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Different transition paths to low carbon power: Germany, UK, EU

This article explores the different approaches and policies towards low carbon power in Germany, UK, and the EU. It discusses the evolution of the power mix, the politics and policies of transition, and the implementation of renewable energy acts.

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Different transition paths to low carbon power: Germany, UK, EU

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  1. Different transition paths to low carbon power: Germany, UK, EU Volkmar.Lauber@sbg.ac.at University of Salzburg, Austria Carleton University, 1-2 October 2015 Volkmar Lauber/Canada

  2. Clarifications on low/zero carbon • Only renewable power is carbon-free • German FIT only supports renewable power • UK FIT with CfD supports “low carbon”, i.e. • Renewable power (zero carbon) • Nuclear power is “low carbon”, not C-free • CCS (low carbon - a share of CO2 is emitted) • Current EU policy closer to that of UK Volkmar Lauber/Canada

  3. Different evolution of power mix in Germany and UK • In 1990, both had mostly coal plants, supplemented by nuclear power • UK started replacing sizeable part of coal by gas starting in 1990s, followed by contraction of gas in 2010s; 65 TWh of renewable power by 2014 (slide) • Germany:decline of hard coal + nuclear from 2007 onwards; less gas; steady growth of renewable power to 160 TWh in 2014 (slide) Volkmar Lauber/Canada

  4. Electricity generation in the United Kingdom by fuel source/technology, 1980-2014 Source: Department of Energy & Climate Change (2015) Digest of United Kingdom Energy Statistics. Infographics, p.7, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/449434/DUKES_2015_Infographics.pdf. Volkmar Lauber/Canada

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  6. Table of contents:Politics and policy of transition • Germany 2000-2010 • UK 2000-2008 • Germany 2010-2015 • UK 2008-2015 5. EU late 1990s-2015 Volkmar Lauber/Canada

  7. Part 1: Germany, 2000-2010 Intention and first implementation of the Renewable Energy Act of 2000 Volkmar Lauber/Canada

  8. The origins of Germany’sRenewable Energy Act of 2000 • Precursor (Feed-In Law of 1990) designed by Conservative Party, pro-renewable power MPs responding to civil society pressure. In 2000 with red-green MPs. • Rejecting/defeating support schemes pushed by Econ. Affairs Ministry and European Commission • Recurring battles with European Comm. until 2014 Volkmar Lauber/Canada

  9. Purposes of Renewable Energy Act 2000 (by red-green government) Enable full transition from nuclear (phase-out by about 2022) and fossil to renewable power by • Creating steady demand for renewable power (RP) equipment by reducing risk for small and (unlike utilities) motivated investors • Supporting rise of RP equipment industry to drive down prices through steady innovation • Creating new industry, jobs, exports Volkmar Lauber/Canada

  10. Instruments of EEG 2000 Priority access for all renewable power tendered to utilities (solar PV only after 2003) Principle of full cost payments to generators (all investment costs plus small profit for well-run facilities – about 6% then) Guaranteed 20 year payments, degressive and differentiated by technology All technologies supported in parallel (unlike UK) Volkmar Lauber/Canada

  11. Implementation of EEG 2000 • At first, resistance by European Commission (see below), but big success for about 10 ys: • rapid deployment (beating minimum targets), • creation of equip. industry, jobs, exports, • big investments despite restive incumbents, • comparatively low cost (3 slides) • highly popular exc. with Liberal party leaders + Conservative business leaders Volkmar Lauber/Canada

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  13. Minimum targets regularly over-achieved/ moved upwards till 2010 • EEG 2000: 12% by 2010 achieved in 2005 (5 ys early) • EEG 2004: 20% by 2020 achieved in 2011 (9 ys early) • EEG 2008: 30% by 2020 probably achieved in 2015 (5 ys) • NREAP 2009: 38.6% by 2020 ________________________________ • Energiekonzept2010/EEG 2011/EEG 2014: 35%-2020 Volkmar Lauber/Canada

  14. Germany: Renewable energy sector job growth, 1998-2011 Source: Unendlich viel Energie (2012): Arbeitsmarkt Erneuerbare Energien. Available on http://www.unendlich-viel-energie.de/de/wirtschaft/arbeitsplaetze-erneuerbare-karriere/arbeitsmarkt-erneuerbare-energien.html, 08.01.2013. Volkmar Lauber/Canada

  15. Figure 1. Ownership structure in 2010 of renewable electricity installations in Germany (not including pumped storage) (Total installed capacity: 53,0 GW) Adapted from: trend:research (2011) p.45. Volkmar Lauber/Canada

  16. Payment for Wind Energy in Europe 2011 Volkmar Lauber/Canada

  17. Price ranges (average to minimumsupport) for direct support of onshore wind in EU27 (average tariffs are indicative) compared to long-term marginal costs (minimum to average costs). Support schemes are normalised to 15 years. CEC:Commission Staff Working Paper SEC(2008)57, The support of electricity from renewable energy sources, pp. 25- 26 Volkmar Lauber/Canada

