Renewable Energy Sources (RES)
According to Article 2(1) of the Directive (EU) 2018/2001 of the European Parliament and of the Council of 11 December 2018 on the promotion of the use of energy from renewable sources (RED II) “energy from renewable sources” or “renewable energy” means “energy from renewable non-fossil sources, namely wind, solar (solar thermal and solar photovoltaic) and geothermal energy, ambient energy, tide, wave and other ocean energy, hydropower, biomass, landfill gas, sewage treatment plant gas, and biogas”.
The analogous definition in Article 2(30) of the Directive 2009/72/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in electricity and repealing Directive 2003/54/EC) was “renewable non-fossil energy sources (wind, solar, geothermal, wave, tidal, hydropower, biomass, landfill gas, sewage treatment plant gas and biogases)". As explained in Recital 32 of the RED II, electricity produced in pumped storage units from water that has previously been pumped uphill should not be considered to be renewable electricity.
The generation from renewable energy sources (RES) is central to the electricity generation mix in Europe, according to the CEER Report of 14 December 2018 (Status Review of Renewable Support Schemes in Europe for 2016 and 2017, Ref: C18-SD-63-03, p. 8) it reached - as of the said dates - the level of circa 30%.
However, the share of renewables required to achieve the greenhouse gas emissions reduction target of 55% under the European Green Deal is of around 38.5% (Commission Communication of 17 September 2020, Stepping up Europe’s 2030 climate ambition Investing in a climate-neutral future for the benefit of our people, COM/2020/562 final).
RES plants enjoy, mostly, the priority in terms of network connection and dispatching, however, the recast of the Electricity Regulation (Regulation (EU) 2019/943 of the European Parliament and of the Council of 5 June 2019 on the internal market for electricity (recast)) establishes for the renewable energy sources the universal balancing responsibility, and the phase-out of priority dispatch for new installations.
According to the said CEER Report of 14 December 2018 “for a total of 18 CEER Member countries, balancing responsibility for RES producers is a feature in their support schemes. In 10 of those 18 countries, the balancing responsibility counts for all RES producers, whereas in the other 8 countries, only selected RES producers face such responsibilities”. The said Report concludes that in terms of market integration, RES plants “increasingly have the same financial responsibility as conventional plants for electricity balancing, at least above a certain threshold of capacity installed”. Nevertheless, there is the need to integrate fully RES in balancing markets.
As the ENTSO-E paper of 31 March 2021 (Options for the design of European Electricity Markets in 2030, Discussion Paper for Stakeholder Consultation) underlines, “with the increasing share of RES, it becomes increasingly important that RES also provide system balancing services”. According to the said ENTSO-E paper of 31 March 2021:
- participation of RES in balancing markets is already allowed in many countries as established both in the Electricity Balancing Guideline and in the Electricity Regulation, nonetheless, the effective participation of RES in these services has still not reached its full potential;
- balancing markets should be as “open” as technically possible to all participants, facilitating access to emerging technologies and players such as RES; or this purpose, explicit technical barriers to RES participation in short-term markets – such as specific pre-qualification rules or disproportionate IT requirements – should be removed.
The said ENTSO-E paper of 31 March 2021 recommends some measures so that support schemes do not (implicitly or explicitly) prevent RES producers from offering their flexibilities on balancing markets - depending on each type of support scheme (e.g., FIT, FIP or investment supports):
1. given that feed-in-premiums (FIP) support schemes based on energy infeed induce distortions in the balancing merit order as RES producers factor in the loss of premium when submitting downward offers ENTSO-E proposes:
- to also pay the premium when RES gets activated for negative balancing energy (similar to the compensation frequently paid for RES curtailment), or
- to pay the premium not for a fixed period but for a fixed number of full-load hours (in this case, the premium is not lost when a RES unit is activated for down-regulation but can be regained later);
2. in investment support schemes market players can be incentivised to bid their marginal cost, so that they do not lose any support associated with the reduced energy when being down-regulated.
The RES funding relies mostly on non-tax levies. According to the said CEER Report of 14 December 2018, RES charges for the years 2016 and 2017 composed of 13% to 14%, respectively, of the average household electricity price in Europe, however, there were wide national variations in RES support across the EU countries, ranging from €12.87/MWh in Norway to €198.29/MWh in the Czech Republic.
Mainly, four types of RES support schemes are in place in EU:
- Feed-in Tariff (FIT),
- Feed-in Premium (FIP),
- Green certificates (GC), and
- Investment grants.
