GUARANTEES OF ORIGIN AND MULTIPLE COUNTING OF ELECTRICITY FROM RENEWABLE SOURCES

Transcription

1 September 2004 ECN-C GUARANTEES OF ORIGIN AND MULTIPLE COUNTING OF ELECTRICITY FROM RENEWABLE SOURCES RE-GO phase 3 report M.A. Uyterlinde (ECN) J.C. Jansen (ECN) N.H. van der Linden (ECN) C. Vrolijk (IT Power) J. Green (IT Power) C. Timpe (Öko-Institut e.v.) V. Bürger (Öko-Institut e.v.) F. Rivero Garcia (IDAE) G.P. Yerro (IDAE)

2 Preface The study presented in this report covers part 2 of Phase III of the Renewable Energy- Guarantees of Origin (RE-GO) project carried out in the framework of the EU Altener Programme. The report was prepared jointly by ECN Policy Studies, The Netherlands, Oko-Institut e.v., Germany, IT Power, United Kingdom and IDAE, Spain. The report is registered under project number and can be downloaded from the RE-GO project website ( or the ECN website ( Abstract The Renewable Energy Guarantee of Origin (RE-GO) project is part-funded by the European Commission through the Altener Programme. The project assesses the systems for Guarantees of Origin for renewable electricity, which EU Member States have been required to have in place from 27 October RE-GO aims to: assess the interaction between Guarantees of Origin and energy policies in Member States, make recommendations on how to avoid fraud and multiple counting, assess the use of Guarantees of Origin as a tracking tool, help share experience and information on approaches used in Member States. This report is one in a series of four and reviews the problem of multiple counting. This problem may occur when the tracking systems in place are not comprehensive, or systems are not harmonised across borders. The report identifies Member States experience with multiple counting, describes the existing and potential multiple counting problems, and makes recommendations on how to prevent multiple counting. 2 ECN-C

3 CONTENTS LIST OF TABLES 5 LIST OF FIGURES 5 SUMMARY 7 1. INTRODUCTION MULTIPLE COUNTING: A THEORETICAL FRAMEWORK Introduction Multiple counting: definition and classification of occurrences Criteria for identifying undesirable multiple counting events GO applications and multiple counting Applications by private sector entities Applications by government authorities Other applications Scheme for analysing multiple counting in the country case studies MULTIPLE COUNTING POTENTIAL IN GERMANY Introduction The mechanism of the feed-in law in Germany Implementation of the Guarantee of Origin in Germany Multiple counting potential Multiple use of an individual GO Parallel use of GO and other certificates Multiple issue of GO for the same kwh Unintentional or fraudulent errors Verification of compliance with RES-E targets Overview of multiple counting possibilities Solutions MULTIPLE COUNTING POTENTIAL IN IRELAND Introduction Multiple counting potential Multiple use of an individual GO Parallel use of GO and other certificates Multiple issue of GO for the same kwh Unintentional or fraudulent errors Separation of any environmental attribute from a GO Overview of multiple counting possibilities Solutions MULTIPLE COUNTING POTENTIAL IN THE NETHERLANDS Introduction The situation before 1 July The situation as from 1 July As per 1 January 2004 Guarantees of Origin have been introduced instead of green certificates Multiple counting potential Multiple use of an individual GO Parallel use of GO and other certificates Multiple issue of GO for the same kwh Unintentional or fraudulent errors Verification of compliance with RES-E targets Overview of multiple counting possibilities Solutions 34 ECN-C

4 6. MULTIPLE COUNTING POTENTIAL IN THE UK Introduction Multiple counting potential Multiple use of an individual GO Parallel use of GO and other certificates Multiple issue of GO for the same kwh Unintentional or fraudulent errors Separation of any environmental attribute from a GO Overview of multiple counting possibilities Solutions CONCLUSIONS AND RECOMMENDATIONS Minimum compliance Multiple issue of GO for the same kwh Multiple use of an individual GO Parallel use of GO and other certificates Unintentional or fraudulent errors Advanced implementation Multiple issue of GO for the same kwh Multiple use of an individual GO Parallel use of GO and other certificates Unintentional or fraudulent errors by GO tracking system operators Policy integration Harmonisation Recommendations to prevent multiple counting 43 REFERENCES 45 RE-GO TERMS AND ACRONYMS 46 4 ECN-C

5 LIST OF TABLES Table S.1 Multiple counting potentials under different implementation strategies 11 Table 2.1 Scheme for the classification and analysis of multiple counting issues 20 Table 3.1 Overview of the multiple counting possibilities for GO in Germany 25 Table 4.1 Overview of the existence of multiple counting possibilities in Ireland 28 Table 5.1 Applications of GO in the Netherlands, mid Table 5.2 Overview of the existence of multiple counting possibilities in the Netherlands 34 Table 6.1 Overview of the existence of multiple counting possibilities in the UK 37 Table 7.1 Possibilities for multiple use of GO under a minimum compliance implementation 40 Table 7.2 Overview of multiple counting potential in different implementation models 43 LIST OF FIGURES Figure 3.1 Allocation mechanism for the EEG electricity 22 ECN-C

