Overview of Economic, policy and regulatory constrains for DER integration in EU Miroslav Maly (Enviros), Michael ten Donkelaar (ECN) SOLID-DER National Seminar Vilnius March 6, 2007

Contents of the presentation Market presence of DER in NMS DER support in NMS DER regulatory issues Main barriers to DER increase Conclusions 16-1-2019

Market presence of RES / CHP in the new EU10+ Current status - major part of RES-E production in large hydro-power stations (e.g. Latvia, Romania, Slovakia, Slovenia): Wind energy developing since 2004: Baltic States, Czech Republic, Poland Some wind energy projects realised, many more are planned RES-E targets for 2010 - very ambitious For some countries perhaps too ambitious (e.g. Czech Republic, Slovakia)  above expected economic potential in short-term Main potential for RES-E up to 2010 – biomass / biogas applications, wind energy and small hydro CHP has major share in all new MS, 10-20% of E-production from CHP but large part is not DER CHP connected to industry, district heating Little small-scale applications (e.g. gas engines, RES-CHP) 16-1-2019

Market presence of RES / CHP in the new EU10+ RES-E share (% E-prod. in 2004) RES-E share (excl. large hydro) CHP share (% E-prod. in 2004) Small CHP share DER share RES-E target 2010 (% cons.) Bulgaria 7.9 1.4 11.8 2.8 4.2 11 Czech Rep. 4.1 2.4 14.0 5.3 7.7 8.0 Estonia 0.4 10.4 0.1 0.5 5.1 Hungary 20.0 7.4 9.8 3.6 Latvia 47.4 4.9 21.5 3.5 8.4 49.3 Lithuania 0.6 22.4 4.6 5.2 7 Poland 2.2 14.3 4.3 4.8 7.5 Romania 23.3 1.1 < 20 2.0 3.1 33 Slovakia 11.5 16.0 8.6 9.1 31 Slovenia 27.7 3.7 < 10 3.0 6.7 33.6 16-1-2019

Market presence of DER in Europe Source:DG-GRID / SOLID-DER 16-1-2019

RES / CHP support in the new EU10+ DER support mechanisms developed during the last 5 years: Predominantly feed-in tariff systems for RES-E Green (feed-in) Premium System – bonus to market price (e.g. Czech Republic, Hungary) Tradable green certificates introduced in Poland and Romania TGC combined with quota system and fines Some countries provide additional support through investment subsidies, soft loans or tax exemptions Future (investment) support expected from EU Structural Funding Support to CHP in 6 out of 10 countries Bulgaria, Czech Republic, Hungary, Latvia, Poland (from 2007), Slovenia Feed-in tariffs or premiums, usually lower rates than for RES-E, mostly for small- to medium-scale CHP 16-1-2019

RES / CHP support in the new EU10+ Support for RES / CHP Support category Support (€ct/kWh) % of market price No. of years of support Additional support Bulgaria RES/CHP FIT 4 – 8.5 200 - 300 12 yrs - Czech Republic 6 – 10 200 – 300 15 yrs Investment subsidies Estonia RES 7 – 12 yrs Hungary 6 – 6.8 ~ 200 Until return is yielded Latvia 200 8 yrs Lithuania 5.8 – 6.4 Until 2020 Soft loans, tax exemption Poland TGC Depending on market price Up to 233 No limit RES exempted from excise tax Romania Minimum 2.4 – 4.2 Slovakia 6 - 20 100 - 350 Until 2010 Slovenia 5 - 7 140 – 200 10 yrs Tax exemption 16-1-2019

Overview of RES-E support schemes in Europe 16-1-2019

Is RES-E / CHP support effective? Support existing for only a few years, no conclusion possible yet about effectiveness of FIT or TGC Strong growth of RES-E not yet noticed with exception of Hungary (growth in biomass co-firing and small CHP) But, many new RES-E projects are under implementation or planned Support mechanisms can overcome economic barriers such as large upfront investments, depending on tariff level Tariff level is not sufficient in every country Little differentiation benefits some technologies too little, other perhaps too much (e.g. co-firing of biomass in Hungary) 16-1-2019

DER regulatory issues – Market Access Sale of DER-E Access to wholesale market Bulgaria RPO Yes Czech Rep. Estonia Hungary No Latvia Lithuania Poland Romania GC Slovakia Slovenia Regulated purchase obligation most common Also access to wholesale market in most new Member States RPO = Regulated Purchase Obligation GC = Green Certificates 16-1-2019

DER regulatory issues – Balancing conditions No common balancing conditions Obligatory notification of DER generation amounts in some countries DER is not active part of generation reserve 16-1-2019

DER regulatory issues – Network access No uniform connection charging method Large differences in charging approaches Use-of-System charges for DER operators not common in NMS 16-1-2019

Main barriers to DER increase – short-term Policy barriers: Frequently changing policies and priorities Regulatory barriers: Long procedures for spatial planning, construction permissions Network (regulatory) barriers: Complicated (non-standardised) connection procedures Prices sometimes discriminatory to small-scale generators Dominant position of DSOs Financial barriers: Large initial investments and credit availability Availability of support (schemes are often unstable) Feed-in tariff schemes not cost-effective in the long term Technical barriers: DER connected in less populated areas means higher connection costs or network upgrades  Preferential wind power locations often in remote areas 16-1-2019

Main barriers to DER increase – long-term Long-term barriers No long-term RES-E / CHP targets and policies What targets to be expected after 2010? Are long-term policy plans in line with increased DER shares? Costs for network upgrades when not taking DER into account in planning Threat of higher costs of electricity with more DER connected Fragmented and also often changing support for DER (both in EU15 as in NMS Soon no overcapacity but shortage of capacity (e.g. due to nuclear phase-out in Lithuania, Slovakia, Bulgaria) Questions What countries have structural generation overcapacity (still in 2010 or 2020), perhaps Czech Republic, Poland? What kind of power capacity will replace nuclear power plants? Are most efficient technologies supported with existing support schemes, what about CHP? What is the opinion of major stakeholders? 16-1-2019

Preliminary conclusions DER plays an increasing role in the new MS In the form of CHP and recently new RES-E capacity DER support schemes introduced (to meet RES-E targets) Mainly in the form of FIT combined with RPO Support levels in some countries comparable to that in EU15 Slow but steady uptake of RES-E capacity Participation of DER in energy markets still limited But some countries provide access to wholesale and/or balancing market DER regulatory framework shows large differences between countries: System of connection charging Balancing conditions (obligations and access) 16-1-2019

Short- and medium term policy and regulatory recommendations Complete the unbundling process, within the legal framework as well as in practise Simplify authorisation procedures for spatial planning and construction permits through a “one-stop shop system” for project authorisation Introduce transparent and non-discriminatory grid connection, grid use conditions as well as cost allocation between DER operators and network operators Ensure market access for DER operators through simplified procedures to wholesale, balancing and ancillary services markets In the development of support schemes, take into account their cost-effectiveness in the long-term and the stability it has to create for investors 16-1-2019

Thank you for your attention ! SOLID-DER project website: http://www.solid-der.org/ miroslav.maly@enviros.cz tendonkelaar@ecn.nl