From pv magazine 12/2020
The EU has launched a new mechanism aimed at incentivizing cooperation between member states in accelerating the roll-out of renewable energy projects.
The new rules – effective from the beginning of 2021 – will allow EU member states to meet their renewables targets as outlined in their National Energy and Climate Plans (NECPs) by investing in projects in another EU country. In short, national governments will voluntarily pay into a fund and renewables developers can bid to access the money in return for building projects in host nations.
The new financing model could be a blessing for countries with limited potential for renewables expansion, for example, countries with few hours of sunshine or limited room for onshore wind farms.
It is also a big opportunity for host nations with plenty of renewables potential but more limited availability of financing, for example, in Eastern Europe. Romania and Bulgaria both have plenty of potential for solar and wind power, but the financing is not always available. Romania targets 5 GW of solar PV capacity by 2030, up from around 1.6 GW now. Bulgaria targets around 3.3 GW, up from 1 GW now.
These targets will be easier to reach if investments are flowing in from wealthier countries. “This financing framework seems especially intended for countries such as Romania and Bulgaria that have a lot of renewables potential. You are taking the money from where the money is and allocating it where it is needed. At the same time, you reduce the regulatory risks for commercial companies wanting to invest,” Martin Weitenberg, a partner with law firm Eversheds Sutherland said.
The commission is hopeful the new rules will allow member states to finance projects in a more cost-efficient way than deploying the same technology at home. As for the host nation, it should benefit from job creation, improved air quality, and energy security, the commission says.
It is worth noting that the renewable energy generated from projects will count toward the national renewables targets in both the host nation and in the contributing nation. The draft regulation says 80% of the renewable energy generated from a project shall be statistically allocated to the contributing nation and 20% to the host nation.
Remedy for domestic policies?
Yet, there are plenty of sticking points. EU countries “dumping” projects abroad in order to dodge public opposition to renewables in their own country is one concern. This, however, is more relevant for onshore wind projects than solar PV.
There are also concerns that governments will finance projects in other countries to cover up for inefficient policy decisions and a lag in the energy transition at home.
“I can see the spirit of solidarity and cooperation, but I am not so sure this is a remedy. I would much rather see member states put proper national policies in place,” says Silke Goldberg, a partner with law firm Herbert Smith Freehills.
Many stakeholders and observers alike argue that stable and investor-friendly regulatory regimes are key to unleashing the renewables potential across Europe.
“Money is not necessarily the issue. There is money about, but the issue is often unstable regulatory regimes and cumbersome planning permissions. That is more likely to hinder renewables development than the financing part,” said Goldberg.
Public vs. private money
According to the draft law, projects financed by private money and/or EU funds shall not be statistically allocated to individual member states but instead count towards the overall 32% EU renewables target for 2030. That means only projects financed by public money will count towards the national targets outlined in the member states’ NECPs.
To this end, some stakeholders have voiced concern that the new financing framework could disincentivize privately funded projects or even flood the market with public subsidies. That could put the mechanism at odds with EU state aid laws.
There have also been calls for more clarity on how the financing mechanism will work in practice. Building up trust in the system in order to attract governments to participate seems key.
“The mechanism works in theory, but like the joint implementation mechanism under the Kyoto Protocol, it may not work in practice. The question is if governments want to participate,” said Goldberg.
The selection process is expected to begin next year. Nations that want to participate – either as host or financial backer – have only a few months to get ready for the first round of tender.
“The European Commission will make the first call of tender at some point in 2021. That means it will ask which member states that want to participate. The calls of tenders will be announced once every year,” said Weitenberg.
The commission will have a big role in the new mechanism as it will design, monitor, and manage the tenders and project auctions. However, the auction rules have yet to be revealed in full detail. The commission has said preference will be given to the lowest bids unless circumstances are exceptional. Yet there are many details still missing, for example, if auctions will be technology-specific – which could mean having separate auctions for established and new technologies.
“Details such as the maximum bidding price, implementation deadlines, and force majeure, which are very relevant for the risk assessment, will only be available when the European Commission publishes the auction rules,” Weitenberg said.
Joint projects and statistical transfers between EU nations is nothing new. In October 2017, Lithuania and Luxembourg signed an agreement whereby Lithuania committed to transfer a statistical share of the electricity generated by renewables to Luxembourg. Since then, Luxembourg has bought renewables statistics from Lithuania for more than €10 million. The two nations plan to continue this cooperation mechanism, according to an MoU signed between the two countries in September. The EU’s Renewable Energy Directive allows for this practice since Lithuania achieved its 2020 target for renewables several years ago and because Luxembourg – a small and landlocked nation – has limited potential for renewables expansion. Luxembourg also has a similar agreement in place with Estonia.
Two new agreements for statistical transfers were reached in 2020, between Estonia and Malta and between Denmark and the Netherlands. Other examples of cross-border cooperation include the joint renewables certificate scheme between Sweden and Norway.
The new financing mechanism will give nations more options for cooperation and thus provide a welcome boost for renewables investment. Falling technology costs have helped accelerate the roll-out of renewables in recent years, but much more investment will be needed if the EU is to meet its soon-to-be-revised GHG reduction target for 2030. The target is likely to be scaled up to around 55%, from 40% now. The revised target means that the share of renewables in final EU energy consumption will have to reach around 40% by 2030. It is currently around 23%.
The stakeholder consultation – which closed in June – shows that renewables players broadly welcome the new financing mechanism, albeit with some reservations. For example, some stakeholders voiced concern that green hydrogen projects and repowering of existing solar and wind installations do not seem to be included in the scheme.
Others flagged that new projects should not simply replace those that are already under planning in the host nation. German utility EnBW also called for minimum financial and technical requirements for developers bidding into the scheme, in order to reduce the risk of pre-qualified projects not being built.
Meanwhile, French utility Engie was among several companies that expressed concerns about contributing nations losing sight of their domestic energy transition. “The mechanism should not become an excuse for Member States to relax efforts to pursue their targets by developing renewables on their territory and by their own means,” Engie said.
Italian utility Enel called for support for solar and wind projects that are incorporating battery storage. It also said renewables projects in industrialized areas – where sites are being repurposed – should be given priority.
Enel also called for fast-tracking of planning permits for participating projects, a view that was also echoed by industry association SolarPower Europe. “Doing so will incentivize and attract investors. If the projects selected through the Mechanism could benefit from a fast track permitting process […] compared to those financed via national tenders, it would ensure a pipeline of attractive renewable projects for the mechanism to finance, and would attract investors,” SolaPower Europe said.
Meanwhile, Portuguese utility EdP said contributing member states should be given a bigger say in how their grants are being used, in terms of technologies and geographical scope.
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