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Presentation by IEA Deputy Executive Director, Ambassador Richard Jones, at the Renewable Energy Finance in Practice Forum in Vienna on 31 May.
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© OECD/IEA 2010
Renewable Energy Financing An IEA Perspective
Amb. Richard H. Jones Deputy Executive Director International Energy Agency
REFIP 2012, Vienna, 31 May 2012
© OECD/IEA 2010
Recent trends - Electricity
Wind Bioenergy Solar PV Hydro other
Generation
2010 [TWh] 338 296 31 3503 74
CAGR 2005-
2010 [%] 26.5% 8.8% 50.8% 3.1% 4.6%
© OECD/IEA 2010
…and in Heat and Transport
• 3% share of road
transport
• Grew at 26% per
year in average
• Growth focussed
in Brazil, US, EU
• Rapid growth in
solar water heating
• Focused mainly
in China
0
10
20
30
40
50
60
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
Mto
e
Brazil bioethanol US bioethanol
EU-27 biodiesel RoW biofuels
0
50
100
150
200
GW
th
Rest of world China
© OECD/IEA 2010
Costs are falling
Growing deployment has led to cost reductions in key technologies
Hydro and some geothermal already cost-competitive
New technologies such as wind onshore and biomass are competitive in a broader set of circumstances
Data from Breyer and Gerlach, 2010
< 1976
< 1980
< 1990
< 2000
< 2010
1
10
100
1 10 100 1 000 10 000 100 000
PV
Mo
du
le P
ric
e (
US
D 2
01
0/W
p)
Cumulative capacity (MW)
Learning Rate: 19.3%
PV still expensive but 19% cost reduction for each capacity doubling; parity with retail prices in the next five years in countries with high insolation and electricity prices
© OECD/IEA 2011
Low-carbon power technologies come of age
Global installed power generation capacity in the New Policies Scenario
Renewables account for about half of all the new capacity added worldwide through to 2035
Nuclear additions
Renewable additions
Fossil-fuel additions
Existing 2010 capacity
0
2 000
4 000
6 000
8 000
10 000
2010 2015 2020 2025 2030 2035
GW
© OECD/IEA 2011
Going green comes at a price
Investment in new power plants and infrastructure in the New Policies Scenario
Renewables make up 60% of investment in new power plants, led by wind, solar PV & hydro, even though they represent only half of the capacity additions
2011-2035: $16.9 trillion
© OECD/IEA 2010
Impact of Capital Costs on Levelised Costs of Electricity
The financing regime is key for RE economics
Note: Simplified calculation for illustration. Assumptions: Gas: 800 USD/kW; annual O&M: 2.5% of capex; FLH: 5000 h/y; 8 USD/Mbtu; 50% thermal efficiency Wind: 2200 USD/kW; 2.5% O&M; 3000 h/y PV: 3000 USD/kW; 1% O&M, 1500 h/y
0
5
10
15
20
25
30
0% 5% 10%
ct
US
D/k
Wh
Cost of Capital
PV
Wind
CC Gas
© OECD/IEA 2010
Cost of capital and risk
Interest rates also depend on risks perceived by investors, influenced by:
1. General economic framework
Large spreads in interest rates among countries
2. Technology risk
RE encompass a wide range of technologies at different stages of maturity
3. Policy risk
Stability of country policy frameworks over time
© OECD/IEA 2011
Policy Schemes and Financing Interact
Different policy instruments yield qualitative differences in financial flows: Certificate Schemes
Generators under a certificate scheme are exposed to volatile prices for certificates and wholesale power
Feed – In Schemes Under a classical FIT, cash flows are very stable and predictable
Different risk/return profiles attract different investors Like returns on government bonds, FIT cash flows
are predictable and well suited for institutional investors
© OECD/IEA 2011
Policy Impact and Cost-Effectiveness
Comparative assessment in OECD, BRICS and other DCs
Example - Wind on-shore:
Leading countries (e.g. DE, DK, PT, SP) have predictable incentives - mostly FITs/FIPs - and good overall policy framework
Some countries using TGCs (IT, UK) show good
deployment but at higher support costs
Non-economic barriers can hamper any kind of support (e.g. in JP and GR)
It is the overall policy framework that matters
© OECD/IEA, 2012
Best-Practice Policy Principles
1. Predictable RE policy framework, integrated into overall energy strategy
2. Portfolio of incentives based on technology and market maturity
3. Dynamic policy approach based on monitoring of national and global market trends
4. Non-economic barriers must be tackled
5. System integration issues must be addressed
© OECD/IEA, 2012
Fully mature
Evolving RE Markets and Policies
Mat
uri
ty L
eve
l & D
ep
loym
en
t
Time
Solar PV
CSP
geothermal
Take-off Consolidation Inception
Hydro
Wind on-shore
• With growing maturity level, policies need to evolve and increasingly expose investors to market risks
Wind off-shore
Ocean
RD&D policies
Predictable technology-specific
incentives
Technology-neutral policies (e.g. C-pricing)
Low-risk High-risk
© OECD/IEA 2010
One “size” does not fit all!
Investor type depends on risk profile
Technology risk
Project-specific risk
Example
RE
Technology
Technology
Risk
Policy /
Deployment
Phase
Typology of
investors
Ocean Very High Inception VC-PE
CSP
Wind offshore
High Take-off ?
Funding gap
PV
Wind onshore
Low Take-off Asset /
Project
Financing
Hydro Low Consolidation Very Large /
Consortia
© OECD/IEA 2010
Size and time matter
RE projects come at very different sizes and investment levels and risks
Lead times for project construction also widely differ
The difference in scale will yield different types of investors and financing products
From home owners to very large investors and consortia.
5 kW PV rooftop 500 MW wind
off-shore
10 GW
large hydro
10 k EUR 1.75 bl EUR 15-20 bl USD
© OECD/IEA 2010
Emerging Financing Sources
Development banks and export credit agencies are increasingly key sources
New institutional and non-traditional investors gradually more active in renewable finance
Pension, infrastructure, sovereign wealth funds; insurance companies; non-utility corporations
New financial innovations emerging
e.g. third-party leasing schemes for small-scale PV
However, new investors have different risk profiles
More experience and time needed
Only gradual impact on markets
© OECD/IEA 2010
Conclusions
Very significant growth of renewables in all IEA scenarios, particularly in the power sector
Investment needed in the 5-10 trillion USD scale by 2035
Different technologies will attract different investors depending on their maturity level and perceived risks
Policies can play a major role in reducing risk for investors
But can be a source of risk themselves
Need to evolve over time