ICIS Power Perspective: France likely to miss 2020 renewables target

06 October 2017 11:32 Source:ICIS

France remains 7.8 percentage points away from its 2020 target for renewables in final energy consumption, with only the Netherlands further behind its target among the 28 EU member states.

Despite a commitment from the French president to significantly increase wind and solar capacity over the next few years, ICIS analysis suggests that the country is likely to miss its legally-binding renewable energy target, which could result in substantial fines.

Market participants can expect a slightly bearish impact on French wholesale power prices, because increased generation from low-cost renewables to try to close the gap on the target will depress future prices.

Background

• All EU member states are bound by renewable energy targets as laid out in the union’s 2009 Renewable Energy Directive, which requires the EU to fulfil at least 20% of its overall energy consumption with renewables by 2020

• France’s binding target for the share of renewables in total energy consumption is 23% by 2020, but in 2015 the country had only achieved 15.2%.

• Within the overall target, there is a further binding target for at least 10% renewables in the transport sector by 2020, which has to be met by every member state

Policy

• Prior to 2016, support to renewable projects was provided by a feed-in-tariff (FiT), whereby project operators were paid a set price irrespective of the wholesale price

• In 2016 the French government began to move to a contracts for differences (CfD) model, whereby the developer will be paid the difference between the wholesale price and the cost of generation from renewable sources – this is intended to bring down the cost of subsidies

• However, onshore wind producers have the right to switch back to a contract based on FiTs within three years of opting for a contract based on a premium. This opt-out has been criticised by the French energy regulator

• The government has also introduced a competitive tendering process for all future renewable capacity

• The scheme is technology-specific as tenders are for individual technology types, rather than forcing technology types to compete against one another for subsidy

• France has received criticism for the significant amount of red tape, with long tender timelines and complex appeals processes, which have prevented the country from bringing renewable capacity online quickly. The new government has pledged to streamline the system

Analysis

• France’s national renewable energy action plan (NREAP) from 2010 laid out how the country planned to meet its 2020 renewable targets

• The NREAP set individual targets for renewables in electricity (27%), transport (10.5%) and heating and cooling (33%) for meeting the overall 23% target

Output

• If French consumption were to remain flat over the next five years, renewable output would need to increase from 265TWh in 2015 to 401TWh in 2020 to meet the country’s overall target – an average growth rate of 8.6% per year

• From 2010-2015 renewable output increased by only 3% per year

• Since 2004, France has only achieved more than 8.6% year-on-year growth on two occasions. The country has also seen falling renewable output in two years, most recently in 2014

Individual targets

• France is on course to reach its target of 10.5% renewables in the transport sector, having achieved 8.5% in 2015

• However, the country is unlikely to reach its targets in the electricity and heating & cooling sectors given the gap between the most recent results and the targets

Capacity

• The NREAP expected renewable electricity capacity to total 62.2GW in 2020, which would require a 34 percent growth over the next four years – over the previous four years renewable capacity grew by only 22 percent

• The country has already exceeded its solar targets but remains far behind its goals for both onshore and offshore wind

• The first offshore wind projects are not due to come online until 2021/2022 due to regulatory delays, so will not be able to contribute to the renewable target (click here for analysis)

• The country is planning to double onshore wind and solar capacity by 2022 (currently 18.4GW combined), though it is unclear how much of this capacity will be online by 2020

• Even if all of this capacity came online by 2020, at a combined and weighted load factor of 20%, the additional capacity would add 32TWh in 2020, representing only 24% of the additional output required in the flat consumption scenario outlined above

Options

• The new government can try to increase renewable capacity or reduce domestic power demand to increase the share of renewables

• The country could also make arrangements for statistical transfers of a specified amount of energy from renewable sources from another member state

• If France is still short of its binding 23% renewable commitment, it could face significant fines from the European Commission

Market impact

• Slightly bearish for French wholesale power prices, as increased generation from low-cost renewables to try to close the gap on the target will depress future prices

This analysis was originally published as part of the new ICIS power analytics product, Power Perspective. For more information and to get a free trial set up, please contact Justin.banrey@icis.com

By Matthew Jones