A 2030 Framework for European Hydropower?

Last week the European Commission outlined the framework for its proposed 2030 climate and energy policy, setting out a target of a 40% reduction in greenhouse gas emissions by then, when compared with 1990 levels.

This binding greenhouse gas reduction target forms the centre piece of a raft of measures that are designed to lower the carbon intensity of European industry. It includes, for example, proposals to increase the annual reduction in the cap on emissions within the European Union Emissions Trading Scheme (EU ETS). This rate would increase from 1.74% currently to 2.2% after 2020. In addition, the European Commission is tabling draft legislation amending the ETS to tackle the supply-demand mismatch and that, if approved, will see the use of a flexible reserve mechanism to give predictability for the regime post-2020.

But what do these proposals mean for the hydropower sector?

Alongside the overarching climate target, one of the key measures the proposals set out are plans for a binding EU-wide target of 27% of all energy to be sourced from renewables. However, this fairly modest domestic target is directed across the European Union as a whole, rather than individual nations.

European Commission President, José Manuel Barroso, explains that while having a European Union renewables objective is a very important signal to investors – who need long-term certainty – and has benefits in terms of security of energy supply, the Commission is proposing to not set binding targets for renewables at individual national level anymore.

Barroso says: “One lesson we have drawn from experience is that they [national targets] risk the fragmentation of the internal market and do not allow us to reach the targets in the most cost effective way.

“Here we will lead a bottom-up approach, leaving more flexibility to member states. They will work with us to make sure the national efforts add up to the European Union target.”

“We have seen in the past that in some countries there were distortions precisely because of these national targets on renewables… with sometimes important costs for competiveness and also creating distortion in terms of the internal market,” Barroso added in a statement.

Containing relatively unambitious targets for both greenhouse gas reductions and renewable energy, the European Commission’s proposals have drawn fire from some renewable energy sectors. For example Thomas Becker, CEO of the European Wind Energy Association (EWEA), said: “By effectively advocating repatriation of energy policy to Member States, President Barroso appears to have forgotten his previous calls for ‘more European integration’ on energy policy.”

Similarly, Frauke Thies, Policy Director for the European Photovoltaic Industry Association (EPIA), observed: “27% renewables by 2030 is indeed barely more than the Commission’s business-as-usual scenario. In addition, it is an EU-wide target without binding national breakdowns.”

However, the hydropower sector should perhaps be more sanguine.

Alongside the Commission’s framework proposals it published a report: ‘Energy Economic Development in Europe’ concluding that in the electricity market, support to less mature renewables technologies has translated into higher electricity prices.

By contrast, the carbon price has been too low to influence electricity prices while the recent economic crisis has contributed to lowering demand for carbon allowances further, exacerbating ETS market instability.

The measures outlined in EU’s energy and climate policies are expected to support the development of low-carbon technologies, but in a technology neutral fashion and, in theory at least, at the lowest possible cost to industry, commerce and consumers.

As Katja Hall, Chief Policy Director at the UK’s Confederation of British Industry (CBI), said: “This package puts us on the right path to delivering a competitive, low-carbon future. It’s important that member states have flexibility to decarbonise in the most cost-effective way.

Given that hydropower is known to be the most cost effective source of both renewable energy and energy storage, it follows that under the new proposals hydropower capacity will be favourably placed to grow in Europe, ahead of other more expensive renewable energy technologies.

This low cost renewable energy can then be used to support the wider European Union policy goals without excessive ramping of energy costs in individual nations,  boosting overall European global competitiveness.

The European Commission proposals may have been met with dismay by some of those in the renewable energy sector, but hydropower should not be one of them.

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