uk&germany renewable energy policy comparison yousif eltom
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A COMPARISON BETWEEN THE
RENEWABLE ENERGY POLICIES OF THEUK AND GERMANY
YOUSIF ELTOM | 061413353 | RENEWABLE ENERGY ME4504
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EXECUTIVE SUMMARY
Due to the world’s rising energy costs and energy demands, alongside with evidence that
conventional fossil fuel energy is peaking there is growing concern as to how the world can
secure its future energy supply.The European Renewable Energy Directive which was issued in 2009 outlines how member’s
states of the European Union should work towards securing a stable and sustainable supply
of energy from renewable sources.
The UK was set a target of achieving 15% of final energy consumption from renewable
sources by 2020 and Germany were set a target of 18%, for which each country has to
develop an action plan on how they aim to achieve their respective targets.
The UK’s main policy instrument is to use renewable obligations (RO), which obliges
electricity suppliers to source a certain quota of their supply from renewable sources.
Besides this, the UK also implemented a feed in tariff for small scale low carbon electricity to
promote the use of small scale system in households and businesses. The UK Government
has also recently issued plans to implement a renewable heat incentive to provide funding
for heat generation from renewable sources. Finally, in terms of biofuel application, the UK
has put into place a renewable transport fuel obligation (RTFO) which obliges fuel suppliersto supply a certain amount of fuel from renewable sources.
Germany has been a world leader in the solar PV and wind energy industry and has
exploited this over the last decade. Germany’s main policy instrument focuses on providing
feed in tariffs for the supply of energy from renewable sources, and provides the electricity
suppliers with premium fees for providing electricity from renewable sources. The German
government has implemented a renewable heat incentive which actually obliges
homeowners to source a certain amount of heat from renewable sources, with a certain
amount required depending on the technology applied. Furthermore, to promote the use
of biofuels, Germany provides tax incentives on the use of biofuels in an attempt to reach
their target of 10% renewable share of fuel market by 2020.
Both governments are on track to reach their 2020 targets, however Germany is expected
to surpass their target and achieve 19.6% of final energy consumption from renewable
sources
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TABLE OF CONTENTS
Executive Summary .................................................................................................................... 2
Introduction ............................................................................................................................... 4
European Renewable Energy Directive 2009 ............................................................................ 6
UK Renewable Energy Policy ..................................................................................................... 7
UK Policy instruments ............................................................................................................. 8
Renewable Obligations ....................................................................................................... 8
Feed in Tariffs ...................................................................................................................... 9
Renewable transport fuel obligation .................................................................................. 9
German Renewable Energy Policy ........................................................................................... 10
Germany Policy Instruments ................................................................................................ 11
Feed-in Tariffs .................................................................................................................... 11
Renewable Heat Incentives ............................................................................................... 12
Biofuel tax Exemption ....................................................................................................... 12
Conclusion ................................................................................................................................ 13
References ............................................................................................................................... 15
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INTRODUCTION
According to the International Energy agency, the worldwide energy demand will rise by
45% from 2006 to 20301. With oil and gas production either at its peak or very close to
peaking2, the need for sustainable renewable energy is required with immediate effect.
3The world finds itself in a situation of great concern whereby the consumption of energy
continues to rise, however significant steps haven’t been taken to secure its future energy
supply. The added challenge of ensuring the effects to climate change is correctly observed,
coupled with the ongoing rise in energy costs has made the world very vulnerable.
The renewable energy sector is one which immediately grasps attention as a possible means
to supply the growing world energy demand. It is also capable of reducing green house
emissions and pollution and can grown to becoming recognised as the only sector capable
of providing clean energy.
One of the main driving forces was the Kyoto protocol which was initiated in 1997,
whereupon nations agreed on combating carbon emissions individually. The European
Union decided to develop its own targets and in 1997 started to work towards a 12% share
of renewable in energy consumption by 2010; however this target was not reached due to
Figure 1. Future World Energy Demands
3
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many reasons. Primarily, the fact that the application of renewables is not economically
viable compared to fossil fuels led to the neglect of renewable. The absence of any real
legally binding targets also meant only a few member states would actually work towards
meeting their target.
This lead to the European Union agreeing in 2009 to implement the European Renewable
Energy Directive, with specific targets for each member state which they had to reach
before 2020.
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EUROPEAN RENEWABLE ENERGY DIRECTIVE 2009
The European parliament and the council of the European Union issued in 2009 a directive for
the renewable energy targets of member states which they aim to achieve by 2020.
Germany and the UK are both member states and have signed up to the Directive which if
met, can provide a huge influx of funding in the area and create many job opportunities, the
UK believes over £100bn in investments can be sought and the creation of nearly half a
million jobs4. Provided that the targets could be met, it will also show the countries
commitment to preventing climate change and will be the foundation for which the
member states can build their future energy supply.
The Directive sets out targets for member states based on their renewable energy supply in
2005, with the aim of the European Commission as a whole to supply a 20% share of energy
from renewable energy sources and a minimum of 10% of transport energy to be supplied
from renewable sources5.
