EU Kommissionens direktiv-forslag

EUROPEAN COMMISSION
DIRECTORATE-GENERAL ENERGY

Director General

Note for the attention of

Mr. TROJAN, Secretary-GENERAL Secretariat General

Mr. DEWOST, Director-General Legal Service

Mr. RAVASIO, Director -General Economic and Financial Affairs DG

Mr. KECK, Acting director-General Enterprise DG

Mr. SCHAUB, Director-General Competition DG

Mr. LEGRAS, Director -General Agriculture DG

Mr. CURRIE, Director -General Environment DG

Mr. ROUTTI, Director-General Research DG

Mr. MOGG, Director -General Internal Market DG

Mr. VANDEN ABEELE, Director-General Taxation and customs union DG

Subject: Proposal for a Directive on the promotion of electricity from renewable energy sources in the internal electricity market

Please find enclosed a draft proposal for a Directive, envisaging the progressive inclusion of renewable generated electricity into the overall Internal electricity market. This follows the Working Paper on this issues, adopted by the Commission on 13/04/1999. A copy of this document is annexed hereto for your convenience, along with a draft explanatory memorandum, concerning the new draft Directive.

I would be grateful for your comments on this draft, by the latest on 28/10/1999. It is important that this deadline is respected, as Vice-President de Palacio wishes to be in a position to propose the draft Directive to the College in early November, to permit its presentation to the Energy Council on 2nd December.

Should you have any questions please contact Mr. C. Jones (Head of Unit Functioning of the Internal Market - Tel.: 65030). An interservice meeting is scheduled to discuss this on Thursday 21st at 15h00 (TERV - room 7/27).

Please inform Mrs Prégaldien (Tel.: 59103) if you intend to send a representative to this meeting.

Thank you in advance for your collaboration.

(SIGNED)

P. Benavides

Proposal for a

DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

on the promotion of electricity from renewable energy sources
in the internal electricity market

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular Article 95 thereof,

Having regard to the proposal from the Commission,

Having regard to the opinion of the Economic and Social Committee,

Having regard to the opinion of the Committee of the Regions,

Acting in accordance with the procedure laid down in Article 251 of the Treaty,

Whereas:

the potential for exploitation of renewable sources of energy is underused in the Community at present, and it is therefore necessary to take measures to ensure that the potential is better exploited within the framework of the internal electricity market. Whereas Directive 96/92/EC of the European Parliament and of the Council of 19 December 1996 concerning common rules for the internal market in electricity provides for an important step in the completion of the internal market in electricity;

the promotion of electricity from renewable sources of energy is a high Community priority as outlined in the White Paper on Renewable Energy Sources, for reasons of security and diversification of energy supply, for reasons of environmental protection and for reasons of social and economic cohesion;

the increased use of electricity from renewable energy sources constitutes an important part of the package of measures needed to reduce the emission of greenhouse gases, as first laid down in the Kyoto protocol signed by the European Community and its Member States in April 1998, and eventually in the policy package to meet further commitments;

the Council and the European Parliament have invited the Commission to submit a concrete proposal for a Community framework on access for electricity from renewable energy sources to the internal market;

in accordance with the principle of subsidiarity, general principles providing for a framework must be established at Community level, but their detailed implementation should be left to Member States, thus allowing each Member State to choose the regime which corresponds best to its particular situation, and takes into account the existing regional differences and special conditions such as those prevailing on islands and isolated areas;

support for electricity from renewable energy sources may be necessary as long as electricity prices do not fully reflect the the full social and environmental costs and benefits of energy sources used;

Member States operate different mechanisms of support for renewable energy sources, including investment aid, tax exemptions and direct price support schemes;

it is desirable to ensure compliance of direct price support schemes for electricity from renewable energy sources with the principles of the internal electricity market;

under direct price support schemes Member States shall no longer discriminate against foreign production of electricity from renewable energy sources once the total amount of such electricity receiving direct price support has reached a certain market share in a given Member State;

until the above market share is reached Member States shall be allowed to continue to operate direct price support schemes on a national basis, in order to build up a critical mass of electricity from renewable energy sources, subject to the relevant Community rules on state aid;

the extension of price support schemes to foreign production will lead to increased trade and competition within the market of electricity from renewable energy sources; whereas this development should take place progressively to enable industry to adapt and to ensure that the present upward trend in the production of electricity from renewable energy sources is maintained;

increased market penetration of electricity from renewable energy sources will allow for economies of scale, thereby reducing costs;

this Directive does not affect Member States' right to provide, in accordance with the provisions of the Treaty on State aid, support for research and development of renewable sources of energy, to give capital and investment subsidies, to use energy and emission taxes to further support the development of electricity from renewable sources of energy, and may, subject to the relevant provisions of Community fiscal and competition law, allow for tax differentials favouring electricity produced from renewable energy sources;

to facilitate trade in electricity from renewable energy sources and to increase transparency for the consumer's choice between conventionally produced electricity and electricity from renewable energy sources, certification of the guarantee of origin of such electricity is necessary;

to ensure increased market penetration of electricity from renewable energy sources in the medium term it is necessary to require all Member States to establish national targets for the consumption of electricity from renewable sources and detailed plans for the achievement of these targets; whereas it is necessary that these national targets, individually and collectively, are consistent with the objectives outlined in the 1997 Commission White Paper on Renewable Energy Sources and the Climate Change commitments accepted by the Community at Kyoto, and with any national climate change commitments accepted within this context;

as some Member States are liable to experience particular difficulties in adjusting their systems, provision should be made for recourse to transitional regimes; whereas such transitional regimes should be examined in the context of this Directive, together, where applicable, with a separate examination and notification under the State aid rules of the Treaty;

small and medium sized undertakings and independent power producers play an important role in the production of renewable sourced electricity, and their access to the market for renewable electricity should be encouraged through the implementation of this Directive, thus improving the employment opportunities for companies in this sector;

the specific structure of the renewables sector which includes many small and medium sized enterprises should be taken into account, especially when reviewing the administrative procedures for receiving permission to construct plants producing electricity from renewable energy sources;

the costs of connecting new producers of electricity from renewable energy sources should be transparent and non-discriminatory and due account should be taken of the benefit embedded generators bring to the grid;

