ween el

a

m ATI

ectricity Belgium experimental ground for the

future EU market?

l : * a 7 + redemption

“grey electricity

T he green electricity market is viewpoint on the market mechanisms

rapidly developing on an inter- necessary to prepare for this interna-

national scale, with an ever- tional trade, while maintaining the sub-

increasing concentration of trade at the sidiarity at the demand side of the mar-

EU level. In this article Geert Palmers, ket, and maintaining the ambitions of a

of 3E NV in Belgium presents his recent EU White Paper on this subject.

The following recommendations are

made to ensure a fraud-proof and smooth

development of the green energy market,

in line with the ambitions stated in the EU

White Paper entitled ‘Energy for the

Future: Renewable Sources of Energy’:

Introduction of a European-wide certi-

fication and trade monitoring system,

allowing subsidiarity on the demand

side, while ensuring fraud-proof moni-

toring of green energy consumption

and guaranteeing transparency with

respect to the burden sharing

Labetling should be integrated in the

certificate system as part of quality dif-

ferentiation towards clients

The adoption of a system for small

decentralised units. For example, by

grouping units on the level of the grid

operator.

Introduction The contribution of Belgium in absolute

terms to the EU renewable energy target is

modest. Of the 22.1% of the EU gross

electricity consumption target in 20 10,

corresponding to about 675 TWh,

Belgium is to ‘green’ 6% of its gross

26 October 2001 RE::” www.re-focusmet

0 FEATURE ~~ GREEN ELECTRICITY

electricity consumption, which is about

1% of the EU total volume, correspond-

ing to over 6TWh. The burden sharing as

proposed in the draft directive is for

Belgium acceptable though ambitious. If

the burden sharing had been established

on the basis of equal cost/GDP (Gross

Domestic Product) or equal cost/capita,

the targets for Belgium would be higher

than 6 % [5b]. Based on the marginal cost

curves for Belgium and assuming the tar-

get of 6% by 2010, an equilibrium market

price for green certificates can be deter-

mined. A price of 6 Eurocents/kWh is

expected in [5]. Starting from an electric-

ity price of 3 Eurocents/kWh in 2010 [5],

the value of green electricity would

amount to about 9 Eurocents/kWh. If one

would consider an open EU market with a

common target of 662 TWh, a European

equilibrium price of 6.2 Eurocents is

expected [ 51.

RE policy in Belgium In Belgium, the transmission of electricity is

governed by the Federal Government whilst

the distribution and demand side policy is

treated on a regional level. In this way the

Walloon, Brussels and Flemish regional

governments each have their own policy

with respect to renewable energies. On the

other hand, the Belgian Federal State is still

in charge of the policy on offshore wind

power.

The Flemish Region is the first region in

the EU to have introduced a system of

green electricity certificate trading com-

bined with penalty enforced quotas

imposed on electricity supply companies.

The Walloon Region allows the choice

between green certificates trading and fixed

tariffs. The Brussels Region also foresees the

possibility to introduce green certificates

[l] ,[2] ,[3]. In addition, the Federal govern-

ment has the introduction of a quota on the

direct supply to high-voltage end-users

under consideration. These quotas can be

met by means of green electricity certificates

issued on a regional or federal level (i.e. off-

shore wind).

A summary of the main characteristics of

the policy of the different Belgian govern-

ments regarding renewable energies is pre-

sented in Table 1. Given the co-existence of

4 different mechanisms to support a small

green electricity market of 6.3 TWh in

2010, the Regions and the Federal State

have declared their intention to harmonize

in order to rationalise the green electricity

market in Belgium [4]

In this context the different aspects of the

market mechanisms are analysed and a

Table 1: Summary of renewable energy policies of the Belgian governments

system is proposed that is in accordance

with the following main requirements:

(1) Simplification and harmonisation

between the regions

(2) Readiness for future international trade

(3) Co-existence of quota driven market

and cost covering tariff

It is believed that the conclusions of this

analysis can be applied on an EU level. In

the next part of this article the different

aspects of the proposed system are formu-

lated in this perspective.

Recommended Market Mechanism EU harmonised certification and market monitoring Green electricity is being traded as we speak

and in the near future it will be traded at

ever-increasing volumes. But at the

moment there is no internationally recog-

nized guarantee for clients. The only system

that is already at an advanced stage is the

RECS system. It has all the required com-

ponents for a fraud-proof market develop-

ment: A national issuing body, a central

monitoring office, and an international

auditing function. The system has a lot of

potential and can be applied in the short

term on an EU level for voluntary interna-

tional trade [6].

Trade versus no trade The advantage of trading is that green tar-

gets are reached by building renewable ener-

gy plants at the most advantageous loca-

tions. For example, taking the relatively low

potential in Beigium into account, the gain

of trade is considerable. According to [5],

savings of up to 40% can be reached simply

by trading EU-wide.

An important issue to consider is that

national mandatory target levels are based

on equity rules (‘burden sharing’), to avoid

distortion of the market, which is in con-

flict with the objectives of the European

common market philosophy and common

environmental objectives. Countries or

regions with fixed feed-in tariffs are in this

respect a ‘captured’ share of the market,

where no trade occurs.

Subsidiarity at the demand side The way the demand side is organised does

not necessarily need to be harmonised on

an EU level. The successful German or

Spanish systems, for example, could con-

tinue as they are. Two essential elements

do, however, have to be guaranteed: (1) A

fraud-proof system of monitoring the con-

sumption throughout the EU independent

of the local market mechanism; and (2)

Transparency on the distribution of the

burden.

