CAN THE COOPERATION MECHANISMS OF THE RES DIRECTIVE CONTRIBUTE TO CSP TECHNOLOGIES FURHTER DEPLOYMENT IN SOUTHERN EUROPE AND NORTHERN AFRICA?

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1 CAN THE COOPERATION MECHANISMS OF THE RES DIRECTIVE CONTRIBUTE TO CSP TECHNOLOGIES FURHTER DEPLOYMENT IN SOUTHERN EUROPE AND NORTHERN AFRICA? Natalia Caldés 1, Marta Santamaría 1, Cristina de la Rúa 1, Francesco Dalla Longa 2 and Franz Trieb 3 1 Energy systems Analysis Unit, CIEMAT (Research Centre of Energy, Environment and technology), Av. Complutense 4, 284 Madrid, Spain. Phone: ; Fax: , Natalia.caldes@ciemat.es 2 Policy Studies Unit, ECN 1755ZG Petten, Netherlands 3 DLR, Institut für Technische Thermodynamik Pfaffenwaldring Stuttgart. Germany Key words: renewable energy, cooperation, 22 targets; JEL Codes: Q42, Q48, Q41 Abstract In order to provide MS with greater flexibility to achieve their 22 RES National targets in a costeffective way, DIR 29/28/EC allows MS the possibility to use of cooperation mechanisms. Despite its apparent attractiveness, to this date, very little use of these instruments has taken place. In order to explore their potential benefits as well as reasons behind their scarce implementation success, this paper analyzes the cooperation mechanisms from an analytical, case study as well as a from a geopolitical perspective. Results from two EU funded projects RES4LESS and BETTER- show that Concentrated Solar Power (CSP) industry could further develop in Southern Europe as well as in MENA countries as a result of the implementation of the cooperation mechanisms as long as some barriers are overcome. 1- Introduction: The EU Directive on the promotion of the use of renewable energy sources (RES) was adopted in April 29 (29/28/EC) and sets binding targets for all EU Member States to reach the European target of 2% RES share in EU gross final energy consumption by 22. Given certain differences in RES potential between Member States and renewable energy generation costs variability within Europe, articles 6, 7, 9 and 11 of the Directive introduce the possibility to use cooperation 1 mechanisms so that those countries with low or expensive RES potential partially fulfil their RES target by purchasing or jointly developing RES energy produced in other countries with higher RES potential or lower production costs. Consequently, their objective is twofold: on the one side they aim at providing Member States greater flexibility and, on the other side, they aim at achieving the overall 2% target in a cost-effective way. In June 21, in accordance with the RES directive, all Member States had to submit a National Renewable Energy Action Plan (NREAP) that contained (i) estimation of gross energy consumption by 22, (ii) sectorial targets by 22, (iii) support actions in place as well as (iv) contribution of the energy efficiency and saving measures. According to a recent analysis of Member States National Renewable Energy Action Plans (NREAPs) conducted by Beurskens and Hekkenberg (211) out of 27 Member States, 13 countries reported information on an anticipated excess or deficit of renewable energy by 22. Two countries (Italy and Luxemburg) reported a deficit while eleven countries (Bulgaria, Denmark, Germany, Greece, Spain, Lithuania, Luxembourg, Hungary, Malta, Slovakia and Sweden) reported an excess. Overall, NREAPs reported an estimated European renewable energy production excess of about.7% over the 2% 22 target. 1 They are not named flexibility mechanisms in order to differentiate them from the Kyoto flexible mechanisms.

