Renewable energy and energy efficiency key areas of
Renewable energy and energy efficiency - key areas of the Fourth Energy Package New Renewable Energy Directive and Governance László Szabó Senior Researcher, REKK Seminar in Sofia, Bulgaria 9 th March. 2018
Outline • Global and European RES market trends • Bulgaria: RES markets at a glance • Present situation: legal background and RES achievements • Proposal for a new RES directive • Energy Union Governance 2
Global and EU renewable trends 3
Technology contribution to decarbonisation Source: IEA: Tracking Clean Energy Progress 2017
In the 2 DS, electricity becomes a near zero carbon fuel by 2050 Carbon intensity drops by 90% by 2050 in the 2 DS (IEA)
Emission intensity of electricity generation Gas based generation emission intensity level No fossil Only RES or CCS Source: IEA: Tracking Clean Energy Progress 2017
New built electricity generation in Europe: RES-E Source: Wind. Europe, 2017
Global RES power net additions IEA scenarios under BAU and accelerated cases - Shift to China and other Developing regions Source IEA: Medium-Term Renewable Energy Market Report 2016
Technology learning rates Learning rate: - Measures the investment (manufacturing) cost reduction for each doubling of installed capacity! - Not a yearly value! - And it is not automatic – there is a need for capacity installations to realise the learning effect. Source: Irena 2017
Germany vs Greece PV tenders DE GR 2017 - Why in Greece and Germany for the same technology, for the same year PV auction difference was almost 100%? (4. 9 €/k. Wh vs 9. 7 €/k. Wh) - And why in Germany within 2 years PV auction price dropped from 9. 3 to 4. 9 €/k. Wh?
EU 2020 RES target achivements Bulgaria is in the group of 6 „good performing” countries Source: EC Impact Assessment 2017, and 2016 Interim Progress Report - Oeko-Institute 11
And beyond 2020? • Dynamic growth in RES-E is feasible • By 2030 RES-E share in electricity could reach above 30% • By 2050: above 50% Source: SEERMAP, 2017, REKK 12
Bulgaria – RES deployment Source: Energy Union Factsheet 2017 13
Energy Sector Bulgaria • High share of Value Added in energy sector • High employment rates BUT: • Low employment rate in RES production • Low level of turnover Source: Energy Union Factsheet, 2017 • Present support scheme covers PV and biomass 14
RES technology specialisation • Higher and improving comparative advantage in wind technology manufacturing • Negative trade balance in PV • But: RES policy focus on biomass and PV Source: Energy Union Factsheet 2017 15
Present situation: legal background and EU RES achievements 16
Links with parallel initiatives • ETS reform (Market Stability Reserve) • Also proposal for non-ETS sector targets setting: ’ Effort Sharing Regulation’ • Proposal on LULUCF • Revision of directives EED, EPBD • EU strategy on low emission mobility • But also the Winter Package on other areas: ‣ Electricity market design ‣ Governance of the Energy Union ‣ Bioenergy Sustainability • + Existing framework : State Aid rules 17
Links in legsilation II Other areas of ‚Winter package’: - Electricity market design - Governance EU State Aid rules: - Competitive tendering - Approval process Climate regulation • ETS rules (Market Stability Reserves, quoa reuctions rate) • Non-ETS rules (New proposalf fro 2030) Renewable regulation • Proposal in new Renewabel electricity Directive (RED II) • Biomass sustainabilty; proposal on LULUCF Satelite regulations • Energy Efficiency: proposed new Directive, EPBD • New industrial emissions Directive, etc. 18
State aid rules (2014) • Since 2017 new RES supports schemes have to be based on competitive bidding process. • Exemptions: ‣ Small producers: under 1 MW, or wind under 6 MW. ‣ Demonstration projects (with significant innovations) ‣ Or if low number of bidders expected (e. g. Small country? Spatial planning / environmental constraints? Limited RES resources) • DG Competition role: ‣ Approves new support schemes ‣ Case-by-case, evidence-based assessment by DG COMP of all cases 19
Interlinkages of policy areas • Energy efficiency and renewable deployment are important instruments to reach or climate targets § New ETS rules (e. g. on Market Stability reserves) limit quota supply, increase ETS price which helps the RES deployment § Proposed improvements in market design improve the market opportunities of RES § Reduced energy consumption lead to lower level of GHG emissions, helping to reach RES targets of MSs. • The Energy Union Governance regulation proposes consistent planning within these areas 20
Climate policy is the key driving policy! 2020 GHG emissions Renewable deployment EU: 20% reduction compared to 1990 EU: 20% share BG: 16% EU: 20% decrease compared to the reference consumption: BG: indicative primer energy use for 2020: 16, 87 Mtoe EU: 27% share No national target EU: 30% decrease compared to reference consumption 21% reduction compared to 2005 in the ETS No national targets 2030 10% reduction compared to 2005 in the Non. ETS (BG: +20%) EU: 40% reduction compared to 1990 Energy Efficiency 41% reduction 30% reduction compared to 2005 within the 2005 in the Non-ETS (BG: 0% -> proposal) No national targets 2050 80 -95 % GHG reduction compared to 1990 21