(1) Guaranteed feed-in can be considered

as almost equivalent to a guaranteed

price for certificates. Regions apply-

ing the guaranteed feed-in tariff can

continue such systems, while redeem-

ing the associated certificates at the

moment the green electricity is con-

sumed. The quota driven market,

the voluntary market, and the

In Belgium electriciq transmission is governed by

the Government, whilst the distribution and

demand side policy is treated on a regional level.

October 2001 RE#‘<)L:$,*‘, www.re-focus.net 27

(?J FEATURE GREEN ELECTRICITY

(2)

guaranteed-price market all have to

ensure redemption of certificates at

the moment of consumption, as indi-

cated in Figure 1. For the guaranteed

price-market, all consumers in that

market are considered to consume the

amount that is redeemed for the asso-

ciated period of time. Any mecha-

nism where the demand is organised

by means of green certificates and

quotas needs stable and long term

quota, in line with stated policy

objectives and penalties to be effec-

tive. In countries with a quota based

system, guaranteed prices could also

be installed for specific cases, such as

for innovative technologies that hold

technological risk whilst at the same

time presenting an important future

potential (e.g. offshore wind). Such

guaranteed prices can be granted for a

limited period of time. The overall

volume of such support should be

limited in proportion to the overall

volume of certificates in this market

(to ensure minimal market liquidity)

and the quota in this market should

be decreased accordingly.

Energy consumers pay the burden up

to the governmental objectives accord-

ing to the ‘polluter pays’ principle.

Additional green electricity can be

consumed on a voluntary basis. It is to

be ensured that the voluntarily con-

sumed certificates are taken out of the

market, (i.e. redeemed when

consumed) and not used to comply

with the governmental obligation.

Transparency on the distribution of

the burden is also important from a

policy maker’s perspective to monitor

the equitable character and the inter-

action with other measures such as fis-

cal stimuli.

Treatment of ‘grey’ electricity The physical electricity should not be

treated differently from other electricity.

The transmission tariff structure and the

grid code should nevertheless take into

account the evolution towards a decen-

tralised energy supply system. State-of-

the-art ICT technology is to be used to

allow optimal integration from an electro-

technical perspective (e.g. power quality

control and safety) and the planning

process (e.g. predictive tools, statistical

treatment of decentralised renewable

units). The required possibilities for equi-

table burden sharing for infrastructural

adaptations are to be made available.

Transparency in cost for grid connection

is essential.

Labelling to assist consumers Labelling of green energy helps the con-

sumer to make choices for one or the other

product. NGO’s and public institutions

cati play an important role to diversify

green certificates according to qualitative

characteristics. Especially in a voluntary

market, additional differentiation is

required between green certificates from

MSW or PV, from existing capacity or new

capacity, etc..

Small decentralised generators Small, decentralised generators will not

play a significant role in the energy mix

until 2020. It can be expected that sup-

port to the amount of at least 10

Eurocents will be required to make PV

enter into the energy mix by 2010, for the

Southern EU. There is, however, an

opportunity to integrate support schemes

for these technologies in the same system

as for other technologies (for reasons of

easy market monitoring). The most

appropriate mechanism is to oblige the

grid operator to pay a fixed price for PV

electricity whereby this is realised in prac-

tice as a reduction on the electricity bill

sent by the supplier to the PV system

owner. The grid operator can recover all

or a part of the burden from the regional

government. Green certificates for an

amount equivalent to the sum of the PV

electricity produced by all systems in the

grid operators working area, are issued on

a regular basis. These are redeemed when

consumed by the region served by the

grid operator. Again, existing successful

schemes such as the cost covering tariffs

in Germany, Spain and Luxembourg can

be tuned without major changes to this

model.

Conclusions The green electricity market is growing

quickly across the world so it needs a

transnational market mechanism.

To recap, the following criteria are

proposed:

(1) Standardisation and harmonisation

between different regions

(2) Preparation for future international

trade

(3) Co-existence of a quota driven market

and a cost covering tariff.

To ensure a smooth development path for

the green energy market, free of opportuni-

ties for fraud and malpractice, the recom-

mendations are for:

l Installation of a European-wide certifi-

cation and trade monitoring system,

allowing subsidiarity on the demand

side, while ensuring fraud-proof moni-

toring of green energy consumption

and guaranteeing transparency with

respect to the burden sharing.

l Stimulating labelling as part of

quality differentiation to clients, and

integrating it into the certificate

system.

l The adoption of a system for small

decentralised units. For example, by

grouping units on the level of the grid

operator.

References [l] Ministerie van Tewerkstelling,

Economic, Energie en Huisvesting van

het Brussels Hoofdstedelijk Gewest,

“Projet d’ordonnance relative B l’organ-

isation du march& de l’&lectricit&

en Region de Bruxelles-Capitale”,

Decembre 2000

[2] Vlaams Decreet van 17 juli 2000

houdende de organisatie van de elec-

triciteitsmarkt (B.S. 22 September

2000).

[3] D&ret Wallon du 12 avril2001 relatif g

l’organisation du march& rCgional de

l’&ctricit& (M.B. 01 mai 2001).

[4] Palmers G. “Elektriciteit uit hernieuw-

bare energiebronnen - Analyse ter

voorbereiding van Koninklijk Be&it -

Artikel 7 - Federale Wet 29 april

1999”, Staatsecretariaat voor Energy

en Duurzame Ontwikkeling, January

2001

[5] M.H. Voogt, “Renewable Energy

Burden Sharing”, May 2001, ECN-C-

01-030, co-financed by the European

Commission, Directorate General for

Research.

[6] RECS, “Basic Commitment for

Participants in RECS”, Second Draft ; www.recs.org

Contact: Geert Palmers, 3E nv,

Verenigingsstraat 39, 1000 Brussels. E-mail:

geert.palmersO3E.be

28