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7 SUMMARY The Renewables Directive 1 requires Member States (MS) to recognise Guarantees of Origin (GO) exclusively as proof that the underlying electricity was produced from renewable energy sources. In practice, GO may be used for a number of different applications, ranging from claiming a feed-in tariff, supporting electricity disclosure and as a useful tool for tracking attributes from renewable electricity. These applications are in line with the objective of GO as stated in the Renewables Directive, to facilitate trade in electricity produced from renewable energy sources and to increase transparency for the consumer's choice. However, the interactions between GO and these applications may also cause a number of problems. These problems are highlighted in this report, and other reports published under the RE-GO project, and recommendations are given to streamline interactions and facilitate the use of GO. Defining multiple counting The most important problem is that of multiple counting of the renewable energy attributes represented by GO. Indeed, without immediate action to prevent this, multiple counting is likely to occur for a number of the possible applications of GO. This does not necessarily constitute multiple counting, and therefore is not a problem for MS implementing GO. However, the use of GO - or the RES-E attributes - for the same purpose more than once, or for different but incompatible purposes, does constitute problematic multiple counting. For the purpose of this report, multiple counting - the occurrence of several uses of RES-E attributes for either the same purpose or for incompatible purposes - is regarded to exist if it is not effectively ruled out, because the actual occurrence of multiple counting may be hard to prove. The following classification of multiple counting occurrences can be given, in which GO represents the GO itself and/or the RES-E attributes represented by GO: multiple issue of GO for the same unique quantity of RES-E, multiple use of individual GO, parallel use of GO and other forms of proof (such as certificates) for the same unique quantity of RES-E, and unintentional of fraudulent errors. Two major criteria, plus a third supplementary criterion, are distinguished for identifying undesirable multiple counting: Additionality of the claim(s). As GO represent a unique quantity of RES-E, multiple applications may sometimes be interpreted as using the environmental attributes of the underlying RES-E several times, for instance for different customers. In this case, consumers may be under the impression that they pay for new additional RES-E generation while in fact they do not. Therefore this criterion evaluates whether GO claims are in line with the requirement to increase transparency for the consumer's choice in the Renewables Directive. Legality of the claim(s). It could be argued that it is up to the legislator to decide which claims are unacceptable. However, this does not only refer to the legality in the sense of national legislation, but also with regards to the Renewables Directive, which demands accuracy and reliability. 1 EC Directive 2001/77/EC, On the promotion of electricity produced from renewable energy sources in the internal electricity market, 27 September ECN-C

8 Consistency of the claim(s). Is information for different purposes on the production or use of RES-E in a certain region in a certain year consistent? Cases that fail for this information consistency criterion do not necessarily relate to multiple counting, but may for example be caused by incompatible procedures to derive comparable information for these different purposes. 2 The occurrence of such a situation might confuse end users and other stakeholders and could detract from the credibility of either set of data. Three categories of stakeholders are distinguished that may encounter multiple counting, i.e. electricity market participants, end consumers, and MS. This distinction is essential for the identification of multiple counting. The additionality criterion should be applied separately for applications for each of the three stakeholders. For example, use of GO representing the renewable feature of a certain quantity of electricity generated in a specific country in a certain target year both for electricity disclosure and for official RES-E target compliance does not imply as such that the additionality criterion has not been met. However, the separation of applications between these stakeholders is in compliance with the legality criterion, as legislation currently in place at EU and MS level does not consider use of GO for these separate applications to be multiple counting. Applications by market participants Applications by electricity market participants may include: obtaining direct market support for RES-E production, for example preferential feed-in tariffs, feed-in premiums, and quota obligations for generators, obtaining direct market support for RES-E consumption, for example quota obligations for suppliers. Multiple counting by market participants occurs if GO - or the RES-E attributes - can be used more than once for the applications above. 3 Possibilities would be greatly reduced by the introduction of redemption (or earmarking) for specific applications. Additionally, multiple counting may be a problem if several forms of proof exist for the same unique quantity of RES-E generation, for example both GO and certificates. The best remedy is to combine GO with the other form(s) of proof, or to introduce redemption or earmarking of the GO upon issuance of the other form of proof. 4 Finally, multiple counting may occur if multiple GO are issued for the same unit of RES-E. A well-designed and implemented system should rule out this possibility. Indeed, most MS have implemented a system that includes a single issuing body and a central registry, both of which will greatly reduce the possibilities of multiple counting. Applications for end consumers Applications for end consumers may include: accounting for electricity disclosure, green electricity products for end consumers (and for annual environmental accounting by corporate end consumer) which may be supported by green electricity quality labels. In accordance with the Electricity Directive, electricity suppliers have to disclose the breakdown of their portfolio sold to final consumers by generation source, their CO 2 emissions, and nuclear waste production. In principle, this function could be facilitated by GO under a comprehensive GO tracking system for the RES-E share of the suppliers portfolio, or by a comprehensive GO system which includes brown GO. However, if legislation does not explicitly mandate the For instance, the information on the achievements of Member States with respect to official RES-E targets might well be different with the information, generated by electricity supply companies in the framework of electricity disclosure aggregated to MS level. However, some direct support has been designed so as to be part of a system of support, for example, the former Dutch regulation 36i and 36o (see Phase 1 report) being targeted at both the generation and consumption sides. While some MS may have defined their certificate systems as pure financial support systems, thus not including the attributes, this does not aid transparency and is likely to lead to end consumer confusion, e.g. in the UK if ROCs are also redeemed for green electricity products. 8 ECN-C

