Political Framework Conditions - Wind Energy

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Overview

Country-specific conditions for the development of wind energy projects are based upon the policy framework conditions prepared by national or regional governments. The financial feasibility of any wind energy project proposed to sell electricity to the grid depends on the available framework conditions for support. Inadequate or non-existent framework conditions often form crucial barriers impeding the exploitation of available wind energy potential. Despite macroeconomic benefits which can arise when the supply situation and environmental factors are taken into account, it can happen that a large number of investment projects are not translated into reality. In many countries accompanying government measures supporting the development of wind energy do not exist. Without any security about selling prices, feed-in tariffs, possible tax rebates or assistance for capacity building it is hard to create sufficient security for large investments as required for the development of a wind park.

Strategies and Support Mechanisms for Wind Energy - Types of Instruments

There are different types of instruments available to support renewable energy projects and these range from direct to indirect policy instruments. Direct policy measures (such as a Renewable Energy Feed-in Tariff (REFIT)) aim to stimulate the installation of renewable technologies immediately, whereas indirect instruments focus on improving long-term framework conditions. Besides regulatory instruments, there are other approaches for promoting and supporting renewable energy, primarily aimed at removing the barriers which limit investments in renewable energy such as lack of information, lack of skills, limited research and development, inadequate regulatory structures, and limited incentive programmes. The different types of strategies and supporting mechanisms are detailed below.

Incentives

Renewable energy incentive programmes assist in establishing a competitive self-sustaining renewable energy supply while increasing the quantity of renewable energy generated countrywide. There are a range of incentives that can be used such as:

• direct subsidies from the government in the form of capital grants;
• fiscal incentives such as tax rebates for project developers and consumers or tax exemptions for the importation of renewable energy technology/equipment;
• investment incentives which encourage the participation of national and international financiers;
• incentives that promote public-private partnerships to increase the use of renewable energy technologies; and
• power production incentives

Institutional Support

Clear, long-term legislation and policies that support renewable energy have a critical role to play in building investor confidence, and in ensuring the sustainable growth of the renewable energy sector. A renewable energy bill for instance, would be designed to complement a broader suite of initiatives such as existing government programmes and other new laws that might be put in place such a green procurement law (which could include renewable energy use as one of the criteria). Other forms of institutional support can come in the form of infrastructure and planning regulations such as building codes which could treat renewable energy projects as “privileged” or “special” projects where local authorities are required to designate specific priority or preferential zones for renewable energy utilisation.

Information Portals

There is often a lack of clarity by both developers and also key institutions as to how to get projects moving, especially with regard to the many legal and regulatory requirements at both a local and national level. In order to encourage, support and facilitate the development of renewable energy projects, in many countries institutions have been established at both local and regional levels to provide a variety of functions, from providing basic information to developers, through to actively engaging and assisting developers in submitting projects to the relevant authorities, or even processing applications.
Such an institutional entity, often referred to as a one-stop shop, is aimed at providing the necessary information and support required by developers and financiers. The one-stop shop could either exist simply as an information portal or it could actually take a proactive approach to assist developers navigate the complicated licensing and permit requirements. Probably these services and functions may not be required by all developers, especially the larger developers who would have much greater internal infrastructures to develop projects, however the aim is to provide a range of services and information to a wide range of clients based on the needs of those clients.

In some cases one-stop-shops have been incorporated into existing organisations; in others dedicated organisations have been established. The form of these agencies differs by location. In most instances they are national energy agencies nested within government ministries, in others they are located within local economic development agencies.
In the Mediterranean a number of countries have formed a regional body, called the Mediterranean Renewable Energy Centre (MEREC) which is geared not only towards investors but aims to develop regional competencies through the dissemination of information, training of staff, and technology transfers. In the United States a more general national body oversees developments
within the field but, on a lower level individual states run one-stop shops or independent agencies which among other activities market local investment opportunities in renewable energies.

