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RWE AG CEA - Weale Page 1
The German Energiewende
Graham Weale, Chief Economist RWE AG
Californian PUC Thought Leaders Meeting
5th June 2014
RWE AG CEA - Weale Page 2
Energiewende
2010 2012 2011
The Energiewende – a plan to move from nuclear
and coal to renewables: milestones from 1991
2050
Start of
EU
Emissions
Trading
Scheme
Nuclear phase-
out by 2022
Energy
concept
Nuclear operating
lifetime extension
1st Feed-
in Law
Last nuclear
reactor will
be shut down
80% to 90%
reduction in
emissions, and 80%
renewables share in
power
EEG 2012
Closure of 8 nuclear plants and
change to nuclear law to close
all plants by 2022
Eckpunkte
-papier
Market
Liberalization
1998 1991 2002 2000 2005 2022 2014 2004 2009
EEG 2004
12.5% / 20%
power share
in 2010 / 2020
EEG 2009
35% power
share by
2020
EEG
Reform
1st EEG
Double RES
share of
total energy
by 2010
Page 3 RWE AG CEA - Weale
Further targets introduced in 2011…
W1
Currently only loosely defined goals
C
C
Limit renewables surcharge to 3.5 cents/kWh
Reduce heat demand of buildings compared to 2008
Annual rate of energy-saving renovation in housing of 2%
V Additional construction of firm fossil fuel power plant capacity
Not availabe
- - EnEV
- - Only indirect – loan
programme
10 GW - Not available
V1 Supply security - Strategic Reserve
C1
C2
C3
C4
C5
C6
C7
C8
N1
Increase proportion of renewables (RES) in gross final energy
consumption to
Increase the proportion of RES in gross elec. consumption to
Reduce primary energy consumption compared to 2008 to
Reduce electricity consumption compared to 2008 by
Increase energy efficiency compared to 2007 by
Reduce heat demand of buildings compared to 2008 by
Increase number of electric vehicles to
Reduce final energy consumption in transport vs.2008 by
Grid expansion according to ENLAG
35% 50% EEG
20% - Environmental tax, EnEV
10% - Environmental tax
20% - Environmental tax and other
laws
20% - EnEV
1 Mio. 6 Mio. Energy and climate funds
10% - Reform car tax
- - EnLAG
Firm goals 2020 2030 Instruments1
C0 Reduce greenhouse gas emissions compared to 1990 by 40% 55% ETS with German version
18% 30% Renewable heating, and
Biomass laws,
N2 Punctuality of the grid connection of offshore wind farms - - EnWG
N3 Increase installed capacity of offshore wind to 10 GW 25 GW EEG
-
K1 Phase out nuclear power by 2022 2011 Nuclear Power Law
Slide 4 RWE AG CEA - Weale
1. Achievement of federal government‘s CO2 reduction target (-40 %) increasingly unrealistic
2. Share of renewables rising in the case of electricity – stagnation in the transport and heating sectors
3. Due to first results from coalition talks the watering down of heating efficiecy targets is likely
1. More than 80% of expansion projects still delayed
2. By 2015 a number of offshore wind farms will be completed, but key grid expansion projects for
overland transmission of electricty will not be ready until that time
3. At least there is some improvement in sight for offshore wind power connections to the grid
Grid expansion
… which were off track after just two years, except
for renewables growth
Source: own calculations
78%
Sustainability
Security of supply
Costs/EEG levy
15%
50%
22% 1. With 6.2 ct /kwh the EEG levy has exceeded the government‘s own threshold of 3.5 ct / kWh by far
2. With the new government at least modest reforms that are targeting at limiting the costs are to
expect, so we come to an neutral outlook for the next years, but situation will not improve quickly
1. Increasing intervention by transmission system operators in the market to avoid critical situations with
the power grid. The situation continued in whole 2013.
2. End of March 2013 there were some severe situations in the German grid due to very high wind feed-
in.
= 41%
Adherence to target path:
PAGE 5 RWE AG CEA - Weale
The result of a renewables subsidy scheme
without a cap
Costs (esp. PV) continually lower than subsidies = strong incentive to build
Growth could not reasonably have been anticipated before 2007
Annual support originally expected to be € 0,6 bn, not € 22 bn p.a.
