Erik Rakhou is a specialist in the European energy market strategy and policy development, with nearly 20 years of experience. He is an alternate member of the ACER Board of Appeal (2016-21), a high-level independent European energy regulatory body for the review of ACER decisions. Rakhou is also a consultant for Baringa Partners, a management consultancy with deep expertise in energy. Renewable Watch interviewed him and discussed the regulatory landscape pertaining to the renewable energy sector in Europe. Excerpts…
What have been the key developments pertaining to renewable energy regulations in Europe in the past few years?
The key push for increased investment in renewable energy in Europe over the past few years has come from a twintrack of national subsidies paid by member states of the European Union (EU) and the declining cost of solar and wind infrastructure. The subsidies, in turn, were the result of ambitious renewable energy targets set for 2020. Market innovation through power purchase agreements backing renewables development has been supportive. A note of caution is that there is a regulatory challenge for the emerging decentralised and renationalised energy market landscape.
What are the regulatory challenges in the renewable energy sector in the EU?
For each solar and wind project, a diligent regulatory analysis is a must. This is because each member state has specific detailed regulations, besides the EU-wide provisions of a clean energy package and EU network codes. Globally, the key challenge for renewables is getting the coupling with flexible thermal generation right. In particular, gas has been on the rise in 2019 as a transition fuel. To this end, getting the gas and carbon pricing framework in Europe to support decarbonisation is the key for continued support to renewables’ growth.
How can emerging technologies like blockchain disrupt the existing renewable energy regulations in the EU?
The speed of some of the recent developments is amazing. The external environment including the rise of cloud computing and developer tools has made the cost of digital innovation more affordable. This is bound to result in appropriate disruptions, if a level playing field is assured in the EU regulations for asset-light players that bring digital solutions for optimising energy trade in short-term markets. European energy regulations support its development in an increasingly decarbonised world. Emerging and soon-to-be-proven technologies, be it blockchain used for peer-peer trading, AI algorithms used for battery optimisation or energy efficiency, biogas installations, hydrogen electrolysers or enhanced carbon capture and storage installations used for the decarbonisation of industrial processes they must be able to interact with energy infrastructure and support decarbonisation. The key to such interaction is ensuring a level-playing field between existing players with lots of assets and asset-light players. The implementation of the clean energy package and the forthcoming green deal of the commission could be game changers.
What is your outlook on the regulations pertaining to renewable energy in the EU? What are the emerging opportunities?
In a number of EU member states, investments in renewable energy have been heavily influenced by subsidies. Meanwhile, the levellised cost of energy has come down radically for these technologies, which has led a few companies to bid “subsidy-free” on offshore wind tenders (Vattenfall in the Netherlands, for example). This shows that some firms need to assume that wholesale power prices will have to support adequate investments for renewables. With rising renewables, wholesale price levels may drop, at least during some hours of the year. This price risk may endanger the feasibility of increased investment in renewable energy sources. Governments may mitigate price risks by influencing power demand and strengthening electricity demand with decarbonisation policies. The rising electrification will need increased coordination of cross-border energy flows and increased use of energy infrastructure through Europe. This is work-in-progress through the clean energy package and EU network codes’ implementation. I expect that asset-light players active in digitalisation may assist decarbonisation in electricity, if and when a detailed regulation permits them to operate at par with asset-heavy utilities. Ironically, in frontier tech such as gas, hydrogen and storage, one may require asset-heavy players to step up the investment in parallel. The latter is needed to address the intermittency issue and the growing energy demand. Understanding the policy and regulatory directions and their impact on businesses in Europe is necessary for any market entry. It is more risky for a start-up in Europe to underinvest in regulatory understanding than to underinvest in its business development team.
(The views presented above are the author’s personal views and do not represent those of the ACER Board of Appeal and Baringa Partners.)