Sectoral Approaches - Enel Presentation Eliano Russo Generation and Energy Management Division Paris 2007, 9 th October
Overview ETS Trial Phase what could be improved Italian overview Enel actions A new possible approach 2
Italian efficiency GDP Energy Intensity* CO 2 Emissions per unit of GDP** CHINA SWEDEN USA EU 25 GERMANY SPAIN FRANCE JAPAN UK ITALY 0 0,03 0,06 0,09 0,12 0,15 0,18 0 0,1 0,2 0,3 0,4 0,5 0,6 0,7 Italy s s current high energy and emission efficiency levels make emissions reduction a very hard task (*) Koe per $USA 1995 (**) Kg CO 2 per $USA Source: Enerdata database (January 2005) 3
Examples of CO 2 abatement costs in 5 European countries Carbon value in US$95/tC 400 350 300 250 200 150 % necessary reduction to reach the respective KYOTO objective Italy France UK Germany Spain 100 50 0 0% 10% 20% 30% 40% Carbon emissions reductions (in %) The Italian marginal CO 2 reduction cost is double the value of other main EU countries Source: MIT - Carbon Emission and the Kyoto Commitment in the European Union 4
Some lessons learned from the EU ETS trial period (1) Comparison between allocated allowances and CO 2 emissions in 2006 (%) -21,9-22,5 LTU EST LVA FRA 17,7 SVK 16,2 LUX 16,0 HUN 14,6 CZE 13,7 POL 11,9 SWE 11,6 NLD 11,2 PRT 10,4 BEL 8,6 DEU 3,7 GRC 1,7 AUT 0,8 FIN 0,0-1,7 SVN -8,9 ESP -10,9 ITA -12,8 IRL GBR DNK 27,5 33,5 38,4 Allocations across countries reflect non- homogeneity of an irrational Burden Sharing Agreement Preliminary estimates 5
Some lessons learned from the EU ETS trial period (2) Sectoral difference between allocated allowances and CO2 emissions in 2006 (%) EU 25 Italy Public Power & Heat -4,9 Public Power & Heat -17,8 Oil & Gas 6,1 Oil & Gas 7,1 Cement Lime Glass 6,1 Cement Lime Glass -4,8 Metals 18,4 Metals 8,2 Pul & Paper 25,8 Pul & Paper -1,2 Other 23,2 Other 12,0 All sector 2,0 All sector -9,8 Allocations reward overly all industrial sectors but electricity Source: European Commission DG ENV 6
Some lessons learned from the EU ETS trial period (3) Coal generators (2005) 1.24 Allowances/generation (t/mwh) Surplus/deficit allowances/emissions (%) 0.96 0.92 0.83 0.82 0.69 Generator 1 lignite (DE) Generator 2 (FR) Generator 4 (DE) Enel (IT) Generator 5 (ES) Enel Viesgo (ES) -0.3% 7% -0.1% - 14% - 22% - 30% The criteria adopted in different NAPs penalized some operators independently from their environmental performance 7
CO 2 Emission Trading Scheme: trial period Enel Shortage (Mton) 2.1 0.7 11.4 2.8 19.4 2005-2006 already hedged through EUAs Acquired on the market 2007 expected shortage already largely hedged 8.0 2005 2006 Cumulated shortage 2005-06 Domestic G&EM International 8
EU, Italian and Enel generation mix Fuel Mix in 2004 (%) Enel s target EU 25 Italy Enel 4% 20% 39% 29% 29 % 20% keep open nuclear option 31% 31% 14% 27% 15% 19% 19% 25% 25% 27% 27% 50% 30% increase clean coal generation develop renewables eliminating fuel oil NG only in high efficiency CCGT Nuclear Fuel oil and Gas (no CCGT) Gas CCGT Coal Renewables 9
CO 2 Emission Trading Scheme: 2008-2012 Variable cost 1 @CO 2 = 20 /ton Italian NAP Fuel Cost 2 CO 2 37 15 22 Coal 55 7 48 CCGT Based on 2005 production Best available technology benchmark differentiated by fuel Coal allowances partially sold CERs 15% limit Sourcing initiatives More than 40 ERPAs signed for a global potential amount of 16 Mtons/yrs (single digit price) Further initiatives under negotiation No major impact on Enel s strategy 1. /MWh 2. Based on 2007 fuel costs 10
EU ETS review: outline of Enel position Balanced targets Adopt a bottom-up approach based on benchmarks differentiated by fuel and technology Security of supply The EU ETS should be compatible with an appropriate diversification of the energy mix Predictability of regulatory framework Make the allocation period longer (10 years) Earlier decisions on allocations (5 years) Inclusion of other sectors Reduce overall costs Select available options Evaluate possible alternative policies 11
What should the European Union do? External competitiveness Maintain its leadership, but give up the unilateral approach Be prepared to adjust policies and measures to the post 2012 architecture resulting from international negotiation Internal fair competition Individual targets to be identified at sectoral level based on technology and fuel Carefully review the EU-ETS Directive 12
Enel commitment to reduce CO2 emissions Voluntary agreement signed with the Italian Minister of Environment in 2000 Enel committed itself to reduce its specific emission to 510 g CO 2 /kwh by 2006 [ - 20% with respect to 1990] Average CO 2 specific emission per technology gco 2 /kwh 740 Enel conversion plan 360 770 636 Enel specific emission trend gco 2 /kwh 519 Target (510) <500 <500 Oil Plant CCGT Plant New Coal Plant 1990 2003 2006 2008 Overall conversion plan to achieve emission reduction (target exceeded) and fuel diversification (using most efficient technologies) 13
