Refund individual investment in RES heating systems through direct tax measures
REFUND +
Are direct tax measures an e cient policy tool to support individual investments in RES heating systems?
2
Project team
Coordinator Diane Lescot, Frédéric Tuillé, Observ’ER, France
Project partners Manuel Fernandes, CEEETA-ECO, Portugal Lukas Kranzl, EEG, Austria Nathalie Devriendt, Ruben Guisson, VITO, Belgium Arvydas Galinis, Vidas Lekavicius, LEI, Lithuania Lukasz Kowalski, IPIEO, Poland
e sole responsibility for the content of this document lies with the authors. It does not necessarily re ect the opinion of the European Communities. e European Commission is not responsible for any use that may be made of the information contained therein.
Table of contents
Project background and objectives
................................................................................................................................
5
Description of the measures studied
...............................................................................................................................
6
Results of the economic and qualitative analyses
.........................................................................................
12
Results of the country cross analysis
............................................................................................................................
32
Implementation simulations in two case studies: Lithuania and Poland
....................................................................................................................................................................
36
Recommendations
..........................................................................................................................................................................
48
is summary gives a brief overview of the study and its main results. Many more details on methodology, analysis, results and recommendations can be found in the deliverables of this project which are available at: www.energies-renewables.org/refund
REFUND + O
1. Project background and objectives
5
e main obstacle to the development of renewable energies for private households is related to the high investment cost of installations, which tend to be more expensive than mature and conventional technologies. Direct tax measures (income tax credits, income tax reductions and tax allowances) are among the support instruments that have been used by member States to reduce this initial outlay, but their e ects are not wellknown. e REFUND + project proposes a bo om up evaluation of all di erent EU on-going experiences of direct tax measures targeting individual investment in favour of RES sectors for residential heating. Countries where these instruments currently exist are Austria, Belgium, France, Italy and Portugal. us, these countries have been covered in the project.
REFUND + spread over a period of 32 months. e project used a methodology that associated an economic study, a qualitative analysis and case studies in order to reach the following objectives: • identi cation and monitoring of the impacts of these instruments in the ve EU countries where they are currently implemented; • comparison of the impacts of direct tax measures in these countries, so as to bring out and show best practices; • identi cation of success or failure factors of these policies and the sharing of these ndings via operational recommendations towards corrective actions for the measures already in place and de nition of optimum application modalities for future systems; • simulation of potential tax impacts on the Polish and Lithuanian markets and de nition of best way forward; • communication of recommendations to policy makers; • information for industrialists about the interest aroused by the measure.
Notes
e base year used for the direct tax measures studied in the REFUND + project is 2006. Other national tax measures may have been implemented in Europe since then, but are not covered by our work. Greece is one case in point. It developed a tax base reduction scheme to support its solar thermal sector in 2007. All graphs and tables are om following source: REFUND + 2009, except otherwise speci ed.
REFUND + O
6
2. Description of the measures studied
REFUND + covered all the European countries that o ered individuals tax instruments to encourage investments in renewable applications for heat production. e study of these measures over the 2003 – 2006 period revealed di erences between the policies in application and scope.
2.2. Targeted renewable sectors
Tax measures that cover both energy management and RES promotion and may also include other types of investment. In each country studied the targeted RES sectors for domestic use are solar thermal applications, individual biomass heating appliances and geothermal heat pumps1. All the instruments observed are part of action programmes that extend further and are not just restricted to the renewable energies. e following table summarises the types of investment made by individuals for each country that are eligible for the tax measure in place. e measures tend to be aimed at developing renewable energies in the home and improving energy e ciency (roof insulation, adoption of high-performance equipment, etc.). e special feature of the Austrian measure is that it operates through an “expense pooling” system which can bring together investments of a totally di erent nature quite unconnected with renewable energies. In Portugal, the measure is also one-of-a-kind because individuals can deduct their investments in renewable energy applications from their taxes or annual home loan interest.
e relevant deliverables to this part available on the website are: • the 5 national fact sheets; • the 5 national economic indicator databases.
2.1. Types of instruments
ree types of tax instruments have been adopted in the ve European countries covered by the study: • Tax allowance: a certain percentage of the equipment costs and possibly the labour costs may be deduced from the net taxable income.
Ground-ground, ground-water and water-water technologies and air source heat pumps technologies were not included in the research.
1
• Income tax credit: a percentage of the equipment costs and possibly the labour costs may be reimbursed to the taxpayer against payable income tax for the scal year in which the investment was made. If the total payable tax is less than the deductible allowance, then the di erence is paid to the taxpayer. • Income tax reduction (or tax deduction): using the same principle as the previous measure, but when the deductible allowance is higher than the payable tax, the taxpayer does not receive the di erence. e following table shows a breakdown of each country according to the type of measure they implemented. e implementation year is indicated in brackets.
2.3. How the instrument works
Tax measures that are not always used as the main mechanism for promoting renewable applications to individuals e tax incentive rate basis indicates the investment % that is eligible for calculating the tax relief. In Austria, Belgium and Portugal, the tax relief cap designates the maximum possible support on an investment. In the case of France and Italy the cap designates the maximum expenditure giving entitlement to the measure. In the case of Italy the cap not only applies to hou-
Tax allowance
Austria (1979)
Income tax reduction
Belgium (2003) Italy (1998)
Income tax credit
France (2001)
Portugal (1991-1997)
z
Portugal (since 1998)
REFUND + O
7
Country Austria
List of the eligible expenses
Pool-expenses including building construction and renovation expenses, insurance premium, pension fund contribution, new shares and pro t participating certi cates, individual heat pumps, individual wood equipment, solar thermal appliances. Replacement of an old central heating system by a new condensing boiler, wood boiler or heat pump, energy audit, solar thermal appliances, photovoltaic appliances, higher isolating windows, isolation of roofs, regulation of central heating system by programmable thermostats, thermostatic valves or exterior temperature sensors. Heating equipment (condensing boilers), insulation materials; heating regulation instruments; equipment that uses renewable energies; heat pumps other than air-air designed primarily for heat production; equipment to connect to speci c renewable energy-fuelled heating networks or cogeneration installations. Building energy refurbishment, building insulation, individual heat pumps, individual wood equipment, solar thermal appliances. Individual heat pumps, heating systems using biomass, solar thermal appliances, photovoltaic applications, wind power units below 5 kW. Loan interest for household.
Belgium
France
Italy Portugal
Main features of the tax measure studied (based on the year 2006)
Country Austria Belgium Incentive rate
-1
Tax ceiling
€730
Eligibility contingent on the equipment No Yes for wood boilers, solar thermal and GHP (e.g. e ciency and solar orientation) Yes for wood boilers, solar thermal and GHP (e ciency and equipment certi cation)
Eligibility contingent on the installation No Registered building constructor
Eligibility contingent on the building No Before 2005, owners only. Since 2005, owners and tenants
40%
€1,280
France
50%
€8,000 per adult2
e appliance must be bought and installed Main residence only by a professional Building renovation only No
Italy Portugal
1
36%
€77,468
Not directly but the installation must be validated by an energy No e ciency certi cate No No
30%
€714
RES investment (equipment and installation costs) deductible om the net income included in a pool of expenses (up to an annual amount of €2,920, a quarter of this amount actually reduces the taxable income). 2 So €16,000 for a married couple.
REFUND + O
8
seholders’ investments; businesses and local authorities also enjoy entitlement, which explains the high gure. To get a proper grasp of the context in which these various instruments t, it is essential to understand how they interrelate with the other support policies set up for these sectors. In the cases of France, Italy and Portugal, the tax measures have been introduced as the main national mechanism for promoting individual renewable applications. In contrast, in Austria and Belgium, tax assistance is an adjunct to mechanisms that are essentially based on the direct subsidies granted by the regions. ese di erences in context have an impact on the nal direct role of the measure. e other main point we should emphasise is that technical criteria (applied to equipment and installa-
tion) are stipulated by the legal texts to qualify for tax assistance. In Belgium and France entitlement to the measure is speci cally linked in the texts to equipment and installation eligibility conditions. ese provisions aim to give development of the sectors an e ective framework by ensuring that the quality of the installed equipment is good and that the installation bene ts from skilled workmanship. How the measures operate around two investment examples is table presents the results of a comparison exercise that involved taking two investment examples (€5,000 and €12,000) for each of the measures under study and observing the resulting nancial return for the consumer. For each country the investment is made by a household earning €30,000 in annual revenues for tax purposes.
Simulations of the impact of each tax measure around 2 investment examples
Country Type of measure
Average Annual income example Income tax to be paid (without the measure)
Austria
Belgium
France Tax credit
30,000 € 4,500 €
Italy Tax reduction
30,000 € 4,650 €
Portugal Tax reduction
30,000 € 4,800 €
Tax allowance Tax reduction
30,000 € 5,290 € 30,000 € 4,500 €
Example n° 1: a 5,000 € investment Amount of eligible investment Net incentive Income tax to be paid (with the measure) 5,000 € 257€ 5,033 € 40% of 5,000 € = 2,000 € 1,280 €2 3,220 € 50% of equipment cost 36% of 5,000 € = 2,000 €1 = 1,800 € 2,000 € 2,500 € 1,800 €3 2,850 € 30% of 5,000 € = 1,500 € 714 €4 4,086 €
Example n° 2: a 12,000 € investment Amount of eligible investment Net incentive Income tax to be paid (with the measure) 12,000 € 257€ 5,290 € 40% of 12,000 € = 4,800 € 1,280 €5 3,220 € 50% of equipment cost 36% of 12,000 € = 4,800 € = 4,320 € 4,800 € -300€ 4,320 € 330€ 30% of 12,000 € = 3,600 € 714 €6 4,086 €
1 We estimate the equipment cost at 80% of the total investment. 2 2,000 € of eligible investment but a ceiling xed at 1,280 €. 3 To be shared in 3 instalments of €600 each. 4 1,500 € of eligible investment but a ceiling xed at 714 €. 5 4,800 € of eligible investment but a ceiling xed at 1,280 €. 6 3,600 € of eligible investment but a ceiling xed at 714 €
REFUND + O
9
e nancial impacts of the various instruments are clearer. e contribution of the Austrian measure in the investments is marginal. e Belgian tax reduction is a ractive in the case of a €5,000 investment but the ceiling is low, the impact in the case of €12,000 of expenditure is proportionately lower. e French tax credit is the most generous instrument. In our example, a €12,000 investment entitles taxpayers to tax relief that is higher than their tax liability, in which case the State will send consumer a cheque for €300. e Italian measure is also a very good incentive primarily because of the high ceiling applied to eligible expenses.
In Portugal, the low ceiling limits the scope of the measure. However as the simplest solar thermal applications cost under €3,000, the measure may cover a signi cant part of the investment in that instance. We monitored this criterion over four years for three types of renewable applications to gain a working vision of the trend in the incentive level of these measures. is table is based on the equipment prices presented in part 3 of this report to which we applied the tax reduction mechanisms implemented for each of the 4 years. e sharpest increases are those of France, which rose on from a 15% tax credit to 40% in 2005 (then 50% in 2006), and Belgium which also raised its rate from 15 to 40% in 2006.
Average contribution made by the national tax instrument to the investment costs of three types of renewable application
Country Solar water heater
Austria Belgium France Italy Portugal 5% 12% 12% n/a n/a 5% 14% 12% n/a 27% 4.90% 14% 32% 37% 28% 4.70% 28% 40% 37% 28%
2003
2004
2005
2006
Biomass boilers
Austria Belgium France Italy Portugal 3.50% n/a 12% n/a 7% 3.50% n/a 12% n/a 7% 3.40% 6% 32% 36% 7% 3.40% 12% 40% 36% 8%
Geothermal heat pump
Austria Belgium France Italy Portugal 3.50% 4% 12% n/a 2% 3.50% 4% 12% n/a 2% 3.40% 4% 32% 36% 3% 3.40% 9% 40% 36% 3%
REFUND + O
10
2.4. Economic indicators of the measure studied
e French and Italian measures stand out by the scale of their budget.