Industry Development

Industry development is an important aspect for both regional and national growth. It is important for provincial governments to do what they can to help promote a successful industry covering everything from actual raw materials to developing and financing projects to consulting and other ancillary services associated with a thriving regional renewable energy market. A proactive approach to renewable industry development will not only create jobs and revenues, but it will also help in long-term development of the region and importantly assist in energy security and independence.

Incorporating industry development is an integral component to a successful regulatory action plan to help foster the growth of the renewable energy market and help the region achieve its goals of clean energy capacity. There are many aspects to industry development beyond actions such as tax incentives/relief and relaxing licensing requirements to attract businesses. As part of a comprehensive industry development plan it is important to assist and incentivise the establishment of industry or trade associations. Industry associations or trade groups can help bring a unanimous voice to renewable energy related businesses in the region, which can help policymakers identify pros and cons of regulatory legislation and identify what steps need to be taken in the future to help reform or develop the market. In addition, trade associations can help with shaping public opinion to assist in the market growth.

Also, of importance to stimulate the industry is research and development. It is an important task for energy related ministries to support local university and institutes through research grants, funding of research projects and channelling public funding to secure intellectual property (IP) rights. Government could help develop or actively participate in both provincial and national level research advisory committees working on the identification of important research needs of the different regions of a country.
One of the most direct supporting mechanisms for renewable energy industry development is training and capacity building. Capacity building could be done through trade associations, workshops, training programmes, or partner with international and non-governmental organisations that assist countries with these types of activities.

Project Financier and Developer Matchmaking

An additional support mechanism to help facilitate the development of renewable energy projects is a platform where developers and financiers could be made aware of each other. Situations in the market do arise when financing institutions or agencies are looking to invest in renewable energy project developers that have identified project opportunities and successfully completed a number of prerequisites, e.g. site location, REFIT approval, and/or Environmental Impact Assessment (EIA). Likewise, there are also project developers who have identified renewable energy project opportunities and require some level of structured finance.
A platform where financiers and developers could exchange information about their needs and opportunities could prove to be invaluable in facilitating the development of renewable energy projects and the market. In addition, such a platform could host information regarding international organisations, NGOs and/or charities that are looking to finance clean energy projects or particular steps, such as EIAs, stakeholder consultations, feasibility study, etc. A platform such as this could be hosted by the renewable energy project one-stop shop. A project developer and financier forum could be hosted on the website that will be developed for the one-stop shop. It could have the contact details of all those developers that have identified renewable energy opportunities, as well as a list of local, national and international companies, NGOs and organisations that are willing to fund projects.

International Examples

United States – Texas

In the State of Texas the renewable energy sector (primarily wind) has grown over the past two years with over 3,900 MW of installed wind generated electricity. In 2007 alone there was a record of a Gigawatt of wind electricity installations.The Department of Energy (DOE) reported wind to be the fastest growing renewable energy technology, which had grown by approximately 45 percent. The growth was due to a strong demand, investment of private capital and support from federal and state governments using various incentives.
Incentives are seen as a means of supporting renewable energy technological developments and to help reduce the up-front capital expenditure of investing in renewable energy systems. There are a variety of incentives which reduce costs by means of tax exemptions, funding for project implementation, and feed-in-tariffs. The goal is to make wind energy more cost-competitive against traditional fossil fuelled generated electricity. In Texas there is a franchise tax exemption for manufacturers, sellers, and installers of renewable energy systems. A franchise tax is a tax levied by some US states for corporations, which is based on the number of shares that are issued or in some instances, the amount of their assets. Business owners can deduct the total cost of the system from companies’ taxable income. Texas also has 100 percent property tax exemption for the appraised value of the site which has a wind and solar energy generating system. These tax exemptions are all part of the Texas Tax Code.
Another form of tax incentive is the Federal Renewable Electricity Production Tax Credit. Production tax credits (PTCs) allow companies that invest in renewable energy generation to write off or deduct their investment against other investments they make. The tax deductions from the PTC allows for ¢2.1 credit per kWh against corporate income tax for electricity generated during the first 10 years of wind power operation. This PTC is regarded as an important incentive for wind growth as it encourages private investment in wind energy projects.
Another example of an incentive provided by federal and state governments would be grants, such as the United States Department of Agriculture (USDA) Renewable Energy and Efficiency Program. This Program provides grants and loan guarantees for use by farmers, ranchers and small rural businesses that invest in renewable energy and energy efficiency projects in rural areas.

