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ACKNOWLEDGEMENTS

ThisreportwaspreparedbyE3GforRE100initiative,toprovideinputtothecurrentprocessforamendingEUenergylegislation.©E3G2016AnumberofRE100membercompanieskindlycontributedtothisreport.Wewouldliketothankthemfortheirongoingsupport.AboutRE100RE100isaglobal,collaborativeinitiativeofinfluentialbusinessescommittedto100%renewableelectricity,workingtomassivelyincreasedemandfor–anddeliveryof–renewableenergy.Thiswillacceleratethetransformationoftheglobalenergymarketandaidthetransitiontowardsalowcarboneconomy.RE100sharesthecompellingbusinesscaseforrenewablesandshowcasesbusinessaction,whileworkingwithotherstoaddressbarriersanddeveloptransparentreportingmechanisms.RE100isbroughttoyoubyTheClimateGroupinpartnershipwithCDP,aspartoftheWeMeanBusinesscoalition.AboutE3GE3Gisanindependentorganizationworkingtoacceleratethetransitiontoalow-carboneconomy.E3Gspecializesinclimatediplomacy,climaterisk,energypolicy,governanceandclimatefinance.Weworkcloselywithlike-mindedpartnersingovernment,politics,civilsociety,science,themedia,publicinterestfoundationsandelsewhere.E3GisaEuropeanorganizationwithaglobaloutlookandreach.WecurrentlyhaveofficesinLondon,Brussels,BerlinandWashingtonDC,togetherwitharegularpresenceinChina.

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EXECUTIVESUMMARY

ManylargecorporationswithoperationsbasedacrosstheEUnowrecognizethatmeetingelectricitydemandfrom100%renewablesourcesrepresentsamajorstrategicopportunity.Energycanbesecurelysuppliedwithincreasedcostcontrol,aswellashelpingtopositionbusinessesasprogressiveandforwardthinkingleadersintheirsectors.However,itcanbedifficultforbusinessestoachievethisobjectiveandsupportingthisagendapresentssomerealopportunitiesforpolicymakers1.ThechangesthatareneededwillhelppolicymakersachieveimportantaspectsofcurrentEUenergypolicy;inparticular:— Becomingaworldleaderinrenewableenergy,— Promotingasinglemarketforenergy,and— Creatingaconsumerfocusedmarket.Companiesthatcurrentlyaspireto100%renewablesupplyrepresentthevanguardofamovementthathasthepotentialtogrowthroughoutthebusinesscommunityandbeyondintootherconsumersectors.Thismustbeencouragedsincethebenefitsareenormous.Itwouldcreateaconsumerledenergytransitionthatwouldultimatelybeself-sustaining.Policymakersshould,therefore,usethecurrentrevisionstoenergylegislationtosupportbusinesseswiththisemergingcommercialimperative.Thefollowingchangesareimportantinthisregard:RevisiontoRenewableEnergyDirective— The2020targetsfortheshareofrenewableenergyassetoutinthecurrentRenewableEnergy

Directivemustcontinuetoapplyafter2020andshouldconstitutetheminimumbaselineforthecontributionofMemberStatestothe2030EUREStarget.

— Thereshouldbeamethodologythatwillapplyintheeventofpledgesnotaddinguptothetarget.Forexample,MemberStatescouldberequiredtocontributeeitherinkind(bydevelopingREScapacitythemselves)orfinanciallytofillaneventualgapbetweentheirpledgedcontributionandtheirexpectedfaircontributiontothecollectiveEUtarget.

— Establishbasicdesignprinciplesofnationalrenewableenergyframeworksandameansforensuringthefurthermarketintegrationofrenewablesaswellassettingoutaprocessandroadmapfortheprogressiveconvergenceofnationalrenewableenergyframeworksoverthe2020-2030decade.

— Establishbasicprinciplesofcustomerparticipationthatincludetheenforceablerighttoindividuallyorcollectivelyproduceandconsumetheirownelectricity,aswellastherightofaccesstothegridtosellsurpluselectricityunderfairconditions.

1‘EUpolicymakers’referstoEUparliamentarians,MemberStates,throughtheirroleontheEUCouncil,andtheEuropeanCommission.

