European Parliament. Renewable Energy in the MEDA Region.. Public Hearing on. Brussels 16 June Albrecht Kaupp MED-EMIP Team Leader

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1 Euro-Mediterranean Energy Market Integration Project Germany France Lebanon Belgium European Parliament Public Hearing on Renewable Energy in the MEDA Region.. Brussels 16 June 2011 Albrecht Kaupp MED-EMIP Team Leader The contents of this publication are the sole responsibility of the author and can in no way be taken to reflect the views of the European Union. 1

2 MED-EMIP mandate in one sentence MED-EMIP is expected to be the catalyst of the reinforcement of EU-MPC energy cooperation, with particular emphasis on energy security and sustainability, through enhanced dialogue and information exchange. (ToR 2007) 2

3 Overview of the power systems of the Mediterranean basin Analysis of the solutions and proposals to close the ring Market potential and financial impact of solar power generation Visualizing the Mediterranean Sea basin for interconnectors Legal and administrative issues to export solar electricity 3

4 Reality versus Vision Interconnector corridors and power supply dependencies 5% YES NO 9% 4

5 Power demand forecast next 10 years RE competitor #1 :Gas MEDA power mix development x more gas 2 x more coal 2 x more RE 1/2 less H Spot Market Prices Natural Gas US$ / Million BTU Year EU USA OECD (Oil) A random walk down Wall Street! RE Barrier #1: Lack of demand side management in the power sector, i.e. high growth rate of > 6% annually 5

6 First set of observations - Operational reserve margin dropped for the last 5 years and is between 1.00 and 1.09 except for Algeria at 1.16! The region is not self sufficient in electricity supply. - Regional decision makers are looking for financing to catch up with run away demand of 4% to 8% /year. - Initial capital requirement to catch up with kwh demand by solar power plants are 5-10 times higher as compared to conventional fossil fuel power plants. - Independent RE based power producers need to charge a premium of 50% to 100% (PV, CSP, Wind) on generation. 6

7 System Average Rate, Cents / kwh 23-(38) PV, CSP 14-(23) IS, LB, TN, MA,PT JO DZ, LY, SY, EG IS =Israel LB=Lebanon TN= Tunisia MA= Morocco PT= Palestine JO= Jordan DZ= Algeria LY=Libya SY=Syria EG =Egypt Wind (EU+MEDA) EU-Industry EU-Households 7

8 Acceptable financial scenario patterns Accumulated incremental cost Million Investment costs 1000 Million Capacity 500 MW Net Yield 1650 MWh / MW FIT 16 cents / kwh WACC 10.2 % (syndicated) Base reference 10 cents / kwh Base reference inflation 7% Annual incremental costs Million Undesirable 8

9 Cross Border Trading into the EU-27 There is no need to import solar electricity into the EU but it could make economic and financial sense for both sides! The region will be today and could forever deliver more cost effective solar electricity than the EU -27 average. Because Our tariff 26 Their tariff c/kwh -10 % loss Twice the sun principle applies to generation costs % 15.6 There are no investors in the South since there are no buyers in the North 9

10 Competition or value addition among three RE technology options? WIND CSP (Tower) CSP (trough) CSP (Frenel) PV - The future of CSP with storage hinges on the degree of firm power needed in a national power system and the willingness of the market to pay a premium for CSP firm power and competition from more cost effective load balancing strategies. - Wind as energy resource is already competitive in parts of the region (PLF>30 %) - PV power plants have won the generation cost competition for energy supply against CSP (trough) and the gap will most likely widen. PV will also challenge wind at lower PLF levels of 22% and augment wind based power generation. (PLF= plant load factor) 10

11 Conclusions and Recommendations a) The 5-10 times higher capital costs (not generation costs!!) to provide the same amount of electricity of RE power plants require a larger involvement, as presently seen, of Arab funds and banks. b) More attention should be given to cost effective demand side management to better link both subjects RE and EE. A widening supply and demand gap in the region is detrimental to promoting RE power plants. c) The focus of attention should shift towards finding electricity buyers in the North to mitigate the barrier of incremental cost cover. d) Interconnectors loaded with fossil and green electricity should be favored. e) The given load balancing flexibility of the regional natural gas dominated power industry should be taken more into account. Reconsider storage strategies! 11

12 3x8h shifts per day, one person x 4,000 kcal =12,000 kcal x 14% eff/860 = 2 kwh/day electrical output. Food input 24 Big Mac (EUR 50) or 1.3 liter good Olive oil (EUR 5). Resulting energy costs range of EUR 25 to EUR 2.5 per kwh excluding runners minimum daily wages, depreciation of legs over 20 years, plus repair and maintenance! THE END 12