Advanced Renewable Incentive Schemes. Simon Müller Senior Analyst System Integration of Renewables International Energy Agency

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1 Advanced Renewable Incentive Schemes Simon Müller Senior Analyst System Integration of Renewables International Energy Agency Berlin Energy Transition Dialogue, 17 March 2016

2 The start of a new energy era? Universal agreement from COP21 is a historic milestone Pledges of 180+ countries account for 95% of energy-related emissions Record renewables capacity additions in 2014 and 2015 In 2015, lowest-ever prices announced for wind and PV Sustained technology improvement and economies of scale Reduced cost of financing in countries with sound regulatory and market frameworks But 2015 has also seen lower prices for all fossil fuels Oil & gas could face second year of falling upstream investment in 2016 Coal prices remain at rock-bottom as demand slows in China

3 RE costs decreasing rapidly Recent announced long-term contract prices for new renewable power Onshore wind Utility-scale solar PV France USD 87 /MWh Germany USD /MWh Germany USD 89 /MWh Morocco USD 35/MWh United States USD 47/MWh United States USD 65-70/MWh Canada USD 66/MWh Turkey USD 73/MWh China USD 80 91/MWh India USD 65-88/MWh Brazil USD 81/MWh Jordan USD 61-77/MWh Brazil USD 49/MWh United Arab Emirates USD 58/MWh Chile USD 65-68/MWh Uruguay USD 90/MWh South Africa USD 51/MWh South Africa USD 65/MWh Egypt USD 41-50/MWh This map is without prejudice to the status or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area Australia USD 69/MWh A combination of price competition, long-term contracts, good resources and financial derisking measures is creating deployment opportunities in newer markets and at lower costs

4 Past A paradigm shift towards advanced incentive schemes Present and mid term future Main Policy Providing financial support Cost reduction via Technology development Scale up Learning Enabling policy and market framework reducing financing costs Technology innovation Financial innovation New markets with best resources Key characteristics of new approach Level playing field Carbon pricing Phase out of fossil fuel subsidies Regulation and market design Competition Predictable long-term income streams Short-term market value signals System approach RE portfolio Energy System Integration

5 Accounting for the value of the generated electricity Are you looking for the cheapest kwh or the best value for money? Which technology to chose? Cost of technology A Need for support Value technology A Cost of technology B Need for support Value technology B Despite its lower cost, technology B will need more support payments than technology A. Advanced incentive schemes need to factor in the value of the generated electricity

6 Market deployment Sound policies needed at all stages Low-cost gap: onshore wind, PV power, solar heat, geothermal, pumped-storage No cost gap: hydropower some wind and solar Breakthrough: wave, tidal, advanced biofuels, power to gas High-cost gap: CSP, offshore wind tidal, battery storage R, D&D support Increasing exposure to competition; good market design; carbon mechanism Technology-specific support, loan guarantees Time Achieving an energy transition will require a portfolio of technologies, currently are at various levels of maturity

Context matters Stable Power Systems Little general

demand growth* Dynamic Power Systems Large general

mechanism Advanced incentive schemes may imply some

7 Context matters Stable Power Systems Little general investment need short term Slow demand growth* Dynamic demand growth* Dynamic Power Systems Large general investment need short term Energy-Only-Market + CO2 mechanism Advanced incentive schemes may imply some convergence between the two models Regulated assets Risk for investors Risk for government/consumers

8 Conclusions Possible new era with tightening climate regime, and low cost of renewables & fossils Sound policy environment needed, adjusted to market and technology maturity Advanced incentive schemes: shift the focus from covering a cost gap to providing investment certainty use information from competitive price discovery account for the value of the energy produced depend on country and market context

11 GW OECD Europe cumulated capacity by scheme ( ) FiTs TGC Fixed FiPs Variable FiPs Grants Tax Schemes No scheme No scheme Exposed to energy price risk Non exposed to energy price risk

Renewables after COP-21 A global perspective. Dr. Fatih Birol Executive Director International Energy Agency

Renewables after COP-21 A global perspective Dr. Fatih Birol Executive Director International Energy Agency 17 th Symposium, Syndicat des Énergies Renouvelables, Unesco, Paris, 4 February 2016 The start