eu renewable energy support schemes · new renewables in the electricity sector (all technologies...
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EU Renewable energy support schemes- Status quo and need for reform -
Dr. Mario Ragwitz
Head of Business Unit Renewable Energies
Fraunhofer-Institute for Systems and Innovation Research ISI
12.04.2013, Brussels
Workshop in preparation of Commission review of EU Guidelines on State Aid for Environmental Protection
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Current achievements are substantial
The last decade was characterized by the successful deployment of renewable energy sources (RES) across EU member states – total RES deployment increased by more than 40%. In detail: RES electricity generation grew by approximately 40%,
RES heat supply by 30% and biofuels by a factor of 27 during the last decade,
new renewables in the electricity sector (all technologies except hydropower) increased fivefold during the same period,
total investment amounts to € 40 billion annually, employment due to RES amounts to about 1.5 Mio. people
in 2010 cost reductions for key technologies like wind and PV are in
line with learning curve expectations Europe acted as first mover to start global RES
development
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For wind on-shore and PV the long term cost reduction expectations have been reached
Expectations regarding cost reductions were overachieved
Source: IRENA
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The challenge ...
But more is needed to reach the 2020 targets: Compared to the last decade, growth in RES-E needs to almost double from 3.4% per
year to 6.7% per year, growth in RES-H sector needs to increase from 2.7%
per year to 3.9% per year until 2020, compared to the last three years relative growth rates
need to roughly continue during the next decade, credit crisis reduces growth in a number of MS costs of RES policies have reached 0.3% of EU GDP
Evaluation of NREAPs shows that largest deficits exist regarding the mitigation of non-economic and grid-related barriers and regarding support schemes for RES-H
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0
10
20
30
40
50
60
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Feed
-in Ta
riffs
[€ce
nt /k
Wh]
< 30 kWp
< 100 kWp
< 1 MWp
> 1 MWp
green field
Continuous price reductions in alignment with cost reductions are key!
In Germany FIT levels for PV could be reduced by more than 60% within 7 yearsIn Germany FIT levels for PV could be reduced by more than 60% within 7 years
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Source: RE-SHAPING 2011
New developments:
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Share of feed-in systems in EU RES capacity until 2010
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Po l i c y e f fec t i venes s - w ind onshore
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Suppor t l eve l ranges - w ind onshore
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P ro f i t r anges v s . e f fec t i veness - w ind onshore ( c o s t - e f f e c t i v e n e s s o f p o l i c i e s i n E U - 2 7 )
AT
BE
BG
CYCZ
DE
DK
EE
ES
FI
FR
GR
HU
IE
IT
LT
LU
LVMT
NLPL
PT
RO
SE
SISK
UK
-2%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
-40 -20 0 20 40 60 80 100 120 140
Polic
y ef
fect
iven
ess
indi
cato
r 200
9
Potential profit range [€/MWh] Source: RE-SHAPING 2010
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Measures to inc rease e ffec t i venes s and e ff i c i ency
Source: RE-SHAPING 2010
High growthRE production
Low cost/MWhfor consumers / public budgets
No growthRE production
High cost/MWhfor consumers / public budgets
PTUse risk-free interest rate
Simple permitting & grid procedures
Facilitate markets managing risks
Low revenue risks
Policy stability
Reduce windfall profits by adjusting support level
IEES
DESE
UKBE IT
FR
AT
RO
PLBG NL
(General country risk)
Example for wind onshore
2009
Triple-A RE policies
High growthRE production
Low cost/MWhfor consumers / public budgets
No growthRE production
High cost/MWhfor consumers / public budgets
PTUse risk-free interest rate
Simple permitting & grid procedures
Facilitate markets managing risks
Low revenue risks
Policy stability
Reduce windfall profits by adjusting support level
IEES
DESE
UKBE IT
FR
AT
RO
PLBG NL
(General country risk)
Example for wind onshore
2009
High growthRE production
Low cost/MWhfor consumers / public budgets
No growthRE production
