SEVILLA, 21st March2007

Transcription

1 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, 21st March2007

2 SURVEY 1. Introduction 2. Political-Institutional background 3. Current state and potentials 4. Method of approach: Cost curves 5. The issue of transfer costs 6. The model GREEN-X 7. Some results from GREEN-X 8. Success of promotion strategies 9. Competitive markets? 10. Conclusions

3 Associated benefits of RES beyond power production: reduced energy import dependence and provision of a more diversified resource base; increases in local employment and income; hedge against volatile fossil fuel prices as well as avoided risks of disruption in fossil fuel supply; the potential to greatly reduce, and perhaps eventually eliminate pollution and greenhouse gas emissions associated with current electricity generation.

4 1 INTRODUCTION CORE MOTIVATION: Policy targets for an INCREASE of RES-E! (e.g. currently discussed targets of 20% for 2020)

5 2 THE POLITICAL INSTITUTIONAL BACKGROUND

6 What is the problem? SURVEY ON INSTRUMENTS TO PROMOTE ELECTRICITY FROM RENEWABLES 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.

7 What is the problem? Which instrument fits best? Should an ambitious RES-E target be met in the short and long-term? Should it reflect the external costs? Should RES-E technologies be promoted on broad scale? Should the system be implemented on a national or international level? Source: GREEN-X Answer depends on POLICY OBJECTIVE Is international burden sharing for consumer an important goal? Should it be compatible with the conventional electricity market? How should the premium costs / burden for consumer be distributed over time?

8 MAJOR PROBLEM: Correct design of policy with respect to: renewable targets Financial incentives Credibility for investors Consideration of external costs?

9 3. THE CURRENT SITUATION OF RENEWABLES IN EUROPE

10 PJ PRIMARY ENERGY FROM RES 6,0% 5,0% 4,0% % 3,0% 2,0% 1,0% 0 EU 15 EU 15 EU Biomass Hydro Wind 0,0% Solar Geothermal Percent RES in PE

11 TOTAL ELECTRICITY GENERATION FROM RENEWABLES IN EUROPE 2005: 13.6% 1997: 12.9% Large-scale hydro Small-scale hydro New' RES-E excl. hydro TWh/yr

12 ELECTRICITY GENERATION FROM NEW RENEWABLES IN EUROPE 2005: 4.5 % TWh/yr : 1.4 % Biogas Solid biomass Biowaste Geothermal electricity Photovoltaics Wind on-shore Wind off-shore

13 PRIMARY ENERGY POTENTIAL 2020 Primärenergie [Mtoe] EE - Ausbau 2004 (Erzeugungspotential) EE - realisierbares Potenzial 2020 EE-Strom, gesamt - ohne Biomasse EE-Wärme, gesamt - ohne Biomasse Biomasse (inländisch) Biomasseimporte

14 POTENTIALS CURRENT AND Additional potential 2020 Achieved potential AT BE DK FI FR DE GR IE IT LU NL PT ES SE UK RES-E - Electricity generation potential [TWh/yr.] Biogas (Solid) Biomass Biowaste Geothermal electricity Hydro large-scale Hydro small-scale Photovoltaics Solar thermal electricity Tide & Wave Wind onshore Wind offshore by country (left) by technology (right)

15 GENERATION COSTS BY TECHNOLOGY Wind offshore Wind onshore Tide & Wave Solar thermal electricity Photovoltaics Hydro small-scale Hydro large-scale Geothermal electricity Biowaste (Solid) Biomass (Solid) Biomass co-firing Biogas Current market price cost range (LRMC) PV: 430 to 1640 /MWh Costs of electricity (LRMC - Payback time: 15 years) [ /MWh]

16 4. METHOD OF APPROACH: STATIC COST RESOURCE CURVES EURO/ kwh predicted Uncertainty more expensive capacities cheapest capacities kwh

17 Static cost-resource curves Combines information on the potential and the according costs (of electricity for a specific energy source). For limited resources (as RES-E) costs rise with increased utilization. All costs/potentials-bands are sorted in a least cost way costs = f (potential); t = constant continuous function costs costs stepped (discrete) function band 1 band 2 band 3 potential potential every location is slightly different Practical approach: Sites with similar characteristics described by one band

18 Dynamic cost-resource curves Potentials Costs of electricity by RES-E technology (by band) by RES-E technology (by band) by country by country DYNAMIC COST-RESOURCE CURVES by RES-E technology by country by year costs Dynamic aspects Costs: Dynamic cost assessment (technological change) Potentials: Dynamic restrictions (technology diffusion) potential