2 The information provided above indicates there might be some scope for utilization of cooperation mechanisms. However, so far, only few countries (Italy and Luxembourg) have expressed their intention to use them and only two Scandinavian countries have actually made use of such instruments (joint implementation scheme between Norway and Sweden). One possible explanation is that the practical implementation of cooperation mechanisms is not straight forward and that further guidance of where the cooperation opportunities are and how to make use of them is needed. The directive defines general accounting rules for using the mechanisms but does not give any specification of their design. It is up to the Member States to design and practically implement such mechanisms. Moreover, as it will be discussed in a later section, there exist several other factors apart from RES cost production that will affect the attractiveness of the use of such instruments.. In this context, the EU funded research project RES4LESS ( and BETTER project ( aim at assessing to what extent the use of cooperation mechanisms can contribute to achieving the National and European renewable energy targets at a lower cost, in comparison to isolated National energy strategies. Building on the analysis carried out within these two projects, this work aims at answering this question by (i) broadly identifying, based on model results, the potential cooperation opportunities within Europe considering the potentials, costs and National targets variability across Member States, (ii) analyze, through a specific case study between Spain and the Netherlands, what are the prospects for CSP further deployment as a result of the implementation of joint project (Art. 7) and (iii) conduct a preliminary assessment of the opportunities raised by the cooperation mechanisms with third countries (Art 9) 2- Analysis of cooperation mechanisms opportunities within Europe (Art. 7) 2.1 Methodological approach Within the RES4LESS project, to analyze the above mentioned points (i) and (ii), a sequential process has been followed: - Firstly, in order to identify the possible opportunities for cooperation within the EU, the so-called Valleys of Opportunity (VoO) have been identified. A VoO is defined a readily exploitable sub-set of a renewable energy surplus, that is the remaining renewable energy potential still available after a country has met its target. Within RES4LESS, a methodology has been devised to systematically analyze the surpluses and pin-point the most promising VoOs, independently of the cooperation mechanisms that may be put in place (Dalla Longa and Bole-Rentel, 212). - Secondly, in order to identify those additional aspects that should be taken into account to implement a cooperation mechanism between two or more countries, three in depth case studies in different geographical contexts as well as using different RES technologies were analyzed: (i) wind off-shore from Denmark (Klinge and Pade, forthcoming), (ii) biomass from Romania (Tantareanu et al., forthcoming) and (iii) solar energy from Spain (Caldés and Santamaría, forthcoming). In all three cases, the recipient of surplus RES-E, or the corresponding RES credits, is the Netherlands. - Finally, through the analysis of the CSP case study developed taking into consideration inputs and expertise of relevant stakeholders 2, the specific circumstances (opportunities and barriers) that could foster or jeopardize CSP deployment in Spain trough the cooperation mechanisms have been assessed. 2.2 Identification of possible cooperation opportunities (Valleys of Opportunity) Focusing on the RES-E sector, the first step consisted in exploring the scope for cooperation between countries, based on the different RES potentials, national 22 RES targets and technology costs across MSs in order to identify the most promising renewable surplus that could be exploited through cooperation mechanism (Dalla Longa and Bole-Rentel, 212). The theorietical background to identify such opportunities was simple. As displayed in Figure 1, when considering the RES supply cost curves of two Member States (MS-1 and MS-2), MS-2, is potentially interested in exploiting the surplus potential of MS-1, as soon as the costs of its own energy technologies are above line L1, representing the marginal costs of MS-1 s RES target. If allowed to make use of the Host Country s surplus, the User Country will likely choose to develop in parallel the cheapest part of its 2 Spectial thanks to Protermosolar, I.D.A.E. and REE.

3 own potential ( p MS-2 ) and of MS-1 s surplus ( p MS-1 ). This process will continue until the total potential developed ( p MS-1 + p MS-2 ) enables MS-2 to reach its RES target. Figure 1. RES cost suply curve for two Member States. Identification of candidate VoO The exact amounts p MS-1 and p MS-2 can be easily calculated by performing a virtual demand-supply analysis on the relevant segments of the cost supply curves, as shown in Figures 2 and 3. While this analysis is only based on three parameters, it gives an indication on the maximum VoO size (intersection point between the two curves), and the cost level at which cooperation becomes attractive (line L2). The actual VoO size and trade costs will depend on the details of the specific cooperation mechanisms in place (including specific policy measures and subsidies), and can only be estimated by means of a detailed case study. ) h W /k ( s ts o c ) h W /k ( s ts c o surplus potential potential (kwh) Figure 2. Comparison of the relevant