Impact of the EU Renewables Directive on major European utilities 9 October 2008

Impact of the EU Renewables Directive on major European utilities

9 October 2008

Page 29. October 2008 Impact of the EU Renewables Directive on major European utilities

Success is not guaranteed

► Renewable electricity production will have to triple by 2020 if the overall 20% target is to be achieved

► Large projects will have to deliver 2/3 of the growth

► Historical trend of low renewables use has to be broken

► Our view? Without deep structural cuts the renewables target for the EU is unlikely to be achievable

Sources: Eurostat; Ernst & Young calculations

Renewables share in electricity gross production (RES-E)

0

5

10

15

20

25

30

35

40

45

1990

1995

2000

2005

2010

2015

2020

Year

Per

cen

t

history target line low

target line high RES-E target low

RES-E target high Linear (history)


Renewable electricity is only part of the story

► Great flexibility for each EU Member State to achieve country targets► Necessary future RES-E production depends on GFEC and RES-H

EU overall target for a Member State = Share of national energy production from renewable sources (RES)

+ +Renewable energy for transport (RES-T)

Heat produced from renewable energy

(RES-H)

Gross production of renewable electricity

(RES-E)

Gross final energy consumption (GFEC)

=


What are the country targets?

► Assessment of RES-E targets for selected EU Member States

Sources: Eurostat, Directorate-General for Energy and Transport; Futures-e: 20% RES by 2020 - a balanced scenario to meet Europe's renewable energy target; Ernst & Young calculations

41 41 41

50

77

45

3537

24

15

2730

38 384141

0

10

20

30

40

50

60

70

80

90

Austri

a

Sweden

Portu

gal

Irelan

d

Roman

ia

United

Kin

gdom Ita

ly

Nethe

rland

s

Germ

any

Spain

EU-27

Franc

e

Belgium

Greec

e

Finlan

d

Poland

Per

cen

t

Achieved RES-E in 2006 Target RES-E 2010 RES-E target 2020


Can countries deliver?

Sources: RES-E potential according to Futures-e, February 2008; targets: Ernst & Young calculations

0

50

100

150

200

250

Germ

any

United K

ingdom Ita

ly

Franc

e

Spain

Nether

lands

Belgium

Poland

Romania

Portu

gal

Irelan

d

Austri

a

Greec

e

Sweden

Finlan

d

TW

h

RES-E target 2020 RES-E potential

Maximum achievable potential assuming that all existing barriers can be overcome and all drivers are active


Which markets could deliver?

► The big five countries (FR, GE, IT, SP, UK) could deliver 70% of necessary RES-E growth

► Further 25% could be contributed by AT, Bulgaria (BG), Denmark (DK), FI, GR, NL, PL, PT, RO, SW

European RES-E priority markets

Between 20 and 100 TWh growth potential

More than 100 TWh growth potential

Source: Ernst & Young calculations


Target markets

Technology

Primary target markets

Secondary target markets

Tertiary target markets

Growth potential(TWh)

Growth potential (GP) in TWh

GP ≥ 50 20 ≤ GP < 50 10 ≤ GP < 20all European

markets

Wind FR, GE, UK IT, NL, SP, SW DK, FI, GR, PL, PT 525

Biomass FR GE, IT, PL, SP, UK FI, NL, RO, SW 340

Tide and wave UK SP, FR 125

PV and solar SP IT 115

Hydro SP, IT SW, FR 120

Geothermal electricity IT 65

Total (TWh) 530 350 155 1,290

Target markets by technology

► These 32 target markets include a growth potential of more than 1,000 TWh (covering 80% of total EU potential)

Source: Ernst & Young calculations


Growth potential ≠ future renewable electricity production


Conflicting pressures on future production

Drivers Barriers

Accelerate Brake

► EU Emissions Trading Scheme

► Increasing fuel prices

► Support schemes

► Increasing environmental awareness

► Unstable legal and regulatory framework

► Grid connection

► Administrative barriers

► Social barriers

► Financial barriers

► Technological risks

► Lack of manufacturing capacity

Future RES-E production


Main effectsConsequences

• New market opportunities• Need for a strategic decision about renewables• New requirements on existing power plant fleet (more flexibility, increasing costs etc.)• Decreasing market share and revenues for utilities (autoproducers)• Complexity of business increases

Increasing importance

of renewables

• Need for smart grids• Additional network costs• Adaption of grid structure to new supply structure• Higher frequency fluctuations

Grid integration

• Increasing importance of weather on electricity markets• Higher price volatility

Higher volatility

Main impacts on utilities

• The ambitious EU targets cause greater uncertainty about the future deployment of renewables• The great flexibility of EU Member States to achieve the targets increases uncertainty about

future renewables electricity production

Greater uncertainty


Today’s energy value chain: Supply driven

Linear model, supply dictated by actions of suppliers

Coal/gas fired power station

Energy volume drives energy

company revenue

Small range of conventional technologies

Large centralised generation

Static infrastructure

€€€

Price and reliability are main determinants of customer choice

Energy flows to users

Gas productionHydro-electric power

Nuclear power station

Energy flows to users

► Ageing electro-mechanical infrastructure, with limited automation► Reflective of large-scale thermal plant being connected, and cascade to local distribution points► Limited valuable information fed back through system to suppliers► Huge replacement programme required – question is whether to replace like-for-like, or to take the opportunity to re-engineer to enable different future state?


Tomorrow’s energy value chain:‘The future ain’t what it used to be’

► Next generation ‘energy web’ model► Supply dictated by customers ► Electricity flows to users, and surplus from distributed generation flows back to grid► CO2 emission reduction and wider energy services drives energy company revenue

Micro wind Smart metering

Biomass

Smart grid technology rolled out

Micro CHP

CCS plant (coal/gas)

Solar water

heating

Nuclear power station

CO2 transport and storage

Hydro-electric power

Micro solar

Solar Gas production

Onshore and offshore

wind

Technology choice proliferates

Key challenges

► Choice of strategy► Role in value chain

CO2 emission reduction and wider

energy services drives energy

company revenue

€€€


Conclusions

► Ambitious EU targets are unlikely to be met without structural changes to energy markets

► Even under a policy scenario exploiting the total RES-E potential, some countries are over-stretched

► An EU-wide approach is necessary, encouraging:► Accelerated establishment of a single European electricity market► Harmonization of support schemes and regulatory framework► Full trading of renewable certificates

► Large projects are indispensible:► Local and regional political resistance against large projects must be

overcome► Such projects need the involvement of large companies to ensure effective

project and risk management


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Office: +49 (0)211 9352 11476Mobile: +49 (0)160 939 11476Fax: +49 (0)211 9352 18327E-mail: [email protected]

Thank you for listening – your questions?

Dr. Helmut EdelmannDirector Utilities, Global Power & Utilities Center

Ernst & Young

Assurance | Tax | Transactions | Advisory

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Impact of the EU Renewables Directive on major European utilities 9 October 2008