An event wrap-up with the speakers
Dr. Thomas Sattich
Dr. Steffi Weil
Energy drives economic development. But it is a scarce and thus contested resource. In the struggle for secure energy supplies renewables appear to have become a strategic element, because every country or region, including those with few conventional energy sources, has access to at least some form and amount of renewable energy sources. Renewables thus could be a potential game changer in the struggle for energy resources. Yet some countries are better qualified to become competitive producers than others, because renewable energy sources are denser at certain locations, and the technological and economical capabilities for their exploitation differ.
November 8, 2014, a Policy Forum at the Institute for European Studies explored the role of renewables in the struggle for secure energy supply, and set out to compare the approach of two leading powers in their development: China and the European Union. Renewables are key political issues in the two regions, and both have developed and implemented policies to encourage the use of renewables, hoping that this form of energy will reduce import dependency on fossil fuels and the environmental dangers resulting from their use. The year 2020 is an important landmark in this regard: While policy makers in China recently opened the process towards the next five year plan (2016-2020), the European Union set itself the goal to increase renewables to 20 per cent of energy use by that point.
General knowledge about the topic stops here, and a structured comparison of the issue is largely missing. It is therefore unclear how similar or different the two policies are, and what both regions could learn from each other. In view of the differences between the socio-economic systems of China and the EU, it is, however, evident that the approach chosen for this ‘energy transition’ will differ. It is thus time to compare and discuss the similarities and differences between the approach China and the EU chose for the transformation of their energy sector towards the stronger use of renewables. We therefore set up this event to discuss and compare the approach and the mechanisms both regions chose for the promotion of renewable forms of energy in the energy mix.
In order to contribute to the discussion, the Policy Forum looked at the following topics:
· What support regimes for renewables have been adopted, and why?
· What is the role of public authorities on different levels of the political system?
· What role do leading companies play, and what is their relationship with the government?
· Are there preferences for certain forms of renewables, and why?
· Do the targets and outcomes differ, and why do they differ?
· What are the domestic and global impacts of both policies?
Three renowned experts presented their views on the topic:
· Dr. Dörthe Fouquet, Energy Lawyer and partner at Becker Büttner Held, and member of a number of umbrella organizations of the renewable energy industry.
· Dr. Steffi Weil, Assistant Professor and Head of China relations at Vesalius college.
· Duncan Freeman, Senior Research Fellow at the Brussels Institute for Contemporary China Studies.
Renewables in Europe
As a point of reference for the discussion, Dr. Fouquet’s provided an overview of the complex set of support regimes for renewables in the European Union: Individual member states have different renewable energy potentials and operate different support schemes at the national level. In this environment the European Union developed a framework to coordinate (not harmonise) national efforts with a common EU framework. The most important element in this regard is the Renewable Energy Directive 2009/28/EC. This Directive includes common rules for different levels of the political system (national, cooperation between member states, the European Union, and cooperation with third countries) and achieves a considerable level of coordination, yet it also gives member states a relatively broad leeway in their approach to renewables. Each member state can hence still decide what renewables to support (e.g. wind power in Portugal, biomass in Sweden, hydropower in Austria), and choose support mechanisms.
Directive 2009/28/EC provides a binding overall EU target of 20 per cent renewable energy in final consumption (previous Directive: non-binding), and translates this target into binding national targets. National Renewable Action Plans which list pathways and instruments to reach targets are to be submitted; the European Commission considers these plans as binding and needs to be informed about changes. Moreover there are reporting and monitoring obligations in place in order to control progress. However, the Directive allows member states to design effective national measures for target compliance, which in turn enables member states to control the effect and costs of their national support schemes. The European Commission on the other hand has little means for “enforcement”. Recently the European Court of Justice confirmed this level of discretion (Ålands Vindkraft and Essent case).
The Directive also allows member states to determine if and to what extent their national support schemes apply to energy from renewable sources produced in other member states and cooperation mechanisms provided for in the Directive. These flexibility mechanisms include statistical transfer between member states (which do not include the physical transfer of energy), and joint renewable energy projects and support schemes between member states. In the latter case coordination with the European Commission is necessary. Joint projects with non-EU members (e.g. pilot projects in Morocco) are equally possible; in this case it needs to be assured that the energy produced reaches the territory of the European Union.