Directive (EU) 2018/2001 of the European Parliament and of the Council of 11 December 2018 on the promotion of the use of energy from renewable sources (RED II), Recital 5
The CEER Report of 11 April 2017 (Status Review of Renewable Support Schemes in Europe C16-SDE-56-03, p. 10) notes that in the period 2014-2015 FIT schemes were the most prevalent form of RES support throughout Europe (21 out of 28 Member countries) and throughout RES technologies.
According to the said CEER document of 11 April 2017:
- 13 CEER Member countries relied exclusively on FIT schemes to support their RES deployment (Bulgaria, Croatia, Cyprus, Denmark, Estonia, France, Greece, Hungary, Ireland, Latvia, Lithuania, Portugal, Slovenia);
- green certificates schemes were implemented in seven countries although they were being phased out in Italy, Poland and in the UK;
- investment grants were used as support type in Austria (for hydropower and PV), Finland (all supported RES), Luxemburg (for all supported RES), Malta (for PV) and in Sweden (for PV);
- FIP schemes were only implemented in different forms in six CEER member countries (Czech Republic, Finland, Germany, Italy, Netherlands, and the UK).
The said CEER document of 11 April 2017 further observed that in many CEER member countries, two or more support systems cohabited, often combining FIT schemes with more market oriented support elements such as investments grants (Austria, Malta), FIP (Czech Republic, Germany, Italy, UK) or green certificates (UK, Italy).
The CEER document of 18 June 2018 (Tendering procedures for RES in Europe: State of play and first lessons learnt, C17-SD-60-03, p. 6), observes that the competitive bidding schemes for RES vary substantially depending on political priorities, market environment and the legal framework within each country.
Tendering designs can encompass a great number of criteria, which, according to the CEER can be grouped into the following broad categories:
1. eligibility of RES technologies: technology-neutral vs. technology-specific;
2. pricing rule (e.g. pay-as-bid or uniform pricing);
3. price caps (minimum/ maximum bid level);
4. participation criteria (e.g. size, type of candidates, national vs. cross-border);
5. prequalification criteria (e.g. financial securities, technical requirements such as building
permits, land use planning);
6. selection criteria (e.g. price per KW or per kWh, volume, local content, environmental
7. tendered volume;
8. frequency of tendering rounds;
9. penalties (for non-compliance or different realisation time as foreseen); and
10. tradability of support entitlements.
According to the said CEER Report of 14 December 2018, the proportion of gross electricity produced receiving RES support differs widely from one country to another, ranging from 3% in Norway to 63% in Denmark, with an average of approximately 17% across CEER Member countries in 2016 (which represents a slight increase from an average proportion of around 16% in 2014).
It is noteworthy, Article 13(6) of the Regulation (EU) 2019/943 of the European Parliament and of the Council of 5 June 2019 on the internal market for electricity (recast), provides that where non-market-based downward redispatching is used, the following principles shall apply:
(a) power-generating facilities using renewable energy sources shall only be subject to downward redispatching if no other alternative exists or if other solutions would result in significantly disproportionate costs or severe risks to network security;
(b) electricity generated in a high-efficiency cogeneration process shall only be subject to downward redispatching if, other than downward redispatching of power-generating facilities using renewable energy sources, no other alternative exists or if other solutions would result in disproportionate costs or severe risks to network security;
(c) self-generated electricity from generating installations using renewable energy sources or high-efficiency cogeneration which is not fed into the transmission or distribution network shall not be subject to downward redispatching unless no other solution would resolve network security issues;
(d) downward redispatching under points (a), (b) and (c) shall be duly and transparently justified.
Directive (EU) 2018/2001 of the European Parliament and of the Council of 11 December 2018 on the promotion of the use of energy from renewable sources (RED II) added new Annex VI to include a common greenhouse gas accounting methodology for biomass fuels for heat and power, including default values.
Renewable energy policies under the European Green Deal
Renewable energy plays a fundamental role for delivering the European Green Deal and for achieving climate neutrality by 2050.
Commission Communication of 17 September 2020 (Stepping up Europe’s 2030 climate ambition Investing in a climate-neutral future for the benefit of our people, COM/2020/562 final) indicates that to achieve this goal the European Commission will look into capacity building schemes to implement citizen-driven renewable energy communities financed by the EU and self-consumption models enabling higher consumer uptake and faster development of decentralised renewable energy technologies. Continuous support for corporate sourcing of renewable energy, and establishing minimum mandatory green public procurement criteria and targets in relation to renewable energy may also be needed. Specifically in the fossil fuel dominated heating and cooling sector, the Commission intends to assess the nature and the level of the existing, indicative heating and cooling target, including the target for district heating and cooling, as well as the necessary measures and calculation framework to mainstream further renewable and low carbon based solutions, including electricity, in buildings and industry.
