medium-term renewable energy market report 2015 · analysis from the iea medium-term renewable...

INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE

Conférence

Coriolis

Cédric Philibert

AIE

Polytechnique

October 19, 2015

© OECD/IEA 2015

1. The boom of renewables 2. Renewables in climate change mitigation 3. Policy frameworks 4. Giving up fossil fuels? 5. Ambition or « certainty »?

How the boom of renewables is changing the climate of the talks on climate change

© OECD/IEA 2015

The share of renewables in net additions to power capacity continues to rise

with non-hydro sources reaching nearly half of the total

Renewables are becoming the largest source of new power generation capacity

World net additions to power capacity

Analysis from the IEA Medium-Term

Renewable Energy Market Report

2015 and the New Policies Scenario

of the World Energy Outlook 2015.

0

200

400

600

800

1 000

1 200

1 400

1 600

2008-2014 2014-20

GW

Fossil fuels Nuclear Hydropower Non-hydro renewables

© OECD/IEA 2015

Share of non-hydropower in renewable electricity generation is expected to increase significantly

Renewable electricity generation is more than a hydropower story

Renewable generation by technology (2005-20)

0

1 000

2 000

3 000

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6 000

7 000

8 000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Gene

ratio

n (TWh)

Hydropower Bioenergy Onshore wind Offshore wind Solar PV Geothermal STE Ocean

10%

25%

37% Share of non-hydro renewables in overall RE generation

Natural gas 2013

Nuclear 2013

Share of renewables in overall electricity generation

22%

26%

18%

© OECD/IEA 2015

As the OECD slows, non-OECD countries account for two thirds of renewable growth, driven by fast-growing power demand, diversification needs and pollution concerns

Growth shifting to emerging markets and developing countries

Shares of net additional renewable capacity, 2014-20

EU

13%

USA

9%

Japan

5%

Rest OECD

8%

China

38%

India

9%

Brazil

5%

Rest non - OECD

13%

© OECD/IEA 2015

Renewable investment costs falling

With scale up of deployment and learning, investment costs of most dynamic technologies (e.g. solar PV and onshore wind) continue to fall

Notes: Average unit investment costs are based on gross additions, which include capacity refurbishments that are typically lower cost than new capacity. Costs

vary over time due to technology changes as well as where deployment occurs in a given year..

Weighted average annual renewable investment costs, historical and projected

0

1 000

2 000

3 000

4 000

5 000

6 000

2010 2012 2014 2016 2018 2020

Other non-OECD

0

1 000

2 000

3 000

4 000

5 000

6 000

2010 2012 2014 2016 2018 2020

China

0

1 000

2 000

3 000

4 000

5 000

6 000

2010 2012 2014 2016 2018 2020

USD

2013

/kW

OECD

Hydro Bioenergy Onshore wind Offshore wind Solar PV residential/commercial Solar PV utility

© OECD/IEA 2015

Evidence of lower costs on the horizon

A combination of price competition, long-term contracts, good resources and financial de-risking measures is creating deployment opportunities in newer markets and at lower costs

Recent announced long-term contract prices for new renewable power

Utility-scale solar PV Onshore wind

Chile USD 85-89/MWh

Brazil USD 81/MWh

United States USD 65-70/MWh

India USD 88-116/MWh

United Arab Emirates USD 58/MWh

South Africa USD 65/MWh

United States USD 47/MWh

Brazil USD 49/MWh

South Africa USD 51/MWh Australia

USD 69/MWh

Turkey USD 73/MWh

China USD 80–91/MWh

Germany USD 67-100/MWh

Egypt USD 41-50/MWh

Jordan USD 61-77/MWh

Uruguay USD 90/MWh

Germany USD 96 /MWh

Canada USD 66/MWh

This map is without prejudice to the status or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area

© OECD/IEA 2015

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

CCGT Total CCGT Fuel OCGT Fuel

Generation Cost USD/MWh

US - 2.9 $/MBTU

Europe/Japan Spot - 7.3 $/MBTU

Asia LNG Contracts - 13.4 $/MBTU

Wind - competition with gas

Depending on region, recent long-run wind generation costs are below costs of gas fired generation

Note: assumptions CCGT load factor 63.4%, efficiencies, CCGT 58.9%, OCGT 39%, no carbon price

