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October 8, 2008
Gry Hamarsland
Renewable energy in Europe
2
Agenda
What is renewable energy in a 2020-perspective?
Political driver: RES directive proposal
Instruments for national compliance to the target
Projections of the compliance costs
1
2
3
4
3
The Pöyry Group is a consulting and engineering company with three divisions:
ENERGY
European leader in energy engineering and consulting
FOREST INDUSTRY
Worldwide market leader
INFRASTRUCTURE & ENVIRONMENT
Leading position worldwide
Pöyry, a worldwide leading group in Energy, Forest and Infrastructure & Environment
FOREST INDUSTRY
INFRASTRUCTURE & ENVIRONMENT
Revenues [M€] Employees
276,9 2’961
222,5 2’378
718,2 7’269
Group total
PÖYRY 2007 RESULTS
ENERGY
217,5 1’838
Pöyry is listed on the Helsinki Stock Exchange
4
Energy markets covered by Pöyry reports
Pöyry market reports available
Bespoke market analysis
Pöyry offices
Pöyry Energy Consulting offices
(c) grafikdienst.com
• The leading advisor to the European energy sector
• A pan-European energy consultancy formed from
the merger of five highly respected consultancies
• Over 250 energy market experts
in 15 offices across Europe:
– Copenhagen – Düsseldorf – Helsinki
– Madrid – Milan – Moscow
– Oslo – Oxford – Paris
– Stockholm – Stavanger – Vienna
– Villach – Zurich – London
5
Agenda
What is renewable energy in a 2020-perspective?
Political driver: RES directive proposal
Instruments for national compliance to the target
Projections of the compliance costs
1
2
3
4
6
Realized without
subsidies
Renewable energy and Renewable electricity
Market maturity Low High
Technical
maturity
High
Low
Wind offshore
shallow waters Wind offshore
deep waters
Tidal
Waves Wind offshore
Floating
Hydro
TF PV
Wind
onshore C-Si PV
Biomass
CHP
Biomass
condensing Uses of different types of
renewable energy
Source: EC
7
Diversified generation capacity, electricity generation 2007 (TWh)
Source: Syspower
Nuclear power;
86,8
Other thermal
power; 86,2
Hydro power; 223,0
Wind power; 9,7
Geothermal power;
3,6
Source: Nordel
Distribution Nordic production Nordic production: 400 TWh
Hydropower;
98 %
Wind; 1 %
Thermal; 1 %
Norway: 137 (gross)
Wind; 19 %
Thermal; 81 %
Denmark: 37
Hydropower; 41 %
Nuclear;
41 %
Wind; 2 %
Thermal; 16 %
Sweden: 146
Hydropower; 18 %
Nuclear; 29 % Thermal; 53 %
Finland: 78
8
Agenda
What is renewable energy in a 2020-perspective?
Political driver: RES directive proposal
Instruments for national compliance to the target
Projections of the compliance costs
1
2
3
4
9
European Union ‘20:20:20’ energy and environment package
• 20% reduction in EU greenhouse gas emissions, as compared with 1990
levels, or 30% if other nations, specifically the U.S., China and India agree to
similar action
• 20% of all energy consumed to come from renewable energy (including
electricity, heat and transport)
– Binding minimum target for each member state to achieve at least 10% of
their transport fuel consumption from biofuels, with certain caveats such
that the binding character of this target is ‘subject to production being
sustainable’ and to ‘second-generation’ biofuels becoming commercially
available
• 20% increase in energy efficiency
10
The Directive on Renewable Energy (RES Directive proposal)
• Sets mandatory national targets for the overall share of energy
from renewable sources in energy consumption: overall EU target of
20% in 2020
– And suggests an indicative trajectory to meet these targets
• Require national action plans
• Sets a mandatory target of 10% for the share of energy from
renewable sources in transport by 2020 (”biofuel” target)
– Establishes environmental sustainability criteria for biofuels and
other bioliquids
• Standardizes guarantees of origin (GO), certifying the renewable
origin of electricity, heat and cooling
– Enables transfer of GOs to provide flexibility between MS’s
• Requires reduction of barriers:
– Administrative, regulatory, information and improves renewables’
access to the electricity grid
•Compulsory?
•Bonus/malus-
system?
•Energy effi.
•Redefined: 40%
from not 1st gen
•Sub-target
•Review in 2014
Omitted
Current discussions in Parliament
45-60%
carbon
emission
savings
11
Council of Ministers
(lead Council:
Transport, Telecom &
Energy Ministers /
Environment Ministers)
Where do we stand?
