2. The transition in the power sector
2
Global capacity addition, 2001-2017
Source: IRENA data
(MW)
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
160 000
180 000
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Hydropower Wind Solar PV Bioenergy Other Conventional
3. The transition benefits
The benefits associated to the limiting of the global temperature rise to below 2°C, in
terms of annual health and reduced externalities, outweigh incremental costs by a factor of
2 to 5 in 2050.
3
Source: IRENA (2018), Global Energy Transition, a roadmap to 2050
4. Distribution of human resources required along the value
chain for the development of a 50 MW solar PV plant, by
activity
4
5. Distribution of human resources required along the value
chain for the development of a 50 MW onshore wind plant, by
activity
5
8. 8
Power sector: RE policies are evolving
A growing number of countries (both in the developed and in the developing world)
are implementing auctions, although usually combined with other instruments.
13. Auctions potential for real price discovery
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• Solar energy was contracted at a global
average price of almost USD 250/MWh in
2010, compared with the average price of
USD 50/MWh in 2016.
• Wind average prices have also fallen from
USD 80/MWh in 2010 down to USD 40/MWh
in 2016.
Estimated installation costs of utility-scale PV projects: global versus auction winners, 2010-2016
Average prices resulting from auctions, 2010-2016
• The average installation costs of projects
awarded from auctions are consistently lower
than global average installation costs.
The power sector, as mentioned, is progressing far faster then the other secotrs. If we look at the annual additional capacity in the RES sector, we see a 8-fold increase in the last 16 years, led by Wind and solar PV technologies.
Moreover, since 2013, the RES additional capacity is more than the conventional additional capacity. This calls for a change in the power sector paradigm!
Please let me have an excursus: the transition will…
It is possible to see a trend in the adoption of policies. More and more, developers are able to face more risk, as the technologies mature and the costs drop.
…
As you know, support policies for renewable generation are increasingly adopted globally for utility-scale projects and distributed generation, with 126 countries having implemented some measure in 2017. But support policies in the power sector include a wide range of instruments.
In the latest IRENA/IEA/REN21 joint publication “Renewable energy policies in a time of transition”, we assessed the number of countries with specific supporting policies in place around the world, from 2005 to 2016. Following this simple metric, we can identify different trends.
The first one, is that the overall energy policies environment is getting more supportive for RE. More and more countries are supporting RE deployment, via tax credit, RPS, or administratively set tariff schemes (usually called FiT), for examples.
The figure also shows some disparities in the rate of adoption between different measures.
The most widely adopted instrument is the reduction in taxes (sales, energy, value added or other), implemented in 100 countries by end of 2016 - being the instrument of choice in countries in emerging (low income) countries . and widely adopted also because applicable to both utility-scale and distributed generation.
Distributed generation itself has been mainly incentivised through the net metering or billing scheme with an increased adoption given growing deployment of decentralised solar rooftop.
Reduction in taxes is followed by Feed-in tariffs and premiums as the most widely adopted instruments, with a c consistent rate of adoption over the years.
With the administrative challenge of determining the most appropriate level of support, countries have increasingly turned to auctions over the past few years, as a way to identify the level of support needed from the market, and also to try to tackle certain issues and objectives.
Price discovery (and the consequent cost-compression) is possibly the most known effect of auctions.
Admiratively set instrument, like FiT and FiP, necessitate of a constant control, by the regulatory bodies, of the market evolution. While this is possible, it can also lead to excessive burden on the consumers’ bills, which in turn may lead to consumer disengagement from the energy transition. Well designed competitively set instruments (auctions or tenders) force participants to bid for their lowest price of energy possible, closest to the real LCOE (levelised cost of energy).
If we assess the global average price of auctions since 2010, we observe that, for example, the solar energy was contracted at an average price almost USD 250/MWh in 2010, compared with the average price of USD 50/MWh in 2016, Similarly, Wind average prices halved, from USD 80/MWh in 2010 down to USD 40/MWh in 2016. the different pattern between technologies mirrors different cost reduction paths, with solar PV becoming more competitive at a much faster rate and wind being a more mature technology.
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Another important observation can be made by comparing the installation cost (so in USD/MW) of utility scale PV. The blue line rapresent the global average Installation costs. The yellow the average installation costs for auction winners which actually commissioned their plants. The average installation costs of projects awarded from auctions are consistently lower than global average installation costs, highlighting the fact that auctions have been a more successful instrument for cost compression.
The joint IRENA/IEA/REN21 report “Renewable Energy Policies in a Time of Transition” report introduced a new policy classification adapted for, indeed, this time of transition. This slide shows just how wide-ranging the relevant policy areas are now, as the renewable energy sector becomes increasingly mature and differentiated, and as the energy transition gets increasingly under way. The full range of policies includes:
The direct policies intended to boost deployment
renewables need to be integrated into the daily life of consumers and prosumers with Integrating policies: for example, measures to encourage behavioural change and policies to couple renewable energy technologies with livelihoods.
Finally: Enabling policies, which are needed to ensure effective operating conditions for renewables in energy markets.
Careful attention is required to ensure coherence among the different policy areas and the key stakeholders in each of them. Well-coordinated, the full range of policies can drive a smooth transition that maximises socio-economic benefits.