1

Assessing the EU Wind Power Regulatory and Support Mechanisms For

Technically- Feasible and Economically-Viable Alternative Directions

Stavros Philippou Thomas

European Commission, Anemorphosis Research Group - Intcompas, Institute for Energy and Sustainability, Natura 2000 Network

A r t i c l e I n f o

Article History:

Survey conducted: September-June 2016

Report produced on July 2016

Keywords:

Regulatory Barriers

Guarantees of Origin

Regulatory Framework

Wind Energy Development

Natura 2000

Wind Power Policies

A b s t r a c t

This document is a part of comprehensive and systematic analysis on the technical, commercial, social

and economic value of the wind energy that the Anemorphosis Research Group carried out on behalf of

a wind power developer-investor to assess the economic viability, technical feasibility and supporting

schemes currently available. The main objective of this report is to provide an updated and well

informed overview of the EU wind energy regulatory framework that promotes the development of a

pan-European renewable electricity market. Several key aspects are evaluated and analyzed in this

report: market recession concerns (political uncertainties), support schemes, supply chain issues, grid

infrastructure issues and wind energy deployment barriers including the Not in My Backyard

Syndrome.

However, the main scope of this work is not just to monitor the regulatory development and energy

policies or analyze the existing (summer-2016) policies variations consequences, but also to scrutinize

and assess the development-investment tactics and identify the most critical wind power market trends

for further market growth and prosperity. Each member state in the EU implements a specific

regulatory framework driven by a plethora of complicated or less complicated parameters and factors

such as the existing renewable energy infrastructure, local availability, grid strength (smart grid

infrastructures availability), hybrid renewable energy technologies, as well as other factors such as

geographical distribution of the renewable energy plants and consumption points, transmission

reliability and availability or even the potential risks and uncertainties because of the unstable taxation

systems, environmental policies and permit regulations.

The outcomes presented in this document demonstrate the crucial need for regulatory stabilization and

(why not) the standardization of the regulatory framework to establish a reliable, sustainable and

intelligent supporting scheme. Guarantees of Origin could be an effective option for a greener and more

transparent energy economy. The author concludes that both, policy development and regulations

sustainability involve a continuous and systematically organized learning process to effectively deal

with and exploit such market dynamics. Thus, rather than seeking to implement successful policies or

regulations from other markets or sectors, each country needs to design and establish a progressive

development framework to foster innovation and efficient operative policies or promote the synergies

between neighboring countries. Lessons learned from the past could also help to accelerate wind power

market growth, but the learning process remains an imperative factor of success. Each country is unique

and needs to find its own way.

This is an open access article under the CC BY-NC-ND license.

(http://creativecommons.org/licenses/by-nc-nd/4.0/).

Contents

1. Introduction ........................................................................................................................................................................................................................................ 2 2. Renewable Energy Action Plans ...................................................................................................................................................................................................... 2 3. Support Schemes Research ................................................................................................................................................................................................................3 4. Social and Democratic Implications ………………………………………………………………………………………………………………………………..3 5. Survey Questions and Outcomes …………………………………………………………………………………………………………………………………..3 6. Regulatory Risk Management Strategies ………………………………………………………………………………………………………………………….6 7. The Paradigm of Sweden and Norway ……………………………………………………………………………………………………………………………6 8. The Case Of Germany And The Netherlands …………………………………………………………………………………………………………………….7 9. Guarantees of Origin ………………………………………………………………………………………………………………………………………………...7

10. Conclusions ........................................................................................................................................................................................................................................ 8

References ................................................................................................................................................................................................................................................... 9

n Corresponding author Tel.: +306976001665. E-mail addresses: stavros.thomas@anemorphosis.com (Stavros Phil. Thomas)

Contents lists available at Anemorphosis Research Group

Wind Power Regulatory Survey

Homepage: www.anemorphosis.com/ - www.intcompas.com

2 A Wind Power Regulation Framework Evaluation (2016) * 1st Report Review

1. Introduction

Wind energy industry is one of the fastest growing segments of the

world economy and has a mandate to continue growing for the next

decades. The wind energy market is expected to increase further

following the technology innovations and cost of energy reduction

in terms of supply chain, operation and maintenance strategies,

siting methodologies, weather prognostic models and project

management. With the enormous growth in offshore wind energy

installations, there will be hundreds of billions spent worldwide not

only to develop and improve the massive wind energy turbines and

their associated ancillary infrastructure but also to design, transfer,

operate and maintain these sophisticated systems deployed in

shallow-water environments around the world.