In 2005, the UK’s share of energy from renewable sources was 1.3% and Germany’s share of
energy from renewable sources was 5.8%. This lead to the targets for 2020 as set by the
European Commission to be 15% and 18% for the UK and Germany, respectively5. The
progress made by each member state is correlated to a trajectory starting in 2005 when the
latest and most accurate statistics were recorded, and should a member state fall outside
the trajectory, a review of how the member state will tackle the deficit should be reported
to the European Commission5.
The European directive is the key driver for the UK and Germany to embrace renewable
sources as a means to generate their national energy demands. Furthermore the directive
can lead to many investment opportunities and therefore it is in the best interest for the
member states to strive to implement meaningful policy instruments in order to take fulladvantage of the targets set by the European Commission, which will essentially lead to the
UK and Germany having a more secure energy supply from renewable sources opposed to
the great amount of energy consumed from fossil fuel sources.
Both the UK and Germany have developed action plans which were submitted to the
European Commission outlining their intended path to reaching their set targets. The action
plans are the basis for the policies set forth by the UK and Germany, and outline the
mechanism through which the UK and Germany aim to achieve their targets for 2020.
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UK RENEWABLE ENERGY POLICY
The UK energy market (generation, transmission, distribution and supply) is almost wholly
run by the private sector6
which has increased reliability and investment besides leading to
reduced energy costs, however the UK cannot single handedly implement changes to the
sector, therefore must provide reasonably lucrative incentives and regulations to generate
interest from the private sector to embrace renewable energy.
In order to achieve the 2020 target, the UK has put forward a lead scenario19
which will lead
to achieving their 2020 targets. This lead scenario summarises the below: - More than 30% of the UK electricity generated will be from renewables, which is
over 5 times fold from the current 5.5% usage. This additional generation will be
from wind power, biomass, hydro and wave and tidal.
- 12% of heat will be generated from renewable. This is expected to come from a
range of sources including biomass, biogas, solar and heat pump sources. They will
be applied in homes, businesses and communities.
- 10% of transport energy from renewables, which will be significant increase from
current levels of 2.6%.
Outlined in the action plan submitted to the European Commission7
and in the UK
Renewable energy strategy8, the UK government aims to take a ‘strategic’
8 role in the drive
for greater renewable energy supply and has based its framework on three key
components6, 7
:
1. Providing more financial support to the renewables market
2. Removing all barriers to the delivery of renewable energy
3. Promoting and pushing the development of emerging technologies and resources
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UK POLICY INSTRUMENTS
The UK renewable energy strategy sets out achieve its target for 2020 by providing long
term financial support to the energy market and using this to promote the use of renewable
energies.
RENEWABLE OBLIGATIONS
The main policy instrument implemented by the UK to incentivise renewable electricity
supply is the renewable obligation, which requires electricity providers to source a specific
and increasing amount of their electricity from renewable sources.
If an electricity supplier does not meet the quota for the renewable energy it supply’s it
must pay a penalty known as a buy-out price. Currently this is £36.999
per ROC (Renewable
Obligation Certificate) and electricity suppliers are obliged to source 11.1 ROC’s per 100
MWh for England and Wales. The scheme is currently administered by OFGEM (Office of the
Gas and Electricity Markets) however from 2011-2012 will be transferred to (DECC) the
Department for Energy and Climate Change.
The ROC’s are given to accredited renewable energy generators by OFGEM for their
qualifying output. Until 2000 each ROC represented 1 MWh however since April 2009 each
ROC has been banded according to the type of technology used to generate the electricity,
this banding promotes emerging technologies10
.
In addition to the RO, renewable energy is further incentivised by the climate change levy
which exempts renewable electricity from the climate change levy of £4.30/MWh.
Established Band
0.25 -0.5 ROCs/MWh
E.g. landfill Gas,sewage Gas
Reference Band
1 ROCs/MWh
E.g. On-ShoreWind,Hydroelectric,
Co-firing EnergyCrops/ Biomass
Post-Demonstration
band
1.5 ROCs/MWh
E.g. DedicatedBiomass, offshore
wind
EmergingTechnologies
2 ROCs/MWh
E.g. Wave, Tidal, SolarPV, Geothermal,
Gasification/Pyrolysis
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FEED IN TARIFFS
Feed in tariffs were first drafted in the UK in 2008 during the Energy Act 2008, and have two
classifications.
- A feed-in tariff for small scale low-carbon electricity
- A renewable heat incentive
FEED IN TARIFF FOR SMALL SCALE LOW-CARBON ELECTRICITY
This tariff applies to small scale generation of electricity under 5MW to avoid confliction
with ROC’s and work on the basis that producer’s of small scale low-carbon electricity are
paid a premium for the electricity they produce. In April 2009 the system was first put into
practise, and electricity suppliers could earn between 4.5 and 41.3p/kWh11 of electricity
they produce depending on the technology used, with photovoltaic generating the largest
income.
RENEWABLE HEAT INCENTIVE
Similar to the feed in tariff for small scale low-carbon electricity, the renewable heat
incentive (RHI) is a policy instrument which the UK government intends to implement in
April 2011 which will provide financial support to those installing qualifying renewable heattechnologies. The introduction of the RHI shows the UK’s aim to honour its commitment to
increasing the amount of heat generated from renewable sources from 1% to 12%.
