An Industry Perspective

Oliver Schaefer, Policy Director, European Renewable Energy Council

EUFORES, Interparliamentary Meeting, Berlin, 5-5th of October 2007

EREC – European Renewable Energy CouncilUmbrella organisation representing all RES sectors:

AEBIOM European Biomass AssociationEGEC European Geothermal Energy CouncilEPIA European Photovoltaic Industry AssociationESHA European Small Hydropower Association

ESTIF European Solar Thermal Industry FederationEUBIA European Biomass Industry AssociationEWEA European Wind Energy AssociationEUREC Agency European Renewable Energy Research Centres

Agency

Associate members:EU-OEA European Ocean Energy AssociationEBIO European Bioethanol Industry AssociationEREF European Renewable Energy Federation

Representation of European RES industry, trade & research

The Root of the Energy Problem for the EU

• We are going to import an ever growing share of our energy at unpredictable (but most likely higher) prices in competition with the rest of the world and at unbelievable environmental cost.

• Regardless of whether we are successful in energy diplomacy or not, we have no idea about the future cost of energy we will be paying to maintain current supply

Each dollar we spend on securing oil fields, borrowing money to pay for oil imports, or cleaning up an oil spill is an opportunity missed to invest in a sustainable energy

future

Richard G. Lugar Chairman, U.S Senate Committee on Foreign Relations, 30th

of March 2006

We are already paying for inaction

• For every $20 increase in the price of oil, the cost of Europe’s gas imports rises by €15 bn annually, given the unfortunate link between oil and gas prices

• The increase of oil prices over the past few years from $20 to $80 thus adds €45 bn. to EUs annual gas import bill

• For comparison, EU invested €9 bn. in wind energy in 2006

The forgotten COST: The REAL PRICE of our energy supply

Who is paying the real price?

The Electricity/Energy customer

The general populationIndirect burden via taxes, insurances and socialcontributions

The StateIncreasing environmental costs,„political“ costs

Global Loss of quality of life

Electricity/Energy Price

External Costs

Three targets on renewable energy, energy efficiency and greenhouse gases have beenagreed for 2020.

None of these targets has primacy over the others.

RES 2020 Target and Climate Change Package

The 20% by 2020 EU target will only be met if legislation is adopted timely.

The Directive should be in force as soon as possible in order not to cause market instability around 2010 (ending of RES-E & Biofuels Directives)

The Framework Directive must be adopted as soon as possible.

Division of the target

Division of the 20% target among Member States

How to best avoid lengthy negotiations ?

Each Member State increases its renewable energy share by 13 percentage points from today’s 7% to 20% in 2020.

Pre-Conditions for RES uptake• Change in Paradigm: individual responsibility for own energy supply, as

local and decentralised as possible• Households and private sector in general should primarily produce their

own heat and electricity from RES sources in an efficient environment• Combination with drastic change in consumption pattern and increase in

efficiency• Political commitment beyond ideologies and short term thinking to go for

strong national RES• Clear instruments, targets for rapid uptake and enforcement• High level of market penetration by Independent RES Power Production• Swift abatement of open and hidden harmful subsidies to incumbent

industry• As long as one or more of these conditions are not met – counterbalance

is necessity

Precondition for reaching the targets

• Renewable Action Plans with sectoral targets for – RES-electricity, – RES heating & cooling – Biofuels

• Interim targets every second year to check whether development is on track

• Penalities in case of not reaching the target• Ensuring: development of ALL renewable energy

technologies

Sectoral approach

• On Electricity: Provisions on grid issues and administration procedures must be maintained or strenghened.

• On Heating/Cooling: Proper definition, reliable statistics, renewable heat obligation

• On Transport: ensuring sustainability. Promote R&D for second generation biofuels.

Support Schemes in the RES-Electricity sector

• Harmonisation is premature at this stage.

• Nevertheless, a list of criteria applying to all national support mechanisms should be set to ensure successful deployment of renewable energy.

- Sustainability criteria should cover not only biofuels but also biomass whatever its final use (biofuels, food, construction, electricity...)

- Criteria such as greenhouse gas reductions could be covered by the cross compliance rules.

- No biomass outside these sustainability criteria should be counted towards the target.