parts of the two cost supply curves L1 surplus potential potential (kwh) Figure 3. A demand segment is created by flipping the relevant part of the cost supply curve of the User Country L2 L1 According to the results from the RESolv-E model -which conducts the above described analysis in a systematic way for all European Member States-, figure 4 shows the projected RES-E surpluses eligible for cooperation in 22 (Dalla Longa and Bole, 211) Eligible Surplus Potential [TWh] - Technology Breakdown Wave France Germany Denmark Sweden Spain Norway Romania Ireland Italy Austria Slovenia Finland Latvia Poland Hungary Slovak Cyprus Belgium Bulgaria Czech Estonia Greece Lithuania Luxembourg Malta Netherlands Portugal UK Tidal Geothermal Large hydro (>1 MW) Small & medium hydro (<1MW) CSP Photovoltaics Wind offshore Wind onshore Biomass

4 Figure 4. Eligible Suplus Potential [TWh] Technology breakdown 2.3 CSP case study The results from the quantitative analyses outlined above should be regarded not as a prediction but as an indication of where the cooperation opportunities (Valleys of Opportunity - VoO) may exist. However, it is unlikely that all the above identified VoOs will become actual transactions between two or more Member States when other factors are taken into account in the analysis. In order to analyze in-depth the practical barriers, constrains and restrictions not addressed by the model, three different case studies were conducted as part of the research activities within the RES4LESS project:(i) wind off-shore from Denmark, (ii) biomass from Romania and (iii) solar thermal from Spain. The choice of the CSP case study is justified by several reasons such [i] technological characteristics of the technology, mainly related to its dispatchability,; [ii] economic aspects, as CSP is a less mature technology than other more mature RES technologies with large potential for cost reduction as well as technological performance improvements. [iii] socio-economic benefits, as there are various indirect benefits that could arise in some EU countries due to the further deployment of the technology (employment and economic activity in depressed rural areas, National industry stimuli, etc.), and [iv] public acceptance and stakeholder involvement: Spanish key stakeholders and society support for this technology. Moreover, the current freeze RES support policies in Spain (RD/212) makes the cooperation mechanisms an even more attractive RES deployment tool which could contribute to reach significant cost reductions. Beyond that, the potential future deployment of this technology in other European countries (such as Portugal, Italy, Greece, etc) is very dependent on the continuity of the deployment of this technology in Spain; Based on the size of the cooperation opportunity resulting from the RESolv-E model and an expert consultation process, Table 1 shows main parameters of the case study 3. Parameter Value Type of cooperation mechanism Joint project Host country Spain User country Netherlands Physical Transfer No Time frame Negotiations process: Start of construction phase: Start operation of plants: 217 Technology CSP (central receiver Tower) CSP (parabolic trough) Construction time 2 years Capacity of the Plants 2 MW (*) Generation costs < 11 c /kwh (expected to be around 1 by 22) Location Southern Spain (to be further detailed based on an existing registre application) Load factor 4.h (45%) Storage capacity 9 hours Hybridization Possibility to use Natural Gas or Biomass up to 15% (*) (*) Total generation taking into account hybridization 5,75 TwH Production Up to 12 MW installed capacity - 5 Twh Number of plants Up to 6 plants (4 2 MW plants and MW) Displaced technology in the Natural Gas Combined Cycle Spanish Energy mix Table 1: Key parameters of the CSP cooperation mechanisms case study 3 Various stakeholder consultation meetings have been taken place in both Spain and the Netherlands (i.e: National Governments representatives, industrial associations, grid operators, researchers, consultants, etc).

5 Because the Renewable Energy Directive did not require the physical transfer requirement for intraeuropean cooperation mechanisms (Art 6, 7, 11) and the weak grid interconnection capacity between Spain and France, the current case study considers a situation in which there will not be physical transfer of electricity. Since the Netherlands wants to account the renewable energy production of a RES installation located abroad (in Spain) towards its own target, it needs to cover the support costs incurred by the host country. Thus, the direct costs reflected in a cooperation mechanism are the support costs that take place in the host country. However, besides the direct costs associated to the development of a joint Project for the host country, there are other possible co-effects that need to be taken into account which can affect the attractiveness of the agreement as well as ultimately determine transaction price that is the support size-. First of all, the potential additional grid costs derived from the implementation of the cooperation mechanism which relate to grid connection and reinforcement of the Host country Transmission System need to be taken into account. Secondly, when comparing the user country s energy mix under a scenario with and without use of cooperation mechanisms with no physical transfer of electricity, the resulting energy mix under the cooperative scenario has various implications for both user and host countries that should be taken into account. Among