9 generation period as coinciding with or being part of just one calendar year, this may give rise to multiple counting. Moreover, in the absence of harmonised legislation on the method of electricity disclosure, cross-border GO transfers may lead to multiple counting with GO flowing out of countries where they are not utilised for electricity disclosure into countries where they are used for that purpose. Green washing, or multiple counting in the case of green electricity products, could emerge in the case of suppliers delivering grey electricity to their regular customer base and also running green electricity products. In order to prevent green washing, regular customers should not only receive disclosure information on the overall company electricity mix but also on the electricity delivered to them after catering for the green or (other) special quality products. Mandating green electricity products to be identified purely on the basis of the information given under the electricity disclosure requirement may prevent such green washing. Special attention towards green washing is needed if a supplier is subject to quota obligations, and the regular customers receive an electricity mix that does not meet the quota obligation. 5 Attention is also needed if RES-E receiving feed-in tariffs are not disclosed to the ultimate financier of that tariffs (the end consumer). In any case, supported electricity should be disclosed as being supported. Furthermore, the electricity transmission and distribution losses should be given due attention with regard to green washing. Assigning an electricity disclosure obligation to transmission system operators and distribution system operators for the electricity needed to balance electricity supply and demand might prevent this. Multiple counting through these applications for end consumers occurs if GO - or the RES-E attributes - can be used more than once for one of applications above. Possibilities would be greatly reduced by the introduction of redemption (for electricity disclosure purposes) or earmarking (for other applications). However, rather than only being used for one purpose, if GO are used for green electricity products they should automatically be used for the electricity disclosure requirement for the end consumer of this product. Additionally, multiple counting may be a problem if several forms of proof exist for the same unique quantity of RES-E generation, for example both GO and specific disclosure tags. The best remedy is to combine GO with the other forms of proof, or to introduce redemption and earmarking of the GO upon issuance of the other form of proof. Finally multiple counting may occur if multiple GO are issued for the same unit of RES-E. A well-designed and implemented system should rule out this possibility. Indeed, most MS have implemented a system that includes a single issuing body and a central registry, and as described above, both of these are instruments that would greatly reduce the possibilities of multiple counting. Applications by government authorities The main application of GO by the MS government authorities would be to assist with proving compliance with the indicative target for RES-E as defined in the Renewables Directive. However, GO are not designed to be the principal statistical instrument for RES-E. Under current practice the statistical bureau of a Member State submits domestic RES-E production information to EUROSTAT. This information, verified by EUROSTAT, provides the basic proof for RES-E target compliance. RES-E production data may be: adjusted negatively if GO are transferred to other MS, and the exporting Member State consents that this RES-E can be counted towards the importing country s target by earmarking the GO correspondingly, or 5 The Renewable Obligation in the UK may be treated slightly differently, as the target is set deliberately at such a level that it cannot be met. ECN-C

10 adjusted positively if the MS can show imported GO from another Member State, which carries the respective earmark. However, this practice may yield submission of erroneous or outright inflated RES-E production figures that are not corrected by EUROSTAT. For example, an earmarked GO representing 1 MWh is issued in country A, exported and consumed in country B. At issuance of the GO country A would count 1 MWh towards its target compliance. With the cross-border GO transfer, at the same time country A deducts 1 MWh of RES-E from its tally country B adds it to its respective RES-E compliance record. For this GO application the following cases of multiple counting can be listed: No correct adjustment of RES-E production data in the case of cross-border transfers. For example, a Member State agrees to earmark exported GO and consents to reducing its claimed RES-E target compliance performance correspondingly, but no implementation of the corresponding reduction is realised. For example, one of the countries uses GO for statistical adjustments, while another uses other statistical sources. A GO is used several times as compliance proof by way of creative GO cross-border transfers. The absence of harmonisation of validity periods, compliance periods, and/or accounting date of GO between Member States enables this category of multiple counting. Several cases of multiple use may be possible, for example: depending on the Member State, currently GO may be valid for 1 year, 5 years, or unlimited, the compliance period for target year 2010 in one Member State may, for example, run from April 2010 through March 2011 as against from January 2010 through December 2010 in another, and one Member State may reckon with the date of production on the GO, another with the date of issuance, while a third Member State may take the date of redemption to assign the underlying RES-E to a particular compliance period. The introduction of redemption and earmarking procedures will solve many of these potential multiple counting occurrences. However, as mentioned under the applications for market participants and for end consumers, the earmarking for the purpose of the government indicative target does not preclude the use of GO for the applications by the other stakeholders. As for all the applications, multiple counting may occur if multiple GO are issued for the same unit of RES-E. However, a well-designed and implemented system should rule out this possibility. Additionally, multiple counting may be a problem if several forms of proof exist for the same unique quantity of RES-E generation. Other applications One further noteworthy application is that for monitoring and verification of credits (ERUs) generated by joint implementation projects, based on renewable electricity generation in EU Member States. The workings of the Kyoto mechanisms were explained in more detail in the RE-GO Phase 2 report, and elsewhere, and are not repeated here. However, it must be stressed here again, that the GO solely represents the RES-E generation and not any emission reductions. The greenhouse gas emissions are represented by EU Allowances and ERUs. Any emission reductions taking place as a result of a RES-E JI project actually occur at fossil fuel-fired power plants; RES-E projects do not cause any direct emissions of greenhouse gases. Through the joint implementation procedure, and the baseline, the MS in effect agrees to transfer EU Allowances from emitters (such as the fossil fuel-fired power plants) to the JI project operator, because these emitters will require fewer allowances as a result of the JI project. Multiple counting under various implementation strategies Multiple counting may occur at different levels and to different degrees depending on the implementation strategy of the particular MS, as summarised in Table S.1. The case studies pre- 10 ECN-C

