Rethinking state aid for environmental protection. Paul Dawson EFET 12 April 2013

Transcription

1 Rethinking state aid for environmental protection Paul Dawson EFET 12 April

2 Why support low carbon generation at all? Why the 20:20:20 package? How does this need to evolve? ETS Price the externality of GHG emissions Continue to price externality of GHG emissions RES Support emerging technologies & address policy uncertainty Policy uncertainty regarding ETS should decline, and some technologies will become mature EED Correct for other policy failures: e.g. regulated prices Rely on energy prices which reflect carbon externality and specific measures to target other externalities (e.g. labelling)

3 Summary of significant state aid issues resulting from current FIT based regimes Equivalent to open-ended operating aid in any individual hourly period Highly distortive to competitive outcomes: e.g. negative prices are indicative of inefficient dispatch Damaging to the internal market (e.g. loop flows, reductions in cross border capacity, prohibitions on import\export of RES) Lower liquidity: pushes trading close to real time, uncertainty from TSO involvement, non-transparent market. Damaging to ETS and national renewable support scheme have had no additional impact on GHG emissions Poor value for money limited incentives to reduce costs, locate plant efficiently or innovate Invites further intervention: privileged customers, national carbon taxes, capacity mechanisms etc. 3

4 Current policies (based on operating aid) are creating a damaging cascade effect Feed in tariffs RES investors want to avoid risk and uncertainty Priority dispatch Passes on risks to TSOs Reduced market liquidity Passes on risk to non RES generation Various exemptions Capacity mechanism Passes risk on to consumers Pushes risks to non-privileged consumers Passes on investment risks to consumers 4

5 A more commercial approach to evaluating RES and support Output MWh Traditional approach is based on comparing project costs: RES.v. conventional A better approach is to judge potential market value against support levels Price Euro/MWh However, market value depends on uncertain output and prices including distortions (e.g. priority dispatch, negative prices etc.) 5

6 Market integration makes it easier to identify the aid element Output MWh Commercial dispatch can increase value and reduce required support Allowing RES output to be moderated would increase its value (i.e. it would not have to run at a negative price) Removing artificial downside makes RES capacity more tradable in forward markets: more wholesale liquidity Price Euro/MWh easier for RES to get off-take contracts price transparency State aid could then be evaluated against the market value of 1MW of renewable capacity 6

7 Summary: EU energy policy should work towards a world without subsidy for low-carbon generation 100% Eventually, no subsidies In the meantime, EU not national targets - for 2030 and convergence of support schemes % of generation covered by Feed in tariffs Premiums or Certificates Commercial priority dispatch No subsidy (beyond ETS) No priority dispatch Common approach across RES and other low-carbon technologies RES to be sold into the market by producers: priority dispatch becomes a commercial decision RES producers become balance responsible (like other generators) Absolute priority dispatch No cross border restrictions on trade in RES generation

8 Next steps New state aid guidelines should lead to closer harmonisation of national renewable support: RES must be balance responsible and sell in the market tendering for capacity and phasing out of operating aid cross border trade in RES must be enabled via Guarantees of Origin The Preussen Elektra case must now be re-examined: there are now rules to govern cross border electricity trade so EU Treaty Article 34 TFEU is relevant post unbundling, regulated TSOs\DSOs are acting as the instruments of the state, so the Essent judgement C-206\06 should apply Directive 2009\72 should, anyway, prevent TSOs\DSOs from buying and selling electricity in wholesale markets Overall impact of new Member State initiatives must be thoroughly investigated: Cumulative effect of 27 x national RES and 27 x capacity mechanisms would mean the end of the internal market Article 108(2) process must be applied to allow for investigation and consultation of market parties 8

9 Background EFET documents Position Paper: Effective integration of renewable energy in the European power market : December 2010 Response to EC Renewable Energy Strategy Consultation: February 2012 Commentary to the EC Communication on Renewable Energy: October 2012 Response to first DG COMP consultation paper on State Aid for Environmental Protection: October Energy-and-Emissions 9

10 10