Phasing out economic support to mature renewables?

Phasing-out economic support to mature renewables?

Drivers, barriers and policy options

Luis Janeiro

23/09/2016

© ECOFYS | |

Contents

1. Background and scope of the study

23/09/2016 Luis Janeiro2

2. Mature renewables and costs of support

3. When can economic support be phased-out?

4. Drivers and barriers to phase-out support for renewables

5. Policy options towards the phase-out of support

6. Conclusions

© ECOFYS | |

Contents







6. Conclusions

© ECOFYS | |

Intense dialogue and institutionalised

consultation process of the relevant

stakeholders at policy, industry and expert level.

Promotion & dissemination of

the project results.

Background of the study (I)


http://towards2030.eu/

Dialogue on a RES policy framework for 2030

Analysis of the key policy pathways towards 2030,

including different policy portfolios and pathways towards

convergence.

Identif ication and analysis of the consequences of striving

for weak, moderate or strong 2030 RES targets.

Identif ication of key regulatory challenges and barriers for

electricity market design and system operation.

Assessment from an integrated, overall policy perspective,

relevant major external developments impacting on

post-2020 RES development and policy making in

the EU.

Project partners:

CEPS | Fraunhofer ISI | EPU NTUA | ECOFYS | European

University Institute | Vienna University of Technology |

ECN | CSIC | REKK

http://towards2030.eu/

© ECOFYS | |

Background of the study (II)


> ‘Phasing out economic support to mature

renewables? Drivers, barriers and policy options’

– Janeiro, L; Klessmann, C. et al. (June 2016)

– Report compiled within the European IEE project

towards2030-dialogue.

– Available from: http://towards2030.eu/the-

project/results

http://towards2030.eu/the-project/results

© ECOFYS | |

Research question


> Under which conditions can support to mature RES-E

technologies be phased-out without endangering the

achievement of the EU 2030 RES-E targets?

© ECOFYS | |

Scope of the study


> Major and most mature RES-E technologies (i.e. solar PV and wind onshore)

> Competitiveness in the wholesale power markets

> Geographical scope: European Union

© ECOFYS | |

Contents







6. Conclusions

© ECOFYS | |

Mature renewables


Source: Eurostat (nrg_113a) Available from: http://ec.europa.eu/eurostat/statistics-explained/index.php/Energy_from_renewable_sources

© ECOFYS | |

Cost reductions for PV and wind


Solar PV module prices by technology and manufacturing country sold in Europe (USD2014/W)

Source: IRENA, 2015. Renewable Power Generation Costs in 2014

Evolution of wind turbine prices in EUR/kW based on the year of delivery and per year of

contract signature (PCSD). Source: JRC, 2015. Wind status report 2014. Technology, market and economic aspects of wind energy in Europe

> PV module prices (USD2014/W) > Wind turbine prices (EUR/kW)

© ECOFYS | |

Cost of support in the EU


Wind onshore

support costs:

~ €10 billion/year

(2012)

PV support costs:

~ €14 billion/year

(2012)

Source: Eurostat (nrg_113a) Available from: http://ec.europa.eu/eurostat/statistics-explained/index.php/Energy_from_renewable_sources

Source: Ecofys, 2014.

Subsidies and costs of EU energy

© ECOFYS | |

Contents







6. Conclusions

© ECOFYS | |

When can economic support for RES be phased-out? (I)


LCOE of renewables becoming

competitive with

conventional technologies

Economic support for RES-E can be

phased out

RES Technology cost reduction

Time

Cost

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competitive with



phased out

Technology costs are only one component of the LCOE

Time


Time

Cost

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competitive with



phased out

Technology costs are only one component of the LCOE

Revenues for RES-E are not (only) determined by the LCOE of conventionals

Time

Cost


Time

Cost

© ECOFYS | |

When can economic support for RES be phased-out? (II)


Investment costs

Cost of capital

0&M costs

Ge

ne

rati

on

co

sts

© ECOFYS | |



Investment costs

Cost of capital

0&M costs

Ge

ne

rati

on

co

sts

Revenues from electricity sales

Reven

ues

© ECOFYS | |



Investment costs

Cost of capital

0&M costs

Ge

ne

rati

on

co

sts


Reven

ues

Policy support

© ECOFYS | |

When can economic support for RES be phased-out? (III)


