of
renewable energy trader faces an average of nine different institutions. Developments in
this area are, however, significant changes are not yet available. It should be noted that
46
many countries in promoting the success of the RES (eg Germany) is the most relevant
positive administrative reforms.
- Regulatory and market uncertainty: the high price uncertainty is high risk investment
such as an increase in credit costs. This reduces the effectiveness of support schemes.
Properly developed support mechanism, on the contrary, it should minimize the price
uncertainty . This should be regulated under the relevant legislation.
V. RES and Lithuania
The national energy strategy of 18 January 2008 discusses the issues currently at stake
in Lithuania, namely energy efficiency, energy security and environmental and
management improvement. Specifically for Lithuania, the fast economic development
and the decommissioning of the main nuclear power plant (Ignalina) at the end of the
year 2009 are developments to be noted. The strategy predicts that wind power plants
and biomass plants will have a share 7% in the electricity generation in 2010. The
national target for renewable energy is a share in the gross final energy consumption to
24% by 2020 (to be compared to the EU obligation for Lithuania of 23% and the current
share of 16%), and the target for biofuels is a share of 25% in the transportation energy
use in 2025 .
According to the Directive 2009/28/EC of the European Parliament and of the Council
on the promotion of the use of energy from renewable sources the target for the share of
energy from renewable sources in gross final consumption of energy in the year 2020
for Lithuania is 23%. The Directive has a mandatory 10% target for transport to be
achieved by all Member States, which refers to renewable sources as a whole, not
biofuels alone.
5.1 RES promotion policy in Lithuania and its compliance with EU law
In Lithuania, transposition of the RES Directive 2009/28/EC is the responsibility of the
Ministry of Energy. Full transposition of the RES Directive 2009/28/EC was notified to
47
the European Commission in 2011. Main legislation related with the transposition of the
RES Directive 2009/28/EC50
:
Law on Renewable Energy Sources (‘Valstybės žinios’ (Official Gazette), 2011,
No. 62-2936) (thereinafter – Law on RES);
National Renewable Energy Development Strategy approved by Resolution No.
789 of 21 June 2010 of the Government of the Republic of Lithuania (‘Valstybės
žinios’ (Official Gazette), 2010, No. 73-3725) (thereinafter – National RES
Strategy);
Procedure on the presentation to the European Commission of reports on
progress in the promotion and use of energy from renewable sources approved
by Resolution No. 1314 of 15 September 2010 of the Government of the
Republic of Lithuania (‘Valstybės žinios’ (Official Gazette), 2010, No. 113-
5757) (thereinafter – Procedure on RES progress reports);
Law amending Articles 2, 4, 15, 19, 20, 21, 22, 23, 24, 26, 31 and 37 of the Law
on Spatial Planning (‘Valstybės žinios’ (Official Gazette) 2009, No. 169-7205)
(thereinafter – Law on Spatial Planning);
Rules for calculating the greenhouse gas impact of production and use of
biofuels, bioliquids and their fossil fuel comparators approved by Order No. D1-
2 of January 2011 by the Minister of Environment (thereinafter – Rules on GHG
calculations) (‘Valstybės žinios’ (Official Gazette) 2011, No. 2-83);
Guidelines on procedure for education and qualification of installers of
renewable energy sources generation systems approved by Order No 1-228 of 16
September 2011 of the Minister of Energy (thereinafter – Guidelines on
procedure for qualification of RES systems installers) (‘Valstybės žinios’
(Official Gazette) 2011, No. 115-5432).
