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Sostenibilidad Energética y Regulación renovable

  1. Energy sustainability and renewable´s regulation Barcelona, February 1st 2016 Jorge Casillas, EDPR
  2. EDPR is a global leader in renewable energy… 1Source: Companies’ Reports 7,8 10,9 14,4 16,8 18,4 19,2 19,8 2008 2009 2010 2011 2012 2013 2014 Electricity Production Evolution (TWh) CAGR +17% 33,9 32,0 23,1 19,8 13,7 Iberdrola Nextera Longyuan EDPR Acciona Top Wind Players (TWh, 2014) Worldwide leader in wind energyAn outstanding growth since 2008 #4
  3. EDPR top quality and diversified portfolio totals 9.2 GW as of 9M 2015 #4 Worldwide wind energy producer 2 Notes: 9M 2015 Figures; Includes Equity Consolidated MW: 174 MW in Spain and 179 MW in US Poland Romania Italy Portugal France Spain Belgium UK #1 #3 #1 #3 2,368 MW 71 MWOffshore under development 392 MW 521 MW 100 MW US Brazil Canada #3 30 MW 84 MW 180 MW under development 4,083 MW 1,243 MW 340 MW + Offshore under development Mexico
  4. 3 Energy sustainability is typically identified with three dimensions Source: World Energy Council / Oliver Wyman 2013 Environmental sustainability Energy security Energy Equity World energy council identifies three main dimensions • Decisions and actions in the interest of protecting the natural world, in particular the capability of environment to support human life • Ability of the energy sector to meets current and future demand − Effective management of primary energy supply from domestic and external sources − Reliability of energy infrastructure • Accessibility and affordability of energy supply across population 1 2 3 “ The capacity to satisfy current energy needs without compromising the ability of future generations to meet their needs” − It implies sources can be used well into the future without harming future generations Energy sustainability
  5. 4 In the run-up to the COP21, countries have embraced renewables as a key instrument to fight climate change… … however, the effective implementation of the Paris’ commitments are not enough to achieve the 2°C goal, thus, more renewables will be nec(essary Electricity capacity by technology in 2013 and 2040E in INDC and 2ºC Scenarios 1.851 2.468 1.253 439 258 216 1.502 2.528 2.273 392 614 837 1.136 1.837 2.042304 1.376 1.908 137 1.066 1.519 2013 INDCs 2D scenario Coal Oil Gas Nuclear Hydro Bionergy Wind Geothermal Solar PV CSP Marine INDCs analysis • In the run-up to the Paris conference, 186 countries submitted their INDCs (Intended Nationally Determined Contribution), i.e. their commitment to reduce GHG emissions by 2025-2030 • All INDCs include coverage of energy sector emissions and most of them have actions to address them • Around 50% of INDCs include explicit energy targets • 70 countries highlighted wind in their plans ‒ Some examples are: China (200 GW by 2020), India (60 GW by 2022) or Turkey (16 GW by 2030) However, according to experts, the implementation of all INDCs will lead to a global warming of 2,7°-3°C, therefore, above the 2°C threshold To achieve the 2°C target agreed in Paris, more renewables will be required GW Source: IEA (WEO 2015); EWEA; Climate Council Despite decarbonization's commitments made by the countries before the COP21, more renewables will be necessary in order to achieve the 2°C goal 1 41% RES (4702 GW) 57% RES (6217 GW) 29% RES (1702 GW)
  6. 75% 71% 46% 71% 28% 74% 77% 43% 15% 62% 11% 94% Energy dependence – measured as net energy imports, (% of energy use) 5 Source: WorldBank, 2013 values with the exception of Brazil (2012) As of today energy independence is mainly linked to the availability of fossil fuels (i.e. gas, oil), therefore the only possible way to reduce external energy dependence for those countries lacking them is through the electrification of their economy linked with decarbonization of electric sector, namely with RES Energy dependence is still an issue in most developed countries Renewable technologies are a way to get closer to energy independence 2
  7. There is an economic rationale for the increasing growth of wind Wind is today competitive vis-à-vis new conventional plants on a full cost basis 6Source: EDPR Analysis Levelized cost of energy (LCOE) by technology source 2014 €/MWh • To assess the competitiveness of various power sources the LCOE is the relevant benchmark, showing renewables are quickly approaching competitiveness vis-à-vis conventional power generation • Wind onshore and solar PV with LCOE levels of 65-90 €/MWh are today fully competitive vis-à-vis conventional generation technologies • Moreover, wind energy costs are unrelated to oil and gas prices, allowing for greater visibility and predictability in the long-term • With gas prices expected to rise over the long term, wind will even become increasingly competitive Onshore wind is expected to be even more competitive in the future 77-106 94-124 106-137 83-115 57-82 87-104 100-170 CCGT Coal Nuclear Hydro Wind onshore Solar PV Wind offshore Range corresponds to differences in technology, water depth, distance to shore and load factor 3