Strong Sustainability Criteria

Ensuring sustainability on global level

• Imported products should comply with similar standards as the cross compliance rules to avoid competition distortion.

• If these existing schemes meet the defined European criteria, they should be recognised as eligible for certification.

EU-wide trading mechanism

• Such a trading mechanism requires sellers and buyers.

• So far Member States calling for an EU-wide trading mechanism only expressed an interest in buying, not in selling.

EU wide Trading Mechanism

There is no reason to introduce such an artificial mechanism if it is meant to:

• produce disincentives for domestic investment

• endanger prosperous support schemes• provide additional bureaucratic mechanisms.

Market Based System:

• It is not more “market oriented” to regulate prices rather than regulating quantities. The important thing is whether the regulation is effective.

• OPEC is not “market oriented” just because it uses quotas to regulate – it’s a cartel.

• WTO accepts price regulation not quantitative measures.

What does the investor in new capacity need

A stable mechanism that replicates a bankable long-term Power Purchasing Agreements!

•The longer the contracts…• … the lower the risk to investor• … the lower the cost to consumers• … the lower price/kWh required

•1 year contracts (spot market): Very expensive / kWh• 20 year contracts (Germany): Cheap / kWh• 10 year contracts: Certainty in investment period

Uncertainty will make it very expensive to meet the target

The Main Question to ask

Will the introduction of trade make it easier for MS to meet their targets cost effectively?

Will trade attract investors and increase their confidence?

What impact will trade have on existing successful mechanisms?

(NB: Trade is a tool, not an end-goal in itself)

Trading RE vs Trading Emissions

ETS:• When introduced there was nothing,

i.e. trade could only improve the situation

• Emission allowances does not require physical infrastructure

RE• We are seeing the concrete results of

the successful RES-E Directive, i.e. something can be ”disturbed”

• The product needs physical infrastructure (grids)

Our Main Concern

• National support schemes• Grid access and strategic grid planning• Planning and administrative procedures• Public acceptance

How will trading impact national frameworkswith regards to?

Adverse incentives

Disincentive to develop national frameworks, including planning procedures and strategic grid planning

Importing countries leaves the ”tricky” planning parts to exporting countries. Exporting countries bear grid operation, balancing and grid extension costs

Public acceptance could be reduced if a MS – via GC trading – is funding employment abroad, paying for foreign CO2 reductions while getting no benefit in terms of diversification, reduced imports, increased security of supply and lower prices from zero-fuel RE sources

What would be the competition element?

There is no incentive in the system to produce renewable energy most effectively

”Virtual trading” will create strategic gaming excersises where MS will adjust the national systems constantly to ensure payment is high enough to maintain domestic action (CO2 benefits, employment, economic activity) but not high enough to catch the attention of foreign exporters

Result: Initial high payments. After that an avalanche towards the lowes common denominator with a price reflecting the cost of producing the marginal kWh

Effect on existing national mechanisms

In MS with quota system:Producers will sell GC to UK / Italy. Existing investors experiance an immediate fall in ROCs prices the day the proposal is tabled

In MS with price system (feed-in or premium):Could become very costly as producers sell GC abroad at highest price possible, while the governement will have to buy back GC from abroad

“the issues relating to compatibility of support mechanisms and the desirability of not distorting cross border trade are concerns which are secondary to the main objective of ensuring a certain level RES production in each Member State on the basis of individual national targets”..

European Commission’s Strategy Paper “Medium term vision for the Internal Electricity Market” (1 March 2004)

Renewables Market Development in the EU

Cumulative Wind Energy Installed Capacity

Source: EWEA,GWEC

Average AnnualGrowth Rates

Europe 1995-2000 38.8%, 2000-2005 25.7%

World 1995-2000 29.4%,

2000-2005 27.8%

0

10

20

30

40

50

60

70

80

GW

Europe 4,8 6,5 9,7 12,9 17,3 23,2 28,72 34,64 40,89 48,54

World 7,6 10,2 13,6 17,4 23,9 31,1 39,43 47,62 59,09 74,22

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Relative Wind Energy Capacity in Germany and Spain with respect to the rest of EU (% MW)

