For a wider use of renewable energy: incentives & strong legal framework

Renewable energy is firmly increasing its share at the world energy market. Albeit light regulatory frameworks, burdensome procedures and lack of incentives can discourage its wider use and the necessary investments in the renewable energy projects.

Accordingly, the article presents national reference legislation that could serve as a source of inspiration for regulators aiming to promote renewables (II., III. and IV.). These parts are preceded by a short description of the international regulatory framework, including the recently proposed EU Renewable Energy Directive (I.) and followed by a few hints on missed regulatory techniques, ongoing public consultations and links (V., VI. and VII.).

Beforehand, it deems necessary to note that the definition of renewable sources is crucial. Generally, regulators define them as a form of low-emissions energy produced from water currents, the wind, stored solar power, biomass, geothermal and other sources found in nature. However, there are quite some differences once we look at the details of the respective definitions. And these details may have far-reaching implications.

We also believe that limits to an unsustainable harvesting of renewables shall be instituted. Mostly, renewables are significantly less polluting than conventional sources of energy. Nevertheless their harmful side effects shall not be dismissed. Additional regulatory measures limiting these unintended side-effects will be presented in Part III. of the article.

I. International framework and supra-national law

Apart from international climate treaties, i.e. the recent Paris Agreement, the international regulatory framework does not contain a specific and binding document governing the renewable energy sector. Nevertheless, the International Energy Charter calls for cooperation in the development of renewable energy sources to enhance energy security and sustainable economic growth.

When it comes to the institutional framework, the International Renewable Energy Agency (IRENA) plays a pivotal role. The intergovernmental agency is supporting its 177 member states to achieve the highest renewable energy potential with its policy, technical and resource knowledge. The Agency regularly publishes practical handbooks for policy development, quarterly publications, data and reports on the use of renewables worldwide.

At the level of the European Union (EU), the promotion of the use of energy from renewable sources is regulated by the Renewable Energy Directive.

The European Commission has recently proposed a new text. The proposed Directive prescribes higher “binding renewable energy target” for 2030, i.e. 27% of energy consumed at EU level should be from the renewable sources of energy. Nevertheless, Member States can fix more ambitious targets, while limiting the unsustainable production of biofuels, bioliquids and biomass fuels.

The proposed Directive can be commended as it calls for more predictable rules for investors and requires a simplification of permit-granting processes, with a clear time limit for the decision to be taken by the single administrative contact point. Moreover, a simple notification by the SMEs (small and medium-sized enterprises) is required to ease their contributions to the renewable energy market. Furthermore, it is foreseen to empower consumers to generate, store, consume and sell renewable electricity without facing disproportionate burdens and to increase energy autonomy of remote areas that are rich in renewable energy sources. Similarly, mainstreaming of renewables in cooling/ heating and in transport sector is set as a priority. The draft directive contains concrete benchmarks, e.g. 1.5% in 2021, increasing up to at least 6.8% in 2030. When it comes to the “guarantee of origin” of energy source – provided to the final consumer – renewable gas is newly covered, which allows energy chain tracking.

II. National regulatory references

We present five different models of legislation that might be used as a regulatory reference in renewable energy sector. Particular attention was given to incentives and procedural aspects of permits / licenses as means for boosting investment in renewable energy projects and wider use of non-conventional energy among the final users.

In bold we note regulatory measures and interesting legal provisions worth including in the legislation on the promotion of renewable energy.

1. Tonga has a type of “light” legislation that briefly governs essential aspects of renewable energy sector, e.g. concession agreements, competent authority and its functions, technical and safety standards and enforcement provisions. Nonetheless, it covers 13 types of renewables, including plant, animal or marine resources and fuel cells, i.e. a device which takes stored chemical energy and converts it to electrical energy directly.

Tongan law is easily comprehensible and can be commended for the attention it confers to the private sector investments and access of people to renewable energy services in remote areas. Moreover, the law briefly mentions the feed-in-tariff system. This is a typical form of monetary incentive in the renewable energy sector, offering long-term contracts and price stability. It is foreseen that feed-in-tariff system shall be further governed by Tongan regulatory acts. In case of non-compliance, authorities can lead investigations and impose injunctions.

Commendably, Tonga has set up a (cross) – regulatory improvement automatism. According to this mechanism, laws, practices and procedures are periodically reviewed with a view to promoting the use of renewable energy. This includes fiscal measures such as duties and taxes.

2. China has adopted a legislative framework aiming to overcome the country’s big dependence on fossil fuels, with particular focus on solar power, biomass fuels and energy crops, i.e. herbs and woody plants. The law envisages a “resource survey”, i.e. an investigation into the renewable sources of energy present on the Chinese territory. The survey shall also define the medium to long term national renewable energy volumes to be exploited. It sets up national technical standards for grid-connected renewable energy and other standards for renewable energy products / technology that require uniformity across the country. Moreover, power grid enterprises shall improve their current installations in order to better absorb renewables and to connect them to the internet.

