The Dutch government can probably save several hundred million euros in subsidies every year and yet still meet its targets for renewable energy, according to ECN researcher Jaap Jansen. Working on instructions from the Energy and Climate Review Commission, which was looking to identify cost-cutting measures, the economist conducted a comparison with Ayla Uslu and Paul Lako of the four so-called flexibility mechanisms in the European Directive on renewable energy. One of these in particular caught their attention.

Last year saw the adoption by the European Commission of the Renewable Energy Directive. According to this, by 2020 a specific percentage of the total consumption of energy by end-users must originate from renewable sources in all member states. For the Netherlands, the figure is 14%. This is an ambitious target, especially in view of the limited options available in our densely populated country. If we were to achieve the full 14% from our own territories by 2020, it would have to include some relatively expensive renewable energy. And it would be the end-user or taxpayer who would pick up the bill for these additional costs.

Flexibility mechanisms
The good news is that the European Commission also offers an option to source renewable energy from places where it is cheapest to produce. In fact, it offers four such options: the so-called four flexibility mechanisms, which increase the flexibility of the Directive, making it easier to implement. ECN was approached to investigate how the Netherlands can use these instruments to achieve its targets for renewable energy whilst at the same time reducing the costs.

Sleight of hand
The first flexibility mechanism involves statistical transfers. “It is actually more a case of legal sleight of hand,” explains Jaap Jansen. Countries that find it relatively easy to generate more renewable energy than they need in order to meet their target, can sell any excess to those member states who do find it difficult to achieve the target. Jansen does not initially anticipate that this will bring major benefits. But time will tell. Jansen believes that the Dutch government could test out this mechanism by organising a tender.

Joint projects
The second and third mechanisms involve a proposal for joint projects to establish power plants that use renewable energy. This could involve collaboration between two EU member states or between an EU country and another non-member country. A portion of the relatively cheap energy generated in the other country could then be included in the target for the country that pays for it. “The Netherlands should certainly explore this option,” believes Jansen. “However, for each and every project there will need to be serious negotiations between many different public and private parties in order to establish how the benefits and responsibilities should be shared out.”
But Jaap Jansen sees the most promise by far in the fourth flexibility instrument: joint support systems. “It is actually bizarre,” he says, “that countries within the EU are permitted to protect the use of their support frameworks – and, by extension, also their market – from foreign providers of renewable energy. For any other product, there is a free market, but for renewable energy each individual country has its own incentives system. Most countries see cross-border trade as a threat to their support framework.”

According to EU-directives The Netherlands clearly has a shortage of sustainable energy (black part), whereas Poland has a surplus (diagonal lines) of sustainable energy. Those shares may be exchanged to meet national targets (Source: Resch et al, 2008).

Free trade
The fourth flexibility mechanism is a first step towards a European market for renewable energy. Two or more countries can reach mutual agreement on the rules and instruments that they will use to stimulate renewable energy. This paves the way for free trade between these countries. More specifically, Jansen urges the Dutch government to seek alliances with Sweden. In that country, electricity suppliers are obliged to ensure that a portion of the energy that they sell is made more renewable: this is known as the Renewable Portfolio Standard (RPS). It also involves a certification system for power produced from renewable energy.

Benefits in terms of prosperity
If the Netherlands enters into a pact with Sweden on a joint system placing obligations on electricity suppliers combined with certification, it would be possible to generate additional power from biomass or on-shore wind energy in sparsely populated Sweden. Dutch suppliers would have low-cost access to the Swedish ‘Elcert’ certificates relating to energy production in order to prove that the power they supply comes from renewable sources. These agreements could also be extended to include Norway, which is already in negotiations with Sweden on the integration of support systems. This set-up benefits the Netherlands because it enables it to source cheaper renewable energy. And although it would entail an increase in energy prices for Scandinavian consumers, this would be offset by the fact that exports of renewable energy will significantly boost their economy. All participating countries can therefore enjoy benefits in terms of prosperity.

Benefits to the taxpayer
Any joint support system must still be combined with the existing subsidies for renewable energy available in the Netherlands. Indeed, Jaap Jansen explicitly sets this as a precondition. By making the different forms of renewable energy in the Netherlands competitive, he aims to help shape Dutch innovation policy. The combination will also help ensure that the financial benefits gained from energy bought at a cheaper price are enjoyed by the taxpayer/end-user. “Currently, they only receive a subsidy to cover the additional costs involved in renewable production. This should continue to be the case. These additional costs are based on the average costs of Dutch renewable energy. If these are lower, the Netherlands will be able to achieve its target at a reduced cost,” says Jansen. It will also mean that the producers of renewable energy require less additional subsidy because of their income from the sale of certificates. This can result in a significant reduction in the total subsidy paid.

Harmonised European support framework
Of all the flexibility mechanisms, a joint support system combined with the existing subsidy offers the greatest potential for reducing the short-term costs involved for Dutch society in achieving its renewable energy standard. Jaap Jansen is happy to recommend that his client pursue the option. Although it will take a lot of time and effort to reach agreement between countries involved, it will be worthwhile because success will mean that a harmonised European support framework is a step closer to becoming a reality. And in the long run, that can only be beneficial for a country with limited sources of renewable energy

Contact
Jaap Jansen
ECN Policy Studies
Tel. +31 (0)22 456 4437
E-mail: Jaap Jansen

Text: Mariette Huisjes

Info
Read the publication What is the scope for the Dutch government to use the flexible mechanisms of the Renewables Directive cost-effectively? in PDF format.

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