Schiffer 4.13.16 Briefing.ppt

© World Energy Council 2016 | www.worldenergy.org | @WECouncil 16/010 gkl 1
Dr. Hans-Wilhelm Schiffer | Executive Chair | World Energy Resources | World Energy Council | London
Successes and Challenges
at Renewables Deployment
in the EU Power Sector
Lecture organized by the
United States Energy Association
Washington, DC, 13 April 2016

Renewables: high-impact for
every region Global 2016
Parameter Unit EU-28 USA
Size 1,000 km² 4,383 9,832
Population million 511 321
Energy consumption Mtoe 1,610 2,290
Power generation (net) TWh 3,100 4,100
there of renewables TWh 900 562
Share of renewables in
power generation % 29.0 13.7
Energy consumption per
capita toe 3.2 7.1
Power generation per
capita kWh 6,067 12,773
Source: German Member Committee of the World Energy Council and U.S. Energy Information Administration

Renewables: high-impact for every
region Global 2016

Renewables: consensus for Europe
and North America
| World Energy Issues Monitor 2016

Energy subsidies: regional
divergence

Share of renewable energies
in total electricity generation
0
10
20
30
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
EU-28
World
USA
%

Energy mix in 2015 power
production
26%
11%
10%
3%
5%
26%
2%
17%
Coal
EU-28
Gas
Oil
Nuclear
Other
* such as biomass and geothermal energy
Hydro
Wind
Solar
Other
RES*
33%
6%
5%
1%
2%
19%
1%
33%
USA
Other
Source: German Member Committee of the World Energy Council and U.S. Energy Information Administration

CO2 emissions in the USA,
in the EU-28 and in Germany
0
1000
2000
3000
4000
5000
6000
7000
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
EU-28
Germany
USA
Mt
Change rates in %:
USA EU-28 Germany
1990 - 2015 + 7 % - 18 % - 23 %
2005 - 2015 - 10 % - 18 % - 9 %
Source: 1990 – 2014: BP Statistical Review of World Energy 2015, Workbook; 2015: own estimation on the basis of the US Energy Information
Administration, Short Term Energy Outlook, March 2016 (for the USA), Weltenergierat – Deutschland, Energie für Deutschland 2016
(for the EU-28) and Umweltbundesamt, March 2016 (for Germany)

Renewables policy scheme
overview for the EU
Source: EU-Commission and other sources
FIT/tender
Premium
CFD
Quota − GC mechanism
Combination of multiple
schemes
Suspended/expired
New legislation pending/
under consultation

2004
2014
Share of renewable
energies in total
electricity supply
in the EU countries
in %

Main motives for the national
energy transition
Cost minimization
Reduction of the share
of nuclear energy
Energy efficiency
Extension Renewable
energy
Climate Mitigation
Source: Estimate on the basis of discussions with representatives of the respective countries
EU-28 Germany France United
Kingdom
Sweden

Energy transition – Energiewende
► In 2010 the German government decided on a lifetime extension
of nuclear power plants to build a bridge to a low-carbon
economy.
► Fukushima was a turning point.
► Consequences:
− Phase-out of nuclear energy in parallel with a
− conversion from a fossil-based to a renewables-based energy
supply and a
− concurrent reduction in energy consumption via increased energy
efficiency
► Three motives:
− Climate mitigation
− Finiteness and external effects of fossil resources
− Risks of nuclear energy

Central elements of the German
Energiewende
Reduction in GHG emissions by 40% by 2020 and 80 to 95% by
2050 – compared with 1990 level (2015: reduction of 27%
compared to 1990)
Increase in the share of renewable energy in total power con-
sumption to 50% in 2030 and 80% in 2050 (share in 2015: 33%)
Complete nuclear phase-out by the end of 2022
Increase in the share of renewable energy in total energy con-
sumption to 30% in 2030 and 60% in 2050 (share in 2015: 13%).
Improved energy efficiency: Halving the primary energy
consumption by 2050 compared with 2008 level
The project is based on the assumption that a highly industrialized
society can be securely and competitively supplied by a generation
system based predominantly on RES

Guaranteed feed-in payments for green electricity for 20 years
after commissioning the plant concerned
Promotion of green electricity by
Renewable Energy Sources Act
(EEG)
The plant operator is paid the EEG feed-in tariff by the local grid
company; the four German transmission system operators are in
charge of selling this electricity at the (usually lower) market price
via the power exchange
The trading companies pass on the deficit (feed-in tariff minus
market price) to consumers by imposing an EEG reallocation
charge
Grid operators are obliged to immediately and as a priority purchase
the entire quantity of green electricity offered