In the member states renewable energy law is made through the parliamentary legislative process, which implies a strong role at the national level. In some cases such as Belgium or Sweden there are, however, differences within different regions as regards for example administrative procedures. Moreover, the involvement of ministries and agencies in the preparation of regulations, and the role of energy regulators varies between member states. When it comes to the energy sector, one can observe that 80 per cent of renewables deployment is in the hands of independent power producers (e.g. farms), using local resources to meet local energy demand. These local energy companies are small and widely distributed. Regardless of the fact that bigger projects such as offshore wind farms are in the hands of big utilities, renewables thus counter the historical trend to a centralised energy industry and (together and parallel with unbundling, i.e. the separation of the power grid and power supply) brought new competition into energy markets.
Is this framework suited for reaching the EU’s goals to increase the use of renewables in the energy sector? Most important in this regard is the confidence of investors to regain their investments. This confidence seems, however, to have received a serious blow in recent years in several EU member countries such as Spain. Six EU members therefore are not on track with their National Renewable Action Plans. With regard to the indicative targets (2011/12) for the different forms of renewable energy it is however noticeable, that many countries overachieved with regard to electricity and heating/cooling, whereas most countries underachieved with regard to renewables in the transport sector. In total the European Union therefore exceeded its 2012 goal of 12.87 overall share of renewables by 1.2 per cent points (14.07 per cent).
Renewables in China
With regard to Chines policy on renewables Dr. Steffi Weil presented some first insights on the politico-economic complex of the People’s Republic of China. Obviously there are differences with the European Union. But whereas conventional wisdom suggests that China’s policy-making process is a monolithic top-down process, quite the contrary can be observed in China’s political system. China’s policy procedure is open to a number of actors, and policy formulation and implementation differs depending on type of legislation. Experimental, decentralized policy making for example describes a process in which the Party centre asks local officials to experiment with new ways of problem solving. Subsequently, if the policy proves positive, it is implemented nationwide. Examples of this can be found in China’s gradual market opening, the promotion of private business, state-sector restructuring and stock market regulation.
But the Chinese Communist Party (CCP) relies not only on an experimental policy-making procedure. Instead governmental institutions function as policy venues. As such the CCP, as policyholder, assigns much of its policy making power to government at lower levels. To use economic terms, the relationship between the Party and governments can be described as a principal-agent relationship with the Party as the principal and the government functioning as the agent. As a result the Party and the government engage in political bargaining not only between the political centre and the next lower levels, but also between the party and the government on multiple political layers.
The ‘Opening Up the West’ policy is one example of how actors at central, provincial and local levels bargained for their goals. Other examples are China’s gradual market opening, the promotion of private business, and state-sector restructuring and stock market regulation. The policy outcome embraced multiple interests of departmental and regional institutions. Provincial interests were conveyed by personal representatives in the central leadership and through institutionalized channels such as national working conferences, the National People’s Congress as well as the Chinese Political Consultative Conference. China’s political power is thus fragmented, resulting in a decision making process in which the policy initiative rests upon the political centre, yet for some legislation or regulation the implementation is completed at the lower levels. To be more precise, China is organized into provinces, autonomous regions and municipalities.
The administrative levels are further diversified. Rather than being subordinate directly to the centre, each administrative levels receive orders form the next level above meaning that provinces and autonomous regions can give orders to the next lower level, the autonomous prefectures, followed by counties, autonomous counties and cities. As a consequence, national laws or directives are broadly drafted at the central level and the regional and local levels have some degree of freedom to implement them and thus levels below the party centre hold a certain degree of policy-making power. Policy-makers hence pursue their own goals mainly motivated by economic incentives.
All of these motives lead to competition and conflict among different levels of government, which in turn provides entry points for political bargaining. As a result outside actors are able to engage in the policy-making process and shape results on their behalf. However political fragmentation also enables the local officials at such non-institutionalized entry points to shape public policy together with actors such as interest groups, foreign enterprises and capitalists engaging in the process in their attempt to influence policy. It is, however, crucial to note that political bargaining in China is not observable in the open. Prime targets for Chinese actors to exert influence over are governmental officials in the executive branch rather than the legislative branch.
