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SusTec Sustainability and Technology
SusTec – Group for Sustainability and Technology 1 8 February 2013
Scaling-up Renewable Energy in Developing Countries – Part I Financing Feed-in Tariffs in Developing Countries under the Post-Kyoto Climate Policy Regime - The Case of Thailand Joern Huenteler ETH Zurich, SusTec Co-authors: Christian Niebuhr, Tobias Schmidt, Reinhard Madlener, Volker Hoffmann Sustainability Innovation Seminar Series 36, Tokyo University, 8 Februar 2013c
SusTec – Group for Sustainability and Technology 2 8 February 2013
What to expect from this talk? I will talk about domestic renewable energy policy in the global context
Research question:
Are supported feed-in tariffs a way forward in climate policy (until 2020)?
Analysis:
Techno-economic modeling of Thailand‘s electricity sector to estimate feed-in tariff costs, key uncertainties, and role of different funding sources
Key insights:
FITs are suitable for upscaling NAMAs
RE cheaper than expected
Consistent domestic action often more important than globally concerted effort
SusTec – Group for Sustainability and Technology 3 8 February 2013
Agenda
NAMAs in Post-Kyoto climate finance
Feed-in tariffs as NAMAs
Case: Thailand‘s electricity sector
Methodology
Hybrid NAMA to finance Thai feed-in tariff
Key insights and potential obstacles
SusTec – Group for Sustainability and Technology 4 8 February 2013
Motivation: Non-Annex 1 countries will have to mitigate emissions in post-Kyoto climate policy
Non-Annex 1 countries now emit more than twice as much
as in 1992 and more than twice as much as Annex-1
countries
SusTec – Group for Sustainability and Technology 5 8 February 2013
Scaling up mitigation actions is required
Bali Action Plan (2007) called for „nationally appropriate mitigation actions“ (NAMAs) by developing countries „in the context of sustainable development“
i.e., when co-benefits are to be expected (development priority!)
They can request financial support (e.g., Green Climate Fund)
NAMAs offer possibility to scale up mitigation actions from the bottom up, especially in emerging economies (Chile, Mexico, MENA, Thailand, etc.)
Is bottom-up better than top-down, or just politically more feasible?
Can we design NAMAs that
leverage private sector investment
allow for transparent MRV
and create co-benefits?
SusTec – Group for Sustainability and Technology 6 8 February 2013
Current status in NAMA database (ecofys) shows high diversity!
Waste
10% Industry
14%
Forestry 8%
Energy Supply
27% Buildings
11% Agriculture 3%
Transport
27%
9%
National
78%
Unknown
Sub National
13%
Strategy/Plan
47%
Unknown
18%
Project
15%
Policy/Program 20%
7%
Implementation
Proposal/ Planning 11%
Concepts
82%
Source: www.nama-database.org
Sector
Level Type
Progress
SusTec – Group for Sustainability and Technology 7 8 February 2013
Agenda
NAMAs in Post-Kyoto climate finance
Feed-in tariffs as NAMAs
Case: Thailand‘s electricity sector
Methodology
Hybrid NAMA to finance Thai feed-in tariff
Key insights and potential obstacles
SusTec – Group for Sustainability and Technology 8 8 February 2013
Feed-in tariffs are successful in attracting private sector finance
Fixed rates paid to producers of renewable electricity (10-20y)
Rates offered to new projects typically decline over time to account for learning effects, but remain constant over project life-time (attractive for investors)
„Incremental cost“ (cost of RE minus cost of baseline) usually refinanced through surcharge to consumers
Successful application in developed countries (GER, IT, Japan?)
SusTec – Group for Sustainability and Technology 9 8 February 2013
FIT‘s arguably most successful policy for diffusion of RE
Number of FITs worldwide
Now >50 % outside industrialized countries
Source: IRENA, 2012
SusTec – Group for Sustainability and Technology 10 8 February 2013
FITs are suitable NAMAs because they allow for scale-up and MRV
FIT rates can be set „appropriate“ to country- and technology requirements
Unlike the CDM, FITs are sector-wide policies that can be scaled with limited transaction costs (leverage!)