others, given that there is no physical transfer of the electricity, one of the most relevant indirect costs for the User country is the negative environmental impact associated to a more carbon intensive energy mix (both regional and GHG emissions). Moreover, the country s energy security would be decreased as a result of the higher fossil fuel dependence and, finally, by not deploying a local RES industry, it could miss out on local job creation and economic stimulation. On the other hand, the Host country would be benefited for a similar change in its energy mix in the opposite sense: displacing more intensive carbon technologies by RES technologies. In the studied case study where cooperation takes place between Spain and the Netherlands, the analytical approach has been as follows: - With regards to the grid implications, the cost of integrating RES in the system requires two different estimations: [i] the cost of system operation and [ii] the grid reinforcement cost. - With regards to the environmental impact, depending on the pollutant: o GHG emissions can be valued through carbon markets forecasts for the future. There is a great variety of estimates, ranging from 12-3 /t CO 2 (PC, 212, Capros et al., 21). Current work has considered an intermediate value of 23 /t CO 2, based on Russ et al. (29) 4 that analyzes o the consequences of limiting the increase of the temperature to 2ºC. Other air pollution externalities, can be valued through the use of damage factor. Damage factors are the result of a complete methodological sequence named Impact Pathway Assessment (EC, 25), that includes the following steps: (i) pollutant emissions estimation; (ii) evaluation of changes in atmosphere concentration; (iii) determination of resulting impacts, expressed in physical units and (iv) economic valuation of such impacts. Emission factors for each kind of technology and damage factors have been obtained from the CASES project (Cost Assessment for Sustainable Energy System) (CASES, 28a and 28b). - Finally, socio-economic impacts have been estimated through the use of employment rates form Wei et al. (21) and estimating the savings based on the unemployment subsidy. The figures presented below show the preliminary estimations of direct and indirect costs and benefits associated to a hypothetical cooperation agreement between The Netherlands and Spain in order to analyze whether it represents a win-win situation for both parties. Figure 5 below summarizes what should be the factors that the Netherlands should take into consideration when deciding between pursuing a domestic approach (that is reaching its domestic RES targets by generating up to 5 Thw with Wind- Offshore) compared to the cooperative approach (that is acquiring up to 5 Thw generated from CSP in Spain). 4 Estimated trough the use of the POLES model for the energy sector, combined with the General Equilibrium Model GEM-E3.

6 BASE CASE SCENARIO (NL PRODUCES WIND OFFSHORE ELECTRICITY DOMESTICALLY) 8,8 C /kwh NL (WO) RES Generation Cost Domestic RES cost and Electricity mkt price Grid related costs CO 2 Other pollutants Economic activity Employm Energy Security Industrial Leadership Other tech Specific effects 15 cost c/kwh 6,3 c/kwh,1 Indirect benefits related to a less carbon intensive Dutch Energy mix COOPERATION SCENARIO (NL BUYS CSP ELECTRICITY FROM IN SPAIN) Associated Indirect costs & benefits for Spain GRID costs = (+,35) Indirect benefits related to a less carbon intensive Spanish Energy mix (,49) + (,26) Spanish RES Generation Cost Domestic RES cost and Electricity mkt price Grid related Costs (savings) CO 2 Other pollutants Economic activity Employm Energy Security Industrial Leadership Other tech Specific effects 1 cost c/kwh - 6,5 c/kwh Transfer / kwh = 3,5 c / kwh 3,85 C /kwh Indirect costs related to a more carbon intensive Dutch Energy mix (,6) + (,41) Figure 5: Scheme of the two possible scenarios for the Netherlands to meet its RES targets. The top part of the figure, which represents the base case scenario represents the domestic approach Taking into consideration the data and assumtions used n this case study (without considering the indirect effects), the support that the NL should give Wind Offshore producers and the grid related costs would amount 8,8 c /khw (Deliverable 3.5 CSP case study). Alternatively, in the bottom part of the figure, if the Netherlands chose to acquire the equivalent CSP production from Spain, the required support that the Dutch government should give the Spanish Government to compensate CSP producers as well as to compensate for the grid related costs, would amount 3,85 c /kwh. So, when looking at the resulting required support under the two scenarios, it seems that the Dutch government would benefit from the cooperative approach with Spain. It is important to highlight that this is a static view of what the transfer price per kwh would look like in 22. However, and as was shown before, the size of the transfer and thus the savings for the Netherlands are time dependent because of the gradual decline of CSP generation costs. Therefore the reported figures should be interpreted as order of magnitude estimates However, when sitting at the negotiation table, both governments should also take into consideration the associated indirect benefits and costs of the cooperative alternative. In this case, as a result of the fact that there would be no physical transfer of electricity, compared to baseline sceanrio (domestic approach), the resulting Dutch energy mix would be more carbon intensive. Since