With the new RES promotion Directive, Member States were obliged to harmonize
national legislation with the provisions of the Directive by 2010 December 05. This
means that the Member States must harmonize national laws, regulations and
administrative provisions with the RES Directive. Texts adopted by the Member States
should be immediately provided to the Commission (Article 27 of Directive). Lithuania
missed the deadline to transpose the Directive to the national law. The delayed
50 First National Summary Report, Lithuania, The CA-RES
48
implementation of the Directive is an EU law violation. Therefore, the Member State
has infringed its obligations under the Treaty, there is a responsibility and an obligation
to compensate an individual for a violation of EU law damages. Member States' liability
for damages is based in EU law and is based on the general principle that he who fails
in his duties, must compensate for the breach of the injury. . For the first time in the
jurisprudence of the Court's liability for damages and liability conditions were
formulated in Francovich case. The cases and Francovich and Brasserie du Pêcheur that
provide for the liability for the Member State (after the Lisbon Treaty - the European
Union) for law violations (specifically - for the non-implementation of the Directive),
established the principle that a Member State is obliged to cover their illegal actions or
inaction by the damage to private individuals. The ECJ in the cases provided for failure
to comply and the consequences arising from the Member States laid the foundation of
responsibility at the national level and is binding in breach of Community law to
compensate the damage caused to individuals. . It should be noted that the damage can
be made any of the national authority. In this case it is the legislator that did not accept
the provisions implementing the EU (Community) law. Any breach of EU law by the
national institution that has resulted in harm to individuals, can be brought for damages
caused by the breach. Member States in respect of damages to private parties based on -
the European Union Treaty, Article 4, paragraph 3 (EC Treaty, ex Article 10), which
provides that Member States shall take all appropriate and / or specific measures to
ensure that its obligations under Community law. One of these obligations, the ECJ's
approach - to nullify the unlawful consequences resulted by breaching EC law.
The obligation to compensate the damages of breach of Community law is provided in a
case of Francovich. In the preliminary ruling procedure, the question of a private person
whose rights adversely affected by the fact that a Member State did not implement the
directive, the right to claim damages. So it follows that all individuals who have
suffered damage due to the fact that Lithuania has not implemented the directive within
the prescribed time limit may apply to the national court for such damages.
The draft of the renewable energy resolution has been proposed to the Parliament of
Lithuanian Republic where it is attempted to transfer the principles of RES Directive to
the national law. The resolution proposal has all the mandatory provisions of the
Directive 2009/28/EC set out in detail as well as various procedures and requirements
for renewable energy, manufacturers, suppliers, etc.
49
5.2 RES support schemes in Lithuania
The National Renewable Energy Action Plan (NREAP) for Lithuania was submitted in
July 2010. The target according to Annex I of Directive 2009/28/EC is 23% for the year
2020 and the projected NREAP share in that year is 24.0%. According to the
projection, the most important contribution in the year 2020 is expected from biomass
(renewable heating and cooling) (1023 ktoe, 69% of all renewable energy). Second
important contribution is expected from biodiesel (renewable transport) (131 ktoe, 9%
of all renewable energy). The third largest contribution is from wind power (1.3 TWh or
107 ktoe, 7% of all renewable energy). Wind power is assumed to contribute with 0.5
GW (1.3 TWh) in the year 2020 (all onshore wind). For solar photovoltaic the 2020
contribution is projected to be 10 MW (15 GWh). For solar thermal the 2020
contribution is projected to be 9 ktoe. The two most important biofuels are projected to
contribute 131 ktoe (biodiesel) and 36 ktoe (bioethanol / bio-ETBE) by 2020. The
renewable electricity production from solid biomass amounts to 0.8 TWh (70 ktoe) and
for biogas it is expected to be 0.4 TWh (36 ktoe). The consumption of renewable heat is
expected to amount to 973 ktoe for solid biomass and 50 ktoe for biogas51
.
The support schemes mix of Lithuania for the RES-E as stated in the National
Renewable Energy Action Plan is as follows (see Appendix 6):
-Network connection discounts for an RES electric power plant;
- Priority transmission of electricity produced with the use of RES;
- Benefit on environmental pollution tax;
- EU structural support;
-Rural Development Programme for Lithuania 2007–2013;
- The Lithuanian Environmental Investment Fund & Programme of Climate change.
51
Eurobserver, http://www.eurobserv-er.org/policy.asp; Progress Report of the Republic of Lithuania on the Promotion and Use of Energy from Renewable Sources, 2011
50
Planned measures according to NREAP of Lithuania support measures promoting RES-
electricity are:
- Special National Programme for the Promotion of the Use of Renewable Energy
Sources ;
- Create conditions for the construction of cogeneration power plants using municipal
and other waste unsuitable for processing – 2010-2015.
However, the main instrument to support RES-E in Lithuania is a feed-in tariff scheme,
established through Law on RES and Resolution No. 03-23 of The National Prices and
Energy Control Commission ‘On Setting Tariffs for Electricity and Biogas Generated
from Renewable Energy Sources in 2012’,‘Valstybės žinios’ (Official Gazette), 6
February 2012, No. 18-844. Responsibility for the implementation of the scheme lies
with the Ministry Energy, The National Prices and Energy Control Commission
(national energy regulatory authority) and the transmission grid operator52
.