Germany

In 2006, renewable energy in Germany rose by 12 percent of the total electricity generated. These figures saw a turnover of €11.3 billion from the erection of clean power plants and €10.3 billion from the operation of the plants, as well as creating approximately 214,000 jobs and preventing 101 million tonnes of CO₂ emissions.
The wind sector in Germany has developed to become a world leader – Germany has more electricity generated by wind than any other country in the world. The first incentive seen in Germany promoting wind generation was started in 1989 by an incentive known as “100 MW of Wind” created by the Ministry of Research and Technology. Under this programme wind projects were paid a subsidy of €0.04 per kWh generated. In addition any project that was given a subsidy had to disclose the turbine and wind farm’s performance. This coupled financial incentives with a research project that would help to lay the foundation of future technological developments and planning policies. This incentive proved popular and a year after its inception the quota was increased to 250 MW. A small-scale feed-in-tariff was introduced as part of the Electricity Grid Feed Act, which saw producers receiving €0.0849 cents per generated kWh and focused mainly on coastal areas with turbines ranging in size from 20 to 150 kW output.
Figures put out in 2008 by the German Wind Energy Association (BWE) shown that Germany had an installed capacity of 22,247 MW generating 37,525 TWh of clean, wind powered electricity were in operation by the end of 2007. The impressive take-up rate of wind energy in Germany is due to strong support mechanisms, such as the Renewable Energy Sources Act (EEG). The EEG was implemented in 2000 to replace the previous Electricity Grid Feed Act. The core element of the EEG legislation was to impose a priority purchase obligation, i.e. the grid operators were obligated to connect renewable energy producers regardless if they are utilities, businesses or private residential households to the grid. This was done so that renewable energy became the priority source of electricity above any other source. Potential consequences of this Act might be that conventional fossil fuelled power sources would have to reduce their generation to accommodate for clean energy being fed into the grid. This also saw increased investor security in renewable energy and ensured that every unit of renewable energy would be sold. Germany has focused on installing some of the most powerful wind turbines in a given area as possible. Due to improvements in technological development of wind turbine design, which includes larger and more efficient wind turbines, Germany is able to maximise each site's potential for installed capacity.
Another government support mechanism took the form of a Market Incentive Programme for renewable energy (MAP) which was implemented in 1999. Intended to support solar power generation for the residential homes market the Federal Office of Economics and Export Control (BAFA) incentivised investors both private individuals and small-to-medium sized enterprises with grants for investments in solar thermal energy projects. Larger enterprises were eligible for reduced interest rate loans that were available specifically for renewable energy systems. In 2003 €203 million was made available by the German Government for clean energy projects and has grown to €350 million by 2008.
Through these various incentive mechanisms helped Germany achieve more than 10,000 MW of installed wind power capacity as early as 2002. In addition by 2006, the wind energy sector alone contributed to €5.64 billion in revenues to the market total of €10.3 billion. Also the wind energy market was employing 73,800 people out of a total of 214,000 employed in the German clean energy market. It is quite clear that with good market support mechanisms and strategies Germany was able to become a world leader in the wind energy market in a relatively short period of time.

Further Information

• Wind Energy - Introduction
  
• Wind Portal on energypedia
  
• cp. also: Politische Rahmenbedingungen für Windenergie in Entwicklungsländern einschließlich Schwellenländer aus Sicht des BMZ Franz Marré. Leiter des Referats Wasser, Energie, Stadtentwicklung. Bundesministerium für wirtschaftliche Zusammenarbeit und Entwicklung. 2008, link here.