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Understanding REDII - An Inter-Institutional Tennis Game

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As part of its Clean Energy Package, the European Commission presented the amended Renewable Energy Directive (REDII) in November 2016. This new directive will have far-reaching impact on the treatment of guarantees of origins (GOs) and on enhancing the widespread use of renewable power purchase agreements (PPAs) in the European Union.

The “tennis game” between the parties—namely the European Commission (EC), the European Parliament, and the Council (government ministers of the member states)—entered into a decisive phase in the past months. The Council formed its stance for REDII last December, while the EP approved its version on 17 January 2018. In general, the EP approved the amendments proposed by its Committee of Industry, Research, and Energy last November.

While the proposals agree on certain topics, there are areas where difficult discussions are expected in order to come to an agreement. One example is the share of renewable energy sources (RES) in the total energy consumption. The Council accepted the EC’s proposal for a Union binding target of at least 27%, while the EP would like to see a Union binding target of at least 35% RES share to be accompanied by national targets.

Several points of agreement that surfaced in the proposals refer to the treatment of GOs. Both the Council and the EP accepted the EC’s proposal that only GOs can serve as a basis for any renewable claims, as well as the proposed alignment of rules for the validity of GOs.

However, there is clear disagreement on issuing GOs for energy production supported by national schemes. The Council agrees with the EC’s proposal to not issue GOs to producers benefiting from any support scheme (the EC also proposed mandatory auctions for GOs attached to supported energy production from RES). Conversely, the EP voted to maintain the current status quo for all existing energy producers and, under certain conditions, supported new renewable energy installations commissioned after the date of the entry into force of the new REDII. This means the EP would allow issuing GOs to those new energy producers which avoid double compensation.

The EP provided the following definitions of the schemes in which no double compensation exists:

  • Financial support is granted by way of a tender procedure or a tradable green certificate system;
  • The market value of the GOs is administratively taken into account in the level of financial support;
  • The GOs are not issued directly to the producer, but to a supplier or consumer, who buys the renewable energy either in a competitive setting or in a long-term corporate renewable PPA.

The third bullet point above would be a great achievement towards supporting the uptake of corporate PPAs in Europe. The EC, the Council, and the EP all agree on the importance of removing administrative barriers to corporate PPAs. However, the EP’s wording moves beyond the EC and Council’s simple proposal, suggesting member states meet the following requirements:

  • Carry-out an assessment of the regulatory and administrative barriers to corporate purchasing of renewable energy in their territories and set up an enabling framework to facilitate the uptake of long-term corporate renewable PPAs;
  • Ensure that renewable PPAs are not subject to disproportionate procedures and charges that are not cost reflective;
  • At the conclusion of such renewable PPAs, cancel the equivalent amount of GOs on behalf of the corporate customer;
  • Integrate the enabling framework into national energy and climate plans.

Currently, there are viable corporate PPA markets in Belgium, Ireland, the Netherlands, Norway, Sweden, and the UK in Europe. Opportunities are also emerging in Poland and Spain. The EP’s proposals represent an important step toward accelerating the expansion of corporate PPAs in other EU countries.

What happens next?

The inter-institutional negotiations (so-called trialogues) between the EC, the Council, and EP begin in the coming months, and the REDII will be finalized and approved later this year. Keep up to date with developments by checking back on this blog.