Post on 05-Feb-2016
description
Learning from Feed-in Tariffs
Dr. Axel Bree
Roadmap of Presentation
• Introducing WFC• The Problem• Policy Solutions• Design of Feed-in Tariffs
• Tariff• Period• Burden Sharing• Purchase Obligation
28th June 2008 Alexandra Wandel | Development Director| alexa@worldfuturecouncil.org
Who we are
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The World Future Council
• consists of fifty highly respected figures represented in governments, civil society, business, science, education and the arts from all five continents
• is an integrated global forum based on mutual ethical values, highlighting our responsibilities as citizens of the earth
• strives to mobilise moral energy and political will to protect the rights of future generations
Breakthrough for Renewable Energy:South Australia, UK, USA
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• South Australia has implemented a law to promote renewable energy. South Australian Premier Minister Mike Rann highlighted explicitly the role of the WFC with regard to the implementation and realization of the law.
• The renewable energy law has a good chance to be passed in UK. WFC has advised the leading decision makers on legislative procedure. By now a large coalition (led by FoE and REA) pushes for the adoption of a FIT amendment.
• On the basis of WFC activities there are further parliamentary legislative initiatives in California, Michigan, Minnesota, Hawaii and Washington DC.
What is the problem?
• Increasing CO2 and temperature levels• Increasing energy consumption• Increasing fossil fuel prices• Increasing volatility of energy prices
Barriers to Market Entry for RES
Costs and pricing: distortion from subsidies for competing fuels; fluctuation of oil and gas prices; high initial capital costs; environmental externalities
Legal and regulatory: Lack of legal framework for independent power producers; planning restrictions; grid access; liability insurance requirements (net metering)
Market performance: lack of access to credit; Perceived technology performance uncertainty and risk; Lack of technical or commercial skills and information
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Distorted market conditions
Source: BEE, Lackmann, 2005
Performance and Targets of Eastern European Countries
Renewable Energy Payments (Feed-in systems) in Europe
Source: Klein et al. 2006: Evaluation of different feed-in tariff design options – Best practice paper for the International Feed-in Cooperation.
Quota vs. FIT System
Quota•Closer to market approach •Promote least cost technologies and large scale projects•Provide certainty of future market share•Higher risk -> risk premium•Administrative burden
FIT•Long-term investment security•Equal chances for all technologies•Lower costs•No upper limits•Incentives can be set via tariff
Installed RE capacity in Germany and the UK (1990-2003)
Germany – Feed-In system
UK – Quota-System- and Auction-based systemSource: Butler/Neuhoff 2004, Cambridge Working Papers in Economics
28th June 2008 Alexandra Wandel | Development Director| alexa@worldfuturecouncil.org
Effectiveness vs Costs
0
1
2
3
4
5
6
7
8
9
10
0 20 40 60 80 100 120
kWh/cap/yr
Cos
ts (c
/kW
h)
ES
SE
ATDE
UK
IT BE
Source: Haas et al 2006
Tradable certificates vs FITs
Comparison of Quota TGC and Feed-in Tariffs
Pieces of the FIT Puzzle
Tariff period
Purchase obligation
Burden sharing
Tariff level
Tariff Level
• Generation costs / avoided external costs
• Fixed tariff / premium tariff• Stepped up tariff (wind yield, plant
size, fuel type) / flat tariff
Premium Tariff
Premium is paid on top of electricity market price(ESP, CZ, SI, NL, DK)Advantage for producer when energy prices are
highHigher oil prices lead to higher cost per kWh
RES-E + higher comparability with liberalised energy
markets- Higher risk for producer (no purchase
obligation)- Solution could be a top or bottom limit (as in
DK)
Costs
• Connection to the grid: paid by the plant operator
• Essential grid upgrades: paid by the grid system operator
• Metering devices: paid by the plant operator• RE contribution: paid by consumer (only 3,5%
of bill)• EEG added €2.94 to the monthly electricity bill
per household in 2007 (equivalent to a pint of beer or a Starbucks latte!)
Advantages of Renewable Enery Payments at a glance
Overcomes barriers: guarantees grid access; premium price guarantees support for the technology; 20-year tariff periods allow full investor confidence.
Supports installations of different sizes and technologies: In addition to large RE projects for wind, solar etc, householders can now get a guaranteed payback on a solar roof in just a few years, rather than 20-30 years. The 100,000 solar roof programme helped meet costs with subsidies.
Promotes innovation: Annual reduction of tariffs for new installations drives technological efficiency.
Drives economies of scale: investment and demand are rising, and manufacturing expansion is taking place globally in response, lowering costs further.
Promotes stability: Change of government does not affect system, as it does not cost taxpayers anything through taxes, and so cannot be cut from national budget.
Promotes public support: Through public participation in the scheme, no direct taxpayer costs, support for the nuclear phase-out, and awareness levels being very high in general.
All possible when implemented properly!