> Condition 1:

Level of expected revenues from power

markets is sufficient to cover generation costs

> Condition 2:

The level of risk associated with investments

in RES-E is acceptable for investors in the

energy sector

© ECOFYS | |

Contents







6. Conclusions

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Drivers of cost reduction


- Technology cost reductions

- Long-term policy stability

- RES sector maturity

- Favourable financing conditions

Investment costs

Cost of capital

0&M costs

Dri

vers

Ge

ne

rati

on

co

sts

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Barriers to cost reduction


- Market entry costs

- Market integration costs

- Revenue risk

Investment costs

Cost of capital

0&M costs

Barr

iers

Ge

ne

rati

on

co

sts

© ECOFYS | |

Drivers of increased revenues


- High fossil fuel prices

- Adequate externality pricing

- Provision of balancing and

ancillary services


Other revenues(balancing, capacity, ancillary)

Dri

vers

Ma

rke

t re

ve

nu

es

© ECOFYS | |

Barriers limiting revenues




Ma

rke

t re

ve

nu

es

- Renewables ‘cannibalism’

- Limited flexibility in the power

systems and markets

- Subsidies to conventional

generation

Barr

iers

© ECOFYS | |

Renewables ‘cannibalism’ (I) – merit order effect


Wind and solar PV

Nuclear

Coal

CCGT

OCGT

5 GW

10

GW

25 GW

20 GW

EUR/MW

GW

Market price

5GW

55 GW Demand

© ECOFYS | |

Renewables ‘cannibalism’ (I) – merit order effect

Wind and solar PV

Nuclear

Coal

CCGT

OCGT

5 GW

10 GW

25 GW

20 GW

EUR/MW

GW

Market price


20 GW

55 GW Demand

+ 15GW

wind & PV

Price effect

© ECOFYS | |

Renewables ‘cannibalism’ (II)


Source: Hirth, L., 2013. The Market Value of Variable Renewables, Energy Policy 38, 218-236

© ECOFYS | |

Barriers limiting revenues




Ma

rke

t re

ve

nu

es

- Renewables ‘cannibalism’

- Limited flexibility in the power

systems and markets

- Subsidies to conventional

generation

Barr

iers

© ECOFYS | |

Policy options towards phase-out of support (I)


Generation costs

• Adoption of best practices in

• Administrative procedures

• Grid connection approaches

• Market rules adapted to (variable) renewables

• Intraday markets

• High resolution bids

• Late gate closure

> Measures enabling lower costs for RES-E plants:

© ECOFYS | |

Policy options towards phase-out of support (II)


• Long term targets, policy stability and predictability

• Transparency and efficiency in:• Permitting and grid connection procedures• Market operation rules• Grid operation rules

• Financial risk mitigation instruments, such as guarantees

> Measures mitigating risks for RES-E plants:

© ECOFYS | |

Policy options towards phase-out of support (III)


Market Revenues

• Sufficiently high carbon price signal

• Regulatory frameworks that incentivize demand-side participation and other flexibility measures

• Removing subsidies to conventional generation

• Addressing overcapacity problem, e.g. by phasing out most polluting, less efficient plants

> Measures enabling higher revenues for RES-E plants:

© ECOFYS | |

Conclusions (I)


> Generation costs for renewables are increasingly competitive with those of

conventional plants.

> In the future, a shift in focus in RES policy will be required:

– Direct economic support to RES will become less relevant

– Still needed: an enabling environment (policy and market framework)

that creates the right conditions for new RES investments

© ECOFYS | |

Conclusions (II)


> Conditions for the phase-out of support for RES-E in the EU are not there yet

> RES support schemes will be needed for a transitional period

> Economic support needs during this transitional period can be minimized

© ECOFYS | |

Thank you!

> For further information or in case of questions, please contact us:

Luis Janeiro Corinna Klessmann

[email protected] [email protected]

36 23/09/2016 Luis Janeiro

mailto:[email protected]

mailto:[email protected]

Phasing out economic support to mature renewables?

Technology

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