PROMOTING RENEWABLE ELECTRICITY INVESTMENTS EFFECTIVELY Reinhard HAAS

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1 PROMOTING RENEWABLE ELECTRICITY INVESTMENTS EFFECTIVELY Reinhard HAAS Institute of Power Systems and Energy Economics, Vienna University of Technology PARIS, 25 March 2003

2 SURVEY 1 Introduction, Historical milestones 2 The relevance of RES in the IEA scenarios 3 Survey on strategies 4 The models ELGREEN & GREEN-X 5 Feed-in tariffs 6 Quota-based TGCs 7 Green Power Marketing 8 International trade 9 Conclusions

3 1 INTRODUCTION CORE MOTIVATION: Policy targets for an INCREASE of RES-E! (e.g. RES-E directive of the EC to increase the share of RES-E from 6% to 12% until 2010)

4 HISTORICAL MILESTONES Rebates for wind in Denmark 1989 First large PV rebate program (DE) 1991 Label Bra Miljoval for Green Electr. in SE Tax incent. for Wind in Denmark 1991/3 Green Pricing (CH/D/NL/USA) 1996 Solar Stock exchange (Zürich) 1999 Voluntary tradable Green certificates (NL) 1999 German 100,000 PV roofs programme 1999 Spanish Feed-in tariffs (Decreto Royal) 2000 New German Einspeisegesetz

5 2 THE SHARE OF RES IN THE 2030: RES 18% IEA WEO 2000: RES 19% Reference Hydro Other RES Hydro Other RES Total Consumption: 31,500 TWh 2030: RES 21% Total Consumption: 15,400 TWh Alternative Hydro Other RES Total Consumption: 30,300 TWh

6 INVESTMENTS BY REGION AND TECHNOLOGY Middle East Africa Rest of Latin America Mexico Rest of South Asia Rest of East Asia Rest of TE Rest of Annex B South Korea Other Europe Brazil India Indonesia China Russia Other Pacific North America EU-15 Hydro Wind onshore Wind offshore Geothermal Bioenergy PV Solar Thermal Tide&Wave Investment needs (cumulative) [Billion US$]

7 CAPAPCITIES BY REGION Installed capacity (cumulative) [GW] Middle East Africa Rest of Latin America Mexico Rest of South Asia Rest of East Asia Rest of TE Rest of Annex B South Korea Other Europe Brazil India Indonesia China Russia Other Pacific North America EU-15 Year [a]

8 INVESTMENTS WITH AND WITHOUT LEARNING Annual installations [GW] Annual installations Annual investments Annual investments - no 'learning' Investments [Mill. US$]

9 3 SURVEY ON STRATEGIES REGULATORY RPS Quota-based TGCs feed-in tariffs, rate-based incentives Net metering Capacitydriven Generation-based strategies Investment focused Bidding/Tendering Generation-based Pricedriven Rebates strategies Investment focused Soft loans Tax incentives Other VOLUNTARY National generation targets National installation or capacity targets Green Power Marketing Green tariffs Solar stock exchange Contracting Shareholder progr. Contribution Bidding NGO-marketing Selling green buildings Retailer progr. Financing Public building prog.

10 REQUIREMENTS TO STRATEGIES Major objective: increase the amount of electricity from Renewables! Derived requirements: effectiveness economic efficiency minimise costs to public increase social acceptance

11 STATIC COST CURVES EURO/ predicted Uncertainty EURO/ predicted Uncertainty Continuous Stepped

12 4 THE PROJECTS ELGREEN & GREEN-X Choice of model Top Down Bottom Up Choice of technologies - Biomass - Hydro - Photovoltaic - Wind -... Select policies by technology Tradeable Certificates Feed-In-Tariffs Rebates... Choice of countries - Austria - Belgium - Denmark - Finland -... Choice of technologies by country - Biomass - Hydro - Photovoltaic - Wind -... Select policies by technology and country Tradeable Certificates Feed-In-Tariffs Rebates... Background Data - Cost-curves per technology and country - Potentials - Country Data Calculation - Production of RES-E - Share of RES-E - Expansion of RES-E Results - Table by country - Table by technology - Cost curves

13 5 FEED-IN TARIFFS EURO/ P Fix Costs +: Q Out? effective Flexible, fast and easy to change : Subsidies No competition

14 SUCCESS CRITERIA FOR FIT s p F80 p F100 p F150 1 Use a stepped FIT prices, costs [EURO/MWh] marginal generation costs guaranteed feed-in tariff 2 Decrease over time producer surplus (profit) gain for public / consumer due to stepped feed-in tariff 3 Limited higher efficiency expected producer surplus [EURO/MWh] reference plant (100% efficiency) lower efficiency efficiency indicator (e.g. for wind turbines: - electricity generation by installed kw) time frame Electricity generation compared to reference plant (efficiency) efficiency indicator (e.g. for wind turbines: - electricity generation by installed kw)

15 6 QUOTA-BASED TGC EURO/ P Var? +: Costs competitive market compatible QUOTA : Effectiveness? Credibility Predictability? So far no successful example!

