An Industry Perspective

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An Industry Perspective

• Oliver Schaefer, Policy Director,
• European Renewable Energy Council

EUFORES, Interparliamentary Meeting, Berlin,
5-5th of October 2007
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EREC European Renewable Energy Council

• Umbrella organisation representing all RES
  sectors
• AEBIOM European Biomass Association
• EGEC European Geothermal Energy Council
• EPIA European Photovoltaic Industry
  Association
• ESHA European Small Hydropower Association
• ESTIF European Solar Thermal Industry
  Federation
• EUBIA European Biomass Industry Association
• EWEA European Wind Energy Association
• EUREC Agency European Renewable Energy
  Research Centres Agency
• Associate members
• EU-OEA European Ocean Energy Association
• EBIO European Bioethanol Industry Association
• EREF European Renewable Energy Federation

Representation of European RES industry, trade
research
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The Root of the Energy Problem for the EU

• We are going to import an ever growing share of
  our energy at unpredictable (but most likely
  higher) prices in competition with the rest of
  the world and at unbelievable environmental cost.
• Regardless of whether we are successful in energy
  diplomacy or not, we have no idea about the
  future cost of energy we will be paying to
  maintain current supply

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Each dollar we spend on securing oil fields,
borrowing money to pay for oil imports, or
cleaning up an oil spill is an opportunity missed
to invest in a sustainable energy future

• Richard G. Lugar
• Chairman, U.S Senate Committee on Foreign
  Relations, 30th of March 2006

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We are already paying for inaction

• For every 20 increase in the price of oil, the
  cost of Europes gas imports rises by 15 bn
  annually, given the unfortunate link between oil
  and gas prices
• The increase of oil prices over the past few
  years from 20 to 80 thus adds 45 bn. to EUs
  annual gas import bill
• For comparison, EU invested 9 bn. in wind energy
  in 2006

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The forgotten COST The REAL PRICE of our energy
supply
Who is paying the real price? The
Electricity/Energy customer The general
population Indirect burden via taxes, insurances
and social contributions The State Increasing
environmental costs, political costs Global
Loss of quality of life
Electricity/Energy Price
External Costs
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RES 2020 Target and Climate Change Package

• Three targets on renewable energy, energy
• efficiency and greenhouse gases have been
• agreed for 2020.
• None of these targets has primacy over the others.

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The 20 by 2020 EU target will only be met if
legislation is adopted timely.The Directive
should be in force as soon as possible in order
not to cause market instability around 2010
(ending of RES-E Biofuels Directives)
The Framework Directive must be adopted as soon
as possible.
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Division of the target
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Division of the 20 target among Member States
How to best avoid lengthy negotiations ? Each
Member State increases its renewable energy share
by 13 percentage points from todays 7 to 20 in
2020.
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Pre-Conditions for RES uptake

• Change in Paradigm individual responsibility for
  own energy supply, as local and decentralised as
  possible
• Households and private sector in general should
  primarily produce their own heat and electricity
  from RES sources in an efficient environment
• Combination with drastic change in consumption
  pattern and increase in efficiency
• Political commitment beyond ideologies and short
  term thinking to go for strong national RES
• Clear instruments, targets for rapid uptake and
  enforcement
• High level of market penetration by Independent
  RES Power Production
• Swift abatement of open and hidden harmful
  subsidies to incumbent industry
• As long as one or more of these conditions are
  not met counterbalance is necessity

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Precondition for reaching the targets

• Renewable Action Plans with sectoral targets for
• RES-electricity,
• RES heating cooling
• Biofuels
• Interim targets every second year to check
  whether development is on track
• Penalities in case of not reaching the target
• Ensuring development of ALL renewable energy
  technologies

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Sectoral approach

• On Electricity Provisions on grid issues and
  administration procedures must be maintained or
  strenghened.
• On Heating/Cooling Proper definition, reliable
  statistics, renewable heat obligation
• On Transport ensuring sustainability. Promote
  RD for second generation biofuels.

