A closer look at the Commission’s proposal for a recast Renewable Energy Directive
On 30 November 2016, the Commission presented its long-awaited “Winter Package”, which contains a set of legislative proposals fostering the implementation of the Energy Union (see our newsflash on this topic here).
One of the legislative measures introduced by the Winter Package is a proposal for a recast of the Renewable Energy Directive (Directive 2009/28). The latter is for the most part drafted so as to enter into force on 1 January 2021.
Key amendments introduced by the proposal are the following:
- The proposal introduces a renewable energy target for 2030 and provides for “national baselines” (Article 3);
- The proposal establishes design principles for renewable energy support schemes and introduces requirements on the opening of these support schemes to installations located in other Member States (Articles 4 to 6);
- The proposal introduces a time-limit for the granting of permits and introduces measures to simplify the permit-granting process (Articles 16 and 17);
- The proposal includes amendments to the rules on guarantees of origin (Article 19);
- The proposal introduces certain rights for “renewable energy consumers” and “energy communities” (Articles 21 and 22); and
- The proposal introduces a framework and renewable energy target for the heating, cooling and transport sector (Articles 23 to 26).
These amendments are described in more detail below.
1. 2030 renewable energy target and “minimum baselines”
The proposed recast Renewable Energy Directive imposes a renewable energy target of 27% in 2030: the share of energy from renewable sources in the Union's gross final consumption of energy in 2030 must at least be 27%. This is in line with the target agreed upon by the European Council, but below the 30% called for by the European Parliament.
The current Renewable Energy Directive establishes binding national targets for 2020 (e.g. 13% for Belgium, 15% for the United Kingdom and 23% for France), which together amount to 20% at EU level. The proposed 2030 target is binding only at EU level: the target is not translated into individual targets per Member State. The current 2020 binding national targets are however maintained in the proposal as a “minimum baseline” for individual Member States from 2021 onwards.
The proposal itself does not contain enforcement mechanisms to achieve the 2030 target or to maintain the minimum baseline. A different measure in the Winter Package, namely in the proposal for a Regulation on the Energy Union Governance (the “Governance proposal”) does contain certain provisions on means to enforce the target and the baseline, but does not go so far as to establish a system of directly applicable remedies.
i. Enforcement of the 2030 target
Articles 25 and 27 of the Governance proposal introduce a mechanism whereby, by 31 October 2021 and every second year thereafter, the Commission must assess (i) the progress made at Union level towards meeting the Union's 2030 targets for energy and climate and (ii) the progress made by each Member State towards meeting the targets and policies set by the latter in its integrated national energy and climate plan.
As part of this assessment, the Commission must assess the progress made in the share of energy from renewable sources in the Union’s gross final consumption on the basis of a linear trajectory starting from 20% in 2020 and reaching at least 27% in 2030.
If the Commission concludes in 2023 that the linear Union trajectory is not collectively met, Member States must ensure by 2024 that any emerging gap is covered by additional measures, such as:
- adjusting the share of renewable energy in the heating and cooling or transport sector;
- making financial contributions to a platform managed directly or indirectly by the European Commission;
- other measures to increase deployment of renewable energy.
Such measures could not, however, be imposed on Member States directly on the basis of the text of the Governance proposal, but would require further legislation.
ii. Enforcement of the “minimum baselines”
In addition, if a Member State does not maintain its 2020 “minimum baseline” from 2021 onwards, the Governance proposal provides that the Member State must ensure that any gap to the baseline is covered by a financial contribution to the financing platform managed by the Commission. Member States can use revenues from emission allowance schemes to fund these contributions. The contributions will be used to finance renewable energy projects.
The proposal does however not set out how such contributions must be calculated. The Governance proposal does give the Commission to adopt delegated acts necessary for the establishment and functioning of the financing platform, but that does not in our view include the power to impose rules on how contributions to the platform must be calculated. Once again, further legislation would appear to be needed to enforce the “minimum baselines”.
iii. EU-wide support mechanisms?
The proposed financing platform managed by the Commission may result in an additional, EU-wide tier of support mechanisms for renewable energy. Whilst it would be premature to speculate on their design, they would doubtless follow the principles established by the Commission in its Environmental and Energy State Aid Guidelines (hereinafter: the EEAG). In addition, EU-wide support mechanisms financed through the proposed platform may in time come to serve as examples of good practice and may give rise to some level of voluntary harmonization.
2. New principles for renewable energy support schemes
The current Renewable Energy Directive leaves the design of support schemes to the Member States. In practice, Member States have implemented a wide variety of schemes, including renewable energy certificates, feed-in tariffs and premium payments. The Commission’s state aid policy, in particular the EEAG have reduced the variety somewhat, with Member States now tending to design new support mechanisms so as to secure state aid clearance.
