5 th Germany California Solar Day, June 16 th, 2009 Comparison of the Incentive Systems of the World s leading PV Markets Conclusions and Consequences Gerhard Stryi-Hipp Head Energy Policy Fraunhofer Institut for Solar Energy Systems ISE gerhard.stryi-hipp@ise.fraunhofer.de, www.ise.fraunhofer.de
We should leave oil before it leaves us Fatih Birol, chief economist IEA, March 2008 Brent Crude Oil price increased from $50 (Jan 2007) to $147 (July 2008) per barrel and dropped to $40 (Feb 2009) Very Good Reasons to Change our Energy Supply System Source: Societe Generale ENERGY SUPPLY IS NOT SECURE Energy import dependency is increasing FOSSIL AND NUCLEAR ENERGY SOURCES ARE FINITE Leads to exploding energy prices CLIMATE CHANGE REQUIRES ACTION CO 2 -emissions must be reduced CO 2 -Concentration is growing continuously (IPCC 2007) Fraunhofer ISE 2009 PV Incentive Programs, June 16th, 2009, San Francisco 2
The Sustainable Solution: Mix of Renewable Energies Quelle: Wagner & Co Only Renewable Energy Sources are everlasting are domestic energy sources are sustainable do not harm the climate are becoming increasingly cheaper increase domestic and regional added value are creating jobs Quelle: Solarwatt PHOTOVOLTAICS SOLAR THERMAL ENERGY WIND ENERGY BIOMASS BIOMASS HYDRO ENERGY Quelle: Aus BMU, Daten EE, Juni 2007 Fraunhofer ISE 2009 PV Incentive Programs, June 16th, 2009, San Francisco 3
The challenge: to build up and support PV markets globally to make PV cost competitive with other energy technologies CHALLENGE Today, PV is often the most expensive way to produce electricity from RES - but has the highest cost reduction potential Price learning curve PV modules (Silicon wafer based) WHAT TO DO? Enlarge production Use economy of scale effects WHEN SHOULD WE START? Start TODAY in order to have (1) enough solar capacity available when it is needed (2) at a competitive price Cumulative sold PV modules worldwide in MWp Source: Prof. Luther/Solar Generation, PVPS 2006 Fraunhofer ISE 2009 PV Incentive Programs, June 16th, 2009, San Francisco 4
PV world market perspective until 2030 of EPIA/Greenpeace* 1,6 Year 2010 2020 2030 New installed PV power in GWp Value of PV market in Bln Euro Module area in Mio m² ** * Solar Generation V 2008, published in 2008 ** own calculations 7 6.9 56 281 26 139 454 56 390 1600 56 281 Annually installed PV power worldwide in GWp 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 Growth rate: 28%/a Growth rate: 18%/a Fraunhofer ISE 2009 PV Incentive Programs, June 16th, 2009, San Francisco 5
How to stimulate the PV market? The basic idea of feed-in tariffs Key question: Which power stations should be installed today? Usually: Utilities decide on the types of power stations depending on their economic interests because they are doing the investments/bear the risks If governments want to increase the share of renewables, they have generally two options: Oblige the utilities to invest in renewables => QUOTAS Target: guarantee, that a specific amount of electricity is produced with renewables Attract new investors to invest in renewables => FEED-IN TARIFFS Target: Make investments in renewables financially attractive and secure for everybody Fraunhofer ISE 2009 PV Incentive Programs, June 16th, 2009, San Francisco 6
Different strategies are available to support PV market development - the appropriate instrument depends upon different target groups Power producer Grid operators Consumer Feed-in tariff Quotas/Certificates* Grants/Tax incentives * USA: Renewable Portfolio Standard - RPS Fraunhofer ISE 2009 PV Incentive Programs, June 16th, 2009, San Francisco 7
Germany: PV boom by feed-in tariff Small, Medium and Large Rooftop Installations Image: SMA Image: Wagner & Co Image: Frankensolar Image:Solar-Fabrik Fraunhofer ISE 2009 PV Incentive Programs, June 16th, 2009, San Francisco 8
Basis of the German Success in Renewable Energy Sources: Continuous Policy to Increase the Share of RES Development of the share of Renewable Energy Sources in final energy consumption RES share in % 30 25 20 15 10 5 0 4.8% 30% 1998 2000 2002 2004 2006 2007 14.2% 14% 2020 3.5% Fraunhofer ISE 2009 PV Incentive Programs, June 16th, 2009, San Francisco 9 6.6% 1998 2000 2002 2004 2006 2007 year 1998 2000 2002 2004 2006 2007 2020 target 3.1% 18% 8.5% electricity heating & cooling final energy consumption 2020 1998 2000 2002 2004 2006 2007 2020 Source: German Federal Ministry for Environment, March 2008
Share of Solar Electricity in Germany Share of PV solar electricity - of overall electricity consumption 2007: 0.72% - of renewable energy electricity 2007: 3.5% Distribution of Renewable Energy Electricity Production in Germany 2007 Wind energy 38.5 TWh; 48% Photovoltaics 3.0 TWh; 3.5% Bio energy solid 6.6 TWh; 8% Total RES electricity production 2007: 86.7 TWh RES share of electricity consumption: 14.3% Hydro energy 21.7 TWh; 27% Bio gas 8.9 TWh; 11% Bio energy liquid 1.2 TWh; 2% Geothermal 0.1 TWh; 0.1% Source: BEE, Jan 2008 Fraunhofer ISE 2009 PV Incentive Programs, June 16th, 2009, San Francisco 10