A great number of Chinese associations prefer face-to-face contact with local governments while the majority of those have never interacted with the National People’s Congress or Chinese People’s Political Consultative Conference. Rather than openly confronting the government, business and government mutually empower each other (Shue, 1994). Thus instead of opposing the government there is a dialectical relationship between the government and the entrepreneurs. Chinese entrepreneurs are closely intertwined within party structures. Contrary to Chinese actors, Western capital aims to influence Chinese policies with Western lobbying tools such as letter writing, policy papers, white and position papers, personal meetings, events and grassroots mobilization. Besides non-institutionalized entry points, China’s policy procedure also includes institutionalized access in form of non-binding public hearings or calls for comments.
Based on this institutional framework, the People’s Republic of China developed a programme to foster the use of renewables in the energy sector. As Mr Duncan Freeman explained during his presentation, the Chinese government has supported the renewable sector since the 1980s. In the early days, much of this support went to R&D and experimental demonstration projects, but from the late 1990s there has been a shift to industrialization and deployment of renewables. The 2006 Renewable Energy Law is central for the latest developments, as it set out the broad principles for development of the sector in China and at least in theory gave them legal force. It requires that utilities purchase all electricity generated from renewable sources, pay the full price for energy from renewable sources, and offer a discount to consumers. Moreover, the Medium- and Long-Term Renewable Energy Development Plan of 2007 set out targets for renewable energy, and also outlined how they were to be achieved. It required, for instance, that bigger power generating companies must have 3 per cent of their generating capacity from non-hydro renewables by 2010, and 8 per cent by 2020.
As a result China’s renewable sector has expanded enormously in recent years: China is now both a major producer of solar panels and also wind turbines. But not only the production of equipment, also the installation of power generation facilities has expanded quickly during the past decade, and actually exceeded installation targets. Yet while China’s market for wind power has been the largest in the world for a number of years (in 2013 China accounted for 45.6 per cent of new installations, followed by Germany 9.2 per cent), solar PV market in China (30 per cent of net installations in 2013, Japan 18 per cent, US 13 per cent, Germany 9 per cent) has been insignificant until recently.
Thus, although central government policy in theory supported all renewables, in reality this was not the case. The differences between wind power and photovoltaic in China can largely be explained by government policy at the central and local level: The Chinese government made a decision to give preference to wind over solar PV power on the grounds that it was more technologically mature and had greater potential for large-scale application. This resulted in strong central government support to the wind power sector for both supply (manufacturing and deployment) and demand. The Wind Power Generating Equipment Industrialization Special Fund, for example, provided for a subsidy of RMB 600 per kilowatt for the first 50 units of new turbines with a capacity of 1.5 MW or more (only available for Chinese –owned or controlled companies). Moreover a fund to provide financial support for off-shore wind, and a Feed-in Tariff (FiT) system were created for wind power. The latter divided China into several sub-regions, with pricing depending on wind resources in the respective areas. At the same time, the central government provided large subsidies for wind power installation and generation. These measures were so effective, that public authorities like the NDRC had to control entry to the sector in order to limit overcapacity in both manufacturing and also installations.
The solar PV sector on the other hand received no or only very limited support from the central government for manufacturing and deployment, and insignificant support on the demand side until 2011. National programmes such as the Golden Sun Programme for demonstration projects had only small impact in creating demand in China. However, in absence of central government policies to support solar PV, many local governments stepped in to provide support to create local solar PV manufacturing industries. The result of this was creation of a huge manufacturing industry, but very small domestic demand. Thus – differently from what is generally expected – China developed a solar PV industry that dominates global markets without much central steering. Since 2011 there is, however, a Feed-in Tariff system in place for solar PV which set at RMB 1.15 per kilowatt of electricity, and in 2012 the support for solar farm demonstration projects has been increased. Moreover, measures to expand the domestic market through subsidies and huge increases in targets for domestic installation of solar PV have been introduced. More recently the share of support for solar PV in the Renewable Energy Fund which provides subsidies to installation and generation in the sector rose to 8 per cent in 2012 and 16 per cent in 2013.
The European regime to support the use of renewable energies is characterised by a high degree of flexibility for the individual member states. Even though there are examples for bilateral cooperation, measures to support renewables are hence largely formulated and implemented on the national level (that is mostly through national legislation). The European level of the political system provides a coordinative framework and common (European) targets (as well as individual goals for each member states); yet Member states control the effect and costs of their individual national support schemes, and the European level has little leverage for “enforcement”.