19 (7) Results Reduction of investment cost within the BAU-scenario due to technological learning Resulting cost reduction for RES-E technologies BAU scenario Cost reduction - share of initial investment costs (as in the year 2005) [%] 100% 95% 90% 85% 80% 75% 70% 65% 60% 55% 50% Hydropower Geothermal electricity Solid biomass - cofiring & large-scale plant Solid biomass - smallscale CHP Gaseous biomass Gaseous biomass CHP Wind energy Tidal & wave Solar thermal electricity Photovoltaics

20 5. THE ISSUE OF TRANSFER COSTS AND EXTERNALITIES All regulatory promotion schemes (Quota-based TGC systems, tendering systems, Feed-in tariffs) create an artificial market and cause transfer costs (additional costs)

21 It is important to minimize these additional transfer costs. Why? These additional costs have finally to be paid by the electricity customers (regardless which promotion scheme is chosen)

22 Price, costs [Euro/MWh] price of certificate Method of approach (EU-project GREEN-X) Minimise additional costs for consumers = Producer Surplus + Generation costs - Revenues electricity market p MC p ele ( - Avoided External costs)? Producer surplus (PS) Producer surplus (PS) Avoided External costs Generation Costs (GC) MC (Static cost curve) MC... marginal generation costs pele... market price for (conventional) electricity pmc... Marginal price for green electricity (due to quota obligation) Quota Q Quantity kwh)

23 3 Transfer costs vs avoided costs Example: Promotion of wind in Germany Billion EUR/yr Transfer costs EEG Avoided external costs Source: Krewitt/Schlomann: Externe Kosten (( 2006)

24 The lower the additional costs (=transfer costs) are which have finally to be paid by electricity customers the higher will be public acceptance the larger will be the amount of additional electricity generated from RES.

25 An example from the conventional electricity market: in several countries (e.g. Germany, Belgium) customers are fed up with the high profits the large incumbent utilities make in the free market they request a re-regulation regulation of electricity prices!

26 IMPACT OF THE SHAPE OF THE COST CURVE [cent/kwh] Producer Surplus P Zert Biomass Wind Loc. B Small Hydro Wind Loc. A Costs Quota [GWh/year]

27 IMPACT OF THE SHAPE OF THE COST CURVE [cent/kwh] Producer Surplus Small Hydro Biomass pure P Zert Wind Costs Munic. waste Biomass cofiring Quota [GWh/year]

28 EU-Project Green DG Research Web: 6. The simulation tool Green-X Green-X Base input information Country selection Technology selection Power generation (Access Database) Electricity demand reduction (Access Database) The toolbox Green-X Economic market and policy assessment potential, costs, offer prices Simulation of market interactions RES-E, CHP, DSM power market Scenario Information Policy strategies selection Social behaviour Investor/consumer Externalities General framework conditions (Access Database) Results Costs and Benefits on a yearly basis ( )

29 GREEN-X allows to simulate various policy strategies for the promotion of electricity from RES in a dynamic framework on a national or international level (considering DS-effects) (Current: EU-25, future: EU 39???)

30 Simulation model for energy policy instruments in the Base European input electricity information Country selection Technology selection Power generation (Access Database) Electricity demand reduction (Access Database) Economic market and policy assessment potential, costs, offer prices Simulation of market interactions RES-E, CHP, DSM power market, EUAs Scenario Information Policy strategies selection Social behaviour Investor/consumer Externalities Framework Conditions (Access Database) Results Costs and Benefits on a yearly basis ( )

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39 Example IRELAND Static cost-resource curve for all RES-E (achieved potential up to 2005 and the additional mid-term potential) Existing plant - SRMC Existing plant - LRMC New plant - SRMC New plant - LRMC Costs of electricity [ /MWh] Potential [GWh/year]

40 Example AUSTRIA Static cost-resource curve for all RES-E (achieved potential up to 2005 and the additional mid-term potential) Existing plant - SRMC Existing plant - LRMC New plant - SRMC New plant - LRMC Costs of electricity [ /MWh] Potential [GWh/year]

41 THE POLICY TRACK ELGREEN GREEN-X theoretical modeling TRACK: FORRES GREEN-NET empirical application OPTRES PROG-RES FUTURE