HAVE ADOPTED THIS DIRECTIVE:

Chapter I

Scope and definitions

Article 1

This Directive establishes common rules for the treatment of electricity from renewable energy sources. It lays down rules relating to the access of electricity from renewable energy sources to the internal electricity market, in the framework of the completion of the internal electricity market and in view of increasing the share of electricity from renewable energy sources.

Article 2

For the purposes of this Directive:

  1. "renewable energy sources" shall mean renewable non-fossil fuels (wind, solar, geothermal, hydroelectric installations, wave, tidal and biomass in its various forms);

  2. "electricity from renewable energy sources" shall mean electricity generated by plants using only renewable energy sources; the part of electricity produced from renewable energy sources in hybrid plants using conventional sources of energy, in particular for back-up purposes, may be included in this definition;

  3. "direct price support scheme" shall mean a mechanism according to which a generator of electricity from renewable energy sources, on the basis of state regulation, receives, directly or indirectly, financial support in terms of a subsidy per kW/h provided and sold, such as quotas systems (e.g. tendering systems and green certificates systems), fixed feed-in prices and fixed premium schemes;

  4. "consumption" of electricity shall mean domestic electricity production, plus imports, minus exports;

  5. the definitions in Directive 96/92/EC are valid.

Chapter II

Support for electricity from renewable energy sources

Article 3

  1. Member States may apply direct price support schemes limited to domestic producers of electricity from renewable sources until the level of electricity from renewable energy sources benefiting from direct price support reaches 5 % of total domestic electricity consumption.

  2. No later than by the end of the calendar year following the date the threshold in paragraph 1 has been reached, the Member State in question shall cease any discrimination in favour of domestic generators of electricity from renewable energy sources in terms of access to any direct price support schemes.

  3. In any event Member States shall cease discrimination in favour of domestic generation of electricity from renewable energy sources in terms of access to any direct price support scheme no later than 31 December 2010.

  4. Member States shall, no later than 1 July each year, supply data to the Commission on the amount of electricity from renewable energy sources benefiting from direct price support schemes during the previous calendar year.

  5. The Commission shall, on an annual basis, publish statistics on the consumption of electricity from renewable energy sources which benefit from direct price support schemes for all Member States. Where the 5% threshold in paragraph 1 of this Article is met, the Commission shall notify this fact to the Member State in question.

  6. Member States which have reached the threshold in Article 3(1) have to provide access to their direct price support schemes only to generators in Member States which have equally reached the threshold.

  7. In the event that a Member State considers that the obligation contained in paragraph 1 of this Article would prejudice the operation of small isolated electricity systems or the technological development of newly emergent market segments, or the development and operation of small facilities for on-site consumption such as photovoltaic facilities incorporated in buildings, it may at any time request authorisation from the Commission to derogate from this obligation.

The Commission shall decide on such an application within 4 months of its receipt, taking into account, in particular, the objectives of the Community with respect to the completion of the internal market for electricity, and the energy and environmental objectives of the Member State in question and the European Community as a whole as well as the degree of development of the different renewable energy technologies.

  1. Those Member States in which commitments or guarantees of operation given before the entry into force of this Directive may not be honoured on account of paragraph 1 of this Article or in which important financial difficulties result for existing producers of electricity from renewable sources of energy, particularly for small and medium sized enterprises and independent power producers, may apply for a transitional regime which may be granted to them by the Commission. Such a transitional regime may be in the form of a temporary financial support scheme or the continuation of the previous direct price support schemes for existing producers.

In deciding on any request for an application for a transitional regime the Commission shall take into account, in particular, the nature of the support scheme, the nature of the financial difficulties, the nature of the commitment or guarantee of operation given, and the overall objectives of the Community in terms of the internal electricity market, the environment, and the market penetration of electricity from renewable energy sources.

The Commission shall inform the Member States of those applications before it takes a decision, taking into account respect for confidentiality. This decision shall be taken within 4 months and published in the Official Journal of the European Communities.

The transitional regime shall be of limited duration and shall be linked to the expiry of the commitments and guarantees referred to in this paragraph. Applications for a transitional regime must be notified to the Commission no later than the end of the one year period referred to in Article 3 (2).

Chapter III

Guarantee of origin of electricity from renewable energy sources

Article 4

  1. Member States shall ensure that the origin of electricity generated from renewable energy sources can be guaranteed as such in the sense of this Directive according to objective and non-discriminatory criteria laid down by each of the Member States. They shall issue guarantee certificates to this effect at latest on the date specified pursuant to Article 3 (2) or Article 3 (3).

  2. Member States shall designate a competent body, independent from generation and distribution activities, to issue such guarantee certificates.

  3. Such guarantee certification shall serve to enable producers of electricity from renewable energy sources to demonstrate that the electricity they sell is produced according to the definition of electricity from renewable energy sources contained in Article 2 (2). Such certificates shall be mutually recognised by the Member States for this purpose.