FIT payments are performance-based, just as the CDM, meaning that „donor countries“ only pay for verified emission reductions (MRV!)
FITs with fixed deadline could be bridge solution before a broader climate agreement is reached
SusTec – Group for Sustainability and Technology 11 8 February 2013
How would it work?
RE projects
Grid operator pays avoided costs
Feed-in tariff premium
Unilateral contribution
Funds assured from international donor
MRV system to quantify emission
reductions
Generate emission reductions
Credited contribution from carbon market
Investors
Private sector Host country
International contribution
SusTec – Group for Sustainability and Technology 12 8 February 2013
Agenda
NAMAs in Post-Kyoto climate finance
Feed-in tariffs as NAMAs
Case: Thailand‘s electricity sector
Methodology
Hybrid NAMA to finance Thai feed-in tariff
Key insights and potential obstacles
SusTec – Group for Sustainability and Technology 13 8 February 2013
2008 2010 2012 2014 2016 2018 2020
Electricity mix
Electricity
imports
(dams, esp.
Lao PDR)
Nuclear
NatGas
partially
imported
Coal imports
Lignite
Thai electricity mix highlights political challenges (supply security, nuclear, local pollution)
Source: Amornkosit, N. (2008)
SusTec – Group for Sustainability and Technology 14 8 February 2013
We used Thailand‘s Alternative Energy Development Plan as case study
Thailand is middle-income country
2012: GDP 5,850 USD/head, growth +5,5%
Emissions per capita (2008): 4,18 tons; growth +3,4% 2000-2008
Thailand had a FIT adder in place, announced intention to change to fixed FIT
Alternative Energy Development Plan (AEDP) aims to increase share of non-hydro RE from 4.3 % to 10.5 %
Modeling focus:
What would a fixed FIT cost to achieve AEDP goals? What are possible financing sources? What are key uncertainties?
SusTec – Group for Sustainability and Technology 15 8 February 2013
Agenda
NAMAs in Post-Kyoto climate finance
Feed-in tariffs as NAMAs
Case: Thailand‘s electricity sector
Methodology
Hybrid NAMA to finance Thai feed-in tariff
Key insights and potential obstacles
SusTec – Group for Sustainability and Technology 16 8 February 2013
We modeled the Thai electricity sector on a plant-level
Bottom-up modeling of electricity sector
Resolution: single power plant
Modeling of cost of renewable energy, carbon revenues, and avoided baseline cost
21 technologies
Technology-specific local and global learning rates, cost data based on ETH Zurich SusTec database of RE cost
Detailed modeling of project finance (consideration of tax breaks, technology-specific depreciation rates, loan conditions, etc.)
Assumption: Financing of RE diffusion through FITs that bring project to break-even
SusTec – Group for Sustainability and Technology 17 8 February 2013
Agenda
NAMAs in Post-Kyoto climate finance
Feed-in tariffs as NAMAs
Case: Thailand‘s electricity sector
Methodology
Hybrid NAMA to finance Thai feed-in tariff
Key insights and potential obstacles
SusTec – Group for Sustainability and Technology 18 8 February 2013
2012-2041: Total annual payments and avoided baseline costs
0.0
0.5
1.0
1.5
2.0
2.5
Co
st (
bn
USD
)
2019 2016 2013
Incremental Cost
2040 2037 2034 2031 2028 2025 2022
Cost of FIT Payments
Avoided Cost Total incremental cost:
7.93bn$, or 63.59$/tCO2
0.3 c$/kWh in 2021
SusTec – Group for Sustainability and Technology 19 8 February 2013
If domestic benefits are included, the funding gap is only about 12 % of the total FIT costs
0.8
0.6
30.3
3.5
0
5
10
15
20
25
30
35
Incremental Cost
Funding Gap Health Benefits**
Investment/ Innovation*
3.1
Emission Certificates
(CERs)
Avoided Cost (BL 1)
22.3
Cost of FIT Payments
Co
st (
bn
USD
)
Leverage of 9!