we assume that the energy demand would remain unchanged under the two scenarios, the 5 ThW of Wind Offshore production would be probably replaced by the cheapest alternative, which in this case, we have assumed to be Natural Gas (NG) combined cycle. Therefore, there would be some environmental and socio-economic net effects, which would lead to a total negative impact of approximately 1 c /kwh. On the other side, the resulting energy mix for Spain would generate some net benefits in terms of both environmental and socio-economic impacts associated to a less carbon intensive energy mix compared to the basecase scenario. Since the demand is assumed to remain the same in the two scenarios, as a result of having more CSP production, the Spanish energy mix would have to adapt by reducing the production of another energy technology (which, in this case, has been assumed to be NG combined cycle). By having a

7 less carbon intensive energy mix, when considering the sum of all indirect socio-economic and environmental benefits, it is estimated that the net effect would be approximately,75 c /kwh. Consequently, besides the direct transfer price, the Dutch government may want to take into consideration a possible compensation for the associated indirect cost for the Netherlands and the indirect benefit for Spain. It is important to stress the fact that, as will be described in detail later, the estimation and monetization of the associated indirect effects for both scenarios for both countries are based on a large number of assumptions and are subject to uncertainty. Therefore, we recommend that the consideration of these figures is taken as a first approximation. 2.4 Barriers to the implementation of cooperation mechanisms within Europe The development of the CSP case study allowed identifying some of the main barriers and potential solutions to implement agreements in the context of cooperation mechanisms. The following list collects some of the most relevant factors ordered from higher to lower importance: - Institutional set-up: Complexity of the administrative and institutional arrangement needed to implement the cooperation mechanism in both countries. Potential solution: Higher involvement of National Authorities and start working on the requiremed administration procedures since early stages of the negotiation. - Uncertainty about post 22: The CSP plants require 2 years of construction phase and their generation costs will be lower as we approach 22. Consequently, it is crucial to look beyond 22 in order to define a compensation scheme. Potential solution: The agreement should ensure a support system of 15 years. - Coordination with the existing National Regulatory scheme: Despite the project will not benefit from a National Support Scheme, some coordination with the Spanish and Dutch Regulatory scheme is needed in terms of ensuring grid access priority of RES. Potential solution: Institutional agreement. - Payment scheme: A clear definition of the support scheme for the project is needed. Potential solution: Various possibilities exist: (i) a Dutch support scheme is established for 15 years or (ii) the payment scheme is articulated through an off-taker Risk of non-compliance: Given the actual regulatory turmoil, the RES sector has entered into a temporary stop. If the situation is not reversed, there may exist doubts regarding the Spanish capacity to fullfil its own 2% RES target by 22. Potential solution: If the agreement is well defined, the risk can be greatly reduced or eliminated by commiting a certain amount of production only for the use of the cooperation mechanisms and not for National RES targets fulfilments. - Opposition from sectors that will be negatively affected: Given the fact that no physical transfer of the electricity will take place and assumming that electricity demand will remain constant, the Spanish energy system will have to be modified in order to compensate for the 5 Twh additional CSP production (NG combined cycle will be displaced). Potential solution: The Spanish Government should be aware of this fact and establish adequate compensatory schemes. 3- Pre-assessment of the cooperation mechanisms opportunities with third countries (Art. 9) 3.1 Background Under Article 9 of the RES Directive 29/28/EC, Member States are granted the possibility to partially fulfil their 22 RES targets in a more cost-effective way by developing new RES projects and importing electricity from Third countries with high RES potential, high quality of supply and low generation costs. Compared to the other cooperation mechanisms (Art. 6, 7, 11), the implementation of Article 9 seems to be lagging behind due to the associated added complexity and multiple variables at play for both Europe and Third countries (eg: higher degree of grid infrastructure and interconnection requirements, higher degree of geopolitical unrest, more complex finance schemes, differences in public acceptance, potential socio-economic and environmental impacts, existing laws and regulations, etc). While several major RES initiatives have been launched in North Africa, the concrete framework for making use of cooperation mechanisms has not yet been investigated. In this context, the core objective of the BETTER ( Bringing Europe and Third Countries closer together through renewable EneRgies ) project is to assess, through case studies, stakeholders involvement and integrated analysis, to what extent 5 International body that manages and facilitates the transactions between user and host countries.

