NER300.com is an unofficial, independent portal dedicated to renewable energy and grid integration projects wishing to access this instrument, providing
The EC’s proposals for Europe’s Emissions Trading Scheme for the period 2021-2030 would give away too many carbon allowances for free, says Carbon Market Watch. Many of the 6.3 bn allowances to be given to companies at risk of carbon leakage will inhibit them from producing more efficiently or investing in innovative technologies that reduce CO2 says the campaigning organisation. “A wide range of technological options to reduce emissions in these carbon-intensive sectors are available that remain unexploited. Free allocation shields industrial sectors from the carbon price signal and puts European industry at risk of falling behind in deploying low-carbon, state-of-the-art technologies compared to their competitors abroad.”
Carbon Market Watch calls for free allocation of allowances only for those sectors that are both heavily reliant on exports (or exposed to imports) and very carbon-intense, and even then, only for “the share of carbon costs that are not passed on to customers”. On the other hand, it calls for NER400 Innovation Fund to be boosted to a fund of 1000 million allowances, ‘NER1000′, to help industry innovate and regain technological prowess in efficient production.
Its report, Carbon leakage myth buster, is here.
The future of the UK’s White Rose CCS project is in doubt, and with it up to 300 M EUR of NER300 money. Drax, one of the consortium of three companies developing the project, announced that it would not join its partners in proceeding to the investment phase.
Speaking on the UK radio show, The Today Programme, Drax CEO Dorothy Thompson said she “thought [White Rose] was a really good project and important technology”, but Drax lacks the cash to construct. “We’re in a different financial situation today than we were two years when we decided to invest in the [White Rose] project. There have been some changes to the government’s renewable policy but there have also been dramatic movements in the commodity markets that have greatly reduced our profitability. The government has removed a tax exemption for renewable power sold to industry and we’re the largest generator of renewable power in the UK,” she explained.
The CEO is referring to the climate change levy, which is a tax on UK business energy use (details on OFGEM website — UK electricity market regulator). Businesses could escape the tax by handing in Levy Exemption Certificates covering their energy use. Until 1 August 2015 (when a change in the law came into effect), a renewable energy supplier like Drax could create Levy Exemption Certificates, which it could sell to its customers for a price up to the value of the tax. Drax had warned in July that it expected its revenue to drop by 30 M GBP in 2015 and 60 M GBP in 2016 because of the end of LECs.
Carbon Pulse reported that the other two partners in the White Rose consortium, Alstom and BOC “were committed to completing the project”. Drax, meanwhile, will pursue “rapid decarbonisation with the deployment of the latest biomass technology, which is the most affordable, reliable and fastest way to move away from fossil fuels.”
Bellona, a pro-CCS NGO, said Drax is one of many utilities seeking capacity payments in order to survive. Bellona decries such payments “as a form of blackmail to ‘keep the lights on'” and would prefer to see an electricity market design that would encourage Drax to invest in CCS instead. Its statement is here.
Drax’s press release is here.
Roughly 450 public responses were sent to DG CLIMA’s public Consultation on revision of the EU Emission Trading System (EU ETS) Directive. The public consultation contained three open-ended questions on NER400 (also known as ‘Innovation Fund’). NER300.com has sifted the answers. The main points are below.
Something is needed. “Deploying technologies for deep decarbonisation at sufficient scale requires additional focus on practical enabling policies and a range of regulatory and incentive measures, not the continuation of a simplistic assumption that a price for carbon under the ETS can overcome multiple barriers and provide a business case for investment,” warns E3G. CEFIC agrees: “In general, positive investment signals depend on a range of policies not just the EU ETS, and therefore a coherent and coordinated approach will be indispensable to tackle the question of how the EU policy on Innovation and the regulatory framework can be improved.”
The need for these incentives might be viewed with more suspicion in the industry sector than in the power sector for historical reasons. CEPI + 2: “The NER300 program was funded from the sale of 300 million emission allowances from the New Entrants’ Reserve, designed to support new investments in industry, to support research programs focused on renewable energy and carbon capture and storage. As such, it represented a financial transfer from the European industry to the energy sector.”