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Marketdesigninitiative— Renewableenergymustbegiventhehighestpriorityingridplanning.Thismeansthatmeasuressuch

asprioritydispatchforrenewablegeneratorsshouldbemaintained,or,alternatively,thatMemberStatesputinplaceothereffectiveprocessestoavoidunnecessarycurtailmentofrenewablegeneration.

— Establishtemplatesfortheprocurementofrenewableelectricitybycorporatebuyersthatcanthenbeusedatmultiplesmallandlargeconsumptionsitesspreadacrossoneormorejurisdictions.

— Mandateacommondistributionnetworkframeworkthatwillprovidemoreconsistencyforconsumerswishingtodeveloprenewableenergyprojects.

— IncludeproposalsforfacilitatingthefreetradeinrenewableelectricityacrosstheEUtoenableconsumerstoaccessthecheapestavailablerenewableresources.

— Recognizethechangingenergymixontheelectricitysystemandconsiderensuringrenewablesbecomethedefaultsupplyoptionthroughimplementingacertificationschemefornon-renewableratherthanrenewableelectricity.

— Promoteamuchmoreflexiblepowersystembyencouragingavailabilityofservicessuchasdemandresponseandstorage.

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INTRODUCTION

AlargenumberofmajorcorporationswithbusinessoperationsintheEUarenowclearthatthedirectionoftravelforenergyproductionistowardsasystembasedonhigherpenetrationsofrenewableenergysources.Thisrepresentsasignificantstrategicopportunitythatgoesbeyondsimplyseekingtominimizecorporateimpactontheenvironmentandpositioningthecompanyasaclimateleaderwithinthebusinesssector.Energycanbesecurelysuppliedfromrenewablesourcesandtheircostsaredecliningfast.Importantly,renewableshavemuchlowerpricevolatilitythanfossilfueledalternatives,allowingmuchgreatercontrolofakeybusinesscost.Therefore,manybusinessesarealreadyseekingtoensurethattheenergytheyuse(initiallyfocusingonelectricity)comesfromsustainablerenewablesources.AsofCOP22,theRE100initiative2hasmorethan80members,representingmanylargemultinationalcompaniesthatarecreatingdemandforover100TWhofrenewableelectricity–withagoodproportionofthisinEurope.AllRE100membersarecommittedtomeetingalltheirelectricityneedswithrenewablesourcesofenergy.

ThisgroundswellofcorporatemomentumrepresentsbothachallengeandanopportunityforEUpolicymakers.ItisvitalthattheyensuretheEUenergymarketiseffectivelydesignedtohelpbusinessesmeetthisemergingcommercialimperative.Indeed,meetingtheneedsofbusinessenergyconsumersbenefitseveryonesinceitsupportsthetrendstoempowerenergyconsumersacrossEurope.Akeymeasureofthesuccessofthecurrentreformagenda,inparticulartheMarketDesignInitiativeandtherevisiontotheRenewableEnergyDirective,will,therefore,betheextenttowhichtheneedsofthebusinesscommunityaremet.However,itisalsoimportanttorecognizethatthiscorporateinitiativeprovidesdirectevidenceofsupportacrossmainstreambusinessesfortheneedtotransformtheenergysystemandthissupportisimportantforpolicymakerslookingtodriveforwardthetransition.ThisreportexploreshowEUpolicymakerscanrisetothechallengeandleveragethisopportunity.

Thefirstsectionconsidershowtheinterestsofthoseconsumerscurrentlyseekingtosourcetheirelectricitywithrenewableenergycanbebetterservedandhowthisishelpfulinsupportinganambitiousandprogressivepolicyagenda.Thesecondsectiongoesontoexplorehowprogressiveconsumerscanbecomemoredirectagentsforchange,helpingtodriveforwardthetransformationratherthansimplyreinforcingtheactionsofpolicymakers.

REINFORCINGCURRENTPOLICY

Consumerswiththeaspirationtosource100%oftheirelectricityneedsfromrenewablegenerationcanfulfilthisobjectivethroughanumberofroutes:— Productionofrenewableelectricityfromtheirownfacilities.Thesecanbegrid-connectedandonsite

oroffsite,orentirelyoffthegrid.Thisrenewablegenerationwouldthenbeusedtooffsettotaldemand.