As other jurisdictions, China has set up a system of administrative licenses for construction of renewable energy projects as well as diverse incentives to encourage further development and use of renewable sources, namely:

        • Preferential loans with financial discounts;

        • Creation of special renewable energy fund with particular focus on rural areas;

        • Tax concessions.

Scientific and technological research in the development of renewable energy is set as a priority. The acquired knowledge shall be included in the general education courses.

Commendably, the Chinese law requests electricity grid companies to buy all the power produced by the renewable energy generators. In case of non-compliance, fines are imposed which can go up to the double amount of the economic loss of the renewable energy generator.

Finally, criminal responsibility is foreseen for officials of energy administrative authorities when there is:

  • Failure to make decisions on granting administrative license;

  • Failure to investigate illegal activities discovered; and

  • Other failures in performing regulatory duties according to law.

3. Taiwan has a “medium-complex” legislation on the development of renewable energy. It enlists general domestic and industrial waste among the renewable sources of energy. On top of the import tariff exemptions, Taiwan has adopted diverse measures to encourage “non-pollution green energy”: subsidies for renewable energy electricity fees, promotion and development measures and minimum prices. The wholesale purchase tariff shall not be lower than the average cost of domestic fossil fuel energy. Experts and scholars are invited to validate or annually amend the aforementioned tariff whilst considering the technical progress in power generation and changes in cost.

Additionally, reward encouragement is envisaged for:

  • Renewable energy power facility with development potential;

  • Heat utilisation of solar energy;

  • Biomass fuel.

Moreover, use of renewable energy shall be set as a priority in public buildings.

Furthermore, electric power grid enterprises shall grant renewable energy power facilities access to the power grid. Mediation as means for dispute resolution is obligatory before initiating legal proceedings. Supervision of renewable energy power facility installers is stipulated, as well as their reporting obligation to the competent authority.

Finally, the approval procedure for renewable energy projects is foreseen to be adopted by a more detailed regulatory act.

4. The legislation of Antigua and Barbuda is one of the most complete regulations governing the promotion of renewables. Not only that it contains a range of tax and financial incentives, it also exhaustively regulates the licensing process of renewable energy facilities, e.g. a simplified procedure with fixed deadlines. Thus the legislation boosts investments by responding to the quality requirement of predictable and clear legislation.

More concretely, Antigua and Barbuda adjoins several incentives to the “usual” and wide spread feed-in-tariff and net-metering system, i.e. a system availing electricity distribution person to receive a credit for any excess energy supplied to the public grid.

Additionally, Antigua and Barbuda grants 10-year tax exemptions and 5-year waiver of import / customs duties for any renewable energy machinery or installation. An interesting provision rarely found elsewhere requires form the executive to annually report on the performance of the above-mentioned incentives, as well as on the progress of the “renewable energy targets”. In addition, the minister shall undertake an environmental impact assessment on the use of biomass.

Despite very comprehensible and complete nature of the legislation of Antigua and Barbuda, regarding the general definition of renewable sources of energy, we suggest rather looking into the legislation of New Mexico, which defines them as:

(1) generated by use of low- or zero-emissions generation technology with substantial long-term production potential; and 

(2) generated by use of renewable energy resources that may include:   

(a)   solar, wind and geothermal resources; 

(b)   hydropower facilities brought in service after July 1, 2007;   

(c)   fuel cells that are not fossil fueled; and 

(d)   biomass resources, such as agriculture or animal waste, small diameter timber, salt cedar and other phreatophyte or woody vegetation removed from river basins or watersheds in New Mexico, landfill gas and anaerobically digested waste biomass; but 

(3) does not include electric energy generated by use of fossil fuel or nuclear energy.

5. The Philippines has a very complete legislation on the promotion of renewable sources of energy. The law is extremely rich in incentives and encourages investments in renewable energy projects through:

  1. Income tax holiday (for 7 years) and additional income tax exemption (for 3 years);
    Duty-free importation of Machinery, Equipment and Materials (first 10 years);

  2. Special Realty Tax Rates on Equipment and Machinery;

  3. Net Operating Loss Carry-Over (deduction from gross income for 7 years);

  4. Corporate Tax Rate of 10 (following the 7 years of income tax holiday);

  5. Accelerated Depreciation;

  6. Zero Percent Value-Added Tax Rate (0 VAT);

  7. Cash Generation-based Incentive in remote areas;

  8. Tax Exemption of Carbon Credits;

  9. Tax Credit on Domestic Capital Equipment and Service;

  10. Renewable energy suppliers in off-grid areas shall be exempted from the payment of the universal charge, generally imposed on all electricity end-users;

  11. Tax Rebate for the purchase of renewable energy equipment for residential, industrial, or community use;

  12. Preferential financial packages for the development, utilisation and commercialisation of renewable energy projects offered by the governmental financial institutions.