One of the major challenges for the wind power industry is to

continue to bring down the cost faster without compromising plant

reliability, performance, safety or quality. However, this could not

be achieved without a stable and innovative regulation and state-of-

the art policies framework. New technologies and techniques have

already enormously contributed to mitigate the related costs of the

industry but uncertainty on the regulation and policies reliability

remains. Sustainable energy structures, technologies and

progressive regulation practices are considered to be the

fundamental cornerstone for enabling research and development

and establish industry’s prosperity. [1]

The pace of technological advancement and innovations in this

sector is far too rapid for even a cursory review of the technology in

this report. Perhaps the biggest hurdle to overcome, before

deploying wind power technologies, is an innovative regulatory

framework for the sustainable development of Europe’s renewable

energy resources. This report identifies and analyses the most

significant policy and regulatory measures that have contributed to

the development of wind energy investments across the EU market,

the barriers related to this technology and the potential

improvements.

This document does not provide a thorough overview of the

renewable energy legislation in each of the EU countries it analyses.

It does not aim to benchmark national regulations against each

other, or to evaluate their implementation success, but rather to

highlight the major steps in the development of an innovative and

reliable regulatory framework that led to the formation of a

technical feasible and economically viable wind power market. The

EU markets studied are of various sizes; display a plethora of policy

opportunities and diverse market dynamics. All demonstrated

extraordinary market dynamism and represent interesting

regulation formation case studies.

A wide range of support mechanisms and schemes have been

developed and implemented to stimulate the integration of wind

energy technologies since the late 1970s. These include tax

incentives, privileged tariff regimes-criteria and flexible trading

structures. Even though most EU countries share similar renewable

energy policy objectives – reducing dependence on fossil fuels – in

particular oil and gas- , improving energy supply (energy security)

by the concept of diversification, reducing the environmental risks

and encouraging the development and integration of low carbon

footprint technologies (wind power, solar power, hydroelectric

power, ocean energy, geothermal energy, biomass and biofuels).

The EU is a pioneer in renewable energy technologies. It holds

approximately 44% of the world’s renewable energy patents (the

Intellectual Standards Framework is still problematic) and due to

the development of massive offshore wind energy installations this

percentage should be significantly increased. The renewable energy

industry in the EU currently employs approximately 1.4 million

people and because of the EU legislation on the promotion of

renewables the employment rates should be also increased in the

coming years.

2. Renewable Energy Action Plans

On 1997, the EU with the release of the White Paper on renewable

energy sources set itself the targets of generating 12% of energy

consumption and 22.1% of electricity consumption from

renewable energy sources by 2010. Directive 2001/77/EC on the

promotion of electricity from renewable energy sources in the

domestic electricity market set out indicative targets for each

member state. After the members’ state expansion in 2004, a new

target was set for the EU-25 to generate 21% of electricity from

renewable energy sources. However, the lack of progress towards

achieving the 2010 targets led to the adoption of a more analytical

legislative framework.

On January 2007 the EU commission with the development and

release of a promising Road Map entitled ‘Renewable Energy

Road Map — Renewable energies in the 21st century: building a

more sustainable future’ [3] established a long-term strategy for

the renewables sources of energy until 2020. The Commission

proposed a mandatory goal of generating 20% of EU energy

consumption from renewable energy sources by 2020, an

obligatory target for biofuels of 10% of transport fuel

consumption by 2020, and the formation of a new legislative

framework.

The new Renewable Energy Directive, adopted on 23 April 2009

(Directive 2009/28/EC, repealing Directives 2001/77/EC and

2003/30/EC), established that a mandatory 20% share of EU

energy consumption must come from renewable energy sources

by 2020, broken down into nationally binding sub-targets and by

taking account of the Member States’ different starting points. In

addition, all Member States are required to obtain 10% of their

transport fuels from renewable sources by 2020. The directive

also mapped out various mechanisms that Member States can

apply in order to reach their targets (support schemes, guarantees

of origin, joint projects, cooperation between Member States and

third countries), as well as sustainability criteria for biofuels.

The Renewable Energy Directive 2009/28/EC [2] by taking into

account the different starting points of each member state setting

mandatory national targets in order to achieve at least a 20%

renewable energy share in final energy by 2020. Each member

state was required, by June 2010, to set out the sectoral targets by

their National Renewable Energy Action Plans (NREAPs). The

directive also mapped out various mechanisms that member

states can apply in order to reach their targets (support schemes,

guarantees of origin, joint projects, cooperation between industry

and academia), as well as sustainability criteria for the associated

infrastructure design..

Each member state plan defined the technology combination

scenario, the route to be followed and the measures and

modifications to overcome economic, social, environmental and

political barriers and ensure the integration of renewable energy

technologies in their domestic energy market. According to the

plan defined in the NREAPs, wind energy has a very important

role in order to achieve the 2020 renewable energy targets:

expected installed capacity by 2020 in the European Union (EU) is

209.6 GW (165.6 GW onshore and 43.9 GW offshore). These figures

would account for a 43.1% of renewable electricity technologies

installed by 2020 [3] (34.0% corresponds to onshore and 9.1% to

offshore wind energy).

