View
212
Download
0
Category
Preview:
Citation preview
Factors Influencing the Likelihood of Regulatory Change in Renewable Electricity Markets
Paolo Agnolucci
Policy Studies Institute
5th BIIE Academic Conference
St John’s College, Oxford
23rd September
Background
• Survey and analysis of renewable electricity policies in four European countries – Denmark (Renewable and Sustainable Energy Reviews, in press)
– England and Wales
– Germany (Energy Policy, in press)
– Netherlands
• Two wrapping-up papers– Regulatory Risk
– Market Risk in Tradable Quota Systems and Feed-in Laws
Outline of the presentation
• Risk and Renewable Electricity
• Factors Influencing the Likelihood of Regulatory Change in Renewable Electricity Markets
• Empirical Evidence in NL (just mentioning D and DK)
• Conclusions
Risk in Renewable Markets (1)
• Technology risk: risk of development to large scale of any relatively new technology
• Market risk: risk for a technology brought forward by a market-based instrument
• Regulatory risk: risk due to the fact that markets are created by policy mechanisms subject to changes in policy priorities and governments
• System risk: risk faced by disruptive technologies such as biomass, hydrogen and CHP
Source: ICCEPT and E4Tech 2003: p116
Risks in long-term power purchase
contracts
• Fuel price risk: variability of the fuel price used to generate electricity
• Fuel supply risk: supply of fuel to a power plant can be unreliable
• Demand risk: electricity contracted might not be needed
• Performance risk: generators not willing or able to deliver electricity according to contractually prescribed requirements
• Environmental compliance risk, i.e. existing environmental regulations and uncertainty over possible future regulations
• Regulatory risk: risk that future laws, regulations, regulatory review or renegotiation of a contract will alter the benefits or burdens of a contract to either party
Wiser et al. 2004, Renewable and Sustainable Energy Review, p338
Risk in Renewable Markets (2)
• Price risk: uncertain price of the certificates but also of feed-in laws in some cases
• Volume risk: uncertain quantity of certificates each generator can sell
• Balancing risk: relates to demand = supply and market setting (NETA)
Mitchell et al (in press), Energy Policy
Regulatory Risk: Preliminary Empirical Evidence
575
43
1714
410
1689
480
2500
0
500
1000
1500
2000
2500
3000
1999 2000 2001 2002 2003 2004 2005
U.S. Wind Power Capacity Additions (1999-2005) in Megawatts (MW) (*) indicates industry estimates
PTC expires 6/99 - extended in 12/99
PTC expires 12/03 - extended in 10/04
PTC expires 12/01 - extended in 2/02
(*)
(*)
Economics and Lobbying
• Financial sustainability and Economic Effectiveness – (1) important when incentives are from central budget
– If (1) and (2) does not hold, policy is vulnerable, i.e. can be changed for all sorts of reasons
• Supporting coalition
– Level of commitment of the government> Difficult to assess
> Who/what is the “government”?
– Size of coalition
> Increasing or decreasing the effectiveness of lobbying? Free-riding or feedback effect?
– Variety of coalition : > Different interests taken into accounts (only environment or is it a
business/employment issue?)
> Different channels to the decision-makers
Coherence of the Policy & Brussels Effect• Coherence of the Policy
– Fairness of treatment> Policy does need to discriminate among electricity sources
> No need to discriminate between different generators (e.g. utilities and the rest)
– Relation between the RES policy and other policies> Electricity market
> Planning system
> Environmental regulation
• Brussels Effect– Popularity of feed-in/tradable obligation in some countries
= f(Popularity of feed-in/tradable obligation in Brussels)
– Which direction?
Additional generating capacity in NL
0
50
100
150
200
250
300
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
Total Wind
Difference filled by Waste Inc. and Biomass
Regulatory changes (1)
• until 1995: feed-in law
• 1995: REB and Production Subsidy – Implied worse economic terms for wind
– Planning problems were overcome
• 1998: voluntary target for 2000. Lack of coherence:– Uncertain role of imports: target was on consumption not
production
– Utilities could charge a levy to fund plants
– Verified by green labels - used also for REB, different definition of RES, etc.
Regulatory changes (2)
• 2001: early opening of the green electricity market; introduction of green certificates
– Lack of coherence 1: due to increased REB exemption (fiscal reasons) green electricity boomed
– … Imported
– Brussels effect 1: preference for tradable quotas (international trading)
– Economic Effectiveness : 1.8 € ¢ per kWh paid to the German-Dutch interconnector
– Brussels effect 2: changing opinion / additionality? National targets for RES?
Regulatory changes (3)
• 2002: introduction of a feed-in law– European Commission agreed that feed-in laws did not constitute
a State aid (May 2002)
– Excluding imports
– Demand-side and tradable quota approach progressively loosing importance
• 2004 Abolition of REB and related certificates
• In the meantime,– One of the most promising industries (alongside DK) across
Europe (early 90s)
– Lagging much behind (now)
– Weak coalition not able to avoid this stop-and-go behaviour
Additional generating capacity in Germany
0
500
1000
1500
2000
2500
3000
3500
4000
Wind
Total
MW
Additional generating capacity in Denmark for wind
7 22 33 3267 80 70
45 33 4187
223
287314 328
646
140
329
229
82
0
100
200
300
400
500
600
700
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
MW
Conclusions
• National industry cannot accommodate a stop-and-go behaviour
• National industry and/or technological progress are needed if you advocate differentiated “CO2 taxation”
• Different stakeholders need to support RES development• Utilities• Local communities
• Uncertainty is expensive– Finance guys will ask higher interests rate on loans
– Higher incentives (p/kWh) need to be paid to persuade generators to build plants
Winamp.lnk
Recommended