Christoph Riechmann (Frontier Economics) presents on renewables at the Vienna Forum on European Energy Law, 2014

1. Rethinking renewables
2nd Vienna Forum on European Energy Law, Energy Community Secretariat
14 March 2014

2. 2 Frontier Economics
Key questions
● Do we need renewables?
● Do we need renewable targets?
● Are there reasons why we should consider supporting
(subsidise) renewables?
● If we support renewables, then how?
1
2
3
4

3. 3 Frontier Economics
-1.000
0
1.000
2.000
3.000
4.000
5.000
2011
2020
2030
2040
2050
2011
2020
2030
2040
2050
2011
2020
2030
2040
2050
TWh
Ern
Exp
Imp
And
Pum
Pum
Öl
GuD
Gas
Stei
Bra
Ker
BAUEffizienz Positiv
Realistisch
Do we need renewables?
Guided by ETS targets met at least
cost by an increasing amount of
electricity and energy production
from renewable energies (even
absent explicit renewable support)
We need renewables …
RES-E: Annual power
generation in Europe
Nuclear
1
Source: Frontier/r2b
* to reduce overall EU domestic
greenhouse gas emissions
compared to 1990
Ambitious
GHG
reduction
Targets in
EU*
ETS as
mechanism
to reach
target
● By 2030: -40 %
● By 2050: -80% to – 95%
Scenario: EU
ETS as the sole
driver for climate
policy
Coal (incl. CCS)

4. 4 Frontier Economics
Do we need renewable targets?
… but we need NO target
(provided we have climate policy measures (ETS) in place
we can leave to the market when, which and how much)
2
-1.000
0
1.000
2.000
3.000
4.000
5.000
2011
2020
2030
2040
2050
2011
2020
2030
2040
2050
2011
2020
2030
2040
2050
TWh
Erneuerbare Energien
Exporte
Importe
Andere
Pumpspeicherverbrauch
Pumpspeichererzeugung
Öl
GuD
Gas Turbine
Steinkohle
Braunkohle
Kernenergie
BAUEffizienz Positiv
Realistisch
The risk is that we employ subsidies to reach the RES target,
when market dynamics imply that the GHG target is best (i.e.
at lowest cost) reached by a generation mix with a different
share and mix of RES
Scenario: EU ETS
as the sole driver for
climate policy
Scenario: Strong
RES-E policy*
RES-E: Annual power
generation in Europe
2020
2030
2040
22 bn EUR /a
40 bn EUR /a
26 bn EUR /a
Incremental costs with
strong RES-E policy
Hard targets
and overly
ambitious
targets cost
extra
* National RES targets and national support policies, 60% RES by 2050
Source: Frontier/r2b

5. 5 Frontier Economics
So what is the logic of the new 2030 „target“2
“Renewable energy will play a key
role in the transition towards a
competitive, secure and sustainable
energy system. The Commission
proposes an objective of increasing
the share of renewable energy to at
least 27% of the EU's energy
consumption by 2030.”
An
interpretation
● Political consensus requires speaking of a RES
„target“
● The target number is consistent with the EC‘s projection
of achieving the -40% GHG target at least cost. In
other words: 27% is what the EC expects the market
with tightened ETS and without RES support will deliver
● If RES manage to lower their cost faster than currently
projected the target is redundant (if cost drops slower it
becomes binding and increases cost)

6. 6 Frontier Economics
Should we subsidise renewables?
… support infant technologies, but not mature ones
3
Many arguments
have been used
But few are compelling
● Internalise environmental cost
● Save resources
● Technology learning spill-over
● Industrial policy
● Fuel independence
● Incomplete capital market
● ETS better suited
● Already reflected in price
● No longer for deployed techno
● For infant technologies
● Doubtful given experience
● But true of other fuels as well
● May require steadying of
income but not a subsidy
?
?
?
Economists will ask for
market failures as justification

7. 7 Frontier Economics
If we (still) support renewables, then how?3
… the EC establishes some economic principles,
but are these comprehensive enough?
● International integration
of support
● Technology neutrality
● Competitive process to
determine support
● Consistency with wider
energy market design
If, then how Practical implications
● Direct marketing
obligation
● Balancing
responsibility
● Premium, quota or
auction“Deployed
technologies”
Draft
State Aid
Guidelines for
RES*
* Full guidelines also extend to „less
deployed technologies“ and „small
technologies“

8. 8 Frontier Economics
Is the Commission really rethinking renewables?
Issues of principle Issues of clarity
● Eligibility
o How to define deployed?
o How small is small?
● Why support beyond infant
technologies (when ETS is
strengthened)?
● Why allow existing non-
conforming schemes to continue
for prospective investment?
● What is the timing for transition to
new regimes?
3
● How to define investment aid vs
operating aid (when RES cost are
largely CAPEX)?
…difficult to say
as long as many important details are not clear

9. 9 Frontier Economics
Key questions
● Do we need renewables?
Yes, and the market is able to deliver with ETS
● Do we need renewable targets?
No, because the market (with ETS) will guide us to a low cost solution
● Are there reasons why we should consider supporting (subsidise) renewables?
There may be further arguments (e.g. energy independence), but proponents have not
provided a clear reasoning or a willingness to pay
● If we support renewables, then how?
- Focus on infant technologies,
and consider R&D support rather than operating support
- In case support also extended to mature technology: Support scheme with
competitive selection and market risks (and be clear about the behavioural incentives
of design details)
- Make sure capacity incentives in the conventional market are not undermined
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10. 10 Frontier Economics
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11. 11 Frontier Economics
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