RES supports and negative prices
According to the said ENTSO-E paper of 31 March 2021 (Options for the design of European Electricity Markets in 2030, Discussion Paper for Stakeholder Consultation) negative prices are a sign of the inflexibility of the energy system as they occur when not all electricity infeed can be matched by demand or exports, and it is still more profitable for some generators to continue generating at negative wholesale prices than to disconnect. ENTSO-E paper of 31 March 2021 is, however, of the opinion that a certain degree of system inflexibility is inevitable and even efficient - therefore, it is important that based on a free price formation principle, such price signals are allowed to occur to send incentives to market participants which reflect the current system status. “Although it may seem odd that producers would pay for the electricity they produce”, there are reasons behind this:
- considerable start/stop costs of some power plants; and
- if assets receive other remuneration outside the whole-sale market, i. e., the CHPs that produce steam, assets which provide system services to the system operator, must-run, or assets that receive subsidies for their electricity infeed (such as RES) via certain types of support schemes.
While negative prices do not constitute an adequacy challenge in itself, their indirect effect can cause issues from a system operation perspective. If, in fact, a large number of generation capacity disconnects in a short period of time because of negative prices, this leads to significant challenges, such as ramping, as we are already seeing in some countries. In times of negative prices, assets like wind farms or PV stop producing electricity if a market premium is not being paid. These quick in-feed changes result not only in challenges for operating margin but also in significant deterministic frequency deviations and local/zonal voltage issues. Therefore, the question remains to what extent and how market design can possibly mitigate the side effects of the interaction of negative prices and RES supported technologies.
Dispatching of generation and demand response
1.The dispatching of power-generating facilities and demand response shall be non-discriminatory, transparent and, unless otherwise provided under paragraphs 2 to 6, market based.
2.Without prejudice to Articles 107, 108 and 109 TFEU, Member States shall ensure that when dispatching electricity generating installations, system operators shall give priority to generating installations using renewable energy sources to the extent permitted by the secure operation of the national electricity system, based on transparent and non-discriminatory criteria and where such power-generating facilities are either:
(a) power-generating facilities that use renewable energy sources and have an installed electricity capacity of less than 400 kW; or
(b) demonstration projects for innovative technologies, subject to approval by the regulatory authority, provided that such priority is limited to the time and extent necessary for achieving the demonstration purposes.
3.A Member State may decide not to apply priority dispatch to power-generating facilities as referred to in point (a) of paragraph 2 with a start of operation at least six months after that decision, or to apply a lower minimum capacity than that set out under point (a) of paragraph 2, provided that:
(a) it has well-functioning intraday and other wholesale and balancing markets and that those markets are fully accessible to all market participants in accordance with this Regulation;
(b) redispatching rules and congestion management are transparent to all market participants;
(c) the national contribution of the Member State towards the Union's binding overall target for share of energy from renewable sources under Article 3(2) of Directive (EU) 2018/2001 of the European Parliament and of the Council (18) and point (a)(2) of Article 4 of Regulation (EU) 2018/1999 of the European Parliament and of the Council (19) is at least equal to the corresponding result of the formula set out in Annex II to Regulation (EU) 2018/1999 and the Member State's share of energy from renewable sources is not below its reference points under point (a)(2) of Article 4 of Regulation (EU) 2018/1999, or alternatively, the Member State's share of energy from renewable sources in gross final electricity consumption is at least 50 %;
(d) the Member State has notified the planned derogation to the Commission setting out in detail how the conditions set out under points (a), (b) and (c) are fulfilled; and
(e) the Member State has published the planned derogation, including the detailed reasoning for the granting of that derogation, taking due account of the protection of commercially sensitive information where required.
Any derogation shall avoid retroactive changes that affect generating installations already benefiting from priority dispatch, notwithstanding any agreement between a Member State and the operator of a generating installation on a voluntary basis.
Without prejudice to Articles 107, 108 and 109 TFEU, Member States may provide incentives to installations eligible for priority dispatch to voluntarily give up priority dispatch.
4.Without prejudice to Articles 107, 108 and 109 TFEU, Member States may provide for priority dispatch for electricity generated in power-generating facilities using high-efficiency cogeneration with an installed electricity capacity of less than 400 kW.
5.For power-generating facilities commissioned as from 1 January 2026, point (a) of paragraph 2 shall apply only to power-generating facilities that use renewable energy sources and have an installed electricity capacity of less than 200 kW.