The hardest line against tampering with the ETS is taken by Glass for Europe: “The innovation fund should be funded by auctioning revenues and not by the diversion or use of any sort of potentially tradable allowances.” The association (but not its members) added this line: “We consider the financing scheme and the increase in the initial endowment from 300 to 400 million allowances not appropriate.” Why the hostility? “Firstly, the availability of funds will be linked to the price of emission allowances (EUAs) and thus will be very volatile, depending on the success of the EU’s climate policy. Secondly, the need for co-financing of such projects depends on the competitive position of low-carbon energy in the market, which is mainly linked to the cost of carbon emissions,” say companies in the non-ferrous metal sector among several others. It is left to BP to put the economists’ argument: “BP’s preference for EU ETS revenues is that they should be returned to the economy in a non-distortionary manner, e.g. via corporation and income tax reductions.” CPME and Eurochambres + 1 say that while “the ETS directive states that half of auctioning revenues should be spent on decarbonisation measures, this has not been the case so far.”
The steel industry does not in principle support the removal of ETS allowances from the wider market […], but if allowances are to be removed it is vital that there is fair access to innovation funding for all sectors impacted by the EU ETS.
…and cheerfully by Austrian Federal Economic Chamber – Wirtschaftskammer Österreich (WKÖ):
We explicitly welcome the creation of the innovation fund, especially the extended scope to include low-carbon innovation in industrial sectors!
The next question is how to create the NER400 fund.
Shell: “[NER 400 should] not replace other existing or future support mechanisms at EU or MS level. The fund should continue to use allowances under the existing cap. The fund should also avoid any impact to the level of free allocation for those on the current carbon leakage list.” It is clear from their responses that industry will fight hard not to lose a single freely allocated allowance in the creation of NER400.
The renewable energy sector is not inclined to give the carbon-leakage-pleaders too easy a ride, though. EWEA says, “Certain industrial sectors receive large amounts of free ETS allowances, which in 2012 amounted to 14 billion EUR. Also, under the State Aid Guidelines, heavy industries can be exempted by up to 85% from their obligation to contribute to the development of renewables.” Solar Power Europe (formerly EPIA) also sticks the boot in: “For sectors benefitting from free allowances, the available funding should be deducted from the value of the free allowances to prevent double subsidisation and excessive distortion of competition.” Think-tank backing for getting tough on double handouts comes from the Regulatory Assistance Project: “The beneficiaries of free allocations [could] for instance […] be required to at least match the hypothecated innovation funding euro for euro with their own money; the obligation could be capped at the value of the free allocations they’ve received.”
The integrity of the ETS and its Market Stability Reserve is paramount say Eurelectric and four others from the electricity industry, adding “It is important that NER400 is fed by phase IV allowances, and that all unallocated allowances from phase III go directly to the MSR.” The CCSA, Alstom and IETA also eye up the “significant amount of funding returned to EU institutions as a result of successful NER300 applicants not taking projects through to delivery.” “This funding is readily available and would not further impact on the ETS market as allowances have already been monetised,” they and ZEP observe. ZEP and Alstom part company from the others by additionally calling on the EC to “monetise free allowances from the NER non-allocated in 2020 and free allocations allocated to plants that will close before 2020″. TVU and Shell have similar ideas. Shell would like to create an ‘allowance pool’ that could contain allowances “from within the Market Stability Reserve (MSR), the remaining [un-allocated] allowances at the end of each ETS phase or another source”. These would be monetised “in tranches properly sized to maintain the necessary supply”.
ZEP and Alstom also suggest, “Without being monetised, allowances from the ETS could be used as collateral at an agreed carbon price.” Bellona explains the idea as follows: “A ‘guarantee fund’ should be set up to guarantee targeted support for CCS in cases where the EUA price falls below a minimum threshold — a determined ‘strike price’ — and therefore the NER400 fails to deliver the necessary funding.” Scotland Europa and CCSA have a different name for the process: ‘backstopping’. The original promoter of the idea is the NGO Change Partnership, which did not make a contribution on the topic of NER400 to the public consultation, or if it did, it was either kept confidential or was not published.
