Renewable energy
Renewable energy dominates new investments in the European energy sector.
As early as in 2008, global investments in energy production were larger for renewables than for fossil energy sources. This is also the case in Europe, where investments in renewable energy amounted to about USD 50 billion in 2008.** The EU's energy and climate policy is an important factor in this development, especially the emission trading directive and the renewables directive.
See renewable power production - EU 27
The emission trading directive requires a reduction in CO2 emissions from the energy sector and the included industrial sectors of 21 per cent from 2005 to 2020. This will be essential in order for the EU to achieve its overall target of a minimum 20 per cent reduction in greenhouse gas emissions from 1990 to 2020.
The renewables directive requires that the average EU energy mix must include as much as 20 per cent renewables in 2020, compared with 8.5 per cent in 2005. Individual binding targets have been set for each country. To achieve the renewables targets, the member countries will increase the use of renewable energy in the power and transport sectors, as well as for heating and cooling sectors. The energy sector is the most important for growth in renewable energy, both due to its size and the relatively good opportunities which exist for replacing fossil energy production with renewable energy. The countries are mainly planning to meet the targets nationally, but it will also be possible for several countries to achieve the targets in cooperation. Countries facing a difficult resource situation can thus obtain contributions from countries with a better and larger resource base.
Calculations made by the EU as a basis for the renewables directive indicate that the share of renewable energy production in the energy sector must increase from about 16 per cent in 2007 to more than one-third in 2020. This indicates that at least 500 TWh more renewable energy from the current level is necessary to reach the EU's renewables targets in 2020. This means that the growth must be doubled compared with the trend from 2005-2010.
Subsidies necessary to achieve the renewable energy targets
With the exception of some hydropower projects, the renewable technologies are generally not competitive with the current power prices. Although we assume that the costs for renewable energy will fall, subsidies will be required to achieve the necessary growth leading up to 2020. Statkraft estimates that the total subsidies for renewable energy in the EU zone leading up to 2020 will be somewhere between NOK 200 billion and NOK 500 billion per year. This must be compared with the expected total value of the EU's total energy production, NOK 2000-3000 billion.
Growth in renewable energy
Wind power and solar power showing robust growth
Wind power is responsible for the majority of the increase in renewable energy in the EU in recent years, and this trend continued in 2009. The European Wind Energy Association (EWEA) has estimated a growth in installed wind power from 65 GW in 2008 to 74 GW in 2009.
2009 was also a record year for offshore wind power. The installed capacity increased by 577 MW or 39 per cent to 2056 MW. As of January 2010, 17 offshore wind farms are under construction, and EWEA predicts that 2010 could see the installation of an additional 1000 MW of offshore wind power.
Although wind power is the technology which has increased the most in recent years, the growth in per cent has been stronger for solar power. Good subsidy regimes have triggered growth, particularly in Germany, but also in Spain, France and Italy. However, in order to limit costs, the subsidy rates have been reduced, first in Spain, later in Italy. Most recently, it has been announced that the power transport tariff in Germany will be reduced. The costs also remain high compared with more mature technologies.
See development in installed wind power capacity EU27
Compared with wind power, the increase in hydropower production in Europe is modest. Much of the growth now comes in Southeast Europe. However, hydropower remains by far the largest contributor of renewable energy production in Europe, and is responsible for an even greater share in the Nordic region.
Wind in Norway
Norwegian wind farms produced 980 GWh in 2009, compared with 917 GWh in 2008. There is now 431 MW of installed wind power in Norway. Wind power contributes slightly less than 0.8 per cent of the country's overall energy production. No new wind farms came online in Norway in 2009. However, legally binding licenses were granted to three wind power projects and the Norwegian Water Resources and Energy Directorate awarded licenses to four new wind projects.
The Offshore Energy Act, which was presented by the Norwegian government in June 2009, established key principles for energy production, transformation and transmission of electric energy offshore. The Norwegian parliament is expected to adopt the Act in the spring of 2010. The Norwegian Water Resources and Energy Directorate will not process any new offshore wind projects before the new Act comes into force. Several projects are in the planning stage, and one, Havsul 1, has received a final license. Currently, no large-scale development of offshore wind power is expected in Norway until after 2020.