The latest available reports from Eurostat show that renewable

energy accounted for 14% of energy consumption in the EU-28.

The Commission also draws attention to a number of factors of

concern regarding future progress such as the failure to address

administrative and grid-related barriers, environmental

compatibility concerns to the uptake of renewable energy;

disruptive changes to national support schemes for renewable

energy; and, finally, the slow transposition of the directive into

national law (Poland and Cyprus).

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The EU has started preparing for the period beyond 2020, in order

to provide policy simplicity on the post-2020 regime for investors.

Renewable energy and especially wind power plays an extremely

important role in the Commission’s long-term strategy as outlined

in its ‘Energy Roadmap 2050’ (COM(2011) 0885) [4]. The de-

carbonization scenarios for the energy sector proposed in the

roadmap point to a renewable energy share of at least 30% by 2030.

Nevertheless, the roadmap also suggests that the growth of

renewable energy should face a dramatic increase after 2020 if there

is further intervention.

Following the publication in March 2013 of a EU Green Paper

entitled ‘A 2030 framework for climate and energy policies’

(COM(2013) 0169), [5] the Commission, in its statement of 22 January

2014 entitled ‘A policy framework for climate and energy in the

period from 2020 to 2030’ (COM(2014) 0015), proposed not to renew

binding national targets for renewable energy after 2020. A

mandatory target — 27% of energy consumption to come from

renewable sources — is provided for only at EU level. The

Commission assumes nationally binding greenhouse gas emission

targets to spur growth in the energy sector. This change of direction

has led to intense discussions with the Council and European

Parliament.

The development and integration of new-generation, low-cost high-

reliable, renewable technologies is also one of the critical Strategic

Energy Technology Plan elements. In the framework of the second

strategic energy review carried out from the EU Commission in

November 2008, entitled ‘Offshore Wind Energy: Action needed to

deliver on the Energy Policy Objectives for 2020 and beyond’

(COM(2008) 0768) [6], the development of maritime and offshore

wind was the most important objective.

Under these circumstances the regulatory framework plays a

criticality important role in order to attract new investors and

accomplish a proper level of deployment. Indeed, the additional

income provided from the support schemes is important but also

other parameters — as regulatory stability, permitting and

connection procedures simplicity, environmental compatibility,

energy market structure, transparency, supply chain, Operation and

Maintenance strategies — are also vital drivers to stimulate and

accelerate the installation of new wind farms.

3. Support Schemes Research

The existing literature contains much research that provides

qualitative guidance and extensive knowledge about the renewable

energy sources regulatory framework. Back in 2012, Couture and

Gagnon [7] in their research paper discussed the advantages and

disadvantages of different design options for the wind power

related feed-in tariffs (FiTs) and FiPs as a part of a holistically

evaluation of the inflation adjustment, tariff degression, price floors

and ceilings. They concluded that a feed-in premium (FiP) scheme

should be the most economically viable option, since the associated

risks and uncertainties for producers are efficiently controlled to

some extent and the overall cost of renewable energy deployment

can be predicted to some extent also.

A holistic evaluation and analysis of the support schemes and

tradable Green Certificates mechanisms from 2000 to 2011 was

conducted by Kitzing et al. [8] and Lemming [9] , concluding that a

slight tendency is observed for a bottom-up convergence of

regulatory frameworks in the member states while risk exposure

seems to be higher to tradable green certificates (TGCs) markets

compared with FiTs (higher ROI for the wind power investments).

An interesting research paper from Klessmann et al [10] focused on

the influence of the existing regulatory framework on Germany,

Spain and the United Kingdom - and the risks associated from

mainly economic and financing obstacles - from the investors’ point

of view. The report concludes that it is essential to take into

account several factors other than economic support schemes when

the development of wind energy investments come to the radar of

the investors.

4. Social and Democratic Implications

Anemorphosis Research Group conducted a two years survey to

scrutinize and prioritize the factors that influence the Cost of

Energy mitigation and the required mechanisms that improve

wind power investments viability. Stavros Thomas on a report

entitled “Offshore Wind Power Roadmap For South Eastern

European Economies — Key Steps To Reduce Identified Project

Development Risks”[11] concluded that risk-sensitive policies and

technology improvements are crucial for attracting investors. He

mentioned five critical parameters to generate positive effects

from a macro-economic point of view: (i) reducing financing costs,

(ii) decreasing project development costs, (iii) improving the

Operation and Maintenance Strategies, (iv) improving the

collaboration between industry and academia and (v) establishing

an innovative, flexible and reliable Intellectual Property Right

framework. However, we should also bear in mind that

advancements and progressions in renewables are not only a

technical matter - they also have considerable social and

democratic implications. Methodical advancements in

renewables will revolutionize the way we consume and produce

energy, radically transforming our daily lives.

