Comment on Bruegel Policy Brief:Elements of Europe‘s Energy Union

Daniel Fürstenwerth, Agora Energiewende

BRUSSELS, 01.10.2014

Agora Energiewende – an Overview

2

→ Financed by Mercator Foundation and

European Climate Foundation, 2012-

2017

→ Independent and non-partisan

→ Think Tank based in Berlin

→ Mission: How to make the

Energiewende a success story?

3

Focus of this comment:EU support for low-carbon technologies

- Innovation vs.

Deployment

-Targets and

Markets

4

Innovation vs. Deployment?

Combined Cycle Gas

Turbine (new)

Hard Coal (new)

Wind Power (onshore,

new)

Solar Power (large scale,

new)

Nuclear (new)

Lignite* (new)

0

2

4

6

8

10

12

14

Cost of Power per Technology (LCOE 2014, new build, Germany)

Wind and PV are cost competitive

today - with new

conventional and nuclear

power plantsFuture*

*“Future Cost of PV until 2050“, Agora Energiewende/Fraunhofer ISE, forthcoming

ct/kWh

Other European countries have similar, some even better conditions for Wind and PV power production

5

Quality of Wind Quality of Solar

Cost competitive technology is available for

Wind onshore and PV

Focus should be on removal of

market barriers and appropiate market design

6

Technology-specific analysis required: cost varies between renewable technologies

0

5

10

15

20

25

Pric

e (c

t/kW

h)

Power Generation (TWh)~11 TWh

Biomass

Wind offshore

Wind onshore & PV

Price and Quantity of yearly deployment of renewables in Germany, 2015 (Objective)

Focus on innovation

appropiate for new renewable

energy technologies

(e.g. geothermal, tidal, wave)

Targets help policy to fulfill its role:enable the market to find efficient solutions

Brussels, 01.10.2014 | Daniel Fürstenwerth 7

Power Market, Germany%

100%

20352014

55-60%25% 40-45%

2025

Targets enable investors to make efficient investment

decisions

Renewable

Non - Renewable

BuildingInvestmentpayback

Example: Investment in new fossil power plant

Investmentdecision

Research Question:What are cost of suboptimal

investment decisions?

Year

8

Summary

- Stronger deployment of Wind onshore and PV does not

increase cost of the power system until 2030 – removal of market barriers is

key

- Stronger focus on innovation is appropiate for new renewable technologies

(geothermal, tidal, etc)

- Renewable targets allow market actors to make efficient investment

decisions – for both non-renewable and renewable investments

Comments and questions:Daniel.fuerstenwerth@agora-energiewende.de

Agora EnergiewendeRosenstraße 210178 Berlin

T +49 (0)30 284 49 01-00F +49 (0)30 284 49 01-29www.agora-energiewende.de

Brussels, 01.10.2014 | Daniel Fürstenwerth 9

10

Innovation vs Deployment

2009 - 2012: „Solar Years“ Success Story for Technology, Challenge for Policy Makers

Brussels, 01.10.2014 | Daniel Fürstenwerth 11

20

08

20

09

20

10

20

11

20

12

20

13

0

100

200

300

400

0

2

4

6

8

Feed-in Tarif (EUR/MWh)

Cost (EUR/MWh, illustrative)

Build-up of Solar (GW/a)

Increased margin leads to massive investment in solar

• „Race“ between investors and policy: market moved faster

• ~ 30 GW solar build in 5 years

• Cost was >2 times higher than today

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Remuneration of new nuclear power in the UK, and large PV and wind onshore in Germany after accounting for inflation, in real Euro2013/MWh

1 2 3 4 5 6 7 8 9 10111213141516171819202122232425262728293031323334350

20

40

60

80

100

120 Nuclear in the UK PV (utility-scale) in Germany Wind onshore in Germany

EU

R2

01

3/M

Wh

Year of operationNote: Wind onshore remuneration in Germany is presented here in a simplified way by showing average payments. In reality, remuneration at the beginning differs from remuneration at the end.Source: EEG 2012, UK Government 2013a, calculations by Prognos AG.

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Comparison of average remuneration for new nuclear power in the UK, and PV and wind in Germany, in Euro2013/MWh

* Hinkley Point C agreement ** Wind offshore 2013 without grid costs; in Germany, the regulatory approach excludes grid costs from being covered by the remuneration. Offshore grid costs are estimated to be between 25 and 35 EUR/MWh, depending on the distance to shore. Source: DECC 2013; ECB 2014a; EEG 2012; Prognos AG 2013; UK Government 2013a; calculations by Prognos AG.

New nuclear*, (UK, 2023)

PV (Germany, 2013)

Wind onshore (Germany, 2013)

Wind offshore**(Germany, 2013)

0

20

40

60

80

100

120

112

73

56

95-34%

-50%

-15%

Rem

un

erat

ion

, in

Eu

ro 2

01

3 /M

Wh

14

Comparison of annual system costs, in million Euro2013

Source: ECB 2014a; EEG 2012; Prognos AG 2013; UK Government 2013a; calculations by Prognos AG.

Annual system cost, million Euro2013

Renewables and gas Nuclear and gas0

100

200

300

400

500

600

700

800

900

174.81688

93.19231

383

36628.0391547694641

491

679

857

Gas OCGT

Gas CCGT

Nuclear

PV

Wind onshore

-21%