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Support Schemes in the RES-Electricity sector

• Harmonisation is premature at this stage.
• Nevertheless, a list of criteria applying to all
  national support mechanisms should be set to
  ensure successful deployment of renewable energy.

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Strong Sustainability Criteria

• - Sustainability criteria should cover not only
  biofuels but also biomass whatever its final use
  (biofuels, food, construction, electricity...)
• - Criteria such as greenhouse gas reductions
  could be covered by the cross compliance rules.
• - No biomass outside these sustainability
  criteria should be counted towards the target.

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Ensuring sustainability on global level

• Imported products should comply with similar
  standards as the cross compliance rules to avoid
  competition distortion.
• If these existing schemes meet the defined
  European criteria, they should be recognised as
  eligible for certification.

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EU-wide trading mechanism

• Such a trading mechanism requires sellers and
  buyers.
• So far Member States calling for an EU-wide
  trading mechanism only expressed an interest in
  buying, not in selling.

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EU wide Trading Mechanism

• There is no reason to introduce such an
  artificial mechanism if it is meant to
• produce disincentives for domestic investment
• endanger prosperous support schemes
• provide additional bureaucratic mechanisms.

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Market Based System

• It is not more market oriented to regulate
  prices rather than regulating quantities. The
  important thing is whether the regulation is
  effective.
• OPEC is not market oriented just because it
  uses quotas to regulate its a cartel.
• WTO accepts price regulation not quantitative
  measures.

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What does the investor in new capacity need
A stable mechanism that replicates a bankable
long-term Power Purchasing Agreements!

• The longer the contracts
• the lower the risk to investor
• the lower the cost to consumers
• the lower price/kWh required

• 1 year contracts (spot market) Very expensive /
  kWh
• 20 year contracts (Germany) Cheap / kWh
• 10 year contracts Certainty in investment period

Uncertainty will make it very expensive to meet
the target
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The Main Question to ask
Will the introduction of trade make it easier for
MS to meet their targets cost effectively? Will
trade attract investors and increase their
confidence? What impact will trade have on
existing successful mechanisms? (NB Trade is a
tool, not an end-goal in itself)
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Trading RE vs Trading Emissions

• ETS
• When introduced there was nothing, i.e. trade
  could only improve the situation
• Emission allowances does not require physical
  infrastructure
• RE
• We are seeing the concrete results of the
  successful RES-E Directive, i.e. something can be
  disturbed
• The product needs physical infrastructure (grids)

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Our Main Concern
How will trading impact national frameworks with
regards to?

• National support schemes
• Grid access and strategic grid planning
• Planning and administrative procedures
• Public acceptance

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Adverse incentives
Disincentive to develop national frameworks,
including planning procedures and strategic grid
planning Importing countries leaves the tricky
planning parts to exporting countries. Exporting
countries bear grid operation, balancing and grid
extension costs Public acceptance could be
reduced if a MS via GC trading is funding
employment abroad, paying for foreign CO2
reductions while getting no benefit in terms of
diversification, reduced imports, increased
security of supply and lower prices from
zero-fuel RE sources
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What would be the competition element?
There is no incentive in the system to produce
renewable energy most effectively Virtual
trading will create strategic gaming excersises
where MS will adjust the national systems
constantly to ensure payment is high enough to
maintain domestic action (CO2 benefits,
employment, economic activity) but not high
enough to catch the attention of foreign
exporters Result Initial high payments. After
that an avalanche towards the lowes common
denominator with a price reflecting the cost of
producing the marginal kWh
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Effect on existing national mechanisms
In MS with quota system Producers will sell GC
to UK / Italy. Existing investors experiance an
immediate fall in ROCs prices the day the
proposal is tabled In MS with price system
(feed-in or premium) Could become very costly as
producers sell GC abroad at highest price
possible, while the governement will have to buy
back GC from abroad
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• the issues relating to compatibility of support
  mechanisms and the desirability of not distorting
  cross border trade are concerns which are
  secondary to the main objective of ensuring a
  certain level RES production in each Member State
  on the basis of individual national targets..
• European Commissions Strategy Paper Medium term
  vision for the Internal Electricity Market (1
  March 2004)

