MSc Program – Renewable Energy in Central and Eastern Europe Doc. Ing. Jaroslav Knápek, CSc. Module 7 – General Legal and Economical Frameworks RES-E MARKET

MSc Program – Renewable Energy in Central and Eastern Europe

Doc. Ing. Jaroslav Knápek, CSc. Module 7 – General Legal and Economical

Frameworks

RES-E MARKET IN THE CZECH REP.

Doc. Ing. Jaroslav Knápek,CSc.

Czech Technical University in Prague

Fac. of Electrical Engineering

June, 2012

page 1



Frameworks

RES MARKET IN THE CZECH REPUBLIC

CONTENT:

• Current statistics

• Details on wind, PV, biogas, biomass, SH

• Players on RES-E market

• Barriers for RES-E projects

page 2



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CURRENT STATISTICS ON RES SHARES

page 3

Key role of biomass, biomass for households estimated

Source: MPO statistics

2009 total: 103,5 PJ

RES contribution to PES, 2010

Heat pumps1,5%

Solar thermal0,3%

Biogas6,2%

Liquid fuels8,2%

Biolog. degradable waste3,0%

Hydro8,4%

Wind power1,0%

PV1,9%

Biomass households

40,7%

Biomass industrial28,8%

2010 total: 119,2 PJ



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POWER GENERATION FROM RES

page 4

year 2009: 4.67 TWh, 2010: RES-E: 5.89 TWhpower consumption 72 TWh in 2008, 68,8 TWh in 2009, 70,9 Twh in 2010indicate target 2010: 8% REACHED ! (originally unexpected !)

4,04%

6,79%

8,30%

5,18%4,74%4,91%

4,48%

10,21%

0

1000

2000

3000

4000

5000

6000

7000

8000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

GW

h

0,00%

2,00%

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6,00%

8,00%

10,00%

12,00%

Sh

are

of

RE

S o

n g

ros

s p

ow

er

ge

ne

rati

on

Small hydro Large hydroBiomass BiogassMun. waste WindPV Share of RES on gross power generation



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STRUCTURE OF POWER GENERATION - 2

page 5

Struture of RES power generation in 2011

PV30%

Small hydro12%

Large hydro17%

Wind6%Mun. waste

0% Biogass12%

Biomass23,2%

2011: 7196 GWh



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POWER GENERATION FROM BIOMASS

page 6

0

200

400

600

800

1000

1200

1400

1600

2004 2005 2006 2007 2008 2009 2010

GW

h

Briquettes, pellets Other solid biomass Liquid biofuels Chips, waste wood Pulp extracts Plant materials

560565

14921396

1171

968

731



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INVESTORS INTEREST ON RES-E PROJ.

PV projects were in centre of investors interests at the moment

• Support seems to be attractive

• Stable investors conditions

• „Easiest projects“

page 7



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WIND PROJECTS

page 8

Beg. of 2009: Total installed capacity app. 150 MW

Original outlook to 2013: up to 1600 MW (considered proj.) – highly unprobable



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WIND PROJECTS - 2

page 9

Start of F.T. system since 2006 is obvious

Wind: 0.335 TWh in 2010

Development of installed power in wind appl.

11,5

34,444,5

217,9214

3,47 8,2

117,5149,7

179 193 193

9593

714 17

26

42

57

6977 81

8587

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0102030405060708090100

Inst. power [MW] Number of plantsSource: ERO statistics on licence holders



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PV PROJECTS

• Original rules: No limit for total installed capacity

• Big projects under investors’ interest– Largest installed capacity: 30-40 MW projects– Since 2011: Only projects < 30 kW are

supported, but since Feb. 2010 no project can get grid connection up to now

– End. of 2007:app. 3,4 MW• Boom of PV in 2008-9 (combination of factors)

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PV PROJECTS - 2

• Highest interest of investors in Southern Moravia

– Annual solar radiation MJ/m2

page 11



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PV PROJECTS - 3

page 12

Paradise for PV project in 2008-2010

0,35 3,4 22,77 60,26 84 102,71116,7

998

1952 1959

219,57

463 535622

738

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[MW

]

010002000300040005000600070008000900010000110001200013000

[Nu

mb

er o

f in

stal

lati

on

s]