Development of the German PV market PV Market Data 2008 Newly installed power 1 500 MWp Total installed power 5 334 MWp No. of total systems installed ca. 500 000 Turnover 2008 6 Bln / $ 8.1 Bln Employees 45 000 Milestones 1991: First Feed-in Law (FIT with low tariffs) 1991-1995: 1,000 roofs program (grants) 1999-2003: 100,000 roofs program (loans) 2000: Renewable Energy Sources Act (EEG) (FIT) 2004: Amendment of EEG (FIT) 10 12 40 3 3 3 3 4 7 12 78 1500 1100 850 850 600 150 80 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 annually installed PV power in MWp total installed PV power in MWp 5500 5000 4500 4000 3500 3000 2500 2000 1500 1000 500 0 Total installed PV power in MWp Fraunhofer ISE 2009 PV Incentive Programs, June 16th, 2009, San Francisco 11
How does the feed-in mechanism work? Principles Government Provides for grid access, sets feed-in tariffs Feed-in remuneration renewable electricity RES-E Producer Utility conventional electricity Electricity consumer Payment for conventional electricity + FIT-bonus Priority connection for all PV systems granted Each solar kwh must be purchased by the utility Fixed feed-in tariff payment over 20 years Reduction of the feed-in tariff annually by ca. 9% for newly installed PV systems ct/kwh 60 50 40 30 20 10 0 FIT for residential PV systems and electricity rate in Germany 2005 2010 2015 < 30 kwp FIT electricity rate (+3%/a) Grid parity will be reached in 2015 Fraunhofer ISE 2009 PV Incentive Programs, June 16th, 2009, San Francisco 12
How to calculate a Feed-in tariff The FIT shall make the investment profitable: INCOME = COSTS + PROFIT Example calculation for 1 kwp in Germany Electricity production 1000 kwh/year Average yield expected x Payment period x 20 years minimum lifetime x Feed-in tariff x 43ct to be calculated Income* 8600 Total over 20 years Investment costs 4000 Market price expected + Financing costs* + 1300 Expl: 60% loans with 5% interest rates + Maintenance/other costs* + 1450 Expl: 1.5% of the investment costs/a Costs* 6750 Total over 20 years + Profit* 1850 = 7%/a Total over 20 years Profit should be: - high enough to stimulate the market and - as low as possible to limit the additional costs to the rate payers * Values have to be discounted, actual cash value has to be considered Fraunhofer ISE 2009 PV Incentive Programs, June 16th, 2009, San Francisco 13
German feed-in tariffs for PV in 2009 PV systems, which are installed in 2009 receive this feed-in tariff for 20 years Feed-in tariff < 30 kwp > 30 kwp > 100 kwp > 1000 kwp Image: Solar-Fabrik On buildings and on noise protection walls 43.01ct $ 58.1ct 40.91ct $ 55.2ct 39.58ct $ 53.4ct 33.00ct $ 44.6ct Free land / ground mounted 31.94ct $ 43.1ct 1 = 1.35 $ Fraunhofer ISE 2009 PV Incentive Programs, June 16th, 2009, San Francisco 14
Germany: Market Segments of on-grid PV Systems Ground Roof top BIPV mounted Effort of mounting residential homes 1-10 kwp 27% Image: Solarwatt Market share in 2006 Image: Schüco 1% Image: Grammer multi family houses, public + social buildings, farms, commercial plants 10-100 kwp 49% Image: Solarwatt Image: BP 10% Image: Sulfurcell Large commercial > 100 kwp 13% Size of the system Image: Geosol Image: Phoenix Fraunhofer ISE 2009 PV Incentive Programs, June 16th, 2009, San Francisco 15
Grid-Connected PV Systems in Germany Each kwh of solar electricity produced is fed into the grid, sold to the utility and paid at a fixed price Typical data of a small PV system (per kwp) Investment costs: 4,000 $ 5,400 Annual production of solar electricity: 900 kwh/a Feed-in tariff: ct 43.01/kWh $ct 58.1/kWh paid over 20 years Feed-in payment: 387/a $ 522/a Interest rates (KfW): 4%/a eff 1 = 1.35 $ Fraunhofer ISE 2009 PV Incentive Programs, June 16th, 2009, San Francisco 16
Two Ways of Connecting PV Systems to the Grid USA: Net-metering Solar electricity is used for own consumption first, only excess electricity is fed into the grid Germany: Feed-in tariff Solar electricity is exclusively fed into the grid Fraunhofer ISE 2009 PV Incentive Programs, June 16th, 2009, San Francisco 17
Development of feed-in tariffs for PV within the German EEG With increased degression rates as of 2009 ct per kwh 60 55 50 45 40 35 30 25 20 15 10 51,8 48,74 40,6 49,21 46,75 46,3 43,99 37,96 35,49 20ct/kWh $ 27ct/kWh Retail electricity price 43,01 39,58 31,94 39,57 35,62 36,01 32,41 32,77 29,49 28,75 26,16 23,81 Grid parity will be reached between 2012 and 2015 29,82 26,84 27,14 24,7 24,42 22,22 21,67 19,72 17,95 22,48 20,46 20,22 18,4 16,33 14,86 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 facades < 30 kwp > 30 kwp > 100 kwp >1000 kwp Ground mounted electricity price (+3%/a) Fraunhofer ISE 2009 PV Incentive Programs, June 16th, 2009, San Francisco 18