8 cooperation with Third Countries can help Europe achieve its RES targets in 22 and beyond, trigger the deployment of RES electricity projects in Third countries and create synergies and win-win circumstances for all involved parties. Top-Down COMMUNICATION AND DISSEMINATION Detailed quantitative cost-benefit evaluation of feasible policy approaches as well as power system analysis Other possible co-effects (such as impacts on EU climate targets, energy security and macro-economic aspects). Bottom-up STAKEHOLDERS INVOLVEMENT Integrated assessment will be undertaken from the EU plus third countries perspective, including: Case studies (N.Africa, W.Balkans and Turkey) will investigate in detail the technical, socio-economic and environmental aspects of RES cooperation. Figure 6: BETTER project methodological framework A priori, North Africa and Concentrated Solar Power (CSP) technology seem to be a suitable region and technology for the implementation of Article 9 due to the physical import potential, large solar potential as well as technology particularities, like e.g. the capability to deliver flexible power on demand. However, various issues need to be further analyzed in order to assess whether or not such win-win situations exist and under which circumstances. Thus, the goal of this work is to explore, as part of the activities within the BETTER project, what are the prospects for further CSP deployment in North Africa from a geo-political point of view. By identifying the current uncertainties, barriers and catalysers, this work attempts to shed some light to what seems to be an exceptional opportunity for CSP technologies to further expand in the North Africa Region. 3.2 Prospects for CSP deployment in NA related to Art. 9 Despite the enormous potential for RES-E (Renewable Energy Source for Electricity), NA countries are still largely underdeveloped in this regard. However, the situation is changing and some progress was made over the past months (e.g., Algeria, Morocco). The current political turmoil in many NA regions is a crucial threat to future cooperation projects with EU countries as it significantly increased investment risk in the short run. However, this might change in the middle to long-run when governments that are more democratic have seized power. Under such conditions, the fourth cooperation mechanism could be a crucial instrument to foster the social, economic and environmental benefits of RES-E projects in NA. However such projects are currently also being targeted as possible new Carbon finance mechanisms ( NAMAs ). Regulatory overlaps and possible synergies between RES mechanism and Carbon finance therefore need to be investigated. Sustainable forms of energy will play a crucial role for the further development of the region. Population will increase by a factor of two and economy will grow by a factor of four or five. This will require large amounts of energy to power such a development.

9 Power (MW) /7 27/7 28/7 29/7 3/7 31/7 1/8 2/8 Date Photovoltaics Wind Offshore Wind Onshore Hydrogen Storage Pump Storage, CAES Gas Turbines Import CSP Import Hydro Geothermal Wood, Biogas Biomass, Waste River Runoff Coal Plants Combined Cycle Nuclear Plants Lignite Plants Load Power (MW) /12 4/12 5/12 6/12 7/12 8/12 9/12 1/12 Date Photovoltaics Wind Offshore Wind Onshore Hydrogen Storage Pump Storage, CAES Gas Turbines Import CSP Import Hydro Geothermal Wood, Biogas Biomass, Waste River Runoff Coal Plants Combined Cycle Nuclear Plants Lignite Plants Load Figure 7: Scenario of the German electricity mix with 9% renewable energy based mainly on variable sources and considerable expansion of storage, backup and net transfer capacity. Generation higher than demand (black line) is stored or transferred to neighbor countries.