  4. After having consulted national experts, and at the latest one year after the entry into force of this Directive, the Commission will issue a report on the form and modalities that Member States should follow in the certification of electricity generated from renewable energy sources. If necessary, the Commission shall propose to the Council and European Parliament the adoption of common rules in this respect.

  5. Member States shall put into place appropriate mechanisms to ensure certification is both accurate and reliable. Member States shall outline in the report mentioned in Article 5 (1) the measures taken to ensure reliability of the certification system.

Chapter IV

National targets for consumption of electricity
from renewable sources of energy

Article 5

  1. Member States shall, on an annual basis, adopt and publish a report setting national targets for domestic future consumption of electricity from renewable energy sources. Such targets shall identify the national objective for future levels of consumption of electricity from renewable energy sources, in terms of kW/h consumed or as a percentage of electricity consumption, on a year-by-year basis for the next 10 years.

The report shall also outline the measures taken and to be taken, at national level, to achieve these objectives and include an analysis of success in meeting previous years national targets.

  1. The Commission shall on the basis of the reports from the Member States, evaluate on an annual basis to which extent the national targets, individually and collectively, are consistent with the objectives outlined in the White Paper on Renewable Energy Sources and the Climate Change commitments accepted by the Community in Kyoto, and with any national climate change commitments accepted within this context.

Chapter V

Administrative procedures

Article 6

  1. Member States shall review the existing legislative and regulatory framework with regard to authorisation procedures applicable to installations of generation plants for electricity from renewable energy sources, with a view to streamlining and expediting procedures at the appropriate administrative level, and ensuring that the rules are objective, transparent and non-discriminatory, and take fully into account the particularities of the various renewable technologies.

  2. Member States shall publish a report on the above review setting out the action which will be taken to reduce regulatory and non-regulatory barriers to increasing production of electricity from renewable energy sources. They shall publish this report not later than two years after the entry into force of this Directive. In this report they will, in particular, consider the following issues:

co-ordination between the different administrative bodies concerned with the procedure for authorisation of generation plants producing electricity from renewable energy sources;

reasonable deadlines for dealing with applications for authorisation of such plants;

the establishment of a fast-track planning procedure for producers of electricity from renewable energy sources;

the possibility of establishing mechanisms under which the absence of reply by the competent bodies on an application for authorisation within a certain period of time automatically results in an authorisation;

establishment of single reception points, at the appropriate administrative level, for applications of authorisations for the installation of generation plants for electricity from renewable energy sources;

the identification at the national, regional or local level of sites suitable for establishing new capacity for generating electricity from renewable energy sources;

specific planning guidelines for projects for electricity from renewable energy sources;

the designation of an authority (a public or a private body) to act as mediator between authorities responsible for the granting of authorisations and applicants for authorisations in the case of disputes between these parties; and

the introduction of comprehensive information and training programmes on technologies concerning the utilisation of renewable energy sources for personnel responsible for the authorisation procedures.

Chapter VI

Grid system issues

Article 7

  1. Member States shall require transmission system operators and distribution system operators to set up and publish standard rules relating to the bearing of costs of installations necessary for the integration of a new generator feeding electricity from renewable energy sources into the grid system, such as grid connections and grid reinforcements.

It shall be based on objective, transparent and non-discriminatory criteria taking particular account of future system benefits generated by the installations.

  1. Transmission and distribution system operators shall be required to provide to the new generator wishing to be connected a comprehensive and detailed estimate of the costs associated with the connection.

  2. Member States shall require transmission system operators and distribution system operators to set up and publish standard rules relating to the sharing of costs of system installations, such as grid connections and reinforcements, between all generators benefiting from them.

The sharing shall be enforced by an appropriate compensation mechanism and shall be based on objective, transparent and non-discriminatory criteria taking into account the benefits initially and subsequently connected generators derive from the connections.

  1. Member States shall in the report mentioned in Article 6 (2) also consider the measures to be taken to facilitate access to the grid system of electricity from renewable energy sources. In particular, this report shall examine the necessity for, and the measures necessary to introduce two-way metering.

Chapter VII

Final provisions

Article 8

Taking into account, inter alia, progress made in the European Community pursuant to Directive 96/92/EC, as well as progress made in meeting climate change commitments, and on the basis of the reports issued by Member States pursuant to Article 5(1), the Commission will, no later than two years following the entry into force of this Directive, present a report on the implementation of this Directive. A second Commission report will be presented no later than 1st January 2005, which shall be accompanied, if appropriate, with further proposals to the European Parliament and Council.

Article 9

  1. Member States shall bring into force the laws, regulations and administrative provisions necessary to comply with this Directive within one year of its publication. They shall forthwith inform the Commission thereof.

  2. When Member States adopt these provisions, they shall contain a reference to this Directive or be accompanied by such reference on the occasion of their official publication. Member States shall determine how such reference is to be made.

Article 10

This Directive shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Communities.

Article 11

This Directive is addressed to the Member States.

Done at Brussels, [...]

For the European Parliament For the Council

The President The President

[...] [...]

EN

EXPLANATORY MEMORANDUM

Introduction

The basic objective underlying this draft Directive is to facilitate the medium-term significant increase in renewable generated electricity ("RES-E") within the E.U. To achieve this goal, the directive provides for a Community framework with regard to price support schemes for RES-E, certification of origin, RES-E targets set at national level as well as a number of accompanying measures intended to provide a level playing field and foster the penetration of RES-E in the internal electricity market. In line with the principle of subsidiarity, the rules contained in the directive are limited to what is necessary to provide regulatory certainty, providing for a wide degree of autonomy to each Member State enabling the particular circumstances in each country to be fully taken into account.

