Embed Size (px)
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