High cost/MWhfor consumers / public budgets
PTUse risk-free interest rate
Simple permitting & grid procedures
Facilitate markets managing risks
Low revenue risks
Policy stability
Reduce windfall profits by adjusting support level
IEES
DESE
UKBE IT
FR
AT
RO
PLBG NL
(General country risk)
Example for wind onshore
2009
Triple-A RE policies
Triple-A RE policies
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P ros and cons o f ma in RES -E suppor t s chemes
Fixed Feed-in traiffs
Feed-in premium withelectricity price index (floating premium)
Auction-based floating premium
Technology neutral quota models
Banded quota models offering long term contracts
+ low investment risk+ high technology diversity+ low windfall profits for mature
technologies+ broad spectrum of investors- low compatibility with electricity
markets- limited elements for competitive
price setting
+ high compatibility with electricity markets
+ competition between generators- high risks and uncertainties
(prices and market growth)- low incentives for less mature
technologies- windfall profits
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Feed- in premiums as a tool to fac i l i tate market compat ib i l i ty
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Mot i va t ion fo r us ing F I P s y s tems
Nine MS use (or plan to use) FIP systems as support scheme for RES-EThe following reasons for use of FIP are frequently given: Higher investment security as compared to TGC system
Improved compatibility with electricity market as compared to FIT
All different market places for selling RES power may be used, which may increase the value of RES
Creativity of RES generators for creating better forecasts, new balancing products, use of storage options, optimising plant design and operation etc. can be activated
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D i f f e rences in F I P des ign
FIP systems differ regarding: Mandatory or optional introduction of FIP model
Intervals to change between premium and alternative system
Type of premium: fixed, cap and floor, sliding
Methodology to determine (technology specific) reference prices
Period for averaging reference prices: hourly, monthly, annually
Consideration of value of wind / solar hourly generation at spot markets profile factor
Methodology to determine balancing costs
Consideration of other fixed costs, e.g. trading platform, etc.
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D i f f e rences in F I P des ign
Fixed premium / Cap and floor / Sliding versus
fixed FIT and Quota sytem based on TGC
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F IP sys tems – e lements & terminology
UK NL DE DK ESSt
rike
pric
e
Prem
ium
Ref
elec
pric
e
cap
floor
Stat
utor
y/te
nder
pric
e
Ref
elec
pric
e
Base
pric
e
Ref
elec
pric
e -B
ase
(flo
or) e
lec
pric
e -
Tech
no p
rofil
e fa
ctor
Prem
ium
FIT
Prem
ium
Ref
elec
pric
e w
ith
tech
nopr
ofile
fac
tors
Management premium
Regu
late
d ra
te
Ref
elec
pric
e =
ba
ldita
Prem
ium
Prem
ium
Fixe
d pr
emiu
m t
ariff
Ref
elec
pric
ePr
emiu
m
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Re lat ive market va lue W ind in Germany
89.2% 87.8%91.0% 91.7%
94.5%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2006 2007 2008 2009 2010
Rela
tiver
Wer
t in
% P
helix
Bas
e
Annual generation of wind energy in Germany (TWh)2006 2007 2008 2009 201030,7 39,7 40,6 37,8 35,8
Long run simulations show reduction in market value
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Re lat ive market va lue PV in Germany
Profile 2006 2007 2008 2009 2010 Average
DE 133% 116% 124% 124%
50 Hertz 125% 114% 111% 117%
133%
122%
125%
124% 13
0%12
5%16
5%12
6%12
6% 131%
124%
118% 12
8%11
6% 119% 12
9% 137%
138%
130%
125%
121%
116%
134%
133%
124%
113% 11
8% 124%
125%
126%
125%
119%
121%
120%
120%
114%
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
Rela
tive
mar
ket v
alue
Month
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Impact of un i form pr i ces based on neutra l i ty regard ing technology and resources
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0
20
40
60
80
100
120
140
160
0 200 400 600 800 1000
Additional (up to 2020) realisable potential for RES-E [TWh]
Gen
erat
ion
Cos
t [€
/MW
h el
e]
Cost-resource curve (RES-E in the EU27)
Power price
Required RES-E
deployment
Marginal cost for RES-E
Producer Surplus
►A uniform European TGC price for all RES-E would be set by the marginal price of the most expensive technology sold.
