Support systems for renewables in the EU. Wind in Spain, a successful story

Transcription

1 Support systems for renewables in the EU. Wind in Spain, a successful story Gonzalo Sáenz de Miera Head of the Prospective Department Towards a convergence of renewable energy policy in the EU countries IEFE, Milan, April 29, 2005 IBERDROLA RENEWABLE ENERGIES Index 1. Iberdrola in the Renewable Business 2. Case Study: Wind in Spain 3. Support Systems: some thoughts from an investor s point of view 4. Conclusions IBERDROLA RENEWABLE ENERGIES 2 1

2 Renewable energy is one of the main pillars of Iberdrola s growth strategy Iberdrola, Europe s No. 6 electricity company by installed capacity and number of customers, is one of the world s leading operators in renewable energies. We have a firm commitment to the most developed renewable energies (wind, minihydro, biomass) as well as to emerging technologies such as wave energy, and solar thermoelectric. We are currently developing renewable projects in Spain, and outside Spain we are present in several european countries (Greece, UK, Italy) and in an increasing number of international markets (Mexico and Brazil among others) We are making efforts to integrate renewable energies in the energy network and to improve their efficiency, key factors in the sustainable development of the energy industry IBERDROLA RENEWABLE ENERGIES 3 Iberdrola is one of the world s leading operators in renewable energies with 3,300 MW (3,000 wind) at the end of 2004 and with a target of 5,500 MW for 2008 Evolution of installed capacity and objective (MW) Wind energy world ranking (MW) ,500* Iberdrola ,257 x 3.9 3, Mini-hydro FPL Eurus Acciona/EHN ,414 3,000 Wind Ene 2008E Endesa Cesa- Terranova Scottish Power (*) 1,000 MW in development abroad (outside of Spain) IBERDROLA RENEWABLE ENERGIES 4 2

3 Index 1. Iberdrola in the Renewable Business 2. Case Study: Wind in Spain 3. Support Systems: some thoughts from an investor s point of view 4. Conclusions IBERDROLA RENEWABLE ENERGIES 5 Wind energy regulation in Spain can be judged a success, important improvements have been made in the last regulatory change Installed capacity in wind in Spain MW 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1, Spain is world leader in installed wind capacity in 2004 and second in accumulated installed capacity A report by Ernst&Young concludes that the Spanish regulatory framework is the best in the world IBERDROLA RENEWABLE ENERGIES 6 3

4 The support framework has been progressively improved (as has its effectiveness) leading to the approval of Royal Decree 436 in March Royal Decrees Priority access Premium 1997 Electricity Sector Law 29% of electricity production will come from renewable sources by Royal Decree on Special Regime Basic framework for renewable energies Planning of the Electricity Sector NEW REGULATION 13,000 MW wind capacity by 2011 Regulatory stability to reach targets Installed capacity per year (MW) 2,065 1,232 1,534 1,277* Source: CNE (National Energy Commission) y EWEA (European Wind Energy Association) * Slower rate of investment due to uncertainty about regulatory change Installed wind power capacity in 2004: 2,065 MW Average wind capacity installed in : 836 MW IBERDROLA RENEWABLE ENERGIES 7 Current support framework for wind energy in Spain Established in the 1997 Electricity Law (Special Regime) Regulated by the Royal Decree 436/2004 Payment is indexed to the Tarifa Eléctrica Media TEM (Average Electricity Tariff) Total estimated cost of the electricity system TEM = = 73.30/MWh in 2005 Estimated demand TEM evolution defined by Royal Decree Remuneration Options Regulated Tariff Market % of TEM (80-90%) Independent of pool prices + Market price + Premium (50% of TEM) - Cost of deviations Similar to the economic regimen for conventional energy + economic incentives Remuneration is defined for the entire life of the asset Once a remuneration option is chosen, the operator must keep it for at least one year There are two additional incentives: reactive energy and voltage dips management, which can generate additional revenues The system can be reviewed every four years, to be applied only to new assets IBERDROLA RENEWABLE ENERGIES 8 4

5 Improvements in stability and predictability have enhanced effectiveness and reduced uncertainty and costs Former system Current System Feed in Tariffs Stability and Predictability Undefined time horizon Reviews every 4 years (all facilities are subject to review) Average Electricity Tariff evolution unknown Time horizon defined for the asset s life Reviews every 4 years (only for new facilities; old ones not affected) TEM evolution defined by a Royal Decree Long term business Capital intensive Effectiveness Risks Costs IBERDROLA RENEWABLE ENERGIES 9 Support mechanisms have improved wind energy s entry into the system, reducing costs and easing limits on installation for stability and reliability of the system INCENTIVES FOR QUALITY Reactive Voltage dips Former regulation R.D. 2818/98 NO Fixed retribution None Current regulation R.D. 436/2004 YES Retribution depends on current needs Retribution for bearing voltage dips Implications for wind energy development Higher installed capacity creates instability Limits to capacity installed Integrated into and coordinated with the system through quality standards Easing limits on installation for stability and reliability of the system IBERDROLA RENEWABLE ENERGIES 10 5