42 7. SOME RESULTS OF GREEN-X: CASE STUDY 2020 Total current electricity consumption: 3200 TWh RES-E deployment [%] 35% 30% 25% 20% 15% Historical development (improved national Indicative RES-E Target (2010) & harmonised Introduction of harmonised policies (2015) policies) BAU-forecast Strengthened national policies Technology-specific harmonised FIT scheme Non technology-specific harmonised TGC system 1156 TWh 951 TWh (BAU) Investigated cases: 0% NO HARMONISATION HARMONISATION IN 2015 Business-as-usual (BAU) Continuation of current national policies up to 2020 Improved national policies Efficient & effective national policies Technologyspecific support Feed-in tariffs - harmonised Non technologyspecific support Quota obligation based on TGCs - harmonised

43 (7) Case study - Results Total electricity generation from RES (EU25) from RES (EU25) as share of gross electricity demand BAU scenario RES-E deployment - in relative terms (share on gross electricity demand) [%] 29% 27% 25% 23% 21% 19% 17% 15% 18,2% how far will we come with current RES policies? 27,0% 23,6% 22,9% BAU with accompanying DSM BAU with low energy prices BAU - continuation of current national RES-E policies the impact of an active DSM policy and conventional energy prices

44 (7) Results Total electricity generation from RES (EU25) BAU scenario from RES (EU25) Improved national policies scenario 1200 Wind offshore 1200 RES-E - electricity generation [TWh/year] Wind onshore Tide & wave Solar thermal electricity Photovoltaics Hydro small-scale Hydro large-scale Geothermal electricity Biowaste Solid biomass Biogas Total stock (end of 2004) both cases based on purely national support schemes

45 (7) Results Breakdown of electricity generation from new RES-E plant (installed in the period 2005 to 2020) on EU-25 level BAU scenario Improved national policies scenario Breakdown of electricity generation by 2020 from new RES-E plant (installed 2005 to 2020) Breakdown of electricity generation by 2020 from new RES-E plant (installed 2005 to 2020) Wind offshore 9,7% Biogas 7,6% Solid biomass 22,7% Biowaste 3,8% Wind offshore 22,8% Biogas 8,7% Solid biomass 22,7% Biowaste 2,7% Total: 520TWh/year Geothermal electricity 0,2% Total: 725 TWh/year Geothermal electricity 0,3% Wind onshore 42,0% Tide & wave 1,4% Solar thermal electricity 2,8% Hydro largescale 5,9% Hydro smallscale 1,8% Photovoltaics 2,2% Wind onshore 31,5% Tide & wave 1,5% Solar thermal electricity 0,8% Hydro largescale 4,4% Hydro smallscale 2,3% Photovoltaics 2,2%

46 (7) Results Breakdown of investment needs for new RES-E plant (installed in the period 2005 to 2020) on EU-25 level BAU scenario Breakdown of cumulative investment needs for new RES-E plant (installed 2005 to 2020) Improved national policies scenario Breakdown of cumulative investment needs for new RES-E plant (installed 2005 to 2020) Wind offshore 9,4% Biogas 6,1% Solid biomass 12,7% Biowaste 5,6% Geothermal electricity 0,2% Wind offshore 22,5% Biogas 7,6% Solid biomass 11,8% Biowaste 4,1% Geothermal electricity 0,2% Wind onshore 35,3% Total: 234 Bill. Hydro largescale 4,9% Hydro smallscale 1,4% Wind onshore 26,5% Total: 330 Bill. Hydro largescale 3,7% Hydro smallscale 2,3% Tide & wave 1,4% Solar thermal electricity 4,4% Photovoltaics 18,5% Tide & wave 1,6% Solar thermal electricity 1,0% Photovoltaics 18,6%

47 (7) Results Reduction of investment cost within the BAU-scenario due to technological learning Resulting cost reduction for RES-E technologies BAU scenario Cost reduction - share of initial investment costs (as in the year 2005) [%] 100% 95% 90% 85% 80% 75% 70% 65% 60% 55% 50% Hydropower Geothermal electricity Solid biomass - cofiring & large-scale plant Solid biomass - smallscale CHP Gaseous biomass Gaseous biomass CHP Wind energy Tidal & wave Solar thermal electricity Photovoltaics

48 (7) Results Transfer costs for consumer (due to the promotion of RES-E) Unit: M /year or /MWh DEMAND Transfer costs for consumer / society (sometimes also called additional / premium costs for consumer / society) are defined as direct premium financial transfer costs from the consumer to the producer due to the RES-E policy compared to the case that consumers would purchase conventional electricity from the power market. Improved national policies versus BAU Yearly transfer cost for society due to RES policy (premium per MWh gross demand) [ /MWh DEM] Improved national policies BAU - continuation of current national RES-E policies

49 8. PERFORMANCE OF STRATEGIES: AN EMPIRICAL ANALYSIS

50 REQUIREMENTS TO SUCCESSFUL STRATEGIES Costs (EUR/ kw) (=efficiency) Major objectives: increase the amount of electricity from renewables and MW /Number of plants (=effectiveness) reduce costs!