— Purchasedrenewableelectricitysourcedfromgeneratorsandsuppliersinthemarket.Thisincludesdirectpurchasesfromspecificgenerators(e.g.powerpurchaseagreements),whichcanbelocated

2http://re100.org/

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onsiteoroffsite.Italsoincludesretailpurchasesfromsuppliersandutilities,andthepurchaseofstand-alone(“unbundled”)REGOs3.

Thefirstofthesecaninvolvealltheactivitiesassociatedwithprojectdevelopmentincludingadetailedunderstandingoflocalplanningandpermittinglawsaswellasthetechnicalcompetencetomanagepotentiallycomplexprojects.Thesefirstoptionstend,therefore,toberestrictedtothemostsophisticatedenergyconsumers(althoughtherearesimpleself-generationoptionsavailableforallconsumerssuchastheinstallationofrooftopsolarpanels).Thesecondisamoreconventionalenergyprocurementactivityinwhichchoiceandcompetitionbetweenprovidersarethekeydriversofvaluetoenergyconsumers.

Ingeneral,consumerinterestsarebestservedbyreducingthecomplexityandcostofmeetingtheirenergyneeds.Asimplerprocesswillimproveaccessibilitytorenewableenergyforawiderrangeofconsumerswhilstreducingcostsisclearlyimportantforallconsumers,particularlyforbusinessesoperatinginhighlycompetitiveenvironments.

ImprovingambitionandbecomingaworldleaderinrenewableenergyThemostimportantissueforconsumerswishingtoprocure100%renewableelectricityisthatpolicyambitionforthegrowthofrenewablegenerationremainsstrongacrosstheEU.ThiswillensurethatEUmemberstateswillremainincentivizedtoencouragedevelopmentofrenewableenergyprojectsthroughasupportiveplanningandpermittingregimeandremunerationmechanismsthatarestableandpredictable.Itshouldalsoleadtoeffectiveprogramsfortheretirementoffossilfuelledgenerationassets.Thegreaterthevolumeofrenewableelectricitythatisavailableforsaleinmarketsacrossalltimescales,thegreatertheliquidityinrenewableelectricityproductsforconsumers.Thiswillreducecostsanddriveinnovationamongstintermediarieslookingtoimprovetheattractivenessoftheirproducts.Itshouldalsomakeiteasierforthoseconsumerswishingtodirectlydeveloptheirownrenewablegenerationtoestablishanacceptablebusinesscaseasgovernmentsseektoensurethathighleveltargetsareachieved.

TheEUhasagreedatargetofproducing27%ofenergyfromrenewablesourcesby2030,whichequatestoaround50%renewableshareofelectricitygeneration,andiscurrentlyconsideringhowtochangetheRenewableEnergyDirectivetoensurethisobjectiveisdelivered.Itisimportantforconsumerswishingtoprocurerenewableelectricitycost-effectivelythatthisinitiativeissuccessfuland,ideally,leadstomoreambitioustargetsforrenewableenergybeingestablishedinfuture.

Thenewrenewableenergytargetfor2030willbebindingatEUlevelonlyandfulfilledcollectivelythroughMemberStatecontributionstowardstargetachievement.ItisvitalforbusinesseswithoperationsacrosstheEUthattheabsenceofMemberStatespecifictargetsdoesnotleadtoadestabilizationintheoveralleffortstoachievethetargetsandcreatepocketsoflowrenewablepenetration(orcheap,butunsustainable,optionssuchasco-firinglargevolumesofbiomassincoal-firedpowerplants).Inthisregard,itisimportantthatthe2020targetsfortheshareofrenewableenergyassetoutinthecurrentRenewableEnergyDirectivemustcontinuetoapplyafter2020andshouldconstitutetheminimumbaselineforthecontributionofMemberStatestothe2030EUREStarget.Moreover,itisimportanttoclarifythatallMemberStatesneedtomakeacontributiontowardsachievementofthecollectiveEUtarget.TheRenewableEnergyDirectiveshould,therefore,setoutthemethodologythatwillapplyintheeventofpledgesnotaddinguptothetarget.Forexample,MemberStatescouldberequiredto

3RenewableElectricityGuaranteeofOrigin:AllEUmemberstatesareobligedbytheRenewableDirectivetohaveanauditableREGOsysteminplace.REGOshavenodirectvaluebutprovideauditableevidencethatenableconsumerstotracetheirelectricityconsumptiontorenewablegeneration.

