Incentives to the Energy Production from Renewable Sources

1308 Municipalities and gas-works. The increasing production of energy from renewable sources is in fact considered by the EU as a high priority target of the Community. European incentives for energy investments involve feed in tariffs, price premiums, tradable green certificate, competitive tendering, investment subsidies, and tax incentives. Energy consumption per capita in EU 25 was equivalent to 3, 6 toe in 2005, compared to 7, 8 toecapita for the USA and 4, 1 toecapita for Japan. In EU there is a clear trend for more liberalized markets. Poland 17 and United Kingdom ββ are countries in which the leading generator‘s market share is lower whereas in Cyprus and Malta there is only one generator. Romania and Bulgaria are energy intensive countries. The share of renewable energy should be above 20 by 2010 in EU whereas according to current data Austria 78 has higher shares of RES. The EU 27 production of primary energy is 871,247,000 toe., United Kingdom 183,946,000 toe and Germany 136,850,000 toe are largest producers. Energy dependency of Europe is 52. Cyprus 100.2, and Portugal 88.2 are more dependent whereas Norway -609 is not energy dependent. Below is the EU 27 consumption breakdown of energy resources. Source: Eurostat May 2008 The mainstay of the new policy is a core energy objective for Europe: that the EU should reduce greenhouse gas emissions from its energy consumption by 20 by 2020. This objective will enable for EU to measure progress in re-directing nowadays energy activity towards one that will fully meet the challenges of sustainability, competitiveness and the supply security. The EU target needs to be seen in the context of the need for international action of industrial nations on climate change. When such a commitment exists, the EU will need to do more. The target should therefore be to increasing the target to a 30 reduction by 2020 and 60-80 by 2050. The concern is not only about climate change, it is also about Europes security of energy supply, economy and the prosperity of its citizens. Achieving the objective can limit the EUs growing exposure to increased volatility and prices for oil and gas, bring about a more competitive EU energy market, and stimulate technology and employment. 221 The main criticism of alternative energy is that, even with government assistance, it is still more expensive than many traditional sources of energy. But advocates argue that simply comparing the cost of generating electricity by burning coal with the cost of generating electricity by 221 European Commission; An Energy Policy for Europe - the need for action; Proposed EU Energy Policy; p.2. 1309 capturing the suns rays misses the point. Energy use imposes other social costs that are hard to quantify. 222 In EU, there is no framework for fiscal incentives but EU support national direct fiscal measures. The incentives are of various kinds but commonly used are tax reductions and exemptions, flexible depreciation. The aids primarily cover energy efficiency, renewable energy, cogeneration, district heating in the form of tax exemptions and reductions. 223 In 2007 energy and transportation projects of size € 6β1,β56,5β6 won up to 100 EU grants. εember-States have adopted a variety of policies and mechanisms in order to support renewable energy. The feed-in tariffs are applied in twenty Member-States consisting in obliging the power system to absorb electricity from renewables at a given price or premium. Ten Member-States have implemented a quota system or a purchase obligation system, which consists in obliging electricity suppliers to include renewable energy within their supply portfolio. Many Member-States also use investment subsidies, tax rebates or other incentives to support renewables. Independent of their exact form, all supportive mechanisms for renewables implies a reduction in the cost of capital which provides incentives to investors in renewable energy. Once provided its common usage in the market, renewable energy incentives can be decreased gradually, since by the time the prices will fall due to technological advancement. 224

