Portugal’s success stories in renewables deployment€¦ · In the US, renewables are mainly...
Transcript of Portugal’s success stories in renewables deployment€¦ · In the US, renewables are mainly...
Portugal’s success stories in renewables deployment - the business case
João Manso Neto
EDP Renewables, CEO
Lisbon, 11 October 2014
Agenda
1
The progress so far
The way forward
Conclusions
2
EU Energy Policy is based on 3 key pillars that materialized into 3 specific targets for 2020 adopted in 2008 (20/20/20 package)
-20% CO2 emissions
Sustainability
Competitiveness Security of
Supply
20% renewables
Policy objectives 2020 targets
-20% consumption
bin
din
g
Under the Renewable Energy Directive, Portugal has a binding national target for raising the share of renewable energy to 31% by 2020
Mature renewables
Modernization of the thermoelectric
park
Ambitious hydro program
Ambitious wind program
Under these circumstances, the energy policy adopted in Portugal prompted a very significant change in the electricity mix
• Decommissioning of fueloil and gasoil plants
• ~3 GW of new CCGT (Ribatejo, Lares e Pego)
• Environmental improvements in coal plants (deSOx and deNOx)
Main priorities of the Portuguese energy policy in the last decade
• ~4 GW of new hydro plants (~50% already in operation or under construction)
• Investment of 5 €B up to 2020
• >30,000 jobs associated with EDP’s projects alone
• ~4,500 MW of new wind power (reaching 5,300 MW in 2000)
• Government organized tenders to award 1800 MW of installed capacity
• Associated with the bids, 2 industrial clusters linked to wind power were set-up (Eneop and Ventinveste), creating ~2,500 direct jobs
3
4
Source: REN
Today, more than half of the electricity generated in Portugal comes from hydro and wind
Installed capacity by technology GW
Electricity generation by technology TWh
Fueloil
Solar, CHP and others
CCGT
18
Coal
2004
Wind
2013
12
Hydro
48
Wind
Solar, CHP and others
39
Coal
2004
Hydro
Fueloil
CCGT
2013
52%
Since 2005, renewables have significantly reduced our energy dependence and improved the country’s balance of payments
Evolution of energy dependence 2000-2012P, corrected for hydro capacity factor
National energy bill savings due to electricity production from renewable sources1 MEur, excludes large hydro
Sources: DGEG, “Energy Balance” (yearly data), REN, EDP analysis
764728674652380452
229
4,500
1,500
1,000
500
0
2,000
2,500
4,000
3,500
3,000
2009 2013P
4,325
2012 2011 2010 2008 2006 2007 2005
180 264
Yearly savings
Cumulative savings
1. Assumes renewables substitution by CCGT (60%), Coal (30%) and electricity imports (10%). Includes savings from CO2 avoided costs.
77.6% 78.0%
2012P
-10.8%
2010
76.0%
80.7%
2008 2009
78.7%
2011P 2007
82.4%
2006
83.7%
2005
85.1%
2004
85.3%
2003
85.1%
2002
85.6%
2001
85.4%
2000
85.3%
With large hydro, savings surpass 8 B€
5
6
Emissions dropped and detached from GDP, while preserving the competitiveness of Portuguese industries related to EU average
Carbon intensity and emission factor 2000-2010, index 2000 = 100
Electricity prices for industrial cconsumers1
€/kWh, excludes recoverable taxes
1. Prices for Ic band (annual consumption between 500 and 2,000 MWh) Sources: BNEF, FMI, Eurostat
70
75
80
85
90
95
100
105
2004 2003 2002 2000 2001 2006 2007 2008 2010 2009 2005
CO2/GDP
CO2/Primary energy
70
75
80
85
90
95
100
105
110
115
120
2H12 2H11 2H10 2H13 2H08 2H07 2H09
Portugal
EU27
Portugal invested in mature renewables (hydro and wind), which are the most competitive techs, despite their apparent overcosts
7
Cost of electricity generation for different technologies €2014/MWh
110
85 95
CCGT
110-170
Solar PV Onshore wind
Coal Nuclear
50-85
150-180
Offshore wind
Hydro
65-80
Fixed
Variable
Pool price
• The perception of renewables’ overcost come from a biased comparison with pool prices, which are not adequately remunerating the full costs of any tech
• Low wholesale prices in Europe are a consequence of a generalized overcapacity and are not sustainable in the long-run
• In addition, renewables themselves push pool prices down, emphasizing the overcost notion
• Early investment in non mature techs created overcosts in some countries
Comments
0
5
10
15
20
25
30
0 10 20 30 40 50 60 70 80 90 100 110 120 130
RO
PT
NO
NE
LU
IT
HU
DE
FR FI
EE
CZ BE
AT
ES
Average
GB
SE
SI
Overcost per unit of RES production (€/MWhRES)
Shar
e o
f R
ES in
co
nsu
mp
tio
n (
%)
As a result, RES overcosts in PT are below the EU average, despite being the country with the largest share of renewables in the system
