Arnoud Kamerbeek

CEO DELTA NV

Dutch Energy Day 2015

Amsterdam, June 25th 2015

The decarbonisation of the power sector could and should be faster and cheaper

Content

1.The global carbon budget and the impact of fossil fuel combustion

2.How fuel switching can reduce carbon emissions in a cost efficient and effective way

3.Carbon pricing under ETS versus abatement costs

4.How DELTA contributes to a low carbon and sustainable energy system

5.Conclusion

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GHG emissions are accumulating and time is running out!

Source: Intergovernmental Panal on Climate Change (IPPC, 2014) Accumulated carbon emissions largely determine global warming.

Temperature increases with 0,8-2,5 °C per trillion tones of emitted CO2.

Global warming is not reversible over multi-century timescale.

We should limit global warming to 2°C to prevent dangerous interference with the climate system.

Therefore, cumulative carbon emissions should not exceed the global budget of 3000 GT (i.e. 450-500 PPM).

Source: Intergovernmental Panal on Climate Change (IPPC, 2014)

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At current rate of emissions the carbon budget will be fully consumed before 2040, mainly due to coal combustion

Source: Intergovernmental Panal on Climate Change (IPPC, 2014) 1. Since 1950 global carbon emissions have increased rapidly.

2. Already 2000 GT of the 3000 GT carbon budget is consumed, leaving us with only 1000 GT for the remaining future.

3. At current rate (i.e. 35 MT/Year) the carbon budget will be fully consumed before 2040!

4. In 2012 the power and heat sector was responsible for 38% of the CO2 emissions.

5. Within this sector 75% of the emissions are coming from coal fired power plants.

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Source: International Energy Agency (IEA, 2014)

Global emissions per sector (2012) Power sector emissions per fuel (2012)

4. 5.

World Europe Netherlands

Power Sector Emissions (MT/Yr) 12.083 861 44

Off which Coal (MT/Yr) 9.031 612 26

Off which gas (MT/Yr) 2.287 188 18

Average EF Coal (gram CO2/kWh) 962 903 913

Average EF Gas (gram CO2/kWh) 449 356 300

Fuel switch potential (MT/Yr) 4.816 371 17

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1. Also in Europe the power sector emissions are mainly caused by coal.

2. New coal plants have increased Dutch coal emissions sharply since 2012.

3. For each MWh a coal plant emits more than double the amount of carbon.

4. Despite Germany’s “Energie-wende” both absolute and relative emissions remain high.

5. Replacing all coal fired generation with gas will lower emissions by 40%.

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Source: International Energy Agency (IEA, 2014)

Carbon Emissions and emission factors (2012)

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Fuel switching offers a fast and significant way to reduce carbon emissions!

Source: Eurostat, DELTA Analysis 1. The EU 2020 reduction targets for renewable generation, GHG reduction and energy efficiency are all set at 20% (i.e. the 20-20-20 target).

2. However, having reached already 19,2% in 2012 the target isn’t very ambitious.

3. Therefore, the EU even considered to increase the 2020 target to 30%, which indicates the huge remaining potential.

4. In the current proposal for the EU 2030 targets the GHG reduction target is considerably higher than the other two pillars: 27-40-27.

5. The unambitious 2020 target together with the sluggish economy resulted in a huge surplus of emission rights and very low CO2 prices.

6. As a result, gas fired capacity cannot compete with coal capacity and sparkspreads even turned negative.

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Source: DELTA Analysis

The EU 2020 GHG reduction target doesn’t provide any incentive for carbon abatement

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Under current market design fuel switching, the most effective and cheapest way to reduce emissions, is not exploited!

Source: DELTA Analysis

1. Current carbon prices give no incentives for abatement.

2. Fuel switching starts around 30 €/EUA without coal tax.

3. However, with coal tax fuel switching starts around 20 €/EUA. Therefore, coal tax accelerates fuel switching.

4. The most expensive way to cut carbon emissions is to replace gas fired capacity with renewable capacity, implying CO2 prices of more than €200/EUA for off shore wind and solar.

5. However, current low CO2 prices in combination with high SDE+ subsidies have resulted in this very expensive abatement option.

• Fuel prices: Coal 51,2 €/ton, Gas 21,4 €/MWh (closings 19-06-15), no additional variable or shipping costs included.• Efficiencies: Coal 36-46%, Gas 45-53%, coal tax of 14,4 €/ton. • Costs of renewables: SDE+ 2015 “basisbedrag” Onshore Wind 81 €/MWh, Offshore Wind 125€/MWh, Solar PV 141 €/MWh.

Conventional SRMC and RES levelised cost versus the carbon price

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SDE+

SDE+

SDE+

(86

€/M

Wh)

SDE+

(86

€/M

Wh)

SDE+

(102

€/M

Wh)

SDE+

(102

€/M

Wh)

market price 39 (€/MWh)

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DELTA’s generation portfolio will reach an ultra low carbon footprint of less than 100 gr/kWh, with a RES share of about 40% in 2017

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1. After the decommissioning of our coal fired plant at the end of this year, our emission factor plunges.

2. In 2017 the renewable share of our production reaches more than 40% due to the strong growth of our wind portfolio.

3. Depending of the amount of CCGT production the emission factor can increase a bit, but stays close the 100 grams per kWh.

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Conclusion

To limit human-induced global warming to 2°C the future cumulative GHG emissions should remain below 1000 GT, which is a very serious and challenging target.

However, at current rate of emissions (35 GT/year), the remaining carbon budget will be consumed before 2040. Therefore immediate action is imperative!

Coal fired power plants are the strongest contributor. However, low carbon prices do not provide an incentive for fuel switching.

Due to high abatement costs RES are much more expensive than fuel switching, while RES subsidies undermine ETS.

Therefore we should focus with ETS on a single European target to reduce carbon emissions in a cost efficient and effective way!

Let policy makers set a serious GHG reduction target and let the market decide on the way to achieve the target (e.g. via renewables, fuel switching, energy efficiency, etc).

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The Netherlands is very well supplied and is able to guarantee security of supply without coal capacity

Dutch capacity and load

Source: ENTSO-E Adequacy forecast (2014)

Total Capacity: 41,8 GW

Available Capacity: 32,6 GW

Adequacy Margin:12,7 GW