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NAMA DESIGN OPTIONS WORKSHOP

ECONOMIC AND GHG MITIGATION EFFECTIVENESS

Jorgen Hvid, Danish Energy Agency

January 20, 2015

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AGENDA

• Carbon footprint – Now and in the future

– GHG scenarios

– Economics of GHG mitigation initiative

• Economics of potential RE expansion

– Initial resource and system assessments

– Localized LCOE

– System integration aspects

• Planning for cost-effective GG mitigation

– Modelling the impacts of market structure, incentives and constraints

• Potential NAMA’s for promotion of RE in Pakistan

– Enhancing the environment for RE

– Making RE investment graded and bankable

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ELECTRICITY DEMAND FORECAST

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FUEL DEMAND FORECAST

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TOTAL GG EMISSIONS FORECAST

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Source: National economic and envíronmental developmentstudy, 2011

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ECONOMICS OF GHG MITIGATION INITIATIVE

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MACC Curve approach

Source: McKinsey & Company

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SELECTED MEASURES APPLICABLE TO PAKISTAN

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-40

-30

-20

-10

0

10

20

30

40

50

60

70

MtCO2/y

$/tCO2

Source: GHG Marginal Abatement Cost curves

for the Non-Annex I region, ECN 2007.

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RESOURCE ASSESSMENT – WIND & SOLAR

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Wind Atlas

Source: USAID

Solar Irradiation

Biomass could contribute some 3,000 MW (IEEE Explore, Zuberi)

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RESOURCES AND COST OF ENERGY

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40

45

50

55

60

65

70

75

23% 25% 27% 30% 32% 34% 37% 39% 41%

LCOE – Onshore wind (USD/MWh) vs. Capacity Factor

Source: Danish Energy Agency

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LOCALIZED LEVELIZED COST OF ENERGY

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LCOE – EU 27 (EUR per MWh)

Source: Ecofys, 2014

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PAKISTAN LEVELIZED ELECTRICITY GENERATION COST

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Disclaimer: Nuclear Data is not country specific

Source: IAEA

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EXTERNALITIES – GETTING THE FULL PICTURE

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External costs per technology for electricity technologies, EU28 weighted averages (EUR per MWh)

Source: Ecofys, 2014

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EXTERNALITIES INTERNALISED, EXAMPLE

0

5

10

15

20

25

Nuclear Coal,local

Coal,imported

Gas Wind Solar

Externalities

Gen. Costs

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SETTING THE FRAMEWORK RIGHT

• Vertically integrated monopolistic power sectors are not well suited to adopt RE

• Two alternative strategies: – Government to set clear and RE/EE-conducive environment

– Unbundle, set conducive framework conditions.

• Either way, Government needs to be well informed about – Applicable policy measures

– Policy implications

• NAMAs should help develop such information and do the transformation

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PLANNING IN A NEW ENVIRONMENT

• Conventional power sector planning basis

– Vertical integration

– Supply monopoly

– Few large generation facilities

• The market oriented power sector

– Many suppliers operating on market conditions

– Intermittent RE suppliers

– Market-based generation expansion

• Requires a very different planning approach

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CREAM MODEL, CHINA

• Techno-economic model:

– Production costs of

technologies

• Demand model:

– hourly demand projections

• CGE model:

– Macro-economic impacts

• EDO:

– Expansion and operations

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IDEAL

SCENARIO

The power sector

Power sector 2050

RE Share (%) 81

Non-fossil fuel share (%) 86

Total cost

Billion RMB/year 7674

Specific cost

RMB/MWh 562

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

2011 2020 2030 2040 2050

IDEAL_HIGH_DEM_8

TW

h

Power generation

HEAT

BIOGAS

WOOD

MUNI_WASTE

STRAW

SUN

WIND

WATER

NUCLEAR

NAT_GAS

FUELOIL

COAL

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2011 2020 2030 2040 2050

IDEAL_HIGH_DEM_10

Capacity (GW)

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

2011 2020 2030 2040 2050

IDEAL_HIGH_DEM_10

Generation (TWh)

0

1,000

2,000

3,000

4,000

5,000

6,000

2011 2020 2030 2040 2050

CO2-emission (megaton)

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SCENARIO TOTAL COSTS IN 2050

Generation costs Transmission

investments Sum

Power

consumption Bulk power

costs

billion RMB/year billion RMB/year billion

RMB/year TWh RMB/MWh

Reference

(OLD)

4,084

110

4,194

10,462

401

Ideal

6915

759

7,674

13,648

562

The power sector

Note: Costs do not include transmission system O&M, nor re-investments in transmission capacity already present today.

Additionally, no internal provincial transmission and distribution costs are considered.

- At the same level of consumption it is reasonable to assume that distribution and internal transmission costs the same in the different

scenarios.

- At different levels of consumption it is reasonable to assume roughly the same distribution and internal transmission cost per MWh

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ENHANCING THE ENVIRONMENT FOR RE IN PAKISTAN

• Policy development:

– Planning and Permitting frameworks for RE projects

– Grid Access and Power System Development

– Priority access to market

– Feed-in Tariffs

– Funding of support schemes

– Other RE incentives

• Evaluation of existing energy support schemes vs.

GHG policies and Targets

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MAKING RE INVESTMENTS BANKABLE

• Stable and predictable income

– Long-term energy policies

– Predictable energy prices

– Balance risks between supplyer and consumer

• Favorable environment for RE investment

– Depreciation and taxation

– Secure supply of biomass

– Transparent market access conditions

• These could be key NAMA focus areas

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COST OF CAPITAL = FUEL COST OF WIND AND SOLAR

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40

50

60

70

80

90

100

2% 4% 6% 8% 10% 12% 14%

LCOE – Onshore Wind (USD/MWh) vs. Funding Costs (WACC)

Source: Danish Energy Agency

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THANK YOU For more information,

please visit us at

www.ens.dk.