INTERACTIONS BETWEEN CO2 AND RENEWABLE ENERGY TARGETS IN EUROPE AN ASSESSMENT WITH POLES MODEL

Transcription

1 INTERACTIONS BETWEEN CO2 AND RENEWABLE ENERGY TARGETS IN EUROPE AN ASSESSMENT WITH POLES MODEL 2014/11/13 Florent LE STRAT Elaine PELOURDEAU Yasmine ARSALANE Kimon KERAMIDAS Benoît PELUCHON

2 AGENDA 1. FRAMEWORK OF THE STUDY CONTEXT ANALYTIC APPROACH 2. RESULTS ANALYSIS EFFECTS OF CO2 TARGETS CO2 ENR INTERACTIONS FINANCING RES SUPPORT 3. CONCLUSIONS Interactions CO2-EnR, Assessement with POLES model 2

3 AGENDA 1. FRAMEWORK OF THE STUDY CONTEXT ANALYTIC APPROACH 2. RESULTS ANALYSIS EFFECTS OF CO2 TARGETS CO2 ENR INTERACTIONS FINANCING RES SUPPORT 3. CONCLUSIONS Interactions CO2-EnR, Assessement with POLES model 3

4 EUROPEAN CLIMATE ENERGY POLICY European Union adopted in 2008 the Climate-Energy Package with 2020 targets -20 % of GHG emission reduction / % / % of RES in final consumption, with national targets 20% if improvement of energy efficiency (compared to the 2030 level from 2009 Reference scenario) 2011 Energy Roadmap Energy was validated by European Council with a 2050 target Between 80% to 95 % of GHG emission reduction /1990 European Commission issued a Green Paper in March 2013 with first values for 2030 GHG emissions : -40%/1990 RES : 30% of RES in final consumption On the 2014/01/22, European Commission issued a proposal for GHG and RES Binding target for emission reductions -40%/ % /2005 for ETS sectors & -30% /2005 for non ETS sectors Binding target for RES : 27 % in final consumption On the 2014/07/24, European Commission issued a proposal for Energy Efficiency to complement the GHG&RES targets 30% of improvement in 2030 (compared to the 2030 level from 2009 Reference scenario) European Council of the October, the 24 th 2014 Binding -40 % GHG target At least 27% RES target at EU level At least 27% of Energy Efficiency improvement 4

5 AGENDA 1. FRAMEWORK OF THE STUDY CONTEXT ANALYTIC APPROACH 2. RESULTS ANALYSIS EFFECTS OF CO2 TARGETS CO2 ENR INTERACTIONS FINANCING RES SUPPORT 3. CONCLUSIONS 5

6 MACRO ASSUMPTIONS AND POLES MODEL Aim of the study : to have an quantified analysis of CO2 RES interactions One GDP trajectory Approach similar to European Commission for Energy Roadmap and IEA for World Energy Outlook or Energy Technology Perspectives GDP growth rate based on CEPII Post 2010 European economic slowdown not taken into account World GDP annual growth rate Interactions between CO2 and RES targets Analysis focused on Europe but coherent international climate policy contexts Separation between ETS sectors (Energy+Industry) and non ETS (Residential+Services ) Calculations based on 2010 IEA generation costs Calculation made with POLES Model developed by CNRS & ENERDATA EDF R&D ENERDATA partnership Partial equilibrium model of world energy system Endogenous calculation of international fuels prices according to O/D balance Energy mixes of the different geographical areas CEPII ,7 3,3 AIE/ETP ,7 2,9 6

7 WHICH TARGET COMBINATION FOR WHICH COSTS? European CO2 targets No reduction target (NoCV) «Factor 2» target (LCV) «Factor 4» target (HCV) European reduction targets implemented in coherent world climate policies No carbon constraint : world emissions increase without any target - NoCV = No Carbon Value Not very ambitious reduction targets : states implement very limited climate policies - LCV = Low Carbon Value Volontary targets : states accept to radically change their energy mixes - HCV= High Carbon Value 7