To achieve this goal, public participation and collaboration

between industries and Academia in the development of

renewable energy plans and projects is necessary. The

involvement of social partners and community stakeholders will

be crucial for the green era but the vitally important factor for

pragmatic sustainable technology integration should be

accompanied by adequate training and high safety standards,

without lowering the rights of renewable energy workers.

Moreover, any development and technology improvement for

renewables should also take into account consumer’s

vulnerability. According to Bermejo [12] an EU Parliament's

rapporteur on the renewable energy, the Energy poverty already

affects approximately 11 per cent of the EU population. Reducing

consumer’s exposure to energy prices volatility and improving

their energy efficiency are significant steps forward, and this is

not a utopian research result.

Today, more than ever before there is an urgent need to balance

centralized models of energy production, and establish a

sustainable, affordable and reliable supply that generates greater

flexibility and security. However, consumers should be

incentivized to recognize the importance of renewables in their

lives while any potential changes of the regulatory framework

should not be sound like consumers or even investors are being

penalized.

The survey conducted to assess the strengths and weaknesses of

the existing regulatory framework for the wind energy

(particularly offshore) and provide an indicative picture of the

pragmatic needs and improvements in the path to a more

sustainable energy system and democratic control over renewable

energy.

5. Survey Questions and Outcomes

In the first semester of 2016 a survey was conducted to holistically evaluate the effectiveness of the existing wind power regulatory framework and the related supporting mechanisms performance. The investigation included respondents from around the world spanning a broad range of stakeholders, wind power professionals, insurance providers and policy makers with over 62 percent of respondents from companies with more than $1 billion in revenue.

4 A Wind Power Regulation Framework Evaluation (2016) * 1st Report Review

Of the companies-developers surveyed, 65.2 percent agreed that further improvements are needed to better capture the regulatory framework effectiveness and sustainability while the percentage of respondents who replied that no further improvement or modification is necessary was in the order of 33 percent. Even though these respondents have already involved in the environmental review and permitting (consenting) of renewable energy plants (specifically wind and tidal) not surprisingly, only 31.4 percent say that the regulatory framework is effective enough to transform the renewable energy systems intelligently and cost-effectively.

The survey also lists four specific areas where respondents have raised particular concerns and where further improvements could be explored. Continuous research, development and testing of new technological solutions are needed for mitigating significant barriers on the Strategic Environmental Assessment, improving Energy Agreement risks, optimize assets integrity and Transmission Infrastructure, implementing innovative methodologies and techniques to assess and monitoring Energy Market performance and holistically evaluate the associated uncertainties. This will ensure consistent licensing practices while enhancing the transparency of planning and licensing processes to establish - in an accurate and reliable way - the economic viability and technical feasibility of the renewable energy industry.

Given the tumultuous markets of the past few months (BREXIT, GREXIT, ITEXIT) and the market recession because of the economic crisis in EU, it is not surprising that financial professionals identified market risk as one the most difficult area of risk to quantify and evaluate in an attempt to assess the effectiveness of a strategic regulatory framework. A possible contributing factor is that most respondents from the wind power industry view their positions retrospectively rather than in real time. Almost sixty-four percent stated that they viewed their positions retrospectively, while 25.3 percent of respondents monitor market positions in real time and 11.0 percent are unable to monitor positions.

Do you monitor exposure in real time or

Do you view your positions retrospectively?

11.0%

Unable to monitor

25.3% Real-time

63.7% Retrospectively

The institutional role of the EU Commission has two main objectives: i) to enforce EU competition rules and initiate legislative actions when the regulatory framework is violated. Developing a proper understanding of the energy market dynamics is not a simple task. When estimating the effect of significant regulatory, technological, and governmental changes, approximately 60.0 percent of respondents view the effect on their entire portfolio, while 17.4 percent focus on individual derivatives. Over a quarter of respondents – 15.2 percent – stated that they cannot estimate the effect of regulatory changes pushed by the European Commission on their companies’ portfolios while 7.2 percent stated that MI sources like the one used by the EWEA can provide them with a qualitative information. After two decades of continuous regulatory and administrative changes, both, markets and stakeholders started to embrace the changes and the opportunities associated with a new regulatory scheme. However, to establish an innovative regulatory framework and improve market policies the polemics and secrecy between the market and institutions should be eliminated as soon as possible.

65,2

33,2

1,6

Do you think that the regulatory framewrork for the

wind energy industry needs improvements?

Yes

No

Do Not Know

8,6

13,2

31,4 11,2

35,6

How effective do you think that the existing

regulatory framework is?

Not Effective

Bellow Average

Very Effective

Average

Somewhat Effective

0 2 4 6

Transparency

Proper Market Monitoring

Sophisticated Forecast Methods

Transmission Infrastructure

Procurement Rules

Energy Agreement

Strategic Environmental Assessment

How difficult is to surpass these barriers when

defining the regulatory framework?

