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Chapter 1: Wind in the European power market

Renewable energy policies in Europe

Europe’s electricity market is made up of rigid structures that do not take the environmental advantages of wind energy into account. New entrants face a number of barriers: they have to compete with conventional plants that were built decades ago, and which are operated and maintained by government funds through former state-owned utilities in a monopoly market. In addition, incumbent electricity players tend to be powerful vertically-integrated companies. New technologies experience obstacles when entering the market and often struggle to gain grid access and obtain fair and transparent connection costs.

The EU has acknowledged these problems, and set up a specific legal framework for renewable energies, including wind, which seeks to overcome such barriers.

The first step in this direction was the European Commission’s (EC) 1997 White Paper on renewable sources of energy, which set a target for 40,000 MW of wind power to be installed in the EU by 2010. In the event, this target was reached in 2005, five years ahead of schedule. Part of the White Paper target was to increase electricity production from renewable energy sources by 338 TWh between 1995 and 2010.

In 2001, the EU passed what is still the world's most significant piece of legislation for electricity produced by renewable energies, including wind: EC Directive 2001/77/EC on the promotion of electricity produced from renewable energy sources in the internal electricity market. This directive has been tremendously successful in promoting renewables, and particularly wind energy, and it is the key factor explaining the success of renewables worldwide. Its purpose is “to promote an increase in the contribution of renewable energy sources to electricity production in the internal market for electricity and to create a basis for a future Community framework thereof.”

The 2001 EC Directive contains an indicative target of 21% of the final electricity demand in the EU to be covered by renewable energy sources (RES) by 2010, and regulates the electricity markets in which RES operate. Some key aspects of the 2001 directive are the:

  • streamlining of the administrative procedures that precede the installation of a new plant;
  • application of support schemes that compensate renewable electricity for its positive environmental impacts and its contribution to the security of supply;
  • issuing of guarantees of origin, and the
  • regulation of transparent mechanisms to bear the costs of technical adaptation.

While the directive had no noticeable impact on wind energy development in the three pioneer countries (Germany, Spain and Denmark), which had introduced national legislation several years before the Directive was established, it sparked the adaptation of legal frameworks in the remaining EU countries, and several countries outside Europe, to encourage investments in wind power and other renewable electricity sources.

Thanks to the directive, Europe has become the world leader in renewable energy technology. Europe has benefited commercially through exports, reduced energy import dependence, a better environment and the creation of thousands of high quality jobs.

The 2001 Renewable Electricity Directive gives Member States the possibility to choose from different support mechanisms for the promotion of RES that produce electricity. There are two main tools: feed-in tariffs (either fixed price or premium over the “power price”) and green certificates. Other possibilities, such as public tendering, investment incentives or tax exemptions are also applied by a few countries, but they tend to disappear, or are combined with one of the two main tools.

18 out of the 27 EU countries use feed-in tariffs, but there are differences between them, including whether a stepped tariff is applied, the existence of a premium option, tariff reductions and forecast obligations.

The European Commission has made it clear that it aims to harmonise support schemes for renewable electricity in the long term, but that it is still too early to decide in favour of one system due to the limited experience with cross-border mechanisms. In addition, the Commission believes that there are other barriers that have to be overcome first, such as delays in authorisation procedures, unfair grid conditions, and slow reinforcement and extension of the electricity grid.

The European Parliament has for many years been calling for a mandatory 25% target for renewable energy by 2020. The gradual implementation of the 2001 Renewable Electricity Directive in the Member States, as well as the unanimous decision made by the European Council at its Spring Summit in March 2007 for a binding 20% share of renewable energy in the EU by 2020, are all steps in the right direction, and indicators of increased political commitment. The share of renewable energy needs to go up from 8.5% in 2005 to 20% in 2020, which means that more than one-third of the EU’s electricity will have to come from renewables, up from 15% in 2007. It is already clear that wind energy will be the largest contributor to this increase.

The 20% target indicates that the long-term future for wind power remains promising, and that Europe could achieve 300 GW of wind power capacity by 2030 if regulatory uncertainty can be minimised.

The strong development of wind power can continue in the coming years as long as the clear commitment of the European Union and its Member States to wind power development continues to strengthen, and as long as this is backed up by effective policies. It is vital for the future development of wind power in Europe that the European Parliament and Council swiftly adopt the EU Renewable Energy Directive tabled by the European Commission on 23 January 2008.

Europe can go a long way towards an energy mix that is superior to the business-as-usual scenario, offering greater energy independence, lower energy costs, reduced fuel price risk, improved competitiveness and more technology exports. Over the coming years, wind energy will play a major role in reaching this superior energy mix.

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