Presentation by IEA Deputy Executive Director, Ambassador Richard Jones, at the Renewable Energy Finance in Practice Forum in Vienna on 31 May.

1. Renewable Energy Financing
An IEA Perspective
Amb. Richard H. Jones
Deputy Executive Director
International Energy Agency
REFIP 2012, Vienna, 31 May 2012 © OECD/IEA 2010

2. Recent trends - Electricity
Wind Bioenergy Solar PV Hydro other
Generation
338 296 31 3503 74
2010 [TWh]
CAGR 2005-
26.5% 8.8% 50.8% 3.1% 4.6%
2010 [%]
© OECD/IEA 2010

3. …and in Heat and Transport
60
50 • 3% share of road
Mtoe
40 transport
30 • Grew at 26% per
20
year in average
10
0
• Growth focussed
in Brazil, US, EU
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Brazil bioethanol US bioethanol
EU-27 biodiesel RoW biofuels
200
Rest of world China
• Rapid growth in 150
solar water heating GWth 100
• Focused mainly 50
in China 0
© OECD/IEA 2010

4. Costs are falling
 Growing deployment has led 100
PV Module Price (USD 2010/Wp)
< 1976
to cost reductions in key
technologies < 1980
 Hydro and some
geothermal already 10
< 1990
cost-competitive < 2000
 New technologies such as wind
Learning Rate: 19.3% < 2010
onshore and biomass are
competitive in a broader set of 1
1 10 100 1 000 10 000 100 000
circumstances Cumulative capacity (MW)
Data from Breyer and Gerlach, 2010
 PV still expensive but 19% cost reduction for each
capacity doubling; parity with retail prices in the next five
years in countries with high insolation and electricity prices
© OECD/IEA 2010

5. Low-carbon power technologies
come of age
Global installed power generation capacity
in the New Policies Scenario
10 000
GW
Fossil-fuel additions
8 000 Nuclear additions
Renewable additions
6 000 Existing 2010 capacity
4 000
2 000
0
2010 2015 2020 2025 2030 2035
Renewables account for about half
of all the new capacity added worldwide through to 2035
© OECD/IEA 2011

6. Going green comes at a price
Investment in new power plants and infrastructure
in the New Policies Scenario
2011-2035: $16.9 trillion
Renewables make up 60% of investment in new power plants, led by wind, solar PV
& hydro, even though they represent only half of the capacity additions
© OECD/IEA 2011

7. Impact of Capital Costs on Levelised
Costs of Electricity
30
25
20
ct USD/kWh
15 PV
Wind
10 CC Gas
5
0
0% 5% 10%
Cost of Capital
Note: Simplified calculation for illustration. Assumptions:
Gas: 800 USD/kW; annual O&M: 2.5% of capex; FLH: 5000 h/y; 8 USD/Mbtu; 50% thermal efficiency
Wind: 2200 USD/kW; 2.5% O&M; 3000 h/y
PV: 3000 USD/kW; 1% O&M, 1500 h/y
The financing regime is key for RE economics
© OECD/IEA 2010

8. Cost of capital and risk
 Interest rates also depend on risks perceived
by investors, influenced by:
1. General economic framework
 Large spreads in interest rates among countries
2. Technology risk
 RE encompass a wide range of technologies at
different stages of maturity
3. Policy risk
 Stability of country policy frameworks over time
© OECD/IEA 2010

9. Policy Schemes and Financing Interact
 Different policy instruments yield qualitative
differences in financial flows:
 Certificate Schemes
Generators under a certificate scheme are exposed to volatile
prices for certificates and wholesale power
 Feed – In Schemes
Under a classical FIT, cash flows are very stable and predictable
 Different risk/return profiles attract different
investors
 Like returns on government bonds, FIT cash flows
are predictable and well suited for institutional investors
© OECD/IEA 2011

10. Policy Impact and Cost-Effectiveness
 Comparative assessment in
OECD, BRICS and other DCs
Example - Wind on-shore:
 Leading countries (e.g. DE,
DK, PT, SP) have predictable
incentives - mostly FITs/FIPs -
and good overall policy
framework
 Some countries using TGCs (IT, UK) show good
deployment but at higher support costs
 Non-economic barriers can hamper any kind of
support (e.g. in JP and GR)
It is the overall policy framework that matters
© OECD/IEA 2011

11. Best-Practice Policy Principles
1. Predictable RE policy framework,
integrated into overall energy strategy
2. Portfolio of incentives based on
technology and market maturity
3. Dynamic policy approach based on
monitoring of national and global market
trends
4. Non-economic barriers must be tackled
5. System integration issues must be
addressed
© OECD/IEA, 2012

12. Evolving RE Markets and Policies
• With growing maturity level, policies need to evolve and
increasingly expose investors to market risks
Inception Take-off Consolidation
Maturity Level & Deployment
Predictable Hydro
geothermal
technology-specific
incentives
Wind on-shore
Technology-neutral
policies (e.g. C-pricing)
Solar PV
RD&D
policies
Wind off-shore
Ocean CSP
Time
High-risk Low-risk Fully mature
© OECD/IEA, 2012

13. One “size” does not fit all!
Example Technology Policy / Typology of
RE Risk Deployment investors
Technology Phase
Ocean Very High Inception VC-PE
CSP High Take-off ?
Wind offshore Funding gap
PV Low Take-off Asset /
Wind onshore Project
Financing
Hydro Low Consolidation Very Large /
Consortia
 Investor type depends on risk profile
 Technology risk
 Project-specific risk
© OECD/IEA 2010

14. Size and time matter
 RE projects come at very different sizes and
investment levels and risks
5 kW PV rooftop 500 MW wind 10 GW
off-shore large hydro
10 k EUR 1.75 bl EUR 15-20 bl USD
 Lead times for project construction also
widely differ
 The difference in scale will yield different
types of investors and financing products
 From home owners to very large investors and
consortia.
© OECD/IEA 2010

15. Emerging Financing Sources
 Development banks and export credit agencies
are increasingly key sources
 New institutional and non-traditional investors
gradually more active in renewable finance
 Pension, infrastructure, sovereign wealth funds;
insurance companies; non-utility corporations
 New financial innovations emerging
 e.g. third-party leasing schemes for small-scale PV
 However, new investors have different risk
profiles
 More experience and time needed
 Only gradual impact on markets
© OECD/IEA 2010

16. Conclusions
 Very significant growth of renewables in all IEA
scenarios, particularly in the power sector
 Investment needed in the 5-10 trillion USD
scale by 2035
 Different technologies will attract different
investors depending on their maturity level
and perceived risks
 Policies can play a major role in reducing risk
for investors
 But can be a source of risk themselves
 Need to evolve over time
© OECD/IEA 2010