1st RPN Working Meeting

‘Large-scale penetration of low C policies: Opportunities and threats’ 3 October 2014 – Athens, Greece

The effect of RES on the electricity market

Dimitris Lalas FACE3TS, S.A.

Ban-Ki Moon Climate Summit, NYC 23 Sept 2014

“I must be frank with you: it has been very, very hard for us to make money in that [renewable energy] space. Our solar business we tried for 40 years to make solar work, and at the end of the day we just couldn’t make money at it. About a year or two ago, we got out of it. But we still do have a very big biofuels business, particularly in Brazil. We have a very big R&D programme in biofuels. We have 16 wind farms across the country. So we are trying, but I must tell you it’s a challenging environment to make money in.” Geoff Morrell, US spokesman for BP, also speaking at Climate Week in New York

Roland Busch, the chief executive of Siemens infrastructure group, declared that renewables simply hadn’t advanced enough to replace coal and gas and the German multinational would continue to invest in fossils for “the really long term”. speaking at Climate Week in New York

“Climate change is a defining issue of our age, of our present. Our response will define our future. To ride this storm we need all hands on deck. That is why we are here today. We need a clear vision. The human, environmental and financial cost of climate change is fast becoming unbearable. We have never faced such a challenge, nor such an opportunity.”.. Ban-Ki Moon

1. Looks like the 27% total RES target will go ahead but

with difficulty

2. Major reason –losses on large companies EON, RWE,

Iberdrola

3. The 30% for Energy Conservation is moving to 27%

4. The 40% GHG reduction not sure w/o national targets

(some MS want single figures for themselves)

5. Pressure to accept credits outside ETS

6. Poland (with HU?) is rumored to want to postpone

decision for later, maybe in 2015.

7. Pressure for energy unification

EU, Brussels 23 September 2014

Economist, 26 July 2014: Sun, wind and drain

Daily German electricity demand & supply in August 2022

(Energeiwende- RES in electricity >35% & >50% by 2030)

RES production pushes the cost down (Merit Order Effect)

Diurnal variation of load is also involved

Danish electricity market prices with & w/o wind

Wind Energy and Electricity Prices, POYRY – EWEA, April 2010

Net gains of “Merit Order Effect”

The effect on the load duration curve

The (System) Levelized Cost of Electricity (sLCOE)

Ueckerdt et al., 2013

In LCOE analysis all costs should be counted: Wind energy

Ueckerdt et al., 2013

€20/tCO2 Coal PP eff 38% No imp/exp

DE 2011 8%

Ueckerdt et al., 2013

Short term & long term effects

Day Ahead Forecast vs. Actual

April 2014

0

200

400

600

800

1000

1200

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

Day

MW

hDaily wind energy production: Variable yes, stochastic?

DNV-GH & Facets

Solar & wind full cost analysis: long term integration costs

Ueckerdt et al., 2013

DE 2011 8% DE 2011 3,2%

LCOE of different generating technologies in Germany

Fraunhofer Study, 2013 Carbon at €20/tCO2

40-45%

LCOE of solar technologies in high irradiation areas

Kost et al., Fraunhofer Study, 2013

Short term surplus wind penetration from 0 to 30%

Incumbent Producers Consumers Welfare

(€/MWh) (€/MWh) (€/MWh)

Nuclear rents -13 Electricity Market +28 Consumers +7

Coal rents -9 Heat Market -2 Producers -22

Gas rents -1 AS Market -0.1

Interconnectors -0.2

CO2 taxes NA

Wind Subsidies -18

Producer

Surplus

-22 Consumer

Surplus

+7 Welfare

Surplus

-15

Hirth and Ueckerdt, FEEM 82/2012

North-Western Europe i.e. DE, FR, NL,BE, PL

Short term surplus carbon price change from 0 to €100/ton CO2

Incumbent Producers Consumers Welfare

(€/MWh) (€/MWh) (€/MWh)

Nuclear rents +21 Electricity

Market

-43 Consumers -29

Coal rents -10 Heat Market -6 Producers +12

Gas rents +0 AS Market -0

Interconnectors -0

CO2 taxes +20

Wind Subsidies NA

Producer

Surplus

+12 Consumer

Surplus

-29 Welfare

Surplus

-17

Hirth and Ueckerdt, FEEM 82/2012

North-Western Europe i.e. DE, FR, NL,BE, PL

Combined use of RES and Carbon price

Consumer

Rent

Producer

Rent

Economic

Welfare

(€/MWh) (€/MWh) (€/MWh)

Existing (0% wind, €0 C price

(51 €/MWh electricity price)

