October 30, 2015 VŠE Ondřej STRECKER ČEZ, a.s.

Transcription

1 CLIMATE AND ECONOMY: TURNING PROBLEMS INTO OPPORTUNITIES October 30, 2015 VŠE Ondřej STRECKER ČEZ, a.s.

2 AGENDA Emission trading as an efficient decarbonization tool EU ETS has a huge potential to drive decarbonization in the power sector What went wrong? Lesson learned: scarcity of allowances in the EU ETS is crucial 1

3 EMISSION TRADING SEEMS TO BE THE CHEAPEST DECARBONIZATION INSTRUMENT Estimated effective carbon prices by decarbonization instrument 2010 EUR/t, electricity sector OECD analysis confirms the theoretical hypothesis: market tools (emission trading, carbon tax) are the most efficient policy instruments of decarbonization However, other mentioned instruments can serve different objectives (i.e. security of supply in case of feed-in tariffs) 2 Source: OECD (2013)

4 CARBON TAX COULD INTERNALIZE NEGATIVE EXTERNALITIES OF CO2 EMISSIONS BUT ITS IMPLEMENTATION WOULD BE COMPLICATED Good predictability Enables achievement of ideal volume of emission savings with respect to their costs (IMF estimates climate change costs to 25USD/t CO2) This instrument cannot guarantee achievement of quantitatively defined targets and it is not efficient CO2 savings are dependent on the mutual price relations between coal and gas the same tax rate of i.e. 15 EUR/t can be too high if gas is cheap or insufficient if gas is expensive Taxes are still the domain of Member States (even if in some cases EU can fix the minimal rate) danger of market fragmentation in case of different tax rates Predictability depends on the commitment of the political representation to keep the tax rate stable Problem of inflation 3

5 AGENDA Emission trading as an efficient decarbonization tool EU ETS has a huge potential to drive decarbonization in the power sector What went wrong? Lesson learned: scarcity of allowances in the EU ETS is crucial 4

6 CO2 CONTENT OF MWH PRODUCED FROM GAS IS LESS THAN HALF COMPARED WITH COAL CO2 content of different fossil fuels kg/gj of heat, kg/mwh of produced electricity kg/gj kg/mwh Carbon content of gas per unit of heat is lower compared to solid fuels 56 Moreover, gas plants are more efficient than coal plants 367 Carbon content of electricity produced from gas is less than half when compared with coal Lignite* Hard coal** Gas*** *Efficiency 35% **Efficiency 40% ***Efficiency 55% 5

7 HIGHER CO2 PRICE THEREFORE PRESENTS A COMPARATIVE ADVANTAGE FOR LOW EMISSION SOURCES Marginal costs of power generation without CO2 Marginal costs of power generation taking CO2 into account ILLUSTRATIVE EUR/ MWh EUR/ MWh Cost of gas as a fuel is generally higher compared with coal Lower CO2 costs of gas plants can neutralize the inconvenience of higher fuel 6 Source: PointCarbon

8 POWER SECTOR IS QUITE SENSIBLE TO THESE MARKET SIGNALS AND IT INVESTED A LOT OF MONEY IN NEW EFFICIENT GAS PLANTS Gas plants comissioned after 2005 E.ON, RWE, Statkraft, Vattenfall, EnBW, GDF Suez, Centrica, SSE, Verbund, CEZ RDK, 365MW, 2008 SPEM, 435MW, 2011 Magnum, 1300MW, 2013 Moerdijk, Herdecke, 430MW, 2012 Weisweiler, 417MW, 2007 Knapsack, 544MW, 2007 Pt.-sur-Sambre, 1230MW, MW, 2009 Počerady, 840MW, 2013 Toul, Irsching, 970MW, Malženice, 422MW, MW, 2011 Tavazanno, 300MW, 2005 Mellach, 832MW, 2011 Expectations of high carbon prices motivated the European utilities to invest into low emission sources ČEZ also commissioned its CCGT project in 2013 (Počerady) Moreover, ČEZ has invested 100 bln CZK in coal plants retrofits (Ledvice, Počerady, Prunéřov, Tušimice) in order to decrease the CO2 intensity of the production 7 Source: Oxford University (2014) Combigolfe, Cycofos, 435MW, 490MW,

9 AGENDA Emission trading as an efficient decarbonization tool EU ETS has a huge potential to drive decarbonization in the power sector What went wrong? Lesson learned: scarcity of allowances in the EU ETS is crucial 8