Enel s actions for combating climate change 1. Energy Efficiency 2. Renewable 3. Conversion thermoelectric plants 4. CDM 5. Research & Development Smart consumption Distribution of low consumptions bulbs Promotion of high efficiency electric devices Efficiency of electric public lighting Invested 1.1 Billion for the period 2003-06 Further planned investments for 1.6 Billion for next 5 years Conversion Plan of thermoelectric plants from oil to high efficiency combined cycle gas and to clean coal Sponsorship for industrial projects with the objective to reduce green house gases according to Kyoto Protocol procedures in developing countries Forefront research activities for electric generation from solar and hydrogen Research activities on carbon sequestration technologies Target 2009: Avoided CO2 emissions for more than 4Mton/year Target 2009: 3TWh of Green Certificates 2MTon of avoided CO2 emissions - Conversion plan of 5.000MW to combined cycle gas - Under construction 2.000MW clean coal plant (Civitavecchia); other activities under developing Currently activities for more than 15 Mton/year A firm and persevering effort 14
Enel CO2 reduction projects in developing countries Clean Development Mechanism projects signed or under negotiation by Enel Contracts already signed China > 45 renewable energy projects 3 HFC-23 projects Guatemala 2 hydro projects Deals already closed (MtonCO 2 eq./year) TOTAL India 2 HFC-23 projects 2007 2008 2009 2010 2011 2012 5-6 >15 >15 >15 >15 >15 Contracts under negotiation Countries: China, India, Brazil Projects: more than 10 Renewable, 10 Iron & Steel (Energy efficiency), 4 Chemicals, 1 Coal Mine Methane. 15
CDM & JI Present situation 4th October 2007 Mton CO2 eq. (up to 2012) HFC-23 41,3% 16 projects Point Carbon Database N2O 14,8% 13 projects UNFCCC web site for comments Landfill 9,8% 57 projects Renewables 17,5% 439 projects 2952 (3068 projects) 2320 (2544 projects) 1086 (805 projects) 83 (252 projects) PDDs Commented EB/SC Issued Registered by Executive Board or Supervisory Committee Others 16,7% 280 projects Overall CERs market dimension is equal to 168 Mton CO2e/year; 56% of the volumes generated by only 29 projects. Source: Point Carbon and UNFCCC 16
IEA Reference Scenario Energy-Related CO 2 Emissions by Fuel 50 Gtons 40 30 20 Increase of 14.3 Gt (55%) 10 0 1990 2004 2010 2015 2030 Coal Oil Gas Half of the projected increase in emissions comes from new power stations, mainly using coal located in China and India 17
The basis for a new approach EMISSIONS PER PRODUCT UNIT (t/million$) Very high emissions per product unit in developing countries Bringing all countries to the level of most efficient countries represents an enormous reduction potential 1600 1200 800 400 0 World GDP 34.400 billion $ Japan EU-15 North America Top Performance 200 t/million $ x = Total hypothetical emissions 6.880 million tco2 Non OCSE World real emissions 23.684 millions tco2 Reduction Potential: 70% These elements suggest a more flexible and less expensive approach may be possible 18
Potential of best available existing technologies in the power sector Emissions per unit output from coal-fired thermal power generation vary widely 1300 1200 1100 1000 900 800 700 600 500 Best available technologies EMISSIONS PER UNIT OUTPUT (kgco2/mwh) China India Bringing Chinese coal generation fleet to BAT could avoid over 800 million tons of CO 2 /year by 2020 Bringing Indian coal generation fleet to BAT could avoid an additional 300 million tons of CO 2 /year by 2020 19
Post-2012: a few key elements A new global approach to climate change Involvement of all countries including the USA and Developing Countries More incentives Less sanctions No constraints to development Targets must be based on technological potential Set targets on a long term basis Short term: exploit best available technologies (deployment) Long term: promote new technologies (development) Improve cooperation Private- public partnership Financial tools Regulatory frameworks to stimulate investments 20
Promotion of a new approach for post-2012 PRESENT APPROACH A NEW, MORE EFFICIENT APPROACH Top-down assignment of absolute caps Strict cap and trade model, only applied to few countries Insufficient results in terms of global emissions reduction High implementation costs for certain countries Flexible mechanisms still requiring strong political, financial and organizational efforts A new method capable of reconciling: Economic Efficiency: reducing emissions where it is less costly Effectiveness: producing significant results in terms of emissions reduction Inclusiveness: involving all countries, through objectives differentiated on the basis of economic and social contexts Equity: in targets allocation among sectors and countries Flexibility and easy implementation Incentives to the adoption of innovative technologies Enel is working with several other interested parties to define the new approach 21