Inst. power [MW] Number of plants Source: ERU

c

2010: 0.615 TWh, 2011 estimate: app. 2 TWh, since February 2010 no permission to the grid connection issued


„PARADISE“ FOR PV PROJECT

to remind: the end of 2008: app. 23 MW in PV

COMBINATION OF SEVERAL FACTORS: unexpected fall of investment cost (learning curve effect) limitation of FIT reduction to 5%/year only (for new plants) political crisis – fall of CZ government in spring 2009,

waiting for the elections 1,5 year financial and then economic crisis in the world – investors

search for safe and profitable projects extremely high lobbyism underevaluation of situation by distributors – missing

information about sum of permission for the connection

Module 7 – General Legal and Economical

Frameworks

Doc. Ing. Jaroslav Knápek, CSc. page 13


Totally chaotic growth of PV projects Fight for locations and for the grid permissions Situation in February 2010: app. 4500 MW in

projects with valid permission Grid operators stopped permissions for new

application after February 2010 Extremely high return for PV investors (FITs were

higher by 30-40% that were their adequate values) extreme return creates positions for „extreme things“

Blocked access to the grid for many of other RES-E projects

CONSEQUENCES OF PV PARADISE


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RES FEE DEVELOPMENT

1,12 1,37 1,63 2,09

6,65

23,12

27,16

0,00

5,00

10,00

15,00

20,00

25,00

30,00

2006 2007 2008 2009 2010 2011 2012

EU

R/M

Wh

If no "solar brake"

Effect of "solar brake"

16,8

-------

Note: VAT 20% not includedSource: ERU

Fee includes RES, cogeneration and non-traditional sources supportRES share: more than 90%

Doc. Ing. Jaroslav Knápek, CSc. Module – General Legal and Economicalpage 15


RES FEE DEVELOPMENT


If no „solar brake“ – electricity prices would rise by 11,4% for households and by 14,5% for industrial consumers (with solar brake: 4,6%, 5,2%) in 2011

Politically and economically unacceptable


RES SUPPORT COST STARTED TO BE THE REAL PROBLEM

Individual shares on RES power generation2012 estimate

Small hydro13,0%

Large hydro15,9%

Biomass22,4%

Biogas18,8%

Wind5,2%

PV24,8%

2012 estimate: 8,5 TWh Source: own calculation

Individual shares on RES support cost2012 estimate

Large hydro0,0%

Biogas13,1%

Wind2,1%

PV70,8%

Biomass9,6%

Small hydro4,4%

2012 estimate: 1,33 bil. EUR Source: own calculation



Doc. Ing. Jaroslav Knápek, CSc. Module – General Legal and Economical

Frameworks in the Czech Republic

HISTORY OF LEGISLATIVE ACTION

Mid. of 2009: proposals for Act 180/2005 changes• no reaction, results of political situation and strong

lobbyismMarch 2010:• Limitation of FIT reduction is not effective if payback time

is less than 11 yearsSeptember 2010:• Support only for PV on roofs and facades and Pi less than

30 kW (since 1.3.2011)• Support for „island“ installation expired during one year

(2011), if installation is not connected to the grid

page 18




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HISTORY OF LEGISLATIVE ACTION 2

November 2010: changes of „tax“ act• income tax holidays cancelled for all RES applications

(including already running, last applicable for tax period 2010)

• changes in depreciation periods for PV:– current situation: PV panels are 55-60% investment cost, but

depreciation period is only 5 years– since 2011: depr. period is defined as 240 months (similarly for

financial leasing, its length should be also 240 month) – valid also for already running projects, not depreciated part is allocated to 240 months minus number of month of depreciation




page 20

Cost of Support Scheme – SOLAR BRAKE

Reduction of impact to the consumers needs other sources of financing

no action scenario: total extra cost from RES-E support in 2011 would be app. 28 bil. CZK (full transfer to the consumers) – app. 20 bil. CZk thanks to PV

action scenario (solar brake): 16 bil. CZK transferred to consumers, 12 bil CZK money transfer from state budget

since 1.3.2011 only < 30 kW on roofs and facades

But where to find money when state budget is in deep deficit?

Selection of least bad solution – UNIQUE and DEBATABLE solutions




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Cost of support scheme – SOLAR BRAKE• December 2010: changes of „RES“ act 180/2005.