11 sented in this report clearly illustrated that a variety of multiple counting events may happen in practice, and that the character of these events is related to the level of implementation of the GO. Table S.1 Multiple counting potentials under different implementation strategies Minimum compliance Advanced implementation Multiple issue Multiple use Parallel use Errors Yes, in absence of a central registry. No, prevented by central registry. Yes, in absence of redemption procedure. Reduced, but not eliminated. Yes, GO not integrated in support policies. Reduced through the use of earmarks in registry, but GO not fully integrated in Yes, in absence of a central registry. Minimised, but not prevented. support policies. Policy integration No No No Minimised, but not prevented. Harmonisation No No No Further minimised, but not prevented. Recommendations to prevent multiple counting Countries that have implemented the GO based on the minimum requirements in the Renewables Directive have chosen for compliance at minimum costs and in minimal time. However, the mere existence of GO creates opportunities for using it, and without robust regulation multiple counting can occur. If governments have not indicated a specific purpose or imposed limitations on the use of GO, the risks of multiple counting are great. For MS that do not intend to implement significant amendments to their system in the near future, the following recommendations can reduce the risks of multiple counting: introduce a redemption procedure, in the absence of a central registry, reduce the potential for multiple issuing of GO for the same unit of RES-E by having only one issuing body for a particular region, define unambiguously where the greenness of the renewable generation lies throughout the whole lifetime of a unit of RES-E, particularly in relation to support schemes such as feed-in tariffs and quota obligations. It is clear that more advanced and integrated implementation strategies reduce the potential for multiple counting. The two steps that can make the most significant reduction of the problem of multiple counting are: 1. Establish a system for redemption and earmarking of GO. A redemption statement or earmark should specify the purpose of the GO. Three main uses are identified: support, reporting and contributing towards the indicative target. These uses should ideally be linked, for example they should refer to the same specific product, not for support in one country, electricity disclosure in another, and the indicative target in a third. 2. Establish a central (electronic) registry for issue, transfer and redemption of GO. With these two amendments in place, individual GO can no longer be used for multiple (conflicting) applications, and GO can be tracked during their lifetime, which reduces the scope for errors and fraud. One step further is to integrate GO into MS support policies, in order to reduce the risk of an individual GO being used for various applications. Multiple counting due to errors can never be entirely prevented. However, the risks may be reduced by introducing sound tracking and auditing procedures, and by stringent standards for registration of eligible RES-E and issuing of GO. Revocation as introduced into the ROC system in the UK is also effective, but it may complicate an emerging market for GO, as a GO may already have been sold and redeemed before it is revoked. ECN-C

12 Finally, multiple counting events related to imports and exports of GO may be prevented by the following recommendations. developing effective interfaces between registries in different Member States, requiring registries to perform full tracking of GO transfers, including imports and exports, having a standard size for GO, e.g. 1 MWh, establishing one standard for all GO transferred across borders, and GO and registries must show whether GO can be counted towards the indicative target of the importing or exporting country. 12 ECN-C

13 1. INTRODUCTION In 2001, the EU Directive on the promotion of electricity produced from renewable energy sources in the internal electricity market (Directive 2001/77/EC, hereafter referred to as Renewables Directive) introduced the concept of Guarantees of Origin (GO) for renewable energy. As of 27th October 2003, Member States are required to have legislation in place to establish a system that will enable renewable energy generators to obtain Guarantees of Origin for the electricity produced from their plants in response to a request. Whilst Member States are required to recognise GO from other EU countries, it is not necessary for the GO systems that are established to be identical. The RE-GO (Renewable Energy-Guarantee of Origin) project, partially funded by the European Commission through the ALTENER Programme, aims to: assess the interaction between Guarantees of Origin and energy policies in the EU-15 Member States, make recommendations on how to avoid fraud and multiple counting of the attributes of renewable electricity, assess the use of Guarantees of Origin as a tool for tracking the attributes of renewable electricity in the context of Electricity Disclosure, help share experience and information on approaches used in Member States. This is the second and last report from Phase III of the RE-GO project and the fourth project report from all three project phases. Other project reports prepared so far are: the Phase I report, which takes stock of the GO systems that are currently in place in the EU15 Member States as well as in Norway and Switzerland, the Phase II report, which analyses interactions between the implementation of GO and other policy instruments with a direct or indirect link to renewables, the first report of Phase III, which is concerned with selected aspects of GO tracking systems. The present report starts out in Chapter 2 to map theoretical opportunities for counting the generation of a certain quantity of renewables-based electricity more than once. 6 Multiple counting may relate to applications of GO or other RES-E certification systems for quasi-corporate entities as well as for member state governments. In principle, multiple counting may occur inadvertedly, by legal rent seeking behaviour making use of legal loopholes and by outright fraud. The scope for multiple counting in practice is considered in a sequence of case studies of multiple counting potential in Germany, Ireland, the Netherlands and the UK. These countries have been selected because they have chosen very different ways to implement the GO, and are using a wide variety of RES-E policies alongside the GO. The report concludes in Chapter 7 with recommendations to reduce the scope for multiple counting. 6 Henceforth double counting will be referred to as multiple counting so as to include occurrences of counting a certain quantity of renewable energy more than twice. ECN-C