Installed capacity for power
generation in Germany on the
basis of renewables
5 5 5 5 5 5 5 5 5 5 5 6 6 6 6 6
5 5 6 7 7 7 7 7 7
12 15 17 18 21 22 24 26 27 29 31 34 39 42
1
2
3 4
6
11
18
25
33
36
38
40
4
4
1
1 2 2 3
9
6
0
25
50
75
100
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
GW
Source: AGEE-Stat und BDEW, February 2015 and Bundesnetzagentur
12 15
19
22
26 29
33
36
40
48
56
66
77
83
90
Hydro
Biomass
Wind
Solar PV
95

Average Price for PV Rooftop
Systems in Germany (10kWp – 100 kWp)
Data: BSW-Solar, Graph: PSE AG 2015
2006 2007 2008 2009 2010 2011 2012 2013 2014 15
0
1000
2000
3000
4000
5000
6000
Average Price (€/kWp)
1300 €/kWp
Percentage of
the Total Cost
 BOS incl. Inverter
 Modules
Year

Share of renewables in meeting
electricity demand and total
volume of EEG support charge
21.1
19.2
17.3
16.0
12.8
0.7 1.1
1.7 1.8 2.4 3.0 3.8 4.3 4.8 5.3
9.5
32.7
25.2
23.7
20.4
17.0
16.3
15.1
14.2
11.6
10.2
9.3
7.6
7.8
6.7
6.5
27.4
0
5
10
15
20
25
30
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
0
5
10
15
20
25
30
35
EEG support charge in €bn
Share of renewables in %
Promotional charge
in €bn
Share of RES
in %
27%-point increase over 1999 – funding provided to this end by
electricity consumers between 2000 and 2015: approx. €125bn

Development of wholesale prices
for electricity in Germany and EEG
reallocation charge
Source: Transmission system operators' transparency platform
63.5
61.7
62.4
35.9
35.3
20.5
13.1
11.6
10.3
8.8
6.9
5.1
4.2
3.5
2.3
2.0
52.8 28.1
31.6
37.8
42.7
51.1
44.5
65.8
50.8
46.0
28.5
29.5
22.6
24.1
32.8
38.9
38.0
0
10
20
30
40
50
60
70
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
EUR/MWh
Position: January 2016
Wholesale electricity
prices (base load)
EEG reallocation charge

France‘s „pragmatic“ energy
transition
The law (adopted in July 2015) has six main objectives
1. To reduce greenhouse gas emissions by 40% in 2030 compared
to 1990
2. To decrease fossil fuel consumption by 30% in 2030 compared to 2012
3. To increase the share of renewable energy in final energy consumption
to 32% and in electricity generation to 40% in 2030
4. To reduce final energy consumption by 50% in 2050 compared to 2012
5. To diversify electricity generation, including reducing the share of
nuclear energy to 50%, in 2025
6. To decrease waste in landfills by 50% in 2050
The law enjoys broad acceptance throughout society.

The dilemma of European energy
policy
Legal basis: Article 194, Treaty on the Functioning of the EU
Structural
tension
between
national
and EU
level
Aims of the Union policy on energy:
a) Ensure the functioning of the energy market;
b) Ensure security of energy supply in the Union
c) Promote energy efficiency and energy saving,
and the development of new and renewable
forms of energy
d) Promote the interconnection of energy
networks
European Parliament and Council shall establish
the measures necessary to achieve these objectives
However: „Such measures shall not affect a Member
State‘s right to determine the conditions for
exploiting its energy resources, its choice
between different energy sources and the general
structure of its energy supply (…)“

Energy mix in ten of the 28 EU
member states 2014 in %
Source: IEA, Electricity Information 2015
46
42
34
25
29
29
2
1
5
34
6
48
19
4
19
78
42
35
15
49
30
2
1
8
7
19
2
3
10
13
21
17
55
83
58
26
12
13
26
5
1
1
1
4
1
9
3
2
5
Netherlands
United Kingdom
France
Sweden
Austria
Denmark
Greece
Czech Rep.
Poland
Germany
Lignite Hard coal
Nuclear
energy
Gas Renewables Other