7. European Incentives to Energy project

Energy subsidies are widespread and diverse, varying greatly in size and type among fuels, end- use sectors and countries. They also fluctuate over time. Putting a monetary value on some types of subsidies can be extremely difficult. The impact of a particular government intervention on production cost or price has to be differentiated from the effects of all other factors that influence costs and prices. In addition, reliable data on actual selling prices are not always available. Estimates of the size of subsidies in a given country and to a given fuel depend heavily, therefore, on the definitions and methodologies used and the time period considered. Big differences in definitions can make comparisons of individual studies of the impact of energy subsidies in specific countries or regions difficult and complicate discussions of issues relating to subsidies and their reform. Most studies attempt to measure specific types of subsidy, or use approaches that capture only some of the effects of subsidies. 225 Systems based only on tax incentives are applied in Malta and Finland. In most cases e.g. Cyprus, UK and the Czech Republic, however, this instrument is used as an additional policy tool. 226 Financial instruments include economic incentives to promote energy efficiency, as well as fiscal measures. Financial incentives aimed at encouraging investment in energy efficient equipment and processes by reducing the investment cost, either directly economic incentives or indirectly fiscal incentives. 222 Gianfranco Puopol;,Incentives to the Energy Production from Renewable Sources;p.3;2001 223 Ca rol Ní Ghiollarnáth, Corporate Income Tax Incentives for Renewable Energy Generation: Has the Double Dividend Gone Astray? 224 Trends to 2030 Update 2007; European Commission Directorate General for Energy and Transport;p.21. 225 Trevor Morgan; ENERGY SUBSIDIES: Their Magnitude, How they Affect Energy Investment and Greenhouse Gas Emissions, and Prospects for Reform; Menecon Consulting; p.7;2007 226 The support of electricity from renewable energy sources; Commission of the European Commodities; p.5; 2005. 1310 7.1. Economic Incentives Economic incentives fall into two broad categories: investment subsidies and soft loans. In most of the European countries, the economic incentives are related to energy or environment funds with financing mechanisms that tend to depend increasingly upon the banking system rather than coming from the public budget. The main objective of subsidies is to reduce the investment cost for investor and -consumers. Subsidies can be defined as a fixed amount, as a percentage of the investment, or as a sum proportional to the amount of energy saved. Subsidies may also be given to equipment producers to encourage the development and marketing of energy efficient equipment. Subsidies schemes often attracted consumers who would have carried out the investments even without the incentive, the so-called free riders .Consumers who could use the subsidies and were targets of the scheme did not take advantage of them because they were unaware of their existence. This demonstrates the challenges of informing a multitude of consumers adequately about the existence of the incentives. Finally, subsidy schemes may have a negative impact on the market by leading to an increase in the cost of equipment and to the deployment of equipment with a poor quality. They are also restricted to certain types of investments, with a long payback time but high efficiency gains or to innovative technologies. Soft loans are offered at subsidized interest rates to consumers who invest in energy efficient technologies and equipment. Soft loans have the advantage of being easily implemented by banking institutions. Nevertheless, due to the current low level of interest rates, such measures are often not attractive to industrial companies. In some cases they are given directly to installers, which seem to be a promising approach in others, if well managed. This removes one important barrier, which is the access of consumers to information as the installers may have a commercial approach to promote energy efficiency. 7.2. Fiscal Incentives Fiscal incentives include measures to reduce the tax paid by consumers who invest in energy efficiency. They comprise accelerated depreciation, tax credits and tax deductions. Recently, tax reductions on energy efficient equipment or on energy efficiency investments reduction in VAT rate have been introduced in many countries. Tax credits and accelerated depreciation are considered better than subsidies, as they are less costly. They can work well if the tax collection rate is sufficiently high. They usually have a poor performance in an economy in recession or in transition. In European countries, tax reduction also exits for clean and efficient cars. Tax concessions for companies that make concrete commitments to energy efficiency gains CO 2 reduction and meet their target are also another innovative way to promote investment in energy efficiency and CO2 reduction. A total of 2.3 billion Euros worth of EU grant funds have been allocated to Turkey to support the country‘s harmonization process until β010 within the framework of the Instrument for Pre- Accession Assistance. The EU wants to facilitate Turkey‘s preparation for EU membership by funding projects. The EU has allocated approximately 1 billion euros of grant funds to Turkey since β004. All projects and grant funds had a single objective ―preparation for EU membership. This is important for two reasons: The first is to help Turkey, as a whole, to reach the economic standards of the EU. And the second is also to try to decrease gaps within Turkey.‖ Power demand in Turkey is growing faster than anywhere else in the world but China, according to Hilmi Güler, the country‘s energy minister. He estimates that the electricity sector alone will