European Parliament
(lead Committees:
Industry, Research
and Energy / Environment)
Jan. 2008: proposal by the
European Commission
May-Sept.: Discussion and
amendments by Committees
Mid Dec.: Vote by Parliament
(first reading)
Dec 9.: Agreement within Council
(common position)
Now: Discussion by expert
groups representing
the 27 Member States
By Spring 2010:
Transposition into
national law
EU Council: Heads of state:
Dec 11-12 2008:
political agreement?
Early 2009: Adoption
at EU level
Presidency and
Commission liaise
between the two
bodies
12
Main challenges
Existing supply chain may need to grow at compound
annual rate to meet demand for renewable assets and
supporting infrastructure
Commission estimates of renewable resource very reliant
on untapped biomass, biogas and biofuel potential
Commission estimates of compliance costs assume a lot
of cost-effective renewable heat can be developed
Agreement on trading mechanisms may be difficult to
achieve
•Increasing compliance costs for some MS significantly
Is non-compliance a viable option?
Existing support mechanisms inadequate to meet the
target deliver the targets
What the 20% by 2020 renewables target represents for the EU
• By 2020, under a BAU situation renewable
energy supply (RES) is expected to account for
around 12% of EU final energy demand
• Use of renewable energy needs to increase by
67% above BAU growth
EU baseline renewable energy supply
RES-E RES-E RES-E
RES-H RES-H
RES-H
RES-T RES-T
RES-T
Additional Renewable Energy to meet the
20% target
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
2010 2015 2020
% o
f E
nerg
y D
em
and fro
m R
enew
able
sourc
es
13
Draft Renewables Directive published in January 2008 - allocated targets to each Member State
Targets set on combination of economic renewable potential and GDP
Energy:
Electricity
Heat & cool
Transport
Target 2020
2005
0%
10%
20%
30%
40%
50%
Belg
ium
Bulg
aria
Czech R
epublic
Denm
ark
Germ
any
Esto
nia
Irela
nd
Gre
ece
Spain
Fra
nce
Italy
Cyp
rus
Latv
ia
Lithuania
Luxem
bourg
Hungary
Malta
Neth
erlands
Austr
ia
Pola
nd
Port
ugal
Rom
ania
Slo
venia
Slo
vakia
Fin
land
Sw
eden
United K
ingdom
EU
15
EU
25
EU
27
Norw
ay
Additional
2005
60%
?
14
Agenda
What is renewable energy in a 2020-perspective?
Political driver: RES directive proposal
Instruments for national compliance to the target
Projections of the compliance costs
1
2
3
4
15
Supply of Renewable Energy: Overview of Support Schemes
Source: Econ Pöyry, 2008
• Renewable energy is subsidised
• Support schemes vary a lot across Europe
Investment support/tax incentives
Feed-in tariff (guaranteed price)
Certificate systems
Dominating subsidy scheme
Tender
16
Feed in-tariffs, certificates and quantitative targets
(TWh)
Cost (€/MWh)
Feed-in tariff set too high
Certificate price =
perfect feed-in tariff
Feed-in tariff set too low
Supply curve renewable electricity
Underinvestments towards the target
Overvestments towards the target
Quantitative renewable target
Tradable green
certificates
Feed-in premium
Feed-in tariff
And remember: • Who is financing the support scheme and • Who is taking the risk
Governmental support Power price
17
Each Nordic Country currently applies a different national support system for renewables
Feed- in tariffs/Tendering
Investment support/Tendering
Fiscal incentives
Certificates
• Support level for different fuels and technologies also vary within countries. In feed-in systems, the technology choice is made by politicians, whereas in the certificate system the technology choice is based on most economic technologies.
• The needed support level (premium) changes with changes in the power price. Oil, gas, coal and carbon prices vary over time.
• Target levels are mostly set in TWhs (amount of electricity produced), not as percentages of consumption.
• National schemes can lead to sub-optimal investment decisions based on support level. Limited national support funds can limit the support only for the first projects
• For the companies planning investments, uncertainties about developments in market fundamentals are not as costly as policy/administrative uncertainty
• In general, market-based systems are more transparent and correspond to changes in the market and especially in technology development.
18
Agenda
What is renewable energy in a 2020-perspective?
