The EU’s ambition to “become the world number one in renewable energies” gained additional support by the success of the UNFCCC COP21 conference in Paris…

…at the end of 2015 resulting in 195  governments agreeing on a new international climate treaty. One of its aim is “to achieve a balance between anthropogenic emissions by sources and removals by sinks of greenhouse gases in the second half of this century.” This global agreement signals a global transformation away from a fossil-fuel based economy and an increased level of political commitments worldwide.

The European Commission clearly confirmed its political will already in the February 2015 Communication on the Energy Union signalling “a fundamental transformation of Europe‘s energy system” away from the current centralised conventional energy system, based on fossil fuels and nuclear. The communication paves the way for “a resilient Energy Union with an ambitious climate policy at its core (…) to give EU consumers – households and businesses – secure, sustainable, competitive and affordable energy”. The Small Hydropower Chapter of the European Renewable Energies Federation (EREF) is deeply involved in the current EU policy and legislation developments concerning the implementation of the 2030 Renewable Energy goals. The European Commission is in the process of developing the Directive proposals for energy market design, energy efficiency as wee as a revised Renewable Energy Directive (including Governance). The European Parliament is debating its position on these issues and will soon vote on their official opinions. The envisaged change from a currently antiquated energy system, tailored to non-renewable, centralised and inflexible production within national boundaries towards a new decentralised system centred on renewable energy and energy efficiency provides new opportunities to further develop the EU small hydropower sector – a sector which currently provides renewable electricity to more than 13 million households and thus helps avoiding of around 29 million tons of CO₂. Next to a robust 2030 governance regime enshrined in legislation, the new market design will determine whether the energy transformation in Europe is achieved in the most cost-effective manner.

FOSSIL AND NUCLEAR POWER GENERATION’S SUPPORT IS OFTEN NOT VISIBLE
In this respect, EREF’s Small Hydropower Chapter advocates for an increase of flexibility of energy production, the focus on regional and decentralised energy production and consumption, a strengthened European interconnectivity, the existence of a fully functioning intraday and common balancing market, and the empowerment of consumers. Capacity-markets and mechanisms should be abolished and retrospective and retroactive measures as well as moratoria against existing renewable energy projects should be forbidden through future legislation. In order to make full use of the potential and benefits of the small hydropower sector, continued national renewable energy remuneration mechanisms and priority dispatch are needed – at least for a transition period until a functioning, fair and liberalized markets including a level playing field between all actors is reached. While the transparency of remuneration mechanisms for small hydropower lays bare the support, fossil and nuclear power generation’s support is often not visible and thus difficult to challenge. Yet, fossil fuels and nuclear continue benefiting from subsidies and their external costs (from current and past activities) that befall taxpayers and society, are seldom included in power price calculations. According to fact sheets from the International Energy Agency (IEA), the global cost of fossil-fuel subsidies alone increased to $544 billion in 2012 despite efforts at reform. Financial support to renewable sources of energy totalled $101 billion. An Ecofys study for the European Commission on electricity prices, costs and subsidies demonstrates that the fossil fuel industry is the biggest beneficiary of public support in the EU.

INVESTMENTS IN NEW SHPP SUFFERFROM A NON-FUNCTIONING ETS
The European Commission, within the framework of the 2001/77/EC Directive on the promotion of renewable electricity as well as in the 2009/28/EC on the promotion of renewable energy outlined as reason for the necessity for support for renewables the clear distortion of the energy market due to significant subsidies to the incumbent sector. Among others, this leads to a current conventional overcapacity on power markets throughout the EU which hinders investments in new small hydropower sites. It also does not provide incentives for flexibility options and business models. In fact, the current framework effectively acts as a cap for renewables deployment limiting Europe’s ability to transformation to a decarbonised power sector. Furthermore, external costs of energy are not internalized. This hinders an objective comparison between prices of power generation from small hydropower with those of other energy sources, especially fossil fuels and nuclear power. Internalizing external costs such as safe disposal of nuclear waste or greenhouse gas costs of coal fire plants would reveal how expensive these assumed cheap forms of energy actually are. Investments in new small hydropower plants also suffer from a non-functioning EU Emissions Trading System (ETS). Normally, this system should reflect the “true” costs of greenhouse gas emissions and thus reduce conventional overcapacity. However, the current very low carbon price is unable to incentivize any renewable investment. Consequently, national remuneration mechanisms need to fill this role in the meantime. EREF’s Small Hydropower Chapter regards national remuneration schemes as a prerequisite for a stable and credible framework condition to foster a continuous deployment of small hydropower sites. This schemes need to build on a robust governance mechanism anchored in EU legislation.

ELECTRICITY PRODUCED FROM SHPP SHOULD BE THE FIRST TO BE SOLD
Equally important for the prosperity of the small hydropower sector is a continued guaranteed access for plant owners to inject their electricity into the grid whenever this becomes available (priority dispatch). As with national remuneration mechanisms, priority dispatch for small hydropower needs to be continued until over-capacity from nuclear and coal as well as harmful capacity markets are phased out and full internalization of externalities from coal and nuclear on the energy price is ensured and emission trading works. Once the installation is in place, electricity from small hydropower is produced at almost zero short-run marginal costs as most renewable energy sources are available for free (when not taxed). In theory, electricity produced from small hydropower plants should be the first to be sold on the market and to be taken up by the grid. However, grid constraints may prevent this from happening. Some inflexible power generators (mostly nuclear and coal) can take hours or even days to ramp their production down in case of non-emergency situations and if network issues arise. It therefore appears much cheaper and simpler to scale down renewable energy generation than inflexible power plants. This is in contradiction with the principle of giving priority to renewables as guaranteed under the current renewable Energy Directive. EREF consequently calls for structured phase out plans for ageing nuclear and coal capacity in the various Member States and suggests using dedicated structural fund regulations as financing tools. Former industry structural changes such as in the shipbuilding and coal mining sectors could be used as model. EREF and its Members will determine whether the path of the European institutions is ensuring that Europe gets back on track in renewables and fulfils President Juncker’s promise of Europe being Number 1 in Renewables. If you want to finically support and/or actively contribute to the policy campaign of the Small Hydropower Chapter, please contact Dirk Hendricks (dirk.hendricks@eref-europe.org). You can find detailed position papers and background information on EREF’s website (www.eref-europe.org).