Establishing a policy framework for hydrogen

Lessons from policy frameworks for renewable energy and energy efficiency in

Central Europe

Silvia Rezessy & Diana Ürge-Vorsatz

Department of Environmental Sciences and Policy Central European University

24th June 2004, College of Europe, Bruges

Structure of the presentation

Introduction

Renewable energy sources (RES) in Central Europe: utilization, potentials, policy framework, barriers

Energy efficiency (EE): key reasons for the success of the Hungarian energy service market

What lessons can we learn for building a consistent policy framework for hydrogen?

Introduction: why lessons from RES and EE and why Central Europe?

Lessons are useful to give general guidelines because

Alignment and fine-tuning of objectives is necessary to create comprehensive sustainable energy strategiesRES and EE also have been facing battles to get off the groundNeed for policy goal alliances

Caution: specific experiences may not be so easily transferable,conformity and balance must be ensured between the different elements of a sustainable energy strategy.

A variety of background conditions in the national energy sectors of Central Europe

Renewables utilization in 2000 Source: Ürge-Vorsatz et al. 2003, study available at:

http://www.ceu.hu/envsci/research/epreport.pdf

1.6 %

143.3

0.2 %

4.2 %

3767

PL

15.2 %0.8 %3.1 %Renew./Total Electricity (%) (includes large hydropower)

30.43572.9Total Electricity Generation (TWh)

2.3 %0.1 %0.4 %Share of renewablesminus combustiblerenewables and waste in TPES

2.8 %1.6 %1.9 %Renewables/TPES(%)

73110371691TPES 2000 (PJ)

SKHUCZ

Renewables potentials

Estimates of the technical and economic potential ofrenewables in the region vary widely, in part because the information needed is often missing (e.g. no official wind map in HU)

Though other sources of renewables should not be overlooked, biomass, wind, and small hydro provide the greatest technical potential

Estimated RE technical potential (mid-term — 2020, violet bar) and installed capacity for all RES in January 2000 (red bar),

MWe

Source: REEEP background document, study available at http://www.rec.org/REC/Programs/ClimateChange/REEEP/Docs/BackgroundInfo.pdf

Achievable RES-E capacity and production in Hungary in 2010 (investment needs estimated at 100-130 billion HUF)

1600266.4TotalPV

50-60400Waste15-20100Geothermal50-6036082.6Biomass35-4526019.5Biogas40-50300161Hydro

80-1001803.3Wind

Capacity, MWProduction, GWh

Achievable RES-E capacity and production in 2010

Production in 2003, GWh

Renewables: policy frameworkIndicative targets (RES-E in total electricity consumption by 2010)

Poland 7.5 %, Czech Republic 8 %, Hungary 3.6 % (re-negotiated down from 11.5 %)

(in some cases) RES strategies, emphasizing not strictly environmental benefits of RES, e.g. employment opportunities

Limited investment support: no dedicated financial resources, mostly under EE and environmental programs

Operational support (feed-in tariffs, renewable portfolio standards)Time horizons, implementation deficiencies (efficiency thresholds, biomass co-firing)

Grid access rules (preferred connection only in CZ) and authorisation procedures

Renewables: major barriersLack of real political commitment and overall RES policies:

Inadequate regulatory and inconsistent legal frameworks lack of long-term policiesLack of RES laws, sectoral RES targets and, in some cases, of long-term RES strategies

Relatively cheap fossil-generated electricity vis-à-vis higher unit investment cost per kilowatt hour (though wind almost competitive!)

Limited environmental policy integration into the sectoral policies: often confusing signals with impact on RES deployment

No real RES lobby vis-à-vis strong fossil lobbies (high connecting costs, grid use fees, transmission tariffs, balancing rules)

Energy efficiency

Energy intensities (still) high in CEE, thus there should be a major market for energy efficiency solutions

The ESCO industry is considered as a success story in some CEE countries (Hungary, Czech Republic). Hungary is considered as a unique success story

Energy efficiency: the success story of Hungary. Overview of the ESCO market

About 10 - 20 key players in the ESCO market, about 200 other market players

Utilities play an increasing role in providing performance contracting and ESCO type services

Typical projects include public lighting, district heating and CHP

Market focus on public sector institutions (municipalities, schools, etc.) and , more recently, on the industrial sector

Key reasons for success: national context

Good economic conditions Support from State subsidies and multilateral programsControlled inflation (25% (1995) to 5% (2003))

Industry is under pressure for reduction in costs, and often outsources energy efficiency upgrades due to:

Limited capital accessAvailable capital is directed to low-payback investments (marketing, development).

Key reasons for success: financial sector

Good initial banking system

High liquidity

Provides long-term financing (banks acquired or merged by foreign banks in the mid-1990s)

Early experience with EE projects (through international projects)

Banks eager to enter new markets

Key reasons for success: energy sector

Price reforms introduced early

Government put emphasis on energy efficiency by legal conservation targets and certain financial support mechanisms for energy efficiency and ESCOs

Deregulation has been pushing the utilities to enter “Added value” service market

Key reasons for success: international aid programs

Support by international actors for the promotion of the ESCO industry (EBRD, German Coal Aid, IFC/GEF, Phare, USAID, etc.)

Good gradation in the Aid programsGrantsSubsidies for interest rateTechnical AssistancePartial Guarantee fund

Are there lessons relevant for building a consistent policy framework for hydrogen?

YES!

Lessons for building a consistent policy framework - I

Create a stable and long-term policy framework with clear incentives

Emphasize (and possibly quantify!) additional benefits of H2. Policy goal alliances (“piggy backing”): employment creation and rural development, investment opportunities, reducing import dependence and increase of energy security, improvement of the local environment, and strategic market positioning

Ensure stakeholders interest, involvement and cooperation: governments, industry, research institutions, NGOs

Build on existing expertise (e.g. chemical, automotive industries) and, possibly, infrastructure (e.g. natural gas)

Lessons for building a consistent policy framework - II

Industry and state authorities (e.g. public transport) to take the lead: public-private partnerships

Develop human and institutional capacities

Research, development, and demonstration

Elements of a hydrogen policy *

R & D, feasibility studies, demonstrations Initiating and facilitating broad discussionPublic education and awareness risingTarget datesEnvironmental regulationsPublic-provate partnershipsFull-cost energy pricingTax incentivesCodes and standards

* Ideas have been used that appear in Dunn, S. 2001. Hydrogen Futures:Toward a Sustainable Energy System. Worldwatch paper 157

Thank you for your attention!Silvia Rezessy

Ephlas01@phd.ceu.hu

Diana Ürge-Vorsatz Vorsatz@ceu.hu

Central European UniversityNador u. 9, 1051 Budapest, Hungary

Tel: +36-1-327-3890, + 36 1 327 3021Fax: +36-1-327-3031

Estimated renewable energy technical potential by source (mid-term — 2020)

Source: REEEP background document, study available at http://www.rec.org/REC/Programs/ClimateChange/REEEP/Docs/BackgroundInfo.pdf