Renewable energy advocates are hailing the beginning of a new era for wind and solar power, which are finally becoming competitive at market prices with the advent of the latest generation of technologies.
Led by Germany and its “Energiewende” transition to low carbon, environmentally friendly generation, Western, Northern and Southern Europe have jumped on the renewables bandwagon, but the newer EU member states in Central and Eastern Europe (CEE) have been slow to follow. Efforts to incentivise investments in renewables have been patchy, and often undermined by powerful vested interests.
Technological advances mean renewable energy sources can now be considered credible cleaner and cheaper alternatives to hydrocarbons. Oil major BP anticipates that renewables, together with hydro and nuclear power, will account for half the increase in global energy by 2035.
During a lecture at Lund University late last year, Tomas Kaberger, member of the board at Swedish energy company Vattenfall, enthusiastically noted that no one had expected installed wind power capacity to grow as quickly as it did - by a factor of 20 to 480 gigawatts (GW) globally between 2001 and 2016. The factor tipping the scale in favour of wind power, he said, was China. As for solar power, "German households have subsidised its development through the feed-in-tariff system, and now the rest of the world can benefit from cheaper solar power."
In 2016, Portugal managed to derive 100% of its electricity from renewable sources during four days in May. Denmark surpassed the 100% mark in 2015. Regionally integrated power grids and markets like the Nordic one are providing solutions to long-standing problems with solar and wind power, such as storage and the gradual transmission of electricity generated on peak days to end-consumers when they need it.
But east of Berlin, things are less rosy. A combination of entrenched industrial practices, powerful hydrocarbon lobbies, a lack of political interest in renewables, changing and confusing legislation, little public engagement in power generation and lower purchasing power than in the west mean that the EU's newest members may not benefit from a large-scale pickup in solar and wind power just yet.
Pressure from Brussels to increase bloc-wide renewable energy generation to 20% of total generation by 2020 have been dealt with creatively, for example by categorising co-fired coal and biomass as renewable energy in Poland and Slovakia, and counting pre-existing installations (primarily hydropower plants) towards national renewable energy targets. The EU's unambitious 2030 target for renewables, which stands at 27% for the whole bloc, will likely mean that CEE will have little incentive to join the wind and solar power revolution for the foreseeable future.
Poland sets the bar low
Germany's eastern neighbour is perhaps the most tragic case of lagging behind in renewable energy generation. Home to Europe's second largest coal industry after Germany's, Poland has set an unambitious target for itself for 2020 - to meet 15% of its total energy consumption from renewable sources. And, judging by recent developments, it may miss the target, Izabela Zygmunt, a Polish campaigner at CEE Bankwatch, explains in an interview with bne IntelliNews. "If we meet it, we will barely meet it," she adds.
The main culprit is coal, which accounts for almost 85% of the electricity generated in Poland at almost 50 coal-fired thermal power plants. "The coal sector has a powerful lobby, which is very well organised and has influence on any government that is in power," Zygmunt explains. Unsurprisingly, coal will continue to be at the heart of Poland's energy strategy looking ahead. By 2030, it will account for 74% of the electricity generation in the country, while renewables will account for a measly 16% - up by just one percentage point over the course of a decade. The remaining 10% will be derived from nuclear power, the government says in its energy policy.
As if taking on the powerful coal industry wasn’t hard enough, renewable energy companies have had to grapple with ever more stringent legislation and a dysfunctional green certificate scheme, which has recently been replaced by renewable energy auctions. Neither scheme in and of itself is good or bad, Zygmunt says, and it is still early days to assess whether the renewable energy auctions will work better than green certificates.
Like elsewhere in CEE, wind energy got a bad name in Poland when some of the first wind parks were built close to residential areas, which prompted complaints about the noise from the turbines. In response, the Polish parliament passed a prohibitive piece of legislation that came into force in July 2016, banning the construction of wind farms within two kilometres of residential areas or forests.
The result, Zygmunt says, is that there are now very few areas in Poland where wind farms can be built onshore, and planned projects are being cancelled. According to her, "This [new law] affects municipalities in the form of lost taxes from smaller wind power companies. The only actors that can now afford to build wind farms in Poland are bigger companies that can invest in costlier, offshore farms ... The situation needed to be regulated, but the new law has gone too far." Ratings agency Moody's agrees, noting in a report published in June 2016 that the law will hinder the development of wind power.
Residential photovoltaic (PV) rooftop panels have also suffered a setback from legislative changes. These micro-installations received an unexpected boost in 2015, when, after years of debate, the parliament passed a Renewable Energy Sources Act stipulating the payment of feed-in-tariffs (FITs) to “prosumers” or producer-consumers, like owners of PV installations, that fed their excess energy generation into the grid. But after only a few months in operation, the FITs were scrapped and have been replaced with a much less lucrative system.