10 Power (MW) /7 27/7 28/7 29/7 3/7 31/7 1/8 2/8 Date Photovoltaics Wind Offshore Wind Onshore Hydrogen Storage Pump Storage, CAES Gas Turbines Import CSP Import Hydro Geothermal Wood, Biogas Biomass, Waste River Runoff Coal Plants Combined Cycle Nuclear Plants Lignite Plants Load Power (MW) /12 4/12 5/12 6/12 7/12 8/12 9/12 1/12 Date Photovoltaics Wind Offshore Wind Onshore Hydrogen Storage Pump Storage, CAES Gas Turbines Import CSP Import Hydro Geothermal Wood, Biogas Biomass, Waste River Runoff Coal Plants Combined Cycle Nuclear Plants Lignite Plants Load Figure 8: Scenario of the German electricity mix with 9% renewable energy based on a well-balanced mix of variable and flexible sources and existing storage and transmission grid capacity. In particular, the intrinsic capability of CSP to provide firm and flexible renewable power on demand can be a key for Art. 9 type cooperation, because flexible and at the same time renewable sources biomass, stored hydropower, CSP and in the long-term eventually geothermal power - are rather scarce in Europe. Also, - due to the dry climate and the lower latitude - the availability and quality of supply of CSP over the year is much higher in North Africa than in Europe. Therefore, CSP imports from North Africa could play a crucial role to balance out domestic variable sources like wind and PV in order to reduce the pressure on the demand of backup, grid transmission and storage capacity. There are in principle two different approaches to achieve large shares of renewable energy in Europe, taking e.g. Germany as a model case: the first is to expand significantly the domestic renewable energy sources, mainly wind and PV, and balance their fluctuations through a significant expansion of storage, grid transmission and conventional backup capacity (Figure ). The second approach (Figure 88) is based on a well-balanced mix of variable and flexible sources of energy in order to avoid the need for grid, storage and backup expansions, and instead deliver a major part of renewable electricity on demand. This implies the import of flexible renewable power, like stored hydropower from Norway or the Alps and concentrating solar power from North Africa via High- Voltage-Direct-Current (HVDC) links. By delivering higher shares of renewable energy on demand, surplus generation and the need for storage, transmission and backup capacities can be reduced, thus reducing the related socio-economic and environmental impacts as shown in Trieb and Müller-Steinhagen (27).

11 The importance of firm and flexible renewable power capacity from CSP for the economic development of North Africa is obvious, as flexible power from biomass, hydropower and storage options like those available in Europe are rather limited. 3.3 Open issues: potential barriers and opportunities RES-E, CSP and particularly CSP exports from North Africa to Europe still face significant barriers (Table 1), but there are also opportunities to overcome them (Table 2). First of all, there is still only little know-how and professional capacity on RES-E available, at least in North Africa, not only on the technical, but also financial, structural and institutional side. Therefore, only few people are in principle capable of starting RES-E projects in the region, and less are capable of starting international projects. The BETTER project itself tries to provide and disseminate the related know-how, and further measures must also be taken. By providing access to key information on RES-E and by setting appropriate goals for RES-E expansion just as discussed before, the technical barriers related to the variability of RES-E can be addressed and solved. A reliable framework to start RES-E business is not yet in place, so RES-E projects in North Africa still imply a significant investment risk. This affects particularly the CSP sector, as project investment is typically in the order of several hundred millions or even billions of Euros per power plant unit. The high investment risk leads to high interest rates of investors, both on the loan and equity side, and thus makes renewable electricity more expensive than necessary or in some cases even unaffordable. Among RES-E implementation success stories, the German Renewable Energy Act (GREA) is a success story of RES-E implementation, but it will be difficult to adapt it to the NA Region because of a very different economic situation. However, the core element of the GREA is a long-term power purchase agreement (PPA) guaranteed and enforced by the state that covers the full cost of the RES-E projects. Due to the high investment security equivalent to AAA rating, interest rates of GREA projects are typically as low as 6-7% only, thus making the GREA a least cost instrument for RES-E implementation. PPAs are rather usual in North Africa, and instruments to increase their rating to AAA are available, as e.g. the Partial Risk Guarantee (PRG) of the World Bank. In North Africa, a scheme based on internationally insured power purchase agreements (ippa) would be a viable alternative to the implementation of something like the GREA, and could be adapted to the specific demand situation of the region as shown in Trieb et al (211). Table 1: Potential barriers for RES-E deployment: Barriers for large RES- E shares: 1. RES - E Variability: 1. RES - E are considered variable and potentially risky for grid stability 2. RES - E are considered unable to assume functions for grid management 2. RES - E Cost: 1. investment and electricity cost related to RES - E is considered too high 2. investment risks are considered high and further increase capital cost 3. marginal - cost - based electricity markets are not compatible with RES - E 3. RES - E Impacts: 1. large land areas for RES - E lead to high environmental impact 2. large land areas for RES - E lead to high socio - economic impact 4. Political Framework: 1. no consensus in Europe and Third Countries about future RES - E role 2. no reliable political environment for RES - E business established yet Socio-economic and environmental impacts of large structures like a potential CSP-HVDC import scheme from Morocco to Germany as described e.g. in Trieb et al. (212) are related to the large land areas required and will probably affect the life of thousands if not millions of people. This category of