Cost trends of the measures dedicated to RES (in millions of euros)
Country Austria Belgium France Italy Portugal 2003
2–3 1.16 59 n/a 5.13
2004
2–3 2.17 69.4 n/a 4.98
2005
2–3 3.79 250.1 33.3 5.42
2006
2–3 7.54 712.7 39.2 6.32
ese gures only take into account budgets committed for individual installations in renewable. e sums for France have risen high above all the other countries.
e RES heating investment proportion of in the total cost of the tax measure
Country Austria Belgium France Portugal 2003
0.6 – 0.9% 3% 16% 1.2%
2004
0.6 – 0.9% 4% 17.5% 1.1%
2005
0.6 – 0.9% 7% 25% 1.2%
2006
0.6 – 0.9% 5% 38% 1.3%
All the measures studied in REFUND + are part of a programme that extends further than investments in individual renewable applications alone. e following table details the speci c part of the RES budget in the global annual envelope. France distinguishes itself by a percentage that is much higher than the other countries. No gures for Italy are available.
REFUND + O
11
Estimate of the number of individual RES applications that bene ted om tax measure
Country Austria Belgium France Italy Portugal 2003
10,000 2,100 155,800 6,000 15,750
2004
10,000 3,550 193,400 8,000 14,860
2005
10,000 6,100 239,150 13,000 15,100
2006
10,000 5,900 399,250 16,000 15,800
France strengthens its uniqueness with almost 400,000 subsidised investments in 2006. It should be pointed out that the Italian gure only makes allowance for geothermal heat pumps and solar thermal applications while there is no estimate for individual wood heating boiler volumes. We can determine a mean nancial value for each country by matching the number of operations conducted annually with the budget of the instruments used for renewable applications. ese subsidy ratios enable us to make a ner assessment of how the nancial leverage of the various measures has developed.
Change in average nancial support for individual RES applications provided by the tax measure
Country 2003
200 - 300 552 379 n/a 326
2004
200 - 300 611 359 n/a 335
2005
200 - 300 621 1,046 2,564 359
2006
200 - 300 1,278 1,785 2,451 400
Austria Belgium France Italy Portugal
is table throws more light speci cally on Austria and Portugal where over 10,000 individual installations bene t from tax relief every year but with relatively low mean subsidy levels.
REFUND + O
12
3. Results of the economic and qualitative analyses
Two analyses were subsequently conducted for each country – an economic analysis to identify the impacts of the measures on the targeted renewable sector markets, and a qualitative analysis that sought to esh out in more detail the observations made in the economic study and lead to a more precise description of the role of the measures in the purchasing process. e qualitative analysis was based on interviews with consumers and marketing experts representing each sector and focus groups with installers.
One of the rst aims of the economic analysis was to establish the main characteristic elements of the prevailing economic context in 2003–2006. Crude oil price trends Variation in the price of fossil energies, and particularly that of crude oil, is one element of the economic context that in uences the dynamics of renewable energies. is was particularly true of the second half of the 2000s that witnessed a peak in prices resulting in a crisis in 2007. e following graph illustrates that the various tax instruments under study applied to di erent contexts. France and Belgium developed their scal mechanisms during a period that was marked by tensions on oil prices. is made a deep impression on public opinion and oriented consumers’ energy choices. Historically, the individual biomass heating installation segment in Austria developed vigorously during the rst two oil price shocks of the 1970s.
Deliverables available on the website linked to this part: • e 5 national economic reports
3.1. Observation of the economic contexts
e study period, 2003–2006, was characterised by the regular rise in the price of crude oil together with low in ation.
Average crude oil barrel prices (constant prices USD 2008) and timing of the introduction of the measure
Source: INSEE - REFUND + 2009 - MEEDDAT
US $
140 120 100 80 60 40 20 0
Austria (1979) Portugal (1991) Italy (1998) France (2001) Belgium (2003)
92
96
00
04
88
19
19
20
20
19
20
08
REFUND + O
13
Price uctuations in the countries under study Information gathering covered price uctuations of the various renewable applications studied. e following table gives the results as prices inclusive of all taxes including equipment and installation. Finding identical installations in terms of output or performance level for the wood boilers and heat pumps sectors across all countries turned out to be impossible. However our main aim was to track the developments in each country rather than compare them.
e mean annual growth rates in the above table should be set against the annual change in the consumer price index for the individual countries.
Change in consumer price indexes between 2003 and 2006
Country Austria Belgium France Italy Portugal 2003
1.80% 1.70% 2.10% 2.40% 3.70%
2004
1.40% 1.60% 2.10% 2.70% 3.30%
2005
1.80% 1.90% 1.80% 2.30% 2.10%
2006
2.30% 2.80% 1.60% 2% 2.30%
Average prices of renewable applications
Country Solar water heater
Austria Belgium France Italy Portugal 5,000 € 4,500 € 4,005 € n/a 2,530 € 5,105 € 4,500 € 4,195 € n/a 2,580 € 5,220 € 4,500 € 4,680 € 4,640 € 2,635 € 5,300 € 4,500 € 5,000 € 4,840 € 2,690 € 1.96% 0.00% 7.68% 4.31% 2.07%
2003
2004
2005
2006
TCAM
Wood boilers
Austria Belgium France Italy Portugal 7,000 € n/a 4,050 € n/a 4,750 € 7,150 € n/a 4,050 € n/a 4,840 € 7,310 € 10,480 € 4,080 € 5,000 € 4,940 € 7,420 € 10,480 € 4,100 € 5,000 € 5,040 € 1.96% 0.00% 0.41% 0.00% 2.00%
Geothermal heat pumps
Austria Belgium France Italy Portugal 7,000 € 15,000 € 8,600 € n/a 13,190 € 7,150 € 15,000 € 8,600 € n/a 13,450 € 7,310 € 15,000 € 8,700 € 16,140 € 13,725 € 7,420 € 15,000 € 8,800 € 16,140 € 14,000 € 1.96% 0.00% 0.77% 0.00% 2.01%
REFUND + O
14
e bulk of the mean renewable application prices mirrored the mean in ation percentage ranges. e only exceptions worth mentioning are the solar thermal sectors of Italy (4.2% between 2005 and 2006) and France all the more. Other renewable sector incentive initiatives e role and impact of tax measures are partly a function of the existence and scale of the other subsidies set up to encourage individual adoption of renewable applications. e most widespread nancial backing for householders’ investments in renewable energy equipment is direct subsidy paid by the State, region or local authority. In Austria and Belgium, direct subsidies are the main development vector for individual purchases of renewable equipment, and in both countries the tax instrument back up these actions. Interviews of sector representatives as well as consumers con rmed this view.
Country
Other nancial actions in favour of RES individual heat applications
Possible combination with tax measure
Austria
Subsidies om local level and régions (20-40% of Yes, subsidies are the main support schemes total investment for solar thermal, 10-30% for heat for individual RES application pumps and 10-35% for biomass heating system) Subsidies om regions, provinces and communes for solar thermal, GHP and wood boilers. Yes, subsidies are the main support schemes for individual RES application Only regional subsidies targeting installation costs can be combined. For subsidies on the equipment, amount must be deducted om the total investment before asking for the tax credit e amount of subsidies must be deduct om the total investment before asking for the tax deduction Yes
Belgium
France
Subsidies om regions but mainly for solar
Italy Portugal
1
Subsidies om regions but mainly for solar No subvention just a reduced VAT rate for solar thermal sector1
Since 2007, almost all new buildings have to install solar thermal collectors
REFUND + O
15
In France and Italy, tax measures are the main support mechanisms. Any regional subsidies that may exist are generally levied at a lower level than the tax relief and furthermore have to be deducted from the initial amount of the investment prior to calculating the tax reduction or credit that can be obtained. In Portugal, there are few actions to complement to top up the tax reduction mechanism. A lower VAT rate applies to renewable equipment but this advantage has also been applied to fossil energy-based equipment. Publicity campaigns for the tax measures e last contextual element to be appraised was that of the communications campaigns that publicise the national tax measures. e French, Italian and Portuguese policies have been backed up by national campaigns to alert consumers to the existence of a subsidising tax measure. e most comprehensive campaign was conducted in France
where the whole of the sector’s value chain (producers, distributors, installers and consumers) was covered. e scope of communication actions was narrower in Italy - the professionals out on the ground in particular were o en le to their own devices to communicate to the end customer. In Portugal, a communication scheme was set in motion but hardly emphasis the fact that renewable energies were eligible for the measure. e messages tended to focus on the possibility of deducting home loan interest from taxes. In Austria and Belgium the regions are responsible for granting and promoting direct subsidies, while the tax instrument set up by the federal State had no supporting communication campaign.
REFUND + O
16
3.2.
e impact of tax measures on the sector markets
3.2.1. Austria, a complex instrument with no e ect on the RES sectors
Solar thermal sector e Austrian solar thermal applications market started to develop in the beginning of the 1990s. Despite the tax allowance instrument in place since 1979, it was not until the direct subsidies arrived in the regions (2040% of the installation cost for individuals), that the market really started to expand. Biomass heating applications sector Traditionally wood energy has had a strong foothold in the Austrian energy landscape. e sector’s market peaked during the 1980s. According to the trade representatives, the measure’s low subsidy level largely curbed its contribution to sales growth. Sales took o again over this period mainly be-
cause of the fossil energy prices (especially oil) and the implementation of regional grants. e graph presented in the country’s concluding section illustrates this idea eloquently. e qualitative consumer interviews con rmed that over the past few years, the measure has had no in uence on their choice. Geothermal heat pumps sector As in the case of wood energy equipment, the main factors responsible for stimulating market growth were the rising price of oil and followed by the regional subsidies. e oil price peak in the 1970s and beginning of 1980s generated quite strong growth in (hot water) heat pumps. is development clearly went into reverse during the late 1980s and 1990s as oil prices dropped. Within the last few years, a new sharp increase in heat pump installations has coincided with rising oil prices. Tax allowance measures have not played a part in the development of this technology.
Annual solar thermal market in Austria
Annualy installed collectors in m
350,000 300,000 250,000 200,000 150,000 100,000 50,000 0
75 90 80 85 19 19 95 19 19 19 20 20 05 00
Source: Faninger et al. 2007
1979 tax allowance implementation
plastic absorber vacuum collector glazed collector
REFUND + O
17
Total biomass heating systems installed in individual dwellings in Austria since 1970
Source: Statistik Austria, Mikrozensus
Number of dwelling with biomass heating (1,000)
700 600 500 400 300 200 100 0
94 98 74 78 82 86 70 90 19 19 19 19 20 19 19 19 19 02
1979 tax allowance implementation
central heating one oor heating single stoves
e geothermal heat pump market in Austria
number of annually installed heat pumps
18 000 16 000 14 000 12 000 10 000 8 000 6 000 4 000 2 000 0
90 95 00 80 75 85 19 20 19 19 19 19 20 05
Source: Faninger et al. 2007
1979 tax allowance implementation
air conditioning space heating hot water
REFUND + O
18
Main conclusions for Austria e tax instrument has played no part in the development of individual renewable applications for heat production. e economic analysis has brought out the part played by regional subsidies and the impact of crude oil prices as being the main driving vectors for renewable equipment sales. e following graph shows the correlation that can be seen between the growth rates of the sectors analysed and oil price uctuations in Austria.
e individual interviews conducted on a panel of 30 consumers, the focus groups organised with installers and interviews with the marketing experts of each of the sectors con rm the view that the tax measure has had no impact on consumers’ decision-making. Individuals are keen on the subsidy system that they would like to see developed further. e trade does not use the tax allowance instrument as a sales argument and may not even mention it to the customer. Generally, the most repeated criticisms made about the Austrian measure are that is nancially una ractive and furthermore too complicated to calculate.