Assessment of present situation I. Investment uncertainty: • Present policies in place would not result in 27% RES share by 2030 – modelling analysis shows a 24. 3 % RES share is achievable • RES investments in the EU are reduced by 60% since 2011, and this is only partly due to the reducing technology costs • RES achievements in Europe is concentrated in electricity: 13% increase in the past 10 years – in case of heating sector: 7% ‣ Partly due to the heterogeneity and of heat markets, with isolated market operation. Assess to heat infrastructure is limited A key question: when would RES production could reach market parity? • Market integration and ETS could enable mature RES to be competitive by 2030 § But till 2030 excess capacity, low CO 2 price and low wholesale price levels, high RES technology costs make RES support still as a must for investments 22
Assessment of present situation II. Cost Efficiency is a key to the future RES deployment: • Sectoral distribution of effort is not according to the cost efficient share: heating and cooling gets much lesser share of RES than needed § Similarly amongst countries, unequal effort distribution: v Diverse potentials v Diverse cost of capital (WACC) v Diverse access rules and administrative costs § Cost efficient support schemes: need to acknowledge the technological potential and technology maturity Ensure consumer buy-in in the transformation process: § Take into account the disadvantages of small investors in the tendering procedures § Low participation of consumers (prosumers) § Insufficient information of consumers 23
Cost efficiency of RES support schemes PV Wind Source: Own calculation from CEER data, 2017 24
Proposal for a New Renewable Energy Directive 25
Electricity markets: Support Schemes 0. option Continue with the present national supports schemes • • • 1. option 2. option 3. option Sole use of market mechanisms European framework for market-based and cost-effective support Mandatory move towards investments aid Introduction of principles of support schemes that Member States can put in operation. This option includes design principles for Member States to use for support schemes and the protection for investors against retroactive changes (Article 4 and 5) State aid rules are maintained (e. g. exceptions to the main rule of tendering) DG Competition applies its case by case scrutiny of guideline fulfillment Prosumers are eligible for the market value of their RES production feed into the network – up to a certain capacity size - (Article 21) MSs shall assess the effectiveness of their support schemes every four years (article 4) MSs shall define and publish their planned support for the next three years (timing, capacity and budgetary limits): article 15 26
Electricity: Opening support schemes 0. option Continue with the present national schemes 1. option 2. option Mandatory regional support Mandatory partial opening of support schemes to cross-border participation • The main objective is to increase cost efficiency: § Option 2 would save an estimated 1 billion€/year for the EU MSs • Member States shall ensure that support for at least 10% of the newly-supported capacity in each year between 2021 and 2025 and at least 15% of the newly-supported capacity in each year between 2026 and 2030 is open to installations of other MSs (Article 5. ) • Commission may propose to increase the percentages in 2025 based on the assessment of the schemes 27
RES financing: Cost of Capital Cost of PV production Source: REKK estimates Cost of Capital is a key factor in determining the profitability of renewable investments. • Cost of capital depends: a) country; b) regulatory and c) technology risks • Divergence in cost of capital could be handled in various ways: • EU subsidies could be directed to higher WACC countries • Support of less mature (=higher WACC) technologies in low WACC countries • In the present package there is no planned instrument to tackle this issue Source of Map: Dia. Core, EU project 28
RES financing: Cost of Capital II 0. option Continue with the present national schemes 1. option 2. option EU-level financial instrument with wide eligibility criteria EU-level financial instrument in support of higher-risk RES projects • In the present package there is no planned instrument to handle this issue • The details of such enabling framework should be set out in the context of the preparation of the Multiannual Financial Framework for 2021 -2027 Source Ecofys 2016 29
Electricity: licensing and authorisation 0. option 1. option 2. option Presently applied policies reinforced provisions with "one-stop-shop", facilitated procedures for repowering Option 1+ permitting procedures time limited, automatic approval and simple notification for small projects • One-stop-shop permit granting from 2021, including generation unit and infrastructure development (article 16 and 17): § The designated authority contacts the other required authorities § Issues license within 3 years § For capacities under 50 k. W licensing is within 6 month, after this deadline automatic licensing § In case of repowering RES capacities the deadline is 1 year 30
Low-carbon transport sector 0. option Present EU instruments 1. option EU incorporation obligation for advanced renewable fuels 2. option 3. option 4. option Option 1. + reduction of foodbased biofuels Option 2 + incorporation obligation for aviation and maritime renewable fuels GHG emission reduction obligation • Present 10% incorporation rules are valid till 2020 • Reducing the existing cap on food-based biofuels to the period after 2020 in order to minimise ILUC (Indirect Land Use Change) emissions (change to advanced biofuels): share is to be reduced from 7% to 3, 8% between 2021 -2030 • Biofuels plus RES electricity share must reach 1. 5% in 2021, and reach 6. 8% by 2030 (article 25. ) of which 3. 6% should be advanced biofuel 31