14 2. MULTIPLE COUNTING: A THEORETICAL FRAMEWORK 2.1 Introduction In this section an attempt will be made towards: 1. a definition of multiple counting in relation to GO certificates, and 2. the design of a framework for identifying the loopholes that may lead to occurrences of this phenomenon. The wording of the Renewables Directive allows for a myriad of GO scheme modalities. It is hence largely up to the Member States themselves to define the architecture of the GO schemes to be introduced in their respective countries. The Renewables Directive mandates the issuance of GO on request of RES-E producers and suggests GO are necessary for two applications, facilitating RES-E trade and to increase transparency for consumer s choice between RES-E and non-res-e. However, as long as the minimum requirements of the Renewables Directive are met, it is the prerogative of the Member States to decide how their GO scheme is to be used. Applications may be very limited in the case of minimum compliance with the Renewables Directive, or a wide range of applications requiring tracking of guarantees of origin in the case of an integrated, comprehensive system of guarantees of origin, covering all source of generation. Evidently, the more applications of GO the more potential for multiple counting events; and the more basic the design the fewer the safeguards against multiple counting. This report therefore looks at both minimum compliance and more advanced implementation scenarios of GO. This chapter sets the stage for case studies of multiple counting in selected Member States. It aims at improving transparency on multiple counting issues and providing a framework for the case studies. This is done by: providing a classification scheme of multiple counting events (Section 2.2), providing criteria to be used for identifying multiple counting (Section 2.3), an overview of major GO applications with special reference to multiple counting (Section 2.4), a scheme for the analysis of the case studies on multiple counting (Section 2.5). Some key concepts developed in this chapter are based on (Jansen, 2003). 2.2 Multiple counting: definition and classification of occurrences In order to develop a transparent framework for analysis, and a logical sequence of analytical discussions on multiple counting, multiple counting will be defined in a factual way. Subsequently, normative criteria are introduced to identify undesirable forms of multiple counting. Before multiple counting can be defined, it should be made clear for what purposes, GO or the attributes of RES-E for which it stands proof, can be counted. Therefore, three separate, but interrelated main uses for GO have been identified: Proof of RES-E generation for any reporting requirements to end consumers, in particular electricity disclosure. Green electricity quality labels, which are purely voluntary and not related to government policy, may also be facilitated through GO. Proof of generation of RES-E for any financial support mechanism for the market players, including feed-in tariff systems, quota obligations and tax exemptions. Proof of RES-E generation for the purpose of the MS indicative targets. 14 ECN-C

15 GO may be used for various purposes depending on the particular regime implemented. Indeed, it is possible that the same GO is used for two or more different purposes. This does not necessarily constitute multiple counting, and therefore is not a problem for MS implementing GO. However, the use of GO - or the RES-E attributes - for the same purpose more than once, or for different but incompatible purposes, does constitute problematic multiple counting. For the purpose of this report, multiple counting - the occurrence of several uses of RES-E attributes for either the same purpose or for incompatible purposes - is regarded to exist if it is not effectively ruled out, because the actual occurrence of multiple counting may be hard to prove. The following classification of multiple counting occurrences can be given, in which GO represents the GO itself and/or the RES-E attributes represented by GO: 1. Multiple issue of GO for the same kwh by potentially more than one competent authority in the absence of a central registry in the scheme area. This situation might provide leeway for a RES-E generator to claim more than one GO for the same kwh of RES-E. 2. Multiple use of an individual GO is a clear occurrence of multiple counting. E.g. the same unique quantity of RES-E generated gives rise to one claim to cash in a preferential feed-in tariff or a feed-in premium (bonus) in one member state and to another claim of compliance evidence by a party affected by a RES-E quota obligation programme in another Member State. Three categories of multiple use of the same GO can be identified: a. The multiple use by electricity market participants of GO as proof of RES-E generation for the same or different (conflicting 7 ) support schemes. For example a feed-in system in country A and a quota obligation in country B. b. The multiple use of GO as proof of RES-E generation for the same or different (conflicting) reporting schemes to end consumers (or authority on their behalf). For example for a green electricity quality product to one customer and electricity disclosure for another. c. The multiple use of GO by MS as proof of RES-E generation for compliance with the indicative targets (e.g. in several countries). This category of multiple use of GO also includes residual cases such as unfounded Green Power accounting, and combinations of categories a and b above. Own consumption of (RES-E) power plant also needs to be taken into account. It is stressed that even if these cases relate to multiple counting using the factual definition, they may well pass the test of legal compliance test of acceptability. 3. Parallel use of GO and other certificates for the same unique quantity of RES-E may occur in situations where the GO has not been integrated in existing support schemes. 4. Unintentional or fraudulent errors may occur in various situations and can never entirely be ruled out. However, a well-designed GO implementation may prevent many multiple counting occurrences due to fraud or errors. This is further elaborated in the next sections. 2.3 Criteria for identifying undesirable multiple counting events The occurrence of multiple counting as such is very difficult to prove conclusively. Therefore, an event bearing a risk on multiple counting is referred to as a multiple counting event. The occurrence of a multiple counting event does not necessarily imply that such an event is wrong, and should be prevented. Normative criteria are needed to identify undesirable occurrences of double counting among the universe of multiple counting events. 7 Support schemes are defined as conflicting if they have not been designed to be used in combination, in contrast with situations where subsidy levels have been set taking into account that the producer is eligible for several subsidies. ECN-C