Comparison of the oil price evolution and the renewable sectors development
Grown rates of technology utilization
450% 400% 350% 300% 250% 200% 150% 100% 50% 0%
Source: EEG
Indices of real oil price (2005 = 100)
180% 160% 140% 120% 100% 80% 60% 40% 20% 0%
19 80
19 95
20 00
19 90
1979 introduction tax allowance
Intensi ed incentivess by provinces Intensi ed awareness campains etc
Solar thermal Heat pumps Wood logs boilers
Pellet boilers Import price oil
20 05
19 85
REFUND + O
19
Main recommendations to enhance the Austrian tax allowance
z Explicit item on the tax form for RES heating systems e pooling of expenses, including expenses without any correlation to energy has turned out to be a major barrier. Most of the consumers interviewed who used the tax allowance had to opt for one expense om the several options because of the ceiling level for special expenses. is means that for these people the RES-Heat systems did could not be a real economic incentive because they would have had other special expenses to deduct, as well. us, if the tax measure is expected to be an e ective policy instrument, we clearly recommend introducing an explicit item on the tax form for RES heating systems. If it is merged with other energy related expenses, they have to be clearly de ned. z No promotion of fossil systems Since the current system in Austria also covers any type of “e cient heating systems” without specifying the energy carrier, the real incentive for renewable systems is quite small. e support of fossil systems has to be explicitly excluded to provide a clear signal for RES-Heating systems. z Technological requirements and standards e current tax measure in Austria does not include any speci c e ciency, COP, emissions etc. standards or requirements. e introduction of minimum standards would provide an additional incentive for technology development. Moreover, this would guarantee that systems were of measurable quality, thus reducing the number of consumers’ bad experiences with sub-standard equipment. e installer would have to guarantee compliance with the standards and technological requirements. z Convert the tax allowance scheme into a tax credit scheme e current tax allowance scheme provides support for middle income groups. People with lower or higher incomes are excluded. is is neither in line with the CO2 emissions reduction target nor is it socially equitable. z Simplify the system and increase transparency A tax credit scheme could be designed in a much more transparent way, thus simplifying the system. A speci c share of the investment costs could reduce the tax payment (which could also turn into a “negative payment”), possibly combined with a maximum ceiling. Currently, low transparency has turned out to be a major barrier. People do not really know how much money they actually got om the scheme. z Increase the upper limit of the tax measure e system has to provide a relevant incentive. Below a few hundred euro mark, the scheme is not a ractive enough. z More and be er information It is essential to provide information about the scheme to stakeholders such as installers, energy consultants, energy agencies etc. as well as the public. It is particularly crucial to involve installers in the process because they are a major source of information for the consumers and play a basic role in the decision-making process about certain types of heating systems. In case of changes to the promotion schemes, installers and other key persons have to be informed clearly and quickly.
REFUND + O
20
3.2.2. Belgium, a measure limited by the predominance of energy e ciency operations
Solar thermal sector In Belgium, consumers can take up the regional subsidies as well as tax reduction for their renewable energies investments. e consumers and sector’s trade representatives concur that the impact of the tax reduction and that of regional subsidies are closely intertwined. e two initiatives have played a part in the growth of solar applications whose volumes more than doubled between 2003 and 2006. e qualitative interviews drew out more precise elements on the tax measure's role. For most people, the measure triggered the purchase, while the subsidies and rise in fossil energy prices endorsed their choice. Biomass heating applications sector Biomass for residential heating systems is the most restricted RES heating application in the Belgian tax mea-
sure, as entitlement is exclusively for replacement wood boilers for old boilers, there being no tax reduction given for wood boilers in new dwellings. e Belgian wood boiler market is still in the process of taking o , with the subsidies being mentioned more o en as responsible for triggering the purchasing decision rather than the tax measure, which tends to support consumers in their choices. While householders complain that they cannot spread the tax bene ts over several years instead of one single year, the trade would like to see the technical eligibility conditions tightened up to protect the market from inferior quality equipment. Geothermal heat pump sector e following graph presents the uctuations in geothermal and air source appliance sales in the Flanders and Wallonia regions. According to EurObserv’ER barometer estimates, geothermal technologies alone account for 20-25% of the total market.
Number of m2 of solar thermal panels installed every year
M of solar collectors annually installed
50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0
20 02 20 01 20 03 20 04 20 05 20 06
Source: Belsolar
44,460
2003 tax deduction implementation
27,530
14,700 10,800 4,500 5,250
REFUND + O
21
e Belgian geothermal heat pump market is about as mature as the wood boilers market. Both are still taking o and the general public has yet to get a grasp on these solutions.
Sales for this sector have yet to develop while relatively high prices apply. Accordingly, consumers and the trade view the combination of regional subsidies and tax reduction as being conducive to sector expansion.
Belgian pellet boilers and stoves market in units
Number of pellet boilers and stoves annually installed
6,000 5,000 4,000 3,000 2,000 1,000 0
Source: VITO
5,525
Pellet bollers
1,695 953 92 321 371
Pellet stoves
20 04
20 05
Annual heat pump markets in the Flanders and Wallonia regions
Number of heat pumps annually installed
3,000
20
06
Source: VITO
2003 tax deduction implementation
2,612 2,758
2,500 2,000 1,500 1,000 500 0
20 03 20 02 20 04 01 05 20 20 06 20
2,013 1,658 1,287 751 941 950 960 969 988 997
Flanders Wallonia
REFUND + O
22
1 Term created by Del University in the Netherlands
Main conclusions for Belgium In Belgium, regional subsidies and the tax deduction measure are perceived as two intimately linked mechanisms for improving the purchasing context for renewable applications. e tax measure only succeeds in acting as a purchasing instigator in solar thermal. Allin-all, the consumers and professionals out on the ground are satis ed that the tax reduction measure exists, as they feel that it plays a reassuring part in the investment process. For all that, this measure is rarely used for expenses on renewable installations. e gures quoted in the above table are for Flanders region only, which accounts for 57% of the national budget for the measure. Nonetheless the observations may be applied to the whole of the country.
e bulk of the tax measure was used for investments in roof insulation or high-speci cation glazing units over the 2003-2006 period. ese two items account for over 95% of the tax measure allocation in 2005 as against 4.4% for expenditure on renewable. is phenomenon, known as Trias Energeticas1 describes the fact that household energy-saving investments are organised along three successive and distinct stages, namely: reducing energy consumption, then the development of renewable and nally optimising energy production from fossil energy. Belgium is still currently at stage one.
Use of the Belgian tax measure broken down by the various types of eligible expenses (by % and millions of euros)
Investment Wood boiler2 Energy audit Solar thermal appliances % in 2003
2.97 0 0.12
2003 (in M€)
1.15 0 0.05 5.19 30.9
% in 2004
4.39 0 0.12 20.33 74.73
2004 (in M€)
2.17 0 0.06 10.06 36.99
% in 2005
2.83 0.09 0.11 13.61 81.85
2005 (in M€)
1.54 0.05 0.06 7.41 44.57
Higher isolated 13.42 windows Isolation of roofs Regulation of central heating system Heat pump
2
79.85
1.24
0.48
1.45
0.72
0.44
0.24
2.35
0.91
1.93
0.96
1.48
0.8
Replacement of an old central heating system by a new condensing boiler or wood boiler. Source VITO.
REFUND + O
23
Main recommendations to enhance the Belgian measure
z Improve the information campaign about the measure When the measure was launched, information was a problem – no brochures were available, tax employees were not properly briefed. Installers were the most important source of information for the end-users. e installers circulated the information, although it was not their job to do so. During the focus groups it became clear that as the sector matures, be er use is made of the tax measure. Everything was very clear to the solar boiler sector, whereas for the wood boiler sector had many outstanding questions. e main recommendation to enhance the measure is to ensure that enough information reaches all parties involved, not only the end-users but also installers, tax employees, and district and local authority employees, etc. A stable, longterm system enhances information ow to all the relevant parties. z Introduce a separate ceiling for each measure e 8 di erent energy e ciency and renewable energy measures that are eligible for the tax deduction visibly compete. e suggestion made in the di erent focus groups and interviews, was to create a separate ceiling for each measure. e ceiling could be a sliding parameter in line with the CO2 reduction and/or the energy savings achieved by the speci c measure. z Spread the investment made in 1 year over several tax years It clearly emerged during the interviews that the investment in a RES-heating system is made during a new house building or house renovation project and that the RES-system is the last step in the total building concept or renovation process. As the 8 measures eligible for the tax deduction are taken together, the ceiling is easily reached. erefore it was suggested that the tax deduction for the di erent measures should be deducted over several years. ere is already a precedent in Belgian legislation – the extra investment costs for building a passive house are tax-deductible over several years. z Speci c questions for eligible technologies of RES-heating systems During the focus groups speci c questions about eligible technologies were brought up, such as making wood boilers in new build eligible for the tax measure. As an amendment of this type was made for heat pumps in 2004, why not extend it to wood boilers? Another suggestion was to increase the technical e ciency requirements of wood boilers. At the moment the minimum e ciency level required is 60%. e wood boiler sector claims that this is too low and leaves the market vulnerable to low quality system installations. Lastly solar heating systems could bene t om a higher ceiling than the other two RES-heating systems. It was suggested that the same higher ceiling be applied to all RES-heating systems, thus creating an extra incentive for RES-heating systems over fossil fuel heating systems.
REFUND + O
24
3.2.3. France, a successful instrument but with side e ects to correct
Solar thermal sector e beginning of sales growth in the sector coincides with the introduction of the “Plan Soleil” programme in 2000. Between 2000 and 2004 the sector recorded an average annual growth rate of 38% (versus 6% for the 1995–2000 period). e 15% tax credit was implemented one year a er the sector had already gained its new impetus. During 2005 and 2006, the sector bene ted from even more favourable measures than during the previous period. In most regions of France, the regional councils distributed subsidies in addition to the tax credit. e French market really picked up speed from 2005 onwards with the introduction of the 40% tax credit. Interviews with householders and sector professionals revealed that the measure had a real e ect, a racting new types of consumers to technologies that previously appeared hazy to the general public. Over and above the existing regional aids and a tense energy
context, the tax credit gave an additional dimension to the solar thermal market, which tripled in two years (2004-2006). However, with regional (and even departmental or local authority) subsidies in addition to the tax credit, subsidy levels are sometimes unjusti ably high. Biomass heating applications e tax credits set up in 2001 and in 2005 changed the dynamics of a sector that had been losing steam since the mid-Eighties. It emerged from the consumer interviews that it was primarily the tax credit that instigated investments in the sector rather than the rise in oil prices. e qualitative analysis identi ed that the measure had both a maximising e ect and a triggering e ect for certain consumers for this sector. e proposed nancial assistance apparently encouraged householders to upgrade their initial purchase plans to be er speci cations in terms of output range or quality.
Annual market for individual solar thermal installations
In m
350,000 300,000 250,000 200,000
Implementation of 15% income tax credit
,3 1 10 6, 17
Source: Observ’ER
Tax credit raised at 50%
30 1, 00 0
Implementation of 40% income tax credit
0
150,000
National solar thermal programme
,0 00 67 ,9 3
100,000
29 ,6 00 29 ,1 20 0 27 ,2 6
21
21
50,000 0
,0 00
,0 0
0
,0 0
19
20 00
0
19 96
19 97
20 01
46
20 03
90
2
2
20 05
19 98
20 04
6
20 02
19 95
19 99
20 06
16 5, 00
REFUND + O
25
Geothermal heat pumps sector In France this sector has received less publicity than wood or solar. ere was no national promotion campaign for the sector in the rst part of 2000s and no French region proposed subsidies for their distribution. EDF (the national electricity company) backed these technologies by o ering low-interest rate loans and a 15% tax credit was introduced by government in 2001. Awareness of the sector has improved over the years and sales have gradually increased at a steady pace. e market really picked up speed in 2006. e tax credit subsidy (50% of the equipment cost which is about 40% of the total investment cost) had real and direct impact on the market. In 2007, competition from air source heat pumps (also eligible for the measure) picked up and slowed down the progress made by geothermal pumps.