Strengths of Feed-in tariffs Investments in PV systems are financially attractive => Profit is the driver of the PV market Investment security enables market entrance of new PV actors => New actors are entering the power market (competition) The additional costs are distributed to all electricity consumers => Small contribution of individuals / polluter-pays-principle The additional costs are distributed over a long period (e.g. 20 a) => Only the kwh produced is remunerated (output-oriented) PV price reduction triggered by degressive feed-in tariffs => Investments are not postponed Each RES technology can be supported individually => The profit is technology-independent Challenges of Feed-in tariffs It is difficult to limit market growth without disturbing the market development => A strategy is needed if market development exceeds the expectations The costs are growing continuously until the payment period of the first plants ends => A realistic calculation of the additional costs is recommended Fraunhofer ISE 2009 PV Incentive Programs, June 16th, 2009, San Francisco 19
Utilities oriented: quota & certificate model Power Producer Distributors Consumer Feed-in tariffs Quotas/Certificates* Grants/Tax incentives *USA: Renewable Portfolio Standard Fraunhofer ISE 2009 PV Incentive Programs, June 16th, 2009, San Francisco 20
How does the quota system work? The Governement oblige the utilities that a specific share of the electricity they sell has to come from RES Government renewable electricity Utility Consumer conventional electricity RES electricity bought from independent producers or produced by the utility Payment for electricity include eventually higher costs for RES Fraunhofer ISE 2009 PV Incentive Programs, June 16th, 2009, San Francisco 21
Quota system in the USA Fraunhofer ISE 2009 PV Incentive Programs, June 16th, 2009, San Francisco 22
Quota & Certificate Systems Advantages Theory: market oriented RES market growth can be controlled Same idea than emission trading Disadvantages Practice: higher prices than Feed-in tariff systems High risks for investors => favors large actors Only the cheapest option / technology is used High administrative costs Lower market stimulation = lower efficiency than FIT Fraunhofer ISE 2009 PV Incentive Programs, June 16th, 2009, San Francisco 23
Consumer oriented support policies Power Producer Distributors Consumer Feed-in tariffs Quotas/Certificates Grants/Tax incentives Fraunhofer ISE 2009 PV Incentive Programs, June 16th, 2009, San Francisco 24
Consumer oriented support schemes Target: Reduction of investment costs in order to make the investment financially more attractive Types of support schemes Fiscal (tax) incentives For target groups which are paying tax Grant programs Mostly depending on state budgets Low interest loans If loans are mainly used to finance the RES system Fraunhofer ISE 2009 PV Incentive Programs, June 16th, 2009, San Francisco 25
Photovoltaic markets worldwide 2007 and 2008 Europe NA Asia+Austr. RO World Australia India South Korea * China Japan*** Canada * USA** RO Europa Czech Rep. * Belgium * Portugal * France * Italy * Spain * Germany * 195 224 40 20 70 50 290 43 50 20 230 210 20 13 53 25 20 2 20 10 42 15 31 70 305 150 220 500 512 in MWp 2006 2007 2008 Asia 308 (19%) 344 (13%) 653 (11%) America 145 (9%) 318 (12%) 520 (9%) Europe 996 (62%) 1.800 (68%) 4.605 (77%) RO World 151 (9%) 187 (7%) 222 (4%) World 1.600 2.650 +66% 6.000 +126% 1500 1100 2600 Red: 2008 Green: 2007 0 500 1000 1500 2000 2500 in MWp 3000 * Feed-in Tariffs ** USA: Quota system + Tax incentive *** Japan: Grants Source: National PV-Associations, update March 2009 Fraunhofer ISE 2009 PV Incentive Programs, June 16th, 2009, San Francisco 26
Conclusions PV market perspectives are very positive but building up PV markets needs continuous support until electricity cost competitiveness is achieved The strongest PV markets are driven by feed-in tariffs Feed-in tariffs has proven the most successful and economically most efficient way to develop PV markets The spanish experience shows that the feed-in tariff has to be calculated carefully and the PV market development has to be continuously evaluated and optimized Fraunhofer ISE 2009 PV Incentive Programs, June 16th, 2009, San Francisco 27
PV facade with green solar cells, sports stadium Tübingen Image: Suntechnics, Sunwa Thank you very much for your attention Fraunhofer ISE 2009 PV Incentive Programs, June 16th, 2009, San Francisco 28