The inclusion of large scale hydro power in the European Union's Renewables Directive is key not only to the renewables industry itself, but to the EU's ability to achieve its commitments under the Kyoto Protocol. Peter Cassidy examines the implications for hydro power
Under the Kyoto Protocol, the European Union (EU) has committed itself to reducing its greenhouse gas (GHG) emissions by 8% below 1990 levels, by the period 2008-2012. One of the ways it will achieve this is through an increase in the generation and usage of electricity from renewable energy sources (RES). In the draft directive, RES were described as ‘renewable non-fossil sources (wind, solar, geothermal, wave, tidal, hydroelectric installations with a capacity below 10MW and bio-mass). In the adopted text, however, energy produced from large scale hydroelectric schemes is also included.
The inclusion of large scale hydro is key not only to the industry itself but also to the EU’s ability to achieve its commitment under the Kyoto Protocol. Some countries, such as Austria, may depend on this type of energy in order to achieve their individual target under the directive.
Indicative or mandatory?
The adopted directive does not impose mandatory targets. Ultimately, it was felt that it is important for Member States to maintain a level of flexibility, in light of their own national circumstances, to identify the strategy best suited to meet their own climate change commitments. The directive does, however, impose obligations on Member States to implement steps ensuring that consumption of electricity from RES is consistent with the EU’s overall energy and environmental objectives. Moreover, if the performance of any state is found to be inconsistent, proposals must also be presented to the European Parliament and the Council as to how this situation can be rectified – including mandatory targets if necessary.
But how achievable are the targets? Without the inclusion of large scale hydroelectric schemes some countries, such as Austria, Sweden, Finland and Portugal, might answer ‘not very’. A further issue to consider regarding the contribution of large scale hydroelectric schemes is refurbishment. Refurbished plants are estimated to be up to 10% more efficient. When considering refurbishment, one must also bear in mind that:
• The technology is proven.
• Financing mechanisms may possibly be more flexible as the technology is proven.
• If pumped storage facilities are installed, refurbished plants will not be subject to possible penalties arising from intermittent power generation.
The draft directive introduced a compulsory obligation on Member States to ensure transmission system operators and distribution operators give renewable energy priority access to the grid system. The wording ‘only in so far as the operation of the national electricity system permits’ has now softened this requirement. However, in line with the draft:
• Member states will have to either establish a legal framework or make operators establish and publish their rules on how costs should be apportioned with respect to issues such as grid connections and reinforcements.
• Transmission and distribution system operators must provide a new producer of electricity from RES wishing to be connected, with a comprehensive and detailed estimate of the costs associated with the connection.
• A procedure has to be established with respect to the allocation of costs resulting from systems installation – this must be allocated between all producers of electricity from RES, who will benefit from each respective installation.
Finally, with respect to grid access, the adopted directive has introduced the following obligations:
• Transmission and distribution costs should not discriminate against electricity from RES.
• Realisable cost benefits, for example from the usage of a low-voltage grid, should be reflected in the amount charged for transmission and distribution of electricity from plants using RES.
Within the UK, one of the chief obstacles in the way of attaining RES targets is the adverse effect of the New Electricity Trading Arrangements (NETA) on the renewables industry.
As the report from Cambridge Econometrics points out ‘it is particularly important for renewable energy plants to have easy, low cost access to regional electricity distribution networks if projects are to be viable’.
It is perhaps, therefore, no surprise that NETA has been criticised for being biased against electricity from RES because it favours reliable plant – penalising those participants whose metered output or consumption of electricity does not match their advance contractual commitments. Hence, intermittent producers of renewable energy, such as small scale hydroelectric, will struggle under NETA.
Financial hardship for smaller generators has also arisen from the cost of implementing the complex systems required to facilitate NETA – the generation sector alone invested around £500m (US$711) in preparation for the system. It goes without saying that smaller generators had greater difficulty in absorbing these installation costs.
It is interesting to note, however, that larger hydroelectric schemes will probably not be affected by the problems facing intermittent producers of electricity as long as they are able to accurately predict the amount of electricity to be produced for any given trading period.
Member States operate different mechanisms of support for production of electricity from RES at a national level, including green certificates, investment aid, tax exemptions or reductions, tax refunds and direct support schemes. The directive requires the Commission (without prejudice to Articles 87 and 88 of the European Treaty) to review the success of disparate national support schemes four years after it comes into force – one year earlier than proposed in the draft.
Then, if it is deemed necessary, the Commission must prepare a proposal for a support scheme framework, which should:
• Contribute to the achievement of the national indicative targets.
• Be compatible with the principles of the internal electricity market.
• Take into account the characteristics of the different sources of renewable energy, together with the different technologies, and geographical differences.
In addition, the proposed framework should be simple, cost efficient and have provision for a sufficient transitional period of at least seven years.
It would not be surprising, however, if large hydroelectric schemes were not deemed to qualify for support schemes given issues already mentioned, that is, not only are they a proven technology but also they carry with them a number of environmental concerns. It may, possibly, be a different story for small scale schemes which are not only generally deemed to be more environmentally friendly but also have more difficulties in accessing grid systems.
Guarantee of origin
As with the draft, the new directive will introduce a ‘guarantee of origin system’. Hence, Member States are obliged to appoint one or more independent bodies to certify that the electricity in question came from a RES.
The directive also recognises the importance of Member States introducing appropriate control procedures in the administration of the system, to avoid problems relating to fraud. Certificates are to be mutually recognised by Member States – should a state refuse to do so, it can be forced to do so by the Commission.
Note, however, Article 5 of the directive stipulates that the guarantee of origin certificates must, in the case of hydroelectric installations, state the capacity of the plant. Does this leave room for larger schemes to be removed from the directive at some point in the future, for example if it is felt that the negative environmental aspects of larger schemes eventually outweigh their benefits? Or when less established renewable energy technologies, such as tidal, become more proven?
A major barrier to the further development of RES electricity in the EU is the administrative and planning procedures that potential generators must face. Hence, each Member State is required by Article 6 of the directive to evaluate and produce a report upon the existing legislative and regulatory frameworks in place, with regard to the authorisation procedures which are applicable to production plants for electricity produced from RES.
The report should look at ways of reducing barriers in order to encourage an increase in production of RES electricity, as well as streamlining the procedures at the appropriate administrative level.
This report must be published by 27 October 2003, and will be used by the Commission in the compilation of its summary report as detailed in Article 8 of the directive.
The Commission is required to compile a summary report on the implementation of the directive, by 31 December 2005. This will be based on the reports of Member States created in accordance with Article 3 and Article 6 of the directive. Subsequent reports will be compiled every five years thereafter.
The Commission is required to submit further proposals, along with the reports, if it is deemed appropriate.
To comply under the directive, ‘Member States [must] bring into force the laws, regulations and administrative provisions necessary to comply with this Directive not later than 27 October 2003’.
Hydroelectric power is part of the renewables directive and as such, has perhaps (especially in terms of larger schemes) been given a valuable life extension. The industry should, possibly, now lobby EU Member State governments (for example, regarding the administrative procedures associated with upgrading existing plant) and work with them to help Member States achieve their renewable energy targets.