Under the scheme electricity produced from RES with installed capacity not exceeding
30 kW is purchased at a fixed price which is determined by the The National Prices and
Energy Control Commission. For 2012 approved purchase prices are: 107,2 EUR/MWh
for electricity produced by wind power plants; 144,8 EUR/MWh for biomass power
plants; 81 EUR/MWh for hydro power plants; 185 EUR/MWh for biogas power plants;
417 EUR/MWh for solar power plants (non-integrated into the building); 521
EUR/MWh for solar power plants (integrated into the building)53
.
Feed-in tariffs and quotas for electricity produced from RES power plants with installed
capacity exceeding 30 kW are estimated by auctions. Quotas and geographical areas of
auctions are established and approved by the Government and organized by The
National Prices and Energy Control Commission. Auctions are open to all producers
which signed a letter of intent and obligations of the guarantee. The winner of the
auction is determined by the minimum feed-in tariff proposed. The maximum size of
feed-in tariff is determined by The National Prices and Energy Control Commission54
.
52
First National Summary Report, Lithuania, The CA-RES 53
ibid 54 ibid
51
5.3 Support schemes in Lithuania according the renewable energy
technology
Wind power
At the end of 2010, the wind capacity stood at 154 MW. The National Energy strategy
assumed that by 2010 the wind capacity would reach 200 MW, representing 3% of the
total electricity produced, whereas in parallel a long-term programme for using wind
energy in Lithuania would be needed (the latter programme however hasn't been
approved yet). The geographical potential of wind in Lithuanian territory is illustrated in
Appendix 4.
The Lithuanian Environmental Investment Fund was established in 1996 by the
Ministry of Environment of the Republic of Lithuania, mainly funded by
environment pollution tax. The fund provides soft loans for financing
environmental projects among which renewable energy projects (up to a
maximum loan of 1.5 mio LTL per project, to be paid back over 5 years). In the
period from 2000 to 2005 the fund provided means for 7 projects related to
electricity production from renewable energy sources (five hydropower plants
(in total 974 kW), a 150 kW wind turbine and a 750 kW electricity generation
plant using biomass). In the period from 2006 to 2007 another 3 hydropower
plants were supported, as well as a 2 MW wind plant55
.
According to the Eurobserver, EU Structural Funds have provided in the period
from 2004 to 2006 financial assistance for the construction and refurbishment of
power plants using renewable energy sources, of which mainly hydropower has
benefited, and one biomass CHP plant.
Other measures mentioned in the national energy strategy are:
Reduction on the grid-connection fee in case a generator uses renewable energy
sources for electricity generation at a 40% discount.
Feed-in tariffs for wind power have been increased in the last few years:
2007: 6.95 eurocents/kWh (0.22 Lithuanian Litas LTL)
55 Eurobserver, http://www.eurobserv-er.org/policy.asp
52
2008: 6.95 eurocents/kWh (0.22 Lithuanian Litas LTL)
2009: 8.69 eurocents/kWh (0.30 Lithuanian Litas LTL)
The tariffs apply until 2020.
Furthermore, in order to promote the use of wind power among farmers, the
Ministry of Agriculture provides incentives for the construction of a stand-alone
wind turbine of a maximum capacity of 250 kW. For these relatively small
turbines without a grid-connection no license is required, and subsidies are
available up to 200 thousand euro per project. Up to January 2009 no turbines
have been installed yet under this scheme, further information is not available56
.
Even after the decision to build a new nuclear power plant has already been taken by the
Government, further development of the use of renewable energy sources for electricity
generation is states to be given a considerable attention.
Photovoltaic energy (PV)
The geographical potential of solar in Lithuanian territory is illustrated in Appendix 5.
The national energy strategy with regard to renewable electricity and PV is as follows57
:
Reduction on the grid-connection fee in case a generator uses renewable energy
sources for electricity generation at a 40% discount.
In 2010, feed-in tariffs for PV are: < 100 kW: 163 LTLct/kWh; 100 kW – 1
MW: 156 LTLct/kWh; > 1 MW: 151 LTLct/kWh. The tariff is applied to
purchasing electricity produced at wind, biomass and solar power plants as well
as hydropower plants with capacities not exceeding 10 MW (small hydro). The
feed-in tariffs are expected to achieve the established goals for electricity
production from renewable sources.