Benchmark cost 70-80$/MWh in dynamic wind markets

© OECD/IEA 2014

PV comes at all scale - « socket parity »

Commercial in the US

Residential in Australia

© OECD/IEA 2015

More renewables for less money

Wind and solar PV comprise two thirds, or USD 900 billion, of new investment needs to 2020 and capacity increases are being made at lower cost than in the past

Renewable power capacity – net additions versus new investment

USD 2014 GW

0

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1 000

1 200

1 400

1 600

Capacity growth Capacity growth New investment New investment

2008-14 2014-20 2008-14 2014-20

GW / U

SD 2

014

billion

Ocean Geothermal STE Solar PV Offshore wind Onshore wind Bioenergy Hydropower

© OECD/IEA 2015

Enhanced policies can get renewables growth back on track to meet climate goals

Enhanced policies can accelerate global deployment by 25% with better domestic policies and more coordinated action

World renewable power annual capacity additions, main vs. accelerated case

0

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100

120

140

160

180

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

GW

United States Japan EU-28 Other OECD India China Brazil Other non-OECD

Historical Forecast

© OECD/IEA 2015

Enhanced policies can get renewables growth back on track to meet climate goals

Enhanced policies can accelerate global deployment by 25% with better domestic policies and more coordinated action

World renewable power annual capacity additions, main vs. accelerated case

0

20

40

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80

100

120

140

160

180

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

GW

United States Japan EU-28 Other OECD India China Brazil Other non-OECD Main case

Historical Accelerated case

© OECD/IEA 2015

Meeting climate change objectives requires more growth in all sectors

Historical and forecast share of renewables in electricity, heat and

transport sectors 2005-20

Growth of renewable electricity generation is increasing but under levels required to meet 2DS scenario, while renewable heat and transport are falling behind.

0%

5%

10%

15%

20%

25%

30%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Share of renew

ables in sector deman

d Renewable

electricity

Renewable heat

Biofuels in

transport

ForecastHistorical

© OECD/IEA 2015

Renewables contribute to energy security

In Europe, renewables increase local energy procurement despite declining gas fields

© OECD/IEA 2015

Profound changes underway in energy markets

Signs of decoupling of energy-related CO2 emissions and global economic growth

Oil prices have fallen precipitously, raising questions over the competitiveness of renewables

But policy drivers for renewable electricity – energy diversification, local pollution and decarbonisation – remain robust

Renewables key to the unprecedented pledges ahead of COP 21

Renewables to become first source for electricity in the longer term, but addressing policy uncertainty in the next five years is crucial

© OECD/IEA 2015

IEA strategy to raise climate ambition Peak in emissions (Bridge Scenario)

Global energy-related GHG emissions

20

25

30

35

40

2000 2014 2020 2025 2030

Gt

CO

2-e

q

Bridge Scenario

INDC Scenario

Energy efficiency

49%

Reducing inefficient coal

Renewables investment

Upstream methane reductions

Fossil-fuel subsidy reform

17%

15%

10%

Savings by measure, 2030

9%

Five measures – shown in a “Bridge Scenario” – achieve a peak in emissions around 2020, using only proven technologies & without harming economic growth

© OECD/IEA 2015

IEA strategy to raise climate ambition Staying below 2°C (450 Scenario)

Global energy-related GHG emissions by scenario

Investments in Renewables should reach $400 bn/y by 2030 in the Bridge scenario. In the 450 scenario, the $400 bn/y should be reached by 2025 already,

then reach $470 bn/y on average over 2026-2040

© OECD/IEA 2013

Electricity can power sustainable growth

2011

© OECD/IEA 2013

An Energy Revolution is needed

2011 6DS 2DS hi-Ren

Generation today: Fossil fuels: 68%

Renewables: 20%

Generation 2DS 2050: Renewables: 65 - 79%

Fossil fuels: 20 - 12%

© OECD/IEA 2013

Different optimal power mixes in different regions by 2050

Sou

rce:

En

erg

y Te

chn

olo

gy

Per

spec

tive

s 2

01

4

© OECD/IEA 2013

Contributions to cumulative CO2 emission cuts (hi-REN vs. 6DS)

© OECD/IEA 2010 © IEA/OECD 2010

Vision for Hydropower IEA Roadmap

Hydropower generation will double by 2050 and reach 2 000 GW and 7 000 TWh, mostly from

large plants in emerging/developing economies

© OECD/IEA 2012

China

India

Asean Other Asia Pacific

Africa M. East

OECD Europe

Russia Transition eco.

