Energy Policy Research Group - MIT Summer Conference Brussels … · 2017-12-08 · DG TREN. TEN-Energy-Invest. Br ussels, Rambøll A/S: European Commission, Directorate-General Transport

www.electricitypolicy.org.uk

Implementing EU Renewables Directive

Karsten Neuhoff

With input from Adam Rysanek, Sarah Lester, Simone Cooper

Cambridge – MIT Summer ConferenceBrussels 9/10, 2009


EU and national policy to achieve EU renewable targets

• Offer guidance to coordinate investment

• Deploy flexible market design to avoid delays

• Demonstrate commitment to attract investment

• Monitor to create accountability&responsiveness

• Carry regulatory risk to attract capital at low cost

www.climatestrategies.org www.electricitypolicy.org.ukNeuhoff, 3

0

50

100

150

200

250

Mto

e E

nerg

y O

utpu

t

6.3%

20%

Indicative trajectory

Policy targets frame public & private investment

Guidance from• Consistent objectives• Strategic choices

Heat

Wind

Biomass - heat

Biofuels - transport

Biomass - electricity

Solar Heat

Tide+ Wave

Geothermal

PV

Wind offshore

Wind

Hydro

Biomass and Waste

Based on Green-X projections

Allocating across time & fuels


Creating confidence for investors in supply chain

Source: IEA, GWEC, Worldwatch Institute

Installed wind power per year (MW)

China

U.S.

SpainIndiaGermanyU.K.ItalyFrance

Denmark


Governments role in managing a transition to large scale use of renewables







Current transmission access

• Connect for firm access– delay until reinforcements in place– > excessive T capacity for wind– > excessive delays in connecting wind

• TSO uses contracts and balancing mechanism to manage congestion– weak incentives on G to manage output– costly to deal with congestion


Our model outputs:

Wind output Wind investmentCCGT investment

*

*

*

*** *

* Regional build constraint binding

build constraints create scarcity rent

Source: Neuhoff et al. Space and Time: Wind in an Investment Planning Model, Energy Economics.


Model price duration curve – 40% wind energy from system

0

10

20

30

40

50

60

70

80

90

100

Euro/MWh

20052010

2015 2020

0 1 year

Illustrative


Nodal pricing for effective network utilisation

3,500 MW extra G for only 2000 MW Tif congestion management appropriate


The value of optimised dispatch

Müsgens, F. and Neuhoff, K., 2006, Modelling Dynamic Constraints in Electricity Markets and the Costs of Uncertain Wind Output, EPRG Working Paper 05/14


Spatial and temporal optimisation

• Nodal price reflects congestion & marginal losses– lower prices in export-constrained region– efficient investment location, guides grid expansion

• Central dispatch for efficient scheduling, balancing

• Market power monitoring – benchmark possible

• PJM demonstrates that it can work– Repeated in NY, New England, California (planned)


Market design to support operation and investment

Network investment

Generation investment

finance•enable•access p•enable•pricing•flexibility

Planning

Supplychain

Finance

Renewable support

CO2 policy

Nuclearpolicy

Uncertainties

Planning

Regulation*

SupplyChain*

Uncertainties

* off-shore

Market design for flexible operation:• More generation can be connected• Generation can be connected even

at times of bottle-necks









Incentives for compliance with EU renewable targets

Several options:• Legal enforcement, possible financial penalty• Positive encouragement

– TEN, Agricultural etc funding in exchange for delivery against objective

• One or both parties share (financial) responsibility

• Naming and shaming


Investing in the grid – to demonstrate commitment:The European “SuperGrid”

The “EUMENA” ConceptMediterranean-focused HVDC

Transmission “Highways” to complement the existing AC infrastructure

Objective for Grid Expansion: By 2050, expand Europe’s

transmission capacity to accommodate a 15% electricity supply contribution from concentrated solar power (CSP) resources in North Africa. This does not include the expected contribution of CSP to North Africa’s generation mix, which will be significant.

Transmission Investment: 45€ Billion between 2020 and 2050

Reference:DESERTEC. Clean power from deserts, The Club of Rome. Hamburg: Whitepaper; 2007.


Investing in the grid – to demonstrate commitment:The North Atlantic Offshore Wind Transmission Corridor

Objective for Grid Expansion: EU-DG TREN: Support the development of

129 to 187 TWh/a of offshore wind generation by 2020 (between 3.7% and 5.9% of total generation demand of EU-15)

Airtricity’s 10GW Foundation Project: Provide 10 GW of offshore wind generation capacity (approx. 35 TWh/a) with grid connection to the UK, Netherlands, and Germany

Transmission Investment: EU-DG TREN: Between 7.7€ billion and

11.8€ billion between 2005 and 2013; between 17.1€ billion and 25.4€ billion between 2014 and 2023

Airtricity: 2€ Billion between 2011 and 2015

10 GW Foundation Project

Future SuperGrid

References:Airtricity,”European Offshore Supergrid Proposal”, Airtricity, Dublin, 24 pp., May 2006.