16 Henceforth two major criteria, plus a third supplementary criterion, are distinguished for identifying undesirable multiple counting events: 1. Is a claim on the renewable feature of a specific quantity of RES-E compatible with strict additionality (strict additionality criterion)? As GO represent a unique quantity of RES-E, multiple applications may sometimes be interpreted as using the environmental attributes of the underlying RES-E several times, for instance for different customers. In this case, consumers may be under the impression that they pay for new additional RES-E generation while in fact they do not. Therefore this criterion evaluates whether GO claims are in line with the requirement to increase transparency for the consumer's choice in the Renewables Directive. 2. Is a claim on the renewable feature of a specific quantity of RES-E generation compatible with prevailing legislation (legal compliance criterion)? It could be argued that it is up to the legislator to decide which claims are unacceptable. However, this does not only refer to the legality in the sense of national legislation, but also with regards to the Renewables Directive, which demands accuracy and reliability. Typically, the set of multiple counting events that fail to pass the legal compliance criterion is a subset of multiple counting events that fail to pass the strict additionality criterion. A supplementary criterion, which does not necessarily apply to the identification of multiple counting per se, is: 3. Consistency of the claim(s): is information for different purposes on the production or use of RES-E in a certain region in a certain year consistent? Cases that fail for this information consistency criterion do not necessarily relate to multiple counting, but might just as well relate to the existence of incompatible procedures to derive comparable information for different purposes. For instance, the information on the achievements of Member States with respect to official RES-E targets might well be different with the information, generated by electricity supply companies in the framework of electricity disclosure obligation, aggregated to member state level. Although the existence of any differences in as such comparable data may be totally attributable to differences in accounting procedures, the occurrence of this situation might confuse end users and other stakeholders and could detract from the credibility of either set of data. Therefore, some analysts or stakeholders may wish to add this criterion as well to the test to exclude the possibility of multiple counting. 2.4 GO applications and multiple counting Specific applications of GO may lead to one or more types of multiple counting events. Given the multitude of GO schemes, each with their pertinent applications of GO, it appears useful to analyse possibilities of multiple counting per (major) GO application and per (main) class of multiple counting events as delineated in Section 2.2 above. As minimum compliance GO schemes imply less applications for GO, the types of multiple counting events as characterised by GO application and by application may be also less. It is noted though that this does not necessarily hold for the magnitude of the multiple counting phenomenon: the potential for multiple counting may well be higher in minimal compliance GO schemes characterised by partial GO issuing and absence of tracking and redemption. The country case studies shed more light on the potential for multiple counting associated with the GO scheme in place in the Member State concerned. In the framework below two categories of stakeholders are distinguished that may encounter multiple counting events, i.e. (quasi-) corporate business entities in what have been dubbed applications by private entities and member state governments in so-called applications by government authorities. For applications by private entities, a further subdivision can be made into applications related to support (feed-in tariff, tax, certificate for quota obligation, etc.) and reporting (disclosure, quality label, etc.). This distinction is essential for the identification of multiple counting, applying criteria as proposed in Section 2.2 above. 16 ECN-C

17 The reason for this distinction is that, in principle, application of the strict additionality criterion warrants linking all applications by private entities, whereas this is not the case with applications by private entities in combination with applications by government authorities. Contingent on its specific nature, each distinct official application might even stand on its own when applying the strict additionality criterion. For example, use of GO representing the renewable feature of a certain quantity of electricity generated in a specific country in a certain target year both for electricity disclosure and for official RES-E target compliance does not imply as such that the strict additionality criterion has not been met. Many stakeholders may prefer to apply the legal criterion for determining whether multiple counting events are undesirable or not. Let us consider the case of a legislator within the EU wishing to introduce regulation targeted at adherence to the strict additionality criterion. This might be implemented by mandating the interlinking of possible GO applications by private (business) sector entities on the RES-E generation and consumption side. Two alternative ways might be discerned to do so: Earmarking GO after use at the RES-E generation side with complementary requirements for electricity disclosure. For instance, in cases where GO are applied as eligibility proof for direct market support schemes at the producer side (feed-in tariffs, feed-in premiums, quota obligation systems with electricity generators as affected parties), it might be mandated to earmark GO directly after such use. Besides, it might be mandated to divulge specific information on earmarked GO and non-earmarked GO in separate categories. Such procedure will enable end users and other stakeholders to distinguish RES-E consumption that meets the strict additionality criterion from RES-E consumption that does not. Requiring redemption of GO after use at the RES-E generation side with complementary requirements for electricity disclosure with corresponding substitution by a. GO with an earmark that no information is allowed to be presented on the generation mode of the underlying quantity of electricity Applications by private sector entities Multiple counting events involving private sector entities may, contingent on the criterion applied, notably relate to: claims that fail to meet the legal compliance criterion, multiple claims that fail to meet the strict additionality criterion. Multiple counting events in the sense of the strict additionality criterion, triggered by private sector parties, might be reduced by requiring the use of GO as proof of a RES-E claim with redemption after use - or, in the case of a RES-E claim by RES-E generators, at least earmarking - of GO after use. RES-E claims by private sector parties, include the following ones: 1. obtaining direct market support for RES-E production (e.g. preferential feed-in tariffs, feedin premiums, quota obligations for generators), 2. obtaining direct market support for RES-E consumption (e.g. quota obligations for suppliers), 3. accounting for RES-E electricity disclosure, 4. Green power programmes by voluntary green power programme organisers, 5. Green power accounting in annual environmental accounts of corporate and quasicorporate entities. ECN-C