The approach carries some risk for the carbon market. If carbon prices are high and so is demand for EUAs, the mechanism will keep prices high. If carbon prices fall and the guarantee fund must be called upon, the effect of the guarantee fund will be to drive prices lower. It would be a source of volatility. Many contributors call for a published schedule of the allowance monetisation programme (see below).
Irrespective of the final decision on how funds may be accessed or created before the start of 2020, the need is clearly established. Ocean Energy Europe “calls on the Commission to take the necessary steps for the renewal, before 2020, of NER300 or a similar instrument that has the same focus and encompasses renewable energies.” ZEP and CCSA make the same request. CCSA estimates that the earliest start of NER400 in the absence of any specific action to start earlier is 2022 — a gap of seven years from today.
Their message has been taken up by the UK, with DECC (the UK ministry responsible for NER300) calling on the EC to consider “an early start to the application and award process for a limited number of projects that might be up and running and ready to receive operational funding as soon as the first allowances are monetised in 2021.” Scotland Europa says the fund “should be open for application in 2017 to allow its release in 2018.”
CEPS hints at the problems caused by changing EUA prices: “With the significant volatility in EUA prices, the NER has not been able to provide a stable pool of money, especially for the larger projects, including CCS. A mechanism that would make the funds more predictable for such projects is something that should be considered.” Projekt21plus agrees: “Currently when the price for allowances is at a quite low level, the support for the innovation fund is at a quite low level as well. We prefer a future structure of the programme which is independent from the variability of prices for emission allowances and deliver a reliable basis for financing innovation projects seriously.”
Perhaps the solution lies in doing what was suggested by Catalonia: “The EIB could sell in advance a portion of credits before the call of proposals” This approach could satisfy the UK’s wish for “further clarity on how the funding will be handled, both to ensure that projects of each type are considered for and able to receive funding, and to have a greater understanding of the number of projects that could be funded in each area.” (DECC)
The electricity sector speaks as one to say, “The timing of inflow of these NER400 allowances into the market should also be made predictable for market parties,” with support from Hungary and IETA. The latter adds that the release should be “gradual and clarified well in advance”. But they are countered by voices saying the EIB could be given the freedom to be a little more canny in when it chooses to monetise EUAs. CEPS: “The EIB is currently strictly required to act as a price-taker. It could be considered to allow the EIB more freedom in determining when to monetise, so that the total amount of funds available would be maximised.” DECC: “The timescale for the auctioning of any allowances for the Innovation Fund [NER400] (as well as the Modernisation Fund) needs to be carefully considered to maximise the value of the Fund whilst minimising the impact on the wider carbon market. This may suggest a more flexible or staggered approach than was adopted in the NER300.” EFET (on a collision course with IETA): “Allowing the European Investment Bank more freedom in determining when to monetize allowances (setting temporal windows) will enable to maximise revenues and exploit the Fund as a market stabilizer.”
Further funding for innovative renewable energy technologies and CCS could come from 2018 under proposals from the European Parliament’s Environment, Public Health and Food Safety Committee, which last Wednesday adopted a Report (unofficial version available here) on the Emission Trading Scheme’s carbon Market Stability Reserve (MSR). The MSR is a measure that would be applied to Europe’s Emissions Trading Scheme to adjust the amount of carbon allowances that are in the market. 300 M allowances might be drawn from the MSR and ‘gradually’ made available in the period 2018-2025 for low carbon projects, according to the Committee’s amendment 18. At the current price of 7 EUR, 300 M allowances would fetch 2.1 bn EUR when monetised.
The Committee wants the scope of the future scheme to be broadened to include so-called ‘Annex 1′ installations. These are the industrial plants covered by this list.
EU Heads of State agreed in October 2014 to create ‘NER400′, insisting as they did so on the inclusion of ‘industrial sectors’ in its scope. The EC interpreted that mandate restrictively in its Energy Union Communication of 25 Feb 2015 compared to the position it laid out in January 2014 in the Communication A policy framework for climate and energy in the period from 2020 to 2030.
In line with the Union’s innovation and industrial policies, the concept of an expanded NER300 system will, therefore, be explored as a means of directing revenues from the ETS towards the demonstration of innovative low carbon technologies in the industry and power generation sectors.