The proposed recast Renewable Energy Directive still allows Member States to introduce support schemes for the promotion of green electricity, but imposes a number of design principles.
These principles are to a large extent inspired by those of the EEAG, i.e. the principles which the Commission already applies when assessing support for renewable energy under the EU state aid rules.
The design principles set out in the proposal would however apply even where the support does not qualify as state aid (e.g. because it is not financed from state resources).
The proposal also introduces an important novelty: it requires Member States gradually to open up support schemes to electricity generating plant located in other Member States. The proposal provides that at least 10% of newly-supported capacity must be open to installations located in other Member States in each year between 2021 and 2025, and at least 15% in each year between 2026 and 2030.
The proposal contains a non-exhaustive list of techniques to achieve this percentage. Member States can, inter alia, implement:
- “opened tenders” (i.e. tenders open for bids for projects located in other Member States);
- “opened certificate” schemes (i.e. certificate schemes open to installations located in other Member States);
- “joint tender” schemes (whereby several Member States jointly organize a tender which is open to projects located in all Member States concerned); or
- “joint support schemes” (whereby Member States jointly or partly coordinate their national support schemes).
Such opening up of support schemes is novel. The Commission considers cross-border participation as the natural corollary to the development of the Union renewables policy, with a Union level binding target replacing national binding targets. However, opening up support schemes is likely to prove politically controversial. Member States have historically been reluctant to open their support schemes to installations located in other Member States. A rare example of a joint support scheme is the common Swedish and Norwegian certificate scheme.
Opening up support schemes to foreign generating plant is not in principle required under the rules on free movement. The ECJ held in Ålands Vindkraft (C-573/12) and Essent (C-204/12) that Article 18 and 34 TFEU and Article 3(3) of the Renewable Energy Directive, and Article 5 of Directive 2001/77/EC do not in principle prevent Member States from restricting support for green electricity to electricity generated within their territory.
The proposal thus seeks to impose via secondary EU law (a directive) a form of market opening not required by the rules on free movement. It remains however to be seen whether the proposal to open up national support schemes to foreign generating plant will survive the legislative process unscathed.
3. Acquired rights and streamlining of permitting processes
A major concern familiar to developers of renewable energy projects and their lenders, is the risk of retrospective changes to support mechanisms. Whilst some governments have a strong track record of respecting acquired rights in this field (e.g. the Belgian federal government), (quasi-) retrospective changes have occurred in some jurisdictions (e.g. in Spain), with serious consequences for investor confidence. The proposal introduces measures to curb such practices.
First, Member States must communicate in advance, and at least for the following three years, the type of support they intend to allocate.
Secondly, the proposal provides that once support has been granted, then (subject to the state aid rules) its level and conditions cannot be revised in a way that negatively impacts acquired rights or the economics of supported projects.
Another potentially important safeguard for developers are the proposed amendments on the permitting for renewable energy projects.
The proposal aims to simplify Member States’ often complex and time-consuming permit application procedures. To that end, the proposal introduces a ‘one-stop shop’ for permits to build and operate plants and network infrastructures for the production of renewable energy. Member States must establish a single administrative contact point, which must coordinate the entire application process for these permits and must take a final decision.
Such ‘one-stop shops’ are to some extent already known in Belgium (e.g. the recently introduced surroundings permit (“omgevingsvergunning”) in the Flemish region and the single permit (“permis unique”) in the Walloon region). However these are not fully ‘one-stop’ as e.g. a separate federal electricity production licence under the Electricity Act may be required.
Finally, the proposal imposes time-limits for the permit granting process. As a general rule, the permits to build and operate plant and network infrastructures required for the production of renewable energy must be granted within three years, and permits for the repowering of existing renewable energy plant within one year.
4. Amended rules on guarantees of origin
Amendments are also proposed to the guarantee of origin system (GOO system). The key purpose of the GOO system remains unchanged, namely to prove that a given quantity of electricity was produced from renewable energy sources. The proposal extends the scope of the GOO system to renewable gas and introduces a time-limit for the validity of GOOs.
The proposal also introduces a mechanism to prevent electricity producers from receiving both GOOs and financial support for the same electricity: where a given quantity of electricity is subsidized through financial support for renewable energy, the corresponding GOO will still be issued but not necessarily to the producer. Instead, it must be auctioned and transferred to the market. The resulting revenues are then used to offset the costs of renewable energy support.
5. Rights for self-consumers and renewable energy communities
The proposal also attempts to enhance the participation of consumers in the renewable energy market.
Under the proposal, Member States must ensure that “renewable self-consumers”, individually or through aggregators, inter alia:
- are entitled to carry out self-consumption and to sell, including through power purchase agreements, their excess production without disproportionate procedures and charges that are not cost-reflective;
- maintain their rights as consumers; and
- receive a market-reflective remuneration for these feed-ins.
