Hans ten BERGE Secretary General, EURELECTRIC

Hans ten BERGE

Secretary General, EURELECTRIC

The voice of the European Electricity Industry, standing for

...a secure and reliable, low-carbon generation mix

...a well-functioning, integrated European market

...a smarter use of electricity

...a sustainable business environment

EURELECTRIC is a pan-European and internationally oriented association

Our vision

-Decarbonisation with a diversity of technologies (including RES)

-Cost-efficiency for customers and competitiveness for our industry

-Well-functioning and integrated markets

Which instruments do we use to implement this vision?

Content

1.The 2020 & 2030 horizons: which support for RES going forward?

2.Powering Investment in Europe’s energy sector

3.Europe in a global context

4.Recommendations: Action is needed now!

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Key short-term and medium-term challenges to make RES development a success

How to deal with volume growth in RES support design and system integration?

How to reconcile RES support with the ETS in the medium term?

How to ensure the move to a more dynamic and cost-efficient support which uses the forces of a European market ?

CAPACTIY GROWTH

MARKET INTEGRATION

RES are part of the mix, but the way they are supported should be revisited

• RES are part of the European energy mix and their share is set to grow to meet the 2020 RES targets.

• As RES installed capacity grows massively and technologies mature, MS should come up with “RES 2.0” policies, i.e. a market-compatible methodology for their support

• European approach: foster learning effects among MS and enhance use of cooperation-mechanisms.

• RES support should be phased out long term investments should be driven by price signals including by the EU ETS

We believe that robust RES development can go hand in hand with market integration and demand/supply dynamics

But where is the market approach ?

Where are defenders of the European single market generally?

What is the follow-up to the 2010 Monti Report that had outlined the following?

“Two mutually reinforcing trends are at work: an ‘integration fatigue’, eroding the appetite for more Europe and for a single market; and more recently, a ‘market fatigue’, with a reduced confidence in the role of the market”.

Do’s

1. Ensure full participation of RES technologies in the market: a clear roadmap is needed

• Use market oriented scheme (e.g. feed-in premium, tradable certificates, …) as much as possible

• Ensure and enable that renewables are subject to price signals in handling power production and are exposed to market risks

• In parallel, develop and integrate intra-day and balancing markets

Dont’s 1. NO RETROACTIVE CHANGES. They destroy the investment climate.

2. NO OVER REMUNERATION/OVER-COMPENSATION. Right support level is key: support too high excessive cost for consumers, support too low no investment

3. AFTER 2020, NO MWh-BASED FINANCING FOR ANY TECHNOLOGIES THAT ARE ONLY AT THEIR INCEPTION. R&DD funding should be favoured instead.

4. NO WINNERS-PICKING! Hydro and biomass are part of the solution too. NREAPs’ projections should not lead to a tunnel view which would privilege PV and wind. Resources and potential vary in Europe. Every MS should contribute best, based on their resources.

5. REFRAIN FROM INJECTING RES OUTPUT WHEN PRICES ARE NEGATIVE

Features of RES support

Belgium Germany

RES-E has to be sold to the market by the operator

(except when RES is locally consumed)

Mainly by TSOs, only partly by RES operators themselves,

Nominating, scheduling, balancing responsibility Not for small PV

Not for majority of RES, only under Feed-in-Premium scheme.

Priority of dispatch Feed-in restricted only in exceptional cases

Feed-in restricted only in exceptional cases

Incentives to react to low/negative market prices

limited limited

Examples

YES NO

YES

NOYES

YES

Snapshot on Germany – variable RES boom in 10 years time

There will be times when demand is low and vRES generation is high….

What is going to happen?

Peak load set to decrease by 2020 at 74 GW

Source: EURELECTRIC, Power Statistics 2012

~ 34% of RES-Electricity by 2020 will require profound changes in the power system to manage variability

Flexible and back-up generation capacity

Integrated wholesale markets

Smart Grids and demand side participation

Extensive new infrastructure at T&D level

Policy makers must switch to a system wide market approach, in their commitment to decarbonisation

Storage

Looking beyond 2020, what do we want for Europe?