Main conclusions for France Since 2005, the tax credit has been the main national political instrument to promote the adoption of renewable applications by householders. One of the main success was the fact that the market growth that started o in the early 2000s has not been disturbed by its introduction. e measure was welcomed as an egalitarian mechanism (as tax credit is open to all, even non taxpayers) and the State’s endorsement, by commi ing to supporting the renewable sectors, was perceived as a very strong signal about the reliability of its technologies. Furthermore, the measure has combined really a ractive subsidies with technical recommendations on the equipment and installation that are reassuring from a qualitative stand. e interviews and focus groups showed that the measure has been adopted wholesale by the players in the market, who have used it as their main argument in their sales pitch. From the consumers’ angle, the tax credit was the triggering factor for the investment in
Annual market of individual wood applications
Source: ADEME - Observ’ER
Number of appliances annually installed
9, 10 0
40% income tax credit
39 8, 14 ,0 20 30 3, 06 0
500,000 400,000
31 1
15% income tax credit
,8 5 2, 94 5 31 3, 81 0 0 0
4, 25 0
,3 20
300,000 200,000 100,000 0
19 85 19 90
19 96
23 4
19 99
24
20 01
28
20 02
29 4
20 03
20 04
20 05
20 06
51
5, 40 0
600,000
53
2000: launch of 2000-2006 “Bois-Énergies" programme
REFUND + O
26
over half the cases observed. Not only that, but the purchaser pro les are not exclusively limited to environmentalists. e sectors have opened up to the general public and new pro les have entered the scene such as technoDIY (drawn by the appeal of new technologies – especially pellet stoves and boilers). However there is room for improving the mechanism. e main demands are for a simpler instrument (to cover the full investment cost not just the equipment cost), more consistency with regional aids, more centralised information so that householders can be be er informed and se ing a nancial ceiling per technology instead of one catch-all ceiling.
Added to that, one phenomenon has dominated the Government’s a ention and part of the trade - it is the drop in solar thermal prices (over 7.6% between 2003 and 2006 of the mean annual growth rate). However this is cannot be directly a ributed to the 2005 tax credit implementation (it was observed from the start of the 2000s) – it has gradually snowballed as the French market picked up steam. e aim is to combat these effects that negatively o set the positive repercussions of the measure.
Annual market of geothermal heat pumps
Number of GHP annually installed
Source: AFPAC- Observ’ER
,0 30
20,000
Implementation of 40% income tax credit
0
5,000
0
20 01
6,
50
7,
70 0
10,000
20 03
9, 00
0
20 04
11
,6 00
15,000
20 05
12
,7 35
20 06
20
20 07
20 02
21
,5 00
25,000
Implementation of 50% income tax credit
REFUND + O
27
Main recommendations to enhance the French tax measure
z Simplify the nancial mechanism All the people interviewed described the measure as being “à la ançaise”, meaning that they found it complicated to implement. ey want the refund allocation mechanism to be simpli ed and also for the tax credit to be based on the total cost and not just the equipment cost. z Propose a new approach for the measure that combines various aspects of the measure in a global package ere is a recurrent demand om people for more guidance, especially when they are not experts on the subject. ey expect public authorities to o er citizens a full service. e tax measure could be part of a larger package and the range be stated more commercially. As a ma er of course this service would include: a feasibility study, a detailed comparison of the various installable RES systems, their e ciency level and cost. z Improve the level of support set for each sector e work carried out on global manufacturing costs revealed that for speci c sectors, such as heat pumps, the ability to compete without subsidies was neck-and-neck (or even lower) than those of the fossil or electricity sectors developed in the country. us the e ort to be made for these technologies needs to focus on communicating about equipment performance levels rather than about the subsidies on o er. us, one recommendation for France would be to set subsidy levels that make allowance for the ability of each technology to compete and that should be di erentiated by sector. z Try to control the price changes e idea could be to issue consumers with guidelines on the average prices for each RES application to help people assess the proposals made which would combat the problem of high price increases in some RES sectors. Another action could be to implement a measure featuring a high rate and a lower ceiling rather than the opposite. us, there would less temptation to go for the price closest to the ceiling. z Improve the installer structure level According to most of the installers interviewed, the installation profession should be structured on two levels, because of the tax credit, which requires only the Solar Keymark or CSTB approval, but no label for professional installers… ere would be a quality chain (Qualisol, Qualibois and QualiPAC) that would aim to ful l these conditions which would lead to a sort of “new generation of installers”. z Improve the communication campaign More could be done to enhance communications: information centralised on a website, more information about the renewables sector tax credit in the o cial tax journal, avoid submerging the information on the measure in other campaigns about environmental measures (including transport and CO2 emissions).
REFUND + O
28
3.2.4. Italy, an incentive instrument that has to be potentialized by simpler procedure
Solar thermal sector Solar energy in Italy was developed a er the oil crisis in 1973. A er a dizzy start in the late seventies and early eighties, the market collapsed and went through a long period of very low-level stagnation until the midnineties. e new period of slow development since the mid-nineties has been based on the success of solar thermal in other European countries, helped by the tax deduction measure implemented since 1997 and the regional subsidies. e introduction dates of the various versions of the Italian measure have not been directly followed by sales trend changes. It comes as a paradox that the sec-
tor expanded more with a lower tax rate measure than the previous one (36% in 2000). e explanation given relates to the sector’s European dynamics that contributed to increasingly widespread consumer awareness of solar applications. Furthermore, according to an ENEA assessment, individual requests for tax reductions accounted for roughly 11% of the whole of the solar thermal market in 2006. is relatively low gure demonstrates that the impact of the tax measure on the Italian market was secondary, especially when compared to the 50% sales growth registered between 2005 and 2006 However, according to the contacts requested in our information research the main advantage o ered by tax deduction towards the solar thermal sector, and therefore its industry, is the guarantee of continuity in time, even if it has to overcome the step of yearly approval in the National Financial Law. As a ma er of fact this kind of incentive has not been suspended since 1998.
Evolution of the Italian solar thermal market in m2
In m
Source: Assolterm
180,000 160,000
12 00 9 53 ,5 0 5 29 ,8 4 ,0 1 15 ,9 86 ,8 5 0 12 ,5 00 12 ,8 00 13 ,2 00 13 ,6 00 17 17 ,2 4 33 35 ,5 0 0 0 45 ,2 4 5 57 ,2 0 0 0
140,000
,7 0
120,000 100,000 80,000 60,000 40,000 20,000 0
New features of the 36% tax deduction Introduction of the 41% tax reduction
78 ,5 0 0
19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06
97
0
7, 0
18 6, 0
200,000
00
REFUND + O
29
Main conclusions for Italy e absence of Italian renewable sector statistics restricts our analysis of the national tax measure to that of the solar thermal sector. Nonetheless observations can be made. Despite an a ractive incentive level, the Italian tax measure is a half-baked as a market driver. e sector’s observers con rm that the bulk of the growth has been borne by regional aid, increasingly widespread recognition of the sector and tension over fossil energy prices which is pushing European consumers towards alternative solutions. e qualitative interviews revealed that householders primarily viewed the subsidy as a bonus that supported their choices rather than originating the purchase. e tax reduction instrument could have had a greater direct impact on sales with be er dissemination (espe-
cially from installers) and easier administrative procedures for the consumers. e measure su ers from another drawback in the form of the absence of quality conditions set for the equipment installed and the installation itself. An energy performance certi cate was provided for in the legal texts to guarantee installation quality but it came in a er the nal installation and its full cost had to be borne by the consumer. e certi cate was abandoned in 2008.
Main recommendations to enhance the Italian tax measure
z Improve the readability of the legal texts that present the measure and simplify the administrative procedures e NFA 2007 is considered to be su cient as to its scope but the administrative complexity should be overcome by rationalizing the procedural rules and issuing a single text or guide, in clear and unambiguous language. e new NFA 2008 text appears to be a step in the right direction. z Introduce equipment and installation standards and quality labels It is one of the Italian measure’s weaknesses and one of the reasons for its limited impact. If it is to reach the general public, the sector needs to assure it about the reliability of the equipment and installer’s know-how. is aspect was previously built into the measure in the form of an energy e ciency certi cate. However the system did not work because the cost of drawing up the certi cate had to be borne by the householders (about €150) and it was issued a er the application had been installed. e best solution would be to tie eligibility for the measure to an equipment list with a label or standard testifying to its compliance with technical standards. z Improve communication on the measure More communication e orts have to be made to promote the tax measure widely and reach as many nal consumers as possible, i.e. create professional RES info points, primarily by involving the installers, who are precious go-betweens for the consumers to a greater extent. e actors on the ground need clear, simple o cial documents to explain how the measure works and the nancial returns householders may obtain on their purchase.
REFUND + O
30
3.2.5. Portugal, the tax instrument was used in another eld than RES
Solar thermal sector e growth in m2 installed peaked in 1985 at almost 42,000 m2/year, with over 20 companies active in this renewable sector. Since then, sales of solar energy for hot water production has steadily declined to 4,500 m2/year in 1999. e market only started making a steady recovery a er 2003 with a combination of factor, namely the implementation of the AQSpP programme (Solar Hot Water for Portugal) and a further increase in fossil energy prices.
ere is li le awareness of this measure to promote renewable energies in Portugal. Interviews with householders demonstrated that generally the tax reduction measure had come as a “nice surprise” at the time of the purchase and that it had in no way in uenced the investment. e rst form of the Portuguese measure introduced in 1991 (tax allowance), then the second version in 1998 (tax deduction) had hardly any in uence on market trends. e renewed market impetus from 2003 onwards owes more to the national sector support programme (AQSpP). Also, it is striking that the total annual volumes (<25,000 m2 in 2007) are rather low for a country that has so much solar potential.
Solar thermal market in m2 annually installed
m of solar collectors installed
45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0
1st tax measure
Source: ESTIF
AQSpP programme 2nd tax measure
19 82
19 87
19 92
19 97
20 02
20 07
REFUND + O
31
Main conclusions for Portugal e main orientation of the tax reduction measure was to support Portuguese consumers’ purchasing power primarily by allowing homeowners to deduct the interest on their home loans from their taxes. ere is very li le awareness of the renewable energies allowance and thus it has hardly played a part in sector development. e effects of the economic downturn, in particular crude oil price uctuations, have been much more in uential. Lastly the absence of any equipment or installation label or standard has not done the sectors any favours. ey su er from a legacy of damaging examples in the 70s-80s that have tarnished the image of these sectors (e.g. solar thermal) in consumers’ minds and it took the whole of the 1990s to restore con dence.
Main recommendations to enhance the Portuguese tax measure
z Characteristics of the tax measure: - it should be kept simple but isolated om other tax measures and formulated in such a way that the chosen technologies can be tracked for monitoring purposes. - the nancial incentive should be more a ractive especially for new RES technologies such as wood boilers or geothermal heat pumps. - it should be structured so that all potential users are eligible (tax credit instead of tax allowance or tax reduction). e tax allowance and tax reduction schemes do not allow consumers on low incomes or below the tax threshold to use this measure. In contrast, a tax credit scheme works as a subsidy for any RES-heat investor. - it should be de ned to stimulate e ciency improvements, introducing minimum e ciency criteria. ese criteria should be analysed according to market growth and technological development and revised annually if needs be. - it should be de ned to stimulate minimum quality standards through a quality requirement for installers and appliances. Hence support for RES-heat appliances should only be given to installers and equipment that ful l this requirement. z e sectors' actors should be involved in preparing the measure prior to its initial implementation to guarantee the quality of RES-heat appliances (quality label) and quality of installations (installer certi cation).
z Implementation of the measure should be followed by a campaign to provide information about the measure and possibly RES-heat systems. National and local energy agencies should be involved in this activity. It is important that the State and local authorities be seen to set the example of good energy practice in public buildings and in building sector standards
REFUND + O
32
4. Results of the country cross analysis
A cross analysis has been conducted on the basis of elements drawn from national economic and qualitative studies, to identify which elements contribute to the success and failure of the various measures observed. All-in-all it turns out that the nancial incentive level alone is not the only parameter that will make a success of a measure.