Without a financial incentive, only wealthy homeowners that are concerned about the environment will install rooftop PV panels, Zygmunt says, a combination that is not all that common in Poland. Meanwhile, homeowners seeking to recover their investments have no incentive to purchase the technology under the new scheme.
The future of solar and wind energy in Poland does not look particularly bright. The country's proximity to Germany has already resulted in some clashes because of accidental overspills of German electricity into the Polish grid on days when generation of wind and/or solar power peaks west of the border. But unless Poland works on revamping its power generation sector to make it more efficient and less costly, Zygmunt anticipates that the spills will no longer be accidental, but rather driven by price rationales. "Poland could start importing electricity from Germany soon, and the markets themselves will act as drivers," she concludes.
Chaos and confusion in Romania
The second largest EU member country in CEE, Romania is, on paper, a frontrunner in promoting renewable energy sources (RES) in the region. In 2015, the country exceeded its 24% RES target for 2020 by 0.8 percentage points. But a closer look at recent developments indicates that things are about to take a turn for the worse.
For a start, much of Romania's renewable energy comes from the Soviet-era Iron Gates I and II hydropower plants on the Danube. The country was an early adopter of the green certificate scheme also used by Poland, granting RES generators a certain number of certificates per megawatt hour (MWh) of electricity generated, which they could then trade with thermal energy producers. The Romanian government scheme granted RES priority to feed their electricity into the grid over dirtier energy sources, and the government established a minimum quota that solar, wind, biomass, geothermal and micro hydropower plants should contribute to the grid every year.
The system was so generous, Alexandru Mustata from CEE Bankwatch Romania explains, that producers could afford to feed electricity into the grid for free just to collect the green certificates. The result was an unprecedented boom in the construction of solar parks and wind farms in 2010-2013. Among them is Europe's largest onshore wind farm at Fantanele-Cogealac with a capacity of 600 MW, built by Czech electric utility CEZ Group. "The construction boom attracted a lot of foreign investment that led to a lot of haphazard construction permits for wind and solar installations on fertile, arable land and on land that was part of migratory bird paths," he laments.
But like any bubble, the green certificate bubble was bound to burst, and burst it has. In 2015, the number of certificates traded dropped to less than 37,000, down from 2.4mn the year before. A more recent blow was the government's decision to reduce the green energy quota for 2017 to 8.3%, down from 12.15% in 2016. Small RES producers responded with warnings of insolvency risks. Mustata explains that the situation may not be as dire as the producers themselves make it out to be, but if they are stuck with green certificates they are unable to sell, producers may be unable to repay the bank loans they took out to build their facilities.
The frequent changes to the green certificate system - there have been up to 10 to date, Mustata estimates - do not help the producers' cause either. "There is such a chaos now, that even producers don't know the rules [for granting green certificates] anymore.”
Roman Gazdik, spokesperson for CEZ Group, confirms this in an email to bne IntelliNews. "We are receiving all the green certificates that we were promised, but the ability to trade them has been postponed. Also, starting in 2021, we will only receive one green certificate per MWh.”
Having said that, Mustata believes RES producers have contributed to their tenuous standing in the market through their almost complete absence from public discourse on renewable energy.
Mustata expects that Romania will increase its 2030 renewable energy target only if the EU offers a good bargaining chip in exchange, such as the ability to extend the lifetime of the nuclear power plant at Cernavoda, which produces 20% of the country's electricity. However, solar and wind could still find room in the market, as many of the coal-fired thermal power plants are ageing and will likely be shuttered or replaced with more efficient units.
Czech Republic un-FiT for renewables
Unlike Romania and Poland, but like Germany, the Czech Republic chose a feed-in-tariff (FiT) system to support producers of renewable energy after passing its renewable energy act in 2005. But, unlike Germany, producers are paid by the government, and not by end-consumers, for the electricity they feed into the grid.
The FiTs were so generous in their early days, that they prompted an inflow of investment in solar parks and wind farms, which resulted in Prague being faced with a €1.2bn yearly bill for FiTs by 2012. "We ended up with 2,000 MW worth of installed capacity generating 2 TWh of electricity per year in just a few years," Karel Polanecky from Friends of the Earth Czech Republic tells bne IntelliNews.
The government eventually scrapped the FiTs for new installations in 2013, although installations built before that year will continue to benefit from government subsidies for up to 20 years. The result is that, since 2014, no wind farms have been built in the country and only a limited number of residential PV panels have been installed, Polanecky notes.
This state of affairs has not interfered with the country's ability to meet its renewable energy target for 2020, which is low at just 13%, from the existing solar and wind power installations and, more importantly, from biomass and biogas.
Looking ahead, Polanecky expects nuclear power to play an increasing role in the country's energy strategy for 2040. Meanwhile, CEE Bankwatch anticipates that two thirds of renewable energy will come from waste incineration, biomass and biogas by 2040.
