Effectiveness and Efficiency of Renewable Energy Promotion Schemes in the German Space Heating Market

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1 Berlin University of Technology Department of Energy Systems Effectiveness and Efficiency of Renewable Energy Promotion Schemes in the German Space Heating Market Energy, Economy, Environment: The Global View 32 nd IAEE International Conference San Francisco Johannes Henkel Johannes Henkel

2 Outline The German renewable heat law Effectiveness and efficiency Model description Model results and discussion Conclusions Johannes Henkel - 2 -

3 The German Renewable Heat Law at Federal Level Goal: Increase share of renewables in the heating market to 14% until 2020 (today: 6-7%) The use of renewable energy is mandatory for new buildings Possible technological choices: combination of oil/gas with solar thermal heat (share of 15% solar thermal energy) wood pellet heating electric heat pumps (min. COP 4.0/3.5) natural gas (micro-)chp with min. 30% biomethane fuel oil boilers with 50% bio oil (e.g. rapeseed oil) district heating Entered into force at the beginning of 2009 Moreover: Subsidies and low-interest loans Johannes Henkel - 3 -

4 Policy Instruments Investment Subsidies Low-interest Loans Obligation of Use Tradable Certificate Systems Bonus/Incentive System Boiler Scrapping Bonus ( Cash-for-Old-Boilers ) Johannes Henkel - 4 -

5 Effectiveness and Efficiency Effectiveness: A policy instrument is effective, if the goals set are reached Basic regulatory policy instruments like obligations or prohibitions therefore can be 100% effective, if the obligation is high enough (depending on level of compliance) Here: efficiency = n goal reached / n total (% of how many monte carlo cases reach the goal) Efficiency: Efficiency = cost-efficiency A policy instrument is the more efficient the lower the cost of the instrument divided by the effect Here: CO 2 mitigation cost (Alternative: Cost per 1%-point of increase of renewables) Johannes Henkel - 5 -

6 Model Description Logistic regression model Focus on different heating technologies Fuel oil prices are modelled by a random walk with a drift (average increase of 2% per year) Natural gas and electricity prices are correlated to price for fuel oil Wood pellet prices are calculated fundamentally according to cost-resource-curve Monte-Carlo-Analysis of scenarios Consumer decision is made based on economic as well as other criteria (comfort, ecology, investment barrier etc.) Consumer expectations for future fuel prices are considered in the decision process Learning curves for heat pumps, wood pellets and solar thermal Model was fitted to sales data Johannes Henkel - 6 -

7 Results I: Shares of Different Technologies in 2020 (Actual Policy Mix) Shares of different technologies total share of technology fuel oil natural gas wood pellets el heat pump oil+solar gas+solar el. resistance REN_share Market share today Johannes Henkel - 7 -

8 Results II: Comparison of Cost with and without Policy Measures Without Policy Measures [NPV 2009] 4,00E+11 3,50E+11 3,00E+11 2,50E+11 2,00E+11 1,50E+11 1,00E+11 5,00E+10 Average Median Median: 9% higher cost for policy measures 0,00E+00 0,00E+00 5,00E+10 1,00E+11 1,50E+11 2,00E+11 2,50E+11 3,00E+11 3,50E+11 4,00E+11 4,50E+11 With Policy Measures [NPV 2009] Johannes Henkel - 8 -

9 Results III: Effectiveness of Different Policy Measures 100% 80% 60% 40% 20% 0% Subsidies Low-Interest Loans Obligations of Use Actual Policy Mix Johannes Henkel - 9 -

10 Results IV: Efficiency CO 2 Mitigation Cost Euro/t CO2 emissions Euro/t CO2 emissions subsidies subsidies low-interest low-interest loans loans obligation obligation of of use use actual actual policy policy mix mix Johannes Henkel

11 Conclusions Concerning effectiveness: Generally, regulatory policy can be effective, but is unpopular The low-interest loans used in Germany are quite effective Concerning efficiency: Policy measures in the average lead to higher macro-economic cost but in many scenarios cost are reduced (e.g. through learning effects) Obligations of use are the least efficient Low-interest loans are very efficient (because of double effect) Right mix of policy instruments in order to achieve acceptability, effectiveness and efficiency Johannes Henkel

12 Thank you for your attention! Berlin University of Technology Department of Energy Systems Dipl.-Ing. Johannes Henkel Einsteinufer 25 (TA 8) D Berlin Germany Tel: Fax: Johannes Henkel