How Europe Can Claim Clean Energy Leadership
(Bloomberg View) -- The European Union's new legislative proposals for a clean energy transition have disappointed environmentalists, policy experts and even building insulation manufacturers. And yet, given U.S. President-elect Donald Trump's lack of interest in sustainable energy, even this plan, cautious as it is, may well ensure Europe's leadership in this area, especially if the Europeans manage to implement the best element of the package -- its focus on consumers and on letting them also be energy producers.
From the point of view of macro energy architecture, the long-awaited, 1,000-page European plan is not particularly ambitious. Even though its drafters expect it to mobilize up to 177 billion euros ($188 billion) a year in private and public investment starting in 2021 and create 900,000 jobs as Europe moves to 50 percent renewable energy by 2030, it largely leaves the details of the energy transition to member states, and only a small minority of them have specific sustainable energy policies today. Among numerous gripes, the package has been criticized for allowing states to continue subsidizing coal power plants, allegedly because, given the instability of sustainable energy inputs such as wind and solar, they are needed to guarantee capacity is always available. The plan only introduces pollution limits for new plants. Environmental groups have wondered how a timid plan like this could help Europe achieve its stated goal, global green energy leadership.
The plan, however, does take on the incumbent industry giants in one important respect -- their relationship to the consumer. It focuses on things like the introduction of "smart" meters that can be tracked from a smartphone, more detailed and easily understandable energy bills and the ease of switching from one utility company to another. If the package gets approval from the European Parliament and member states, fees for switching energy providers will be restricted. And, perhaps most importantly, it declares: "All consumers across the EU will be entitled to generate electricity for either their own consumption, store it, share it, consume it or to sell it back to the market."
Even if no other part of the package works as planned and none of its headline goals are reached, this alone would be tantamount to a revolution that would give Europe an edge over the U.S.
Today, different countries have widely diverging rules for so-called "prosumers" -- people who both consume and produce electricity. Most commonly, these are the owners of rooftop photovoltaic plants. Earlier this year, The International Energy Agency reviewed the national policies and found all kind of quirks. In Belgium, for example, there's no automatic compensation for excess energy: A prosumer can only sell the energy her household produces if she manages to find a buyer. In Germany, prosumers are not just paid for the energy they send into the grid but also rewarded for self-consumption. The U.K. also had a reward system which it recently scaled down.
Some countries only compensate solar battery owners through so called net metering: Their meters run backwards when their systems feed power to the grid. There's no reimbursement for any energy produced in excess of a household's own consumption. Countries where the power companies have especially powerful lobbies, charge prosumers for the use of the grid.
The rules, as well as the local energy prices, affect the popularity of "energy citizenship." The German model has caused a visible proliferation of solar batteries.
Though Germany's skies appear to be permanently cloudy and the winter is oppressively dark, home photovoltaic plants are a far more common sight than, say, in sunnier Arizona. Three years ago (the latest data available from the IEA), residential rooftop installations in Germany produced more than twice as much energy as in the U.S., and there were about 1.4 million solar power producers in the country, most of them households:
U.S. rules are based on net metering in most states. Yet some, such as Hawaii and Nevada, have been rolling back these programs under pressure from energy companies. And even where the possibility of net metering or selling into an open market exists, it may be difficult for a solar battery owner to take advantage of it. Power companies often force them to install expensive additional equipment or raise their grid access tariffs to make the solar installations economically inefficient.
The EU energy package doesn't contain a specific model for dealing with prosumers. Yet if it succeeds in establishing a uniform approach to "energy citizenship" and making sure gridholders do not restrict private citizens' access, consumption and production models throughout Europe will change -- and so, gradually, will the average consumer's attitude toward energy.
This is not about top-line goals like cutting greenhouse gases or increasing the share of renewables in the energy mix. The energy transition can only go so far with a top-down approach. Political leaders change, and often those carried to the top by the populist wave don't prioritize the environment. Trump is a good example.
If renewable power is to prevail, it needs to become part of most people's everyday calculus. The environmental consultancy CE Delft has calculated that by 2050, 60 million Europeans -- about 10 percent of the EU's population -- may have solar batteries on their roofs, and about as many may participate in energy production through joint ownership of solar and wind capacity. If that projection is correct, enough Europeans will eventually have skin in the game to make sure there's no backsliding on sustainable energy.
Environmental experts approve of that aspect of the EU package, even though they criticize it for other reasons. Manon Dufour, head of the Brussels office of E3G, an international energy policy think tank, told me in an email:
Overall, the elements of the package relative to the "demand-side" of energy markets, i.e. enabling demand-side response and self-generation by consumers, are necessary developments for shifting the European energy system towards a secure and sustainable future. As such, the propositions are broadly workable and will contribute to removing significant hurdles that have so far stymied the development of these flexible and low carbon resources across Europe.
She pointed out, however, that implementing equal treatment for "new sources of flexibility" would require strong regulatory oversight. The EU, given its cohesion problems, may be unable to deliver on the consumer focus of its energy policy. But at least its policymakers -- unlike the incoming U.S. administration -- understand what they need to do. That gives Europe a chance at global clean energy leadership, which the loser in the U.S. election, Hillary Clinton, promised to claim for the U.S.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
To contact the author of this story: Leonid Bershidsky at email@example.com.