DG TREN. TEN-Energy-Invest. Brussels, Rambøll A/S: European Commission, Directorate-General Transport and Energy (DG-TREN), CESI spa, Instituto de Investigacio´n Tecnolo´ gica, Mercados Energeticos; 2005.


Improvements to Transmission Technology and Practices

Flexible AC Transmission Systems (FACTS)

Table from: DG TREN. TEN-Energy-Invest. Brussels, Rambøll A/S: European Commission, Directorate-General Transport and Energy (DG-TREN), CESI spa, Instituto de Investigacio´n Tecnolo´ gica, Mercados Energeticos; 2005.


Matching transmission and generation

Grid

cap

acity

time

Nodal pricing, etc.Smart grid

Current grid

Grid expansion

Investment lag grid

• Provide visibility for supply chain and project investors

• Coordinate grid expansion with generation investment









Monitoring Progress using Indicators

• Widely used across many levels/sectors of economy• Allow for performance benchmarking• Increase domestic accountability• Facilitate evidence based (international) dialogue• Co-benefit metrics useful to shift debates (e.g. CAP)

1. Highlight impact of current policy2. Incentivising countryside management3. Increase share of CAP linked to metrics


Experience with indicators across sectors

Case Study Sectors and Level of metrics Objective/Motivation Literature base

Sustainable Development

and environmental metrics

National/ all sectors/ OECD

• Monitor and compare coupling of economic activity and environmental pressures. Inform and guide policy

• Sustainable development policy • Environmental evaluation and

monitoring. Infrastructure and land-use planning

Indicators for Overseas

Development Aid

International development plans /National indicators/ all sectors.

• Inform and guide international dialogue, provide transparency and accountability, policy learning

• International development literature• Development institution measurement

(World Bank, IMF and IEA literature). • Globalisation, trade and aid literature

UK government Performance

Indicators (PSA framework)

From local level and national targeted priorities for UK public

sector governance.

• Measure progress of policy, incentivise local government action and policy reform

• Results-Based Management (RBM), Performance Management Frameworks

• Public administration, performance budgeting and indicator systems

Key Performance Metrics (KPI) Firm level indicators.

• Benchmarking for process learning and external comparison for adoption of ‘best practice’

• Business Process Management (BPM).

• Corporate Social Responsibility (CSR)• Operational/strategic performance

management. Systems thinking

OECD Science and Technology

Indicators

OCED aggregated indexes of innovation for technology

development.

• Measure and report relevant indicators to enhance cooperation and policy design for innovation

• Technology policy and Innovation chain literature. Renewable and energy literature. Low-carbon electricity systems


Measuring policy actions towards the EU Renewables Directive: NREAPs

• By June 2010, each EU Member State must submit a National Renewable Energy Action Plan (NREAP) which describes how the EU Renewables Directive target will be achieved domestically

• The NREAPs require member states to provide specific RE supply targets, and detail specific actions taken to:

1) Provide appropriate planning regimes for deployment of RE projects

2) Provide grid / market infrastructure and access to new RE generators

3) Provide financing (directly or through incentives) for RE projects

Inform the known

barriers to RE

deployment


Global Input:Technically-Feasible RE Generation Capacity

Global Output:Installed / Target

RE Capacity

PlanningAccess to Grid and

Energy Market Supply Chain Project Finance

Barriers along the RE pipeline

Barriers

Lack of effective legal / regulatory framework

Lack of private participation and professional institutions

Uncertainty with government policies

Lack of coordination between authorities

Lack of consumer/social acceptance of RE technologies

Barriers

Highly controlled energy sector

Lack of grid access for RE technologies

Lack of clear practises and procedures (related to planning barriers)

Lack of available grid capacity

High grid connection costs for RE developers (poor cost allocation)

Lack of access to energy market

Barriers

Lack of competition and lack of standards and codes of certification

Lack of entrepreneurs, skilled labour, and training and O&M facilities

Lack of R&D capacity

Restricted access to technologies

Lack of reliability of products

Lack of institutions / mechanisms to disseminate information

Barriers

Financial Support(costs, risks, ...)

Energy Market(access, structure, long-term costs, ....)

Capital Market(perception of technical risk, perception of regulatory risk, ...)

Visibility(uncertainty, ....)





Barriers along the RE pipeline:Indicators provided in NREAPs:

Barriers

Lack of effective legal / regulatory framework

Lack of private participation and professional institutions

Uncertainty with government policies

Lack of coordination between authorities

Lack of consumer/social acceptance of RE technologies

Barriers

Highly controlled energy sector

Lack of grid access for RE technologies

Lack of clear practises and procedures (related to planning barriers)

Lack of available grid capacity

High grid connection costs for RE developers (poor cost allocation)

Lack of access to energy market

Barriers

Lack of competition and lack of standards and codes of certification

Lack of entrepreneurs, skilled labour, and training and O&M facilities

Lack of R&D capacity

Restricted access to technologies

Lack of reliability of products

Lack of institutions / mechanisms to disseminate information

Barriers

Financial Support(costs, risks, ...)

Energy Market(access, structure, long-term costs, ....)

