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


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








Low revenue risks

Policy stability


IEES

DESE

UKBE IT

FR

AT

RO

PLBG NL



2009








Low revenue risks

Policy stability


IEES

DESE

UKBE IT

FR

AT

RO

PLBG NL



2009



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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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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 )


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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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!

[email protected]

Full indicator report available onwww.reshaping-res-policy.eu

eu renewable energy support schemes · new renewables in the electricity sector (all technologies...

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