high producer surplus („windfall profits“) for low cost RES-E options
>> Source: Green-X database <<
Case study of technology-neutral quota based on tradable certificates (TGCs)
Technology neutral quota leads to very high costs for consumers
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P o l i c y co s t s o f a ha rmon i s ed quo ta v s . na t i ona l suppo r t( b o t h E W I a n d G r e e n - X s h o w l a r g e i n c r e a s e i n c a s e o f h a r m o n s i e d q u o t a s c h e m e )
Source: RE-SHAPING 2010
223257
151168
0
50
100
150
200
250
300
HarmonisedQuota System(HQS) - EWI*
HarmonisedQuota System
(HQS) - futures-e
StrengthenedNational Policies(SNP) - futures-e
HarmonisedPremium System(HPS) - futures-e
Sup
port
expe
nditu
res,
cum
ulat
ive
[bill
ion
€]
(Net
pre
sent
val
ue (2
006)
of c
umul
ativ
e su
ppor
t exp
endi
ture
s (2
006
to 2
020)
for
new
RES
-E in
stal
latio
ns (2
006
to 2
020)
)
Note: *Estimated based on expressed certificate prices in 2020
55 bn €90 bn €
17 bn €
Increase of support expenditures due to HQS
Decrease of support
expenditures due to HPS
Reference case (SNP)
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Conc lus ions
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The way fo rward fo r RES -E
1. Provide policy stability (for FIT / FIP / Quota): Retroactive policy changes are most crucial mistake but
also other sudden changes should be avoided. Move away from annual budget planning with stop and
go consequences2. Reduce (unproductive) revenue risks:
Long term contracts are most relevant Priority dispatch in case of grid congestion &
compensation for forced curtailment3. Take stronger efforts in FIT / FIP schemes to assure that
learning curve achievements are translated into pricereductions Strict use of automatic degression formulas implement competitive elements, e.g. auction based
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Conc lus ions on Member S ta te coord ina t ion
Coordination of MS methodologies for tariff-setting / support level determination both for FIT / FIP and banded quota systems:
Establish process to assist MS to determine (technology-specific) support levels in such a way that they suit their (technology-specific) deployment target assure that level of support gives a sufficient investment incentive reduce the risk of excessive profits avoid national boom and bust cycles for certain technologies, e.g. PV
Elements for potential coordination / information provision: formulae for calculation of levelised cost of electricity the level for specific investments per technology (frequently updated) regional specific capacity factors biomass prices reasonable (country specific) interest rates and duration of support in FIP: calculation of value of RES electricity, costs for balancing
MS may inform each other / the EC on planned policy changes in order to decrease unintended effects for other Member States
EC should take action in creating the information platform
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Conc lus ions on Member S ta te coord ina t ion & coopera t ion
Establish process to coordinate the mitigation of non-economic barriers regarding administrative procedures, permitting, grid connection common guidelines for permit requirements and procedures maximum / targeted lead times for projects common guidelines for technical requirements for grid connection
Establish process to assist price determination for cooperation mechanisms Average support level for new RES in the EU may be a suitable
approximation for price level EC may calculate average support level on an annual basis and
publish it on the transparency platform Create platform for stronger cooperation for large scale projects,
which cannot be carried out by individual Member States alone, e.g. wind off-shore
Keep the space for national policy innovation, competition of ideas for best practice policy development as this was one of the key success factors in EU RES policy
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Thank you for your at tent ion!
Full indicator report available onwww.reshaping-res-policy.eu