8
Source: CEER, Status Review of Renewable and Energy Efficiency Support Schemes in Europe, June 2013
Share of renewables (excluding large hydro) in consumption and respective overcosts in EU countries 2010
Additionally, as the share of renewables increases, the wholesale price drops, rising the apparent notion of overcosts
Source: Reuters, REN, OMEL, EDP analysis
Portuguese pool prices vs. share of renewables in national electricity consumption €/MWh vs. %, weekly data, Jan 2012-Sep 2014
R² = 0,67
0
10
20
30
40
50
60
70
80
90
20% 30% 40% 50% 60% 70% 80% 90% 100%
9
.
Impact of onshore wind on the Iberian pool price M€, 2013
Overcost of onshore wind in Iberia M€, 2013
In Iberia, onshore wind has had a net positive cost impact on the power system of an estimated 2.3 B€ in 2013 alone
Sources: ERSE, CNMC, OMIE, CEER, EDP analysis
100
80
60
40
20
0
€/MWh
2394
Demand w/o wind (229 TWh)
Wind realized pool price
FIT ES
FIT PT
Wind PT (12 TWh)
659
Wind ES (54 TWh)
Wind overcost
20
100
80
60
40
0
€/MWh
Demand PT (49 TWh)
18 894
Demand ES (246 TWh)
4475
Effect of rising price if there was no wind power
• The Iberian system without wind would have been 2,300 M€ more expensive in 2013 • Likewise, in 2013, Germany had an estimated net benefit of 2,663 M€ because of wind power
10
Renewables in Europe are not the cause of rising EU prices neither of the widening gap between the US and European energy prices
“EU industrial electricity prices ...are more than twice those in the US and Russia... Here again, lower US and Russian gas prices … have helped bring down those countries' electricity prices”
– EC, Energy prices and costs in Europe, Q&A memo
Shale gas developments in the US are the main cause of the energy price gap
“The development of US shale gas is likely to be at the root of this widening gap…”
– EC, Energy Economic Developments in Europe
“…the increasing EU-US energy price gap due to the development of shale gas and oil production in the US”
– EC, Energy Economic Developments in Europe
Europeans pay 56% more taxes than levies on their electricity bills
“… taxes still make up the bulk of the taxes & levies component. In 2012, average household consumer across the reporting countries paid 25 EUR/MWh in levies1, but 39 EUR/MWh in taxes2.”
– Eurelectric, What really drives your bill up?
In the US, renewables are mainly supported through fiscal incentives
• The major incentives for renewables in the US are Federal investment/production tax credits and other public financial schemes (Federal/State grants, loans, rebates, etc.)
• In Europe, renewables are mainly supported through the electricity bill
2
3
1
1. Policy support costs (RES, CHP, others); 2. VAT, excise tax and other taxes
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Agenda
12
The progress so far
The way forward
Conclusions
Although renewables are competitive, the energy-only market design is not adequate for massive decarbonization
• Low-C technologies and thermal backup units are all highly capex-intensive
- Most renewable techs and nuclear have virtually zero marginal costs
- Thermal backup generators are idle for the vast majority of the time
• Long-term stability and visibility are key to promote such capex-intensive investments
- Low cost of capital is main source of cost competitiveness
• In the energy-only market, renewables are exposed to risks that they cannot manage, increasing risk premia at the expense of consumers
Even in countries where generation adequacy is an issue (e.g., UK), pool prices are not signaling the need for investments
13
The market design needs to change and adapt to the new reality
14
Key elements of the new market design
• Ex-ante competition for long-term contracting (e.g., auctions, preferably EU-wide, which implies increased interconnections) to lower risk premium
• Countries such as USA, UK, Brazil or South Africa do that
• Implement competitive CRM to adequately value firm back-up capacity
• CRM being introduced in several EU countries (UK, FR, DE, IT)
• Keep spot price for short-term optimization and dispatch signal
• Strengthen the CO2 price signal by rebalancing the EU-ETS
• Backloading is an important step but does not avoid the need of a structural reform (dynamic supply)
• Retroactive applications are not acceptable and should be condemned
• Regulatory stability is key
Ex-ante competition +
long-term contracting
Capacity mechanisms
Spot market
Applicability
ETS
15
What principles should drive the auctions of long-term contracts?
