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Looking behind the investments in renewables

The ambitious targets of the European Green Deal, including the commitment to decarbonise the continent by 2050, are founded on a mature and competitive renewables industry. The large-scale deployment of cost-competitive renewable energy capacities has to potential to unlock vast opportunities for European industries.

The European Green Deal Communication emphasised the need to develop, by 2050, a power sector “that is based largely on renewable sources, complemented by the rapid phasing out of coal and decarbonizing gas.”

The targets are set high, however, and the future of the renewables industry is dependent on many factors. A report published by Dentons and BloombergNEF, analysing the prospects of renewable energy projects around Europe, concluded that state action, for example, in the form of renewables support auctions, remains the key. However, the tasks facing governments and regulators are multiplying and becoming more complex, particularly as decarbonisation becomes as much a matter of industrial policy as of energy market regulation.

Potential technological game-changers like the mass adoption of electric vehicles or green hydrogen production also have a transformative impact on the economics of many projects. As well as the growing end-user demand for renewable energy in many parts of Europe.

The country-level analysis of the report shows that there are still many places in Europe where it is harder than it should be to develop and integrate the new renewable capacity into national power systems. Notwithstanding falling technology costs, in most of the countries surveyed the report found that it is the availability of subsidies that remains the major determinant of how much new development activity is underway.

However, renewable investments and support schemes vary from one country to another, which is also true in the case of Central-Eastern European counties examined in the report. In the Czech Republic, a fresh wave of incentives is expected to be introduced in 2021 after growth in the share of RES has been stagnating in recent years.

Photovoltaic power generation is the key driver of increased renewables capacity in Hungary and the newly formed RES subsidy scheme contributes largely to keep the prominent role of solar power. With the extension of the Paks power plant already underway, Hungary expects nuclear energy to play a significant role in the country’s clean energy policy as well.

The Polish renewables market saw a number of positive regulatory and legislative developments stimulating growth. As a result of the 2019 auctions, a total of 77.84 terawatt-hours (TWh) of RES electricity was contracted for delivery in the period 2020–2037 for a total price of 16.23 billion złotys (3.58 billion euros). At the same time, investments in financing and constructing onshore wind farm projects without auction support also took off. There is also a political consensus on the development of large-scale offshore wind projects in the Polish part of the Baltic in the upcoming year.

Romania still has significant unexploited natural RES resources. The existing RES support system is based on a mandatory quota of green certificates with RES producers required to sell all their electricity production on the organized electricity market operated by Transelectrica’s subsidiary OPCOM. This has resulted in long-term Power Purchase Agreements (PPAs) being scarce and bank financing difficult to obtain according to Denton’s report. However Romanian authorities are considering the reform of the support scheme and the approval of Contracts for Difference (CFDs) regulations could come in 2020.

Slovakia introduced a new auction system in 2019 based on feed-in premiums. However, the report found that the costs of RES support are still estimated to exceed the economic benefits it brings. Nuclear energy with 54 per cent share in electricity production is to remain the dominant source of electricity in Slovakia.

The year 2019 saw a dynamic growth of the RES market in Ukraine and a rush to commission projects by the end of the year as feed-in tariffs for wind and solar reduced substantially from 2020. Due to the rapidly increasing output of RES facilities essential technical solutions such as new generating facilities, energy storage capabilities need to be implemented to enable the Ukrainian power grid to balance variable RES.

Finally, the report shows that the state of the renewable market and incentive mechanisms, consequently the energy and climate transition, are different from country to country. It is also important to note that for many countries in the region the phasing out of coal remains a central challenge. In Central Eastern Europe renewables still need more infrastructure for integration, along with incentives and support but there are already signs of positive changes that will drive the transition of the regional energy market.

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