21/04/23

Developing renewable energy cost effectively

EUROPEANCOMMISSION

Tom HowesEuropean Commission

EU renewable energy shares

11,60%

0,70%

2,80% 2,90%4,20% 3,80%

5,10%3,80%

9,50%

7,80%8,50%

9,40%7,90%

10,00% 9,70%

11,50%13,00% 12,40%

17,50% 16,90%

19,70%

22,70%21,60%

25,70%

29,20%

36,80%

29,80%

50,20%

0%

10%

20%

30%

40%

50%

EU MT LU UK NL BE IE CY HU IT CZ PO GR SK DE BG ES FR SI LT DK EE RO PT AT LV FI SW

2005 2009 (provisional) 2020 target

Progress to date…

Eurostat

Technology Results from the National Renewable Energy Action Plans

0

50000

100000

150000

200000

250000

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Heat pumps

Biomass

Wind

Tide, wave, ocean

Solar

Geothermal

Hydro

ktoe

Technology breakdown - electricity

Cost estimations

• Total investments in renewables are currently at a level of approximately € 35 bn/y

• Most analysis predict this has to double to reach our 2020 targets

• Unit cost of renewables, contrary to other forms of energy, are declining; for certain technologies sharply

• PV module costs around €500/kW

• Producing (and generating) renewables where most cost-efficient offers significant potential for lowering overall cost

Merit order effect

• Denmark 2005: saving of 0.3 to 0.5 €cents per kWh consumed. • Spain 2005: a reduction of about 0.5 €cents/kWh at peak hour for each

additional GWh • Germany 2006: €5bn electricity price saving + CO2 exp. = cost of EEG

• Ireland 2011: neutral impact • EWEA EU 2020 estimate (265GW wind): €41.7bn/year savings (gross)

Market price

RES-support

TGC revenues

FIT FIPs Quota

stability of revenues and their composition (TGC=tradable green certificate)

Quota

Gov fixes quantity, market decides price

Obligation for suppliers:

Minimum RES-E share

Increasing over time

Penalty

Tradable certificates for RES-E production (‘market’ price)

Obligation is met by submission of certificates to competent authority

Power sold on conventional markets

Fixed feed-in tariff (FIT)

Gov fixes price, market decides quantity

Fixed tariff (€/MWh)

Guaranteed during lifetime or x years

Purchase obligation

(Grid (access & use) priority)

Feed-in premium (FIP) Fixed premium (€/MWh)

Guaranteed during lifetime or x years

Power sold on conventional markets

Feed in tariffs, Feed in Premiums & Quotas

Source: RE Shaping project

Points for reflection on support schemes (electricity)

Provide policy stability (for FIT / FIP / Quota): Retroactive / sudden changes should be avoided. Move away from annual budgeting (creates stop and go)

Reduce revenue risk: Long term contracts are most relevant (15-25 years) Priority dispatch/curtailment compensation

Apply automatic degression formulae for tariffs and premiums. New tariffs (or premiums) fall according to learning curve of technology. Other reductions in FIT/FIP require well planned, public tariff adjustment

cycles or mechanisms (e.g. DE tariff falls if capacity grows by more than 3.5 GW...)

Small scale development is a different market: Many quota countries offer separate incentives: BE minimum prices for PV,

IT FIP for PV, UK FIT for small-scale applications. Technology-banding within the quota as applied in UK can help to support cost-intensive technologies like wind offshore, but is less suitable for small-scale projects.

The other elements of European energy policy:

. EU policies working in tandem to provide a stable long term framework:

» The creation of competition and the single market in energy

» The development of European infrastructure (@1c/kWh)

» Europe's R&D programme for new technologies

» Energy Efficiency proposal to reduce consumption and transform the market

» 2050 – decarbonisation… 2030 milestones?...

. Impact of costs is clearly important:

» Explore net impact (merit order effect)

» Recall the whole 2008 energy and climate package price estimate was “up to 10%”

» Operating costs of non renewable energy rising (again)

» 2050 energy scenarios explore cost consequences of decarbonisation

» RES costs driven by capital costs, driven by risk, driven partly by regulatory framework

2020/2050 Key Challenges2020/2050 Key Challenges» Increasing importance of RES increases

requirements on:

• Capacity and flexibility of electricity grids, of power plants, of energy storage of demand side management (~smart)

» Energy Roadmap 2050 – due December

» Renewable energy Communication on “post 2020” - due 2012• (public consultation imminent)

» Update on state of internal market - due 2012

Thank you for your attention

http://ec.europa.eu/energy/renewables/index_en.htm