Green energy in the Baltic states: Lack of will

  • 2005-12-21
  • By Kristine Kolosovska
EU Directive 2000/71/EC, binding to all member states, says that 21.1 percent of all energy sources must be produced from renewable energy sources by 2010 's an ambitious target. The document elaborates the principles of sustainable development in Europe in order to decrease dependency on imported energy. It sets out specific targets for green energy generation for each member state and proposes a range of support mechanisms for promoting renewable energy that may be implemented in local legislation.

The most successful support tool to date is a fixed-tariff scheme that outlines the sales price of green energy (usually higher than the price of electricity produced from traditional sources) for a specific time period. As a result, green energy policies were successful in such countries as Germany, Spain and Denmark, which now are the world leaders in utilizing green energy. However, other tools that follow free market principles failed to work properly; so-called green certificates, tendering systems, and tax incentives failed to produce sufficient impetus for investment attraction.

The Baltic states have included green energy targets in their national legislation. Latvia and Estonia have set out the feed-in tariff support mechanism in their electricity acts. In accordance to this legislation, the electricity network operator is obliged to buy the electricity produced from renewable courses far above the usual electricity price. But with the growth of applications from investors for the permits to install the green energy generators (mainly wind and hydro energy), the governments began to create administrative barriers: limiting the number of megawatts that may be installed; putting ceilings to the maximum amount of energy that the network operator will buy from the green energy generators; creating quotas on the number of market participants; and decreasing the feed factor in the tariff.

No doubt, when it comes to profitability of large state monopolies, the government abandons goals of sustaining environmental development for future generations, employment opportunities (especially in the rural areas) and the overall welfare of society.

In a nutshell, among the two groups of argumentation for and against green energy 's e.g. the environmental and the economical 's the later always wins. The facts speak for themselves: after Denmark abandoned its feed-in-tariff scheme, not a single megawatt of green generator was installed in the country. In the framework of opportunity cost of capital, investors do not see green energy business as a business that can bring sufficient return to justify the risk taken. At the same time, outstanding state support in Europe has made a revolution in green energy technologies. The green energy production costs decreased fivefold in 20 years. Wind, hydro-energy, biomass energy generations have become more efficient and effective. Combined heat and power plants (CHP) proliferated Europe-wide.

Still, the costs to install renewable energy generators are still higher than the costs of traditional fossil fuel. But on the backdrop of rising fuel prices and depleting resources, green energy should be given support.

What can be done in the Baltics? Well, the obvious: governments have to show political will. Having given the guarantees, they should not abandon green energy. The rules of the game should be transparent and clear (how a dialog between business and government usually works). The greatest emphasis should be put on the implementation of international environmental projects within the Kyoto Protocol Joint Implementation schemes that allow trading with Emission Reduction Units with countries that cannot achieve their Kyoto targets. Social education, green energy promotion, feasibility studies - all this has to be in place to get the support of local societies.

Finally, the most important issue - access to financing. As a rule, it is almost impossible to get bank financing for such projects, mainly because bankers are unsure about the legislative guarantees for investors to receive the expected income and be able to sell energy produced from the grid.

According to EU Directive 2000/71/EC, Latvia, Lithuania and Estonia have to achieve their renewable energy target by 2010. With the existing level of "support," there is no sign that the target will be achieved.