With regard to price support schemes for RES-E, the draft directive requires that such mechanisms are brought fully in line with single market principles and rules once the level of RES-E that benefits from direct price support scheme in a Member State reaches 5% of domestic electricity consumption or, at latest, 10 years from the entry into force of the Directive. In practical terms this means that at that point such support may no longer discriminate in favour of domestically generated RES-E and must provide for a certain degree of competition between RES-E producers in different countries. As a result, an EU wide market of RES-E will progressively develop, resulting in increased efficiency and lower costs. To accompany this, and to ensure that trade in RES-E becomes both reliable and practically possible, the draft directive proposes that all Member States introduce a system for the certification of origin of RES-E.

A number of accompanying measures complement the internal market provision in order to ensure its smooth and effective introduction, and to deal with specific circumstances that might require an exception to the basic rule. These provisions cover, inter alia, stranded costs, reciprocity, the collection and publication of statistics, and the provision of a possibility for derogation, for example for small and isolated systems and emergent technologies.

In order to achieve its underlying objective, the directive also proposes an obligation on Member States to adopt, at national level, domestic targets for RES-E consumption levels on an annual basis for ongoing periods of 10 years. This is considered necessary to lay one of the foundations for subsequent measures aimed at meeting the climate change gases reduction obligations accepted by the EU at Kyoto and must be seen in the light of the objectives set out in the White Paper on renewable energy sources as endorsed by the Energy Council in May 1998. This measure also seeks to produce a minimum level or "critical mass" of RES electricity across the EU, thus enabling the effective introduction of an internal market for RES-E and developing a basic level playing field in terms of support for RES electricity in the EU.

Furthermore, the directive foresees a number of accompanying measures intended to create a level playing field and facilitate the penetration of RES-E in the internal electricity market, notably regarding administrative procedures and grid system issues.

Detailed overview of the Proposal

Applying internal market principles to price support schemes (Article 3).

The current situation

In most Member States the principal promotion tool for RES-E is operating aid supporting the price paid to the producer. Whilst costs are coming down rapidly, due to technological advance and increasing economies of scale, support is expected to remain necessary in the medium term.

Under such direct price support schemes, generators of electricity from renewable energy sources, on the basis of state regulation, receives, directly or indirectly, financial support in terms of a subsidy per kW/h provided and sold. At present there are essentially two categories of direct price support mechanisms within the EU, quota based systems, and fixed price systems with purchasing obligations.

Quota-based systems, operating notably in the United Kingdom, the Republic of Ireland and The Netherlands, and presently being introduced in Denmark, are based on setting the price through competition between RES-E generators for available support. Two different mechanisms presently operate: the green certificates and tendering schemes.

Under a green certificate system, RES-E is sold at market prices. In order to finance the additional cost of producing RES electricity, and to ensure that the desired RES electricity is generated, an obligation is placed on all consumers to purchase a certain amount of green certificates from RES-E producers according to a fixed percentage, or quota, of their total electricity consumption. Since consumers wish to buy these certificates as cheaply as possible, a secondary market of certificates develops where RES producers compete with one-another for the sale of the green certificates.

Under a tendering procedure, the state decides on the desired level of RES-E and then places a series of tenders for the supply of the RES-E, which would thereafter be supplied to the local utility on a contract basis at the price which emerged from the tender. The surplus costs generated by the purchase of RES-E are passed on to the end-consumer of electricity through a specific levy.

In both the green certificate system and the tendering system, Member States may choose to reserve separate market segments for technologies with individual targets. Under the green certificate system, special certificates per technology band may be issued, coupled with a separate purchasing requirement within the overall purchase obligation for RES electricity. Thus PV certificates, wind certificates, biomass certificates, or further specified certificates, may be issued. Different prices per technology certificate would develop. Under the tendering system Member States may choose to tender for a stated amount of capacity per technology. This would prevent any lack of continuity in the development of certain less competitive technologies.

Fixed price schemes, operating presently in several E.U. countries, and notably Germany and Spain, are characterised by a specific price being set for RES-E that must be paid by electricity companies, usually distributors, to domestic producers of RES-E. In such schemes, in principle, there is no quota, or maximum limit for RES-E set in the Member States. This limit or quota is however set indirectly by the level at which the RES-E price is set. A variant of the fixed-price scheme is a fixed-premium mechanism, according to which the government sets a fixed-premium or an environmental bonus, paid above the normal or spot electricity price, to RES-E generators. Thus in reality there is little difference between the fixed price and fixed premium schemes. The fixed price or fixed premium may be revised by the government to reflect falling costs.

Another variant of these schemes is the combination of a fixed price or premium, together with a levy. In such a system a Member State would set an objective in terms of RES-E consumption, and impose a levy on all domestic electricity consumption. The receipts of this levy would be used to purchase RES-E at fixed prices/on fixed premiums. No such approach has as yet been implemented in the Community.

In the Working Paper on "Electricity from renewable energy sources and the internal electricity market", adopted by the Commission on 13th April 1999, the advantages and disadvantages of these various support mechanisms were analysed in some detail. In summary, on the basis of existing evidence, it appears reasonable to state that the quota-based schemes mentioned above, based on competition between RES-E generators, are more effective at bringing down the prices paid for RES-E compared to fixed price or premium schemes. On the other hand, evidence indicates that fixed-price schemes have been more effective at rapidly increasing levels of RES-E generation.