Canada

Other LAM+Mex

Brazil

USA

Asia Pacific

Africa

Europe & Eurasia

Central & South America

North America

Middle East

16%

19%

17%

© OECD/IEA 2013

Wind turbines have grown in height, size and capacity

The specific rating is reducing (electric capacity over swept area) Augmentation de l’aire balayée par MW de capacité: Allows tapping a much bigger potential with lower speed winds

Delivers a more regular output with higher capacity factors

Hub height and blade length Capacity factors vs. wind speed

Wind power: the silent revolution

© OECD/IEA 2013

PV experience curve, extended

Different explanations of “anomalies” lead to different cost predictions as PV continues to be rolled out

© OECD/IEA 2013

Concentrating solar thermal power

Turning the light into heat before power allows full disconnection between the variable resource and power generation

© OECD/IEA 2015

Integration challenge: Balancing

Note: Load data and wind data from Germany 10 to 16 November 2010, wind generation scaled, actual share 7.3%. Scaling may overestimate the impact of variability; combined effect of wind and solar may be lower, illustration only.

© OECD/IEA 2014 29

0

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1 10 20 30 40 50 60 70 80 90 100 110 120 130 140 Hours

Net

load

(G

W)

0.0% 2.5% 5.0% 10.0% 20.0%

Larger ramps at high shares

Higher uncertainty

Larger and more pronounced changes

Illustration of Residual power demand at different VRE shares

Lower minimum

© OECD/IEA 2015

Netload implies different utilisation for non-VRE system

Integration challenge: Utilisation

Note: Load data and wind data from Germany 10 to 16 November 2010, wind generation scaled, actual share 7.3%. Scaling may overestimate the impact of variability; combined effect of wind and solar may be lower, illustration only.

© OECD/IEA 2014 30

0

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90

1 2 000 4 000 6 000 8 000

Net

load

(G

W)

Hours

0.0% 2.5% 5.0% 10.0% 20.0% Maximum

remains high: Scarcity

Lower minimum:

Abundance

Changed utilisation pattern

Base - load

Mid - merit

Peak

Mid - merit

Peak

Mid - merit

Base - load

-

-

© OECD/IEA 2015

EDF study of the European power system with 60% RES

© OECD/IEA 2015

3) Increase flexibility of other power system

components

Grids Generation

Storage Demand Side

1) Foster System-friendly

RE

Increasing variable RE will need more System Flexibility

2) Better market design & operation

Geographical spread

Technology spread

Plant design

Output forecast

Policy framework

Market operations

© OECD/IEA 2014

0% 5% 10% 15% 20% 25%

RUSSIA

INDONESIA

ARGENTINA

SAUDIARABI

KOREA

SOUTHAFRIC

CANADA

INDIA

JAPAN

FRANCE

USA

BRAZIL

MEXICO

CHINAREG

TURKEY

AUSTRALI

ITALY

UK

SPAIN

GERMANY

Source: IEA estimates derived in part from IEA Medium-Term Renewable Energy Market Report 2014.

Large-scale integration accomplished today, but more to come

© OECD/IEA 2014 33

Instantaneous shares reaching 60% and above

Wind 2013 PV 2020 PV 2013 Wind 2020

Annual share in electricity generation in G20 countries – 2013/20

Denmark, Ireland

Over 30% already

© OECD/IEA 2015

Pumped-storage hydropower makes it all - almost

Thermal storage in

CSP plants

~1500 MW • Arbitrage

• Weekly storage

• Black start

• « Flexing » power

system w. variable RE

after nuclear power…

Reservoir

hydropower

~ 500 GW?