That said, it has to be noted that in contrast to policy-making in the EU, China’s policy-making system remains a top-down process, with permanent exchange between political institutions and the party centre. Moreover, unlike in Europe, where conflict within society is the primary assumption in shaping public policy, in China, at least in theory, conflict is not seen as being an inherent part of society let alone policy. As such, policy debates are often held behind closed doors and society is informed only after a consensus is reached. Due to the fact that conflict is perceived as negative, issues are rarely contested in the open. For some policy issues, open discussion is taboo. While economic issues may be debated more publicly, sensitive national security issues never are. This weakens awareness of possible other viewpoints on the issue at hand.
But beyond the centralized policy making process China has – and that may come as a surprise for non-experts – a number of ways to formulate and implement policies: In the experimental procedure, policies must have proven positive results before being implemented nation-wide. At times, the CCP assigns much of its policy-work to the government, leaving ministries and governmental officials with significant policy-making power. In addition, China’s political power is fragmented allowing multiple actors to shape public policy. Hence, even though China’s policy-making process remains distinctly centralist in theory, there are possibilities to engage with actors at different political levels. Moreover, even national measures allow for local variation, as in the case of Feed-in Tariffs for wind power, which have a regional dimension reflecting the varying conditions of this big country.
The policies China adopted at the different levels of the political system resulted in very different outcomes, one of which was the creation of market for wind power in China, but not for solar PV. Unintended consequences such as overcapacity in both manufacturing and generating have also frequently resulted from policy supports for renewables in China. Comparable to the European approach to the support of renewables, and despite the traditionally strong top-down logic of the Chinese system, a complex set of central and local government policies is behind these results. The interaction of different levels of government and management is hence not only key to understanding the domestic development of the renewable sector in Europe, but also in China. Given the international impacts of Chinese and European policies on the field of renewables, and the limited knowledge about Chinese “multi-level governance”, a better understanding of the regional-national (China) and the national-European (EU) complex is thus imperative. Linked to this question is the cooperation with third parties, for example in cross-border grid integration projects, which – according to the discussion during the Policy Forum – seem to have huge potential in Europe and Asia alike.
Author: Thomas Sattich
Ukraine’s power system can stand representative for the country’s geopolitical situation: Consisting of several sub-systems, one part of the country’s power system in the West is integrated in the continental European, whereas the Eastern parts of the country remain part of the post-Soviet power system. On the other hand Ukraine is independent when it comes to electricity supply: Most of the generated power is also consumed in the country, with balanced import-export figures. Limited interaction with neighbouring countries is rather the rule than the exception in Europe, but the given these figures, Ukraine can be described as highly self-sufficient in electricity supply.
15 nuclear power reactors back Ukraine’s independence: Atomic energy accounts for more than half of generated electricity in Ukraine. Moreover, Ukraine is the second-largest producer of Uranium in Europe after Russia.
The significance of nuclear energy for the country’s economy can hence hardly be overstated. But Ukraine seems to be at the brink of anarchy: Despite several initiatives to bring the country’s unrest to a halt, Ukraine has fallen into a bloody civil war between army, right wing extremists and armed separatist groups. The situation also indicates increasing economic tension, political unrest, and continuing street violence. As if the situation was not worrying enough, several reports mention threats for the country’s nuclear programme. Europeans are therefore confronted with a very serious question: What to do with Ukraine’s nuclear infrastructure?
Since the Euromaidan events in early 2014, Ukraine is sliding into an abyss of civil war and chaos. International negotiations so far failed to stop this downward spiral, as apparently not all sides are equally interested in a peaceful development. The question, who is to blame for this situation, certainly is a very important one. In view of the threats for Ukraine’s nuclear power plants, the blame game has, however, little meaning: Ways have to be found to secure the plants against immediate threats. This should be one of the first priorities during the negotiations.