18 Multiple counting events involving private parties and the use of GO do also include: issuance of several GO for the same quantity of RES-E production (both criteria), issuance of several certificates of a different kind - e.g. TREC and GO - for the same quantity of RES-E production (the strict additionaility criterion). Application of GO for electricity disclosure needs further explanation. In accordance with the Electricity Directive electricity suppliers have to disclose the breakdown of their offerings by generation source, their carbon content, and nuclear waste content. In principle, this function could be facilitated by a generic GO under a comprehensive GO tracking system. In using GO as compliance proof, a member state legislation that does not explicitly mandate the generation period (with each generation period mandated to coincide with or being part of just one calendar year) as a base for monitoring and verification might give rise to multiple counting. Moreover, in the absence of harmonised legislation on the method of electricity disclosure, cross-border GO transfers may lead to multiple counting. Green washing could emerge in the case of suppliers delivering grey electricity to their regular customer base and besides running green power programmes. In any information provided on their electricity mix, distinct sets of electricity disclosure information should be made public to their specific customer groups. Hence, in order to prevent green washing regular customers should not receive disclosure information on the overall company electricity mix but strictly on the electricity delivered residually to them after catering green or (other) special quality programmes. Moreover, if a supplier is subject to RES-E quota obligations, green washing occurs when the electricity mix of the residual deliveries to the regular customers do not meet the quota obligation. 8 Furthermore, the electricity mix of transmission and distribution losses should be given due attention with regard to the no green washing criterion. All suppliers in a member state may meet a certain RES-E consumption obligation, whereas the total inland electricity consumption (c.q. production for Member States with production targets) may not as a result of a green wash of transmission and distribution losses. Assigning an electricity disclosure obligation to transmission system operators and distribution system operators for the electricity needed to balance electricity supply and demand might prevent this Applications by government authorities The main application of GO by the MS government authorities would be to assist with proving compliance with the indicative target for RES-E as defined in the Renewables Directive. However, GO are not designed to be the principal statistical instrument for RES-E. Under current practice the statistical bureau of a member state submits domestic RES-E production information to EUROSTAT. This information, verified by EUROSTAT, provides the basic proof for RES-E target compliance. RES-E production data may be: adjusted negatively if the member state concerned consents in deduction of its RES-E volume tally for RES-E target compliance by flagging GO transferred to other Member States, adjusted positively if the member state concerned can show eligible GO with a flag from another member state. This practice may yield submission of erroneous or outright inflated RES-E production figures that are not corrected by EUROSTAT. The country studies cannot make any allowance for this category of multiple counting cases. It should be emphasised though that the current practice might in certain cases be devoid of a completely credible system of checks and balances to minimise possible errors in RES-E production figures. With regard to RES-E target compliance, the case studies will focus on multiple RES-E counting by trans-border GO transfers. 8 The Renewable Obligation in the UK may be treated slightly differently, as the target is set deliberately at such a level that it cannot be met. 18 ECN-C

19 Let us presume that GO with a consent flag by the member state of origin, reported by importing Member States, be used for making adjustments to EUROSTAT production data. Suppose a GO would be issued in country A and consumed in country B. Then country A would count 1 MWh RES-E for its target compliance at issuance of the certificate concerned. With the crossborder GO transfer, at the same time country A should deduct 1 MWh of RES-E from its tally. Conversely, country B would add it to its respective RES-E compliance record. For this GO application the following cases of multiple counting can be listed: 1. No correct adjustment of RES-E production data of flagged GO exporting Member States. A member state agrees to flagging exported GO with a consent to reduce its claimed RES-E target compliance performance correspondingly but no implementation of the corresponding reduction is realised. 2. A GO is used several times as compliance proof by way of creative GO trans-border transfers. The absence of harmonisation of validity periods, compliance periods, and/or accounting date of GO between Member States enables this category of multiple counting. For example: a. depending on the member state, currently GO may be valid for 1 year, 5 years, or forever, b. the compliance period for target year 2010 in one member state may, for example, run from April 2010 through March 2011 as against from January 2010 through December 2010 in another, and/or c. one member state may reckon with the date of production on the GO, another with the date of issuance, while a third member state may take the date of redemption to assign the underlying RES-E to a particular compliance period. The introduction of redemption and earmarking procedures will solve many of these potential multiple counting occurrences. However, as mentioned under the applications for market participants and for end consumers, the earmarking for the purpose of the government indicative target does not preclude the use of GO for the applications by the other stakeholders. Additionally, multiple counting may be a problem if several forms of proof exist for the same unique quantity of RES-E generation. The first occurrence of multiple counting, no correct adjustment in the case of cross-border transfers, may be based on this fact: one of the countries uses GO for statistical adjustments, while the other does not or uses other statistical sources Other applications One further noteworthy application is that for monitoring and verification of credits (ERUs) generated by joint implementation projects, based on renewable electricity generation in EU Member States. The workings of the Kyoto mechanisms were explained in more detail in Section 4.6, the Phase 2 report, and elsewhere, and are not repeated here. However, it must be stressed here again, that the GO solely represents the RES-E generation and not any emission reductions. The greenhouse gas emissions are represented by EU Allowances and ERUs. Any emission reductions taking place as a result of a RES-E JI project actually occur at fossil fuelfired power plants; RES-E projects do not cause any direct emissions of greenhouse gases. Through the joint implementation procedure, and the baseline, the MS in effect agrees to transfer EU Allowances from emitters (such as the fossil fuel-fired power plants) to the JI project operator, because these emitters will require fewer allowances as a result of the JI project. 2.5 Scheme for analysing multiple counting in the country case studies Referring to the classification scheme above for the identification and categorisation of multiple counting events and issues in the country studies, the following template will be used in the next chapters. ECN-C

