Evalua&ngtheDevelopmentandImpactofFIT

2ndAnnualRenewableEnergyProjectFinanceLondon,12Febr2013

DirkVolkmann

30min.

whatwedo

•  ConsulEngandInterimManagementServicesfortheRenewableEnergyIndustry

•  ProjectManagement

•  ProjectDevelopment

•  ProjectFinanceandSales•  StrategyDevelopment

•  InternaEonalizaEon

recentprojects

•  InterimHeadofProjectFinanceandSales,GermansolarPVEPCcompany(2010‐11for9months)

•  InterimSegmentManagerUEliEes,Germancellandmoduleproducer/EPC(2011for10months)

•  InterimHeadofO&M,internaEonalsolarPVEPCcompany(2011for8months)

Agenda

1.  Feedintariffsaspartofrenewableenergyprogram

2.  ImplementaEonandcosteffecEvenessoffeedintariffsinEurope

3.  Theuseoffeedintariffsforcertaintechnologies4.  AretherealternaEves?5.  Howchangesinfeedintariffsinfluencethemarket

incertaincountries

•  apolicymechanismdesignedtoaccelerateinvestmentinrenewableenergytechnologies.

•  theworld’smostpopularrenewableenergypolicymechanism

•  asetratefortheelectricityforproducers,usuallydifferenEatedaccordingtothetechnologyused(wind,solar,biomass,etc.)andthesizeoftheinstallaEon.

•  PVsystemonahomeinGermany:theuElitybuysthepoweryouproduceatafixedFITrateforaperiodof20years.WhenyoubuypowerfromtheuElitytheretailpowerpriceislowerthantheFIT,thisallowsyoutogetastablereturnonyourinvestment.

WhatisanFIT?

1.  FITconceptisprovenandaboveexpectaEonsinGermanyforthepast20years.2010target:12.5%shareofREinelectricgeneraEonin2000late2007:15.1%share

2.FIT’spayforthemselvesinlessthanoneyear:€9.2billionExpendituresin2008fortheGermanFITprogram.a.€7.8billionfromreducedamountsoffossilandnuclearfuelspurchased(oftotal€87billionspentin2011)b.€9.2billionsavedfromtheavoidanceofexternalcosts

whytoimplementanFITprogram(1)

•  Externalcostsare:–  damageresulEngfromclimatechange–  healthrelatedcostsrelatedtoairpolluEonandtoxic

wastes–  costsofcleanupofriversandotherbodiesofwater

asaresultofpolluEonetc.•  Somecountriesignoreexternalcostsandthesearenotincludedinprojectortechnologyanalysis

•  hugelong‐termnegaEveforthetaxpayerandwillresultinasignificantburdenforthetaxpayer(payingmanyEmesoverfortheproblem)

whytoimplementanFITprogram(2)

capexopexfuelcostcostofcerEficates(8$/toCO2)add.costat38€/toCO2min.backupcostadd.back‐upcost(max.)

lignite

coal

natural gas

nuclear

biomass

hydro

wind onshore 5.5 m/s

wind onshore 6.5 m/s

wind offshore 25 %

wind offshore 40 %

€/MWh

producEoncostofelectricityincomparison(takingintoconsideraEondifferentcostofCO2cerEficates,

newplants,commissioning2010orlater)

WorldsubsidiestofossilfuelconsumpEonvs.renewablesin2009(billionUSD)

•  FITsdonotdependontaxpayercontribuEons(itisnotasubsidy)andnonewpublicdebtisneededtofundit.

•  TheFIThasprovensuperiortoanyotherprogramcurrentlyinusearoundtheworld,suchassubsidieswithpublicmoney,tenderingmodelsandquotamodels.

•  FITsencouragesprivateinvestment,whichresultsinmoretaxableincomefromnewcompaniesandjobsintheindustry.Thisisabasicfinancialconceptthatsomecountrieshavefailedtounderstand.

•  FITsdramaEcallyreducesbureaucracyandmovetheprocessalongatamuchfasterandcheaperrate.TypicalpowerpurchaseagreementsintheU.S.areincrediblycomplexandrequireanarmyoflawyersandengineers—whichisbothEmelyandcostlyfordevelopers/owners.

benefitsofanFITprogram?(1)

•  example:intheU.S.thetypicalagreementbetweenaproducerandauElityisaminimumof85to100pageslong,inGermanythecomparablecontractisonlytwotofourpages.

•  FITs,byacceleraEngthedevelopmentoftherenewableenergyindustry,enhancenaEonalsecuritybylesseningdependenceonforeignoilandhelpingtodecreasethehugecashfrombuyingforeignoil.

benefitsofanFITprogram?(2)

disadvantages?

•  TransmissionSystemOperator(TSO)hastointegratetherenewableenergyintothemarket

•  REdoesnotreacttodemandfluctuaEonsorspotmarketprices(yet)– newdevelopmentofdirectmarkeEng– greenpowerprivilege(bonus)–  remoteshut‐offbonus

2012SelectedIndicators

source:REN21Renewables2012GlobalStatusReport

2012Top5REcountries

source:REN21Renewables2012GlobalStatusReport

2012Top5countries

source:REN21Renewables2012GlobalStatusReport

esEmatedJobsinRenewableEnergyWorldwide,byIndustry

source:REN21Renewables2012GlobalStatusReport

EURen

ewableSharesofFinalEne

rgy,

2005

and

201

0,with

Targetsfo

r20

20(1

)

