Fortum’s position on the revision of the EU Renewable Energy Directive

28 January 2016, 11:57 EET

Highlights from the response to the public consultation on "Preparation of a new renewable energy directive for the period after 2020".

Fortum recognises the vital role of renewable energy in the decarbonisation of the economy and in securing energy independence. We support amending the EU Directive on the Promotion of Renewable Energy Sources (RES Directive) in line with the EU-level RES target for 2030 set by the European Council in October 2014. Nevertheless, we acknowledge that many of the provisions of the current Directive will not be necessary in the future for a few reasons: the new 2030 Framework does not contain burden-sharing of RES among Member States; the support schemes and market integration of RES take place in accordance with state-aid guidelines and market legislation; and because a separate legislative proposal on the sustainability of biomass is probable. We also highlight that, from the renewables perspective, the electricity market design and state-aid guidelines will be as important as the directive itself. RES should be made for the market and the market should be made for RES. 

Consistency with other 2030 energy and climate targets to be ensured

It is crucial that the reform ensures consistency with other 2030 energy and climate targets. EU ETS is the main tool of the EU to meet the CO2 reduction target. The ETS is an EU-level and technology-neutral measure that supports renewables and energy efficiency – the two main measures and in terms of 2030, probably the only ones – for reducing CO2 emissions. Therefore, it is essential that the role of the ETS is recognised also when planning future RES policies. An efficient ETS and CO2 price should be the main driver for the deployment of mature technologies for renewable energy sources within the sectors covered.

Non-ETS sectors, on the other hand, require additional incentives for RES development. Primarily, additional RES (and energy efficiency) measures should focus on sectors remaining outside the ETS, and specific EU and national measures should not interfere with the CO2 price steering in the ETS. If Member States end up establishing support schemes for RES also in the sectors covered by the ETS, the impact of these measures on the ETS must be assessed. Furthermore, such measures must be as market-oriented as possible and with the least distortion as possible. Therefore, all support schemes for RES should be regional; national support schemes not open for foreign participation should be acceptable only in specific cases. The future state-aid guidelines affecting the post-2020 period should clarify these procedures in more detail.

Adapting the market design

Furthermore, it should be ensured that the RES Directive and governance develop in accordance with EU energy market design. Thus to preserve cost-efficiency in the conduct of the energy transition, the Energy Union governance framework underpinning the implementation of the EU RES target should be established in line with the EU energy market, building on the market and not weakening its effects, in particular its price signals. With regard to governance it should be noted that there are no targets for different energy sectors, i.e. electricity, heating and cooling, and transport. Reporting in this regard is carried out in connection with the governance process and not the RES directive. Should the EU not fulfil its renewables target, the Commission is entitled to use its right of legislative initiative enshrined in the Treaties to remedy the situation. An early discussion on filling the gap (i.e. what if the national actions do not sum up to 27% at the EU level) should not be started too early. If this leads to a conclusion that initial actions will not provide enough RES and there will be additional support available, this is likely to result in strategic behaviour when investors start waiting for that additional support.

As regards calculation of RES share, Fortum is in favour of using final energy consumption as the basis for the calculation methodology. This would be consistent with the current RES Directive.

Market-based approach and full market integration

Fortum attaches utmost importance to securing a market-based approach in the new RES Directive. Renewable energy subsidies for all mature technologies in the sectors covered by the ETS should be phased out as soon as possible in order to fully integrate renewable energy generation into the energy market. Meanwhile, a more regional and coordinated approach between Member States should be developed, including opening the current subsidy schemes for cross-border participation to allow more cost-efficient RES investments during the transition phase to pure CO2 price incentives – subsidy schemes open for cross-border participation should become a requirement. RES policies should comply with state-aid guidelines and take the degree of market integration into account. Full market integration of RES and DES – regardless the size and technology – should be the key target for the review of the existing state-aid guidelines for the post-2020 period. For new and emerging technologies, R&D and demonstration support should be preferred over production subsidies.

Success in integrating renewable energy, including decentralised energy, into the market will be the key for the success of the future market design development. As the RES consultation was very thin on the market integration, it must be addressed in connection with the market design legislation or state-aid guidelines – this aspect is probably the most important item related to RES requiring EU involvement. The specific regime for RES/DES should be adapted to achieve a genuinely level playing field amongst all generators, irrespective of size or technology, subject to the same market obligations (balancing responsibility, market price reflection etc.). With regard to access to and operation of the grids, Fortum considers that the priority access should be scrapped because it has a detrimental impact on the functioning of the internal energy market. This would also be in line with the state-aid guidelines.

Hydropower to be fully acknowledged

The penetration of intermittent renewables (wind, solar) into the European electricity system highlights the importance of hydropower in balancing the subsequent peaks and in increasing flexibility in the electricity system. Hydropower also contributes to emissions reduction and helps to balance the energy system through firm production of electricity. Being CO2-free and a reliable renewable energy source, the role of hydropower production as a crucial enabler of energy transition should be fully acknowledged. It should be treated on an equal basis compared to other RES – and even considered subject to counting its share in double in the EU RES target. Moreover, when preparing other water or hydro-related legislative and/or policy initiatives, hydro’s contribution to pursuing the EU climate and energy targets should be duly assessed.

Renewables in the heating and cooling and transport sectors

Fortum is in favour of a holistic approach with respect to the RES Directive and consideration of not only the contribution made by the power sector but also, equally important, the participation of RES in heating and cooling and in transport policies. In this sense, biomass, district heating and cooling, the use of bio-oil and electric vehicles are vital contributors to the climate and resource-efficiency targets of Europe.

Guarantees of origin of electricity, heating and cooling have proved useful for the credibility and the promotion of renewables. Consequently, the system of guarantees of origin should be maintained and developed further.

In this context, Fortum takes the opportunity to re-state its view that there should be an EU-wide harmonised set of criteria for the sustainability of solid and gaseous biomass. Fortum hence calls for the Commission to present a proposal for an EU instrument in this regard in order to provide predictability for the biomass investments of the industry.

For further information:
Esa Hyvärinen, Senior Vice President, Corporate Relations, esa [dot] hyvarinen [at] fortum [dot] com, +358 40 8262646