It is of course difficult to forecast the country’s future course. Yet despite this distinct insecurity, medium and long-term solutions have to be found to neutralise the threat originating from Ukraine’s nuclear infrastructure. At least in this regard the conflicting parties should be able to agree. Insofar Ukraine’s nuclear power plants might be a somewhat neutral item for constructive negotiations. In any case, a survey of Ukraine’s nuclear facilities, their current state and their potential future is necessary, before further analysis of what can be done.
Only in a second step reflections on potential ways to take action can be discussed. Ultimately this is an older debate, as the state of the country’s nuclear programme was cause for concerns long before February 2014. But the current crisis accelerated developments and put Ukraine on a trajectory that demands renewed thinking about this issue. The author of this blog will therefore ask what means and programmes the EU (possibly) has to deal with Ukraine’s nuclear infrastructure and the Ukrainian power system. Given the highly political nature of the Ukrainian issue, a European contribution can, however, be only one part of a bigger puzzle.
Update 07 August 2014:
Author: Thomas Sattich
Decarbonisation will change the European power sector greatly. Deeper integration of power networks is one key element for the success of this agenda. This implies the relocation of power generation capacities to new sites, shared cross-border use of generation capacities via integrated networks, and a more efficient allocation of power generation units in Europe; in turn this would result in the reduction of capital-intensive excess capacities to a minimum (BMWi 2013:21), thereby saving large financial means for other investments (Siemens 2013).
But a policy of deeper grid integration will also lead to increasing dependency on neighbouring countries. Any initiative towards more renewables therefore requires great sensitivity towards possible economic, technical and political side effects, and a high level of mutual trust. Unilateral steps in energy policy on the other hand undermine any progress in European energy policy, and should therefore be avoided. The latter potentially is one of the most serious constraints for any further increase in intermittent renewables in the European Union.
With the varying density of renewable energy resources and uneven distribution or intermittent RES stations in a particular area, the need for deeper interconnection varies, however. It seems therefore certain that the costs and benefits resulting from a policy to increase intermittent renewables by a policy of deeper grid integration would be unevenly distributed among the different member states involved (Sattich 2014). A collaborative mechanisms for co-ordinated network planning as well as a sound cost sharing mechanism are thus the prerequisites of a successful decarbonisation policy.
In the European legislations there are first example for such cost-sharing mechanisms, and with the Ten-Year Network Development Plan a (non-binding) instrument exists which brings a large number of stakeholders together for collective grid planning (Regulation 714/2009:Article 8). Given the critique of the EU’s focus on a bottom-up approach towards energy policy (even though it is only partly justified), it could be beneficial for the European Union to think outside the box in this regard, and follow working grid planning procedures to develop its own grid planning tools accordingly.
The Renewable Energy Transmission Initiative (RETI) is an interesting candidate in this regard: A stakeholder process charged with developing a conceptual plan for expanding the Californian electricity transmission network to provide access to renewable energy resources necessary to meet the goal of 33 per cent of electricity by 2020 (Olsen, Byron & DeShazo 2012:837). Key feature of the RETI process is the collaborative identification of geographic regions having high densities of best quality resources, and the minimisation of transmission facilities necessary to access these renewable energies to meet state goals (Olsen, Byron & DeShazo 2012:837).
In a transparent, open and collaborative fashion, the stakeholders estimated and agreed on the estimated costs of developing RES resources, and determined the aggregate capacity and location of new transmission lines to be built: Given the diverse interests and perspectives of the stakeholders involved in the process, this required both compromise and willingness to proceed at controversial issues (Olsen, Byron & DeShazo 2012:842). RETI therefore used principles of least-regrets planning to guide its work (Olsen, Byron & DeShazo 2012:840). Sounds like something Europe could be in need of, doesn’t it?
Author: Thomas Sattich
In the beginning Europe’s power system consisted of a limited number of small and isolated power plants in major cities such as Berlin or London. Yet technological advance soon enabled transmission distances over hundreds of kilometres at relatively low losses and costs. The original power circuits therefore expanded from city centres to the suburbs and beyond. Technical standardisation lead to the development of universal systems which unified not only the circuits of individual power stations into one system, but enabled the interconnection of formerly isolated systems of independent plants and companies to more complex power pools.