As yet, however, insufficient evidence exists to draw final conclusions on this issue. Fixed-price mechanisms, for example, might be more effective at reducing prices if the price paid was revised on a regular basis by an independent authority to take account of reducing costs and the price paid in other markets where quota systems operate. Equally, quota-based systems might be more effective at increasing RES-E penetration levels if quotas were rapidly increased, administrative arrangements made simpler, and planning consent procedures improved.

Thus, on the basis of existing evidence, it is not appropriate, at present, to conclude that either of these models should form the exclusive basis of any internal market for RES-E. Member States should retain the freedom to decide which of these approaches is the most appropriate to deal with the specific circumstances in the country State in question.

The need for a Community framework

As in all other sectors of the economy, significant advantages can be expected from opening national markets to trade and competition between producers of RES-E in different Member States. The increasing competition that would result, together with increased opportunities for creating economies of scale, can be expected to lead to lower RES-E costs and prices, thus increasing opportunities for greater RES-E penetration. Furthermore, given that much of RES-E generation is intrinsically linked to geographic or climatic conditions (availability of wind/sun/biomass), trade in RES-E can provide significant benefits to Member States with limited access to such natural resources.

In the Working Paper "Electricity from renewable energy sources and the internal electricity market", it was stated that two options exist for the creation of an internal RES-E market: simple and progressive application of the Treaty rules, or the development of a Community legislative framework. The Commission believes it appropriate to pursue the latter approach and give a clear perspective to Member States and potential investors on the treatment of RES-E in the internal electricity market in order to maintain the continued and dynamic growth of RES-E the European Union is striving for.

On 11 May 1999, the Energy Council invited the Commission to submit a concrete proposal on access of RES-E to the internal electricity market. All representations received by the Commission on this subject have underlined the importance of regulatory certainty as a vital factor to raise finance capital for new projects, and to persuade new entrants to invest in a market that, without financial support, would not be viable, for the time being.

The gradual creation of an internal market for RES-E (Article 3 (1) - (3))

Whilst the existing two basic forms of support mechanisms differ in many respects, they have one feature in common: foreign producers of RES-E are not allowed to participate in the scheme. The operation of such schemes leads therefore in practice to a reservation of a certain market share of the national electricity market for national production, the market share being defined by the total national production of RES-E benefiting from the scheme.

Such a situation has been tolerated in the past due to the low levels of RES-E penetration and thus the lack of any real impact on cross-border competition and trade. It is clear, however, that with increasing RES-E levels such schemes will conflict with EC Treaty rules, notably those regarding state aid (Articles 86-87) and trade (Articles 28-30). Whilst it is therefore evident that price support schemes restricted to national production will in due course conflict with EC law as the share of RES-E increases, it is however unclear as yet at which "threshold" or market share the adaptation of domestic support schemes to permit the inclusion of foreign production becomes legally necessary. However, without any clear rules in this respect regulatory uncertainty would remain and discourage new investment in renewable electricity generation.

In view of these considerations, the draft directive proposes that once the share of RES-E reaches a certain level of domestic electricity consumption, the support scheme in the Member States in question must cease discrimination in favour of national RES-E generators. In this way, trade and competition between different RES-generators can develop progressively under a stable regulatory framework.

The Commission has considered a number of alternative options before proposing this method of determining the date on which the non-discrimination obligation should apply to domestic direct support systems for RES-E. It has concluded that the approach that most closely reflects the economic objective pursued in this context is to provide that once RES-E levels benefiting from direct price support in a Member State reach 5 % of total domestic consumption, discrimination should then cease after a reasonable period to make the necessary administrative changes. The use of a percentage figure of RES-E receiving direct support as the "cut-off" point, rather than the simple application of a given date by which Member States would be obliged to cease any discrimination, reflects the fact that the internal market rules only need to be applied once the resultant distortion becomes appreciable. This approach also serves to better reflect the large differences between RES-E levels receiving direct support at national level that persist between Member States.

Furthermore, it is clear that community measures with respect to internal market objectives in the context of this draft Directive only need address RES-E benefiting from direct price support schemes. RES-E not benefiting from such support can be freely traded as any other from of electricity in the E.U. Thus only RES-E receiving direct support is covered by Article 3.

The 5 % figure as cut-off point has been chosen to reflect a number of differing objectives:

it provides, for countries with still low RES-E levels, a reasonable period to ensure the development of an efficient domestic RES-E industry, in turn enabling it to thrive in the wider internal market ;

it is a sufficiently important figure to permit domestic industries to develop economies of scale, also enabling them to compete effectively in the wider internal market ;

it will provide Member States with presently low RES-E levels a reasonable period of regulatory certainty, again to develop the domestic industry with the perspective of the internal market ;

the need to ensure that a real internal market for RES-E develops in the short-to-medium term.

In addition to this, the draft directive provides that all Member States must cease discrimination no later than 31 December 2010. It is important that a final date exists when all Member States must comply with the single market requirements, in the light of the need for regulatory security, and in order to ensure a long -term guaranteed level playing field in terms of market opening and minimum support levels for RES-E.

There are, of course, disadvantages to this approach, particularly compared to one option discussed in the Working Paper - simply fixing a single date, with possible extensions and exceptions - by which support systems in all Member States must comply with the internal market rules. The present proposal is more detailed in comparison - being based on statistics that are difficult to collect, and necessitating the application of the reciprocity provision. Nonetheless, and in particular in the light of the many observations received by the Commission following publication of the Working Paper, it is considered that these disadvantages are outweighed by the above-mentioned benefits and that the practical difficulties can be overcome.