Moreover, an administrative system of certifications has been set up. The certification entitles to incentives.

The Philippines has also introduced a program called “Green Energy Option”, that allows end-users to choose renewable energy as their source of energy. As a form of supervision, the end-users shall remain informed via a monthly bill how much of its monthly energy consumption and generation charge is provided by renewable energy facilities. Similarly to Antigua and Barbuda, the Philippines has created a “Renewable Energy Trust Fund” for greater use of renewable energy. In the present law, provisions are very detailed regarding the funded activities, e.g. research, promotion and the manner of contributions to the fund.

Interestingly, a government share from the sale of produced renewable energy (1 % of the gross income) is prescribed. 80 % shall be used directly to subsidize the electricity consumption of end users whose monthly consumption does not exceed 100 kw/h (kilowatt-hour). Additionally, micro-scale projects to promote the development of renewable energy under 100 kilowatts shall be exempted from the government share scheme. For off-grid areas, an obligation on electricity suppliers is imposed to include a fixed minimum percentage of overall sourcing from the renewable sources of energy. Moreover, the adoption of waste-to-energy facilities such as biogas systems shall be encouraged.

To conclude, the Philippine law is very comprehensible and of coherent length and depth. However, when it comes to licenses and approval procedure, we would suggest studying the law of Antigua and Barbuda.

III. Special provisions on particular sources of energy

Regarding different sources of renewable energy, we commend regulations enlisted below. Nevertheless we need to note that – without the appropriate measures adopted – a legislation promoting bigger use of renewables can also lead to unintended and disastrous side side effects. We present several examples under each section.

1. Exploration, exploitation and utilisation of geothermal sources of energy is governed in Indonesia inter alia by principles of efficiency, affordability, safety, preservation of the environment. A system of permits and licenses is set up. Their validity ranges from 7 to 30 years, depending on the nature of the activity (max. 7 years for the exploration activities). The community may participate, i.e. by reporting on hazards, pollution or destruction of the environment. Equally, the population has a right to information and to benefits from the geothermal activity.

Negative side effects of geothermal energy include: Harmful gases can escape when holes are being drilled, under extreme circumstances causing earthquakes1. The respect of technical standards enshrined in the legislation could possibly curb these damaging side effects. Additionally, the geothermal power plants can contaminate drinking water2. In this respect, Massachusetts has adopted guidelines prescribing set of construction requirements and water / pressure testing of the heat pump.

2. Minnesota has recently engaged to further increase the production of solar energy and has adopted absorbing measures in this regard. Innovative “community solar gardens” are foreseen to expand the production of solar energy by giving costumers the possibility to buy individual solar panels in shared solar installations. On top of the existing solar thermal rebates, production-based incentives, i.e. the amount of electricity produced were created to boost investments in high-performing areas.

Argentina (available only in Spanish) grants tax exemptions and encourages the use of solar energy, i.e. solar panels, hydraulic pumps and solar distillers at all levels, e.g. residential, public sphere and industry level.

Negative side effects of solar energy3 include: Polluting chemicals are used in the manufacturing of solar panels and the byproduct waste, i.e. silicon tetrachloride has environmentally dangerous consequences, e.g. acidity of soil, polluting fumes. To curb the latter, recycling of the byproduct and stringent rules and standards on the construction / utilisation of solar panels shall be instituted. Chinese law offers a regulatory reference in this respect.

3. The development of wind energy is encouraged by the Maine legislation in order to increase its energy independence, to help stabilise energy bills and to reduce greenhouse gas emissions. However, potential scenic impacts and specific adverse environmental effects of wind energy call for a state permitting decision pursuant to approval criteria, which are exhaustively enlisted in the present regulation. Moreover, a “visual impact assessment” is prescribed.

Negative side effects of wind energy include: On top of the aesthetic side effects, fatalities of migratory birds and bats are a reality. The latter could be possibly reduced by decreasing operating hours of wind turbines on low wind periods. Secondly, wind power plants demand vast land usage and construction of connecting roads4. A proper planning in line with environmental and urbanistic standards is essential. The law of Maine can be used as a regulatory reference in this respect. More concretely, Maine has introduced a state approval procedure in accordance with exhaustively listed approval criteria and a “visual impact assessment” to limit the negative side-effects.