16 SUCCESS CRITERIA FOR QUOTA-BASED TGC s EURO/ 1 Penalty >> MC 2 Equilibrium short-term/ P qu Market price Marginal Costs Q Qu long-term market 3 Long-term Planning horizon

17 QUOTA: EXISTING VS NEW CAPACITY Market clearing price = price of certificate Windfall profits Quota [ cent/] PS Total Quota PS Quota Existing capacity Total Quota New capacity [GWh/year]

18 Feed-in tariffs Bidding COMPARISON: FIT VS MARKET-BASED W/capita in Denmark Germany Spain Ireland UK France

19 7 GREEN POWER MARKETING EURO/ Costs WTP Q Out

20 DIFFERENT APPROACHES OF GREEN POWER MARKETING 1 Green tariffs by incumbent utilities 2 Solar stock exchanges by incumbent utilities 3 Voluntary capacity-based programmes by incumbent utilities 4 G P M by (new) Green utilities

21 DEMAND / SUPPLY WITHOUT A NEW RES LABEL D(t 3 ) EURO/ p(t 3 ) p(t 2 ) p(t 1 ) D(t 1 ) D(t 2 ) S RES =MC p M q(t 1 ) q(t 2 ) q(t 3 )

22 DEMAND WITHOUT A NEW RES LABEL OVER TIME Total electricity demand D Total New non-renewable electricity S RES (t 0 ) New renewable electricity D Green q(t 1 ) q(t 2 ) q(t 3 ) t 0 time t 1 t 2 t 3

23 SHARE OF COSTS AND CAPA- CITY IN A NEW RES LABEL New capacities Existing capacities New capacities Existing capacities Capacity mix Cost mix

24 DEMAND / SUPPLY WITH A NEW RES LABEL D(t 3 ) EURO/ D(t 1 ) D(t 2 ) S RES =MC p(t 3 ) p(t 2 ) p(t 1 ) S RES =AC p M q Ex (t 1 ) q(t 1 ) q New (t 1 ) Shares in a label to meet q(t 1 )

25 DEMAND WITH A NEW RES LABEL OVER TIME Total electricity demand D Total New non-renewable electricity New renewable electricity S RES (t) q New (t 1 ) q New (t 2 ) S RES (t 0 ) D Green q Ex (t 1 ) q Ex (t 2 ) t 0 t 1 t 2 time

26 PRICE FOR GREEN ELECTRICITY WITH/WITHOUT A NEW RES LABEL OVER TIME EURO/ P GP_No_Label = MC RES p(t 3 ) p(t 2 ) P GP_Label = AC RES_Label p(t 1 ) p M t 0 t 1 t time 2 t 3

27 QUANTITIY OF NEW GREEN CAPACITY WITH/WITHOUT A NEW RES LABEL OVER TIME S RES_Label S RES_Np_Label D GE_No_Label D GE_Label t 0 time t 1 t 2 t 3

28 8 PERSPECTIVES FOR INTERNATIONAL TRADE Two major problems: different promotion systems in different countries harmonising different existing systems

29 EURO/ Different promotion systems in different countries (1) Country A Penalty > MC quota_a P CERT_A = MC A S A_New q A_Ex q A_New= quota_a

30 Different promotion systems in different countries (2) EURO/ Country B S B_NEW P FIT q B_Ex q B_New = f(p )

31 EURO/ Different promotion systems in different countries (3) Country C S A_New + S B_New + S C_New WTP C S A_Ex + S B_Ex + S C_Ex P GP q C_GP q A_Ex + q B_Ex + q C_Ex Result: q C_New = 0!

32 Problem: harmonising different existing systems (1) EURO/ Country X: National quota S X P CERT_X = MC X quota_x

33 Problem: harmonising different existing systems (2) Country Y: National quota EURO/ P CERT_Y = MC Y S Y quota_y

34 Problem: harmonising different existing systems (3) EURO/ Country X+Y: Change to a common quota P CERT_Y Country Y: price drops P CERT_X+Y = MC X+Y P CERT_X Country X: price increases S X+Y quota_x quota_y

35 Capacity (kwp) 9 CONCLUSIONS (I) Reduce (Monetary and transaction) Costs Demand INCREASE WTP (acceptance, reliability...)

36 9 CONCLUSIONS (II) CAREFUL DESIGN OF THE STRATEGIES! FOCUS ON NEW CAPACITIES! MINIMUM REQUIREMENTS FOR LABELS! CREDIBILITY OF THE SYSTEM ACCOMPANYING SOCIAL ACCEPTANCE ACTIVITIES OF HIGH RELEVANCE! INTERNATIONAL G P M: FOCUS ON EITHER RECIPROCITY OR NEW CAPACITIES!

SEVILLA, 21st March2007

SEVILLA, 21st March2007 ON MODELING THE FUTURE OF RENEWABLE ENERGY SOURCES IN EUROPE FROM A TECHNO INSTITUTIONAL PERSPECTIVE Reinhard Haas, Gustav Resch, Thomas Faber Energy Economics Group, Vienna University of Technology SEVILLA,