RENEWABLE TRANSPORT FUEL OBLIGATION
Since many vehicles can run on a combination of conventional fuel and biofuel, the UK
government introduced the Renewable transport fuel obligation (RTFO) in April 2008 to
promote the use of biofuels. The obligation ensures transport fuels contain a rising amount
of biofuel without requiring any modifications to the vehicle.
Similar to the renewable obligation, suppliers of fossil fuels for road transport are obliged to
prove that a certain quota of fuel they supply comes from renewable sources. For the
current Obligation period ending 14/04/2011 the price is 30 pence per litre. Currently the
target for the suppliers of fossil fuels is 3.63% by volume12
. The RTFO is the main policy
instrument which will drive the UK to reach its target of 10% of transport fuel from
renewable sources by 2020.
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GERMAN RENEWABLE ENERGY POLICY
Since the early 1990’s Germany has been investing in renewable energies, and is world
renown for being a successful model for the implementation of renewable energy. This can
be seen by the gradual growth of the renewable energy market in Germany.
Figure 2. Figure showing the share of renewables of the German Final Energy Consumption13
The renewable energy market in German has already created over 250,000 jobs and
promises to provide much more. This is seen as a great economic stimulus as the world
reacts to the effects of the recession, even more the fact that in the implementation of the
Renewable Energy Source Act no public spending is involved, instead funding is attracted
from private investment, civil society, and financial investors.
The Renewable Energy Source Act was introduced in 2004 to facilitate the sustainable
development of energy supply, and had three further aims14
:
1. Reduce the cost of energy supply to the national economy
2. To promote the further development of technologies for generating electricity from
renewable sources
3. Contribute to the increase in percentage of energy from renewable sources to 20%
by 2020.
0
2
4
6
8
10
12
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
%
Year
Renewables as share of Final Energy
Consumption
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These aims are within those set by the European directive, which states Germany should
aim to produce 18% of their final energy consumption from renewable sources. The German
Government has projected that it will pass this level, and can achieve 19.6% of their final
energy consumption from renewable sources
15
. Further to this the European Directive
expects Germany to achieve at least 10% share of renewable energy in final consumption of
transport energy by 2020.
GERMANY POLICY INSTRUMENTS
Besides the targets outlines by the European Directive, Germany has committed to increase
the electricity supplied by renewable sources to 30% by 2020, and the share of renewable
energy in the heat sector to 14% by 2020.
In order to reach its targets, Germany has three main policy instruments it utilises, these are
listed below16
:
1. Feed –in Tariffs for Renewable Electricity
2. Market Incentives for Renewable Heat
3. Tax Exemptions for Biofuels
FEED-IN TARIFFS
The German government has implemented feed-in tariffs since 1990, and have been
reviewed constantly since. Producers of electricity from renewable sources are paid a
premium tariff for a 20 year term for the electricity they produce from renewable sources.
They are paid per kWh of electricity produced, and this can vary between €3.50 – €36.00 per
kWh (£3.00-£30.00 per kWh) depending on the technology applied, with solar PV attractingthe largest income.
17
Germany also invest heavily in the solar PV market, and provides lucrative monetary
remunerations to those who wish to enter the PV market, with the exemption of VAT on
commercial systems one of the key policies. This has led to Germany maintaining its position
as the world leader in the PV market, with a growth of 111% from 1.8GW in 2008 to
3.806GW in 200918
.
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CONCLUSION
Both policies of the UK and Germany concentrate on providing financial support to the
renewable energy industry as they see securing their future energy supply as imperative.
Germany is currently world renowned for its renewable energy applications and this is due
to the ability of the German government to foresee its future needs and being one of the
earliest country’s to administer a renewable energy policy; this proactiveness has given
Germany the head starts amongst most countries in Europe.
Unlike Germany, the UK was very slow to react when it came to installing renewable energy
systems and immediately recognizes the urgent need to switch to renewable energy
sources, an observation which is supported by its choice to use the terminology ‘radical’
when speaking about the need to change to renewable energy19
. This attitude must be
adopted because following Malta and Luxembourg, the UK has the world record of
renewable energy supply at 1.3% in 20054
and the only way the UK can meet its 2020 target
is to apply radical change, not transitional and not transformational.
Figure 4. Germany is only ahead of the UK due to their head start
The policies of both the UK and Germany have so far been effective, and this is mainly due
to the huge financial support both policies have contributed. The UK’s main policy
instrument is the RO and this has been amended many times to tweak the UK’s renewable
energy performance. Germany’s main policy is the feed-in tariff which promotes the use of
renewable sources to generate electricity and unlike the UK is not capped to a certain
UK Renewable
Energy Policy
GermanRenewable
Energy Policy
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power output which has seen it being widely implemented, and promoting the use of
Germany’s well established solar PV market, wind energy and biofuels sectors.
Having said this, the UK is set to achieve its target of 15% of energy from renewable by
2020, whilst Germany is expected to surpass its target and generate 19.6% of its energy
from renewable in 202020
.
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