51 HOW FEED-IN TARIFFS WORK EURO/ kwh Costs P Fix kwh Q Out?

52 HOW QUOTA-BASED TRADABLE GREEN CERTIFICATES WORK EURO/ kwh Costs P Zert? kwh QUOTA

53 LESSONS LEARNED: COMPARISON OF STRATEGIES kwh_new/capita/yr Effectiveness: SE BE UK IT ES DE AT Costs: 0 AT DE ES IT UK BE SE ( ) c/kwh

54 EFFECTIVENESS 12 IT VS COSTS Effectiveness vs Costs BE Costs (c/kwh) 10 Tradable certificates _ UK AT DE Feed-in tariffs ES 2 + SE ( ) kwh/cap/yr

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

56 MAJOR PITFALL OF FITs: The example of wind revenues, costs revenues costs Profits increase! time

57 DYNAMICS: electricity prices, RES-E-costs RES-E-costs conventional electricity prices Support must decrease! time

58 SUCCESS CRITERIA FOR QUOTA-BASED TGC s EURO/ kwh 1 Penalty >> MC 2 Ensure longterm planning horizon! P qu 3 Focus on Market price kwh Marginal Costs Q Qu new plants 4 Allow banking

59 MAJOR PITFALLS FOR QUOTA-BASED TGC s 1 Market to small: e.g. in a small country for one technology with very limited potential -> Non-Liquid because every single plant is known (e.g Flanders (BE)) 2 Penalty is to low (e.g. UK) 3 Short planning horizon (e.g. UK 2003, Italy) 4 The problem of windfall profits for (existing) capacities (e.g Flanders (BE), Sweden)

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

61 Costs of promoted kwh vs costs of new kwh Costs of promoted RES-E versus costs of "new" RES-E SE BE UK IT ES DE Costs of promoted RES-E (all plants) Costs of promoted RES-E (new installed plants) AT [ Cent/kWh]

62 9. COMPETITION? conventional electricity market: To maximize profits utilities merge to avoid competition hard to imagine that a European-wide TGC market will work disconnected from these large incumbents TGC markets: Why should competition work if it does not in the conventional electricity market? Utilities/generators are in favour of TGC because they can make much more money and control the market, the construction of new plants much better

63 9. COMPETITION? Competition among manufacturers exist Most important argument for TGCs: it is assumed that they foster competition between generators Objective of competition -> competitive prices competitive prices: Prices = marginal costs (of generation) Currently (except Sweden): certificate prices > average feed-in-tariffs No indicator for real competition in many TGC markets!

64 10. CONCLUSIONS (1) Careful design of a strategies: by far the most important success criteria! There should be a clear focus on NEW capacities! Ensure credibility of the system! Avoid stopand-go approaches IMPROVE THE CURRENT To ensure significant RES-E deployment in the long-term, it is SYSTEMS! essential to promote a broad portfolio of different technologies For FIT: Consider learning by a dynamic component!

65 10. CONCLUSIONS (2) Instead of harmonisation: Stimulate/Foster competition between promotion schemes/between countries: Which system/where provides new RES-E capacities at lowest costs for society? Exchange of lessons learned: Improvement of strategy design must build on learning from each other: e.g. Feed-in-cooperation DE and ES -> Why not a similar Club of TGC countries? Currently, a well-designed (dynamic) FIT system provides a certain deployment of RES-e fastest and at lowest costs for society However, for sustainable policy -> parallel focus on demand-side conservation of high priority!

66 10. CONCLUSIONS (3) In the long run? Re-regulation? Priority production from renewables should persist Ecological bonus of the magnitude of external cost relief could prevail eternally (at least as long as no environmental taxes are introduced) However, for sustainable policy -> parallel focus on demand-side conservation of high priority!

67 INTERESTED IN FURTHER INFORMATION? Download reports from: www. eeg. tuwien. ac. at www. green-x. at www. optres. fhg. de to: tuwien. ac.at