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contributeeitherinkind(bydevelopingREScapacitythemselves)orfinanciallytofillaneventualgapbetweentheirpledgedcontributionandtheirexpectedfaircontributiontothecollectiveEUtarget.

AlongsidetherevisiontotheRenewableEnergyDirective,theEUisconsideringhowtodevelopelectricitymarketstoefficientlyaccommodateincreasingvolumesofrenewablegeneration.Renewableenergymustbegiventhehighestpriorityingridplanning.Thismeansthatmeasuressuchasprioritydispatch4forrenewablegeneratorsshouldbemaintained,or,alternatively,thatMemberStatesputinplaceothereffectiveprocessestoavoidunnecessarycurtailmentofrenewablegeneration.

PromotingthesinglemarketforenergyLargeconsumerswithbusinesspremisesacrosstheEUfaceapatchworkofdifferentregulationsrelatingtotheprocurementofrenewablegenerationthataddcomplexityandreducethesynergiesavailablefrompurchasingacrossEurope.Thoseconsumerswishingtodeveloptheirownrenewablegenerationprojectsmustunderstandaraftofdifferentplanningandpermittingprocesses,networkaccessarrangementsand,importantly,arangeofdifferentsupportmechanismsthatwillbecriticaltoindividualprojectbusinesscases.ThecurrentRenewableEnergyDirectiveleavesMemberStateswithwidediscretiononhowtosetupandoperatenationalrenewableenergyframeworksandtheupcomingrevisionisanopportunitytoputinplaceamoreharmonizedapproach.Thechangesshould,therefore,includea‘CommonRuleBook’fornationalrenewableenergyframeworks.Itshouldestablishbasicdesignprinciplesofnationalrenewableenergyframeworksandameansforensuringthefurthermarketintegrationofrenewablesaswellassettingoutaprocessandroadmapfortheprogressiveconvergenceofnationalrenewableenergyframeworksoverthe2020-2030decade.

TheissueofconsistencyacrosstheEUisequallyrelevantforconsumersbuyingpowerviapowerpurchaseagreementsorfromintermediaries.Individualcontractswillalwaysbemarket-specificandsignificanteffortcanbeinvolvedinfinalizingeachnewdeal.Thenewmarketdesignisanopportunitytoreducethiscomplexitybyestablishingtemplatesfortheprocurementofrenewableelectricitybycorporatebuyersthatcanthenbeusedatmultiplesmallandlargeconsumptionsitesspreadacrossoneormorejurisdictions.

Itisalsoimportanttorecognizethatdistributionnetworkcostsareanincreasinglyimportantcomponentofmanyrenewableenergyprojectsandyetthetermsforconnectingto,andusing,thedistributionsystemvariessignificantlyacrosstheEU.Themarketdesigninitiativeshouldmandateacommondistributionnetworkframeworkthatwillprovidemoreconsistencyforconsumerswishingtodeveloprenewableenergyprojects.

Ultimately,thebiggestvalueofthesingleenergymarketrestsintheabilitytotradeelectricityfreelyacrosstheEU.Thiswillensurethatelectricityisproducedwhereitischeapestandnotrestrictedtolocalmarkets.Thisisextremelyimportantforrenewablegenerationsincetheresourceavailabilityvariessignificantlyacrossthecontinent.Windturbineslocatedonthenorthwesterncoastscanproducemanytimestheoutputofthoselocatedinthecenterofthecontinentwhilstsimilardifferentialsexistforsolarproducedinthesouthcomparedtothenorth.

