1. Energy Management and Policy 04/12/2004Supply-Side Energy Policies M.Sc. in Engineering Policy and Management of Technology Supply-Side Energy Policies Prof. Manuel Heitor mheitor@ist.utl.pt Maria João Rodrigues mjrodrigues@dem.ist.utl.pt

2. Energy Management and Policy 04/12/2004Supply-Side Energy Policies RENEWABLE ENERGY POLICIES GENERAL CONSIDERATIONS Contribution of RE Policies to overall Energy Policy Objectives Environmental Protection Renewable energies are a means of achieving reduced environenmental impact of energy production Renewable energies are a means of complying with international commitments such as the ones associated with the Kyoto Protocol Security of Supply and Diversification of Sources Renewable energies are unexhautible endogeneous sources of energy that allow for the reduction of dependency on exports, therefore increasing security of supply and diversification of energy sources

3. Energy Management and Policy 04/12/2004Supply-Side Energy Policies RENEWABLE ENERGY POLICIES RATIONALE FOR GOVERNMENT INTERVENTION Technology maturity Non-internalisation of negative externalities of conventional technologies Hidden subsidies for conventional technologies LEVELING THE PLAYING FIELD FOR RENEWABLES MARKET WILL NOT FUNCTION FOR ITSELF Energy market liberalisation

4. Energy Management and Policy 04/12/2004Supply-Side Energy Policies RENEWABLE ENERGY POLICIES THE EUROPEAN CONTEXT White Paper for the Promotion of Renewable Energy Sources, EC, 1997 Proposes that by the year of 2010 12% of the primary energy supply of the EU should come from renewables, therefore doubling the 1997 share Directive on the promotion of electricity from renewable energy sources in the internal electricity market, EU Directive 2001/77/EC of 27 September 2001 Establishes indicative figures for MS targets of RES-Electricity in relation to gross electricity consumption by the year 2010 Commits the MS to establish a system for the certification of installations based on RES, giving the consumer the information regarding the origin of the sources for RES-Electricity EC must report the experiences of different RE promotional instruments by October 2005 and if necessary formulate a proposal for harmonised rules

5. Energy Management and Policy 04/12/2004Supply-Side Energy Policies RENEWABLE ENERGY POLICIES POLICY INSTRUMENTS Incentives on investment Non-reimbursable incentives Reimbursable incentives with low or no interest and with grace periods associated Low interest loans Incentives on production Feed-in Model (FIM) Tender System (TS) Certificates Trading Model (CTM) Indirect incentives Tax benefits to consumers R&D funding Tax exemptions

6. Energy Management and Policy 04/12/2004Supply-Side Energy Policies RENEWABLE ENERGY POLICIES FEED-IN MODEL Basic Principle Long-term minimum price guaranteed for the electricity produced from renewable sources Design variables Level of incentive Fixed price at t=0, invariable price in time Fixed price at t=0, variable price in time Price at t equal to market price plus fixed premium Technology-differentiated Resource availability differentiated for a given technology Technology-development adjusted Duration of incentive

7. Energy Management and Policy 04/12/2004Supply-Side Energy Policies RENEWABLE ENERGY POLICIES FEED-IN MODEL Known enhanced tariff Known time period of guaranteed remuneration Short lead times Standardised costs for grid connection Low risk (Risk associated mainly with resource variability) Atractive investment

8. Energy Management and Policy 04/12/2004Supply-Side Energy Policies Basic Principle Tenders in relation to energy supply from renewables made at intermittent intervals. Winning bids receive a long-term contract with fixed price per unit electricity generated. Each RE- tecnology receives a quota. RENEWABLE ENERGY POLICIES TENDER SYSTEM Main outcomes Reduced prices Low installed capacities relatively to potential (e.g. wind energy) Low realisation of winning bids due to local opposition and bureaucratic planning procedures Intermittent character of the tender system inserts high uncertainty in equipment industry The system has been abandoned in the UK (only country where the system has been implemented)