6.Without prejudice to contracts concluded before 4 July 2019, power-generating facilities that use renewable energy sources or high-efficiency cogeneration and were commissioned before 4 July 2019 and, when commissioned, were subject to priority dispatch under Article 15(5) of Directive 2012/27/EU or Article 16(2) of Directive 2009/28/EC of the European Parliament and of the Council (20) shall continue to benefit from priority dispatch. Priority dispatch shall no longer apply to such power-generating facilities from the date on which the power-generating facility becomes subject to significant modifications, which shall be deemed to be the case at least where a new connection agreement is required or where the generation capacity of the power-generating facility is increased.
7.Priority dispatch shall not endanger the secure operation of the electricity system, shall not be used as a justification for curtailment of cross-zonal capacities beyond what is provided for in Article 16 and shall be based on transparent and non-discriminatory criteria.
Subject to requirements relating to the maintenance of the reliability and safety of the grid, based on transparent and non-discriminatory criteria established by the regulatory authorities, transmission system operators and distribution system operators shall:
(a) guarantee the capability of transmission networks and distribution networks to transmit electricity produced from renewable energy sources or high-efficiency cogeneration with minimum possible redispatching, which shall not prevent network planning from taking into account limited redispatching where the transmission system operator or distribution system operator is able to demonstrate in a transparent way that doing so is more economically efficient and does not exceed 5 % of the annual generated electricity in installations which use renewable energy sources and which are directly connected to their respective grid, unless otherwise provided by a Member State in which electricity from power-generating facilities using renewable energy sources or high-efficiency cogeneration represents more than 50 % of the annual gross final consumption of electricity;
(b) take appropriate grid-related and market-related operational measures in order to minimise the downward redispatching of electricity produced from renewable energy sources or from high-efficiency cogeneration; (c) ensure that their networks are sufficiently flexible so that they are able to manage them.
European Energy Regulators recommend that the removal of priority dispatch should be extended to include existing (as well as new) RES plants, because:
European Energy Regulators welcome the Clean Energy package’s proposals to pursue a transparent and non-discriminatory market for redispatching plants based on economic merit-order in which RES competes with other sources. We agree that in such cases market based prices should form the basis of compensation paid to RES plants that are curtailed.
European Energy Regulators also support the proposals to help distribution system operators reduce the need for RES curtailment. However, a market for redispatching plants may not always be feasible (as Article 12 of the Electricity Regulation rightly notes) and market prices for RES curtailment may not always send efficient signals. In this context, European Energy Regulators are especially concerned by the proposed provision setting a floor on the compensation for curtailed RES plants at 90% of the day-ahead price, which does not appear to be supported by any economic consideration and thus might be considered arbitrarily set. Hence, European Energy Regulators recommend changes to Article 12 of the Electricity Regulation to remove the 90% compensation floor for RES curtailment.
European Energy Regulators’ White Paper #1 Renewables in the Wholesale Market Relevant to European Commission’s Clean Energy Proposals, 11 May 2017, p. 2
The Clean Energy Package provides a first step forward when it comes to both integrating renewable energy sources in the market, and making the market fit for renewables. In combination with the reform of the Renewable Energy Directive (RED II) which foresees the partial opening of RES financial support schemes to cross- border participation, Articles 4 and 11 of the draft recast Electricity Regulation establish the principles of universal balancing responsibility, and the phase-out of priority dispatch for new installations, respectively. These rules combined will help speed up the integration of renewable energy sources into the market, while the reform of, inter alia, balancing markets launched with the Electricity Balancing Guideline will ensure that the market also accommodates all forms of power generation, demand response and storage.
Article 12.5 of the draft recast Regulation also enshrines in EU legislation priority access for RES generators (and CHP operators): in case of non-market based redispatch, RES and CHP units would be the last ones to be curtailed or redispatched. We believe non-market based curtailment and redispatching should be a last resort option for TSOs (who should always use market measures first), and in this case system security should prevail as the main criterion for curtailment or redispatch decisions. Therefore, we recommend the deletion of the subarticle.
Finally, Article 11.4 of draft recast Regulation enshrines in European legislation the continuation of priority dispatch for RES generation units commissioned prior to the entry into force of the new Regulation. We believe the obligatory grandfathering of nationally created rights through EU legislation is unnecessarily generous and may not be entirely consistent with the current State Aid Guidelines for energy and environment. The indefinite continuation of a right to priority dispatch mandated by EU law, barring a need for renegotiation of the relevant units’ connection agreement, also jars with the clear cessation of immunity from balance responsibility provided for in Article 4 of the draft recast Regulation. We urge reconsideration of the terms of this sub-article.
EFET commentary on the Clean Energy Package for All Europeans, 20 April 2017, 20 April 2017, p. 15, 16