• Measures that do not emphasise their support of the renewable sectors and have no impact on the markets In Austria and Portugal, householders hardly noticed the measures covering investments in renewable. In Austria, the diversity of eligible types of expenses was one of the points that undermined the e ciency of the measure. In Portugal, the renewable energies aspect was swallowed up by another, much more common household investment. Furthermore, the subsidies offered in these two countries were too low as incentives and thus the tax measures had no impact on the sector markets.
Deliverables available on the website linked to this part: • WP4 cross country analysis report.
4.1.
ree categories of measures are distinguished by the results of their impact and relevance to developing individual renewable applications
4.2. Di erent user pro les identi ed in terms of their motivation to invest in RES
Two of them are found in all countries: e Environmentalists eir pro le is characterised by developed environmental consciousness. ey are socially involved in associations, political parties or trade unions as they want to set lifestyle role models. ey are concerned by impacts of their own behaviour on their environment. e installation of RES equipment represents positive action. • e Cautious eir cautiousness is based on their awareness that they can save money and energy with a new RES system. ey tend to be middle-class people who do not enjoy very high living standards. ey generally take advantage of the scal incentive to replace their old equipment. Other user pro les were observed for a part of the countries studied or speci c to one particular country. • Techno DIY ey are speci cally present in France, Belgium and Portugal, more o en than not men with technical backgrounds who enjoy delving deeply into technical •
• Measures that clearly target the renewable sectors and have achieved their direct impact objective on the markets e French tax credit was the only tax instrument identi ed as having a direct impact on sector sales and as being clearly distinct from the other contextual elements of a country. e general public could point the renewable energies part quite clearly within a broader investment choice and the accompanying initiatives (relating to the quality guarantee and communication aspects) were e ective. • Measures that have visible renewable sectors aspects but lack direct impact In Belgium and Italy, the proposed tax reductions helped support or boost the growth of the solar thermal sector. Here, the measure was one of many supportive factors that made a real contribution to persuading consumers who were already attracted by renewable solutions to make their investment. The measures played very little part in attracting new types of consumer.
REFUND + O
33
issues for their own understanding. eir motives are based on their interest for new RES technologies, and the environment is a lesser consideration. Moreover, they consider it smart to invest in a RES system. • Comfort-seekers in Portugal is group comprises people from di erent ages from 35 to 50 year-olds, o en families with children. e investment in RES coincides with building a new house or moving into a new comfortable house with low running costs. eir main motivation for the RES option is more comfort. • Traditionalists in Austria eir background tends to be in farming and is linked to their family history. For example, they produce their own rewood. ey cannot imagine using any type of central heating than a wood boiler. In their view, investing in wood heating appliances is natural as their parents also have such heating devices. It is part of their family tradition.
•
e “Good surprise”: People corresponding to this pa ern would have made the investment even if the scal incentive had not have existed.
From the trade angle • e tax measure used as the sales pitch
In three out of ve countries (France, Italy and Belgium), installers used the tax measure as their sales pitch. • In Portugal and Austria, the measure is more by way of information than an argument for sale! e way the measure was used by installers and sellers is seen as a use of ge ing further “information to support favour to the acquisition”. In Austria about half of the interviewees were informed about the tax allowance by their installers. • But on the whole, the measure is always perceived as support om the State to the RES sectors and their businesses e sheer existence of the measure, provided the public knows of it, is a positive sign in direction of the RES sectors. It is always interpreted as a kind of insurance that these technologies are functioning and mature.
4.3.
e various roles of tax measure identi ed in the purchasing process
From the consumer angle e eldwork across all ve countries con rmed that the tax measure can play three di erent roles in the RES heating appliance purchasing process. ey are listed below from the most prominent to the least important role in the purchasing process. • A “Triggering role”: the end consumer would not have made the investment had the measure not existed. It helped put RES heating appliances within their means or played a part in a racting consumers to RES heating systems. e tax measure was the decisive factor in the purchasing process. • A “Facilitating role”: in this case, the scal incentive acted as an encouragement to carry out the investment planned. It contributed by endorsing the idea to invest in renewable.
REFUND + O
34
4.4.
e failure factors
• e choice of an opaque instrument Consumers, like the actors on the ground, are ill at ease if they are in the throes of purchasing they nd it hard to calculate how much the subsidy will amount to. A case in point is the tax allowance measure and this may also apply to a tax reduction or tax credit involving operating rules or complex eligibility conditions. • Renewable sectors that are ill-prepared to satisfy a rapid rise in demand e State’s commitment to a sector through a tax measure sends a very strong message, so it is important that the relevant sectors are technologically mature and that their industrial organisation is capable of adapting quickly to sharp rises in demand (new production facilities, no major equipment distribution di culties and su cient skilled installer networks). • Consumers unready for a renewable energies development phase is is the counterpart of the previous point. e Belgian example demonstrates that if consumers are in a phase where their energy expenses are mainly directed towards investments other than renewable (e.g. energy consumption reduction), the measure makes a much weaker impact. • Measures that hardly cater for the speci cs of renewable energies, if at all Tax measures generally cover other types of investment besides renewable energies. However, the Austrian and Portuguese cases illustrate that including a renewable energies section in measures that are generally directed to supporting consumers’ purchasing power is bound to fall at if the speci cs of renewable sectors are not taken into account. • Too much administrative red-tape, particularly for householders Tying equipment quality control installation, fraud avoidance, and other criteria to the measure is generally a good thing, but it must not turn into administrative red-tape for consumers (e.g. the Italian energy e ciency certi cate).
• Insu cient nancial support A measure that only contributes 5 or 10% of the investment cost is not an incentive especially if there are no additional actions to assist householders. In Portugal and Austria, the trade noted that in view of the price of equipment the incentive level is too low to have any impact on equipment sales. • No coherence or complementarity between the tax measure and local subsidies When measures are not coherent with other policy measures, their e ects are watered down, and any contradictory measures curb the implementation of the RES scal policy. In Portugal for example, there is no reduced rate VAT for wood fuel yet it applies to some fossil fuels. Furthermore, the tax measures must complement the other initiatives in place primarily by avoiding overloading the subsidies available for one sector (such as the French example of solar thermal). • Communication campaigns that leave out speci c links in the equipment distribution chain Without communication, a measure cannot reach the public. But our analysis of the national examples demonstrates that an e ective campaign should not only concentrate on consumers alone. All the links out on the ground, namely the promotional associations, resellers and especially the installers must be perfectly involved especially in terms of the communications media made available to them (brochures endorsed by the government, etc.).
REFUND + O
35
4.5.
e success factors
Two preliminaries statements: • Rise of fossil fuel prices: creates a good context e rise of fossil fuel prices creates a good context, but if it is to work as a triggering mechanism, nancial measures must be added to exploit the potential. • e existence of the tax measure in itself e very existence of the tax measure gives some credit to RES technologies in the eyes of the trade and end consumers. It is a strong signal made by the State to consumers: a State commitment and a con dence in these technologies. e measures’ e ciency is higher when: e tax credit measure viewed as being the most socially egalitarian and fair As far as most French and other observers are concerned, a tax credit measure, that applies to all types of consumer, taxpayers or otherwise, is the fairest mechanism. It is a striking gesture in terms of the message that the government sends out to the general public, that is very similar to a tax reduction measure in cost terms, as few low-income, and thus non-taxpaying consumers, will invest in renewable applications. e fact that a tax measure is applied a er the commercial take-o of the targeted sectors e French example has highlighted the fact that sales of the sectors promoted by the tax credit had already taken o and were already identi ed by a section of the consumers. e tax measure was able to use this rst thrust as a launching pad for further development without upse ing the dynamics. • Distinct subsidy levels for each individual renewable sector e Belgian example demonstrated the relevance of not applying the same ceiling to all renewable sectors. Weighting the aids on the basis of total investment cost or a sector’s sales development level is a factor of success. • •
e rate reduction level ere is a psychological aspect to the percentage rate that is publicly conveyed. Communicating about a 15% rate with a reasonably high ceiling does not sound the same as communicating about a 50% rate with a lower ceiling, even if in the end the investor enjoys the same nancial bene t. e implementation of equipment or equipment installation quality labels and standards Implementing standards or labels provides good protection from the danger of seeing higher sales take the form of market penetration by shoddy equipment or new entrants exclusively a racted by the lure of making fast pro ts. European equivalents (primarily developed by ESTIF and EHPA) are directly available for adoption by countries that do not have such labels or standards of their own. • Se ing up special communication on the renewable aspects A good way of focusing the general public’s a ention is to launch a communications campaign that speci cally highlights the bene ts of a tax measure promoting renewable sectors. • Se ing up indicators and studies for monitoring purposes So far France is the only country that has carried out annual and detailed monitoring schemes speci cally covering the tax measure to promote renewable energies. e data and information produced by this work have provided the basis for the reorientation of certain of its criteria that have been modi ed annually for the purpose of improving the measure. In particular, it has been possible to keep track of the measure’s envelope, which has led to excluding air-air heat pumps from the scope of the tax credit as they were too expensive. is type of monitoring also provided the opportunity to identify unintentional e ects generated by the measure’s success: - e market's growth has a racted droves of professionals who wanted to work as installers, but many of them lacked experience - e solar thermal price slide which is hard to justify by the rise in materials or labour costs. •
•
REFUND + O
36
5. Implementation simulations in two case studies: Lithuania and Poland
At the same time as it was conducting its specific European country case studies, REFUND analysed the relevance of introducing direct tax measures to develop the thermal renewable sectors in two new member countries, Lithuania and Poland.
Deliverables available on the website linked to this part: • Simulation on Lithuania and Poland report.
However it does not take into account all the speci cs of heating system operation and development (the variety of building types, the di erent space heating and hot water production technologies, seasonal variation in heat demand and resources, etc.). ese speci c aspects were managed by a special mathematical tool developed under the MESSAGE model, which consists of a linear programming model that represents the full variety of individual house heating systems of the household sector in the country and covers all processes from fuel supply to satisfy consumers' space heating and hot water requirements in di erent categories of houses. For the purposes of creating a model, individual dwellings were classi ed by various a ributes: size and location of buildings, type of existing space heating and hot water production technologies and others. Moreover, grouping of individual dwellings by location was made to represent fuel price di erence (especially the price of rewood) in urban and rural areas. Individual dwellings were separated into groups based on their construction date because new houses meet stricter heat loss requirements. e mathematical model includes nancial support measures used to promote RES heating technologies. In the model this was represented to comply with the consumer approach, i.e. consumer choices under certain circumstances were modelled. Government support for heating system renovation was shown in the model as a reduction of required investments for ins-
5.1. Methodological notes
e detailed methodology of the simulation phase is described in the report entitled “Simulation on Lithuania and Poland” available on the project website. In the paragraphs below we present the principal aspects of this methodology e simulations were based on di erent scenarios that share the following common principles: • establishing the current status of heating systems that is used as the starting point for system development for all the scenarios analyzed; • assuming the same set of possible new technologies for space heating and hot water production for all the scenarios analyzed; • using mathematical models for modelling the development of heating systems; • using the “least cost” criterion for optimizing heating system development and operation. e introduction of a tax measure on investments for RES was analyzed using modelling and the global production costs approach. is method, also used in WP4, takes into account all heating technology cost categories for their service lives and compares the average heat or hot water production cost in this time span. is approach gives a clear understanding of the competitiveness of the various heating technologies in the same operating conditions.