6 Index 1. Iberdrola in the Renewable Business 2. Case Study: Wind in Spain 3. Support Systems: some thoughts from an investor s point of view 4. Conclusions IBERDROLA RENEWABLE ENERGIES 11 The countries with the most installed wind capacity are not those with better wind resources, nor are they the largest in terms of surface area MW Installed Capacity (2004) Germany Spain USA Denmark Netherlands Italy UK France UK has very good wind resources but has little installed wind capacity USA surface area is three times the size of EU-15 surface area, but it has only 20% of its installed wind capacity Germany and Spain do not have the best wind resources but they are world leaders in this industry IBERDROLA RENEWABLE ENERGIES 12 6

7 Support mechanisms are the key factor for wind power Two main systems have been developed: Feed-in tariffs (direct price support) and Tradable Energy Certificate Systems, (based on the market) The 2001 Renewable Directive establishes that in October 2005 the European Commision must draw a report on this issue and may propose a common framework for all of the EU A public debate has been generated and those who are opposed to renewable energies (for instance, Eurelectric) are pressing for the definition of a common tradable green certificate system in the EU IBERDROLA RENEWABLE ENERGIES 13 Systems based on feed-in tariffs have proved to be more effective than systems based on tradable certificates COUNTRY Installed Capacity (MW) In year 2004 As of Dec Feed in tariff Support mechanisms Certificates Tenders Spain 2,065 8,263 Germany 2,037 16,629 UK Portugal Italy 221 1,125 Netherlands 197 1,078 Austria Ireland France Greece Sweden Denmark 9 3,117 87% of total wind capacity (33,860 MW) has been installed in countries with premium systems. 83% of wind capacity installed in 2004 (5,506 MW) was in countries with premium mechanisms and only 15% with certificates No significant examples of successful tradable certificates systems Premiums: SUCCESSFUL and EFFECTIVE framework IBERDROLA RENEWABLE ENERGIES 14 7

8 Feed-in tariffs are also more efficient. Certificate systems imply higher risks, so investors demand higher profitability and remuneration Remuneration /MWh Wind Energy Sector Average Cost of Transactions Premiums Certificates M /MW 1, ,4 1, Certificate Embebed benefits & Climate Change Levy 0, ,86 Certificate 0,6 40 0,4 Pool 20 Pool 0,2 0 Spain Germany Italy UK 0 Feed in tariff Certificates In 2004, payment per MWh in a country with certificates was much higher than that of countries with premiums In countries with tradable certificates systems, the market price of a MW is higher than in countries with premium mechanisms. This implies greater expectations for revenue and higher costs for the system IBERDROLA RENEWABLE ENERGIES 15 The reason for that is that feed-in tariffs provide more stability and predictability so investments have less risk and need less remuneration CRITERIA ATTRACTIVENESS FOR INVESTORS EFFICIENCY EFFECTIVENESS PREMIUMS HIGH (Certain and predictable) HIGH (When premiums are adjusted to costs) HIGH (Generate profit. Experience) CERTIFICATES LOW (Uncertain with market and certificate price risk, highly volatile) THEORETICAL (Ends up requiring regulatory intervention, which lowers efficiency. Certificates imply higher risk and financial cost and therefore need higher profit and payment) LOW (Not a very attractive investment) Successful model Effective and efficient Doesn t work No successful cases IBERDROLA RENEWABLE ENERGIES 16 8

9 At the moment, we don t think there is need for harmonization at a EU level So far Feed-in tariffs have worked and Tradable Certificate Systems have not. Today any harmonization should go towards Feed-in tariffs However, Tradable Certificate Systems have been put in place recently and there is not enough experience nor results to judge them For the moment it seems reasonable not to harmonizate, and instead to gather more information in the next few years, analyze the results and decide whether to harmonizate or not and to choose the most effective and efficient system IBERDROLA RENEWABLE ENERGIES 17 Index 1. Iberdrola in the Renewable Business 2. Case Study: Wind in Spain 3. Suport Systems: some thoughts from an investor s point of view 4. Conclusions IBERDROLA RENEWABLE ENERGIES 18 9

10 Conclusions Support system for wind energy in Spain is a successful story, of relevant interest in the current debate on this issue in the EU The key factors of the Spanish support framework for wind are 1) an stable and predictable remuneration system required in a long term and capital intensive business and 2) incentives to improve energy quality. In the EU wind sector, feed-in tariffs systems have proved to be not only more effective but also more efficient that tradable certificate systems: the reason is that certificates imply higher risks, so investors demand higher profitability and remuneration As there is not enough experience with Tradable Certificate Systems, it seems reasonable not to harmonize for the moment, but instead to wait, gather information in the next years, and decide. IBERDROLA RENEWABLE ENERGIES 19 Thank you very much for your attention! Gonzalo Sáenz de Miera Head of the Prospective Department Towards a convergence of renewable energy policy in the EU countries IEFE, Milan, April 29, 2005 IBERDROLA RENEWABLE ENERGIES 10