Overview: EU Climate and Energy
Policy
New targets for 2030 were set in October 2014
Greenhouse
gas emissions
Renewable
energy
Energy
efficiency
until
2020
-20 %
reference year 1990
20 %
of energy consumption
-20 %
Absolute reduction
compared to business-
as-usual scenarios
until
2030
-40 %
(mandatory, national
targets)
reference year 1990
27 %
(mandatory,
no national targets)
of energy consumption
-27 %
(indicative,
Absolute reduction
compared to business-
as-usual scenarios
Inter-
connectivity
10 %
15 %
(indicative,
from national capacity
+
► Only GHG reduction target will be translated into national binding targets
► Renewables and efficiency targets are EU-level targets
► Energy efficiency target is only indicative
► New governance structure to coordinate EU and national policies
 transparency, predictability, regional cooperation

2030 framework for the European
power sector
Climate
target
GHG emission reduction by 40%
compared with 1990 emission levels
Emission reduction of
43% by 2030 compared
with 2005 emission
levels for sectors which
are part of the ETS
(power sector and
industry)
Emission reduction of
30% by 2030 compared
with 2005 emission
levels for sectors which
are not part of the ETS
(households, traffic)
ETS = Emission Trading Scheme
Expectation for
the power sector
Increase in the share of renewable energy in power
generation from 21% in 2012 to 45% in 2030

Impact of COP21 on EU climate
policy
The EU as frontrunner!?
► EU and its Member States submitted its Nationally Determined
Contribution of an at least 40 % domestic reduction in green-
house gas emissions by 2030 compared to 1990, to be fulfilled
jointly
► but also wants a mechanism for all UN parties to review and
possibly increase targets in 2025
What will come after COP21??
► The climate agreement, deposited at the UN in New York, will be
opened for one year for signature on 22 April 2016 – High Level
signing ceremony on Mother Earth Day in New York
► Debate on ETS reform will gear up – fundamentals could be
questioned
► The so-called effort sharing has to be decided
− contribution of each Member State for the non-ETS sectors in the
form of national binding targets
− 2030 framework foresees variation from 0 - 40 % emission reduction

Price setting for electricity on the
wholesale market – principle in
central Europe
Market price
pold
Euro/MWh Demand (load)
Natural gas was the price setting fuel
MW
Market price
pnew
with extended
use of
renewables
Hard coal sets the price
Renewable energy Nuclear energy Lignite Hard coal Natural gas Oil

Forward wholesale power prices in
Germany for the year that follows
€/MWh
offpeak
baseload
peakload
Ø-price reduction in % from 2010 to 2015
- 40%
- 38%
- 37%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Clean Dark and Clean Spark Spread
(Margins of gas- and hard coal-fired power plants)
Based on prices for the year that follows
-10
-5
0
5
10
15
20
25
30
35
40
45
CSS [€/MWh_el]
CDS [€/MWh_el]
2007 2008 2009 2010 2011 2012 2013 2014
CSS= clean spark spread (peak load electricity price minus cost of natural gas and CO2 determined for the year that follows)
CDS= clean dark spread (base load electricity price minus cost of hard coal and CO2 determined for the year that follows)
2015

Electricity Consumption and
Generation in Germany on
23 August 2015
Source: Agora Energiewende: Agorameter, www.agora-energiewende.de
biomass
run-of-river
solar
wind
conventional
power plants
electricity
consumption
GW

Electricity Consumption and
Generation in Germany on
3 November 2015
Source: Agora Energiewende: Agorameter, www.agora-energiewende.de
GW
biomass
run-of-river
solar
wind
conventional
power plants
electricity
consumption

Gigawatt
01.
Aug
02.
Aug
03.
Aug
04.
Aug
05.
Aug
06.
Aug
07.
Aug
08.
Aug
09.
Aug
10.
Aug
11.
Aug
12.
Aug
13.
Aug
14.
Aug
15.
Aug
16.
Aug
17.
Aug
18.
Aug
19.
Aug
20.
Aug
21.
Aug
22.
Aug
23.
Aug
24.
Aug
25.
Aug
26.
Aug
27.
Aug
28.
Aug
29.
Aug
30.
Aug
31.
Aug
Solar
Wind
At times, wind and solar power meet
more than three-quarters of electricity
demand …
25 … while at others they all but vanish
from the scene
15 Conventional power plants are needed
to ensure security of supply
But the expansion of renewables
leads to conventional power plants
becoming increasingly unprofitable
The biggest drawback of
renewables: Their availability
is not in our hands

Requirements for conventional
power plants regarding flexibility/
operation will change seriously
In Future
Previously
►Baseload power plants
►Intermediate load plants
►Peakload power plants
►High efficiency at
maximum load
► Similar requirements for all
fuels/plant types
► Design for many load changes
► High ramp-rates
► Low minimum load
► Economic operation even at
low number of operating hours
Security of supply

Power generation capacity
in Germany GW (net)
Source: Bundesnetzagentur, January 2016 (Status 10/11/2015) and 2015 Electricity Grid Development Plan, scenario B
105.3
77.3 77.5
93.9 141.4
181.0
2015 2025 2035
Conventional
power plants
Renewable
energy
199.2
218.7
258.5

Interconnection capacities
compared to the total capacity
installed within the EU-28
Source:ENTSO-E via European Commission
Communication "Achieving the 10% electricity
interconnection target" (COM(2015) 82).