First cross-border electricity transmission lines date back to the year 1906; these served only local or (micro) regional purposes; yet with transmission distances becoming longer, the question arised, what the optimal dimension of the power system would be: Even though the early power pools remained largely sub-national in the first half of the 20th century, plannings of the future power system soon became a European dimension. Thus, even though debates on super-grids, interconnection, and different forms of electricity generation may appear to be of recent date, they date back to the early days of the European power system in the early 20th century.
The 1920s in particular saw engineers and policy makers debating the value of transnational electric power systems, and with the Great Depression first ideas for a transcontinental super-grid surfaced that foresaw the large-scale expansion of regional grids; these plans – if implemented – would have resulted in the construction of a continental overlay network, in other words an interconnected power system from the Atlantic coast to Poland and Ukraine, and from Norway to Rome, coupling hydro and coal power plants as well as major consumption centres all over Europe.
This approach had a clearly Europeanist undertone and was favoured by the European movement that promoted the idea of supranational cooperation. Raising nationalism during the 1930s, the Second world war, state and sector interests brought these debates, however, to a halt: The economic rational of utilities, and the national perspective of policy makers blocked new initiatives to Europeanise the power system. Instead of a European super-grid therefore an axis between power companies and the nation state emerged that became the central feature of post-war Europe. State-protected companies with an orientation towards national markets henceforth followed a bottom-up and gradual approach to cross-border integration of the power system.
Following the Second world war, power transmission should have been a potential prime candidate for a common European policy; but instead national thinking prevailed, with the focus of the state-company axis resting on investments in the national power systems, and less on cross-border cooperation – a remarkable fact given integrationist thinking at that time. The power system hence remained a national prerogative; where cross-border connections between the national power systems surfaced, their construction and administration developed outside of the evolving European Community institutions.
Only with the oil price shock in the first half of the 1970s a new energy strategy was launched. But even though the oil crisis of the 1970s made energy a highly topical issue, the political situation that favoured national power systems stayed largely unchanged until the mid 1980s. Until that point transnational energy governance stayed in the hands of private stakeholders and organisations. In this context the European Community institutions constituted only an additional player in older transnational infrastructure governance, rather than being the main arena for negotiations
The European power system reflected this weak Community involvement: The interconnection capacity to import/export electricity remained very low and hardly anywhere exceed 10 per cent. Most member states can hence be described as largely self-sufficient in electricity supply. With the Single Market Programme of the 1980s the European Community started, however, to take a much more assertive stance on energy related issues, and eventually pursued a policy aiming at deeper integration of power markets.
Since the mid-1980s internal market programme a number of European policies and legislations aimed at the development of a a common carrier system that is functionally adequate for the free flow and trade of electricity in the envisaged pan-European electricity market. More recently, European Union policy to decarbonise the continent’s economy implied new initiatives towards a pan-European power system. The integration of renewables constitutes one of the most dynamic factors in this regard, as this form of power generation increases the need for a densely intermeshed electricity transmission grid in Europe.
Decarbonisation of Europe’s power system therefore will not only increase the volumes of electricity to be consumed and transported, but also change the geography of the power system. EU policy to increase the use of renewables for power generation hence resulted in a fresh start for the Europeanisation of the power system. Properly thought through, these new initiatives would result in the construction of a so called pan-European SuperSmart grid, that integrates not only the European, but also the North African power system, thereby allowing to generate, transmit and consume electricity flexibly all over Europe.
Decarbonisation of the European power sector hence implies increasingly shared, cross-border use of generation capacities via integrated networks. Yet despite this new impetus for a pan-European power system the reality is, that energy is still of a particularly strategic nature for member states. Moreover, costs and benefits of a policy that aims at deeper integration of the still largely national power systems would be unevenly distributed among the different member states. Even though Europe’s internal electricity grids are ageing and in need of upgrading, a policy that will increase the dependency from neighbouring countries and result in the relocation of power generation capacities to new sites, will therefore will undoubtedly encounter political opposition.
Any initiative in this direction – be it national or European – therefore requires great sensitivity towards possible economic, technical and political side effects, and a high level of mutual trust. The problems associated with a policy to Europeanise the power systems therefore poses questions of a geopolitical nature: Considering the socioeconomic implications of a policy that aims at the integration of still largely national and self-sufficient energy systems in a pan-European infrastructure – a process that will unavoidably produce winners and losers –, Europe’s so called (and supposedly sexy) energy transition looks more like plain old power struggle.