9. Energy Management and Policy 04/12/2004Supply-Side Energy Policies RENEWABLE ENERGY POLICIES CERTIFICATES TRADING MODEL Basic Principle Renewable energy electricity receive the market price for conventional electricity supplemented by the market price of the green certificate. Design variables Limitation (upper and lower bound) of green certificate market price Obligatory quota on utilities or consumers Technologies to be included in the CTM with respect to elegibility Technologies to be included in the CTM with respect to technology maturitity Compatibility with green pricing

10. Energy Management and Policy 04/12/2004Supply-Side Energy Policies RENEWABLE ENERGY POLICIES INTERNATIONAL CERTIFICATES TRADING MODEL Advantages Stabilisation of certificate prices Barriers Harmonisation of national rules to avoid unfair competition Example The RECS System

11. Energy Management and Policy 04/12/2004Supply-Side Energy Policies RENEWABLE ENERGY POLICIES FIM, CTM AND MARKET CONFORMITY Neither FIM or CTM can be claimed fully market conform In FIM, the price of RES-E is established by the government while its quantity is determined by the market In CTM, the price of RES-E is determined by the market while its quantity is established by the government Both models therefore are a mix of market features and regulations If there is a regulated price interval for the green certificates, market conformity of CTM is further reduced

12. Energy Management and Policy 04/12/2004Supply-Side Energy Policies REFERENCES & FURTHER READING European Commission (1997), White Paper for a Community Strategy and Action Plan – Energy for the Future: Renewable Sources of Energy, COM (97), Brussels Official Journal of the European Communities L283/33, 27.10.2001, 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 ECN/ UAM/CMUR/RISØ/ZEW (2000), InTraCert Project – The Role of an Integrated Green Certificate System in a Liberalising Market, Contract no. NNE5/1999/428, European Commission 1999, Inception Report, Report No. EC-C-- 00-085, ECN http://www.ecn.nl/library/reports/2000e/c00085.html ECN/Oeko-Institut/SPRU (1999), The Implications of Tradable Green Certificates for the Deployment of Renewable Energy Technologies, Altener Contract No. XVII/4.1030/Z/98-037, European Commission 1998, Mid- Term Report, Report No. ECN-C--99-072, ECN http://www.ecn.nl/library/reports/1999e/c99072.html Hoogland, F.C.J, Metzelaar, W.F., Schaeffer, G.J., Boots, M.G., Martens, J.W., Voogt,.H. (1999), Green Certificates: Empowering the Market?!, 2nd World Sustainable Energy Fair, Amsterdam, The Netherlands http://www.ecn.nl/library/reports/1999e/i99001.html

13. Energy Management and Policy 04/12/2004Supply-Side Energy Policies REFERENCES & FURTHER READING Hoogland, F.C.J, Metzelaar, W.F., Schaeffer, G.J., Boots, M.G., Martens, J.W., Voogt,.H. (1999), Tradable Green Certificates – A new Market-based Incentive Scheme: Introduction and Analysis, Report No. ECN-I--99-004, ECN (NL) http://www.ecn.nl/library/reports/1999e/i99004.html Wiser, R.H., Fowlie, M. (2001), Public Goods and Private Interests: Understanding Non-residential Demand for Green Power, Report No. LBNL-47300, Lawrence Berkeley National Laboratory (USA) http://eetd.lbl.gov/ea/ems/ems_pubs.html#RES Wiser, R.H. (1999), The Role of Public Policy in Emerging Green Power Markets – An analysis of Marketer Preferences, Report No. LBNL-44178, Lawrence Berkeley National Laboratory (USA) http://eetd.lbl.gov/ea/ems/ems_pubs.html#RES Meyer, N., European schemes for promoting renewables in liberalised markets, Energy Policy 31 (2003) 665-676 http://www.sciencedirect.com/ Reiche, D., Bechberger, M., Policy differences in the promotion of renewable energies in the EU member states, Energy Policy 32 (2004) 843-849 http://www.sciencedirect.com/