Updated: Apr 18, 2020
Or: how Luxembourg buys its way to "green".
Luxembourg ranks third last in the European Union for production of green electricity.
National electricity suppliers sell their electricity as green, even if it is not always green.
The Luxembourgish government buys green energy on paper to inflate national statistics, without increasing the proportion of green energy in Luxembourg.
I recently came across huge figures from the Ministry of Energy and Spatial Planning on the evolution of renewable energy in the Luxembourgish electricity sector : between 2008 and 2018, the installed capacity of solar panels increased by 533% while the electricity generated by windfarms increased by 410% over the same period. In addition, 74% of the electricity consumption of household electricity in Luxembourg comes from renewable energy and 55% of total Luxembourgish electricity consumption is labelled "green".
Immediately, my thoughts were going crazy: “Great! Luxembourg must be a leader at European level. Especially as our electricity suppliers often offer green electricity only! ”.
The reality is, however, slightly different: Luxembourg is not a leader in Europe. Only 10% of the national electricity consumption comes directly from renewable sources. This puts Luxembourg at the third last spot in the European Union in front of Hungary and Malta.
[Data source: Eurostat – 2018]
How does electricity consumption in Luxembourg look like?
Neither the statistical statements about renewable electricity from the Ministry, nor the electricity suppliers' practice to market green electricity, are false or illegal - but it is a matter of context and perspective.
In 2018, Luxembourg consumed 6'611 gigawatt hours (GWh) of electricity. 14% of national consumption is produced nationally and 10% of total consumption come from renewable sources located in Luxembourg.
If one assumes that national, green production goes to households only, then indeed 74%, of consumption comes from renewable sources, as announced by the Ministry. Unfortunately, however, households only account for 14% of the electricity in Luxembourg, totally ignoring commercial and industrial consumption in these statistics.
To account for this consumption as well, Luxembourg imports 86% of its electricity, mainly from Germany, but also from France and Belgium. Here it is impossible to track which source this electricity comes from: as soon as electricity is produced and injected into the grid, the origin cannot be traced.
[Source: ILR – 2018]
How can the supplier know that the imported electricity is green?
To document the origin of electricity in Europe, the EU invented the so-called "Guarantees of Origin" (GO), a type of green certificates: every European electricity plant running on renewable sources receives, for every unit of green electricity it produces, such a certificate. This certifies the electricity to be “green”.
These certificates can be exchanged between producers and suppliers, so that the supplier can market their electricity green: this principle is anchored in an EU directive. Here, however, there are no criteria that the certificates must come from an area that also provides electricity to the supplier. Thus, two actors can exchange certificates, even if the electricity is not actually physically flowing between the actors.
For example: a southern European electricity supplier who imports his electricity and does not know the origin can sell it as green, as long as he buys a GO (which is also very cheap). This GO could then come from Scandinavia, even though electricity has never flown physically between those countries. However, the electricity is "green" on paper.
Furthermore, renewable production is not constant: if local, renewable power plants cannot keep up with demand (for example, if the wind is not blowing, or at night the sun is not shining), then no green electricity is produced – it is not yet possible to run on 100% renewable electricity without storage systems. In this case, the electricity will come from dispatchable sources, which are often fossil-fuel based.
A second example: it is night in southern Europe - the electricity supplier imports electricity or draws on fossil sources because the sun is not shining. The supplier only has to buy a few GOs to call this electricity "green".
As long as the European electricity network is not better connected and as long as there are no cheap storage systems, the GO completely fail their purpose.
What does this mean for the electricity supply in Luxembourg?
The Luxembourgish electricity suppliers exploit this mechanism. On the different suppliers’ website, it is noticeable that as a private individual you can often choose green electricity only. For professional and industrial customers, too, the option of having 100% renewable energy is available.
As mentioned, the Luxembourgish electricity suppliers import their electricity from neighboring countries without knowing the origin. Here the certificates come into play: in order to sell this electricity as a "green", they buy - for a minimal price - certificates from producers from countries from which no electricity will physically arrive in Luxembourg.
The Luxembourg Institute of Regulation (ILR) documents for 2018 that over 55% of the Luxembourg electricity goes “green” through this practice. The certificates come from countries which are not linked to Luxembourg, neither directly nor indirectly: Norway, Iceland, Spain or Sweden.
[Data Source: ILR - 2018]
This practice, in addition to the fact that only 10% of national production comes from renewable sources, is a disappointment to the consumer: the electricity coming from the power socket is physically not green to the extent that the electricity suppliers make the customers believe.
Of course, Luxembourg certainly has more than 10% green share in the national mix, as the imported electricity must also be taken into account. A simplified approach would be to say that the imported electricity can be approximated with the proportion of renewable energy from the respective countries. In this case, Luxembourg would reach about 39% for 2018 - but not 55%.
What behavior is encouraged by Luxembourgish leaders?
These tricks - even though they are legal - are also very popular within the national government. To achieve its EU targets, by 2020, 11% of energy (in addition to electricity, including heat and transport) is expected to come from renewable sources. Today, however, this percentage stands at only 9%.
To reach the 2020 goal, Luxembourg has already signed an agreement with Lithuania in 2017 to buy renewable energy statistics on paper. In this agreement, Luxembourg will pay an estimated sum of 10 million euros for a minimum of 550GWh of green energy. This energy will be taken away from Lithuania’s balance and transferred to Luxembourg, although this energy will never be physically consumed here. Lithuania can afford this because they have reached their 2020 goal already years ago.
A second agreement was signed with Estonia at the end of 2017 for an estimated 10.5 million euros. Even though this practice is legal under the EU Cooperation Mechanism, the energy in Luxembourg does not get greener due thanks to these transfers.
Lithuania will invest the funds in the development of renewable energy, more precisely in research, and small energy projects. Of course, this sum is helpful for those purposes. Considering, however, that a large windmill costs about 5 million euros, Lithuania could only set up 2 wind turbines (or 4 wind turbines for 20 million if Estonia is considered as well). In other words: the sum that Luxembourg pays does in no way promote the amount of energy that Luxembourg gets transferred.
The statistical transfer accounts for 2.2% of Luxembourg's renewable energy statistics - or 24% of the total – which would require many more projects to be realized than 4 wind turbines.
[Data Source: Eurostat]
What kind of behavior should be expected in Luxembourg?
I leave this as an open question. Certainly, Luxembourg only has limited potential to bet nationally on renewable energy. Certainly, other countries have a better potential to promote renewable energy. Certainly, our government likes to be progressive and green because climate is “in”.
Even if the alternatives are limited today, the consumer and the citizen should not be deluded by such practices: today the Luxembourg consumer namely buys "green" electricity, which can be sold legally under that name, but which is not green in that proportion. In addition, the physical energy in Luxembourg is not as green as the national statistics suggest.