8 WHICH TARGET COMBINATION FOR WHICH COSTS? European CO2 targets No reduction target (NoCV) «Factor 2» target (LCV) «Factor 4» target (HCV) RES support in Europe Present support Support adjusted to reach 20% in 2020 Support adjusted to reach 20% in 2020 and 30% in 2030 RES targets : different RES targets for Europe Case without complementary RES policy : RES support progressively decrease from their present levels Case with 20% RES in 2020 according to national targets from 2020 CEP through a support increase Case with 30% RES in 2030 by assuming a convergence of support at European level for each technology in

9 WHICH TARGET COMBINATION FOR WHICH COSTS? European CO2 targets No reduction target (NoCV) «Factor 2» target (LCV) «Factor 4» target (HCV) RES support financing Inclusion in electricity prices ETS Auctioning RES support in Europe Present support Support adjusted to reach 20% in 2020 Support adjusted to reach 20% in 2020 and 30% in 2030 Two options for financing RES support Pass through to final consumer in electricity retail prices Financing though ETS auctioning revenues 9

10 AGENDA 1. FRAMEWORK OF THE STUDY CONTEXT ANALYTIC APPROACH 2. RESULTS ANALYSIS EFFECTS OF CO2 TARGETS CO2 ENR INTERACTIONS FINANCING RES SUPPORT 3. CONCLUSIONS 10

11 A SLOWER POWER GENERATION INCREASE WITH CO2 TARGETS Carbon constraint has a decreasing impact on final consumption that shifts to electricity in order to reduce emissions Mtep Final consumption EU27 EU-ETS /tco LCV HCV TWh Power consumption in EU27 NoCV LCV HCV ,0% 27,7% 28,3% 32,2% 2010 NoCV LCV HCV Other Electricity 2050 Despite the electrification of European final consumption, electricity consumption increase is a little slower in emission constrained cases -3 % in LCV compared to NoCV in % in HCV compared to NoCV in

12 POWER MIXES BASED ON LOW EMITTING TECHNOLOGIES TWh Power generation EU27 (NoCV case) Other RES Solar Wind Biomass Hydro Nuclear Oil Gas CCS Coal CCS Gas noccs Coal noccs 12

13 POWER MIXES BASED ON LOW EMITTING TECHNOLOGIES Strong decrease of fossil fuel share 48 % in NoCV 27 % in HCV mainly with gas Baseload coal generation almost disappears - Coal based generation only represents 4 % in 2050 instead of 17 % in NoCV - RES substitute to baseload generation making even more difficult the appearance of CCS of which operating hours reduce Increase of nuclear generation from 2030 NoCV: 781 TWh TWh HCV : 992 TWh Increase of share of RES 37 % without CO2 target 53 % in HCV - 35% of intermittent RES Power generation EU27 (HCV case) Other RES Solar Wind Biomass Hydro Nuclear Oil Gas CCS Coal CCS Gas noccs Coal noccs 13

14 WITHOUT CO2 TARGET, ELECTRICITY PRICES DECREASE IN THE EU27 Average electricity prices are calculated through the variation of complete production cost of merit order and must run technologies Base load technologies in industry & peak load in buildings. By default, historical levels of taxes remain constant over time and no additional investments in power grids is considered. Recovery for RES is included A progressive integration of European electricity market is modeled through the convergence of national production costs /MWh Cost components of domestic electricity price European integration effect Nat. prod. costs effect Hist. Taxes Hist. Price (excl. taxes) End-user price Average EU-27 electricity price for households /MWh National price effect Structural effect 2020 National price effect Structural effect 2030 Effect of national prices is the most important between 2012 and % of price decrease from 2020 to 2030 is linked to the increasing share of countries with low electricity prices ( structural effect ) While the weight of Germany, with one of the highest electricity prices for households, declines. 14

15 WITHOUT CO2 TARGET, ELECTRICITY PRICES DECREASE IN THE EU27 Average LCOEs, EU-27 ( /MWh) Peak-load LCOEs, EU-27 /MWh /MWh Fossil fuel prices decrease between 2012 and 2020 Progressive replacement of old power plants by more efficient ones 15