Political driver: RES directive proposal
Instruments for national compliance to the target
Projections of the compliance costs
1
2
3
4
19
Possible
target:
80 – 100 TWh*
Possible renewable electricity potential in Finland, Sweden and Norway towards 2020
Potential for increase TWh
20
40
60
100
80
To
tal co
st
(€/M
Wh
)
120
20 60 80 40 100 120
Hydro
Biomass
and peat
Onshore wind
Offshore wind
Electricity price
*Based on Econ Pöyry’s estimates
20
Compliance costs estimate – renewable electricity
7,6
11,8
4,1
3,7
2,3
18,6
1,0
1,0
26,5
22,5
Biogas
Solid biomass
Biowaste
Large hydro
Small hydro
PV
Solar thermal
Tidal and wave
Wind onshore
Wind offshore
Breakdown of cumulative investment needs for
new RES-E capacity (2005-2020), per cent
Total investment
needs:
€ 330 bn
Source: OPTRES, 2007
21
Compliance costs vary across member states
0.0
0.5
1.0
1.5
2.0 F
ran
ce
Ge
rma
ny
Ita
ly
Sp
ain
Un
ite
d K
ing
dom
Au
str
ia
Belg
ium
Bu
lga
ria
Cze
ch R
epu
blic
Denm
ark
Esto
nia
Fin
land
Gre
ece
Hu
ng
ary
Ire
land
Latv
ia
Lith
ua
nia
Luxe
mb
ou
rg
Ma
lta
Ne
the
rla
nd
s
Po
land
Po
rtu
ga
l
Ro
ma
nia
Slo
va
kia
Slo
ve
nia
Sw
ede
n Va
lue o
f a
nn
ua
l re
ne
wa
ble
su
pp
ort
re
qu
ire
d b
y 2
020
(€b
n, re
al 2
00
6 m
one
y)
Cost of renewables support in a fully traded renewables market
www.econ.no www.econ.se www.econdenmark.dk
Postboks 5, 0051 Oslo NORWAY
Biskop Gunnerus’ gate 14A,
0185 OSLO Norway
Telephone: +47 45 40 50 00
Fax: +47 22 42 00 40
e-mail: [email protected]
Stavanger
Kirkegaten 3
4006 Stavanger NORWAY
Telephone: +47 45 40 50 00
Fax: +47 51 89 09 55
e-mail: [email protected]
Oslo
Artillerigatan 42, 5th floor
S-114 45 Stockholm SWEDEN
Telephone: +46 8 528 01 200
Fax: +46 8 528 01 220
e-mail: [email protected]
Copenhagen
Nansensgade 19, 6th floor
DK-1366 Copenhagen DENMARK
Telephone: +45 33 91 40 45
Fax: +45 33 91 40 46
e-mail: [email protected]
Stockholm
23
Examples of Sweden’s effort in reducing CO2 emissions in the energy sector
Getting new
technologies
on to the
market
Energy
efficiency
Produce
more
renewable
energy
Technology
development
Hydro
Wind
Biomass
Examples:
• Renewable electricity
• Instrument: Electricity Certificate scheme
• 6.2 TWh increase in renewable electricity production
from 2002
http://www.passivhuscentrum.se/
http://www.vattenfall.se
http://www.vattenfall.se
• Passive buildings
• 11 already built, 7 planned
• Highly isolated buildings; utilizes energy already
existing in the building and external energy sources
(solar)
• Lillgrund in Öresund (2007)
• 48 turbines, 110 MW
• Instrument: Pilot support and environmental support
(Electricity Certificates)
• Vattenfall: Schwarze Pumpe in Germany (2008)
• 30 MW thermal pilot plant (Lignite and hard coal)
• The captured CO2 will be stored underground as soon
as a suitable site has been identified and the necessary
permit processes are completed
24
Coexisting of different technologies and fuels within the transport sector towards 2020
Cost parity* towards oil
Battery technology
Bio- fuel
Fleksi- fuel
gasoline/ diesel
Hybrid/ Plug-in
El-cars/ plug-in
Bio-el?