12 barriers is probably the most complex and the most difficult to overcome. Public participation in the planning process of these large infrastructures and also financial participation in the projects, eventually in form of cooperatives and cooperative banks, will be a major challenge, but also an opportunity to get things going. Finally, national and international policies must put in place a transparent, stable, fair and predictable legal framework for the development of national and international RES-E projects. The BETTER project will provide first recommendations for such a framework, which will be elaborated in close contact and dialogue with all kinds of stakeholders of the EUNA Region. Table 2: Opportunities for RES-E deployment: Opportunities for large RES - E shares: 1. Limit RES - E Variability: 1. tap flexible RES -E to provide firm capacity and grid management functions 2. develop and secure all available and acceptable flexibility and backup options 2. Limit RES - E Cost: 1. establish national RES -E administrations and adequate RES - E tariffs 2. provide internationally insured power purchase agreements and further risk mitigation measures specifically adapted to the RES - E sources to be tapped 3. Limit RES - E Impacts: 1. ensure public participation through consultation and cooperative banks 2. enforce thorough environmental and socio - economic impact assessment 4. Establish Political Framework: 1. pursue consensus within Europe and Third Countries about future RES - E role 2. establish transparent, stable, fair and predictable framework for RES - E 4. Conclusions 4.1 CSP further deployment oportunities within Europe The cooperation mechanisms, as described in articles 6-11 of the RES directive (29/28/EC), were designed to provide MS with greater flexibility to achieve their National targets as well as to contribute to the achievement of the overall European 2% target in a cost effective way. Based on the cooperation opportunities identified in ongoing work within the RES4LESS project, this work analyzes if and under what conditions Spain (as host country) could sell part of its CSP surplus to the Netherlands (user country) under a joint project agreement without physical transfer, where the Netherlands could acquire from Spain up to 5ThW CSP electricity. When considering the support costs under the domestic and cooperative scenarios in 22, clear savings arise under the cooperative scenario for the Netherlands. At the same time, Spain would also benefit from the possibility to further deploy its CSP industry without compromising public funds. This is especially relevant given the regulatory and economic turmoil that Spain is currently facing. Besides the required support for CSP producers as well as the grid related costs, this study has also identified, quantified and monetized some of the most relevant indirect net effects associated to the implementation of the cooperation mechanisms for both countries. This information, despite subject to great amount of uncertaintly, should provide some guidance with respect to the magnitude and the sign of such co-effects. In any case, even when considering the net co-effects, the cooperative approach between Spain and Netherlands seems mutually beneficial. It is important to take into consideration that the success of the implementation of this case study is dependent on the achievement of the expected CSP generation cost reductions (from the estimated current

13 18 c /kwh to the 1 c /kwh by 22). This fact has implications with respect to the timing of the deployment of the plants as well as for the CSP technology choice. Besides cost reductions, various other potential barriers have been identified and thus, possible solutions have also been proposed. In conclusion, the CSP case study has contributed to shed some light to the oportunities and challenges involved in deploying CSP projects in Spain using the cooperation mechanisms and it has also triggered the interest and initial discussions among Spanish relevant stakeholders (Protermosolar, I.D.A.E., REE, etc.) and the Dutch government. 4.2 CSP further deployment opportunities outside Europe A priori, the implementation of Article 9 could play a catalyzer role in further deploying Renewable Energies in EU neighbouring countries and, in particular, in the North Africa region. Given the large solar resource endowment of the region, solar technologies and, in particular, CSP technologies seem to have a larger potential to benefit from such deployment opportunities. Similarly, from a EU point of view, compared to other technologies, CSP presents various technical advantages such as the intrinsic capability to provide flexible renewable power on demand. Despite the potential benefits that could arise from the implemenation of Article 9 from both a European and Third countries perspective, various barriers need to be overcome such as the higher degree of grid infrastructure and interconnection requirements, higher degree of geopolitical unrest, more complex finance schemes, differences in public acceptance, potential socio-economic and environmental impacts, existing laws and regulations, etc. In this context, the EU funded project BETTER project is currently attempting to shed some light to the above mentioned opportunities and barriers in the framework of the RES Directive. By conducting a dual approach (case studies as well as integrated analysis) together with a strong stakeholder involvement from the different areas financing institutions, project developers, policy makers, TSO, civil society, etc-, this project aims at providing concrete actions plans and guidelines to identify and materialize win-win situations.

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