0
20
40
60
80
100
120
140
2000 2002 2004 2006 2008 2010 2012
Hydro
Biomass
Wind
PV
Total TWh
Renewables production build-up
PAGE 6 RWE AG CEA - Weale
Wholesale price was cut by 50% vs. expected
level…
1. Volume effect of higher than
expected RES also pushed out
merit-order curve
2. Volume effect of recession
reduced clearing price in merit-
order curve
3. PV had effect of flattening out
daily peak price – important part
of earning component
4. Low CO2 price
5. Low coal price– flattened out
merit-order curve
0
10
20
30
40
50
60
70
80
90
2016 2008 2002 2012 2014 2000
Base
2006
Peak
2010
Spread
2004
€/MWh
Indicative full
cost of new
plant
German power prices
Page 7 RWE AG CEA - Weale
Progressive reduction of mid-day price through PV-generation
… due in part to the high PV level depressing
mid-day prices radically…
0
50
100
150
200
250
24
[%]
Hour of day
23 22 21 20 19 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1
2008
2007
2011
2010
2009
PAGE 8 RWE AG CEA - Weale
… leaving utilities in a very poor financial position
Cumulative investments € bn. EBIT € bn.
Source: Company annual reports
0
50
100
150
2013 2012 2011 2010 2009 2008 2007
0
5
10
15
20
25
2012 2011 2010 2009 2008 2007
-35%
2013
Vattenfall
RWE
EnBW
E.ON
0
50
100
150
200
70%
2013 2012 2011 2010 2009 2008 2007
Market Value € bn.
PAGE 9 RWE AG CEA - Weale
Power prices for industrial consumers
(20-70 GWh) €ct/kWh excl. VAT
The Consumer Price has been driven up by the
surcharge despite a falling wholesale price
0
2
4
6
8
10
12
2008 2009 2010 2011 2012
Base price
Consumer
Power prices for households
(2.5-5 MWh) €ct/kWh incl. all taxes
0
5
10
15
20
25
30
2008 2009 2010 2011 2012
Peak price
Consumer
Source: BMWi Energiedaten 21.05.2013 and EEX
0
5
10
15
20
25
0
1
2
3
4
5
6€ bn
2012 2010 2008 2006 2004 2002 2000
€cts/
kWh
EEG levy
CHP
Levy based on §19
Offshore charges
EEG Surcharge
EEG Subsidies and Consumer Price Surcharge
Page 10 RWE AG CEA - Weale
The EEG is being revised to maintain ambitious
targets but control the costs
Aim to reach 40-45% by 2025 then 55-60% by 2035 renewables share of power but
always ensuring affordability and supply security
Reduce average RES cost level from €cts 17 / kWh to €cts 12 / kWh
RES growth corridor will be legally fixed, with technology-specific instruments and
focus on the most cost-efficient technologies
– Onshore wind and PV each a maximum growth of 2.5 GW p.a. (excluding repowering),
with appropriate tariff adjustment
– Offshore wind 6.5 GW to 2020 and 15 GW to 2030 and afterwards 2 wind-parks p.a.
– Biomass maximum 100 MW p.a. (considered too expensive for more)
Improved market integration with market-premium approach and direct marketing
New EEG (renewables law) will be fully EU-conform, including industry privileges
Market design – a capacity market is envisaged medium-term
Time-plan – Parliamentary process underway with aim of entry in law on 1st Aug. 2014
Page 11 RWE AG CEA - Weale
Renewables growth path proposed by new EEG
compared with past
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026
8
7
6
5
4
3
2
1
0
GW
Biomass
Wind Offshore
Wind Onshore
PV
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026
150
100
50
0
GW
Biomass
Wind Offshore
Wind Onshore
PV
Total
Annual growth
Total capacity
RWE AG PAGE 12
Utilities business model shifts from conventional
production to some renewables and even higher
emphasis on service
0
100
200
300
400
500
600
700TWh
Therm - other
RES - other
2035 2020 2013 2007
RES - utilities
Therm - utilities
Less conventional production
(indicative figures)*
More effort on service
Qualitative Index vs. 2007
Therm. firm capacity
Therm. flexibility
Ren. firm capacity
Trading
Network
Retail
2030 2020 2013 2007
RES. = renewables,
Therm. = conventional thermal plants
28/04/2014 *Source: 2007, 2013 AG Energiebilanzen, 2020, 2035 dena (2012) with RWE estimates
Page 13 RWE AG CEA - Weale
Conclusions
Nuclear power will be shut-down by 2023 – no turning back
The renewables growth plans remain very ambitious:
55-60% share of power generation by 2035
– Cost to household and medium-sized industry being brought
under control; large industry has various exemptions
– High consumer prices will hinder electricity from playing a
wider role in decarbonisation
– Need to increase transmission capacity between North and
South of country remains a key challenge
– Technical challenges in integrating renewables remain
Supply system continues to deviate further from market basis
– Wholesale price signals only serve for plant dispatching
– Regulatory risk remains very high
Conventional utilities can’t replace lost thermal revenue