Policy Cost
Credited
Unilateral
Total
Multilateral
*BOI investment credits that apply to 6 sectors, including energy **Source: Sakulniyomporn, et al. 2011.
SusTec – Group for Sustainability and Technology 20 8 February 2013
We use four scenarios to analyse relative importance of key cost drivers
high
low
low high
Global climate policy and international RE diffusion
Domestic policy and RE
promotion
“Domestic Effort” “Green Case”
“Limited Support” “Global Effort”
SusTec – Group for Sustainability and Technology 21 8 February 2013
Do
mes
tic
po
licy
and
RE
pro
mo
tio
n high
low
“Domestic Effort”
Cost of Equity: Low 9,2%
Domestic RE diffusion: High Exponential
“Green Case”
“Limited Support”
Cost of Equity: High 13,2%
Domestic RE diffusion: Low Disruptive
Carbon price: Low 2 $
Global RE diffusion: Low IEA 6DS
“Global Effort”
Carbon price: High 7 $ to 34$
Global RE diffusion: High IEA 2DS
Global climate policy and international RE diffusion low high
Base Case
US$ 7.36 bn
The four scenarios differ in cost of equity, local/global diffusion, and CO2 price
SusTec – Group for Sustainability and Technology 22 8 February 2013
low
Total cost of policy for different scenarios shows that consistent domestic action is more important to reduce mitigation costs
Global RE
diffusion, climate
agreement
Consistent
policy, derisking
Limited support
10,22
-42%
Domestic effort
5,93
10,22
10,22
-26%
Global effort
7,58
-69%
Green case
3,17
10,22
“Domestic Effort” “Green Case”
“Limited Support” “Global Effort”
SusTec – Group for Sustainability and Technology 23 8 February 2013
Agenda
NAMAs in Post-Kyoto climate finance
Feed-in tariffs as NAMAs
Case: Thailand‘s electricity sector
Methodology
Hybrid NAMA to finance Thai feed-in tariff
Key insights and potential obstacles
SusTec – Group for Sustainability and Technology 24 8 February 2013
Key take-aways
FITs are suitable NAMAs because they create co-benefits and allow for scale-up and MRV
For a hybrid NAMA, the funding gap is only about 1/10 of the total FIT costs – significant leverage for international investment!
Total cost of policy for different scenarios shows that consistent domestic action is at least as important to reduce mitigation costs as a global framework
NAMAs are suitable to support consistent and appropriate local policies, thus a promising way forward for emerging economies
SusTec – Group for Sustainability and Technology 25 8 February 2013
Potential obstacles
Incremental cost / financing needs to be determined ex-ante
Who determines sectoral baseline?
Which fuel costs to assume? (esp. for fuels with imperfect markets, such as natural gas and lignite)
Strong incentives for planning authorities to overestimate future electricity demand
Strong political commitment needed by donor countries to reduce regulatory uncertainty for investors
NAMA support by industrialized countries look likely be abused as bargaining tool in international climate negotiations
SusTec – Group for Sustainability and Technology 26 8 February 2013
Thank you for your attention!
please visit
www.sustec.ethz.ch
Key sources: • Amornkosit, N. (2008). Current Fuel Mix for Power Generation in Thailand and Plans for the Future. Ministry of Energy - Energy
Policy and Planning Office - Presentation at IEA Workshop on Fuel Options for Power Generation in ASEAN. • DEDE, 2012a. The Renewable and Alternative Energy Development Plan for 25 Percent in 10 Years (AEDP 2012-2021). • Ecofys, 2012. NAMA database. accessible online at http://www.nama-database.org/. • EPPO, 2012b. Power Development Plan 2010, Revision 3 (June 2012) 2030. • IRENA, 2012b. IRENA Handbook on Renewable Energy Nationally Appropriate Mitigation Actions (NAMAs) for Policy Makers and
Project Developers. • Sakulniyomporn, S., Kubaha, K., Chullabodhi, C., 2011. External costs of fossil electricity generation: Health-based assessment in
Thailand. Renewable and Sustainable Energy Reviews 15, 3470–3479.