10 CO2 PRICES COLLAPSED BECAUSE OF THE MASSIVE OVERSUPPLY OF ALLOWANCES ON THE MARKET CO2 allowances price projections in 2008 and today s reality EUR/t Projections 06/2008 History Current projections (09/2015) Economic crisis, deployment of renewables and energy efficiency achievements resulted in the falling demand side Supply side of the EU ETS remained completely fixed Huge oversupply (equivalent of more than one year consumption of EU ETS sectors) has accumulated as a consequence Source: EEX, important European bank, important EU ETS analyst

11 LACK OF ECONOMIC INCENTIVES HAS TRANSFORMED THE NEWLY BUILT CLEAN SOURCES INTO WASTED POTENTIAL TO SAVE EMISSIONS Less than 10years old CCGT plants mothballed in E.ON, RWE, Statkraft, Vattenfall, EnBW, GDF Suez, Centrica, SSE, Verbund, CEZ Brand new CCGT plants are being mothballed almost everywhere in the CWE (at least 10GW with investment costs of more than 8bln EUR!) European potential to decarbonize is not being used Emissions decrease because of weak economy and RES support, and not because of economic incentives to generate in clean sources Today, it is far more profitable to generate in CO2-intensive lignite and hard coal sources 10 Source: Oxford University (2014), Reuters, BMWI

12 AGENDA Emission trading as an efficient decarbonization tool EU ETS has a huge potential to drive decarbonization in the power sector What went wrong? Lesson learned: scarcity of allowances in the EU ETS is crucial 11

13 IF THE LONG TERM SUPPLY OF ALLOWANCES IS HIGHER THAN BAU EMISSIONS, THERE IS NO MOTIVATION TO SAVE EMISSIONS AND THEREFORE NO PRICE OF EUA Is there a demand for additional CO 2 savings on the market? NO 0 EUR/t YES SWITCHING coal gas RES construction EUR/t EUR/t The EU ETS reform (MSR: market stability reserve) will gradually withdraw the current oversupply from the market Supply of allowances will decrease faster than today (from 38Mt today to 48Mt after 2020) However, demand for allowances will also decrease faster than projected because of ambitious RES and EE targets 12

14 ANNUAL PROJECTED SUPPLY OF ALLOWANCES WOULD BE ALMOST SUFFICIENT TO COVER THE DEMAND EVEN WITH LESS AMBITIOUS CLIMATE TARGETS EU ETS supply demand and surplus in the GHG40 scenario Mt -450Mt Supply is almost equal to demand 40% GHG scenario 2030 targets GHG 40% 40% RES 26.5% 27.0% RES in electricity 47.3% 48.2% EE 25.1% 27.0% More ambitious RES and EE targets bring 539Mt of additional CO2 savings in the power sector only (there will be some more savings also in the industrial sector) EU ETS will be structurally oversupplied (supply is higher than demand in the long term) 13 Source: EC 2030 Impact Assessment, p. 106, 138 and 139

15 MSR WILL WITHDRAW THE CURRENT OVERSUPPLY FROM THE MARKET, BUT IT CANNOT GUARANTEE THE SCARCITY OF ALLOWANCES Principle of the Market stability reserve 14 Source: EC

16 RES AND EE POLICIES ALONE CANNOT CREATE BASE FOR LONG-TERM DECARBONIZATION, WE STILL NEED A WORKING EU ETS 0,54 0,53 0,52 0,51 0,50 0,49 0,48 German power generation intensity and RES generation t/mwh (left axis) and TWh (right axis) 93,2 94,9 104,8 123,8 143,8 152,4 160, RES generation emission savings lower pressure on the EUA price No further incentives to invest or even to generate in other lowcarbon sources The ambitious long term EU decarbonization targets cannot be reached solely with RES Other sectors need to decarbonize too Intermittent RES generation needs back-up (gas, CCS,...) 0, * RES generation (right axis) 0 Decarbonization incentives are still needed Carbon intensity of power generation (left axis) * Preliminary numbers 15 Source: Oxford University (2014), AG Energiebilanzen, Agora Energiewende

17 Current EU ETS cap MITIGATION: DECREASE THE ANNUAL EU ETS CAP BY THE EMISSIONS SAVED DUE TO THE RES SUPPORT IN THE PREVIOUS YEAR EU ETS cap adjustment RES production in previous year Average emission factor of conventional generation in previous year EU ETS cap based on the linear reduction factor and effect of the RES support (illustrative) Non-market RES generation is withdrawn from the EU ETS Every year, EUA auctions are automatically decreased by the emission volumes saved by RES generation in previous year Adjustment separates emission savings realized thanks to the RES support and emission savings to be achieved via EU ETS Decarbonization achieved by RES support Decarbonization left to EU ETS EU ETS is more stable and predictable as it does not depend on external, non-market tools 16