• 12 bil. CZK collection (2011):

• Tax imposed on gross revenues (!) – monthly basis: 26% of FIT revenues (currently valid for 3 years) – 4,2 bil. CZK/year (not applicable for small < 30 kW PV)

• Gift tax imposed on emission allowances distributed free of charge 32% (for power generation companies) periods of 2011 and 2012 – 4,8 bil. CZK/year

• State budget – 1 bil. CZK

• Dramatic increase of agriculture land utilization of fee – 1.7 bil. CZK/year• No emission allowances free of charge for energy sector since 2013 (EU

exemption – derogation – is not used)



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SMALL HYDRO

• SH < 1 MW app. 135 MW• SH from 1 to 10 MW app. 149 MW• LHydro: 753 MW• Power generation in 2010: 1239 GWh, LHydro

1551 GWh in 2010• Long tradition in SH construction• Reconstruction in 90’s and beg. of this decade

(support from Czech Energy Ag.)– Limited possibilities for new SH plants

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SMALL HYDRO - 2

page 23

Development of installed power in SH < 1 MW

114,8 115,2122,4

135,43 140

79

105,1 110,5

128 131,6

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1/2002 1/2003 1/2004 1/2005 1/2006 1/2007 1/2008 1/2009 12/2009 1/2011

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120

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160


2010: Small hydro: 1.24 TWh, Large hydro: 1.55 TWh



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LANDFILL AND SEWAGE GAS

• Fast development at the beginning of support

• Landfill gas plants (2009)– 62 locations, 23.18 MW, – Sewage gas plants (2009)– 160 locations, 85 MW

• Majority of suitable locations used

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LANDFILL GAS - 2

page 25

Problems with heat utilization

Development of installed power in landfill gas appl.

4,3

7,9 8,4

23,18

1,3 1,8

3,9

20,821,9

0

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25

1/2002 1/2003 1/2004 1/2005 1/2006 1/2007 1/2008 1/2009 1/2010

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BIOGAS APPLICATIONS

• Supported as the tool for diversification of activities in agriculture– Supported within Rural development plan

• At least 1 bil. CZK of inv. support already assigned

– Can help to reduce dependency to agr. market– Can help to solve problem with grass from

permanent grass lands

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BIOGAS AND SEWAGE GAS APPL.

page 27

2011: Biogas total: 0.871 TWh

Development of installed power in biogas and sewage gas appl.

167,7

89,47

858073,56751,231,717,311,37,565

2,9

104125

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mb

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Inst. power [MW] Number of plantsSource: ERO statistics on licence holders



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BIOMASS APPLICATIONS FOR POWER

• Biomass differentiation– 1. Planted, 2. residual biomass from agriculture

and forestry, 3. wooden chips and wooden residuals from wood processing industry

– Co-firing (biomass/coal mixture) originally assumed as the major contribution in period to 2010

• But significantly limited by shortage of suitable biomass and absence of long term contracts

page 28


0

2000

4000

6000

8000

10000

12000

2009 2015 2020

Small hydro Large hydro Biomass Biogass Wind PV Geoth.

source: NREAP, MPO2010

Biogas:2871 GWh

Biogas:414 GWh

11,6 TWh

4,7 TWh

9,7 TWh

„NAP RES“ - 2010

Biomass Started to Be Taken as the New Threat

Only biogas stations (assuming current values for biogas FIT and price of power) means additional app. 6 bil. CZK/year


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PLAYERS ON RES-E MARKET

• Big investors and power producers– Interest in this field started since 2006– Interest focused on prepared projects – ČEZ, a.s. has „big“ plans for RES-E, but ….

• SME and private investors– Long preparation of projects (esp. wind)– Good knowledge of conditions in given location

• Financial investors

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BARRIERS FOR RES-E PROJECTS

Subjective barriers on side of investors

• Orientation to „core“ business in energy branch (changed after 2006)

• Too high expectation on rate of return– CZ support scheme significantly reduces

business risk• Reflected in discount rate used for F.T. calculation

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BARRIERS FOR RES-E PROJECTS - 2

Access to capital• Majority of highly active companies is from SME

group – undercapitalised companies• Till 2006: no long term bank loans

– Business in RES-E taken as not assured

• After 2006 preparation of special offers– But unclear situation for RES-E since 2013 (new Act)