  18. Historically observed efficiency of support for onshore wind: Effectiveness indicator compared to expected profit in 2006.CEC:Commission Staff Working Paper SEC(2008)57, The support of electricity from renewable energy sources, p.32 Volkmar Lauber/Canada

  19. Part 2: UK 2000-2008 • Intentions and first implementation of Renewables Obligation (RO) Volkmar Lauber/Canada

  20. Origins and Purpose • Designed by Treasury (NFFO model) and DTI - with minimal role for UK Parliament (West-minster model…); Thatcherist economics • Bring down price of renewable power by competition (DE: also technological learning) • Supports market creation only for the currently cheapest technologies (not all simultaneously, as in Germany); windfalls if new tech. with higher prices is needed Volkmar Lauber/Canada

  21. The instruments of the RO • Requires utilities to hand in renewable energy certificates for a set (and annually increasing) percentage of their sales (quota), from own generation or bought from outside (traded) • Generators get market price + certif. price • Certificates are traded -> volatility (“cliff”?) • Volatility eliminates SME participation (high risk) and deters rise of equipment industry Volkmar Lauber/Canada

  22. Impact of RO • Purpose of RO 2002 was to drive down prices for renewable power -> diffusion • In practice, RO (and similar schemes in Italy, Belgium, Poland…) led to highest prices in EU • By excluding small investors, it also freed incumbents largely from competition and deployment pressures -> slow deployment • Led to little technological learning, little participation in RP industry Volkmar Lauber/Canada

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  24. Part 3. Germany 2010-2014: Dismantling EEG? • By its old opponents: Econ. Aff. Ministry, big incumbents, Liberal leaders, Business wing of Conservative Party • New opponents: other Conservatives, since 2013 also key Social Democratic leaders • Interestingly, this is hardly reflected in public support– overwhelming approval rates for “citizen Energiewende” even in 2014 (EMNID) Volkmar Lauber/Canada

  25. Arguments for holding down renewable power growth • Excessive support due to lacking competition • Leads to market creation for technologies which are not yet market ready (PV?) • Excessive growth of RP means high consumer cost and danger to competitiveness of German industry… deindustrialisation? Volkmar Lauber/Canada

  26. Arguments of Critics • Excessively rapid deployment of technologies • Excessive support for technologies which are not market ready (particularly PV, which surged in 2009-2012) • Lack of direct price competition among generators (all get the FIT) • High consumer costs • Loss of competitiveness of German industry, deindustrialisation at end of the road Volkmar Lauber/Canada

  27. Background: Acceleration of RP growth (Source: AGEB, 2015) Volkmar Lauber/Canada

  28. Germany: PV growth: Installed capacity (in MW) and energy supply (in GWh) from photovoltaic installations, 1990-2011 (cumulative) Adapted from: Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (2012). Volkmar Lauber/Canada

  29. Other reasons for changing attitudes among political leaders Perceived need to help the ailing big four electricity incumbents suffering from • problematic take-overs after liberalisation, • nuclear phase-out zig-zag (Con.-Lib. Govt) • neglecting renewable power investments • excessive new build of gas and coal plants at time of falling demand (since 2008) • Under the merit order, incumbents lose profitable peak load to PV and wind Volkmar Lauber/Canada

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  31. Weak government arguments • Cost to households grew also due to rapid growth of exemptions for big industry (€4bn) • Also because merit-order savings (PV + wind displace expensive fossil generation) were not passed on to households+SMEs. Paradox:Lower wholesale prices due to RP growth increase “extra cost” of RP to households, SMEs • Ignores external costs of and subsidies to conventional power (see next slide, also 2015 IMF study) Volkmar Lauber/Canada

  32. From Lauber and Jacobsson (2015) PV 2015 8-12 1.18 0.4 11.58

  33. Figure: 1: German PV FITs from January 2004 to October 2013 Bernard Chabot (2013) Diversity in PV Systems Sizes and Market Deployment Management from Prices: Two Strategic Lessons from the German PV Policy and Measures. P. 1. Available at: http://cf01.erneuerbareenergien.schluetersche.de/files/smfiledata/3/0/3/4/9/9/TwoStrategicLessons.pdf, 09.09.2013. Volkmar Lauber/Canada

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  35. Instruments for slowing growth, reducing costs and re-empowering corporate actors • EEG 2014: Reducing targets + tariffs, setting caps for each technology (flexible for PV since 2010; absolute by 2017 with tender system?) • By 2017: Change to new type of support system: tendering/bidding system, as in European Commission (2014) guidelines • Favours incumbents, other corporate actors Volkmar Lauber/Canada

  36. Goals nearly unchanged since 2010 (not increased as in past) • Goal: 80% renewable power by 2050, set in 2010 when nuclear phase-out was postponed. Then this was a minimum target; 2014 a cap • But at EU level, the German government presses for binding 2030 targets, though still modest ones (30% for all renewable energy) • Currently govt. hesitates to openly put coal phase-out on its agenda Volkmar Lauber/Canada

