The text of the NER300 Decision now having become available, NER300.com is in a position to offer further commentary on the new provisions.

A key change that will affect the ranking of renewable energy and “distributed renewables management (smart grid)” project proposals is the way in which the cost of the project is assessed. Before Tuesday’s meeting, the ranking would have been affected by the total cost of the project net of subsidy from market support systems like feed-in tariffs or the selling of green certificates. Now total cost is the cost before these subsidies are taken into account. This means project developers are less constrained in their choice of where to site their project. If Member State support happens to be miserly in their chosen location, then – within the limits set out in the relevant State Aid Guidelines – the project’s business plan can assume whatever support is necessary from NER300 for it to be adequately profitable, without the project being penalised in the rankings. 40 MW of innovative photovoltaics on the Black Sea, anyone?

But if NER300 funding is oversubscribed, a consequence of this change is that the procedure for striking proposals from the “RES Group” list for having a total cost / MWh that is too high is now blind to the intrinsic differences in cost and maturity of different categories and subcategories of technology. Whereas a definition of total cost that is net of market support schemes would be one that allows for intrinsic differences (since these are compensated for by greater support from feed-in tariffs and green certificates), the new system does not. 6 MW wind turbines are safe from deletion. 10MW of ocean thermal energy conversion will probably only be selected by virtue of the need to ensure “technical balance”.

The changes to the subcategories, bringing the total of renewable energy and “distributed renewables management (smart grid)” projects up to 34 from 30 are:

• Bioenergy
  • Lignocellulose and/ or household waste to biogas, biofuels or bioliquids via chemical and biological processes with capacity 6 mio Nm3/y (million normal cubic metres per year of Methane) or 10 Ml/y (million litres per year) of the final product
  • Lignocellulose to electricity with 48% efficiency based on lower heating value (50% moisture) with capacity 40 MWe or higher
  • Lignocellulose to Synthetic Natural Gas or synthesis gas and/ or to power via gasification with capacity 40 M Nm3/y (million normal cubic metres per year) of the final product or 100 GWh/y of electricity
  • Lignocellulose to biofuels or bioliquids and/or to power including via directly heated gasification with capacity 1540 Ml/y (million litres per year) of the final product or 100 GWh/y of electricity. Production of Synthetic Natural Gas is excluded under this sub-category
  • Lignocellulosic raw material, e.g. black liquor and/ or products from pyrolysis or torrefaction, via entrained flow gasification to any biofuels with capacity 40 Ml/y of the final product
• CSP
  • Large-scale Stirling dish power plants with solar to electric efficiency of over 20% and nominal capacity of at least 25 MW
• Ocean
  • Ocean thermal energy conversion (OTEC) with nominal capacity 10 MW

The Member States’ amendments negotiated last night have improved the NER300 text.

Increasing the maximum number of projects per Member State from two to three gives more leeway to project developers to site their installations in the places they prefer (their preferences being based on considerations like profitability, familiarity with the market and permitting procedures). It would still, however, have been far better to have ensured the maintainence of “geographic balance” through consideration of the source of components for the installations. Most of the value generated by the renewable energy industry is found in the manufacture and sale of technology, since operating and installation costs, for many technologies, are relatively low. The spoils from taxing the production and sale of manufactured equipment and the benefits of employing people in maunfacturing jobs are what the MS should have sought to share around. Also, sourcing from different locations could have been relatively easy for project developers.

The renewable energy community is disappointed that an idea circulated to the Commission and Member States on aligning the definition of “transboundary” renewable energy projects with “Joint Projects” as defined in Article 7 of the Renewable Energy Directive has not been taken up. This would have provided a greater opportunity for renewable energy projects to exploit the exemption from the geographic balancing procedure that the “transboundary” categorisation allowed, and would have avoided inconsistency between the two pieces of legislation.

It is a great relief that the highly suspect “matching funding” provision of Article 2 (3) of the draft Decision has been removed. It would have required Member States to raid their budgets if they wanted to fund an NER300 project. It is better to leave the contribution of Member States undefined since this increases the chances that projects, including renewable energy projects, can go ahead.

“NER300 is still a messy, political instrument of far greater complexity than the Framework Programme or the EEPR,” said Greg Arrowsmith, Director of NER300.com, “but the Commission cannot take all the blame for this. Its room for manoeuvre was constrained by the original wording of Article 10a (8) of the revised Emissions Trading Directive, which failed to recognise the contradiction between awarding money to renewables projects as they operated (which means the money is only available once the developer or a third party has taken on the liability of constructing his installation) and requiring them to be ‘innovative’, i.e. take a risk.”

Annex I A II of the draft Decision has been updated to include 4 more new projects in renewable energy adding to the 30 renewable energy or grid integration projects already there. The suggestions from Denmark and Sweden (see post below) are likely to relate to biomass, with at least one of the two projects they added relating to second generation biofuels. France, which was interested last year in funding more photovoltaic energy projects, including BIPV, also negotiated an extra project. [CORRECTION: the project is in ocean thermal energy conversion in Île de la Réunion] Cyprus, Ireland and Portugal jointly proposed a project on concentrating solar power: 25 MW of Dish-Stirling capacity.

A concern felt by many Member States that the “capacity thresholds” (the minimum sizes of the Annex I A II installations) were too high has been addressed at the same time as their reservations on the Commission’s proposed mechanism for guaranteeing “geographical balance”. NER300.com’s understanding of the solution is as follows:

1. Identify, among all the projects a Member States proposes, which are above the capacity threshold and which fall below.
2. Identify, for each subcategory, the project among all those received from the Member States that is above the threshold and has the lowest NER300 funding requirement / energy output (or, for CCS stored CO2). The lists that result for the CCS categories and renewable energy / grid integration categories are called the “CCS Group” and “RES Group” respectively.
3. If a Member State is absent from the RES Group or CCS Group, look, within the MS’s proposed set of projects, for one that is above the threshold.
4. Kick out a project from the RES Group / CCS Group providing doing so does not kick out another Member State’s only project, replacing it with the “absent” Member State’s project.
5. If that process would kick out an MS’s only project, and so would all the “absent” Member State’s projects that meet the threshold, then choose a project from below the capacity thresholds in the “absent” Member State’s list and replace an above-threshold project with it.

The Member States and Commission reached agreement last night on implementing NER300. The headlines are:

• Up to 3 projects can be funded in each Member State, with each Member State getting at least one project.
• Matching funding requirement has been ditched. Germany’s wording that NER300 could provide up to 50% of “relevant costs” has been adopted.
• 4 new renewable energy categories have been added, proposed by France, Sweden, Denmark, and one category proposed jointly by Ireland, Cyprus and Portugal.

The text, with these amendments, was voted unanimously by the Member States. [CORRECTION: The latest information is that Poland voted against and Spain abstained. So did either Hungary or the Czech Republic.]

An e-mail that circulated on Friday 29 January suggests that the UK, Poland and France have lifted their objections to the Commission’s draft Decision implementing NER300, leaving Germany increasingly isolated.

Germany has insisted that NER300 allowances should be shared out between the Member States according to their emissions (technically, according to Art 10 (2) of the revised Emissions Trading Directive 2009/29/EC). Each Member State would propose to the Commission a list of projects commensurate with the funding available to it, and the Commission would pick projects from it. With 60 million of the 300 million allowances, Germany is the country with the greatest entitlement to allowances if they are handed out in this way. Poland would be next in line with 36 million.

The e-mail also claims that the Commission will scrap its unpopular requirement that each euro of NER300 money must be matched with a euro from Member State treasuries. This will be negotiated by DG Environment in tomorrow’s meeting.