(1 = not difficult; 2 = somewhat difficult; 3 = difficult; 4 = very

difficult)

60,2 15,2

17,4

7,2

How do you estimate the effect of major market

events?

Entire Portfolio

Can't Estimate

Individual Derivatives

EWEA Database

A Wind Power Regulation Framework Survey (2016) * 1st Report Review

5

Feed-in Premium was identified as the one among other supporting schemes that requires a strategic improvement or a numerous of improvements. A significant numbers of respondents (14.3 percent) denoted that the present investments grants framework needs extensive and diverse funding improvements including national and landmark priorities, flexible funding requirements and government backing practices that should guarantee investors’ confidence. Tradable green certificate (TGC) schemes have been developed and introduced during recent years in Italy (2002), the UK (2002), Belgium (2002) and Sweden to improve competitiveness and increase energy efficiency. However, a percentage of 13.4 suggest further improvements on this sophisticated policy instruments to achieve its pragmatic goal; Improving energy efficiency and reducing energy intensity in the economy.

Which of The Following Support Schemes For Wind Energy Promotion

Need Further Improvements?

Feed-in tariffs 10.8%

Feed-in premium 23.3%

Tenders 12.0%

Quota system 5.4%

Tradable green certificates 13.4%

Tax incentives or exemptions 10.0%

Investment grants 14.3%

Financing incentives 10.8%

A significant number of respondents utilize value engineering as

the primary risk measurement to support the deployment and

integration of an innovative and reliable renewable energy risk

management for the development of wind energy projects. The

Value Analysis technique was developed after the Second

World War in America at General Electric during the late 1940s.

Nowadays, VA is enjoying a renewed popularity as competitive

pressures are forcing wind energy companies to re-examine their

risk management methods in an attempt to offer higher levels of

customization without incurring high degree of hazards and risks. Sensitivity analysis, is the preferable method by 54.1 percent of the

respondents, to detect and identify the potential effects of risk

deviation in any variable, such as an increase in maintenance

strategy, budgeting or weather conditions. Other measures utilized

by respondents include Value at Risk (28.3 percent), Regulatory at

Risk (27.6 percent), Market and Operational risks (23 percent), and

technological risks (17.8 percent).

What risk analysis measures are you using

To support risk management decisions?

Value Engineering revaluation 58.6%

Sensitivity analysis 54.1%

Value at risk (VAR) 28.3%

Regulatory at Risk 27.6%

Market and Operational risks 23.0%

Technological Risks 17.8%

Other 3.9% The percentage of the regulatory risk is also high because obviously, any change in regulations significantly affect an industry and its business structure with considerable implications for the related business models, cost-structure and strategic objectives. Rathmann et al. [15] analyzed the levelised cost of renewable energy (LCOE) and concluded that the overall costs could be reduced by up to 10%

if market players do not expect sudden policy and regulatory changes. Renewable energy regulations are becoming ever more detailed, extra-territorial reach is increasing, and the consequences of non-compliance are more severe than ever. As a result, many wind power companies are reviewing their overall approach toward achieving compliance. They reorganize their lines of defense; implement monitoring models to estimate the potential effects of the sudden changes and developing flexible business processes to eliminate compliance risk “at source”. Often, this approach needs to go hand in hand with an organizational transformation that changes mindsets, behaviors and decision making as a whole. Wind power companies and organizations are navigating a proliferation of innovative regulatory requirements and stakeholder prospects, and are challenged to do so in a way that supports performance excellence, sustains value, increases ROI, and protects their reputation. Critical compliance and regulatory issues include: • Meeting the demands and expectations of investors, legislators, regulators, customers, employees and other key stakeholders • Driving value and managing performance expectations for resources governance, ethics, risk management and compliance • Dealing with crisis and re-mediation phenomena while defending the organization against legal enforcement and the rising impact of fines, penalties and business disruption. • Protecting brand reputation and assets integrity A flexible support mechanisms structure would provide added clarity for investors in the wind industry and should additionally reinforce the problematic parameters of the existing regulatory frameworks, which are of paramount importance. Support mechanisms need dynamic continuity to ensure that the legitimate expectations of investors are guaranteed in order to foster economically viable investments in wind energy. EU Commission states that drastically support the production of green energy from renewable energy resources, such as wind and solar power, through subsidies or incentives but the survey results show that there is an urgent need for re-organizing the mechanisms and practises of the existing regulatory framework to make the European Union more competitive and the energy market much more transparent and reliable. Such a process is systemic in nature and requires a radical shift from the status quo. However, the existing regulatory framework for the renewables has its own logic, forming a barrier to sustainable regulatory innovation [13], [14]. Therefore, a niche approach is needed as a nurturing place, from where new innovations can scale up and alter the existing regulatory structure. New schemes should be introduced to avoid overcompensation and unwarranted demand for new installations and since the economic crisis influences and neglects national budgets the level of support should also be improved or modified accordingly. Policymakers need to deal with these challenges and prioritize the necessary changes to establish a continuous and reliable support with lower or no economic backing. For this reason, stability and administrative procedures transparency can influence significantly the development of renewable energy projects and increase the confidence of the investors. The renewable energy regulation policies and mechanisms in place transfer the idea of a sustainable and effective - in terms of transparency and reliability - support. The development of this framework is emblematic, since it is associated with the future generations’ quality of life and energy security. The survey shows that 26 percent of the respondents are either somewhat concerned or very concerned about grid accessibility, and 20 percent somewhat concerned or very concerned about the transparency in administrative and permitting processes. The results of the survey also show that 17 percent of the respondents reported that a functioning finance sector is of concern while a percentage of 19.8 indicates that an effective and clear pricing