Sweden depends on wind power to achieve its renewables targets
By 2020, 50 per cent of Sweden's energy consumption must come from renewable energy sources. The development of new wind power is completely essential to achieve this target. The Swedish government has set a planning target for wind power of 30 TWh by 2020, of which 20 TWh on land. In 2003, Sweden introduced a market-based subsidy system for energy production from renewable energy sources, including wind.
Offshore wind power
The UK is currently the market leader in offshore wind power development. At year-end 2009, with the two new offshore wind farms which came online in 2009, the UK had an installed capacity of 778 MW in offshore wind power. At the same time, another 977 MW was under construction.
Good wind resources and attractive subsidy schemes make the UK an interesting market for offshore wind power. The authorities' reasoning for focussing heavily on offshore wind power is in particular related to the EU's renewables targets for 2020, the UK's climate obligations and the need for higher domestic energy production. The UK authorities have set a target of 33 000 MW of offshore wind power by 2020. Three licensing rounds for awarding areas for offshore wind power have been held. The latest award was announced in January 2010.
Germany is the largest growth market after the UK. The first project, Alpha Ventus, came online in 2009. An additional two projects are under development and investment decisions are expected for several projects in 2010.
Subsidy systems for renewable energy in Europe
Power transmission tariffs and green certificates
Back-up systems have been established in almost all European countries to stimulate new investments in power production from renewable energy sources. Most countries disburse subsidies in the form of power transmission tariffs which give a set high price for the power. Usually, this tariff is independent of power market prices, but some countries give the power transport tariff as a price supplement beyond what the power can be sold for in the market.
Some countries use “green certificates”, among them Sweden and the UK, both markets where Statkraft has established renewable energy production. These countries let the suppliers of renewable energy issue certificates. At the same, suppliers of power to end-users must purchase a defined percentage of certificates relative to how much power they deliver. This ensures demand for the certificates. The number of certificates a supplier must buy is determined by how ambitious the authorities' goals for renewable energy production is. The higher the ambitions, the higher the demand for certificates and the stronger the incentives for making investments.
Compared with power transport tariffs, certificate systems have the advantage of using a market mechanism to define the subsidy level, and can better create incentives to develop the most reasonable alternatives first. Of the EU countries, Germany and Spain have seen the strongest growth in renewable energy production in recent years. These countries use power transport tariffs.
The UK subsidy regime
The UK currently operates a green certificate market. Projects for offshore wind power which enter into major contracts between April 2009 and April 2010 will receive twice as many certificates (ROC - Renewable Obligation Certificate) per MWh as projects on land (this means 2 ROC/MWh). Projects where major contracts are entered into between April 2010 and April 2011, will get 1.75 ROC per MWh. Proposals call for the current subsidy regime to be continued until 2037, and the projects will receive subsidies for 20 years after start-up.
Green certificates in the Nordic region
In 2009, Norwegian and Swedish authorities entered into a political agreement to establish a common Norwegian-Swedish system for green certificates from 2012. This could provide the basis for increased growth for both wind power and hydropower in Norway. The EU's renewables directive will also apply to Norway, but the Norwegian obligations under the directive have yet to be clarified. To facilitate exploitation of the great potential for renewable energy in Norway and benefit from the flexibility in the hydropower system, constructing new transmission capacity out of Norway is also necessary.
Energy efficiency
Energy optimisation is one of the EU's 2020 targets, aiming for a 20 per cent reduction in energy consumption compared with the expected development without special measures. The EU, as well as several analysts, expects this to curtail the growth in energy consumption. At the same time, higher electricity consumption may be a good measure to reduce energy consumption overall. It is therefore more uncertain what the effect on the electricity consumption will be. The difference between zero growth and the historical trend towards 2020 will be about 500 TWh for Europe, with a basis of about 3500 TWh. The difference will increase to 1100 TWh by 2030. The EU Commission is expected to put forward additional initiatives to strengthen the energy efficiency effort.