•Re-run of 2020?

•EU RES Quota Obligation?

•Nothing?

EURELECTRIC stands for:

Reformed ETS as a key driver + R&DD support for immature RES technologies/CCS + indicative EU target for RES

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EURELECTRIC Investment Action PlanObjectives:

Assess today’s investment needs and capability Inject realisms into the figures usually quoted (i.e. €1 trillion up to 2020)

Undertake a risk-mapping exercise Formulate policy recommendations to move ahead

How: High-level Task Force to steer the work

CEO interviews Brainstorming workshop

Involvement of broader structure of expertise

Deliverables:Final report structured in Findings & Recommendations

Full report

Utilities challenged: underperforming the European Blue-chip index…

Source: Eurostoxx.com, retrieved 5 November

… and losing attractiveness vis-à-vis US and Asian peers

Source: Eurostoxx.com, retrieved 5 November

Regulatory risk is on the riseWhich risk do you rank highest when making

your investment decisions?

Source: EURELECTRIC, own survey

Companies do not want to be shielded from all risks. But how could they hedge regulatory risks?

Taxes and levies are piling up…!

Source: EURELECTRIC

Recent tax developments in Europe in the electricity sector

Spain – new taxes on generation introduced: 6% levy on all forms of power generation + “green cent” levy on fuels (coal, natural gas, fuel oil)

Hungary – “Robin Hood’ tax increased by 23 p.p., boosting corporate tax rate to 50%

Netherlands – coal tax of about €14/tonne

Taxes and levies can also act as a barrier for further demand side participation as it weakens the price signal for flexibility

Source: BDEW

Electricity on the roller coaster: The economic recession has hit companies’ balance

sheets and ability to invest

Source: EURELECTRIC, Power Statistics 2012

W-shaped GDP W-shaped electricity demand

From the vicious to the virtuous circle

Companies need an empowering political /regulatory framework to build the confidence necessary to underpin the investments

needed to the energy transition

The empowering framework for investments should be built on the above principles to de-risk the industry

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Europe is set in a global context. Is it on top of things or lagging behind?

-US: shale gas has brought down energy prices and is attracting energy-intensive industries.

-China: going for nuclear + RES on top of coal; cheap labour cost for technology manufacturing.

-Commodities markets:- high gas prices- low coal prices- low CO2 prices

-Are we close to squaring the circle of decarbonisation and competitiveness in Europe?

Keep the door open for CCS. The technology needs to be demonstrated NOW.

European Policymakers and industry must renew their commitment to

demonstrate CCS and make it happen

Technology Demonstration and Full-Scale Integration

Political and General Public

Support

Low-carbon, competitive electricity mix

+ Decarbonised industry

Business Case

EURELECTRIC is committed to “Energy Access for All”

-1,3 billion people in the world have no access to electricity.

-According to UN & EC, there is a need of 36 bn euros/year to provide energy access to all in the world

-Governments can provide 1/6 of this

-The rest will have to come from the private sector

-EURELECTRIC acts as a facilitator in this process, together with policy-makers

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Recommendations: Action is needed now!

1.Do not micro-manage the energy sector with multiple, conflicting policies, instruments and targets.

2.Integrate wholesale electricity markets by 2014

3.Price CO2 correctly and make out of ETS the key driver for Europe’s decarbonisation

4.Ensure competitive retail markets that put customers at the center

5.Ensure that economic regulation schemes drive investments and innovation in regulated electricity networks, alongside cost-efficiency

EURELECTRIC takes its responsibility seriously. We are committed to innovation.

Our Innovation Action Plan relies on two work-streams:

1.Technologies driving change in the power sector

2.The methodology needed for a consistent EU innovation strategy

Results of our Innovation Action Plan (which includes a Mc Kinsey Study) will be presented at a high level conference May 14th 2013, in Brussels

Thank you for your attention!

[email protected]

www.eurelectric.org

mailto:[email protected]

Documents

Hans ten BERGE Secretary General, EURELECTRIC