6 A Wind Power Regulation Framework Evaluation (2016) * 1st Report Review

structure is significantly important. Surprisingly, approximately 14 percent of the responders answered that they do not monitor the effects of the regular changes on the wind power supporting mechanisms while almost 16.2 percent answered “Do not Know-or Other”). Survey analysis shows that, majority of the respondents use hazard or risk management systems to predict the influence of the regulatory changes on their portfolio.

Which one of the following is your biggest concern?

Effective rule and transparency in

administrative and permitting processes 20.0%

A clear and effective pricing structure 19.8%

Provisions for access to the grid (incentives

and penalties for grid operators) 26.0%

An industrial development strategy 4.4%

A functioning finance sector 17.4%

Expression of political commitment from

government (e.g., targets) 4.3%

A government and/or industry-led strategy for

public & community buy-in 3.3%

An employment development strategy 4.8%

Are you currently monitoring how regulatory changes affect your

renewable energy (wind) portfolio?

16.2% Do not know(other)

13.7%

Don’t monitor regulatory changes

17.7%

Design risks database (forecasting changes effects)

52.4%

Risks and hazards regulatory Portfolio management

6. Regulatory Risk Management Strategies

Overall, only 7.0 percent of respondents felt their regulatory risk

management systems were below average. While the study turned

up some indications that there may be room for further

improvements, the overall sense was that their systems and internal

business structures were deemed reasonable enough to handle the

risks associated with regulatory changes.

When asked specifically how they felt regarding the reliability of

their forecast as a support basis for either investment viability or

decision making, most indicated some degree of reliability:

How reliable is your risk forecast as a support basis either

facilitating design making or investment viability?

85% to 100% reliable 32.4%

70% to 84% reliable 30.5%

55% to 69% reliable 22.0%

Below 55% reliable 15.1%

Given the concern made obvious in the study regarding regulatory

risk management, it is not surprising that responders identified

political and economic framework transparency as the most

challenged factor in the coming two years. The next greatest

concern was the grid regulation and infrastructure, followed by the

market structure design, transparency of the connection procedure,

and the related administrative process effectiveness.

How challenging are the following for your

organization in the next 12-24 months?

(1 = not a challenge; 2 = somewhat challenging; 3 = challenging; 4 = very

challenging)

0.00 0.50 1.00 1.50 2.00 2.50 3.00 Political and economic framework stability

Market structure

Transparency of the connection procedure

Grid regulation and infrastructure

Administrative process

7. The Paradigm of Sweden and Norway

The results of the survey indicate that there is a surprisingly low level of awareness and collaboration amongst renewable energy policymakers within European Union governments. The member states already possess the power to establish transnational supporting schemes and mechanisms that would support further growth in energy production from renewable-energy resources. The cooperation mechanisms that accompany the 2009 EU renewable-energy directive are available but their pragmatic usage and implementation remains extremely challenging. Even the new mechanisms and methods implemented and integrated during the past four years from policymakers are also problematic. Back on 2012 Norway and Sweden implemented an innovative approach with the joint goal of adding 28.4 terawatt-hours of renewable generation by 2020. Since then, the two countries harmonized their financial support structure and systems for renewable energy. By developing a hybrid two-nation scheme, Sweden and Norway have taken an important first step toward international rather than national support framework for renewables. According to Bloomberg [16] since 2012 an enormous renewable energy infrastructure with an average annual production of almost 14 terawatt-hours has been built in the two countries, 84 percent of them in Sweden. Norway’s electricity mix is made up of 96 percent hydro and approximately 3 percent wind, while Sweden got about 47 percent of its energy production from hydro plants last year, 34 percent from nuclear and just 10 percent from wind energy (mainly offshore). However, with prices in the green energy certificates market