© OECD/IEA 2015

Still large potential for new-built PSH plants

© OECD/IEA 2014

Seawater PSH project in Atacama

Valhalla project: 600 MW PV + 300 MW seawater PSH

© OECD/IEA 2015

Potential for storage in key regions

Attractiveness of storage is highly context-specific, but increases greatly across all scenarios

Depending on the system, flexibility from demand response could provide greater returns

© OECD/IEA 2014

STE and PV have different roles

Figurative power mix in 24 hours

Thermal storage allows generation in late afternoons -

early evenings at peak times

© OECD/IEA 2014

New roadmaps vision for solar electricity: PV + STE

Together, PV (16%) and STE (11%) could become the largest source of electricity worldwide before 2050

0%

5%

10%

15%

20%

25%

30%

0

2 000

4 000

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8 000

10 000

12 000

2015 2020 2025 2030 2035 2040 2045 2050

Shar

e of

tota

l ele

ctric

ity ge

nera

tion

Glob

al ge

nera

tion

in T

Wh

Solar PV Solar CSP Share of PV Share of PV+STE

© OECD/IEA 2015

In the absence of the reforms that have been taken since the G20 in 2009, fossil fuel consumption subsidies would have been 24% higher in 2014 at $600 billion

Subsidies to fossil fuels remain stubbornly persistent, but reforms are making a difference

100

200

300

400

500

600

700

2009 2014

Bill

ion

do

llars

(2

01

4)

International prices

Consumption

Currency effects

Subsidy reforms

Contributing factors to the change in the value of subsidies between 2009 and 2014

© OECD/IEA 2015

High capex: WACC matters

Market and regulatory risks can increase weighted average cost of capital and undermine competitiveness of PV and Wind power

Impact of cost of capital on the levelised cost of solar PV

(assuming same system costs and same resource…)

Dubai

Central

Africa X

2X

© OECD/IEA 2015 A growing gap increases the risk of miscalculations

Low opex destabilise markets

LCOE and short-run marginal costs in the EU power markets, 2DS, by 2050

© OECD/IEA 2015

Policy implications: Enabling environment is crucial

Providing financial

support

Cost reduction through

• Technology development

• Scale up

• Learning

before 2013

Enabling policy and

market framework which

allows low cost financing

and generation

• Competition

• Predictable long-term

income stream

• Short-term market value

signals

• Portfolio development

• System Integration

Cost reduction through

• Technology innovation

• Financial innovation

• New markets with best resources

2014-2020

Main Policy

Key Characteristics

Cost reduction

• Demand side response

• Storage

• Interconnections

• Electrification of end-use

• System-friendly design

• Market design

• Smart grids

Areas for innovation

© OECD/IEA 2015

1. The boom of renewables 2. Renewables in climate change mitigation 3. Policy frameworks 4. The end of fossil fuels? 5. Ambition or « certainty »?


© OECD/IEA 2015

“100% RENEWABLES” –feasible?

Various studies « prove » that a 100% energy mix is feasible

Not always clear is this refers to the broad energy mix (i.e. Greenpeace Energy [R]evolution), or the power mix (ADEME)

However, the ADEME study suggests that the last 10-20% of the annual electricity generation may be costly to meet with renewables, mostly due to seasonal imbalance

A better climate mitigation strategy would be to use mostly-renewable power to substitute direct uses of fossil fuels in industry, transports and buildings

100% renewable energy mix would require significant technology breakthroughs in industry and transport, where their energy density gives fossil fuels a tremendous advantage

© OECD/IEA 2015

Direct fossil fuel use matters!

© OECD/IEA 2015 47

Direct energy-related CO2 emissions from industry

second to power (2014)

© OECD/IEA 2015

Electrifying transports

Urban density favors shift towards public transports

Electric and plug-in hybrid vehicles

On-road electrification of trucks on highways

Not so many options for marine and air transports

© OECD/IEA, 2011

Plug-in hybrid Golf GTE:

the VW that doesn’t cheat?

© OECD/IEA 2015

Fossil fuels dominate industrial energy use

© OECD/IEA 2015 49

Final energy demand by sub-

sectors

Final industrial energy supply

by sources

© OECD/IEA 2010

Beyond 2050: testing the limits A possible vision, under severe climate constraints, if

other low-carbon energy options are not available...

Where are the technical limits to solar energy?