Solid biomass and biogas
The national energy strategy regarding biomass and biogas is as follows58
:
56
ibid 57 ibid
53
Biomass powered stationary energy plants are exempted from the tax imposed
for environment pollution.
Reduction on the grid-connection fee in case a generator uses renewable energy
sources for electricity generation at a 40% discount.
On 1 January 2008 the feed-in tariffs for electricity from renewable energy
sources have increased (Resolution No O3-63 of the State Price and Energy
Control Commission, 13 September 2007. This means that the new tariff is 6,95
€ct/kWh
5.4 Performance of the support schemes in Lithuania
Regarding the support schemes for the promotion of RES im electricity sector,
Lithuania employs a mixture of it, i.e. tenders, tax exemptions, state grants and feed-in
tarrif. The latter is the most practised and is applicable to various renewable energy
technologies.
As it is discussed in previous chapters of this paper, the support instrument of feed-in
tarrif is claimed to be the most effective and efficient promotion measure.Therefore, it
can be stated that Lithuania is exercising best practises of other Member States in order
to promote RES at the national level and reaching its targets for the year of 2020.
However, Lithuania has a much greater potential in terms of resources of the
renewable nature. Therefore, the more ambitious targets could be set for the year 2020
than it is now, i.e. 23% of the gross energy consumption should be produced from RES.
But on the contrary, in studies carried to monitor the progress of the Member States
usage of RES, Lithuania is at the end of the list.
The low performance in terms of progress of the energy production from RES in
Lithuania is reasoned as the barriers at the national level. It is not only the level of the
development of the RES technology in the state but also the lack of transperancy and
the lack of clearity in administrative procedures and difficulties accessing the grid
connections.
58 ibid
54
VI. Conclusion
It is recognised that current energy trends are not sustainable and that a better balance
must be found between the three Es – energy security, economic development and
protection of the environment . As energy is part of many environmental problems,
including climate change, it must be part of the solution. Therefore international
institutions have been engaged for more than a decade on designing cost-effective
approaches to reduce CO2 emissions, from the international policy architecture
(including trading mechanisms) to energy efficiency policy and the promotion of
renewable energy usage.
In order to reduce energy dependence, the EU's energy policy has been forced to turn to
renewable energy resources and give them priority in shaping the new energy policies.
Although in most cases, renewable energy sources are more expensive, but they provide
environmental benefits, reduce energy dependence, create jobs, promote technology
development.
Until Treaty of Lisbon, the legal basis for the promotion of RES in the EU
environmental law. TFEU articles related to the environment and this is a particularly
important legal basis to regulate the promotion of renewable energy sources at EU level
as well as Article 194 TFEU, for energy purposes and the promotion of RES. Currently,
the basic legal act regulating the promotion of RES - Directive 2009/28/EC on the
promotion of RES - has also been adopted in accordance with Article 175 paragraph 1
(now Article 192 TFEU). A problem arises environmental law and the promotion of
RES goals conflict case, the ECJ has repeatedly confirmed that environmental
protection is a key objective of the EU, but the Court has not adopted environmental
protection as a priority goal against other objectives.
RES promotion Directive provides for an overall binding target - by 2020 20% of total
EU energy consumption produced from renewable energy sources, taking into account
55
each Member State to, biofuels of 10% of transport, as well as to the year 2020 to
improve energy efficiency 20%. The goal really ambitious and undeniable needed.
Accurate and detailed sources of renewable energy incentives definition list is not
exhaustive in neither primary nor secondary European Union law. As the Directive
2009/28/EC provides only model the incentives for effective selection of instruments is
left to the discretion of each Member State. The fact that the Directive is left to Member
States' wide margin of choice is considered positive, since different countries use
different measures depending on the Member State to the needs of specific
circumstances, the institutional framework, administrative procedures, and so on.
Currently, most Member States, the most popular support scheme for electricity
production from RES to promote the purchase of fixed rates. A definite advantage of
this measure is a financial security that it provides. Fixed feed-in tariffs for renewable
energy producers provides their long-term commitment to the purchase of energy
produced.
The analysis of electricity sector produced from RES has shown that most problems are
related to network access (unresolved technical obstacles created by the decentralized
nature of the RES, there is still a discriminatory connection charges), market
transparency and competition, regulatory and market uncertainty (high price
uncertainty) and the administrative burden.