training

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sinking to a record low earlier this year (2016) and power prices falling approximately 60 percent below 20 euros per megawatt-hour since 2012, renewable energy investors are facing dramatic and destabilizing changes in Norway. As a paradigm, Statkraft, the Nordic Power giant, will not invest in new offshore wind power projects, and might scale down some hydropower projects abroad after the change in dividend policy. The renewable energy subsidies terminated and the administration procedures framework was simplified in an attempt from the governmental authorities to mitigate the consequences and severity of this phenomenon and to improve market conditions for all producers-investors. Sweden’s scope is to continue to subsidize growth of renewable generation beyond 2020 and has requested its energy agency to look into if it can extend the current system without Norway. Compared with Norway’s power system dominated by hydro generation, Sweden is in a different situation with 40 percent of nuclear plants which should be replaced as soon as possible. Norway plans to build electricity cables to Great Britain and Germany but because of the contradictory energy policies may not go ahead with these projects. This is another sign that Europe's energy and climate policies are failing and the national schemes in general lead to gross inefficiencies. The development of multinational support schemes to surpass the regulatory framework inconsistencies and limitations should be a priority for the establishment of a pan-European renewable electricity market. Current regulatory framework for incentivizing renewables is generally national and the support schemes are financially inefficient, contradictory, conflicted, or ambivalent as the paradigm of the co-operation between Norway and Sweden illustrates. The EU renewable support schemes are on the edge of a major overhaul. Almost two thirds (67%) declared that the key factor in the failure of the EU internal energy market is that each EU Member State runs its own national support program for renewable energy. 14.2 percent of the responders said that grid infrastructure is a considerable barrier to the EU energy market framework integration while 9.4 and 9.2 stated that administration transparency (State Intervention) and market recession are among the most important barriers for an effective renewables energy regulatory framework.

A significant amount of respondents felt the existing regulatory framework for renewables is flexible and encouraging innovation (35.7%) or certain and clear but not flexible (28.4%). 31.5 percent of the respondents have a neutral opinion about the regulatory framework flexibility and the innovation encouragement.

8. The Case Of Germany And The Netherlands

Launched in the 1990s, the Energiewende - an integrated policy

framework - contains ambitious goals and policy measures for CO₂

emissions mitigation, the abolition of coal, renewable energy

development and improvement of energy efficiency reaching a

greener and sustainable economy as far forward as 2050. During

the initial phase of the Energiewende implementation much

controversy has arisen in regard to the efficiency and viability of

the scheme in German politics. However, this supporting

mechanism has gained broad political consensus across all political

parties since the 2011 nuclear accident in Fukushima. Since then,

the main scope remains the same: to fight climate change, avoid

nuclear risks, establish energy security, and guarantee

competitiveness and growth through sustainable development

technologies and practices.

Nevertheless, the associated costs of the Energiewende are already

very high and this is because a numerous of foreign renewable

energy producers (especially from the offshore wind power

industry) already making use of the generous German subsidies.

Thus, the scheme structure is becoming too burdensome. German

consumers are also not very positive to pay for subsidies to, say,

Italian (ENEL Green Power) or Spanish (Iberdrola, Gamesa,

Acciona, etc) Danish (Dong Energy) wind power producers.

Other countries, The Netherlands, for example will face similar

problems. The Dutch government has set up an €18 billion support

scheme for offshore wind projects but if an offshore wind power

producer from Denmark or Great Britain exports its generated

power to the Netherlands, it may have an equal right to receive

government support as a part of the green energy supporting

scheme currently available. One may wonder if this practice is

economically viable and feasible enough not only from the

investors and consumers point of view but from everyone else who

wants to see an integrated European energy market come into

existence.

9. Guarantees of Origin

RECS International a Dutch foundation, which is supported by wind power leaders such as Acciona, Eon, RWE, Vattenfall, GDF Suez, Enel Green Power, Dong Energy and several smaller energy companies, energy producers, traders, wholesalers, suppliers has worked for almost a decade to develop a pan-European electricity tracking structure based on Guarantees of Origin [17] .

67,2 9,2

9,4

14,2

EU ENERGY MARKET FAILURE FACTORS

National Support

Schemes

Market Recession

Transparency

Grid Infrastructure

35,7 31,5

28,4

4,4 0

10

20

30

40

REGULATORY FRAMEWORK FLEXIBILITY AND

ENCOURAGING OF INNOVATION VERSUS CLARITY

AND CONSISTENCY OF THE REGULATORY

FRAMEWORK

Total flexible and

encouraging of

innovation but may be

uncertainNeutral

Total certain and clear

but may be inflexible

No Answer

8 A Wind Power Regulation Framework Evaluation (2016) * 1st Report Review

The Guarantees of Origin scheme is based on the transformation of the current producer-driven subsidy schemes into consumer-based platforms. Since the national support mechanisms are basically arrangements between governments and producers, governmental authorities decide who gets finically supported and who does not. The Guarantees of Origin scheme has as a main scope to place consumers in the driver’s seat for a more efficient, transparent and consumer-oriented energy trading system. Norway for example, has a well-established system of issuing GOs to Norwegian renewable energy producers. These producers can sell these GOs overseas to suppliers in the Netherlands who can then, funded by these GOs, provide “green electricity” to customers who ask for it. In this way, consumers can stimulate the power production from renewable energy sources. However, when a Norwegian renewable energy producer sells its GOs to a supplier from the Netherlands, the transaction as a whole is not green any more.