[…]there are additional research priorities which merit a much greater level of collaboration between the Commission and those Member States who want to use these technologies:
- A forward-looking approach to carbon capture and storage (CCS) and carbon capture and use (CCU) for the power and industrial sectors, which will be critical to reaching the 2050 climate objectives in a cost-effective way. This will require an enabling policy framework, including a reform of the Emissions Trading System and the new Innovation Fund, to increase business and investor clarity, which is needed to further develop this technology.
‘Innovative renewables’, the primary beneficiary of NER300 in its first two rounds, are not linked to ETS-related funding schemes here, nor are non-CCS or non-CCU approaches to decarbonisation in industry.
Member States do not so far share the European Parliament committee’s view that before 2020 there should be an interim scheme. It remains to be seen whether, in the closed-door Council-Parliament negotiations that will now start, the lead MEP in the negotiations, Ivo Belet, can change their minds.
DG CLIMA has launched the second public consultation in a year explicitly asking about NER300. In the table below, the questions it asks are compared with the earlier consultation, which closed on 31 July 2014. The deadline for responses is 16 March 2014.
|Latest consultation: Consultation on revision of the EU Emission Trading System (EU ETS) Directive
— closing 16/03/2015
|Earlier consultation: Consultation on Emission Trading System (ETS) post-2020 carbon leakage provisions — closed 31/07/2014|
The reponses to the earlier consultation, which were analysed by NER300.com have now been analysed by the EC. The NER300.com article has been updated with a link to the EC’s official summary of the responses.
Respondents were asked to indicate whether they would allow their replies to be made public. These replies have been posted on the homepage of the public consultation. An analysis of them is given below.
The NGO Change Partnership offered advice on how the pot of a new NER300-type scheme could be filled with allowances: “The allowances should come from a combination of a ‘haircut’ on the Market Stability Reserve (MSR) together with a dedicated fund of allowances. This should replace any ‘New Entrants Reserve’. Importantly, allowances should not be monetised but used as collateral to leverage additional funding.” The MSR is a measure that would be applied to Europe’s Emissions Trading Scheme to adjust the amount of carbon allowances that are in the market, with the expected effect (at least in the near term) of boosting the carbon price. It could begin in the next 2 to 7 years, depending on the will of the Council and European Parliament. The mandate to launch additional calls under NER300 rules, or to start NER400 early, could be linked to this dossier.
Alstom, which has been involved in a number of awarded and un-awarded NER300 proposals, fleshed out Change Partnership’s ideas:
[…] We fully support the continuation of the NER300 beyond 2015 and before 2020. To be meaningful and credible, the Fund should make available a very large amount of money.
- From the ETS: free allowances from the NER non-allocated in 2020, free allowances allocated to plants that will close before 2020 (IED regulation) and EUAs from the Market Stability Reserve could be monetised. Without being monetised, EUAs could also be used as collateral to leverage financing at an agreed carbon price.
- From the 2014-2020 EU budget: ‘Smart or Inclusive Growth’ or ‘Sustainable growth: Natural Resources’ lines, European Structural and Investment Funds, Research Fund for Coal and Steel, Horizon 2020, Connecting Europe Facility and the tax on financial transactions.[…]
The need to look beyond NER300 for stimulating innovation in energy technology was a theme in a large number of responses. Only one respondent, Holcim, mentioned “risk-sharing” in its submission, of which the EUAs-as-collateral approach could be one example.
The ‘veterans’ in this context are companies that had already applied for NER300 funding. Alstom, above, was one. Air Liquide described NER300 as Europe’s “only tool for funding large scale demonstration European projects” (supported by the European Industrial Gases Association). The utilities ENEL (responding via its Slovakian subsidiary) and RWE recognised the value of support for innovation in energy technology, but could not accept that distorting the Emissions Trading Scheme in the way NER300 has done is a price worth paying. This was a widely held view. ENEL wanted to see “analysis of [NER300’s] effectiveness and achievements”, which two other organisations, BDI and the Swedish Forest Industries Federation, also called for. Shell parted company from other oil companies and their associations by expressing its “full support” for NER300 and calling for any follow-up to be better resourced. Finally, Magnesitas Navarras, whose technological approach was confirmed ineligible by the EC in its answer to FAQ 29, looked on the bright side: “We are going to present the project in the topic LCE 15 under Horizon 2020.”
