EWEA - The European Wind Energy Association

Legal Framework for Wind Energy

Key aspects of the RES-E directive 77/2001/EC

Wind power is a newcomer to a long established electricity market with rigid structures. The existing market structures do not recognise the environmental advantages of wind energy - see the section on environment. New entrants to the electricity market face substantial barriers in terms of capital costs. They have to compete with conventional plants that were built decades ago, and operated and maintained by government funds, through state-owned utilities in a monopoly market. In addition, incumbent electricity players tend to be powerful vertically-integrated companies. New technologies experience several obstacles when entering the market and often have to struggle to gain grid access and obtain transparent and fair connection cost.

The EU acknowledged these problems and set up a specific legal framework for renewable energies, including wind, which seeks to overcome such barriers. The main tool for the integration of electricity producing renewable energies, including wind, is the EC Directive 2001/77/EC of the European Parliament and of the Council of 27 September 2001 on the promotion of electricity produced from renewable energy sources in the internal electricity market (September 2001). 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 EC Directive contains an indicative target of 21% of final electricity demand in the EU to be covered by renewable energy sources by 2010, and regulates the electricity markets in which they operate. Some key aspects of the RES-E directive are the:

• streamlining of 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;
• publication of guarantees of origin; and
• regulation of transparent mechanisms to bear the costs of technical adaptation.

The 2001 RES-E directive is by far the single most globally important case of legislation for wind energy. The EU Directive had no noticeable impact on wind energy development in the three pioneer countries (Germany, Spain and Denmark) as they introduced national legislation several years before the Directive was established. However, the EU legislation sparked the adaptation of legal frameworks in the remaining EU countries, and several countries outside Europe, for investments in wind power and other renewable electricity sources. European companies are global leaders in wind power and Europe is reaping commercial benefits from exports and environmental benefits, and at the same time creating employment and fostering innovation.

The EU is also aware of the success of this legislation, confirmed by several subsequent reports. In 2004, the European Commission, in its Communication “The share of renewable energy in the EU”, assessed the progress made in achieving the 2010 renewables targets (Communication from the Commission to the Council and the European Parliament – “The share of renewable energy in the EU” (May 2004).

One year later, the European Commission reviewed and assessed the various support schemes for renewable electricity (Communication from the Commission – “The support of electricity from renewable energy sources” COM(2005) 627 (07/12/05), and reported encouraging trends in a handful of countries, due to the maintenance of barriers that the RES-e directive intends to tackle.

In January 2007, the EC reported that the European Union will fall just short of the 21% objective, due to an appropriate legislative framework having been put in place (http://ec.europa.eu/energy/energy_policy/index_en.htm). The report clearly states that among the various sources of RES, wind energy has been a real success - with a growth in wind capacity of 150% since 2001.

The European Wind Energy Association believes that the RES-E directive constitutes the world’s most significant piece of legislation for renewable electricity, and is the key factor explaining the success of renewable energies, including wind, worldwide. Thanks to the RES-E directive, Europe has become the world leader in renewable energy technology. Europe has benefited commercially from exports, through reduced energy import dependence, a better environment and the creation of thousands of high quality jobs.

In addition, EWEA considers sector-specific targets for EU Member States (as they stand in the RES-E directive) a fundamental prerequisite for an effective strategy to boost the share of renewable energy. Sector-specific targets are needed to account for the different nature of the various technologies, as well as their divergent requirements, in terms of infrastructure and monitoring.

Support mechanisms for RES electricity

The RES-E 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 “pool”) 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 25 EU countries use feed-in tariffs (August 2006), but there are differences, including whether a stepped tariff is applied, the existence of a premium option, tariff degression rates and forecast obligations. A thorough discussion on the advantages and disadvantages of various support systems can be found on the OPTRES project site and the RE-Xpansion project site.

The European Commission has stated its aim to harmonise support schemes for renewable electricity in the long term, but believes that it is still too early to decide in favour of one system, due to the limited evidence available. In addition, the European Commission believes that there are other very relevant barriers that first have to be overcome, such as delays in authorisations, unfair grid conditions and slow reinforcement and extension of the electric power grid. (see Communication from the Commission – “The support of electricity from renewable energy sources” COM(2005) 627 (07/12/05). EWEA supports these views and believes that it is premature to force renewable energies into an internal market framework, at a time when competition is far from being effective in 95% of the overall internal electricity market, and whose distortions discriminate against renewable energy.

In EWEA’s view, any shift to a Community-wide mechanism must be well prepared, and should take place only after effective competition in the Internal Electricity Market has been achieved, as stated in EWEA’s position paper on the future of EU support systems.

Competition issues in the internal electricity market

The electricity liberalisation directive was passed in December 1996 and repealed by Directive 2003/54/EC in July 2003, aiming for the liberalisation of the business sector by 1 July, 2004 and of the consumer sector by 1 July 2007. Within vertically integrated companies, the directive establishes legal separation between network (transmission and distribution) and other activities (generation, trade and supply), but not full ownership unbundling. EWEA strongly believes that full ownership unbundling is a prerequisite for effective competition in the internal electricity market.

Since 2001, the European Commission has been monitoring the development of market opening through its so-called “benchmarking reports” published annually. The 2006 report concludes that:

“Consumers and businesses are losing out because of inefficient and expensive gas and electricity markets. Particular problems include high levels of market concentration; vertical integration of supply, generation and infrastructure leading to a lack of equal access to, and insufficient investment in infrastructure; and, possible collusion between incumbent operators to share markets. To tackle these problems, the Commission will pursue follow-up action in individual cases under the competition rules (anti-trust, merger control and state aids) and act to improve the regulatory framework for energy liberalization.”

The Commission has already conducted a number of inspections in companies where these particular issues warrant investigation. The January 2007 Energy Package of the European Commission recommends full ownership unbundling of transmission and production of electricity and gas, a view fully shared by EWEA. Therefore, EWEA supports the Commission proposal of 19 September 2007 amending the 2003 Directive which proposes ownership unbundling.

Other relevant legislation for wind

Another piece of legislation applicable to the wind energy sector is the state aid guidelines. A set of guidelines exists which refers to the environment and justifies the use of support mechanisms (feed-in tariffs or green certificates) for renewables, on the basis of their environmental benefits and as compensation for the lack of internalisation of external cost in energy production.

EWEA’s activities on the legal framework for wind energy

EWEA closely monitors the development of the legal framework for wind energy, especially the RES-E directive, which is considered by the sector to be primarily responsible for the success of wind energy. Most of the activities of the Association are linked to the different chapters of the directive (grid integration, analysis of the different support systems, transparency in procedures, removal of the administrative and grid access barriers).

For more information on EWEA’s position regarding the internal electricity market and the effectiveness of the RES-E directive, please refer to the documents below. In addition, the Association has developed different studies that analyse the effectiveness of the regulatory framework, such as the Re-Xpansion project.