• Possible advantage for RES-heat projects ??

page 32



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Lack of suitable locations

• Some locations are excluded due to land and environmental protection (e.g. wind power in border mountains)

• Competition for good locations – problem of „new investors“ who enter market with delay

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Legal barriers

• Very complicated approval procedure– Example of wind projects

• Approval of municipality• EIA procedure, Act 100/2001

– Authorised persons– Scenery evaluation– Ornithological evaluation, etc.– Can take about 2 years

page 34



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Legal barriers - continuation• Connection – to obtain promise from distribution or

transmission company• Change of area plan (in some regions EIA should be

completed before)• Area approval (related to change of area plan and

can take 0,5-2 years)• Construction permission procedure (up to 0,5 year)• Together 2-3 years at least

page 35

Source: Czech RE Agency



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Negative attitude of some municipalities and regions– Some (esp. wind, but also PV) projects blocked by

disagreement of municipalities• Arguments: noise, scenery, icing and fall of ice, etc.

– Negative policy of region can block obtaining necessary permissions

• In three of 14 regions no wind projects so far• Last decade wind: 1347 MW in planned projects, successfull

EIA only for 470 MW, realised projects 100 MW (2003-07)

page 36




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Biomass is special case• Taken as decisive source in long run, but:

– Still missing consistent strategy for support of intentionally planted biomass (SRC plantations, energy crop)

– Sources of residual biomass utilised to major extent

– „Cannibal“ effect – biomass is assumed to substitute coal on heat plants and in househ.

page 37




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Co-firing is the most effective way of „green“ power generation, but:– can completely distort market (happened in

problems with long term contracts– problems in utilization of potential of forest res.– marginal price of int. grown biomass: app. 150-

160 CZK/GJ

page 38




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Intentionally grown biomass, problem of:

• conservatism of farmers

• lack of experience

• problem of land ownership:– several millions of agriculture land owners !– farming on hired land blocks long-term

contracts e.g. for energy biomass plantations

page 39




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BIOMASS AS THE DECISIVE RES TYPE

NAP RES – Target 2020

page 40



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BIOMASS LONG TERM HORIZON

NAP RES, as well as „Paces commission“ report (going up to 2050) conclude that intentionally planted biomass will play the key role.

page 41



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BIOMASS POTENTIALS

Ca 2 millions ha needed for ensuring food security!

page 42

Source: Proposal of NAP – Biomass update, 9/2011, MZe



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BIOMASS PRODUCTION ON LAND

Current and proposed structure of agricultural land for energy biomass production including food security

page 43

Source: Proposal of NAP – Biomass update, 9/2011, MZe

Type of biomass Current area (ha) Proposed area (ha) Use of biomass

Maize 22 052 150 000 biomethan (CNG), biogas

Wheat 22 474 24 000 ethanol

Rape seed 96 841 200 000 FAME

Sugar beat 11 237 126 000 ethanol

SRC 760 120 000 direct firing

Permanent Grasslands 2 400 370 000 biomethan (CNG), biogas, solid biofuels

Perennials 892 85 000 direct firing, solid biofuels

Other 5 600 45 000 direct firing

Total 162 257 1 120 000

Type of biomass Current area (ha) Proposed area (ha) Use of biomass

Maize 22 052 150 000 biomethan (CNG), biogas

Wheat 22 474 24 000 ethanol

Rape seed 96 841 200 000 FAME

Sugar beat 11 237 126 000 ethanol

SRC 760 120 000 direct firing

Permanent Grasslands 2 400 370 000 biomethan (CNG), biogas, solid biofuels

Perennials 892 85 000 direct firing, solid biofuels

Other 5 600 45 000 direct firing

Total 162 257 1 120 000



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BIOMASS BARRIERS Ownership of agricultural land

85 – 90 % of cultivated agricultural land is rented there are ca 2 million of land owners

Rented land means orientation towards short term business Frozen market with agricultural land

Dependent on the German market Lack of experience of farmers

All projects so far more experimental Lack of trust, conservatism of farmers Environmental protection

page 44


Documents

MSc Program – Renewable Energy in Central and Eastern Europe Doc. Ing. Jaroslav Knápek, CSc. Module 7 – General Legal and Economical Frameworks RES-E MARKET