Companies that have tasted NER300 like it. That feeling is shared by their industrial associations. The two European renewable energy industry associations that responded, Ocean Energy Europe and EWEA, praised NER300. The CCS Association said NER300 had had “limited success” in promoting CCS and that a better funded future programme “should focus on delivering large-scale deployment of CCS in the EU post-2020.”
Estonia considered NER300 “an important funding programme for innovative carbon projects which helps to reduce greenhouse gas emissions and [which] should definitely continue after 2020.” The UK, whose three projects were between them awarded one sixth of the NER300 pot (more than any other Member State), would like any future pot of money for low carbon innovation not to be created by raiding allowances from the Emissions Trading Scheme. Poland shared this view, adding that if a new scheme were created the focus should move from CCS to technologies for cleaner combustion of fossil fuels. Regions also gave input. Wallonia and Flanders insisted on the principle of geographical balance. Bavaria, Thüringen and Vienna, which were the only other local government administrations to give a public reply, dismissed CCS.
The ‘newbies’ in this context are organisations from which nothing or little on NER300 has so far been heard or that have had no direct connection to the instrument. They include, above all, industrial sectors at risk of shifting production outside Europe if the EU puts too high a cost on carbon dioxide emissions. The EC intends these sectors to benefit from NER300-type funding in future.
To a great extent, however, the companies concerned and the associations that represent them reject the idea that they should give up any allowances that would otherwise be given to them for free. The taking of allowances that would otherwise have been freely allocated to new entrants was the way in which the original NER300 pot was formed. Solvay said, “The ETS is an instrument that must curb emissions at the lowest costs for participants,” echoed by Ineos, a manufacturer of oils and olefins: “The Commission should prioritise protection for industries at risk of carbon leakage to allow EU companies to remain competitive.”
One drawback noted by many of basing the pot size on a number of allowances is that the amount of money it ultimately contains will depend on an unknown quantity: the price at which the allowances are monetised. Eurometaux, repeated by 10 metal producers or their associations, pointed out that the availability of NER300 funding will be inversely proportional to the need for it: when carbon prices are high, this on its own can suffice as the driver of innovation, yet the NER300 pot will be huge. When they are low, the carbon price will not be sufficient, but the pot, if linked to it, will also be too small. USG proposed to deal with very large pots apparently by demanding more technical risk in projects: “The higher the carbon price is targeted to be, the higher the benchmark level should be.”
Support is stronger for the idea of linking the revenues from auctioned allowances to spending on low carbon innovation because this would not reduce the number of allowance available for free allocation. But can Member States be trusted to spend the revenues on ambitious technology programmes? The chemical industry lobbies CEFIC and VNCI think not. They both write, “It is seen as unlikely that Member States will free resources from auctioning revenues due to national budgetary challenges.”
A number of purists responded, opposing any use of the ETS to fund technology programmes and insisting that general taxation be the source of funding instead. This fully insulates the size (and therefore design) of the programme from the vagaries of the carbon market.
Many, from a variety of sectors, called for the future NER300 to be broader in scope:
In which direction should NER300 be broadened? The NGOs can perhaps provide a disinterested view
Swedish Steel Producers´ Association says NER300 payouts should not be reduced or cancelled if the project is built but ultimately does not perform, which is a feature of current NER300 rules that the cement industry (CEMBUREAU + 18) also considers to be a drawback.
Bellona Europa says, somewhat contradictorily, that “a higher share [should be] covered by the EC,” but also “any projects should require a substantial financial or in-kind commitment from industry”. Humberto Delgado Rosa (Director responsible for NER300 in DG CLIMA) speaking at The EU Energy Challenge said that the rules on NER400 were far from being decided and that an increase in the proportion of costs covered could be considered. He is unlikely to go as far as one respondent’s wishes: ‘Marek Kucharski Bełchatów’, writing as a citizen but using an email address of Polish electricity company PGE said grants of 100% of costs should be allowed for CCS. PGE had made the same statement at the SET Plan conference in Warsaw 2011.