Many options converging towards USD 100/MWh

Cost no longer main limit, but footprint, variability and convenience issues

Solar energy dominated by power (STE and PV)

Space heating needs reduced and satisfied with ambient heat through heat pumps

Assuming efficiency improvements and further electrification of buildings, industry and transport

© O

ECD

/IEA

, 20

11

© OECD/IEA 2010

Solar energy, wind power, hydro power and biomass provide most of the world’s final energy demand

Other renewables important in some places

Some uses of fossil fuels still required, but CO2 emissions reduced to 3 Gt or less if CCS is available

Testing limits: key results

© OECD/IEA 2014

Short term certainty on emission levels may be costly but has little value: for climate change is cumulative

Flexibility (price corridor) reduce expected costs

helps get more countries on board

Allows for more ambitious policies

More ambitious targets can be chosen

higher benefits and lower costs (on expectation)

especially useful if benefits are deeply uncertain

helps match marginal costs with benefits despite uncertainties (Economic efficiency)

helps accomodate differing visions

Certainty versus Ambition

© OECD/IEA 2014

What about climate catastrophes? If a GHG threshold is known and close:

Use a quantity target to stop emissions

If a GHG threshold is a possibility but its level is unknown: Favour the most ambitious policy

How do we go to stabilisation? Level and agenda left undecided

Ensure action, not exact results

Favour the most ambitious policy

Over time, adjust the target and the price cap

In sum: favour ambition, not certainty better be roughly right than exactly wrong!


© OECD/IEA 2014

To sum up

The boom of renewables facilitates the conversation: short term mitigation efforts seem affordable and have multiple benefits (air quality, energy security, jobs)

Looking farther it becomes more difficult to commit

No government wants to risk its economic growth

COP21 will not deliver a Kyoto-type agreement with binding targets for all countries

But it may deliver an agreement building and strengthening countries’ self-determined action agendas

Renewable and energy efficiency at the heart of action

© OECD/IEA 2014

The problem of climate change is fraught with uncertainty

Decision making under uncertainty rests on ‘expected’ costs or benefits, i.e. all possible outcomes times their probabilities of occurrence

However, this presentation does not offer a cost benefit analysis of climate change

It provides a stylised analysis of instrument choice under uncertainty


Energy Policy Cédric Philibert

€

Reductions BaU Target

Marginal benefit

Marginal cost

Price

(tax)

General case: Optimum when marginal

benefit equals marginal cost

Cost uncertainty matters for instrument choice



Emission reductions

CO2 Concentrations : 384 ppmv (No KP) 383 ppmV (Full KP)

xx €

x €

0

Possible

Unlikely ?

Possible

Climate change is cumulative: damages relate to

concentrations, abatement costs relate to emission

reductions

Marginal benefit curve is roughly flat



€


Marginal benefit

Marginal cost

Uncertain

costs

Far from the

optimum

Certainty versus Ambition Climate change ~ flat marginal benefit curve


€

Reductions BaU

Marginal benefit

Marginal cost

Tax

Price instruments minimise the error due to cost

uncertainty

Uncertain

abatement Close to the

optimum



€


Price instrument vs. the equivalent quantity instrument:

Marginal benefit

Marginal cost

Greatly reduces expected costs

added saved

Tax

Climate change ~ flat marginal benefit curve



€


Marginal benefit

Marginal cost

May slightly reduce expected benefits

Increases expected NET benefits (benefits minus costs)

gained lost

Price instrument vs. the equivalent quantity instrument:

Greatly reduces expected costs

Tax

Climate change ~ flat marginal benefit curve



€

Reductions BaU

Marginal benefit

Marginal cost

Tax

Compared to the equivalent best-guess target,

a price instrument makes possible a more

ambitious policy at lower expected costs

Target



€

Reductions BaU

Marginal benefit

Marginal cost

Tax

Price cap

Target

But targets have political advantages over taxes

Target Target

Certainty versus Ambition Compared to the equivalent best-guess target,

a price instrument makes possible a more

ambitious policy at lower expected costs


- Same expected benefits. Lower expected costs (e.g. fairness) Lower expected costs

Higher expected benefits

€

Reductions BaU

Marginal benefit

Marginal cost

Tax

Target

- Same expected costs. Higher expected benefits (e.g. environment)

Introducing a price cap makes

possible a more ambitious policy:

Price cap

Especially useful when benefits are deeply uncertain…


medium-term renewable energy market report 2015 · analysis from the iea medium-term renewable...

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