Efficient RES-E Support in Europe and its Impact on the Conventional Power Market

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1 Institute of Energy Economics at the University of Cologne Efficient RES-E Support in Europe and its Impact on the Conventional Power Market IAEE International Conference June 22nd, 2009 San Francisco Marco Nicolosi

2 Policy Overview RE Targets in Europe and Germany Renewable Share of Final Energy Consumption EU 8,3 % (2005) 20 % Target in 2020 G 5,8 % (2005) 18 % Target in 2020 Renewable Share of Electricity Consumption EU 14,5 % (2006) %? Target in 2020 G 12,0 % (2006) 30 % Target in 2020 Source: BMU (2008), COM (2008)

3 Policy Overview Development of RES-E Generation in EU-25 RES generation [TWh] Photovoltaics Geothermal Wind Biomass Hydro RES share of electricity consumption [%] 20% 15% 10% 5% RES share of electricity consumption [%] 0 0% Source: BMU (2008)

4 Policy Overview Status-Quo Main Promotion Systems in the EU-27 Tax incentives and other systems Feed-in tariff system Quota obligation system Bonus system Feed-in tariff system / Bonus system in 17 EU member states Quota obligation system in 7 EU member states Tax incentives and other systems in 3 EU member states Current European RES-E Policy: System Competition

5 Policy Overview Regional Differences in RES-E Efficiency in Europe Wind Onshore (2007) Photovoltaics (2007) Specific generation costs Wind Power [ /MWh] > < 55 Installed capacity Wind [MW] in Specific generation costs Photovoltaic Power [ /MWh] > , < 344 0,8 0,7 Installed capacity Photovoltaics [MW] in , ,5 0,4 0,3 0,2 0,1 0 A u s B elgb u l g 16 C yp C ze ch R e D e n m E s t F in l F ra Lithu L uxemb Germ Great B G re H u n g Ire It La M 16 Neth er N o r w P ol P ort R omslow Slow Sp S we Switzer Reihe1 Max. regional difference >100 /MWh Max. regional difference >150 /MWh

6 General Remarks Attributes of RES-E Support Systems price based support system (feed-in-tariffs) national support vs. vs. quantity based support system (quota) harmonized support technology-specific support vs. technology-neutral support

7 Scenario Definitions Business-as-usual (BAU) Extrapolation of current RES-E policies in all Member States Harmonized quota system EU-wide quota (not differentiated by technology or country) Cluster BAU-system, in which quota countries form a cluster

8 Model Coupling LORELEI and DIME LORELEI European RES-E Model Marginal Generation Costs Hourly RES-E Feed-in Profiles DIME Competitive European Power Market Model

9 Methodology: The LORELEI Model Linear Optimisation Model for Renewable Electricity Integration in Europe Input Available areas Short run RES-E expansion barriers Social, technical, political barriers Feed-in profiles Marginal generation costs from DIME-Model LORELEI model Linear optimisation problem Output RES-E generation Installed capacities Variable and fixed costs Promotion payments Existing RES-E capacities Economical parameters of current and prospective RES-E capacities Technical parameters of current and prospective RES-E capacities Feed-in tariffs (for feed-in tariff system / premium system) Quota obligation (for quota system) Certificate price, weighted average feed-in tariff

10 Methodology: The DIME Model Dispatch and Investment Model for Electricity Markets in Europe Fuel prices Input Total demand Residual demand Exogenous Generation Political restrictions Existing generation capacities Technical properties of technologies Economical properties of technologies Existing transmission capacities Transmission loss Demand DIME Linear optimization problem for competitive markets Supply Output Commissioning and retirement of capacities by technology Installed capacities Annual generation structure Plant dispatch by load level Physical exchange Marginal generation costs Fixed and variable generation costs Fuel consumption Carbon emissions

11 Qualitative Results Harmonization Gains and Green Certificate Transfers Substantial harmonization gains Transfer TGC Transfer Green certificate transfer EU 15 are net TGC importers EU 10+2 are net TGC exporters Fair effort sharing depends on RES-E targets and on distribution between sectors Business-as-usual scenario Technology specific support leads to more diversified RES-E Mix Regular amendment of tariffs is important Impact on conventional power market needs to be taken into account

12 Qualitative Results Conventional Power Market Efficient RES-E deployment does not neccessarily result in an efficient power market! The electricity markets need to increase flexibility through enhancements of transmission capacities, power storages, demand-side management and disconnection of wind mills. Integration challenges increase with more ambitious targets, especially in critical regions in a harmonized system. Therefore harmonization gains need to be leveled against these additional costs. Baseload share becomes reduced due to increase of intermitting RES-E, which also require sufficient back-up capacities. An ambitous RES-E target needs to consider the different reaction time of an adequate system (capacity and grid). Long-term planning security is not only important for the supported RES-E part of the power system. A well adapted system is crucial to receive a reliable system on top of a clean system.

13 Thank you for your attention! For further information please visit: or contact Marco Nicolosi marco.nicolosi(at)uni-koeln.de