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Independent energy supply – both sustainable and more economical

Gustav Melin.
Gustav Melin.

Gustav MELIN

President, European Biomass Association.

CEO, Swedish Bioenergy Association.

It is a common practice to focus on the “greater good” when dealing with environmental problems and to disregard economic realities. The environment is so important that some people tend to forget using money efficiently. Other people believe that all environmental solutions are costly and unprofitable. None of these views are true.

When it comes to the energy markets in Europe the political influence has produced a lot of new renewable electricity but often at a very high cost and as a consequence with severe impact on national budgets. In some countries the support to renewable electricity has been withdrawn for this reason. Spain can be mentioned as an example, when January this year they decided to cancel their support schemes and new investments were stopped. This is understandable, not every country is rich and can spend money as freely as Germany and guarantee producers of specific renewable electricity around 20 euro cents regardless that the cost of the produced energy on the electricity market falls nearly to zero or even below. Recently, the electricity market and the costs of the “Energiwende” also have become the object of the debates in Germany.

In Europe, it is already agreed that every country should decrease their emissions of carbon dioxide and increase the share of renewables. Another ambition for most of the countries is to reach a level of reliability of supply. Last year, Sweden already managed to reach our renewable energy target for 2020, i.e. 8 years in advance. In 2012, we had 51 per cent renewable energy. This can be compared to the Swedish situation in the 1970-ies when Sweden was very much like any other country and depended on fossil energy imports with a share of 80 per cent of the total energy supply, mainly oil. But how has this been achieved in Sweden? Sweden has had a stable and good economic growth for years and at the same time decreasing emissions of carbon dioxide.

It was the impact of the oil crises and increased energy bill that was a wakeup bell for the Swedish society. With no domestic fossil energy sources it was not difficult to agree on focusing on producing domestic renewable energy from water resources and Swedish forests and some nuclear power. But we have not learnt much from Sweden when we faced the choice of using domestic resources, every country obviously prefer to use domestic resources. What are the best practices to be learnt and copied from the other side of the Baltic sea?

The first choice was to use the Polluter Pays Principle, which means that everyone producing emission that has negative effect on society should pay for this damage. Sweden has carbon dioxide tax, NOX and sulphur fees, the already existing infrastructure with district heating together with the introduction of the carbon tax for heating in 1991 made it easier to convert large district heating plants and CHPs (Combined Heat and Power plants) from oil to consumption of wood chips, waste incineration or peat. This made the change possible in large volumes year by year. In the first year, wood chips cost more than oil but today the price per energy unit for wood chips is less than half the world market price of crude oil. Besides, using wood pellets in powder burners is more profitable than heating oil in industrial installations all over Europe. Wood pellets have a lower energy price per unit, and a change to pellets also release Emission Trading Rights to sell.

The carbon dioxide tax has many advantages, including making everyone in the society act. For example, you go by bike instead of a car, insulate the house or replace windows with better ones, switch to a renewable fuel, and buy more energy efficient appliances and products. All these efforts are for the sake of reducing your costs and it is profitable. Companies start developing better products for sale, the national budget is strengthened by the tax income and the government can decide to support deprived people that have difficulties in coping with higher energy costs, or just decrease income tax like Sweden has done for three times.

The change to a more energy efficient and renewable energy system is not necessarily difficult or costly, but it takes time. In the Swedish case, this change has been steady over a long period of time, since the two oil crises in the seventies until today. Over 40 year years, the use of bioenergy has grown by 100 TWh, and today the annual cost for the same volumes of oil imports would reach about EUR 5 billion!

A crucial factor for companies is that incentives and support schemes are long-term and steady, so that all stakeholders on the market can rely on them. A carbon tax is better than a direct subsidy in this respect. If the government faces economic hardship, it is easy to slash the subsidies down, but the tax would be kept in place. The Swedish carbon tax has never been reduced, but from time to time it has been increased, often in combination with cuts on income taxes, so called “green tax switch”.

In order to develop a cost efficient system to support new renewable power production Sweden started with the Green certificate system in 2003. This system pays an additional certificate value on top of the ordinary market price. This is a good system; it means that also the renewables have to secure their financing from market signals and not by political decisions made outside the market. Swedish consumers pay 1.0 Euro cent per kWh for their renewable electricity and benefit from lower electricity prices on the market. In September, Germany decided to fix the cost for renewable energy at6,24 Euro per kWh onwards. On 1 January, Norway has joined the Green certificate system and I personally believe that Lithuania would also gain from joining the system when the cable link between the countries is opened. Only certain amount of investments falling in Lithuania must be secured.

Change to a renewable energy system is mainly concerns  infrastructure investments. Investment into power grids is popular and important. But to be able to produce more power at a low cost, investments into district heating grids are also crucial. In Europe, about 50 per cent of the energy is consumed for heating, only 25 per cent is electricity. Infrastructure funds could be used for profitable district heating grid investments that are difficult to pursue due to planning permission issues and lack of understanding, but it is still an important path to profitable supply of renewable electricity and heat.

I wish you good luck in your important work at gaining independence and sustainability in a profitable way – it is possible and not difficult but it does not happen without wise decisions.


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