Fortum views on the Commission’s Renewable Energy Communication

We welcome the Commission’s RES Communication and especially the clear call by the European Commission for a more coordinated and more market-based approach in renewable energy policies. This shows that a lesson has been learned and that the mistakes made while creating the current renewable energy EU framework should not be repeated. The present policy, based on national renewable energy support schemes, has caused inefficiencies and market distortions as well as uncertainty because governments have changed the systems and support levels, even retroactively. We hope that national governments will agree with the Commission's suggested approach and start working towards more coordinated and market-based support systems. The economic benefits of market-based RES support and cooperation mechanisms in particular have been demonstrated in various analyses and should be realised as soon as possible. The Swedish - Norwegian green certificates system could provide a good model for an EU-wide system.

 

Cost-efficient decarbonisation of the energy sector is, in Fortum's view, only possible with a fully functioning and integrated energy market. The electricity industry has been increasingly concerned about the impact of rapidly increasing intermittent and subsidised renewable energy on the functioning of the internal energy market. Therefore, we note positively the emphasis in the document on the close link between the internal market and renewable policy. We fully agree with the Commission's conclusion that capacity market development would undermine an efficient European electricity market. Energy only market design with market pricing is in our view the best model to guarantee investments and market efficiency. It is therefore important that investments signals are not destroyed through regulated prices.

 

Therefore, we encourage the Commission to focus on promoting the development of the internal energy market, including cross-border trade and interconnections, and the development of dynamic demand response and storage technologies in order to facilitate renewable energy market integration.

 

Although the Commission leaves the discussion on the possible post-2020 RES target for later, the Communication seems to suggest that there is a need for a separate renewable target for 2030. The Commission has concluded that such a target has been requested by a majority of respondents in the context of a public consultation organised earlier this year. Stakeholder involvement through public consultations is important, but a certain level of cautiousness should be applied when drawing conclusions on the results, as it can be expected that those respondents who have based their investments and business operations on subsidies will be in favour of continuation of support schemes. Similarly, those respondents who currently manage subsidy schemes will most likely want to continue to do so also in the future. A more qualitative analysis is therefore needed.

 

As stated in the Communication, a well-functioning carbon market is necessary together with properly designed energy taxes in the sectors outside emissions trading to give investors clear and strong incentives to invest in low-carbon technologies and their development. Regarding the options outlined by the Commission for the post-2020 framework, Fortum believes that establishing a single ambitious greenhouse gas target for 2030 with market-based carbon pricing would best support the long-term decarbonisation goal. There is no need for a separate RES target after 2020. However, if new RES milestones (not targets) are established, they must be seen in the context of a post-2020 climate target and should be decided on only after there is an agreement on the 2030 climate target. In this case, RES measures should focus on the aspects that the climate target is not adequately addressing (e.g. R&D, fuel availability, removing barriers from RES development etc).

 

Long-term investment certainty is especially important for the energy sector, where investments are made for decades. Although Fortum believes that renewable energy should be market-based after 2020 and only R&D support for new RES technologies should be allowed, we stress the importance of keeping existing support schemes intact. Unilateral and even retroactive changes to the existing support mechanisms that some EU countries have made or are planning have clearly increased uncertainty among investors.

 

Heating and cooling sectors, including energy efficient co-generation, are vital contributors to sustainable developments, i.e. to mitigating climate change. Heating is a local market, as stated in the Communication. Local heat market conditions vary substantially across Europe – from competitive heat markets in Western Europe and the Nordic countries to the heavy-touch regulated heat markets in new EU countries. As part of promoting renewable energy in heating and cooling, the Commission should increase attention and demonstrate best-practices towards a gradual transition into competitive local heating markets all over Europe. This development would enhance the market-based functionality of local heating markets, and thus reduce requirements for additional support mechanisms for RES promotion, and finally enhance value-adding heating solutions. Competitive heat markets would also establish a consistent and stable investment environment to attract the necessary district heating and cooling and co-generation investments, especially in new EU countries.

 
 

Fortum sees it useful to establish certain EU-wide, common principles or best-practice recommendations also for the heating and cooling sector, i.e. local heat market conditions, RES promotion and regulatory improvements, allowing competitive pricing and risk-adjusted returns in order to increase economical justification, transparency, consistency, and finally enhancing effective competition between different heating and cooling technologies. Similarly, common rules for the sustainable use of biomass and waste in heating and cooling would be needed. These principles or best-practice recommendations would strongly support rapid, positive developments towards the kinds of market models of heating and cooling that have proved their practicality, sustainability and excellent performance already in some forerunning EU countries, such as the Nordic countries.

 

 

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