ImplementaEonandcosteffecEvenessoffeedintariffsinEurope

source:REN21Renewables2012GlobalStatusReport

source:REN21Renewables2012GlobalStatusReport

EURen

ewableSharesofFinalEne

rgy,

2005

and

201

0,with

Targetsfo

r20

20(2

)

ImplementaEonandcosteffecEvenessoffeedintariffsinEurope

MapofEUcountriesaccordingtotheirsupportmechanismsforRES‐E

AddedcapacityandROIvaluesforsomeEUmembercountries,1992‐2008

source:AssessingtheStrengthandEffecEvenessofRenewableElectricityFeed‐InTariffsinEuropeanUnionCountries,diw,Berlin2011

AddedcapacityandROIvaluesforsomeEUmembercountries,1992‐2008

source:AssessingtheStrengthandEffecEvenessofRenewableElectricityFeed‐InTariffsinEuropeanUnionCountries,diw,Berlin2011

rooftopinstallaEonsminus66%since2006

averagefinalcustomerpriceforturn‐keyrooftopinstalla&onsupto10kW(excl.VAT)

source:BSW‐Solar

FITpaym

entsfo

rarangeofre

newableEne

rgy

Techno

logies,selectedcoun

tries,201

1/20

12

Theuseoffeedintariffsforcertaintechnologies

source:REN21Renewables2012GlobalStatusReport

AlternaEvesforthepromoEonofRenewableEnergy

pricerule quotarule tender

Feed‐In‐Tariff(FIT)• fixedpriceperkWh• financedbypublicauthoriEesandprivatesector• insomecasesimplementedbynet‐metering

RenewableEnergyStandards(RES)/RO/RPS• uEliEesareobligedtogenerateafixedporEonwithrenewableenergy.• ImplementaEonwithgreencerEficatesandPPAs

Price‐Quota‐Mechanism• governmentorganizespublicbidforfixedamountofelectricity• thewinnergetsalimitedfeed‐inguaranteeforthepowerproduced

promo&onprogramsforRE

+NetMetering+PPAPowerPurchaseAgreements

Netmetering

source:Wikipedia

PowerPurchaseAgreement(PPA)

Buyer

strengths weaknesses countries

Feed‐In‐Tariff

• highTSS(transparency,stability,security)• guaranteespriceandvolume• ‘pullincenEve’

• burdenonconsumers/taxpayers• longtermcommitment(upto25years)• designofabalancedFITisdifficult

Germany,Spain,Italy,France,CzechRepublic,UK,India(statelevel)

RenewableEnergyStandard

• simplifiesthecompeEEonbetweenREtechnologies• Exacttargetachievement(theoreEcal)

• lowTSS• pricefluctuaEons• unfavorableforcertainREtechnologies• complexcontracts• bureaucraEc

Australia,USA,UK

Tender • combinaEonofmarketefficiencyandpriceguaranteeleadstocostefficientsoluEons(theoreEcal)

• hightransacEoncostfavorslargecompanies• inconsistenttendersleadtoincerEtude• longingforlowestbidholdsbackseriousbusinessmodels

• ArgenEna,Peru.India• offshorewind:France,Denmark

promoEonofRenewableEnergy–strengthsandweaknesses

developmentofFITandpricesforconvenEonalenergysources

©Bun

desverband

erneu

erbareEne

rgienfeed‐intarifffornewplants

produc&oncost

deliverycostpowerexchange

FITandgridparity

2011 2015

FITfor20yearsextramargin

powerprice

Howchangesinfeedintariffsinfluencethemarketincertaincountries

•  forsolarPVFIT’schangemorefrequently,asjurisdicEonsadjusttheirtariffsfornewcontractstoreflectfallingpanelpricesandnaEonaltargets

•  FIT’smajoropponentisthelocalelectricuElity.Theyaremonopolies—monopoliesdonotrespondtomarketforces.

•  IfonelooksatFITresults,especiallyinanotherdevelopedcountrylikeGermany,thenumbersspeakforthemselves.

•  FIT’sarefarmoremarket‐orientedthanmonopolies.

•  LackofpoliEcalcouragetotrysomethingneworallowsomethingthatpowerfulstakeholders(uEliEes,fossilfuelcompanies)donotwanttojeopardizetheirbusinesses.

opposiEontoFIT’s:opposiEonistalk,FIT’sarefact

ExpecteddevelopmentoftheEEGcostfracEonunEl2030,dependingonthedevelopmentofelectricityprices

source:BriefAnalysisontheCurrentDebateaboutCostsandBenefitsofExpandingtheUseofRenewableEnergiesinElectricityGeneraEon,WuppertalInsEtute2011

ComparisonofEEGcostfor2008unEl2010andfor2030andsupportforenvironmentallydamagingacEviEesin2008

source:BriefAnalysisontheCurrentDebateaboutCostsandBenefitsofExpandingtheUseofRenewableEnergiesinElectricityGeneraEon,WuppertalInsEtute2011

conclusions

•  FITisessenEalfortheintroducEonanddevelopmentofrenewableenergycapaciEesinacountry,unlessyoualreadyhavereachedgridparity•  thelessinteresEngorfavorabletheIRRforinvestorsgets,themoreimportantthequalityandefficiencyoftheequipmentis(premiumbrandtechnology)

•  withoutagrantedgridaccessthedevelopmentwillbeverylow

•  FITsarenotonlyvitalforthedevelopmentofREcapaciEesbutalsoforthedevelopmentofanindustryandemploymentifwelldone

hrp://green.wiwo.de/solarindustrie‐warum‐sie‐in‐deutschland‐kaum‐eine‐zukuns‐hat/

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