Accompanying measures

To allow the Commission to verify when Member States have reached the 5% threshold, the draft Directive envisages that Member States would be obliged - on an annual basis - to supply data to the Commission on the share of RES-E that receives direct

Reporting requirements (Articles 3 (4) and 3 (5))

price support. The Commission would use this information - also on an annual basis - to publish statistics illustrating the situation for directly supported RES-E in all Member States. When the 5 % threshold is met, the Commission would notify the country in question of this fact, with the consequence that from the end of the following year the Member State must cease any discrimination in favour of domestically produced RES-E.

Reciprocity (Article 3 (6))

In order to ensure a level playing field with respect to the creation of an internal market for RES-E, and to eliminate the creation any incentive to limit RES-growth that might result in the absence of a level playing field, the draft directive provides for the application of the reciprocity principle. Member States that have reached the 5% threshold and have opened their domestic support schemes to RES-E generators in other Member States are therefore entitled to limit access to those Member States that have also reached this threshold. This provision is similar in objective to that contained in Directive 96/92/EC creating an internal market for electricity.

Possibility for a derogation (Article 3 (7))

Member States which consider that the introduction of a support scheme permitting competition from RES-E generators in other Member States would be detrimental to the operation of small isolated systems or would harm the technological development of newly emergent market segments, including the development and operation of small on-site facilities such as photovoltaic facilities incorporated in buildings, may at any time request authorisation from the Commission not to introduce such a scheme in these cases. In its decision, the Commission will, in particular, take into account the objectives of the Community with respect to the completion of the internal market for electricity, the energy and environmental objectives of the Member State in question and the EU as a whole, as well as the degree of technological development of different renewable energy applications.

Stranded costs (Article 3(8))

If prices fall in some Member States following the introduction of trade and thus competition, some producers - which have invested on the basis of a relatively high fixed price expectation - may become less competitive. To address this issue, the draft Directive envisages the possibility for Member States to adopt, stranded cost, or transitional regime schemes, which must be notified to the Commission and approved pursuant to the Directive and, where relevant, the state aid rules of the EC Treaty. Such schemes, for example, might be introduced by Member States to provide a one-off aid package to RES producers, and in particular small and medium sized enterprises and independent power producers that would be rendered non-competitive due to the fall in prices resulting from the introduction of competition and trade. Member States may also wish to continue the previous price supporting scheme for existing producers when changing the regulatory regime. Such schemes would have to be examined by the Commission individually, and on the basis of criteria set out in Article 3 (8). In particular, the Commission would need to ensure that the schemes were the least restrictive of competition and trade reasonably necessary to achieve the objectives in question.

Other support schemes for RES-E

This draft directive contains the basic principles for which direct price support schemes must comply with in order to be in line with the principles of the internal electricity market. However, the directive does not exclude the operation of additional support mechanisms under which producers of electricity from renewable sources of energy do not benefit from direct price support, such as investment aid, tax exemptions or support for research and development. Such schemes do not fall under the scope of this directive but remain, subject to Community law, in particular the Community state aid rules.

Guarantee of origin (Article 4)

In order to permit trade to take place effectively, a guarantee of RES origin system is necessary which will permit purchasers to be certain that the electricity acquired is produced from renewable sources. In the absence of such a system, not only will it be difficult for potential importers to identify RES producers, but the "multiple sale" of RES produced electricity may pose a problem.

Whilst a single EU certification system and control and verification mechanism would in many respects be the most effective approach to this guarantee of RES origin issue, it is proposed that, at least for the time being, each Member State be responsible for issuing the guarantees to RES producers in its territory. The guarantees would be mutually recognised by the Member States. The Commission will, after having consulted national experts, issue a report on the form and modalities that the Member States should follow when issuing the guarantees. This report is due within one year of the adoption of the Directive. If it is considered necessary, the Commission will propose further measures in this respect at that point.

It has to be recognised, however, that the issue of fraud in this area is an issue that must be avoided ab initio. The guarantees in question will be valuable and, without appropriate control procedures, susceptible to fraud. To permit effective mutual recognition it is important that mutual confidence exists. To encourage and develop this, the draft Directive proposes that (i) Member States are obliged to put into place appropriate mechanisms to ensure that the issue of guarantees is both accurate and reliable; (ii) Member States are obliged to report on a yearly basis on the measures taken to ensure that fraud does not exist; (iii) the Commission, on the basis of national reports, produces a regular overall report; and (iv) a "Follow-up Group" of national experts, created in the context of this draft Directive, would consider, at least annually, experience in this area, and any measures or improvements that might be appropriate.

National RES-consumption targets (Article 5)

As a key complementary objective to the progressive creation of an internal market for RES-E, it is important that the momentum is maintained towards increasing levels of RES-E penetration in all Member States. This objective was underlined inter alia in the White Paper on renewable from November 1997 which was supported by all Member States.

In the Working Paper "Electricity from renewable energy sources and the internal electricity market", it was examined whether binding targets for RES-E consumption levels for all Member States should be set at Community level. As indicated in the Working Paper, there are important arguments in favour of such an approach. They would be compatible with the above-mentioned White Paper on renewables, and would be likely to make a significant contribution towards the attainment of the E.U.'s commitments within the context of Kyoto. However, there are equally strong arguments for maintaining a large degree of flexibility for Member States, enabling them to identify the package of measures best suited, in the light of national circumstances, to achieve their climate change commitments.