20 Table 2.1 Scheme for the classification and analysis of multiple counting issues Multiple use of a GO Multiple counting event category Parallel use of GO and other certificates Multiple issue of a GO Unintentional or fraudulent errors Applications by private entities - Support yes/no yes/no yes/no yes/no - Reporting yes/no yes/no yes/no yes/no Applications by government authorities - RES-E target yes/no yes/no yes/no yes/no 20 ECN-C

21 3. MULTIPLE COUNTING POTENTIAL IN GERMANY 3.1 Introduction The electricity market in Germany has formally been 100% liberalised since In reality the market activity is relatively low (and prices for final customers are relatively high) due to factual obstacles for competition, e.g. the absence of a strong regulator (which would have had to be introduced by July 2004 following the Electricity Directive, but Germany did not meet this deadline) and complex arrangements and high prices for access to the transmission and distribution systems. There is a small market for Green Power, which is partly verified by several independent, private labelling organisations. Based on Directive 2003/54/EC, a scheme for electricity disclosure will be introduced. The revision of the energy law will enter the parliamentary process in fall 2004 and is expected to take several months. The draft law presented by the government specifies that renewables must be one of the fuel categories to be displayed to consumers. There are no legal requirements in the draft law on the general method for generation of disclosure information, nor on the relationship of disclosure to GO. The German Electricity Industry Association (VDEW) has published a recommendation on how disclosure can be implemented, which is largely based on the best available information approach also supported by Eurelectric. Again, this recommendation does not specify the relationship of the disclosure scheme to GO. Support for renewables is granted through the feed-in law (Erneuerbare-Energien-Gesetz - EEG), which has recently been revised (the latest revision came into power on 1 August 2004). The revision focused on adjusting the feed-in payments to market developments. Other amendments to the former legislation include the provisions for the GO. There is no official certification scheme for RES-E. Several private initiatives are operating Green Power quality labels. The RECS system is also active in Germany. The feed-in support system and the implementation of the Guarantee of Origin in Germany have already been discussed in Section of the RE-GO Phase 2 report. In the following sections, the most relevant issues are described again, taking into account the revised EEG law from August The mechanism of the feed-in law in Germany The EEG law obliges distribution system operators (DSOs) to purchase electricity from eligible renewable power generation at fixed feed-in tariffs which are set forth in the law. Eligible sources cover hydro power plants, biomass (< 20MW), wind power, geothermal energy, landfill and sewage gas and photovoltaic energy. Hydro plants are generally eligible only if their capacity is less than 5 MW. Since the latest revision of the EEG, hydro plants up to 120 MW are eligible for that part of their generation, which is additional due to investments in increasing the plant capacity. Such reinvestments must be made before the end of 2012 in order to be eligible. The EEG contains a mechanism for the allocation of the electricity that has been purchased by DSOs under the feed-in scheme. This mechanism is displayed in Figure 3.1. ECN-C

22 Figure 3.1 Allocation mechanism for the EEG electricity In the lower part of the figure, the regular electricity market is shown. The upper part shows how the feed-in system is interconnected with the power market. The DSOs who have purchased renewable electricity under the feed-in scheme pass the power and the related cost on to the Transmission System Operator (TSO), which is operating in the respective area. The four TSOs operating in Germany are then exchanging EEG power and the related cost in order to level out the share of feed-in power and the related cost across the country. 9 In the next step, all supply companies are obliged to purchase the national average share of feed-in power from the respective TSO and to cover the related cost. This means that every supplier of final electricity customers in Germany has to accept an equal share of EEG power in its company portfolio. 10 Only the remaining part of the supply portfolios are at the suppliers own disposal. The suppliers are then free to allocate the feed-in power and the related cost among their customers. Usually, all customers receive the national average share and have to pay the corresponding cost. 3.3 Implementation of the Guarantee of Origin in Germany GO issued in Germany must specify the renewable energy source (including an indication, whether the energy source complies with the definitions in the Renewables Directive), the location of the RES device, the name and contact details of the plant operator, the electricity volume the GO stands for, and the period of time in which the power was generated. In addition to this, German GO must specify the installed capacity and the commissioning date of the respective RES devices. Operators of RES devices can commission any environmental auditor to issue the GO, which is accredited under the EMAS (Eco Management and Audit Scheme) for the field of power generation. Currently, there are about 60 organisations or individuals which fulfil this criterion. Generators of renewable electricity which is supported by the feed-in scheme can also claim GO for their production, but they are not allowed to pass their GO on to any other party. In addition, GO issued for feed-in power will be earmarked. 9 This step is not shown in Figure 3.1. It has been introduced because the regional distribution of feed-in power is uneven, with e.g. most of the wind power being generated in the northern part of the country. 10 For 2004, the average share is expected to be 8% of total power deliveries to final consumers, and the average cost are expected to be 9 ct/kwh. 22 ECN-C