  37. Part 4: UK policies 2008-2015: Contradictory developments • 2008-10: Strong stimulation of RP growth by banded RO and “German-style” FITs, leads to near-tripling of RP generation in 2010-14 • Since 2010, Cameron govt. formulates new policy (CfD) to privilege nuclear power: Bidding for subsidies • Simultaneously, govt. plans to terminate banded RO and perhaps FIT by 2016 Volkmar Lauber/Canada

  38. Britain 2008-2015Zig-zag policies? • 2008-2010: Reforming RO and introducing FITs almost triples deployment in four years (slide), increases spending, raises ambitions (30% by 2030 • But more or less U-turn with Electricity Market Reform since 2011: Reform stretches FITs with Contracts for Difference (CfD), a method to allocate subsidies by auction for all “low-carbon” - to support nuclear (Hinkley Pt C) and CCS generation. Volkmar Lauber/Canada

  39. End of RO in 2016. And also of FIT? • Banded RO is successful, achieves high growth; terminated “because too expensive” • FIT tariff benefits above all solar PV: About 8 GW installed by 3rd quarter of 2015 by some 800.000, mostly small investors. • In summer 2015, DECC announced the end of FITs for onshore wind and strong reductions for biomass and (by 60-70%) for PV by 2016 (new PV FIT: 1.03 to 1.63 pence) Volkmar Lauber/Canada

  40. UK position in EU with Cameron • UK reverts to its old position: At EU level, it opposes binding and ambitious (beyond 27%) 2030 targets for member states. Cost argument credible? (given special treatment for Hinkley Point C) • Allies with Poland, Czech Republic to hold down EU targets for renewables • Pleads for more use of gas (Shell intervention with EU in 2013), slowdown for renewables • CfD fit 2014 EU State aid guidelines for energy Volkmar Lauber/Canada

  41. Electricity generation from renewable sources in the United Kingdom, 2000-2014 Source: Department of Energy & Climate Change (2015) UK Energy in Brief 2015, p.30, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/449067/UK_Energy_in_Brief_2015.pdf. Volkmar Lauber/Canada

  42. Feed in Tariffs in the United Kingdom, 2011 to 2015 Source: Department of Energy & Climate Change (2015) UK Energy in Brief 2015, p.28, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/449067/UK_Energy_in_Brief_2015.pdf. Volkmar Lauber/Canada

  43. Part 5: European Union politics and policy on renewable power • Political controversy extended above all to definition of “renewable energy” (nuclear? waste?), targets, support schemes, and state aid guidelines • Outcomes are codified in -Renewable Energy Directive 2001/77/EC, -Renewable Energy Directive 2009/28/EC, -State aid guidelines on environment/energy, most recently from 2014 Volkmar Lauber/Canada

  44. Transformation in EU-28 is much slower than in UK or Germany • Renewable power generation doubled between 2002 and 2012 (next slide) • Phase-out of generation from fuel oil, coal and nuclear started (upcoming slide), but fossil/nuclear resistance hardened since 2010 • Post-2010 EU policy is to go slow on renewables deployment (“Europe alone cannot save the world” – Oettinger) Volkmar Lauber/Canada

  45. Share of renewable electricity in EU-28, 2002-2012 Volkmar Lauber/Canada

  46. Source: SolarPower Europe Global Market Outlook (2015), http://www.solarpowereurope.org/fileadmin/user_upload/documents/Publications/Global_Market_Outlook_2015_-2019 Volkmar Lauber/Canada

  47. Biggest controversies over choice of support instruments and targets • Before first (2001) RP Directive: Effort by European Commission to push through quota cum tradable certificate scheme (such as RO)and to ban FITs; founders in Parl. and Council • Before 2nd (2009) RP Directive: Similar Commission effort, fails again • 2013-14: Similar Commission effort to phase out FITs by backdoor of state aid guidelines; legality still controversial (is before Court) Volkmar Lauber/Canada

  48. Different philosophies and interests • Stimulate RP growth via “competition by incumbents” (UK most of the time, EU Commission, EURELECTRIC) or via supporting technological learning and innovation? • Rapid shift to RP power to limit global warming (Denmark, Germany,…) or slow shift nursing existing fossil and nuclear generation (UK most years, power incumbents, Poland, Czech Rep., some other Eastern Europeans) • Physical trade of RP or just certificate trade? Volkmar Lauber/Canada

  49. Conflict over Dir. 2001/77/EC • Energy Commissioner Papoutsis tried to push through a quota cum tradable certificates model, similar to later RO. Sends emissaries to EU capitals (governments, utilities). Supports lawsuit challenging German FIT. • Met with strong resistance from renewable power assoc. (exc. British and Danish wind power), Parliament, German and Spanish governments Volkmar Lauber/Canada

  50. …2001/77/EC • Commission resigns, de Palacio is new energy commissioner. Submits a draft proposal (=bill) that leaves choice of support up to member states (“subsidiarity”), but they respect state aid and internal market provisions - opens back door challenge to FIT • However, Court in PreussenElektra vs. Schleswag rejects COM argument that FIT are state aid or violating internal market Volkmar Lauber/Canada

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