REFUND + O
37
talling particular technologies. ese investment reductions were applied for technologies only able to use RES and applicable from 2010 until the end of study period. Costs are the main drivers in the technologies choice Taking into account expert opinion, results of di erent surveys and other sources it was found that cost (expenditure) of heat and hot water production is the main factor with an impact on the choice of technologies in Lithuania and Poland. erefore selection of future technologies for these needs in the developed mathematical model is based on minimizing total system cost. However, it should be mentioned that other factors, such as factors describing consumer behaviour, were also taken into account when preparing the mathematical model and they have impact on selection of future technologies or fuel type. For example, it was assumed that in dwellings with currently existing electric or gas– red heating only modern pellet– red boilers, heating pumps, gas– red water heaters and solar collectors were taken into consideration as possible new options. is limitation was applied because the selection of heating type also depends on the comfort level that installed technology can provide. To re ect situation and system inertia realistically, some barriers on technology penetration into the mar-
ket were used through the introduction of a bounds concept. Here bounds were introduced on the maximum capacity addition for di erent types of new technologies in particular type of houses, as well as the penetration rate of various new technologies into the market. e model for analyzing heating system development in individual houses can be used to investigate scenarios of various support measures. It is worth noting that both the various nancial support measures and the parameters relating to uncertainties about the future can be re ected in di erent scenarios. In this study not only the support level and the basis on which support is calculated (equipment price or price plus installation cost) were used as variable elements in different scenarios, but also fuel prices, discount rate and heat demand. e discount rate expresses the present value of an investment that will be spread over several years in the future. e rate incorporates a risk premium for consumers on the uncertainty of the future. e higher this rate, the more uncertain consumers are about the future. Analysis of the di erent scenarios aimed to nd out how much impact the RES support schemes have on structuring the heating system generating capacities, the market penetration of additional RES technologies, the changes in fuel consumption, CO2 emissions into atmosphere and what impact di erent variable or uncertain elements have on these factors.
REFUND + O
38
5.2. Results for Lithuania
Seventy-two di erent scenarios were analysed to investigate the consequences of implementing support schemes on investments for RES heating systems in Lithuania. e impact of RES support schemes on the operation and development of heating systems in Lithuania can be shown when the situation is compared in the system in question applying two criteria: • without support schemes, and • with support schemes. is comparison will show the di erent penetration levels of the various technologies, di erences in fuel balance, fuel cost, investment cost, emissions into atmosphere and others. By adding the state budget spending in support of renewable technologies to this comparison, a comprehensive picture of the impact of support schemes will be provided. It will be possible to establish a rational level of support on investments by
changing the support level and support basis (equipment cost or full installation cost). e dynamics of heat production by technology during the study period when fuel prices are high and any support scheme is applied are presented in the following graph. The results presented show that 50% of the total heat for space heating and hot water is produced by solid fuel boilers that can burn different types of solid fuel (coal, peat, wood, wood waste and others). Their share of this production remains stable throughout the study period. Electric water heaters and natural gas boilers also retain a stable share. Heat production by electric water heaters represents 1,233 TJ in 2010 and 1,334 TJ in 2030. Heat production by gas boilers remains at the 2,805 TJ level. Heat production by stoves decreases from 6,120 TJ in 2010 to 3,833 TJ in 2030. Increased production of boilers, designed to run on renewable energy sources only, offsets this decrease. The share of RES boilers in total heat production increases from 1.5% in 2010 to 11.3% in 2030 or from 327 TJ to 2,470 TJ. The main contribution to this production quantity comes from “candle” type boilers which are the most common technology
e dynamics of total heat (space heating and hot water) production by technology in the case of scenario 1 (high fuel prices, high discount rate) Source: LEI 2009
TJ
25,000
20,000
Solar water heaters Natural gas water heaters Electric water heaters Natural gas boilers Electric boilers District heating Stoves Wood pellet boilers RES boilers Solid fuel boilers
15,000
10,000
5,000
0
20 20
20 23
17
20 26
20
20
20
20
20
20 29
05
08
11
14
REFUND + O
39
across the country. Heat pumps do not penetrate the market at all. Pellet boilers enter the heat production process, but their share only increases from 0.2% in 2010 to 1.3% in 2030. Electric heating becomes economically una ractive and disappears from the system because of the signi cant electricity price increase. A very similar situation can be observed in the dynamics of heat production in the case of low fuel prices or low discount factor. However, low fuel prices associated with a low discount factor reduce the economic attractiveness of “candle” type boilers because of their short service life and the need to reinvest during the study period. erefore technologies designed to use renewable energy sources only practically do not enter the heat production pa ern. Solid fuel boilers, able to burn di erent types of fuel, account for practically all the RES boilers in heat production. e introduction of support schemes for RES heating technology investments signi cantly increases RES boiler penetration into individual home heating systems.
Scenario 6 represents 50% compensation on the full installation cost of RES technologies in the case of high discount rate and high fuel prices. e major di erence in heat production relates to solid fuel boilers and RES boilers. When the 50% support scheme is applied to heat production by solid fuel boilers the gure of 1,822 TJ is reached in 2015, which is lower than when support is absent (scenario 1). Up to 2030 this di erence increases to 8,361 TJ. In contrast, production of RES boilers increases to 1,823 TJ in 2015 and 7,918 TJ in 2030. Production of wood pellet boilers is also higher and this di erence reaches 228 TJ by the year 2030. ese boilers mainly replace gas boilers with 301 TJ less production in 2030. Similar changes in heat production apply to rural and urban areas. e high level of support on investment for RES technologies signi cantly changes the structure of heat production technologies. In this situation one important question needs to be asked… What is rational support level? A few sets of scenarios have been analysed to answer to this question. Each scenario in one set di ers from another scenario only by level of RES technology support.
e dynamics of total heat (space heating and hot water) production by technology in the case of scenario 6 (50% compensation on all installation costs for RES technologies)
Source: LEI 2009
TJ
25,000
Solar water heaters Natural gas water heaters
20,000
Electric water heaters Natural gas boilers
15,000
Electric boilers District heating Stoves Wood pellet boilers RES boilers
10,000
5,000
0
Solid fuel boilers
20 20 10 20 25 20 20 20 30 05 15
20
REFUND + O
40
Additional heat production by RES technologies while changing support level was selected as criterion for estimating the rational support level. is gure illustrates that the main impact is made on increased heat production from RES technologies we have when support reaches 20% of total installation cost. An additional 10%support (to 30%) still gives an average of 10.9% additional heat output. However, if support is raised from 30% to 40%, the achieved heat production is only 1.5% higher. erefore there is no reason to use more than 30% support of the total installation cost. Similar analyses were performed for all sets of scenarios with governmental support on investment in RES technologies. On this basis it was concluded that reasonable support level falls in the range of: • 20–30% if support is calculated based on the total installation cost of RES technologies; •40–50% if support is calculated based on the equipment cost of RES technologies.
ese conclusions are valid for boilers designed for using renewable energy sources such as “candle” type boilers and wood gasi cation boilers. However, this support level is not su cient for pellet boilers, solar collectors and heat pumps. Calculations of global production costs show, that in order to make heat pumps economically a ractive, support would have to be at about 100% of installation cost. Pellet boilers will maintain slightly lower comfort levels but support of about 50% of installation cost is needed to stimulate their use instead of gas boilers. Hot water production using solar collectors is the most costly option of all the alternatives analysed. If solar collectors are to be competitive with electric water heaters, the required support would be in a range of 40% of total installation cost and up to 85% support of the total installation cost to make it an a ractive alternative to gas water heaters. Fuel and energy import costs are very important factors for Lithuania because the country imports about 90% of its energy resources. is cost has negative im-
Additional heat production om RES in relation to the support level in the case of scenario 53–57 (low fuel prices and low discount factor)
TJ
12,000
Source: LEI 2009
Support 50%
10,000 8,000 6,000 4,000 2,000 0
20 10 20 15 20 25 20 20 30 20
Support 40% Support 30% Support 20% Support 10%
Year
REFUND + O
41
pacts for the balance of payments. Implementation of support schemes on RES heating technology investment in the case of high fuel prices and high discount factor would reduce coal consumption by 885 TJ in 2015 and 3,992 TJ in 2030. Reduction of gas consumption would rise from 47 TJ in 2015 to 244 TJ in 2030. is bulk of this reduction would be o set by higher biomass consumption, which would rise to 653 TJ in 2015 and 3,214 TJ in 2030. is increase amounts to 2.9% of the total biomass demand for space heating in 2015 and 17.1% in 2030. is relatively small RES consumption increase can be explained by the fact that existing solid fuel boilers use biomass even without a support scheme. erefore total consumption of renewable energy sources at the beginning of the study period comes to about 74% and without support schemes drops by 12 percentage points by 2030. e implementation of RES support schemes only increases this comparatively high share of renewable energy sources in the total fuel balance. Nevertheless implementation of support schemes on investment for RES heating technologies contributes to ful lment of the EU 20-20-20 targets according which share of renewable energy sources in the gross nal energy consumption of Lithuania should reach 23% by 2020 (in 2005 this share was 15%). It is not possible to estimate exact contribution of this measure for ful lment of the RES target because it is not known nal energy consumption in 2020, electricity and heat transmission and distribution losses, as well as own consumption of electricity and heat at power plants and boiler houses. Impact on energy consumption and CO2 emissions Despite the higher consumption of biomass, implementation of support schemes enables the total fuel demand to be reduced by 1,067 TJ in 2030. is is 3.5% of the total fuel demand for space heating and hot water production in individual houses. In the case of low fuel prices with high discount factor situation in fuel consumption, the dynamics remain very similar to situation described above. However, the combination of low fuel prices with low discount factor additionally reduces electricity consumption, which nally
leads to reduced consumption of natural gas. Total reduction of fuel demand for heating individual houses and hot water production reaches 6.9% in 2030, due to the low e ciency of gas conversion into electricity. Implementation of support schemes on RES heating technologies would allow fossil fuel imports to be reduced by 257-831 TJ in 2015 and by 1,761-6,193 TJ in 2030. e higher e ciency of new boilers would lower additional consumption of renewable energy sources in comparison with the reduction of fossil fuel consumption and would range from 12 - 648 TJ in 2015 and 690 - 5,257 TJ in 2030 correspondingly. Support of RES heating technologies would give a possibility to contribute to another 20-20-20 target - the CO2 reduction. In absolute numbers this reduction is very small: about 20-70 thous. t in 2015 and up to 500 thous. t in 2030 (less than 0.2% from total greenhouse gas emissions in Lithuania). If calculate this reduction is calculated per €1 spent from the state budget, the CO2 reduction would be about 10-20 kg/€ in 2015 and 30-80 kg/€ in 2030. Looking from another angle, the cost of CO2 reduction would be €50-100/t in 2015 and €12.533t in 2030, which means that a er 2020-2025, support for both RES heating technologies and CO2 reduction may be cost-e ective. Impact on the State budget Taking into account the possible fuel price variations, uncertainty of the discount factor value or, in other words, taking into account the results of all scenarios analysed and assuming the most reasonable 30% support level on the total installation cost, the expected State budget spending would be in the range of €2.3 – 11.1 million in 2015, €2.1 – 12.4 million in 2020, €2.6 – 13.9 million in 2025 and €3.2 – 14.6 million in 2030. Annual state budget spending does not exceed €15 million. is is equivalent to 0.25% of the 2007 state budget. Assuming the state budget will increase, the percentage share will decrease. e results of mathematical modelling show that seeking to promote installation of RES heating systems effectively it would be rational to o set either about 20-30% of total investment costs of a new heating system or 40-50% of the boiler price. However, as perso-
REFUND + O
42
nal income tax is levied at 15% in Lithuania and tax allowances or tax reductions are applied, in many cases the tax rebate required to promote RES heating systems e ectively would be higher than the tax paid. erefore the system would not allow the desired target and above results to be reached. Lithuanians' ability to use the tax credit does not depend on the tax level; therefore this scheme would be of most bene t to low-income earners. People not gainfully employed (for example, pensioners), however, would not be entitled to bene t from this scheme.
high discount rate, and 6.9% in the case of low fuel price scenarios and low discount factor. • Support of over 40% of the total installation cost would provide solar collectors with the opportunity to compete with electrical water heating and support of ~ 85% would make them competitive with gas water heating. • Due to the expected high electricity price, heat pumps become economically a ractive only if there is 100% support on investments. • Since the beginning of 2009, Lithuanians' incomes have been taxed at a rate of 15%. As low-income inhabitants pay low taxes, the potential bene t from tax allowances or tax deduction schemes is low and it does not play triggering role for investments in new RES heating technologies. • e current Lithuanian tax allowance scheme (for the moment not applied to RES heating systems), allowing deductions up to 25% from taxable income, is oriented towards high-income households. In order to make this nancial promotion scheme more a ractive for inhabitants with lower income at least bound of mentioned 25% should be increased.