16 AMBITIOUS CARBON POLICY WITHOUT LARGE INCREASE OF ELECTRICITY PRICE EU ETS CO2 price Elec. price Indus. Elec. price Resid (present support) NoCV LCV HCV 7,5 /t 0 /t 25 /t 96 /t 115 /MWh 188 /MWh % % - 7,3 % + 0,5 % + 16,2 % - 8,3 % - 2,5 % + 8,9 % Comparison of average retail price on EU27 (variation ) Without CO2 target, retails prices decrease at EU level between 2012 and 2030 Improvement of generation mix by progressive integration of new more efficient plants With emission target, electricity average prices increase far less than CO2 Carbon content of power generation decreases as emissions are more constrained New investments integrate the target, and generation mix evolves 16

17 AGENDA 1. FRAMEWORK OF THE STUDY CONTEXT ANALYTIC APPROACH 2. RESULTS ANALYSIS EFFECTS OF CO2 TARGETS CO2 ENR INTERACTIONS FINANCING RES SUPPORT 3. CONCLUSIONS 17

18 INTEGRATION OF RES SUBSIDIES INCREASES ELECTRICITY RETAIL PRICE For a given CO2 target, more stringent RES target leads to higher subsidies to enable a more important RES penetration increase of electricity retail prices if financing is assumed by consumers RES targets decrease residual effort to be achieved through carbon price - LCV : CO2 price decreases by 25 % with 20% RES target in HCV : CO2 price decreases by 6,5% with 20%RES target in 2020, and by 16% with 30% in 2030 Lower CO2 price transfer in generation costs => electricity retail price decrease RES supplementary costs not compensated with CO2 price decrease induced by RES Present support LCV 20% RES Present support HCV 20% RES 30% RES Elec. price Indus. 0,5% 22,0% 16,2% 26,0% 34,0% Elec. price Resid. -2,5% 9,1% 8,9% 13,3% 18,9% EU27 average electricity retailprices (variation between 2012 and 2030 levels) Price increase twice bigger in for Industry than for Residential 18

19 CO2 TARGET HAS A DECREASING EFFECT ON RES SUBSIDIES Achieving more ambitious CO2 objective for a given 20% RES target leads to a higher price For a given RES target, more ambitious CO2 target reduces subsidies to reach RES target More ambitious CO2 target makes CO2 prices increase Two contradictory effects of CO2 price on electricity retail prices - Higher CO2 price in production costs => retail prices increase - Higher CO2 price improves RES competitiveness => lower RES subsidies required for complying with target => decrease of electricity retail prices if financing is assumed by consumers Effect of CO2 increases generated by an more stringent emissions target is larger than decreasing effect linked to improvement of RES competitiveness Electricity retail prices increase with carbon constraint 19

20 RES TARGETS DO NOT GENERATE SUPPLEMENTARY CO2 REDUCTIONS RES development has only a marginal effect on emission factor of electricity generation Emission factor are almost unchanged for a given emission target But electricity retail prices higher : larger emission reduction costs For a given CO2 target, subsidizing RES does not decarbonize generation mix more than only with CO2 target 20

21 WITH CO2 TARGET, SUBSIDIZING RES IN 2020 AND 2030 HAS NO IMPACT IN 2050 Supporting RES in 2020 and 2030 accelerates their development to the detriment of centralized generation means, even the non emitting ones In 2050, impacts on centralized generation is different according the technologies More gas (emitting) and less nuclear (not emitting) because of lower carbon price EU27 in TWh Coal Gas Nuclear % -48-5% Generation difference between HCV cases without or with 2030 RES target in 2030 EU27 in TWh HCV present support HCV 20% HCV 30% Share of RES in generation mix remains around 52% with or without support in 2020 and 2030 In case of an ambitious carbon constraint, RES support has no impact on long term generation mix 21

