Encouraging results from technology but worrying policy developments

The SCIS team is advancing in the collection and analysis of technical and financial data for a number of projects. While the technical results show promising outcomes, with monitoring data showing even greater impacts than expected, the policy developments have not been positive.

In these last few years, several Member States abruptly reformed negatively their policies in the area of renewable energy, namely Spain, Czech Republic, Bulgaria, Poland, Romania and Italy. Changes can be on subsides such as feed in tariffs, but may also be linked to permits. The reforms have not only hurt established energy producers, but also innovation projects under Horizon 2020.

One of those most affected has been the Spanish demonstration site of the DIRECTION project. DIRECTION has showcased successfully integrated energy efficiency and renewable energy technologies in its German and Spanish sites, facing, however, very adverse policy conditions.  

While technical results show a clear improvement in energy efficiency and renewable energy generation, changes in legislation have damaged the efficiency and financial viability of the Spanish demo site. The feed in tariffs for renewables have been transformed into the equivalent to taxes in three legislative changes (2010, 2013 and 2014). The first reform reduced the level of subsidies, the second abolished the feed in tariffs, replacing them by a remuneration based on a government estimated ‘reasonable profit level’, calculated according to their installed capacity investment cost and their operational and maintenance costs, rather than on their production. In addition, renewables pay an access toll to the grid. The 2014 reforms introduce a competitive bid system in order to obtain the right to the remuneration mechanism, but there is no commitment by the Government on the number of MW or when these bid processes will be called. These changes have introduced uncertainty in the market.

The new tariff structure and access toll have obliged the project to avoid connecting to the grid, and their combined effect resulted in a net loss. As the buildings have no energy storage capacity, it was necessary to install regulators on the panels in order to limit electricity production, which means losing energy and revenue. An attempt has been made to divert some of the extra energy to other uses, such as making sure in advance that the building will not overheat during the summer. The viability (payback period) of the project has nevertheless been greatly affected by the policy reforms, showing the sensitivity of new technologies to policy. The impact has been relative, as the energy savings have been superior than expected, thus the 21,5 years’ payback period in the design have been reduced from actual results monitored to 17,1 years. Had the legislation not have changed, the results would have been even better. Had the law been clear before the start of the project, some costs of photovoltaic installations could have been avoided. 

Another example of the damage to innovation local regulations can have has been the case of the Italian DIRECTION site in Bolzano, where complex tendering procedures led to several appeals against the award decisions. The lack of a solid procedure and well-functioning legal system led to long delays and the subsequent cancellation of the project. It may become a follow-up project nevertheless.  

For information on different regulatory and institutional barriers, please see the Policy and Finance section of our website.

For more information on the damaging aspects of policy change, please consult the CEPS publication on the topic.