5.3. Conclusions for Lithuania
• Introduction of e ective support schemes on investments as means of support to individual investment in RES-Heat appliances will change signi cantly stock of heating technologies (boilers) but will have only moderate impact to RES (wood) consumption in Lithuanian household sector. • Looking to the RES penetration rate rational support is about: - 20-30% from total installation cost or - 40-50% from equipment cost. • Estimated increase of RES (wood) consumption may reach 2.9% in 2015 and 17.1% in 2030. • Reduction of total fuel consumption in 2030 would be 3.5% in the case of high fuel price scenarios and
• Tax reduction scheme will be limited tool as social payments are the main income source for one third of Lithuanian households, which cannot use this support scheme. • A tax credit scheme has the highest potential to achieve the expected results on implementation of RES heating systems. However this instrument is not in the Lithuanian scal culture and tradition and government may be reluctant to implement this type of measure. • Income of Lithuanian inhabitants are taxed by 15% tari . As low-income inhabitants pay low taxes, the potential bene t from tax allowance or tax deduction schemes is low and it does not play triggering role for investments into new RES heating technologies. Heaving this in mind and taking into account that social payments are the main income source for one third of Lithuanian households implementation of RES heating support scheme that is not related to tax system should be considered.
REFUND + O
43
5.4. Results for Poland
Fi y-six di erent scenarios were analysed to investigate the consequences of implementing RES heating system investment support schemes in Poland. e results show that almost all the total energy for space heating is produced by solid fuel boilers that can burn di erent types of fuel (coal, wood, wood waste and others). Solar systems and the geothermal heat pumps have not penetrated the Polish market because they are too expensive for consumers. In 2005, solid boilers (114,990 TJ) and stoves (51,662 TJ) had the biggest share of heat production. In the scenario without support, the simulation led to a 2030 situation where current stoves, electric boilers and natural gas boilers will no longer be used in the country. ese technologies will become too much expensive in the Polish market in terms of global costs (including investment and fuel costs throughout the service life of
the equipment). At the 2030 dateline, the most popular technology will be wood mix boilers (143,432 TJ). For hot water production, the main energy was from existing solid boilers (19,165 TJ), electric boilers (638 TJ), natural gas boilers (6,715 TJ) and electric water heaters (15,554 TJ). In 2030, the simulation results show the mix boiler (23,963 TJ) taking the lead, followed by existing solid boilers (9,614 TJ), electric water heaters (7,093 TJ), natural gas water heaters (1,156 TJ), solar water heaters (170 TJ) and solid 1 wood boilers (75 J).
Details on the legend
Solid 1 wood: wood boilers with a 75% e ciency rate Solid 2 mix: hybrid boilers that can burn coal, wood, pellet or wood waste. Solid 3 wood pellets: boilers using wood pellets only Solid 4 wood: boilers with a 70% e ciency rate
e dynamics of heat production (for space heating) by technology with high fuel prices and any support scheme (scenario 1) Source: Institute for Fuels & Renewable Energy 2009
TJ
200,000 180,000 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0
20 20 20 25 20 05 20 10 20 15 20 30
Solid 4 wood Solid 3 wood pellets Solid 2 mix Solid 1 wood Natural gas boilers Electric boilers Stoves Existing solid fuel boilers
REFUND + O
44
When we introduce a 40% support scheme (on the total investment costs), the penetration of RES technologies changes from the business-as-usual scenario. e next graph applies only to space heating energy production. e major di erence is the 75%penetration of wood boilers. In 2030, the biggest share in heat production will be represented by solid 2 wood mix boilers (67,373 TJ), solid 1 wood boilers (67,373 TJ), solid boilers (34,148 TJ), stoves (540 TJ) and solid 3 wood pellets (14 TJ). e situation is similar for hot water production. e 2030 situation will put solid 2 wood mix boilers (16,657 TJ) in rst place, followed by solid 1 wood boilers (11,219 TJ), electric water heaters (7,183 TJ), existing solid fuel boilers (5,683 TJ), natural gas water heater (1,156 TJ), solar water heaters (170 TJ), and solid 3 wood pellets boilers (2 TJ). e main result of implementing 40% of nancial support on RES in Poland is that solid 1 wood boilers will replace solid 2 wood mix boilers and existing solid fuel
boilers in parts. As for solar thermal and geothermal heat pumps technologies, the impact of the measure on these technologies will be insigni cant. is gure shows that when support reaches 40% or over of total installation cost, the main impact is made to increased heat production from RES technologies. e 20% and 30% support schemes have very similar impacts, namely about 20,000 TJ of additional heat production from renewable sources. Based on this it was concluded that reasonable support levels for Poland are in the range of: • 20-30% if support is calculated on the basis of total installation cost of RES technologies; • 30% if support is calculated on the basis of equipment cost of RES technologies. ese conclusions are valid for boilers designed to use renewable energy sources such as solid fuel and techno-
e dynamics of hot water production by technology in the case of scenario 1
TJ
45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0
20 20 20 15 20 0 20 25 20 1 20 30 5 0
Source: Institute for Fuels & Renewable Energy 2009
Natural gas water heaters Solar water heaters Electric water heaters Heat pumps Solid 4 wood Solid 3 wood pellets Solid 2 mix Solid 1 wood Natural gas boilers Electric boilers Stoves Existing solid fuel boilers
REFUND + O
45
e dynamics of total heat (for space heating) production by technology in the case of scenario 5 (40% compensation of all RES technology installation costs) Source: Institute for Fuels & Renewable Energy 2009
TJ
200,000 180,000 160,000 140,000 120,000 100,000 80,,000 60,000 40,000 20,000 0
20 10 20 25 15 20 20 20 30 05 20 20
Solid 4 wood Solid 3 wood pellets Solid 2 mix Solid 1 wood Natural gas boilers Electric boilers Stoves Existing solid fuel boilers
e dynamics of hot water production by technology in the case of scenario 5 (40% compensation of all RES technology installation costs) Source: Institute for Fuels & Renewable Energy 2009
TJ
45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0
Natural gas water heaters Solar water heaters Electric water heaters Heat pumps Solid 4 wood Solid 3 wood pellets Solid 2 mix Solid 1 wood Natural gas boilers Electric boilers Stoves
20 20 20 25 20 30 10 15 5
Existing solid fuel boilers
20 0
20
20
REFUND + O
46
logies. However, this support level is too low to develop the solar collector and geothermal heat pump sectors. As in the Lithuanian study, cost levelled calculations show that support of about 100% of installation cost is required to make heat pumps economically a ractive. Hot water production using solar collectors is the most costly option of all the alternatives analysed. Support in the range of 40% of total installation cost is needed to make solar collectors compete with electric water heaters and to make them as a ractive as gas water heaters this rises to 85% support of total installation cost. Implementing support schemes for RES heating technologies has no major impact on fossil fuel consumption levels. In the Polish scenario, three di erent wood price changes have been programmed into the model (to monitor the fact that the price changes as wood fuel is increasingly used). But the two main limits to RES development in Poland are the fact that the country does not import wood (so its capacity to produce fuel from biomass is limited). e second point relates to the fact that Polish government has to deal with a very strong coal mining corporation that strongly supports this activity in the country. e State is helping this sector and coal stay an a ordable energy for most Polish consumers.
CO2 emission will be decreased in all scenarios. But the reduction depends on the support of RES heating technologies. In the scenario with no support, CO2 emission will decrease from 25 to 22 million tons and with 40% support to 21 million tons. Spending from the State budget depends very much on support level. With 40% support yearly, the average budget outcome is on the level of €300 million e huge di erence between the 40% level and the other support schemes comes from the fact that in this case all wood boiler technologies will become cheaper than the existing technologies, so consumers will rush to buy these appliances much more than in the other scenarios. e main barrier to this policy is the cost. Over €300 million per annum is too much for Poland. A budget in the region of 20 or 30% is much more a ordable for the country. Results of the modelling show that seeking to promote installation of RES heating systems e ectively; it would be rational to o set either about 20-30% of the total investment costs of new heating system and boiler price.
Additional heat production om RES for the support level in the case of 2-5
TJ
160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0
20 17 05 08 11 14 23 26
Source: Institute for Fuels & Renewable Energy 2009
40% 30% 20% 10%
29
20
20
20
20
20
20
20
20
20
20
32
REFUND + O
47
e relevance of direct tax measure to promote RES sectors in Poland As for the implementation of State subsidies in the form of a tax measure, the same constraints as seen for Lithuania can be applied to Poland (low average income). Due to the current development of RES markets in the country, subsidies or grants are more relevant to support them. •
demands to high a budget for the Polish State (annual average €300 million). e Polish energy system is based on coal. All national prospective scenarios are based on this fuel and that is one of the main limits to RES market penetration in Poland.
5.5. Conclusions for Poland
• Introduction of e ective support schemes on investments to support individual investment in RES-Heat appliances will signi cantly change the stock of heating technologies. • Looking at the RES penetration rate, rational support is about: - 20-30% of total installation cost or - 30% of equipment cost. • e highest impact would be made by establishing a 40% support scheme for RES technology, this option
• Total fuel consumption is constant. Any increase in wood consumption will depend on imports, but in that case the wood price would be similar to or higher than that of coal. • Support of over 40% of total installation cost would provide solar collectors with the opportunity to compete with electrical water heating and support of ~ 85% would make them competitive with gas water heating. • Due to the expected high electricity price, heat pumps only become economically a ractive if there is almost 100% support on investments. • Tax deduction or allowance schemes are limited in Poland. Much of the population does not pay income tax or does so at a low level, thus such a measure is not highly relevant.
Annual spending om the state budget, in millions of €
In millions of €
350 300 250 200 150 100 50 0
Source: Institute for Fuels & Renewable Energy 2009
10% support scheme 20% support scheme 30% support scheme 40% support scheme
20
25
05
10
15
20
20
20
20
20
20
30
REFUND + O
48
6. Recommendations
e study of 5 national experiments have revealed six distinct key moments in drawing up, implementing and monitoring a tax instrument, each of which is an important step that calls for good negotiation: • e choice of the type of instrument
6.1. Choosing the type of tax measure
Why use a tax measure to promote renewable energy technologies? • A exible tool Tax measures are a very exible tool. eir exibility means they can be targeted at speci c technologies or consumer groups. ey can be made strong in the early development stages of a renewable industry and gradually phased out as the market matures, achieves higher sales gures and becomes self-sustaining. Combined with other policy tools, it is a relevant way to target speci c needs. • An easy tool to administer for government A tax measure is easy to administer. In the case of a tax credit/deduction/allowance, the consumers declare their investment and the measure for which they are applying. Generally, the State randomly checks batches of tax declarations. e administrative load is quite small. • A simple process for end consumers A tax measure is a uid process for consumers who do not have to draw up application les and wait for the answer. Once users of a measure have veri ed that they meet the quali cations required by the legal text (such as the eligible technologies, the type of building, etc.) they can claim the bene ts without more procedure. • A guarantee of budget availability A tax measure ensures that the budget will not dry up during the year. ere is no need to de ne a dedicated budget for the targeted actions at the beginning of the year with the risk that the money will run out before the end of the period.
• Making allowance for the prevailing economic context when implementing the measure • De ning the characteristics of the measure • Considering how the tax measure should interact with other national and regional initiatives • De ning accompanying actions • Monitoring the impacts of the measure and any side e ects We have identi ed recommendations for the policy-makers for each of these six steps.