  8. Wind competitiveness vs. CCGT seems robust even for low gas prices 7Source: EDP Analysis Wind Energy competes with the most efficient conventional technology… …and is expected to show ongoing improvement Wind vs CCGT: LCOE(1) 20 30 40 50 60 70 80 90 100 110 120 130 30 40 50 60 70 80 90 100 110 120 130 Wind load factor Oil price $/bbl Possible oil prices LCoE €/MWh 23% 29% 34% 25% Wind LCoE1 (€/MWh) Today 2020E 2030E -15% -24% CCGT load factor @ 23% CCGT load factor @ 57% Wind onshore is today the cheapest technology and is fully competitive LCOE reduction is possible through continued evolution of turbine technology (advanced blades, tall towers, robust drivetrains) ad development of supply chain and best practices Backup (1) Levelized cost of energy 3
  9. External sources also confirm that onshore wind is the most competitive technology nowadays 8Source: Lazard (LAZARD'S LEVELIZED COST OF ENERGY ANALYSIS—VERSION 9.0) Levelized cost of energy (LCOE) according to Lazard (November 2015)(1) USD/MWh (1) Unsubsidized Levelized Cost of Energy Comparison Backup 3
  10. For the required investments to be done, an appropriate remuneration model has to exist – Current market design is not adequate for massive decarbonization and does not provide the needed investment signals 9Source: EDP Analysis MWh Wind CCGTNuclearHydro Coal Variable cost Fixed cost €/MWh Price Marginal pricing model MWh Demand curve Supply curve Supply curve with increased RES Price0 Price1 Effect of additional RES on price setting €/MWh • Decarbonization leads to technologies based on fixed costs (e.g., renewables, nuclear, thermal backup, storage, networks, etc.) • In a capital intensive sector, the marginal pricing model is not an efficient instrument: - Prices tend to zero in the absence of market power - Price uncertainty and volatility increase the risk premium, hence the cost of capital… - … which will be reflected in higher end user prices
  11. Pool price depressing effect as %RES rises is already evidenced by empirical data 10Source: Reuters, REN, OMEL, EDP analysis R² = 0,64 0 10 20 30 40 50 60 70 80 90 20% 30% 40% 50% 60% 70% 80% 90% 100% 110% 120% Portuguese pool prices vs. share of renewables in national electricity consumption €/MWh vs. %, weekly data, Jan 2012 - Feb 2015 (1) Energy only market Energy only markets are structurally insufficient to remunerate any technology
  12. Long term contracts with price visibility seem a good tool to capture the benefit of renewable´s economics 11 • For a given level risk in the business, a remuneration with higher risk will need to be set at a higher expected value in order to reach the same level of value creation for the investor • Therefore, the way to minimise the cost for the electricity system is to create a scheme that provides investor with the higher visibility over the remuneration as possible − A higher visibility entails a lower risk for the equity investor, lower financing costs for the finance entities that will allow low cost of capital, therefore lower required profitabilites − Lower required profitabilites translate into lower required remuneration • Lower required remuneration will be passed to final consumers that will benefit from lower electricity tariffs for the same level of renewable penetration The value of the long term price can be defined administratively or through ex-ante tenders • Tenders allow to capture changes in market value of capex, if there is enough competition Rationale for long term contracts with price visibility
  13. Experiences of competitive markets show that Long-term contracts based on competitive auctions are an efficient tool 12 Description Utility and bilateral sourcing via competitive Power Purchase Agreements (PPA) auctions. Federal fiscal incentives to support low-carbon investments UK first Contract for Difference (CfD) auction took place last year, with 27 contracts worth £315 million/year awarded to projects which will deliver over 2 GW of renewable energy Country System Long-term PPA’s are awarded to power plants in Brazil after competitive auctions. RES may also be supported by having access to loans with low interest rates International experience • Long-term contracts awarded through auctions have several benefits: — Competition is ensured — Efficient price setting — Investors’ risk premium is reduced and so price to the consumers also decreases • Spot markets are still needed for short-term optimization and dispatch signal — Further integration of European markets important to optimize low-variable cost generation and RES potential • International experience shows support to low- carbon investments not necessarily borne by energy-consumer, but also by taxpayers This trend is also happening in Europe, where several countries have changed their scheme or are in the process to change it
  14. Key take aways 13 • Renewables, and wind in particular is expected to continue growing based on its economic competitiveness and their contribution to energy security and environmental sustainability • However, in order for the electricity system to capture the favorable economics of wind, a properly designed regulatory system must be put in place aimed at allowing stability to foster investments and, at the same time, a competitive environment ‒ Long-term contracts based on competitive auctions would eliminate these inefficiencies, as shown by experience of competitive markets ‒ Potential changes in remuneration should only affect new installations, no retroactive changes should be allowed