Consumersshouldbeabletoprocurerenewableelectricityfromthecheapestregionsandeasilyarrangethenecessarytransportationcontractstoensurethiselectricitycanbeconsumedwhereneeded.At

4 Prioritydispatchwasintroducedtooffsetthebiasesthatexistinamarketinitiallydesignedforfossil-fuelledgeneratorsandensuresthatoutputfromrenewablegenerationisthelasttobecurtailedassystemoperatorsseektomaintainthestabilityandsecurityofthepowersystem.Thisprovidesassurancestorenewabledevelopersthattheoutputfromtheirprojectwillbemaximized.

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present,thisisextremelycomplicatedandonlypracticableinregionswhereMemberStatessharethesamemarketarrangements(e.g.Nordpoolregion).Onepotentialwaytoencouragemoreinter-statetradingwouldbetoestablishlong-termtransmissionaccessregimesthatwouldenableconsumerstoaccesselectricitygeneratedelsewhereviacross-borderinterconnection.Financialtransmissionrights,whichwouldspecifythesource/generationzoneandsink/loadzoneoftheelectricitytrade,wouldpresentanappropriatesolution5.ThenewmarketdesignshouldincludeproposalsforfacilitatingthefreetradeinrenewableelectricityacrosstheEUtoenableconsumerstoaccessthecheapestavailablerenewableresources.

ConsumerfocusedmarketTheelectricitysystemwasdesignedwiththeobjectiveofensuringsufficientelectricitywouldbeproducedbylargepowerstationsconnectedtothetransmissionnetworktomeetthedemandfromconsumers.Whilstthisstillremainsimportant,ithascreatedasetofrulesandregulationsthatcanmakeitdifficultforconsumerstoproduceelectricitytomeettheirownneedsandsellsurplusestoothersatareasonablerate.Thisissueisnotonlyrelevantforlargeandsophisticatedbusinessconsumers,butincreasinglyimportantforthelargenumbersofsmallerconsumersseekingtogeneratetheirownrenewableelectricity.

Theregulatoryframeworkmustrecognizethischangingsituationandensureappropriaterightsandobligationsareinplace.TherevisedRenewableEnergyDirectiveshouldestablishbasicprinciplesofcustomerparticipationthatincludetheenforceablerighttoindividuallyorcollectivelyproduceandconsumetheirownelectricity,aswellastherightofaccesstothegridtosellsurpluselectricityunderfairconditions.

AGENTSFORCHANGE

Increasingpolicyambitionforrenewableenergydeploymentwillremainimportantoverthecomingdecadesandprogressivebusinesseshaveakeyroletoplayinencouragingandsupportingmovesbypolicymakersinthisdirection.However,itmaybepossibleforconsumerstoplayamoredirectroleindrivingforwardtheenergytransitionthroughtheirdemandforrenewableelectricityandtheassociatedproductsandservicesthatwillformpartofamodern,cleanandefficientenergysystem.Thiswouldrequirethatthedemandfromconsumersforrenewableelectricitybeginstodrivedeploymentatalevelthatwouldgobeyondthetargetsbeingsetbygovernments.

WhilstRE100membersareleadingthewayindemonstratingthebusinessimperativeandachievabilityofsourcingelectricityexclusivelyfromrenewables,nowisthetimetomakethisopportunityaccessibletoa

5Currently,inlinewiththecross-borderEuropeanmarketdesign(i.e.TargetModel),countriesthatexchangerenewableenergyarerequiredtospecifyindividualcross-borderinterconnectorsalonga“hypothetical”routeoftheelectricityflowbetweencountryofexportandcountryofimport.Then,theappropriatecapacityonalltheinterconnectorsspecifiedwouldneedtobereservedforthistradetobefirm,throughpurchasingPhysicalTransmissionRights(PTRs).Itiswellrecognizedthatthisapproachisinherentlyinefficientandwillcreatebarriersformarketintegration,particularityinthecontextofrenewableenergyexchange.AsarguedinarecentreportfortheEuropeanUnion(“PhysicalandFinancialCapacityRightsforCross-BorderTrade”,reportforEUCommission,Sept2011),FinancialTransmissionRights(FTRs)couldprovideasolutiontothisproblem,astheypresentanobligationbetweentradingpartieswhichwouldonlyspecifythesource/generationzoneandsink/loadzoneoftheelectricitytrade,butnotallmultipleinterconnectorsthatmightlinkthesezonestogether.OneofthekeyadvantagesofFTRsoverPTRsisthatcontractsforexchangeofpowerindifferentdirectionscanbenetted,sothattheabsolutevalueofthetotalvolumeofcontractsfromonecountrytotheothercangreatlyexceedtheactualcross-bordernetworkcapacity,considerablyenhancingcompetitionineachmarket.

