Global trends in Renewables and the Chilean context

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1 Global trends in Renewables and the Chilean context Carlos Gascó Travesedo Senior Analyst International Energy Agency Santiago de Chile 3 September 2011 OECD/IEA 2011

2 Drivers for Renewables Deployment Energy Security Energy availability Energy affordability Sustainability and diversification Economic Development Green growth and Job creation Innovation and industrial development Rural development CO2 emissions reductions Other environmental benefits

3 Recent trends in Renewables Renewable electricity is growing younger brothers are growing faster

4 and moving East Top 10 wind cumulative capacity and markets 2010 Source: GWEC 2011

5 Investing in renewables Financing is growing steadily, most rapidly in Asia $bn Source: Bloomberg New Energy Finance, 2011

6 Renewables enter the mainstream Renewable primary energy demand in the New Policies Scenario OECD Pacific Africa India Brazil China United States European Union Mtoe The use of renewable energy triples between 2008 & 2035, driven by the power sector where their share in electricity supply rises from 19% in 2008 to 32% in 2035

7 TWh Renewable electricity is vital in all scenarios % RE share % RE share 23% RE share Scenario New Policies Scenario 0 Current Policies Scenario Global electricity from RE increases from TWh (2008) to TWh (2035) in the 450 Scenario

8 Gt The 450 Scenario: How do we get there now? World energy-related CO2 emission savings by country in the 450 Scenario relative to the New Policies Scenario Current Policies Scenario New Policies Scenario 42.6 Gt 7.1 Gt 35.4 Gt 13.7 Gt Share of cumulative abatement between Efficiency 50% Renewables 18% Biofuels 4% Nuclear 9% CCS 20% Scenario Gt Renewables are the second most important contributors to CO2 emissions reduction

9 Growing shares of renewables in all sectors, for all scenarios 50.00% 45.00% 40.00% 35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% 2008 CPS scenario 2035 NPS scenario scenario 2035 Electricity Heat Transport All scenarios point out a large growth of renewables

10 Renewable electricity in OECD 1.15 OECD power generation, 2007= Total Thermal Conventional generation is 300 Twh below Renewable OECD gas demand is 3% over pre-financial crisis levels but largely due to temperature effects 2

11 Principles of good policy design still hold Many OECD countries have entered new phase of RE policy which requires dynamic transformation Inception/ Onset Phase Take-Off/ Mass Deployment Phase Consolidation Phase Address non-economic barriers Predictable and transparent incentives Transitional decreasing over time Tailored to adapt to technology and market maturity Take system integration into account Deployment

12 Market Deployment The policy journey 4. Technology-neutral competition TGC, Carbon trading (e.g. EU ETS) Mature tech (e.g. hydro) 1. Development RD&D financing, capital cost support, investment tax credits, rebates, loan guarantees Low cost-gap (e.g. wind onshore) 3. Shared/imposed market risk, guaranteed minimum but declining support FIP, TGC (technology banding) High cost-gap (e.g. PV) 2. Stable, low-risk, sheltered FIT, FIP, Tenders Prototype & demo stage (e.g. 2 nd gen biofuels) Development Niche markets Mass market Time [Source: Adapted from IEA Deploying Renewables, 2008 ] IEA/OECD 2010

13 Policy effectiveness in 2007/2008 Efficiency and effectiveness: Wind onshore 10.00% 9.00% 8.00% Denmark* Germany Long-term predictable incentives (FIT or FIP) + Appropriate framework 7.00% Netherlands Italy 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% New Zealand India Sweden France Spain Czech Republic United Kingdom Higher risk (TGC) + Non-economic barriers Korea Austria Poland Note: All China remuneration levels Japan and generation costs normalised to 20 year support at 6.5% Remuneration [USD/MWh] discount rate. Source: Preliminary IEA analysis OECD/IEA 2011

14 New issues are emerging Unexpected PV growth raises policy cost concerns in several EU countries (Czech Rep., Spain, France, Germany, Italy) Accumulated global PV capacity MW 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Rest of the world Czech Republic USA Italy Japan Spain Germany Sources: IEA PVPS, BP Statistical Report, BNEF

15 Importance of var-re WEO 450 Scenario electricity projections EU 4% 15% 25% 29% 17% 32% 46% 51%

16 Flexibility is key There are 4 flexible resources Dispatchable power plants Demand side Response (via smart grid) Energy storage facilities Interconnection with adjacent markets Industrial A biomass-fired power plant residential A pumped hydro facility Scandinavian interconnections

17 Chile s Electricity System

18 Market Context Chile Series of energy crises 1998/1999 drought (worst in 40 years) in SIC 2004 onwards: Argentine gas restricted : Arg. gas cut + drought in SIC + outages 2010 Earthquake (refineries + SIC blackout) Market design High level of concentration Independent system operator needed Ancillary services market Separate grids SIC is hydro-, SING is thermal-dependent

19 Energy Security recommendations Continue to diversify energy sources, including the active development of indigenous energy sources i.e. renewable energy and energy efficiency Create an investment framework based on long-term cost benefit analysis including a carbon price and downward cost curve of certain technologies Review the effectiveness and coherence of emergency measures currently in place Move towards harmonizing Chilean emergency preparedness with international best practice

20 Renewables recommendations Give clear long-term signals to the market based on: Technical and economic assessment of renewable energy potential Evaluate the full socio-economic benefits of renewables Continuous monitoring and adjustment of policies including obligation targets and penalty for non compliance Facilitate access of new market entrants and realization of small-size projects Accelerate action to introduce emerging renewable technologies, e.g. by focusing on those which Chile has a competitive advantage

21 Conclusions Chilean Energy Sector, like counterparts around the globe, faces energy security and environmental sustainability challenges. How to incorporate these elements in market orthodoxy is a challenge. Part of the answers are in the deployment of its large renewables potential. Learning curves, both technological and regulatory, allow for harnessing at a reasonable cost.

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23 Links RE Publications Home > Publications > Search per Topic: Renewables RE Policy Database Contacts

24 Levelised cost of energy Q Recent levelised costs in $/MWh (averages) Costs depend on country, resource, source of financing, etc. Some renewables are already competitive Source: Bloomberg New Energy Finance, 2011