*Assumption: equal quality
http://www.toyota.com
http://think.no/
http://www.ford.co.uk
25
Annex 1 - Targets set by the draft RES Directive (COM proposal) Share of energy from renewable sources in final
consumption of energy, 2005 (S2005) Target for 2020 (S2020)
Belgium 2.2% 13%
Bulgaria 9.4% 16%
The Czech Republic 6.1% 13%
Denmark 17.0% 30%
Germany 5.8% 18%
Estonia 18.0% 25%
Ireland 3.1% 16%
Greece 6.9% 18%
Spain 8.7% 20%
France 10.3% 23%
Italy 5.2% 17%
Cyprus 2.9% 13%
Latvia 34.9% 42%
Lithuania 15.0% 23%
Luxembourg 0.9% 11%
Hungary 4.3% 13%
Malta 0.0% 10%
The Netherlands 2.4% 14%
Austria 23.3% 34%
Poland 7.2% 15%
Portugal 20.5% 31%
Romania 17.8% 24%
Slovenia 16.0% 25%
The Slovak Republic 6.7% 14%
Finland 28.5% 38%
Sweden 39.8% 49%
United Kingdom 1.3% 15%
26
Annex 2 - Illustrative total EU trajectory to achieve the 2020 target: same formula for each Member State (COM proposal)
0
500
1,000
1,500
2,000
2,500
3,000
3,500
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Interim targets
EU
an
nu
al re
ne
wa
ble
en
erg
y p
rod
uctio
n (
TW
h) 2020 renewables target
2010 renewables (business as usual)
2005 renewables share
S2005
S2020
S2005 + 0.25(S2020 – S2005)
S2005 + 0.35(S2020 – S2005)
S2005 + 0.45(S2020 – S2005)
S2005 + 0.65(S2020 – S2005)
S2020 – S2005
0
500
1,000
1,500
2,000
2,500
3,000
3,500
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Interim targets
EU
an
nu
al re
ne
wa
ble
en
erg
y p
rod
uctio
n (
TW
h) 2020 renewables target
2010 renewables (business as usual)
2005 renewables share
S2005
S2020
S2005 + 0.25(S2020 – S2005)
S2005 + 0.35(S2020 – S2005)
S2005 + 0.45(S2020 – S2005)
S2005 + 0.65(S2020 – S2005)
S2020 – S2005
27
Annex 3 - the draft RES Directive: key milestones
Milestone Who does what? COM dates Agreed dates
Agreement / adoption
European Parliament and Council
By end 2008 /
early 2009
Entry into force Following adoption, publication in the EU Official Journal gives legal effect
Early 2009 ?
Transposition Each Member State (+ NO) should have transposed the directive into national law
By 31 March 2010 ?
Indicative trajectory To meet their 2020 target, each MS should steadily increase their share of renewables through a standard
formula
Averages over a two-year period (2011-2012, etc.)
?
National Action Plans
Each MS should notify their first national action plans to the Commission (including overall strategy, targets and
key measures)
By 31 March 2010 ?
Reporting on progress Each MS should report regularly on progress (+ COM assessment)
By 30 June 2011 and every 2 years thereafter
?
Review of rules for GO transfer
The Commission will re-assess the costs and benefits of the provisions related to the transfer of GOs between
MS
By 31 Dec. 2014 ?
28
Estimation of proportion of renewable electricity supplied
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Fra
nce
Germ
any
Italy
Spain
United K
ingdom
EU
27
Austr
ia
Belg
ium
Bulg
aria
Czech R
epublic
Denm
ark
Esto
nia
Fin
land
Gre
ece
Hungary
Irela
nd
Latv
ia
Lithuania
Luxem
bourg
Malta
Neth
erlands
Pola
nd
Port
ugal
Rom
ania
Slo
vakia
Slo
venia
Sw
edenS
hare
of R
enew
able
s in e
lectr
icity p
roduction
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Fra
nce
Ge
rman
y
Ita
ly
Sp
ain
Un
ite
d K
ing
do
m
EU
27
Au
str
ia
Be
lgiu
m
Bu
lga
ria
Cze
ch
Re
pu
blic
De
nm
ark
Esto
nia
Fin
lan
d
Gre
ece
Hu
nga
ry
Irela
nd
La
tvia
Lith
ua
nia
Lu
xe
mb
ou
rg
Ma
lta
Ne
therla
nd
s
Po
lan
d
Po
rtug
al
Ro
ma
nia
Slo
va
kia
Slo
ve
nia
Sw
ed
enS
ha
re o
f R
en
ew
ab
les in
ele
ctr
icity p
rod
uctio
n Incremental to meet the 2020 target
BAU 2020
BAU 2010 Least cost
trading solution
Domestic action only
The extent of trading could be a significant determinant of the proportion of
renewable electricity in the generation mix
29
Estimates of wind power development
• Proportion of wind power on the system varies significantly by Member State and by compliance
route
• Growth in wind required to meet the targets could test the ability of System Operators to balance the
system
0%
5%
10%
15%
20%
25%
30%
35%
40%
Fra
nce
Ge
rman
y
Ita
ly
Sp
ain
Un
ite
d K
ing
