ENERGY EFFICIENCY & RENEWABLE ENERGY SOURCES

Transcription

1 5 th International Congress for South-East Europe ENERGY EFFICIENCY & RENEWABLE ENERGY SOURCES Mobilizing Investment in Renewable Energy in Bulgaria 6-8 April 2009 Presentation by Kenneth Lefkowitz Managing Partner New Europe Corporate Advisory Ltd. 1

2 Table of Contents Section 1 Section 2 Section 3 Section 4 Section 5 Renewable Energy Sources in Bulgaria Energy Efficiency in Bulgaria Incentives for Investors Challenges Recommendations 2

3 Current state of play in renewables in Bulgaria Overview (1/3) Hydro, Wind, Solar, and Biomass Renewable Energy Hydro Wind Solar 3010 MW installed capacity as of the end of GWh generated for MW turbines and 943 MW pumped storage owned by NEK; 80 MW Tzankov Kamak project with expected annual generation 185 GWh is developed by NEK with VA Tech; 25MW HPP Svoge is developed as a PPP between Petrolvilla and Svoge municipalities NEK with VA Tech Hydro rehabilitates Dolna Arda Cascade annual output expected to increase with 64 GWh 104 MW controlled by EdF; Private owners of significant capacity currently not selling; There is an opportunity to consolidate the numerous micro-hydro development projects; Greenfield investment in dams for drinking water is also an opportunity Bulgaria has potential wind-power capacity of MW (estimates vary); 3000 MW of new power generation projects as of the beginning of 2009; Developers incl. AES, Eolica, EVN, Mitsubishi, Raifeissen Energy & Environment, Windkraft Simonsfeld, Wpd Natura 2000 and Bern convention could block the earliest projects, all of which fall within the Via Pontica bird migration route. Attractive tariff (EUR /MWh for capacities below 5 kw and EUR /MWh for capacities above 5 kw); Only a handful of small projects to date. Biomass Dalkia is carrying out a feasibility study in Varna for a biomass facility using straw as a raw material; 15 MW near Nikopol developed by Enemona; Sviloza operates a facility for burning of wood waste left over from its cellulose plant. Biomass projects near Bansko and Ihtiman 3

4 Current state of play in renewables in Bulgaria Overview (2/3) Wind At least 3000 MW of wind projects are planned currently. Four broad categories of project developers are seen on the market: The permitting cost per MW is currently around 20,000EUR. It is best met by the strong international developers and most difficult to meet for those wind developers whose business activity is concentrated in the real estate sector. We concluded that many investors have spread their resources over a significant number of projects vying for limited infrastructure and internal financing which should further reduce the number of projects permitted. We deem that at least 1500MW of the planned projects will run into significant difficulties related to the slowdown in the Bulgarian economy and especially to the devaluation of real estate. 4

5 Current state of play in renewables in Bulgaria Overview (3/3) Wind MW LEVERAGE TARIFFS Planned P s = 0.33 Permitted P s = 0.43 P f = 0.56 Built Not built P f = 0.66 Not to be Not to be permitted permitted Planning Permitting Construction Exploitation MW planned MW permitted by 2012 MW commissioned by 2012

6 Energy Efficiency Overview Negawatts Energy efficiency Consumption reduction incentives are positively correlated with the price of energy to the end-consumer; Energy consumption reduction is the cheapest form of capacity. 6

7 Energy Efficiency Energy efficiency in Bulgaria Current draft energy strategy contains the conflicting goals of promoting energy efficiency and keeping household electricity prices artificially low; Reduction of energy consumption in peak hours by the least well-off segments of the Bulgarian population has been induced by higher electricity prices in peak hours; Insulation has become a popular vehicle for energy efficiency as a result of high prices of thermal energy in relative terms. 7