In this light the draft Directive proposes that an obligation is placed on all Member States:

each year to identify and publish their domestic objectives, in terms of RES-E consumption levels for the next 10 years, specified on an annual basis ;

to identify, on an annual basis, the measures taken and to be taken, at national level, to achieve these targets and ;

to publish, on an annual basis, results in meeting the targets set.

Whilst the actual level of the targets set by each Member State, and the mix of RES-E sources that make up the targets, are fully left to subsidiarity, it is clear that the Member States will need to ensure that they are compatible with the objectives specified in the White Paper, the European Union's climate change commitments entered into at Kyoto, and the relevant national climate change commitment accepted in this context. The draft Directive provides that the Commission assessment of this would be published annually, on the basis notably of national target/implementing measures reports.

Administrative and planning procedures (Article 6)

One major barrier to the further development of RES electricity in the E.U. is the administrative and planning procedures that potential generators must meet. This has been highlighted by a number of representative organisations responsible for the wind and other RES producers.

Articles 4-6 of the Electricity Directive provide the basic rules in this respect, notably that where an authorisation procedure is followed, the rules must be objective and non-discriminatory.

However, it should be noted that these rules, often developed for both large generation projects and small RES projects alike, place a significant burden on RES producers given their smaller size, both overall and in terms of average generation site.

In these circumstances, and given the need to encourage the opportunities for RES producers throughout the EU, harmonisation in this area would be likely to produce significant benefits. However, there would also be a number of disadvantages to such an approach. The planning procedures vary significantly from Member State to Member State, and take into account the very different environmental, demographic, and federal structures across the Community.

In such circumstances, and with due regard to subsidiarity, it is proposed not to adopt specific harmonisation in this area.

An effort to make progress in this area is nonetheless necessary. It is thus proposed to require all Member States.

(i) to review the existing measures, planning and administrative, that potential RES producers must meet, to determine which action, if any, can be taken to reduce the regulatory barriers to increasing RES production such as (a) the setting up of a single reception point for authorisation applications (b) ensuring co-ordination between the different administrative bodies involved and the establishment of reasonable deadlines (c) the establishment of a "fast-track" planning procedure for RES producers, (d) the possibility of establishing mechanisms under which the absence of a decision by the competent bodies on an application for authorisation within a certain period of time automatically results in an authorisation, (e) the production of specific planning guidelines for RES projects, (f) the identification, at national, regional or local level, of sites suitable for establishing new capacity for generating RES electricity and (g) the introduction of training programmes for the personnel responsible for the authorisation procedures, and

(ii) to publish a report in this respect, outlining the conclusions reached as to what action, will be taken, no later than two years following the entry into force of this Directive.

Grid connection and reinforcement issues (Article 7)

Renewable electricity (RES-E) generators wishing to feed electricity into the grid have to be connected, which may require expensive installations, especially for wind electricity often located in areas remote from the grid. Connection costs may thus considerably increase the investment costs and inhibit the development of installations. This is particularly the case, due to the small size of many renewable generators: the connection costs represent a significantly larger part of the total per site investment for a RES-E installation than for a conventional plant.

In addition, as new generators are connected, strengthening of the grid, i.e. installation of new or upgraded power lines may be necessary. The question of who has to pay for these grid-strengthening investments may affect the rate of uptake of RES-E in general.

On the other hand, the connection of a new generator can have benefits for the grid system; if connected at the appropriate part of the system, a new generator can reinforce the grid system by its mere existence and would thus stretch or assist the network. Consequently, reinforcements intended by the grid-operator become unnecessary or can be postponed.

To function properly, the internal market in electricity has to provide a level playing field for all existing and potential producers of electricity. This requires that charges put on renewable generators related to the grid-system correctly reflect the economic costs and benefits associated with the connection, in order to avoid that connection and grid-system costs become unfairly prohibitive.

It should be noted that the Electricity Directive in Article 7(2) provides for Member States to ensure that technical rules and operational requirements concerning the connection of generators to the transmission grid are developed in an objective and non-discriminatory manner and are published. However, a comparable provision regarding the distribution system does not exist.

It has been suggested, as a general rule, that connection costs of renewable generators should be borne by the grid operator, to facilitate deployment of RES installations. It is doubtful whether this approach can be considered appropriate. In fact, it would lead to a situation where the distance to the grid would be irrelevant to potential investors. Such an approach would thus encourage non-economic installations. On the contrary, to ensure the correct development of the RES sector in the EU, it is important that all relevant investments are fully taken into account, including grid connection costs.

It does not seem appropriate to set mandatory rules on cost sharing with regard to connection and other grid system costs at the European level. However, it should be ensured that the rules at Member State level comply with some general principles:

the full costs and benefits associated with the connection of a new RES-installation should be made transparent ;

future benefits to the grid-system, such as avoided or postponed reinforcement, should be taken into account ;

there should be rules foreseeing compensation payments if subsequent persons connecting to the grid benefit from a grid asset (connection or strengthening) associated with and paid for by a first person connecting to the grid.

As regards the benefits RES-electricity installations can provide to the grid system in terms of avoided system losses, Member States should ensure that these benefits are fully reflected in the relevant tariff systems.

Pursuant to Article 7 (4), Member States must in the report to be prepared regarding the reduction of regulatory barriers (Article 6 (2)), also consider the measures to be taken to facilitate access to the grid system of electricity generated by renewable energy sources. These measures shall include the possible introduction of two-way metering.