Deliverables available on the website linked to this part: • WP4 cross country analysis report.
REFUND + O
49
• Direct involvement om State which is perceived as a strong positive sign Further to the qualitative analyses, when public authorities get directly involved in promoting a technology or sector, consumers perceived this as a strong sign of its reliability. Regional support action is seen less positively in this respect. • Reducing transaction costs for professionals With a national tax measure, professionals do not need to look out for potential changes in regional subsidies for their sector. A national measure decreases the transaction costs borne by the professionals to keep track of the most up-to-date situation. • e main disadvantage: delayed refund Our analyses also highlighted some particular aspects of tax measure that could be perceived as disadvantages. e two major identi ed weaknesses are the time elapsed between the investment time and the refund date. is period can be over than one year and for individual consumers this can be a nancial burden in the case of the most sizeable investment. e second is uncertainty about the budget. Some assessments can be made before the measure is implemented, but the nal cost to the State budget will be determined at the end of the year. • A mechanism whose relevance is country-dependent in terms of tax system When se ing up a tax measure, one of the rst parameters to check is the country's existing tax system. Indeed, there could be some legal ceiling for refunding tax payers. Also, if the average taxation rate is low, then the impact of a tax reduction or a tax allowance is bound to be lower, which only leaves room for tax credit.
• Recommendation on the type of tax measure e economic and qualitative analyses highlighted the fact that it would be preferable for a country to choose a tax credit measure when choosing between all the identi ed types of measure. is mechanism is more transparent and simpler than tax allowances and fairer than tax deductions.
6.2. Taking into account the economic context surrounding implementation of the measure
Fossil energy price tension situations create favourable contexts for the development of renewable applications It is almost a cross-border fact that was observed in all the countries covered by the study. Fossil energy price tension periods are conducive to the development of the renewable sectors. In these cases consumers turn to alternative solutions very much more easily. is type of context should encourage governments to launch a renewable energies-promoting tax measure rather than lead it to postpone its launch. Ensure that there are no major orientations by consumers that tend to divert them from investing in renewable applications. e Belgian case speaks volumes on this issue, for its consumers are highly geared to energy-saving actions and consider that they have yet to arrive at the renewable energies stage. e government needs to conduct opinion polls need to survey the public on this point.
REFUND + O
50
6.3.
e best characteristics for a measure
e design of tax measures deserves considerable attention. Several sensitive characteristics have been identi ed throughout this research. e RES support part must be clearly identi ed in the global measure A tax measure can combine di erent types of investment (i.e. environmental and energy areas) but RES sectors have to be speci cally highlighted. is could be done through particular communication campaigns or by using speci c renewable sector features. Moreover, our analysis raised the fact that a measure that pools very disparate types of investment (e.g. RES investment and insurance premium as seen in Austria) is ine cient. e RES support must not be overshadowed by another section In the Portuguese case study, RES investments were largely outshone by another type of investment much more common among individual consumers and also eligible for the same measure: loan interests for households. e RES section must be isolated from other types of investments to avoid competing with them. e market and consumers need visibility on the measure Stability in government policy is very important for investors. Frequent expirations of tax measure cause boom and bust cycles in the sector industry that could hurt its ability to grow domestically and confuse consumers about the long-term State commitments to support renewable technologies. Markets need several years' visibility of the measures announced. e French measure was implemented for 5 years (from 2005 to 2009) and Italian measure was implemented without a time limit.
e amount of nancial support should be de ned in relation to the surrounding context e subsidy level can act as a double-edged sword. On the one hand we have seen that technologically mature sectors can o er kWh-production costs that compete well with fossil energies or electricity. In those cases one could imagine that a low level of support would be enough. On the other hand, the qualitative analysis demonstrated that the rate of the subsidy in itself sends out a message. If a government gives li le assistance to a sector, that can be interpreted as being backing reserved for an emerging technology. Observations and analysis from the economic and qualitative sections lead to the following recommendations: • e incentives for a sector must be sizeable enough to make a renewable technology competitive under circumstances when it would not be otherwise. Too low a tax measure, as it was observed in Austria, cannot have an impact on the market. If the tax measure is associated with another policy, the government must adhere to the global nancial support proposed by all the supportive actions implemented. e opposite of the previous point is to avoid a situation in which all the support tools proposed to the end-consumers represent too high a share of the investment. Such a situation is ine cient because it will not lead to sustainable growth in the market. Sales will depend too much on the tax measure and when the scal support stops, the gap will be too wide and the market will collapse.
•
• It is important to determine a speci c level of nancial support for each sector in relation to its industrial and commercial maturity rather than a tax measure proposing the same treatment for all targeted sectors. • e measure must cover the whole investment (equipment and installation) rather than just part of it, which can lead to the costs being transferred to the part that is eligible for the measure.
REFUND + O
51
Global energy production costs simulation In its methodology, the REFUND + project used a simple dedicated tool to simulate the marginal costs of energy production by a technology. is approach integrates the initial investment (equipment and installation) as well as the O&M costs throughout the application's lifetime. e results of these global energy production cost simulations enable us to compare the competitiveness level of each technology in relation to the time it is used over the year. is tool proposes a simple approach to evaluate the cost level of a technology and de ne the most e cient nancial support for it. e RES targeted must be ready for market increase Tax measures alone or combined with other support actions could be a powerful tool leading to a fast, strong end-consumer rush on the targeted markets. Sensitivity is required to ensure that the RES sectors promoted have reached maturity and are able to withstand a strong increase in sales. e most common problems to avoid are equipment distribution breakdowns, overwhelmed installers or structural weakness in the associated branches (e.g. wood fuel for the biomass appliances).
Lithuania, show that in the rst place direct grants and subsidies are the best mechanisms to launch a sector. e limit of the tax measures in this instance is the time taken between the investment and the nancial return which is seen as an additional obstacle, whereas this poses less of a problem for proven sectors that are familiar to the general public. Regional actions can top up a national tax measure • A national tax measure used as the main support policy for a RES sector could be topped up by regional actions focused on speci c points that the government wants to propose. erefore, regional actions could target speci c equipment (most e cient appliances in terms of energy savings or avoiding CO2 emissions). • Regional nancial actions could help people in the interim period between their investment and the refund from State. is support could take the form of a low interest loan or a moderate direct subsidy. One of the aspects to monitor closely is the share of the total nancial support (from national and regional) of the total investment. e incentives are dedicated to reduce the e ective up-front cost of a renewable application. However excessive nancial contribution is unsustainable. e way forward would be to set a general ceiling for public support. In France for example, the ceiling of the nancial support for individual renewable investment is xed at 70% of the total amount (which is very high). Most of the French regions have applied this threshold as a limit when devising their subsidies or actions. A tax measure can top up other support policies A tax measure can also be used to top up other policies. e French case study showed that the 15% tax credit implemented during the 2001–2004 period as a government commitment added to all the other support actions (direct subsidies for solar thermal, low interest loans for geothermal heat pumps, communication campaign for biomass sector) played an e cient role.
6.4. Combining with other national/regional actions
Start by launching the sectors using incentives and subsidies then follow them up by developing the markets further with tax instruments In the sectors that su er from low public awareness levels, whose industry is not yet organised and that register low sales volumes, tax measures do not seem to be the most appropriate measure. National experiences, primarily the case France or the simulation made by
REFUND + O
52
6.5.
e crucial accompanying actions
Set up a communication campaign Without active action to circulate information about the implemented measure, there can be no impact on the market. e two main reasons identi ed are: • A national campaign managed by State and its institutions is a strong signal that a technology and a sector can be trusted. It is a major support for the credibility of a RES sector. • When there is trust in certain technology, the economic incentive required to generate a trigger e ect on consumers is smaller, which in time, lowers the public budget requirement to support the scheme. As for the organisation and management of the communication campaign, some additional recommendations are in order: • Consumers and the trade request are asking that one main organisation should be designated as the contact point for all questions about how the measure operates. Public authorities have to identify a central organisation to be the o cial contact. Qualitative analysis raised the fact that National Energy Agency could be the best organisation to carry out this role. • Cooperation with the sector professionals (equipment sellers, installers or promotion association) is strongly recommended because they are crucial partners in conveying communication on the measure to the end consumers. e trade professionals are thus asking for o cial brochures or lea ets that bear a public authority logo.
Se ing up quality of labels and standards on the RES sectors targeted A full tax measure must include performance standards to ensure that equipment has the necessary quality and capabilities for long-term operation. is could also be extended to the manpower skills of the sector and also to wood fuel quality standards (pellets, chips or logs). If a country does not have its own national quality standards or labels, it can use European standards that have been developed over the past years: • Solar Keymark promoted by ESTIF for solar thermal equipment; • EHPA Quality label promoted by EHPA for heat pumps (geothermal and aerothermal); • EU-CERT.HP promoted by EHPA for heat pump installers. e best practice is to include speci c quality requirements the text of the measure as in the cases of Belgium and France.
REFUND + O
53
6.6. Monitoring the impacts and side e ects observed
No analysis and readjustment can be made without indicators to monitor the results of the implemented measure. e project has identi ed some relevant surveys on quantitative and qualitative aspects to evaluate the impact and pilot the measure. Quantitative indicators Several quantitative indicators have been identi ed to follow and assess the impact of the measure: • sales trends in the targeted RES sectors; • numbers of people applying for the incentive; • development of the ratio of the cost of the incentive to average investment cost; • incentive budget development; • average price trends of the most representative equipment for each of the targeted RES sectors; • quality label and standards development in relation to market share; • macro-economic input/output table to assess the impact of the incentive on economic activity and employment. e speci c issue of the price trends e French and Italian examples showed that in a context of market increase, close track must be kept of
the prices. Strong sales increase could be followed by unjusti ed price rises and this phenomenon can disrupt the positive impacts of the measure. e two main survey actions identi ed are: • sector studies to analyse price trends and their causes; • communication on average prices practised aimed at end consumers to guide and inform them in their choice. Observations and simulations made on the French case highlight the fact that a moderate ceiling combined with a high incentive rate is the best combination for reducing price increases Qualitative studies Qualitative studies can round out the economic indicators: • assess end consumers’ perceptions of the measure and its role in the purchasing process; • assess how the trade is using the measure in its selling process and identify aggressive commercial behaviour or prices distortions. Such phenomena were observed in French markets where strong market increase a racted newcomers lured only by short-term pro ts. ese qualitative studies can also be used to assess the impact and role of other external factors (e.g. impact of fossil energy price trends).
All reports can be freely downloaded in PDF les at the following address:
www.energies-renouvelables.org/refund
Consortium websites network:
www.energies-renouvelables.org www.ceeeta-eco.pt www.eeg.tuwien.ac.at www.vito.be www.lei.lt www.ipieo.pl
Publication carried out by: Observ’ER 146, rue de l’Université 75007 Paris – France Alain Liébard, President. Photos credits: Cover page, om le to right: Sofath, P. Bovet, Wartisila Biopower. Page 10: Tisun. Page 11: L. Marandet. Page 14: Sofath. Page 15: Fondis. Page 31: Rehau. Page 33: UCFF. Page 34: Suntechnics. Page 36: Viessmann. Page 37: R. Delacloche/Observ’ER – Architectes: S. Calmus et B. Lafaille. Page 42: UCFF. Page 48: Kinspan. Page 49: L. Marandet. Page 52: Sofath. Page 53: Solar Century. Graphic design: Lucie Sauget/Pop Agency Printing: Bourse Copy – Paris
W
:
In all ve countries covered in our project, direct tax measures appeared to be a exible and powerful policy tool that can be targeted to promote and encourage speci c renewable energy technologies and in uence selected renewable energy consumers. Successful tax measures to promote individual investment in renewable energy heating appliances: • must be of adequate in size, scope and length to be e ective in in uencing consumption decisions; • must be tailored according to the state of renewable energy sector maturity in the country; • must be carefully designed to account for interactions with other national or regional policies; • must require other supportive actions to create secure and stable surroundings for market actors and end-consumers.