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Renewables Market Development in the EU
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Cumulative Wind Energy Installed Capacity
Europe 1995-2000 38.8, 2000-2005 25.7
World 1995-2000 29.4, 2000-2005 27.8
Source EWEA,GWEC
Average Annual Growth Rates
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Relative Wind Energy Capacity in Germany and
Spain with respect to the rest of EU ( MW)

Source EWEA
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PV
Cumulative Installed PV Capacities
Source EPIA
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Annual Installed Global Capacity Nuclear vs Wind
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Geothermal Electricity
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Small Hydro Power
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Biomass
Source Aebiom 2007 statistics report
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Major barriers to be removed

• Failure of Governments to deliver
• Consequent action planning
• Administrative capability and coherence
• Public Information on RES
• Sticking to promises given
• Ability to agree to new, decentralised market
  structure
• Flexibility
• Market incentives
• Market Fairness

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Further information

• EREC
• European Renewable Energy Council
• Renewable Energy House
• 63-67 Rue dArlon,
• 1040 Brussels, Belgium
• www.erec.org
• Thank you very much for your attention!

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Global Energy Revolution Results
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Why Scenarios?

• images of alternative futures
• neither predictions nor forecasts
• image of how the future could unfold
• useful tools for investigating alternative future
  developments and their implications
• Scenarios help us understand the limitations of
  our mental maps of the world to think the
  unthinkable, anticipate the unknowable and
  utilise both to make better strategic decisions
• Scenarios can create a vision for the future and
  guide decision makers

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Objective of the studyProvide an outline of a
global energy supply system that complies with
key sustainability criteriaKey Targets. A)
climate change Limit global mean temperature
rise to below 2 C (-gt 2 C Scenario)B)
Technology Only proven technologies phasing
out of nuclear energy on a global levelC)
incentives for sustainable economic development
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• Approach
• development of a 10-region model (based on IEA
  regions)
• implementation of energy balances in
  MESAP/PlaNet, model calibration with IEA 2003
  statistics
• economic development and population development
  according to IEA World Energy Outlook 2004
  (extrapolated to 2050)
• Reference Scenario based on IEA World Energy
  Outlook 2004 (extrapolated to 2050)
• Alternative Scenarios
• demand scenarios Ecofys
• supply scenarios DLR
• Review process
• regional counterparts (academia, NGO)
• EREC / Greenpeace

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CO2-reduction target- Limit global mean
temperature rise to lt 2 C- Reduce energy
related CO2-emissions from 23 Gt/a today to
11 GtCO2/a in 2050- Per-capita emission
rights in 2050 1 tCO2/a
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• The Logic of energy (r)evolution scenario
• From principles to practice - Use the current
  time window for
• Step 1 Energy Efficiency
• Step 2 Structural Changes
• Decentralised energy and large scale renewables
• Cogeneration
• Step 3 Energy Efficiency and Transport
• Efficient Public Transport Systems
• Efficient Cars, Trucks etc.
• sustainable Biofuels
• Scenario principles in a nutshell
• Smart consumption, generation and distribution
• Energy production moves closer to the consumer
• Maximum use of locally available,
  environmentally friendly fuels

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Energy Consumption and Economic Development in
China (1980-2004)
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• Key facts
• REF CO2-emissions double till 2050 -gt Climate
  Chaos
• Energy Revolution CO2-emissions cut by half
  till 2050 -gt Avoids dangerous climate change

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2015 onwards Energy Revolution cheaper
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Further information

• EREC
• European Renewable Energy Council
• Renewable Energy House
• 63-67 Rue dArlon,
• 1040 Brussels, Belgium
• www.erec.org
• Thank you very much for your attention!