EU countries making changes to their mechanisms for renewable energy support need to do so in an orderly and predictable manner, so as to ensure stability, David Buchan has told EURACTIV Czech Republic in an interview.
David Buchan started his career as a journalist with the Economist and the Financial Times, covering energy, defence, the Soviet Union and diplomacy, from Brussels and Washington. He specialises in EU energy and climate policy at the Oxford Institute for Energy Studies. He spoke to EURACTIV Czech Republic’s Adela Denkova.
A group of twelve large energy companies is calling for fundamental changes in EU energy policy, because they are not satisfied with what is going on in the European market nowadays. How do you perceive this initiative, which seeks to change attitudes towards renewable sources of energy?
I think it is natural that they have taken this initiative. There are many problems arising at the electricity market, because there is a growing capacity of renewable sources without any increase in demand. It is natural that they should speak up and it is probably natural that the European Commission should listen to them. However, these companies do not represent the whole EU and I was rather surprised when Commissioner Oettinger said at a press conference in October that he would be not only consulting these companies – which is natural – but that he would be [only] consulting the ministers of the countries from which these companies come from.
Is there any problem in this?
For example, there was no company from Britain. That is partly because the British electricity industry is so divided up and it is mainly in foreign hands. Anyway, there is no specific British company involved. So, I think this so called Magritte Group [the CEOs of 10 utilities companies, which together own half of Europe's electricity generating capacity, calling for an end to subsidies for wind and solar energy] is an important initiative for the Commission to listen to, but they should also make sure that at the political level they talk to the entire 28 members.
How about environmental groups, for example? Does the Commission pay enough attention to these people?
Of course there are different parts of the Commission which listen to different lobbying groups. The Magritte Group exercises their influence on the energy directorate and the environmental groups obviously speak to the environmental and climate directorates of the European Commission. They listen quite carefully to green groups and provide small amounts of money to them as well.
When we talk about renewable sources of energy, some European countries have to solve a problem with the financial support of these sources. Is there any feasible way to deal with these problems?
In November, the Commission published guidelines on this and I think they got it right. The problem lies in the past, in existing contracts which have been signed – and the Commission is advising countries not to break these contracts and not to change them retroactively or change the terms for existing projects retroactively. Which has happened in Spain and it was supposed to happen in the Czech Republic. Instead of changing the contract you added a new tax on the existing solar power plants. But the advice about the past is that EU governments may have made some bad contracts, they may have overpaid some of these renewable generators, but they will have to live with that, because if they do not and break the contracts, they also break the investors’ confidence.
And how about the future schemes?
In future contracts, governments will need to change the tariffs downwards in almost all cases as the technology becomes more mature. But if the governments change these tariffs, they should do it in a regular and predictable way. They should have a review every year or six months and the investors must have certainty about it. For example, in Germany they plan on a certain amount of renewable energy each year and if they go over that limit, it will definitely result in a cut in tariffs.
The Commission has also published guidelines for back-up capacities for renewable energy. It deals provisionally with the issue of capacity mechanisms, which is a question we can hear a lot about in Europe today. What do you think about this concept?
I think that capacity mechanisms are inevitable. The entrance of renewables to the electricity market results in much lower electricity prices and is pushing some of the conventional capacity out of the market. However, renewables that are dependent on the weather – wind and solar power – do need the conventional capacity to be available as a back-up when the wind is not blowing or the sun is not shining. And this is more or less a common problem across Europe.
But there are different conditions in different European countries…
Yes, the particular problems are different. Britain begins to have problems with overall capacity no matter of which kind. They have coal plants that are being closed; they have very old nuclear plants that will be closed. So that is a problem of shortage of overall capacity. Even if everything was working fine, in a couple of years they would be short of power.
I guess there is a different situation in Germany, for example.
Germany does not have an absolute shortage of capacity. What they lack is some flexible capacity to respond very quickly to the very large surges of wind and solar power in the grid. In particular, they need gas plants to respond to the actual situation and back-up the renewables. Various countries have this problem of back-up in slightly different ways. That is one of the reasons why I think a common European capacity mechanism will be very hard to design. The problem is not identical in every country. The other reason is that we are talking about keeping the lights on. The national politicians are obviously very keen to keep the lights on in their countries and there is a reluctance to depend entirely on the foreign back-up supplies for this. It is very difficult for the Commission to say “no you cannot have national system; you must have the European one”.
What are the principles that the Commission encapsulate into the mentioned guidelines?
The message from Brussels is that the capacity mechanism should be a last resort. First of all, they want the governments to go through series of steps. Firstly, they want the governments to think about the exact problem. Secondly, they ask whether there are any other ways that the countries can deal with the problem. For example, they can reduce demand; they can think about how to rely on their neighbours, they can build interconnectors with neighbouring countries etc. And if all these measures do not solve the problem, they should design a capacity mechanism. It is sensible from the European point of view. My criticism of it is that it lacks the urgency that is shown for example by the Magritte Group. Because these companies do not have the money for new investments, that are needed in low carbon energy now.
In some forms, the capacity payments already exist in some European countries, is it right?
They do exist in some countries in a form so called a strategic reserve. The government basically designates a few gas or coal power plants to be available for a few days a year to generate electricity and they pay them an agreed sum of money. The system which the Commission would prefer to see and which some countries are now beginning to develop is a capacity market. In this capacity market you can supply capacity as a generator and you can also get paid for that but you can also help to solve capacity problems by reducing the demand. Companies or associations can actually agree at certain times to reduce demand, either in a single company or group of companies or a collection of households. So the capacity market would work on both the supply side and for the first time on the demand side. That is a more sophisticated and more market-sensible way to approach the problem. The British and the French are quite far advanced in developing a market like that.
We are now speaking about flexible sources to back-up the renewables. However, some countries also want to support the development of nuclear power, although it is not that kind of flexible source as gas or coal. It is also the case of Britain and the Czech Republic. Do you think it is still time for the nuclear power in Europe?
I think nuclear still has a future in the countries that want to have it. This is less than half of the member states. But it has a future. I have been doing some work in France recently and nuclear is not quite as inflexible as you think. In France and also in Germany, they learned how to vary the nuclear output when they needed to accommodate renewables. Obviously, it is not as flexible as gas and coal but it is better than one might imagine in terms of the prospect of integrating it with renewables. So I think that is something that the Czech Republic, for instance, might take some encouragement from. In the Czech Republic you turn rather against renewables and you are still enthusiastic about nuclear. But the two forms of power can integrate in a reasonable way.