From the assessment of the survey results becomes clear that there are three major tendencies. On the one hand, the Guarantees of Origin scheme has be rated as an advanced structure, if implemented in the way it is suggested. Other responders mentioned the necessity on improvements and modifications of the system, while their expectations for the future of GoOs in Europe seem quite positive.

10. Conclusion

Red warning lights are once again flashing on the dashboard of the

European Commission. Renewable energy investments, which are

the driver of growth in the early stages of the recovery from the

economic crisis, are now facing significant issues because of the

regulatory framework inconsistencies.

The survey results of the wind power regulatory framework

analysis indicate that the current structure is problematic.

Furthermore, access to finance is difficult because of the various

regulatory and market uncertainties that could negatively affect

renewable energy producer’s profitability. The study evaluated and

assessed the deployment of wind energy investments revealing

significant differences, conflicts and inconsistencies in the

regulatory aspects.

In some member states, recent wind power developments and

regulatory changes are harmonized with the Commission's

Guidelines on environmental protection, energy decentralization

and security of supply. However, we should also bear in mind that

advancements and progressions in renewables are not only a

technical or a theoretical matter - they also have considerable social

and democratic implications. Methodical advancements in

renewables will revolutionize the way we consume and produce

energy, radically transforming our daily lives.

Therefore, we recommend the collaboration between producers,

investors, policymakers, traders and academia to monitor and

assess the regulatory framework and its supporting mechanisms to

establish transparent and economically viable structures.

Of the companies-investors surveyed, 65.2 percent agreed that

further improvements are needed to better capture the regulatory

framework effectiveness and sustainability while the percentage of

respondents who replied that no further improvement or

modification is necessary was in the order of 33 percent. Besides

that, only 31.4 percent say that the regulatory framework is

effective enough to transform the renewable energy systems

intelligently and cost-effectively to a greener economy.

The survey also lists four specific areas where respondents have

raised particular concerns and where further improvements could

be explored. Continuous research, development and testing of new

technological solutions are needed for mitigating significant

barriers on the Strategic Environmental Assessment, improving

Energy Agreement risks, optimize assets integrity and

Transmission Infrastructure, implementing innovative

methodologies and techniques to assess and monitoring Energy

Market performance and holistically evaluate the associated

uncertainties. This will ensure consistent licensing practices while

enhancing the transparency of planning and licensing processes to

establish - in an accurate and reliable way - the economic viability

and technical feasibility of the renewable energy industry.

Over a quarter of respondents – 15.2 percent – stated that they

cannot estimate the effect of regulatory changes pushed by the

European Commission on their companies’ portfolios while 7.2

percent stated that MI sources like the one used by the EWEA can

provide them with a qualitative information.

The survey also shows that 26 percent of the respondents are either

somewhat concerned or very concerned about grid accessibility,

and 20 percent somewhat concerned or very concerned about the

transparency in administrative and permitting processes. The

results of the survey also show that 17 percent of the respondents

reported that a functioning finance sector is of concern while a

percentage of 19.8 indicates that an effective and clear pricing

structure is significantly important.

Surprisingly, approximately 14 percent of the responders answered

that they do not monitor the effects of the regular changes on the

wind power supporting mechanisms while almost 16.2 percent

answered “Do not Know-or Other”). Survey analysis shows that,

majority of the respondents use hazard or risk management

systems to predict the influence of the regulatory changes on their

portfolio. Overall, only 7.0 percent of respondents felt their

regulatory risk management systems were below average.

Almost two thirds (67%) declared that the key factor in the failure

of the EU internal energy market is that each EU Member State

runs its own national support program for renewable energy. 14.2

percent of the responders said that grid infrastructure is a

considerable barrier to the EU energy market framework

integration while 9.4 and 9.2 stated that administration

transparency (State Intervention) and market recession are among

the most important barriers for an effective renewables energy

regulatory framework.

A market oriented and transparent approach that would establish

fair remuneration, consumers participation, grid infrastructure

accessibility and environmental compatibility should provide clear

prospects of the renewable energy investments profitability, as the

survey results confirm. The re-evaluation and implementation of

an innovative energy regulatory scheme with reliable and feasible

support mechanisms could provide immediate and economically

feasible results not only for the European energy market but

additionally for the investor’s confidence and consumers

prosperity.

36,5

28,8

34,7

Assessment of the GoO scheme from wind

power producers and stakeholders

Fair

Advanced

Needs

Improvements

J.S. González, R. Lacal-Arántegui / Renewable and Sustainable Energy Reviews 56 (2016) 588–602 9

9

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