Improve incentives for high renewable impact at lower cost

Gustav Melin, President AEBIOM, European Biomass Association

Support through a number of policies has boosted the production of renewable electricity in Europe, but often at a high cost. As the share of renewables in energy production increases, it is important that future investments be demand-driven and market-based, so as to avoid negative prices and excess electricity production.

Take the example of Sweden. In the 1970s, the country was dependent on imported fossil fuels for 80 percent of its final energy supply. However, a targeted policy to become energy independent and increase the share of energy from domestic renewable sources resulted in renewables accounting for 51 percent of supply in 2012. Bioenergy accounts for the lion’s share of this, at 33 percent. This swing to renewables has not been as expensive as one might expect, and it has been achieved in conjunction with economic growth and an improved balance of trade.

Penalising harmful emissions

An important instrument in achieving these goals has been the “Polluter Pays Principle,” which penalises companies for their emissions. In Sweden, this takes the form of a carbon dioxide tax, along with NOx and sulphur charges. The carbon dioxide tax is differentiated by sector and households have always paid a higher rate than business, since industry has to be competitive on a global market. In particular, energy intensive industries had a very low or no carbon tax until entering the European Emission Trading Scheme. When enforcing the reduction target for carbon emissions in Europe, the share of the burden between the various sectors should be carefully considered.

Sweden’s introduction of a carbon tax for heating in 1991, and the fact that district heating infrastructure was already in place, made it easy and profitable for power companies to convert large district heating plants from oil to wood chips, waste incineration or peat. In the 1980s wood chips were more expensive than oil but, with oil trading at over USD100 per barrel since 2008, the current price per energy unit for wood chips is less than half the world market price for crude oil. Wood pellets can be used in powder burners that replace oil at a price that is only 60 per cent of the current oil price per energy unit. The result is that fossil oil is being replaced for heating all over the world, even without the carbon tax. Bioenergy can also be competitive in electricity production but currently only when also using the waste heat in Combined Heat and Power.

Investing in infrastructure

A large part of the change to renewables is about infrastructure investments. In Europe about 50 per cent of final energy consumption is accounted for by heating and only 25 per cent by electricity. Using waste heat from power production in district heating is a perfect match, and infrastructure funds should be used to invest in district heating grids. Even though they are profitable, these investments have been difficult to raise due to a general lack of understanding and problems with planning restrictions. Nevertheless, they will be important step towards achieving the profitable supply of renewable electricity and heat.

Europe’s potential to produce renewable energy and biomass is enormous if the demand exists: it is mainly a matter of cost, and bioenergy is not always expensive.