51 25

30% wind penetration

(43 €/MWh electricity price)

+7 -22 -15

€100/Ton CO2 carbon price

(102 €/MWh electricity price)

-29 +12 -17

Both

(89 €/MWh electricity price)

-24 0 -24

Hirth and Ueckerdt, FEEM 82/2012

North-Western Europe i.e. DE, FR, NL,BE, PL

Frank, Brookings 2014

The Cost-Benefit approach

$50/tCO2 Coal PP eff 32,5% SC NG eff 31,5%

Effect of carbon price – gas electricity generation

Frank, Brookings 2014

The Cost-Benefit approach – NG price sensitivity

Nuclear PP Insurance? Decommissioning?

Fraunhofer Study (Kost et al. ) input parameters

Technology Capex-Opex costs EU 2013

RES Technology Installation

cost (€/kW) O & M cost (€/kW/year)

Wind energy (land) 1021-2041 27-84

Small hydro 1350-7300 35-110

Solar thermal w/o storage 2100-6000 30-120

With storage 4850-8000 80-160

Geothermal

2-phase fluid

flush cycle 1600-3200 56-115

Binary cycle 2600-4500 91-158

Biomass

combustion 1000-3900 83-202

gasification 1900-3500 78-231

Fluidized bed

combustion 2000-3500 82-237

Biogas from

waste

MEK 1000-3500 110-275

Latest basis for calculation – Greek RAE

RES Technology Installation

cost (€/kW)

O & M cost

(€/kW/year)

Capacity

factor

IRR

Wind energy (land) 1200 47 25% 11.3%

Small hydro (<15MW) 2000 50 36% 10.2%

Solar thermal

w/o storage 3800 76 20% 6.5%

with storage

(<2 hours) 4800 96 30% 9.9%

Geothermal <90oC 5000 163 70% 14..5%

>90oC 5000 163 80% 9.7%

Biomass

<1MW 3300 1543 90% 17%

1MW< and

<5MW 3000 1403 90% 17.7%

>5MW 2700 1263 90% 18.5%

Biogas from

waste

>2MW 2300 874 75% 22.7%

The price of Carbon – EC, US and Economist Dec 2013

US Social Cost of CO2, 2015-2050 a (in 2011 Dollars)

EC 2014 SWD values €11-R35-53/tCO2

Year 5% Average 3% Average 3% 95th per

2015 $12 $39 $116

2020 $13 $46 $137

2025 $15 $50 $153

2030 $17 $55 $170

2035 $20 $60 $187

2040 $22 $65 $204

2045 $26 $70 $220

2050 $28 $76 $235

Learning curve of RES technologies

Cost of solar modules, Bloomberg 2013

Dimitri Lalas lalas@facets.gr

(Wind turbine cost down 29% since 2008)

Ca. $0.45 in 2017

Commercial cost installed small PV ca $1.6/Wp, Feb 2014

Fossil Fuel Subsidies

• Germany €1.9B

hard coal

• US $1B farmers,

$1.5B oil

reserves, $0.5B

fossil fuel R&D

• UK UKP280M tax

break

OECD countries

Total subsidies

$55-90B/yr

i.e. $7/ton CO2eq

12 salient features of Energiewende

Agora Energiewende 2013

Concluding remarks

• Comparison studies need to be examined in detail and be well

understood by policy makers. • Wind and even solar are at or near grid price parity • There are large uncertainties in the estimations that require caution. • The use of RES and the imposition of carbon price has winners and

losers and it is important to know who is who, and why. • National & regional circumstances, RES potential, existing technologies and

external factors (e.g. fossil fuel prices) will dictate the best combination of technologies to aim for.

• The design of a national LCE policy needs to take into consideration all elements (increased use and uncertainty of large scale RES technologies, increase in energy efficiency, electrification of final energy demand, shift from variable to fixed costs, shift from centralized to decentralized investments, infrastructure effectiveness, shift from goods to services) simultaneously

• The solution to the puzzle may not be optimal (in the economic sense).

And the World vision?

“We need to define a new economy of the world,” President François Hollande of France said in his remarks at the climate summit. “There will have to be a new pricing system for carbon.”

On 22 September 2014, the World Bank released a Declaration, signed by 73 nations (including China) and over 1000 major companies including (Shell, Dow Chemical and Coca-Cola), which calls on all nations to enact laws forcing industries to set a price and pay for the carbon emissions that scientists say are the leading cause of global warming.

Thank you for your attention

Dimitri Lalas lalas@facets.gr

Energiewende design