The proposal also introduces specific rules for “renewable energy communities”, which are small, medium or not-for-profit organisations of which the shareholders or members cooperate in the generation, distribution, storage or supply of energy from renewable sources. For the purposes of the proposal, a renewable energy community must fulfill four out of five of the following criteria:
- The shareholders or members are natural persons, local authorities, including municipalities, or SMEs operating in the fields of renewable energy;
- At least 51% of the shareholders or members with voting rights of the entity are natural persons;
- At least 51% of the shares or participation rights of the entity are owned by local members;
- At least 51% of the seats in the board of directors or managing bodies of the entity are reserved to local members; and
- The community has not installed more than 18 MW of renewable capacity for electricity, heating and cooling and transport as a yearly average in the previous 5 year.
Whilst the requirements to be considered a renewable energy community are fixed in detail, the consequences of qualifying as one are rather general. Member States must take into account the particularities of renewable energy communities when designing support schemes. They must also ensure that renewable energy communities are entitled to generate, consume, store and sell renewable energy, including through power purchase agreements, without being subject to disproportionate procedures and non-cost-reflective charges.
6. Renewable energy in the heating and cooling and transport sectors
Finally, the proposal for a recast of the Renewable Energy Directive amends the existing provisions relating to the heating, cooling and transport sectors.
As regards the transport sector, Member States must require fuel suppliers to include a minimum share of energy from biofuels and biogas in the total amount of transport fuels. The proposal implements a trajectory increasing from 1.5% in 2021 up to at least 6.8% in 2030.
As regards the heating and cooling sector, the proposal imposes a non-binding target, namely to increase the share of renewable energy by at least 1% per year.
The proposal introduces some important amendments in respect of district heating and cooling systems. These include a right for customers to disconnect from the system in some cases, and – an admittedly limited and conditional – right of third party access.
The proposal requires Member States to guarantee that, where a district heating or cooling system is not “efficient” within the meaning of the Energy Efficiency Directive (Directive 2012/27), customers are allowed to disconnect from the system in order to produce heating or cooling from renewable energy sources themselves, or to switch to another supplier of heat or cold which has access to the district heating or cooling system.
However, Member States may limit the right to disconnect or switch supplier to those customers which can prove that planned alternatives result in a significantly better energy performance (e.g. by means of the Energy Performance Certificate).
The proposal also introduces a limited form of third party access. It requires Member States to ensure non-discriminatory access to district heating or cooling systems for all heat or cold produced from renewable energy sources and for waste heat or cold.
This is however subject to two exceptions.
- An operator of a district heating or cooling system may refuse access to suppliers where the system lacks the necessary capacity due to other supplies of waste heat or cold, of heat or cold from renewable energy sources or of heat or cold produced by high-efficiency cogeneration.
- Member States can also exempt on a case-by-case basis new district heating or cooling systems from the obligation to provide non-discriminatory access. Such exemption must be explicitly applied for, can be granted only for a limited term and must be available only to efficient new district heating or cooling systems which exploit the potential of renewable energy sources and of waste heat or cold.
The customers’ right to disconnect from a district heating or cooling system, and the right of access to such systems, are thus limited in scope. The right of access in particular is significantly narrower than the broad right of third party access in the electricity and gas sectors. Rather than promoting competition as such, the purpose of the proposal appears to be to improve energy efficiency and to promote the use of waste heat and cold and heat and cold from renewable energy sources and high-efficiency cogeneration. In that sense, the proposal could be said to introduce a “green right to disconnect” and “green third party access”. Nevertheless, it cannot be denied that the proposal may have a significant impact on (the business case of) existing district heating or cooling systems.
The proposal for a recast Renewable Energy Directive appears to pursue an increase in the share of renewables, the creation of more competition on renewable energy markets and the strengthening of the internal market.
A paradox in the proposal is that at micro level, it imposes stricter requirements on Member States (e.g. as regards the design of support schemes and the regulation of district heating systems), whilst adopting a less strict approach than in the past (in particular with a renewable energy target binding only at EU level).
The proposal is currently pending in the European Parliament, and after approval by the latter will have to be approved by the Council of Ministers by a qualified majority vote. It is already clear from the ongoing debates in the European Parliament that a political consensus is some way off, and that intense lobbying is to be expected.
For more information, please contact Thomas Chellingsworth, Dominique Vanherck, Bram Devlies or your regular Loyens & Loeff adviser.
KoenPanisAttorney at law Partner
Koen Panis is a partner in our Brussels office where he is a member of the Banking & Finance Practice Group, the Energy Team and the Real Estate Team. He specialises in international and local finance transactions.T: +32 2 773 23 90 M: +32 497 53 38 36 E: email@example.com