Statistical transfers between the Member States is a very flexible tool and allows the
MS which do not have the possibilities to reach their goals only by national support
schemes to transfer the amount missing from the other MS. However, despite the
theoretical advantages of this scheme, potential buyers face the risk that neither party
will be willing or able to sell electricity as the year 2020 comes in.
56
Having in mind the decision of ECJ in the case of PreussenElektra, state aid, which is
supported by a fixed feed-in tariffs for RES is not to constituted as state aid within the
meaning of Article 107 TFEU. In the same case the Court stated that electricity
suppliers subject to the requirement to purchase their entire capacity of the electricity
generated from renewable sources in the territory was equivalent measure, because it
limited the resources that the traders could purchase from producers in other Member
States. Nevertheless, the ECJ suggested that this may be justified by the exception
mentioned in the Article 28 of the EC Treaty provides for an exception, and that
environmental protection can be "cleared" by the interpretation of Article 30 (now
Article 36 TFEU) the derogation of public health.
The main weaknesses of the directive are that it does not impose penalties and fine
mechanism. The only measure which the EU can take is to start infringement
procedures against Member States for not fulfilling their obligations under the
Directive. However, the infringement procedures involve several players and many
complicated steps and procedures and may last for years. Therefore, as a measure of the
Member States' obligations under the Directive to ensure compliance with this
procedure is not very effective.
Comparing the two main types of support schemes, namely quota obligations and feed-
in tariffs, historic observations from EU Member States suggest that feed-in tariffs
achieve greater renewable energy penetration, and do so at lower costs for consumers.
Lithuanian government did not transfer the directive 2009/28/EB into the national law
on time, therefore it breached the EU law. According to the ECJ's practice, the Member
State in breach of EU law must compensate for the resulting damage to individuals. It
follows that any private person who has suffered damage as a result of this breach, may
apply to the competent court for damages.
57
The target for Lithuania according to Annex I of Directive 2009/28/EC is 23% for the
year 2020 and the projected NREAP share in that year is 24.0%. According to the
projection, the most important contribution in the year 2020 is expected from biomass
(renewable heating and cooling) (1023 ktoe, 69% of all renewable energy). Second
important contribution is expected from biodiesel (renewable transport) (131 ktoe, 9%
of all renewable energy). The third largest contribution is from wind power (1.3 TWh or
107 ktoe, 7% of all renewable energy).
However, Lithuania has a much greater potential in terms of resources of the renewable
nature. Therefore, the more ambitious targets could be set for the year 2020 than it is
now, i.e. 23% of the gross energy consumption should be produced from RES. But on
the contrary, in studies carried to monitor the progress of the Member States usage of
RES, Lithuania is at the end of the list.
The low performance in terms of progress of the energy production from RES in
Lithuania is reasoned as the barriers at the national level. It is not only the level of the
development of the RES technology in the state but also the lack of transperancy and
the lack of clearity in administrative procedures and difficulties accessing the grid
connections.
58
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Appendixes
63
Appendix 1 Map of Hydro energy Potential in EUROPE
Source: http://www.geni.org/globalenergy/library/renewable-energy-
resources/europe/Hydropower/europe_files/4-1-101.gif
64
Appendix 2 Map of Global Irridiation in Europe
Source: http://www.geni.org/globalenergy/library/renewable-energy-
resources/europe/Solar/europe_files/1-1-101.gif
65
Appendix 3 Map of mean 80-m wind speeds for year 2000
Source: http://www.geni.org/globalenergy/library/renewable-energy-
resources/world/europe/wind-europe/indexbig.shtml
66
Appendix 4 Wind Energy Potential in Lithuania
Source: http://www.geni.org/globalenergy/library/renewable-energy-
resources/world/europe/wind-europe/wind-lithuaniabig.shtml
67
Appendix 5
Global Irradiation and solar electricity potential in Lithuania
Source:
http://sovienergy.lt/assets/images/solarphoto/pvgis_solar_optimum_LT.png
68
Appendix 6
Measures taken in the preceding 2 years and/or planned at national level to
promote the growth of energy from renewable sources taking into account the
indicative trajectory for achieving the national RES targets as outlined in the
National Renewable Energy Action Plan. (Article 22(1)a) of Directive 2009/28/EC))
69
70