Definitions in this proposal (Article 2)

The basic definition of RES-E adopted for the purposes of the draft Directive is electricity generated from renewable non-fossil fuels, and notably "wind, solar, geothermal, hydroelectric installations, wave, tidal and biomass in its various forms". Thus the obligations contained in the Directive with respect to the issuing of guarantees of origin of electricity from renewable energy sources (Article 4), national targets for consumption of electricity from renewable sources of electricity (Article 5), administrative procedures (Article 6), and grid system issues (Article 7), must be met by Member States with respect to all the above-mentioned RES-E sources.

The reasons for adopting a wide definition of RES-E for these purposes, including for example all forms of hydroelectric generation, are intrinsically linked to the need for the E.U. to actively promote all forms of RES-E, particularly in the light of the Community's climate change commitments accepted at Kyoto. With respect to the requirements of Article 5, 6 and 7, which aim at directly assisting Member States to increase RES-E penetration levels, a wide definition of RES-E will assist in meeting these environmental objectives. As regards guarantees of origin (Art. 4) , it is appropriate that such guarantees are issued for all types of RES-E. Even for forms of RES-E that do not require or attract financial support such as large scale hydro, such guarantees of origin can be expected to provide positive benefits, particularly with respect to increasingly common voluntary RES purchasing schemes offered by electricity suppliers to their customers.

As far as the obligation contained in Article 3 is concerned, it should be noted that the consequence of the suggested wide definition of RES-E s not to require Member States to provide direct price support to all of these forms of RES-E. The choice of which forms of RES-E a Member State wishes to support, and to what extent, is left entirely to subsidiarity in the draft Directive. Article 3 only applies in case a given Member State chooses to support RES-E through direct price support, with a view to facilitate the progressive creation of an internal market for RES-E. Article 3 does not apply to RES-E that does not receive direct price support Such RES-E , even if promoted by other forms of support, such as investment aid, does not require specific Community measures, as it is sold into the market as any other electricity.Thus, for these generators, a single market already exists.

Direct price support schemes are therefore defined in the draft Directive as those which provide, directly or indirectly, financial support to a generator of RES-E in terms of a subsidy per kW/h provided and sold. This means that the main support schemes such as the quota systems (tendering systems and green certificates systems), fixed feed-in prices and fixed premium schemes, and environmental bonus schemes, would all fall within the scope of Article 3. It makes in this respect no difference whether the subsidy is financed directly from the state budget or through legislation that requires electricity consumers or suppliers to purchase the RES-E at non-market based prices.

Experts Group

Pursuant to the subsidiarity principle, much of the detailed implementation of this Directive will be undertaken at national level. The experience of the different Member States, and benchmarking as to the results achieved, will be fundamental in developing a coherent and effective systems of RES support and trade at EU level. Experiences of implementation of the electricity Directive have already demonstrated the importance of such an approach. It is therefore proposed to set up a "Follow-up Group", similar to that created in the framework of the electricity and gas single market Directives.

Review of the Provisions of this Directive (Article 8)

The draft Directive proposes that the Commission shall, on the basis of the national reports on domestic RES-E objectives and their success in meeting them, and taking into account the progress made concerning the creation of an internal electricity market and the progress in meeting the EU climate change obligation, produce no later than two years following the entry into force of this Directive, a detailed report to the Council and European Parliament on the implementation of this Directive. A second report is due by no later than 1st January 2005, and will include, if appropriate, concrete proposals for further progress in this area.

Impact on business

The introduction of an obligation for Member States to take positive steps to set targets for domestic RES-E consumption and identify the measures to achieve them is likely to give an important impetus to the development of the RES sector. Today, EU companies are amongst the world leaders in developing new RES-E technologies and the introduction of this impetus to increasing RES-E levels will allow these companies to maintain and even improve the competitive edge. This initiative will especially have significant effects on SMEs, as they constitute an important part of the sector.

Furthermore, the progressive implementation of a single market for RES-E will promote cost efficiency. The undertaking for Member States to review the existing legislative and regulatory framework in order to reduce the regulatory barriers via streamlining and expediting the administrative procedures involved in the planning process will also improve the business environment. This is especially important for SMEs which often do not have the same expertise as large companies in dealing with the planning authorities.

Consultation during the preparation of the proposal

This proposal follows the 1997 White Paper on Renewable Energy Sources as well as the first Harmonisation report and the Working Paper "Electricity from renewable energy sources and the internal electricity market". These papers have been widely discussed between the Commission services and Member States agencies, industries, professional associations and non-governmental organisations. The Commission has also participated in the public hearing of the European Parliament on "a Directive on network access for electricity from RES - a comparison of existing systems across the EU, their functioning in practice, their compatibility, the way forward". Furthermore, the Advisory Committee on Energy, which comprises representatives from generators of conventional and of renewable sourced electricity, trade unions, consumer groups, and environmental groups, has been consulted on a number of questions relevant to the proposed Directive. Member States have also been asked to provide information on their support schemes.

Specific consultation with the electricity supply industry and organisations representing the RES industry on the administrative procedures and grid reinforcement issues has also taken place.

Conclusions

The adoption of this draft Directive is an important part of the Community strategy to further expand the share of electricity from renewable energy sources in the EU and, therefore, an important step towards the meeting of the EU's climate change commitments, set and accepted at Kyoto.

Its entry into force at this time will provide regulatory certainty at an early stage creating a dynamic for increasing levels of RES electricity in the EU. With the progressive development of an internal market, it will lead to lower prices, more efficiency, and consequently ever increasing RES electricity penetration. This would not only benefit EU citizens and industry, but would also provide a major boost to EU industry in the RES plant and equipment sector where EU industry is already a world leader in the EU and on the export markets.

Such a development would produce benefits both to employment and the E.U.'s technological and industrial base.