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Experience with renewable electricity (RES-E) support schemes in Europe Current status and recent trends
Dr. Corinna Klessmann 08/04/2014
© ECOFYS | | 08/04/2014 Dr. Corinna Klessmann 2
• Feed-in tariff (FIT)
• Feed-in premium (FIP)
• Quota
• Tenders
Note: This map does not
include secondary support
instruments like tax incentives,
investment grants, etc. Source: Ecofys
What are the main RES-E support schemes in Europe?
Diversity of RES-E support schemes in the EU-28
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We will explore three major policy trends for RES-E
1. Quota schemes are losing ground
2. More and more countries use sliding feed-in premiums/contracts for difference (Cfd)
3. More and more countries experiment with tendering schemes
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A closer look will explain these trends…
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• Feed-in tariff
• Feed-in premium
• Quota
• Tenders
Source: Ecofys
Trend 1: Quota schemes are losing ground Trend 2: More countries use sliding FIPs/Cfds
Countries that (plan to) phase out their quota scheme
Countries that have recently
introduced sliding FIP/Cfds (or plan to do so)
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The main support schemes expose RES-E producers to different levels of risk
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Market price
RES-support
Green
certificate
revenues
FIT FIP sliding/
Cfd cap & floor
fixed Quota
Volume based Price based support
Source: Ecofys
© ECOFYS | |
The main support schemes expose RES-E producers to different levels of risk
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Market price
RES-support
Green
certificate
revenues
FIT FIP sliding/
Cfd cap & floor
fixed Quota
Electricity market price risk
Green certificate market risk
No market price risk
Limited market price risk
Full electricity market price risk
Certificate market price
risk
RES-E producer sells directly to the market
Volume based
Market integration
through TSO
Price based support Source: Ecofys
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The level of risk exposure plays a crucial role for the effectiveness and efficiency of support schemes
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Low cost of capital Low risk =
High investor certainty Low support level
required (efficiency)
Risk-mitigating support schemes can reduce levelised cost of electricity and resulting support costs to consumers by up to 30% (de Jager et al. 2011)
Many investors attracted
Low risk =
High investor certainty High RES-E growth
(effectiveness)
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Conclusions on risk exposure
Risk-conscious RES-E support policies that limit risks to investors are generally more effective and efficient than high-risk support schemes
Several European countries have abandoned their quota schemes for support schemes with potentially lower risk and cost to consumers
Exposure to certain market price risks may still be beneficial from a macro-economic perspective, if the RES-E producer is able to react
Several countries have introduced sliding FIPs/Cfds as compromise between revenue security of investors and RES-E exposure to market signals
The European Commission calls all Member States to move from FITs to FIPs (or other schemes with market exposure); discussion on whether this is the right approach for supply-driven RES-E
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• Feed-in tariff
• Feed-in premium
• Quota
• Tenders
Source: Ecofys
Trend 3: Countries experiment with tendering schemes
Countries that have recently introduced or are planning to introduce tendering (price competition)
Note: The draft State Aid Guidelines by the European Commission push for the increased use of tendering schemes
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Some background on RES-E tenders/auctions
> A tender is not a support scheme by itself; it can be combined with all other support schemes, most commonly with FITs or FIPs
> In traditional FIT/FIP schemes the support level is determined administratively, usually based on estimated production cost (LCOE)
> In a tender/auction, the FIT/FIP is determined in a competitive procedure (requirement: demand for support greater than tendered volume)
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Volume (e.g. in MW)
Pric
e (s
uppo
rt le
vel)
Successful bids Unsuccessful bids
Tendered volume
Clearing price
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> Not all winning projects will be implemented risk of under-fulfilling political targets
> Higher risk for RES-E producers than FIT/FIP, favouring bigger market actors
– Uncertainty in the preparation phase – Sunk cost for unsuccessful bidders – Penalty risk for successful bidders
> Risk of underbidding or winner‘s curse leading to prices below costs
> Risk of strategic behaviour (collusion) leading to high prices and producer rents
> Control of maximum volume and support cost
> Support level is determined by the market, not the administration
> Competition between RES-E producers may lower prices (compared to administrative FIT/FIPs)
> Potential to discover real production cost of RES-E
Opportunities Challenges
Specific opportunities and challenges of tenders/auctions
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The experience with tendering schemes in Europe is mixed and limited
Too early to conclude on overall best practice for Europe – further policy learning required Some ingredients for potentially successful RES-E tender design Adjust the tender design to the specific RES-E market structure (requires
detailed knowledge on market actors, project risks, etc.)
Find the right balance between stringent penalties/qualification requirements and limiting risks for bidders (high implementation rates = high costs)
Allow time for testing, evaluating and up-scaling tendering schemes
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Trends and challenges ahead that cannot be further explored in this presentation…
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Further trends and challenges for RES-E policy
Some countries have stopped their support schemes or changed them retroactively How to attract renewables investments
under strong budgetary constraints? When can support be phased out?
Not yet a trend: increased cooperation between Member States, e.g. partial opening of RES-E support schemes How to open support schemes? Role of cooperation beyond 2020? High RES-E deployment impacts the electricity system and markets How to further align RES-E policies and
general power market regulations?
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Recent reports on RES-E policy in the EU
> Held et al. (2014). Design features of support schemes for renewable electricity. http://www.ecofys.com/en/publication/renewable-electricity-support-schemes-and-cooperation-mechanisms-in-/
> Klessmann et al. (2014). Cooperation between EU Member States under the RES Directive. http://www.ecofys.com/en/publication/renewable-electricity-support-schemes-and-cooperation-mechanisms-in-/
> Resch et al. (2014). Beyond2020 – Design and impact of a harmonised policy for renewable electricity in Europe. http://www.res-policy-beyond2020.eu/downloads.html
> Klessmann et al. (2013). Policy options for reducing the costs of reaching the European renewables target. Renewable Energy 57(2013), 390-430
> Ragwitz et al. (2012). RE-Shaping: Shaping an effective and > efficient European renewable energy market. http://www.reshaping-res-policy.eu/ > Klessmann (2012). Increasing the effectiveness and efficiency of renewable energy
support policies in the European Union. http://dspace.library.uu.nl/handle/1874/218063
> Rathmann et al. (2011). Towards triple-A policies: More renewable energy at lower cost. http://www.reshaping-res-policy.eu/downloads/Towards-triple-A-policies_RE-ShapingD16.pdf
> de Jager et al. (2011). Financing Renewable Energy in the European Energy Market. http://ec.europa.eu/energy/renewables/studies/doc/renewables/2011_financing_renewable.pdf
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Please contact us for more information
Ecofys Germany GmbH Am Karlsbad 11 10785 Berlin Germany T: +49 (0)30 297 735 79-0 E: [email protected] I: www.ecofys.com