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muchbroaderrangeofconsumers.Theeasiestwaytoencouragewideappealacrossallcategoriesofconsumerswouldbebyensuringthatmeetingelectricityneedsfromrenewablesourcesbecomesthecheapestandsimplestoption.Currently,itgenerallyrequiresmoreefforttoseek100%renewableelectricitysuppliesthantoprocureastandardproductderivedfromamixofrenewableandnon-renewablesources.Thissituationcouldbereversed.

Ratherthanrelyingonacertificationschemeforrenewableelectricity(REGOs),itwouldbepossibletocreateacertificationschemefornon-renewableelectricity.Thiswouldenablethesaleofrenewableelectricitytobecomethe‘default’optionforconsumers,withthosewishingtopurchasenon-renewableelectricityhavingtoactively‘opt-in’.Thiscouldcreateahugelysignificantcustomer-leddriveforthedecarbonizationoftheelectricitysystemsincethemarketfornon-renewableelectricitycoulddecreasesignificantly.EUpolicymakersshould,therefore,recognizethechangingenergymixontheelectricitysystemandconsiderensuringrenewablesbecomethedefaultsupplyoptionthroughimplementingacertificationschemefornon-renewableratherthanrenewableelectricity.

However,thetransformationoftheelectricitysystemwillneedtogobeyondsimplyincreasingtheproportionofrenewableelectricitysupplies.Thesystemwillneedtobecomefarmoreflexibletoensurealltherenewableelectricityisefficientlyutilized.Thisflexibilitycanarisefromanumberofsourcesincludingstoragetechnologies(e.g.batteries)andincreasingtheabilitytotransferpowerbetweenregions(includinginterconnectionsbetweencountries).However,perhapsthelargestpotentialnewsourceofflexibilitywillarisefromconsumersactivelyshiftingtheirelectricitydemandinresponsetoinstructionorshorttermprices(so-calleddemandsideresponse).

Astheabilitytomeetdemandfrom100%renewablegenerationbecomesacredibleaspirationforawiderangeofconsumers,thereistheopportunityforthemoreprogressiveandsophisticatedconsumerstohelpdrivethewiderelectricitysystemtransformationandencourageamuchmoreflexibleenergysystem.Currently,consumersattemptingtomeetdemandfrom100%renewablegenerationwillachievebalanceovertimescalesoftypicallyaroundayearsincethisfitswellwithannualcompanyreportingcycles.However,thisinevitablymeansthatformostofthetime,theconsumerwilleitherbe‘toppingup’electricitysupplyintheshortertermmarkets,usingamixofrenewableandnon-renewableelectricity,or‘spilling’excesspurchasesofrenewablegeneration.

Itispossibleforconsumerstotarget100%renewableelectricitysupplyovermuchshortertimescalesand,ultimately,ineveryindividualsettlementperiod.However,thisrequiresthatrobustsystemsfortheautomatedadjustmentofdemandarewidelyavailable,alongwithliquidshorttermmarketsinproducts(e.g.storage)thatwillallowsupplyanddemandtobebalanced.

Progressiveelectricityconsumershavetheopportunitytotakethenextstepandseek100%renewableelectricitysupplyateachmomentintime.Indoingso,theywouldbecomeagentsforchangeinhelpingtodriveforwardthedeploymentinsmartbuildingtechnologiesthatwillsignificantlyincreasetheflexibilityofdemand.However,itisimportantforpolicymakerstorecognizethatconsumerscanbeencouragedtotakethisnextstepbyusingthemarketdesigninitiativetopromoteamuchmoreflexiblepowersystembyencouragingavailabilityofservicessuchasdemandresponseandstorage.