Renewable Energy Payments under the EEG for 2008
2008 € Cent/kWh
Degression
Hydropower 3.58 - 9.67 0%
Biomass (<20 MW) 7.91 - 20.83 1.5%
Geothermal Energy (<20MW) 7.16 - 15.00 1.0%
Wind energy (onshore) 5.07 - 8.03 2.0%
Wind energy (offshore) 6.07 - 8.92 2.0%
Solar energy 35.49 – 51.75 5% - 6.5%
Why have Renewable Energy Payments been so successful?
• 12-20 year contracts create long term planning security Crucial to investors
• Gives technology-specific incentives Crucial for driving new technologies into the market
• Adapts to technological development Fosters innovation
Impact of the EEG – Economic benefits
• Approx. 134.000 jobs in the field of renewable energy technologies created by the EEG RE overall 249.300 jobs in 2007
• Approx. € 14.2 billion turnover through the EEG RE overall € 25 billion turnover in 2007
• Avoided external costs approx. € 3,4 billion (in 2006)
• Avoided energy imports approx. € 1,0 billion (in 2006)
How would you best replicate the German system of feed-in tariffs/subsidies?
Apply the following formula to pricing:
(investment cost + operating cost)/
expected production over service life
= compensation per kilowatt hour.
Add on a reasonable profit margin, and voilà -- you have your rate per system type (size / source, etc.).
Now estimate cost decreases due to expanding market and reduce your rates accordingly. Revisit every few years to tweak the figures.
Check out: www.onlinepact.org and www.AllianceforRenewableEnergy.org
www.worldfuturecouncil.org
Thank you for your attention.
Economic Impact: Development of New Industry
Total Turnover from Renewable Energy Sourcesin Germany, 2007
Geothermal energy
EUR 600 m1)
(2.4 %)
Wind energy 5,700 mill. Euro
(22.8 %)
HydropowerEUR 1,230 m
(4.9 %)
Solar energy EUR 7,270 m
(29.0 %)2)
Biomass EUR 10,230 m
(40.9 %)
Total: approx. € 25 billion
1) Large plants an heat pumps2) Photovoltaics and solar thermal energy; Version: June 2008; all f igures provisional
Source: BMU-Brochure: "Renew able energy sources in f igures – national and international development", KI III 1; Version: June 2008; provisional f igures
Source BMU 2008
Renewable Energy Payments have made Germany the world leader in solar power
54% of all solar power capacity worldwide is located in Germany
Renewable Energy Incentive Policies
• Feed-in tariffs• Quota obligation
system • Tender• Tax incentives, grants
Solar is a growing market
Installed capacity and energy supplyfrom photovoltaic installations in Germany, 1990 - 2007
8 11 161 2 3 6 2,22
0
1,28
2
557
313
18811664423226
3,50
0
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
[MW
p]
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000[G
Wh]
Electricity supply [GWh]
Installed capacity [MWp]
Source: BMU-Brochure: "Renew able energy sources in figures – national and international development", KI III 1; Version: June 2008; provisional f igures
Jobs in the renewable energy sector in Germany in 2007
Source: BMU March 2008
Climate Impact: Reducing CO2 Emissions
Total CO2 avoidance via the use of renewable energy sources in Germany, 2007
22.5 million t 34.0 million t 20.1 million t
19.5 million t
2.4 million t
0.5 million t
0.9 million t
15.0 million t
0 10 20 30 40 50 60 70 80 90
Fuels
Heat
Electricity
CO2-avoidance [million tonnes]
Hydropower Wind energy Biomass Photovoltaics Geothermal energy Solar thermal energy Biofuels
79.1 million t
20.9 million t
15.0 million t
Total: approx.115 million t from this approx. 57 million t
through the EEG
Deviations in the totals are due to roundingSource: BMU-Brochure: "Renew able energy sources in f igures – national and international development", KI III 1; Version: June 2008; provisional f igures
Source: BMU March 2008
Quota Obligation/Tradable Green Certificate System (Example Poland)
• Companies selling electricity to final consumer must satisfy quota obligation (2008: 7.0%)
• TCGs guarantee compliance with quota obligation• TCGs are granted to RE producers per MWh• RE producer sells TCGs separatly• Price is determined by market and technology neutral• Substitution fee, penalty• Additional obligation to buy all RES at average market
price
Sir Nicholas Stern (former Chief Economist and Senior Vice-President of the World Bank):
„Comparisons … suggest that [pricing] mechanisms achieve largerdeployment at lower costs. Central to this is the assuranceof long-term price guarantees….
Uncertainty discourages investment and increases the cost of capital as the risks associated with the uncertain rewards require greater rewards.“
– Stern Review: The Economics of Climate Change p. 366
Reduced risk: Renewable Energy Payments (in Europe known as Feed-in Tariffs) deliver lower prices compared with renewable energy certificates
Solar Resource and Market
U.S .: ~150 MW PV in 200710-20% capacity factor Germany: ~1000 MW PV in 2007
9-13% capacity factor
Solar Resource Availability: NREL, PV Capacity Additions: SEPA
Déjà Vu
We have always used nature‘s energy for our needs
Development of electricity generation from RE in Germany, 1990-2007
Source: BMU March 2008
How the EEG Works
Criteria for effectiveness of Incentive Instruments
• Long term planning security• Differentiated assistance for different types of technology and scale of
plants• Political feasibility and administrative applicability