Lack of engagement in Slovenia
Small and progressive Slovenia has also had a chequered past with wind and solar power, Greenpeace campaigner Dejan Savic explains in an interview with bne IntelliNews.
Slovenians do not have the same feeling of empowerment when it comes to their energy as the Germans do, he says. "Historically, state-owned companies have managed energy generation in the country, so Slovenians have always had the attitude that someone else should be in charge of it. And when you let state-owned companies manage energy, you get a diverse group of interests putting pressure on the system to maintain the status quo," he says, adding that the nuclear lobby is pressuring the government to build another nuclear reactor and the fossil fuel lobby to maintain their market share after the inauguration of a new coal-fired thermal power plant two years ago.
The majority of the renewable energy installed capacity in Slovenia - some 260 MW - was built between 2009 and 2012, thanks to a feed-in-tariff system that the government passed and that, just like in the Czech Republic, attracted a great deal of early investment. And, also just like in the Czech Republic, the system proved to be too costly for the government to support.
In response, the government cut FiTs by 25% across the board for all new installations, and as of 2015 it stopped subsidising solar power altogether, which means that very few solar parks have been built since 2012. As for small-scale, rooftop PV systems, the lower purchasing power in Slovenia means that homeowners may find their cost prohibitive, Savic believes. "Germans need two salaries to purchase a complete PV system for their houses; Slovenians need five salaries and Croatians eight," he says.
Wind power, meanwhile, is unlikely to pick up at the same rate as solar, Savic contends. Power utility Elektro Primorska's plan to build a wind farm in a protected nature reserve in the early 2000s, which resulted in a protracted court battle with conservationists, has tarnished the reputation of this technology in Slovenia ever since. "The trial scared foreign investors. Banks consider wind power as a risky investment, and may not grant loans for them. That is why, in the whole country, there are only two wind turbines, despite the fact that studies estimate that Slovenia has a potential of some 700 MW for wind power," Savic notes.
Savic is not holding his breath for the government's 2030 energy strategy, due to be published this year, which he expects will comprise a significant nuclear and coal component, to the detriment of renewables. "We may reach our 2020 RES target thanks to some generous policies in 2018-2019," he says. But, in the long run, the coal and nuclear lobbies will likely continue to influence policy makers, and interest in renewable energy will remain low, he concludes.
Sea, sand and solar power
On paper, sunny Croatia is among the greenest EU member countries, having derived 29% of its total energy consumption from renewable sources in 2016. Paradoxically, sun accounts for a very small share of the energy mix, with more than half of the country's electricity being generated at its 26 hydropower plants. Other renewable energy sources, including solar and wind power, account for less than 5% of the electricity generated in the country.
Wind farms have been mildly successful, but little of the country's bountiful solar potential has been harvested to date. The reason, according to Zoran Tomic of Greenpeace Croatia, has been a lack of interest from policy makers. "Croatia is comparable to Greece as far as its solar potential is concerned. And Greece, a country in economic distress, has 50 times more installed capacity than we do," Tomic laments.
But things may be looking up. Slaven Dobrovic, the country's new energy and environment minister, has repeatedly stated that coal, the second largest source of electricity after hydropower, does not belong in Croatia’s energy future. He has promised a "healthier system of incentives" for renewable energy and cuts to bureaucracy, although he stopped short of mentioning concrete incentives.
Croatia’s large tourism industry could be another driver for solar power, because it is the primary beneficiary of a clean environment and because, as repeated surveys have showed, hotel guests are willing to pay more for cleaner energy.
But what is needed now is action, Tomic stresses. After passing a new renewable energy act in September 2015, which scrapped pre-existing FiTs and replaced them with a new market premium system, the government has failed to pass any subsequent implementation bills to regulate the new system. As a result, renewable energy producers have been left in a legislative limbo. Households, which could play an important role in solarising the Croatian coast, have not been engaged enough in the public debate about energy.
Croatia at least seems to have an interest in continuing to promote investment into solar and wind power, unlike some of its northern peers. Further progress could be made with a strong government vision and more private sector participation. However, drastic changes are not expected overnight.
National governments across the EU are now looking further ahead as they negotiate their renewable energy targets for 2030 with Brussels. Unlike the 2020 goals, which were delineated for each individual member country, the 2030 target of 27% is a bloc-wide one.
However, Brussels may fail to provide enough of an incentive for CEE to embrace solar and wind power as part of their long-term energy strategies, interviewees agree, as the target is considered to be a very unambitious one. Policy makers in the region are thus more likely to prioritise the same power producers they have so far - large investors and powerful lobbies - to the detriment of smaller investors and households. As a result, CEE’s transition to cleaner energy and a decentralised grid may remain a pipe dream for the time being.