•

Source: EWEA

73% 70%58%

27% 30%42%

80%

50%

20%

50%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2002 2003 2004 2005 2006

Germany & Spain Rest of EU-25

0

1000

2000

3000

4000

5000

6000

7000

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

MW

p EU

GLOBAL

  1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

EU         90 128 188 266 373 543 1089 1881 2730

GLOBAL 502 580 669 795 948 1150 1428 1762 2201 2795 3847 5152 6627

Cumulative Installed PV Capacities

Source: EPIA

PV

0

2

4

6

8

10

12

GW

Nuclear 2,7 3,1 2,7 4,8 1,6 4,8 3,8

Wind 3,4 3,8 6,5 7,3 8,2 8,2 11,8

1999 2000 2001 2002 2003 2004 2005

Annual Installed Global Capacity – Nuclear vs Wind

Geothermal Electricity

0,0

2,0

4,0

6,0

8,0

10,0

12,0

14,0

GW

EU-10 0,66 0,72 0,77

EU-15 4,0 5,0 7,9 8,9 9,2 9,4 9,7 9,8 9,8 9,8 9,4 9,9 10,5 10,6 10,8

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Small Hydro Power

Biomass

Source: Aebiom 2007 statistics report

Major barriers to be removed

• Failure of Governments to deliver:• Consequent action planning• Administrative capability and coherence• Public Information on RES• Sticking to promises given• Ability to agree to new, decentralised market

structure• Flexibility• Market incentives• Market Fairness

Further informationEREC

European Renewable Energy CouncilRenewable Energy House

63-67 Rue d’Arlon, 1040 Brussels, Belgium

www.erec.org

Thank you very much for your attention!

Global Energy [R]evolution Results:

Why Scenarios?• images of alternative futures• neither predictions nor forecasts• image of how the future could unfold• useful tools for investigating alternative future developments and their

implications

Scenarios help us understand the limitations of our ‘mental maps’ of the world – to think the unthinkable, anticipate the unknowable and utilise both to make better strategic

decisions

Scenarios can create a vision for the future and guide decision makers

Objective of the study:

Provide an outline of a global energy supply system that complies with key sustainability criteria

Key Targets:.

A) climate change:

Limit global mean temperature rise to below 2° C(-> “2 °C Scenario”)

B) TechnologyOnly proven technologies phasing out of nuclear energy on a global level

C) incentives for sustainable economic development

Approach

● development of a 10-region model (based on IEA regions)

● implementation of energy balances in MESAP/PlaNet, model calibration with IEA 2003 statistics

● economic development and population development according to IEA World Energy Outlook 2004 (extrapolated to 2050)

● Reference Scenario: based on IEA World Energy Outlook 2004 (extrapolated to 2050)

● Alternative Scenarios:

demand scenarios: Ecofys

supply scenarios: DLR

● Review process:

regional counterparts (academia, NGO)

EREC / Greenpeace

CO2-reduction target:

- Limit global mean temperature rise to < 2° C

- Reduce energy related CO2-emissions from 23 Gt/a today to ~ 11 GtCO2/a in 2050

- Per-capita emission rights in 2050: ~ 1 tCO2/a

0 5 10 15

Africa

China

Germany

OECD

World

The Logic of “energy (r)evolution scenario”

From principles to practice - Use the current “time window” for

Step 1: Energy Efficiency

Step 2: Structural Changes● Decentralised energy and large scale renewables ● Cogeneration

Step 3: Energy Efficiency and Transport● Efficient Public Transport Systems ● Efficient Cars, Trucks etc.● sustainable Biofuels

Scenario principles in a nutshell● Smart consumption, generation and distribution● Energy production moves closer to the consumer● Maximum use of locally available, environmentally friendly fuels

Energy Consumption and Economic Development in China (1980-2004)

Key facts:

● REF: CO2-emissions double till 2050 -> Climate Chaos

● Energy [R]evolution: CO2-emissions cut by half till 2050 -> Avoids dangerous climate change

~ 2015 onwards:

Energy [R]evolution cheaper

Further informationEREC

European Renewable Energy CouncilRenewable Energy House

63-67 Rue d’Arlon, 1040 Brussels, Belgium

www.erec.org

Thank you very much for your attention!