8 Current state of play in renewables in Bulgaria Potential High potential for development Growing demand for renewable energy worldwide and in Bulgaria Climate change Intensifying pressure on global energy resources (growing demand) Competitiveness Existing and potential future power shortage on the Balkans due to: Strong economic growth in the region Lack of sufficient generation capacity EU quota for Bulgaria on renewables: renewable energy to account for 11% of gross power consumption in Bulgaria after 2010 and 16% after According to NECs forecasts, estimated need for additional renewables-based capacities of 893 MW till Hydropower: o o large-scale hydro almost fully exploited technical and economic potential; > 300 small hydro projects licensed in the past several years little space left for development; Favorable regulatory framework (in the EU and Bulgaria) Unexploited opportunities: Limited hydro and solar opportunities make wind, biomass, and biogas projects crucial for Bulgaria to fulfill its renewable energy quota: o Only several small wind farms currently operating in the country; o Abundance of agricultural waste can contribute to Biogas production. 8

9 Incentives for Investors Tariffs (1/4) Feed-in tariffs & wind developers Special tariff for wind generated electricity set by SEWRC Feed-in tariff for wind is made up of two components: base component equal to BGN (EUR 32.88) per MWh calculated as 80% of the average electricity enduser sales price for 2008 average electricity end-user sales price for 2008 = BGN 80,50 (EUR 41.10) per MWh a premium which depends on the capacity of each generator and the number of full effective annual operating hours; a lower premium applies for the increment above 2,250 hours; kw 2250h 800 kw 2250h < 800 kw Comparison with EU price levels: Compatible with EU prices for electricity produced from new wind turbines In the very low range of EU prices for electricity produced from older turbines 9

10 Incentives for Investors Tariffs (2/4) Feed-in tariffs & wind developers: likely evolution Based on the end-user price forecast, a likely evolution of wind power feed-in tariffs is developed under three scenarios: NECA has developed a forecast of end-user electricity prices based on supply, demand, and the regulatory framework The premium in each subsequent year is unchanged. The whole tariff is adjusted for inflation. The premium is adjusted for inflation. By law, the maximum decrease in the premium is 5% p.a. The proposed substitution of preferential tariffs with a system of guarantees of origin starting 2015 will affect generators commissioned after that date. renewable energy commitments to EU will force Bulgaria to offer investors adequate ROI. 10

11 Challenges Tariffs (3/4) Tariffs Tariff visibility is crucial now that banks are very cautious. Cost of Debt min. DSCR Assumptions: P90 capacity factor: 20% Installed cost per MW: 1.7 million euro Note: Average end-user prices may be depressed due to weak demand and continuing populist policies. 11

12 Challenges Tariffs (4/4) 30% Devaluation of the Lev Cost of Debt min. DSCR 30% Devaluation of the Lev will make cash inflows denominated in domestic currency insufficient to obtain Euro-denominated debt financing. 12

13 Challenges Grid Connection Grid connection SEWRC estimates that to connect renewable energy in the next 4-5 years, million euro will be needed. The grid connection costs should be equitably shared between distributors operating in renewable energy rich and renewable energy poor regions on the basis of final customers served. Grid connection should be a win-win story rather than a mandate imposed on NEC/distributors to provide incentives for much-needed infrastructure creation for renewables. NEC should be more transparent about its plans for infrastructure creation to enable investors to plan accordingly. Distinguishing among investors NEC s frequent use of the term lie investors (лъжеинвеститори) is not constructive; Professional developers have a valid role to play in the value chain by assuming development risks that institutional investors and utilities would not assume resale of projects is therefore not to be looked up necessarily as speculation; We propose several mechanisms to regulate the grid connection market better: 13

14 Recommendations Grid Connection Construction permits and grid connection studies that expire if not used within a reasonable period this will force sales of projects by speculators that don t have the necessary technical/financial resources; NEK to require increasing proof of financing and/or technical capability to make progress on grid connection applications this will screen out the speculators; To give NEK enhanced IRRs on mandated infrastructure upgrades to accommodate renewables. 14

15 Recommendations Selected Policy Prescriptions to Mobilize Investment SEWRC should embrace the EU s move to really implement the electricity market. Energy efficiency will not occur as long as electricity prices are artificially low and kill households economic incentives for energy efficiency. Focused targeting and direct income assistance should be provided to low-income families and replace the very inefficient universal scheme of price subsidies presently in place. In the next NAP, carbon credit allocation to renewable energy should be introduced. 15