Renewable heating and cooling 0. option 1. option 2. option Continuation of the current national measures with no EU action Introducing RES H&C obligation for fossil fuel suppliers The same obligation as option 1, but for all fuel suppliers • Renewable heat is under-utilised compared to available potential and heat demand • Incentivising combined heat and power is not sufficient, as CHP only covers 10 % of heat demand in the EU. • 2. option is the preferred one: increase the share of renewable heat by 1 % every year; Designation of obligatory parties is national responsibility; • Possible forms: ( article 23. ) • Physical incorporation of RES to energy supply (biogas to gas network) • Installation of highly efficient renewable heating/cooling systems in buildings • Indirect mitigation measures covered by tradable certificates, through support to indirect mitigation measures, carried out by another economic operator 32
District heating and cooling 0. option 1. option Present EU measures and best practice sharing 2. option Energy performance certificates and opening access to local H&C 3. option 2. option + reinforced consumer rights Option 3 is selected (article 24): • Strengthen the certification system of DHC systems: efficiency, RES share, CO 2 emissions (CEN standard is under elaboration) • Non-discriminatory access rights of RES and waste based heat producers to the district heating and cooling networks. • Consumers right for disconnection, if the existing DHC system is not efficient (e. g. less than 50% RES or waste or less than 75% of CHP) • MSs can limit disconnection right: e. g. consumer has to prove that the individual system is more efficient. • Multiply flat buildings can only disconnect in block level. 33
Share of district heating in heat supply Bulgaria: 6 th highest share of DH in heating, but low RES share Source: EC Imapct Assesment, 2017 34
Empowering and informing consumers 1. option 2. option 3. option EU guidance on self -consumption Framework principles empowering consumers to selfconsume and store renewable electricity Distance selfconsumption for municipalities Self consumption: • option 2 helps consumers in self consuming electricity (mainly rooftop PV), while option 3 would have negative impact on grid financing Consumer information: • extend GO (Green origin systems) e. g. to biofuels and gaseous fuel in heating, GOs will be mandatory to disclosure • In electricity GO stays at 45% presently, further growth is expected 35
GAP treatment 1. option Revise ambition of national plans 2. option Review clause to propose EU level delivery mechanisms at a later stage 3. option 4. option Increase the ambition of EU wide measures Introduce binding national targets For ‚ambition gap’: • Option 1+2 and the governance process For ‚delivery gap’: • Option 3 is the preferred method Delivery pathway: • 2020 as a minimum floor for RES – no MS could go under its 2020 target • Linear trajectory between 2021 and 2030 36
Energy Union Governance: planning and control 37
Main characteristics • Objective: ensure achievement of 2030 targets • Form: Regulation ( fully binding and applicable in all MS) • Commission will revise and modify it in 2026, according to the achievements of MS and if the international climate negotiations require interventions • Includes 2 plans: 1. Integrated national energy and climate plan - for 2021 -2030 2. Long-term low emissions strategy outlook for 50 years • Consistency between the two plans has to be ensured • It replaces around 50 different type of reporting obligations in the field of energy planning 38
Process of elaboration of the integrated plans • Deadline for first draft: end of 2018 for the period 20212030. It has to go through a consultation process as well with the neighbouring countries • The Commission assesses if the ambition levels of the MSs are sufficient to reach the overall EU targets • Deadline for final plans: 2019 - that has to reflect the opinion of EC and the neighbouring countries • The integrated plan could only revised in 2024 by the MSs, but targets could only modified upwards (higher RES and EE, lower GHG emissions) + • Every second years MSs have to report to Commission, which assesses the national reports. 39
Content of integrated plans It should cover target achievements in five areas of Energy Union: § Decarbonisation: on the non-ETS sectors, where binding targets are proposed § RES: contribution to the 27% targets (specified by sector) § Energy Efficiency: contribution to the 30 % target § Internal energy markets: market coupling plans, interconnectedness: 15% connection target with neighbours by 2030 (Bulgaria: 7%, but with new infrastructures under design and construction) § R&D: covering resources and technology targets • Coverage: § Description of current situation § Scenario assessment up to 2040: WEM and WAM scenarios § Cover macroeconomic, employment and social impact 40
Instruments for ‚gap filling’ • If the 2023 RES share does not achieve the proportional 2023 target (on a linear trajectory up to 2030), than MSs: § Have to increase the RES heat contributions of the obliged parties (RED II, 23(1)) § Have to increase the incorporation rates of biofuels (RED II, 25(1)) § Have to pay to the RES Fund supervised by the Commission financing RES projects. • In this payment ambitions of the MSs will be accounted for – less ambitious countries will pay more • In case a MS will be under its 2020 target level, it will have to pay into the RES Fund as well 41
Thanks for your attention! laszlo. szabo@rekk. hu www. rekk. hu 42
- Slides: 42