Brief considerations
• FiT and CfD preferred over fixed premium
• Fixed premium exposes RES to risks that they cannot manage
• Different technologies offer different products (e.g., firm thermal capacity addressing back-up needs)
• Other policy objectives besides competitiveness may require that at least some auctions be tech-specific
• RES should assume responsibilities for deviations from schedule, provided that rules are clear and set from the beginning
• RES can provide regulation down, on a voluntary basis
• Requires: (i) strengthening of interconnections
supported by CBA, and (ii) EC capability to influence national plans and/or implement auctions at EU level
Designed to reduce risk premium
Preference for technology neutrality
Induce efficient operations
Tendentially, EU-wide
• Auctions of moderate amounts of RES should begin now
• Waiting for demand to recover and overcapacity to vanish would:
- Risk European leadership role in RES
- Penalize our external dependency
Non-mature technologies should be promoted in moderate amounts and under R&D frameworks
16
Brief considerations
• Distributed generation (DG) costs fell 70% in the past 7 years and are reaching grid parity soon
• DG customers do not avoid back-up costs, but with volumetric retail charges they do not pay for them, benefitting from hidden subsidies
• The regulatory framework for DG needs to take this into account, avoiding putting the sustainability of the system at risk
• Utility scale solar PV facilities are on its way to become cost competitive by the end of this decade
• Promote these techs in moderate amounts and assuming they contribute to develop national industrial clusters that will drive exports when costs decrease
• Big opportunity facing important challenges: site availability, grid, regulatory framework
• R&D improvements and deployment should be facilitated
Decentralized solar PV
Centralized solar PV
Offshore wind
Co
min
g to
mat
uri
ty
Infa
nt CSP, wave,
floating offshore wind, etc.
Portugal must actively engage in this European debate, while promoting the needed adjustments to the national policy
Short-term adjustments to the Portuguese energy strategy
• Meet 20/20/20 targets will require less RES capacity than initially thought: - Proceed with the already licensed wind - Conclude hydro plants under construction and the ones awarded under
public tenders which are economically viable from a private investment point of view
• No new conventional thermal capacity required until 2020
• Energy efficiency should remain a priority in the national energy policy - Support the roll-out of smartgrids - Promote the ESCO business, soft loans, etc. - Adopt a green fiscal reform that motivates EE investments (families and
companies)
• Key sector (37% of final consumption, vs. 25% of electricity) • Foster electric and natural gas mobility
Renewables
Thermal plants
Energy efficiency
Transports
Portugal will only benefit from an adequate market design, as well as strengthened interconnections (e.g., electricity exports under a EU framework of auctions to promote RES)
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Agenda
18
The progress so far
The way forward
Conclusions
Conclusions
19
• In the last decade, Portuguese energy policy has ensured a competitive and cleaner energy mix, while contributing to decrease our external dependency and reduce our energy bill
- Modernization of the thermoelectric generation fleet
- Ambitious hydro and wind programs
• Renewables are becoming increasingly competitive, but some misconceptions and market failures are leading to erroneous assessments about their role
- Renewables overcost perception is biased, because of the dampening effect that renewables themselves have on the reference pool price
- Wind is actually responsible for a net benefit in both the Iberian and German cases
• Market arrangements need to be revised and delaying the implementation of an adequate market redesign has severe consequences for Europe
- Key elements of the new market design: long-term contracts, ex-ante competition (auctions), CRM, spot market for short-term optimization
- Increased interconnections and a strengthen CO2 price are crucial
- Delaying would penalize European external dependency and leadership role in renewables