do
m
EU
27
Au
str
ia
Be
lgiu
m
Bu
lga
ria
Cze
ch
Re
pu
blic
De
nm
ark
Esto
nia
Fin
lan
d
Gre
ece
Hu
nga
ry
Irela
nd
La
tvia
Lith
ua
nia
Lu
xe
mb
ou
rg
Ma
lta
Ne
therla
nd
s
Po
lan
d
Po
rtug
al
Ro
ma
nia
Slo
va
kia
Slo
ve
nia
Sw
ed
en
Pro
port
ion
of
Win
d E
ne
rgy in
to
tal e
lectr
icity p
rod
uctio
n
Domestic action only
Least Cost solution and trading
Offshore
wind
30
Trading volumes in green certificates
Trading in green certificates could range from €8bn (EC estimate) to €13bn (Pöyry
estimate) annually by 2020
-3
-2
-1
0
1
2
3 F
ran
ce
Ge
rma
ny
Italy
Sp
ain
Un
ite
d K
ing
dom
Au
str
ia
Be
lgiu
m
Bu
lga
ria
Czech R
epublic
De
nm
ark
Esto
nia
Fin
land
Gre
ece
Hu
ng
ary
Ire
land
Latv
ia
Lith
ua
nia
Luxe
mb
ou
rg
Ma
lta
Ne
the
rla
nd
s
Po
land
Po
rtu
ga
l
Ro
ma
nia
Slo
va
kia
Slo
ve
nia
Sw
ede
n
Tra
de
d v
alu
e in
20
20 (
€bn)
31
Green certificate scheme is more cost effective and flexible support system compared to feed-in tariffs
Text Tradable green
certificates
(long-term
targets)
+++
Set volume target – price
adjusts
Penalty level must be
high enough
+++
Market prices pass on
information on
(expected) long-run
marginal cost for
renewables
Feed-in premium
-as uniform right
+
Imprecise.
Depends on information
about and slope of
supply curve
+++
Power price pass on info.
about conventional
power
Fixed feed-in tariff
-long-term
contract
++
Imprecise.
Queue mechanism?
Auctions: Winner’s
curse?
+
Incentive to overestimate
costs
Weak incentive for best
projects first
++
Do not favour infant
technologies
+++
Prices adjusted for new
market information
(Fuels, techn., EUAs,
taxes, …)
++
(Known) market
uncertainty
Negative correlation
power/TGC)
++
Do not favour infant
technologies
+
FT set for regulation
periods
+
Power market uncertainty
Premium changed by
authorities
+++
Room for tailor-made
contracts
++
Can be changed from
contract to contract.
Fixed per contract for
agreed period
++
Full when contract is
signed
Main criteria may be
changed prior to
contract.
Effectiveness Cost efficiency Dynamic efficiency Flexibility Predictability
Other criterias: • Ease of introduction – to existing managerial, legal and technological systems
• Ease of monitoring and enforcement – reliable compliance monitoring an enforcement implemented
• Diversification – lead to a diversified electricity system
• Equity or Fairness – disproportional burdens or benefits
• Acceptability – understood by the public, acceptable to generators and sellable to government
32
Tradable green certificate scheme is a market based support mechanism for renewables
• In the certificate system, each producer of eligible renewable production receives a certificate for each MWh of electricity produced. The certificates can be
sold in the market separately from the electricity.
• The electricity users or retailers have an obligation to purchase renewable energy according to an ambition level set by authorities - for example 10% share
of electricity purchase. This sets the demand for certificates.
• Price of certificates reflects the last renewable production unit needed to fulfil the total renewable target. The certificate is tradable in the market like any
other securities
Power
demand
TWh
Price
Renewables target
Certifi-cate price
Supply of Electricity
Certificates
Wholesale power price
In
co
me f
or t
he
elig
ible
pro
du
cer
Supply of Electricity
33
-
20
40
60
80
100
120
140
0 10 20 30 40 50 60 70
TWh
To
tal co
sts
(€/M
Wh)
Aggregated supply curve for renewable electricity in Norway (2020)
Illustration of possible consequences for the Norwegian electricity sector
Target
Hydro
Offshore wind
Onshore wind
Bio
Po
we
r
pri
ce
S
up
po
rt
34
The profitability in renewable investments is influenced by market and policy
Income Costs
Market
• Investment costs
• O&M costs
Policy
• Investment costs:
connection to the grid
• O&M:
grid tariffs and property tax
Market
•Wholesale power price
•Add on for ”greenness”?
Policy
•Support system
and level
• Compensation
•Rate of return
•Economic life
•Operating hours
35
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