4. The law of the Philippines – in addition to being a very good regulatory reference – contains one of the broadest definitions of biomass resources:

“non-fossilized, biodegradable organic material originating from naturally occurring or cultured plants, animals and micro-organisms, including agricultural products, by-products and residues such as, but not limited to, biofuels except corn, soya beans and rice but including sugarcane and coconut, rice hulls, rice straws, coconut husks and shells, corn cobs, corn stovers, bagasse, biodegradable organic fractions of industrial and municipal wastes that can be used in bioconversion process and other processes, as well as gases and liquids recovered from the decomposition and/or extraction of non-fossilized and biodegradable organic materials;

Equally, the law gives specific incentives for farmers engaged in the plantation of biomass resources, i.e. duty-free importation and exemption from Value-Added Tax (VAT) on all types of agricultural inputs, equipment and machinery.

Negative side effects of biomass in general include: air pollution owing to a bad production of biomass, i.e. not being fully combusted and health hazards due to large biomass plants have been evidenced5. One could look at the legislation of Antigua and Barbuda which envisages that the minister shall conduct an environmental impact assessment on the use of biomass in order to prevent environmentally harmful side effects.

Biofuels require an intense cultivation of land, thus replacing food plants needed for the local population. This increases food prices and may lead to food shortages. In addition, the production of biofuels itself is, according to some sources, creating carbon emissions and is environmentally unfriendly6. More specifically, forests in South-East Asia and Brazil are affected, e.g. by destroying of the natural habitat of many animals and plants, by releasing the CO2 stored in the forests, or by ruining the soil. See, as an example of a regulation trying to avoid these side-effects, the EU Renewable Energy Directive. It has established sustainability criteria for biofuels and bioliquids. These criteria shall guarantee that biofuels are used in a way that provides CO2 savings and protects biodiversity.

5. Regarding the negative side effects from the water energy, hydroelectric dams negatively affect aquatic ecosystems caused by the changes in the river flow. Moreover, dams can generate catastrophic consequences for populated areas in the vicinity due to the failures in construction, some even report of earthquakes7. We believe that close supervision of the respect of robust technical standards enshrined in the regulation is vital. Beforehand, a failure risk assessment shall be done, as prescribed by the regulatory framework of Australia.

IV. Special provisions on other issues

1. As a form of private investment incentive, the law of Canada has adopted well elaborated provisions on the net-metering system. This system applies also to “small capacity renewable energy generators”, i.e. a persons who own or operate a renewable energy generation facility with a capacity equal to or less than 100 kilowatts.

2. The most wide spread form of monetary incentive for renewable energy producers is the feed-in-tariff system. Malaysia governs all of its relevant aspects, namely the eligibility criteria, the application for feed in approval, grant, refusal and its eventual revocation.

3. Regarding renewable energy certificates, we commend the legislation of Australia in view of its completeness and detailed nature.

4. As to setting up of a national competent authority on renewable energy, the law of Mauritius could serve as a regulatory reference. It contains inter alia provisions regarding its functions, its members, its obligations and its liabilities.

5. Iceland exempts electric power plants with a rated capacity of under 1 megawatt from obligatory licensing system and solely prescribes notification to the competent authority. The Icelandic law has also foreseen the expropriation of the property for situations where an electricity company is unable to reach an agreement with the owner of a land rich with energy resources.

6. New Zealand envisages to increase public awareness on the importance to use renewable sources of energy, namely by providing information, advice and fostering education programme.

7. Finally, Hawaii has fixed an ambitious national renewable energy target and is committed to become 100 % renewable by the end of 2045.

V. Missed regulatory techniques

1. Cross-boarder cooperation

Among the legislations screened, we have missed provisions on the cross-boarder cooperation among countries. Such cooperation can help to increase efficiency of renewable energy power plants. It can also equilibrate local oscillation in energy production from renewables. Accordingly, harmonised regulatory frameworks, technical standards, financial incentives and cross-boarder cooperation among authorities would be necessary8. Evidently, some of these measures can in some jurisdictions also be taken without a legal basis. However, in some other jurisdictions a legal basis is required. Hence it makes sense to think of cross-boarder cooperation already when drafting regulation.

2. Ensuring that authorities decide in time

We believe that approval procedures for renewable energy projects shall include more specific deadlines already at the level of regulation to foster investments and respond to the requirement of legal predictability. To a certain extent the law of Antigua and Barbuda has pursued this goal.

For other regulatory techniques, including incentives and enforcement, see also the Handbook “How to regulate?” available on this website.

VI. Public consultations

Currently, Switzerland has initiated public consultations on the future framework of its “ordinance”, a technically and procedurally detailed regulatory act to encourage a wider use of renewables. The public consultation and the publication of the results of the public consultations might help regulators to identify new trends in the regulatory sector. Hence we commend studying it.

VII. Further links

If you wish to investigate further:

http://www.ecolex.org/result/?q=renewable&type=legislation&xdate_min=&xdate_max=

http://www.lexadin.nl/wlg/legis/nofr/legis.php

http://www.irena.org/potential_studies/index.aspx

This article has been written by Ajda Mihelčič, M.A.S., on behalf of the Regulatory Institute, Brussels.

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