Electric energy flows between
Germany and neighbouring
countries in 2015 (*)
Mit den Importen und Exporten im
Strommarkt von 112 Mrd. kWh liegt
Deutschland im Jahr 2006 europaweit
an der Spitze.
in TWh SWEDEN
1,9
DENMARK
5,1
2,9 0,2
POLAND
0,02
10,7
6,1
CZECH
REPUBLIC
3,5
AUSTRIA
3,0
SWITZERLAND
6,3
17,8
16,1
FRANCE 12,1
1,4
LUXEM
BOURG
BELGIUM
0,3
24
GERMANY
∑ Import 33,5
∑ Export 85,2
NETHERLANDS
Source: BDEW, status: 1.3.2016, (*) preliminary
6,1
1,4
Germany is the electricity market's hub in Europe

Breakdown of total household
price in 2014
€/MWh
Energy &
Supply
Network
Taxes &
PSCs
Source: Eurelectric, February 2016

Evolution of Policy Support Costs
(PSCs) elements in the EU-28
power prices for households
€/MWh
Source: Eurelectric, February 2016
.
.
.
.
.
.
.
.
.
.
.

Electricity prices for industry and
households 2015
Figures in USD/MWh
Source: IEA, Energy Prices and Taxes, fourth quarter 2015, Paris 2016, p. 343 and 344
326
169
36
97
67
128
108
165
146
227
Germany Japan Norway* USA OECD
total
Germany Japan Norway USA OECD
total
Industry Private households
* Prices for the second quarter 2015

Conclusion – Lessons Learnt (1)
General aspects including impacts for conventional energies
► The energy transition should not be limited to the power sector but also
include the cooling/heating market, industry and transportation.
► Further electrification is the key for a successful reshaping of the
energy supply.
► A diversified energy mix should be given preference over one-sided
arrangements.
► As far as conventional energy sources are concerned, one should rely
on least-cost solutions.
► Whether preference is given to coal, gas or nuclear energy should be
a rational decision – taking into account the central targets of energy
policy such as security of supply, competitiveness and environmental
protection.
► With respect to climate change mitigation, CC(U)S should be seen as
an important option besides energy efficiency and renewable energies.

Governance of the penetration of renewable energies
► In providing incentives for investment in renewable energies one
should avoid impairing the market system.
► The fast penetration of renewable-based power generation in Germany
has produced a strong learning curve effect, especially in the case of
solar PV.
► The effects on employment as regards the construction of solar panels
are concentrated in China but the share of domestic service providers
in total installation costs has increased.
► A renewable-energy promotion system which is based on "produce
and forget" with long-term guaranteed margins for investors is not a
sustainable solution in the long run. It is only appropriate at the very
starting point.
► The system has led to a skyrocketed increase in particular in PV
installation which exceeded the expectations and targets.

Infrastructure aspects
► The renewable-energy promotion system applied in Germany has
caused disparities between the locations of generation and the
demand centres – wind is one example.
► The necessary extension of the grid system should go hand in hand
with the expansion of renewables-based generation plants.
► Another Lesson Learnt: It can be appropriate to adjust the promotion
system in a way that generation takes place where the power is
needed.
► Tender systems can be seen as an adequate instrument in order to
ensure that the dimension and the location of the investment are in line
with policy targets and power system requirements.
► Checking the option of the installation of storage in the distribution grid
versus an investment in the extension of the grid system

Adaptation of the Market Design
► Despite the massive increase in renewable-based power generation,
conventional power plants are still needed on nearly the same scale as
before in order to cover demand when the wind does not blow
sufficiently and the sun does not shine.
► The necessary operational flexibility of coal- and gas-fired power
plants can be achieved, but conventional plant operators face
considerably reduced revenues as a result of the expansion of
intermittent renewables.
► Experience in the EU: The existing "energy-only-market" is not
sufficient any more to guarantee security of supply. An additional
capacity market is necessary in order to ensure security of supply in
the long run.
► Using the instrument of market prices (setting the right price signals) in
order to achieve load adjustments.

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