Capital Market(perception of technical risk, perception of regulatory risk, ...)

Visibility(uncertainty, ....)

Quantitative and qualitative indicators

Qualitative indicators

Global Output:Installed / Target

RE Capacity

Not covered


Examples of Indicators used Across Sectors:EPRG Survey

Survey Data:• 49 respondents (41% private sector, 23% government, 21% NPOs,15% international institutions)



Global Output:Installed

RE Capacity



Indicator Source(s)

Number of RE Certificates (or FIT contracts) issued

Various nat. bodies (EU, Aus, Can)

Poll of public opinion of RE technologies

BERR (UK)

Indicator Source(s)

Indicator Source(s)

Public and private investments in RE technologies

IEA, UNEP, New Energy Finance

RE trade barriers (exports)

Foreign Affairs (Canada)

Import tarriffs on RE technologies

EC Tax. and Customs Union Datab.

Number of incubators in clean energy market

UNEP, New Energy Finance

Employment in the RE sector, per technology

BMU (Germany)

Number of publicly traded companies in the RE sector


Total market share of three largest energy suppliers and generators

Swedish Energy Agency

Indicator Source(s)

Comprehensive private investment statistics in RE sector (multiple indicators)


Distribution of energy subsidies within EU-15, RE and non-RE

EEA

Type of public financial support scheme for RE-projects

IEA

Investment and production costs of RE and non-RE technologies

IEA

Amount of public financial support provided

Various nati. bodies (EU, Aus, Can)

Examples of Regularly-Reported Indicators along the RE Pipeline

Input Indicators(resources / actions taken to address a problem)Process Indicator(initial reaction to input activities)

Output Indicators(direct results of policies / actions taken)

More Exist


Justifying the costs of indicators

0 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000

Bulgaria

Hungary

Lithuania

Malta

Netherlands

Austria

Portugal

Romania

Slovenia

Argentinia

Nicaragua

Kenya

Mid size

Nat

iona

l Sus

tain

able

Dev

elop

men

t Stra

tegy

Trab

ajar

Proj

ect

Sch

ool

Ref

orm

Agr

icul

tur

exte

nsio

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at.

Com

s.

Eur

osta

tW

orld

bank

UN

FCC

C

Euro

Sources:

•Eurostat: http://epp.eurostat.ec.europa.eu/portal/page/portal/grants/documents/Tab/List%20of%20Grants2008EN.pdf

•World Bank: http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2004/08/18/000112742_20040818172234/Rendered/PDF/2980000182131497813.pdf

•UNFCCC : http://unfccc.int/resource/docs/2008/sbi/eng/inf03r01.pdf

http://epp.eurostat.ec.europa.eu/portal/page/portal/grants/documents/Tab/List of Grants2008EN.pdf



http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2004/08/18/000112742_20040818172234/Rendered/PDF/2980000182131497813.pdf





http://unfccc.int/resource/docs/2008/sbi/eng/inf03r01.pdf

http://unfccc.int/resource/docs/2008/sbi/eng/inf03r01.pdf


Examples of Indicators used Across Sectors:EPRG Survey

Ability of indicators to facilitate policy / project management

Strongly Disagree

Disagree Strongly Agree

Agree

NOTE: 80% of respondents agreed that the data collection process for the indicators was labour intensive









Current capital structure (fall 08)

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000DebtEquity

Mio Euro


Cost of debt – reflecting perceived risk


How much debt could utilities raise?

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

Potential for new debt?

DebtEquity

Mio Euro ~ 300 billion Euro

Missing so far Vattenfall, Centrica ..


Investors’ risk – an important design criteria

RO

des

ign

Ene

rgy

pric

e

Bal

anci

ng c

osts

Impa

ct tr

ansm

issi

on

cons

train

ts

Pro

ject

risk

and

de

velo

pers

mar

gin

RO

C m

arke

t

Cos

ts

Project revenue requirement

Performance/operation Regulatory uncertaintyFuture market evolution

Risk from:

Pro

fit fo

r in

fram

argi

nal

tech

nolo

gies

/loca

tions

RO

des

ign

Ene

rgy

pric

e

Bal

anci

ng c

osts

Impa

ct tr

ansm

issi

on

cons

train

ts

Pro

ject

risk

and

de

velo

pers

mar

gin

RO

C m

arke

t

Cos

ts

Project revenue requirement

Performance/operation Regulatory uncertaintyFuture market evolution

Risk from:

Pro

fit fo

r in

fram

argi

nal

Reduce (a) infra-marginal rent (b) regulatory risk (c) re-allocate risk from future technology mix/fuel prices

a

b cBreak even point

Fixed & banded ROCTake or pay contract

Sou

rce:

Tak

e-or

-pay

con

tract

sfo

r Ren

ewab

les

Dep

loym

ent,

with

Joh

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Documents

Energy Policy Research Group - MIT Summer Conference Brussels … · 2017-12-08 · DG TREN. TEN-Energy-Invest. Br ussels, Rambøll A/S: European Commission, Directorate-General Transport