The International Association of Oil & Gas Producers and its member Total made an interesting point about CPUP. CPUP was based around the wrong metric for CCS plants: “The criterion should not be the extra cost per tonne of stored CO2, but rather the extra cost per kWh of electricity.”
The paper industry (CEPI + five) said that success in energy innovation “is not so much a matter of budget allocated, but of policy uncertainty.” They were joined by three other Nordic associations/companies. The Swedish Forest Industries Federation wrote, “some of the [NER300 projects] have not been made. This is not due to the amount of allowances used for NER300 but to the low credibility of the European energy and climate policy. To increase the amount of NER300 allowances will not change this. A clear, transparent and stringent policy would mean much more.”
Eurogas: “The direct competition with renewables under NER300 should be reduced and additional funding instruments for low-carbon investments be considered.”
Many said NER300 should be made less complex, but without saying how.
The question of whether CCS is a valuable technology divided opinion as follows. The summary neglects the small number of replies declared to be personal responses.
As part of their deliberations on the EU’s Framework for Climate and Energy 2020-2030, European leaders last night mandated the creation of a successor programme to NER300, “NER400″, which would be “initially endowed with 400 million carbon allowances”. The current programme raised 2.1 bn EUR for innovative renewable energy projects and one CCS project. The next one would raise over 9 bn EUR on the assumption of a carbon price of 23 EUR/tonne. This price is a forecast made in August 2014 by Thomson Reuters for the period 2021-2030.
The European Council wants NER400 to cover “low carbon innovation in industrial sectors” as well as CCS and renewables. A reference to “small projects” has been included in the four lines devoted to the topic in the summit’s Conclusions.
EC (Kerstin) is willing to allow projects flexibility on the requirement to generate at least 75% of the energy they bid to generate in their first five (10 for CCS) years of operation in order to get 100% of their Award.
She said, “If a majority of projects find that, 2-3 years after their entry into operation, they are not on track to generate 75% of the amount they bid for technical reasons, the EC might be prepared to look again at the rule.”
EC proposes an annual NER300 conference in Brussels every autumn to showcase funded projects. Also (Andreas): EC presentations at “conference like EWEA or the biomass conference” and “this year there will be presentations at the SET Plan conference in Rome (10-11 December).”
EC confirms (Kerstin): “The MS is still liable towards the EIB to repay the money.”
If the RC are less than the ones quoted in the application, the EC may need to reduce the award. EC (Lorenzo): “We are confident that the relevant costs as identified at the time of the selection process [i.e. quoted in the application] are the ones that will apply at FID.”
EC (Kerstin): “Up to half of projects in the first call would have not been able to reach FID and therefore would have lost entitlement to their Award if we had not extended the deadlines“.
The EC is prepared to be flexible in the reporting deadlines as these are “not laid down in the Award Decision”. The questioner used the example of a national grid operator that fails, by the start of Year N+1, to report the electricity fed into the grid in year N. This info is necessary to calculate the NER300 award disbursement to the project.
Amendments to Award Decisions collected throughout the year by EC, EC bundles them into one leglislative procedure done once a year. Suggestion that a deadline might be March for the procedure completed by June.
DG CLIMA will hold a ‘Second NER300 Information Event’ on NER300 on 20 October. The invitation and programme sent to the Member States is here.
The morning session will be taken up with a series of presentations similar to those given to First Call awardees and their host Member States on 10 April 2012. One difference will be that the thinking on ‘Knowledge Sharing’ obligations is now much more advanced than it was in 2012, with DG CLIMA having published (here) the templates of Knowledge Sharing collection forms and preliminary details of the techniques it will use to obfuscate the knowledge shared. Also key deadlines have been extended.
Five representatives from associations linked to CCS, wind, ocean energy and biomass and one NGO have been invited to join in the afternoon for ‘Session II: Exchange of experiences and views on NER 300′. DG CLIMA took the position that only renewable energy associations representing particular technologies are eligible to attend, as opposed to associations having a more general view. No webstream will be available.
The renewable energy associations will push for another NER300-type programme, beginning before 2020 if possible.