Renewable Incentives: Approaching Maturity 4th Edition Introduction 1 Australia 10 s Belgium 12 Czech Republic 14 t France 16 Germany 18 n Italy 20 Japan 22 Korea 24 e Morocco 26 t The Netherlands 28 Poland 30 Romania 32 n Slovakia 34 Spain 36 o Thailand 38 Turkey 40 United Arab Emirates 42 c United Kingdom 44 Ukraine 46 Renewable Incentives Guide 1 June 2014-4th edition Renewable Incentives Guide: 4th edition Introduction The last few years have seen a turbulent Growth in Global Renewables Investment time for the renewable energy sector. 2013 300 figures show that global investment in renewables fell significantly in both 2012 ) and 2013. Continuing global economic n o 200 i l l i problems and uncertainty over renewable b $ policy frameworks in key countries take a S U significant share of the blame. In particular, ( 100 retroactive reductions in incentives in a number of European countries (in the solar 0 sector) have caused investors to be 2005 2006 2007 2008 2009 2010 2011 2012 2013 extremely cautious about the stability of financial support mechanisms. Figures extracted from Global Trends in Renewable Energy Investment 2014 – Frankfurt School – UNEP Centre / Bloomberg New Energy Finance Interestingly, part of the reason for the declining value of investment in 2012/13 has been the reduction in technology costs, Global Renewable Electricity Capacity and Projection especially in solar and wind markets. This reduction in costs has helped deployment 3000 of renewables to continue rising despite recent falling value of investment, and 2000 deployment is projected to grow strongly at ) W least up to 2020. In 2012, total renewable G ( electricity generation capacity hit 1579 GW, 1000 and the International Energy Agency expects renewable electricity production to be 60% of the increase in power generation 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 across the OECD between 2012 and 2018 (see tables inset). Figures extracted from IAE's Medium-Term Renewable Energy Market Reports 2012 and 2013 Is renewable generation becoming cost- targets will be achieved across the EU, Europe will affect national policy on effective without subsidies? In some although around half the Member States renewables, particularly in light of cases, e.g. Turkey and New Zealand, need to make increased efforts. geo -political conflict in Eastern Europe, onshore wind can compete effectively in and the desirability of reducing reliance on However, while the Commission seeks the wholesale electricity markets. However, uncertain fuel supplies. Already the UK increased carbon reductions and in the main, renewable generation capacity Government has sought to push the EU renewable targets in its new 2030 climate still needs financial subsidies to ensure to expand shale gas development to package, a number of Member States are continued growth in capacity. How does improve EU energy security. resisting binding renewables targets as this fit with achieving targets? they look to other potential medium-term This Guide, now expanded to In Europe, there are some encouraging ways of reducing emissions. These 19 countries across the world, gives a signs of progress on meeting 2020 climate include possibly using shale gas as an description of the key renewable incentive change targets. The European interim measure to take over from coal schemes in these countries, focussing Commission (the Commission) expects the capacity. It remains to be seen how the principally on electricity generation. Over 20% carbon reduction and renewables potential for a shale gas bonanza in the years, a number of different types of © Clifford Chance 2 Renewable Incentives Guide subsidy mechanism have developed. Recently, Feed-in Tariff (FIT) / Feed-in Common types of renewable incentive mechanism for Premium (FIP) schemes and, to a lesser electricity generation degree, Green Certificate-type schemes Green Certificates (or Quota obligation mechanisms) have become the pre-dominant support Green Certificate schemes operate by awarding qualifying renewable energy mechanisms. For example, REN generators with certificates equivalent to the amount of renewable energy 21 i notes that five FIT schemes alone generated. Some newer renewable energy technologies may receive a larger were adopted in Africa and the Middle number of certificates than long-established technologies, to reflect the difference in East in 2012. These are joined by a wide deployment costs. Electricity suppliers are placed under an obligation to source a range of other ways of encouraging the certain proportion of their electricity from renewables and they evidence satisfaction growth of renewable energy, including tax of their obligation by presenting Green Certificates to the regulator, which are advantages, levies and grid connection bought from renewable generators. Penalties are payable if suppliers do not meet advantages (see box inset) . their obligation. Incentive schemes each have Feed-in Tariffs (FIT) / Feed-in Premiums (FIP) advantages and disadvantages in terms FIT schemes are more numerous than Green Certificate schemes as they are of encouraging production of new easier to administer and generally provide renewable energy generators with greater capacity, ensuring flexibility faced with certainty of income. FIT schemes pay a sum of money or tariff to generators on rising or falling costs, achieving top of their electricity sales. The sum paid is often a variable amount to “top up” renewables targets, providing certainty the sales income to an agreed level. This provides a high level of price guarantee to for investors, and their impacts on the generator. electricity markets. Experience of such FIPs are a more developed form of FIT scheme, which have been adopted by a schemes in Europe has led to one of the number of countries. They often involve payment of a fixed amount, irrespective of most significant recent developments: a the electricity sales price received by the generator, but they can be variable new push by the European Commission payments which respond in some degree to fluctuations in market pricing. They to regulate the forms of financial support result in generators being still exposed to electricity market prices. for renewable electricity generation on offer in Member States. Other types of subsidy / incentive measure A wide variety of policies and support measures exist, including: Intervention by the EU Commission n Carbon pricing and taxes on fossil fuels n Tax exemptions and deductions for energy saving investments The Commission has recently taken a more interventionist approach to n Priority rights to connect renewables to the grid renewable subsidies. It has looked not n Tax-efficient loan finance for renewable investment only at whether support should be n Guaranteed purchasers through “Supplier of last resort” mechanisms provided, but also at the forms of support n Exemptions from licensing requirements or discounts in fees on offer. This responds to a number of concerns. In particular, the Commission is worried that Member States are not continuing; see recent proposals in to become more integrated over the next considering suitable alternatives (such as Romania. The renewables sector now few years. Conflict can exist not only over expanding inter-connection capacity) has significant market share and there is the level of aid that can be given to before introducing support schemes. greater recognition that incentive renewable generators but also over the Also, the lack of flexibility of schemes to schemes can have an impact on grids extent to which domestic industries can deal with changing market conditions and and system stability. They can also be protected by the rises in prices that falling costs of technology has led to the impact on competition, not only between this will cause. renewable and traditional generators, but controversial retroactive changes made to The Commission’s new intervention has also between Member States, given a a number of support schemes in recent broadly taken two forms: years. These retroactive changes are still European electricity market which is set i Renewable Energy Policy Network for the 21st Century, in their Renewables 2013 Global Status Report © Clifford Chance Renewable Incentives Guide 3 n adoption in principle of new updated opened up to energy generation Guidelines on environmental and anywhere in the EU. What is State Aid? energy aid published in April 2014 Under EU law, state aid potentially (the New Guidelines); and The Commission’s arises whenever state resources are general direction used to provide assistance and that n publication of a Communication with The Commission recognises that the assistance gives some organisations accompanying working document various forms of support mechanism have an advantage over other setting out best practice on renewable different advantages and impacts. In organisations. It will be State aid if the subsidies (Best Practice Guidance). particular, FITs / FIPs tend to protect aid is liable to distort competition in a producers better from revenue risk but do relevant market and would be The New Guidelines will be of great not provide the efficiency benefits of sufficient to affect trade between interest to developers as they set out the exposure to market pricing. Green Member States. The advantage may, parameters for when the Commission will Certificate mechanisms, on the other for example, be a grant, loan or tax consider new subsidy mechanisms as hand, introduce market exposure but can, break or the