Brussels, 9 February 2021 | Europex welcomes this opportunity to contribute to the Commission consultation of the Review of RED II on the promotion of the use of energy from renewable sources. In this paper we extract critical points raised in the consultation questionnaire that underpin the need to modify RED II and explain how such a review will support the integration of renewable energy sources while minimising unnecessary market distortions.
RED II needs to be modified to align it with the clear market-based approach taken by the Electricity Regulation and Directive and with the cost-efficient decarbonisation objectives of the Green Deal.
The EU has supported a market-based approach to achieve decarbonisation – for example, Recital 9 of Directive (EU) 2019/944 argues that ‘A well-functioning electricity market design is the key factor enabling the uptake of renewable energy’. However, the current RED II text does not ensure consistency with this approach – support schemes, which fundamentally distort the functioning of electricity markets (forward markets as well as spot markets are being impacted) are permitted, with no legal safeguards in place and no phase-out requirements.
The deployment at significant scale of support schemes (without sufficient safeguards concerning their design) risk undermining the potential of the market framework to reward flexibility and innovation, which are vital aspects in high-renewable system, which also values demand-side flexibility. Poorly designed support schemes in place for long-term periods would lead to 2030 and 2050 renewable energy targets being achieved at far higher cost than necessary to the consumer and the energy system as a whole. Acknowledging the challenges around the high fixed cost structure of renewables as well as the need for predictable revenue streams, market-based remuneration of renewables in the energy market offers the most cost-efficient way of achieving renewable energy targets, especially as renewables are deployed at scale.
Electricity markets are successfully integrating increased amounts of renewable energy, and trading on power exchanges is allowing effective management of risk. More efficient direct marketing is also playing an important role in integrating renewables into the market, while complementary tools such as guarantees of origin (GOs) can allow the green value of the energy to be traded independently of the commodity. Forward / futures markets provide important tools to hedge and manage price risk through the development of liquidity in contracts with increasingly long time horizons, which among other aspects also can help the development of market-based PPAs.
Please find the full paper available for download below.