22 AGENDA 1. FRAMEWORK OF THE STUDY CONTEXT ANALYTIC APPROACH 2. RESULTS ANALYSIS EFFECTS OF CO2 TARGETS CO2 ENR INTERACTIONS FINANCING RES SUPPORT 3. CONCLUSIONS 22

23 DIFFERENT OPTIONS FOR FINANCING RES SUPPORT Transfer in electricity retail prices Price increase not probable considering concerns about energy costs in Europe Integration in State budget through public spending Not compatible with present economic trends Impact on growth still to be addressed Financing through EU-ETS auctions revenues Half of their revenues should be dedicated to develop low emitting technologies according to European texts 23

24 COMPARISON OF EU-ETS REVENUES WITH RES FINANCING NEEDS NOCV Present supports induce a level of subsidies in 2020 of 25 G in 2020 European electricity retail prices remain stable from 2015 after a small decrease on the short term 24

25 COMPARISON OF EU-ETS REVENUES WITH RES FINANCING NEEDS LCV Present supports induce a level of subsidies in 2020 of 25 G in 2020 With low carbon price (LCV case, 12 /tco2 in 2013), auctioning revenues enough to compensate with RES support Limited CO2 price makes the electricity retail price remain unchanged from 2012 Financing present support with ETS auctioning revenues instead of electricity price has a very limited impact on electricity retail prices in the case of a limited carbon constraint 25

26 COMPARISON OF EU-ETS REVENUES WITH RES FINANCING NEEDS LCV & 20% RES Complying with 20% RES target in 2020 generates a strong increase of RES subsidies Lower CO2 price because of RES target means lower auctioning revenues In case of a low CO2 target, large financing unbalance More than 140 G RES subsidies in G of ETS auctioning revenues 125 G still to be financed (~2% of 2011 EU27 tax income) If RES subsidies are not integrated in electricity retail prices, they remain flat (but RES subsidies not financed) 26

27 COMPARISON OF EU-ETS REVENUES WITH RES FINANCING NEEDS HCV & 20% RES With HCV carbon target, ETS auctioning revenues enough to cover RES support Higher CO2 price - Higher ETS auctioning revenues - Lower RES support needed to reached the target Financing RES support with ETS auctioning revenues limits electricity retail increase to the only contribution of CO2 effects Considering budget balance issues, 2020 RES target is only realistic with a long term ambitious CO2 target 27

28 COMPARISON OF EU-ETS REVENUES WITH RES FINANCING NEEDS HCV & 30% RES 30% RES in 2030 target generates an additional volume of subsidies which cannot be financed by ETS auctioning revenues Enhanced RS target => lower CO2 price => lower ETS revenues From 2025, around 30 G / year still to be financed Financing RES support with ETS auctioning revenues limits electricity retail increase to the only contribution of CO2 effects Costs induced by a 30% RES target would have to be at the least partially financed by consumers because budget balance cannot be reached with EU ETS revenues 28

29 AGENDA 1. FRAMEWORK OF THE STUDY CONTEXT ANALYTIC APPROACH 2. RESULTS ANALYSIS EFFECTS OF CO2 TARGETS CO2 ENR INTERACTIONS FINANCING RES SUPPORT 3. CONCLUSIONS 29

30 CONCLUSIONS RES support is not a financially viable option for reducing emissions RES financing appears to generate some financing difficulties whatever provisions can be - When transferred in retail electricity price, RES subsidies needed to comply with targets increase electricity price incompatible with European energy price concerns - Using ETS auctioning revenues to cover RES subsidies is only possible if long term CO2 target is ambitious enough - Even in this case, auctioning revenues would not be high enough to balance 30% RES subsidies Implementing long term ambitious reduction target is a key issue in order to reduce costs linked to the adaptation of energy system CO2 price signal must be reserve from being depreciated by RES targets Considering emission reduction targets, even without supplementary support, RES will develop thanks to their competitiveness advantage given by carbon value 30

31 THANK YOU FOR YOUR ATTENTION Working paper available on Climate Economics Chair website : R Le-Strat-et-al.pdf 31