Promotion of Renewable Energies in the EU Member States

1
Promotion of Renewable Energies in the EU Member
States
Consequences on the Price of Electricity for
Industrial Consumers Dr. Annette Loske, VIK
Germany
IFIEC Europe Forum 21 October 2003
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The Role of Renewable Energies

• The role of renewable energies has to be checked
  against the three main issues of any energy
  policy

Increasing dependence on energy imports within
the EU Today 50 percent After 20 to 30 years 70
percent
SECURITY OF SUPPLY
ENVIRONMENTAL PROTECTION
Kyoto-Protocol Obligation for CO2 reduction of
8 within the EU (1990 2010)
ECONOMY
Non competitive towards fossil fuel energy sources
Renewable Energies may have an important role to
play to help reaching objectives related to
security of supply and environmental
protection. However, economic aspects are
critical!
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IFIEC Europe Study on the Promotion of Renewable
Energies and the Consequences for Industrial
Users in the EU

• Electricity Price really matters for Industry!
• In most of the EU Member States, renewable energy
  support is financed by means of surcharges to the
  electricity price.
• Every electricity price increase is a threat for
  the competitiveness of the industry and may lead
  to production decommissioning or transfers!
• The IFIEC Europe study gives an overview of the
  consequences of promotion measures for renewable
  energies and of the extent of financial burdens
  for the industry.

4
IFIEC Europe Study on the Promotion of Renewable
Energies and the Consequences for Industrial
Users in the EU

• The main findings of the study are
• The financial surcharges on the electricity price
  resulting from renewable energies promotion
  systems for industrial energy consumers are
  already significant, and are planned to increase
  quickly and intensively in the near future (e.g.
  in Germany up to 8.9 /MWh in 2010).
• The financial burdens resulting from renewable
  energies support differ significantly from
  country to country. No European level playing
  field is in sight!
• Only some of the EU Member States (e.g. Sweden,
  Netherlands) have recognised how important the
  electricity price is for the competitiveness of
  industrial energy consumers competing in global
  markets when establishing financing mechanisms
  for the renewable energies support schemes.

5
IFIEC Europe Study on the Promotion of Renewable
Energies and the Consequences for Industrial
Users in the EU
In order to investigate the economic side of
renewable energy promotion, the situation in the
following EU Member states has been analysed

• Austria
• Belgium
• Finland
• France
• Germany
• Italy
• Netherlands
• Sweden
• United Kingdom

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Renewable Energies Promotion The Background

• Climate Change Policy based on the Kyoto Protocol
  Obligation
• EU 8 percent CO2-reduction 1990 - 2010
• Renewable Energies Directive (Sept. 27, 2001) as
  one of the instruments to meet this target
• National targets for the share of electricity
  produced from renewable energy sources
• Obligation for the EU-Member States to implement
  adequate promotion mechanisms to achieve the
  targets set

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THE NATIONAL TARGETSPercentage of Electricity
from Renewable Energies1997 and 2010
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THE NATIONAL TARGETSAdditional Required Power
Volume from RES 1997 - 2010
Total for EU-15 353,3 TWh (which is about the UK
total consumption in 2000)
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FOCUS ON WIND ENERGY

• In most of the countries investigated, there is a
  special focus on wind power for reaching the
  targets set for 2010. Therefore, the study gives
  special attention to the promotion schemes for
  wind power.
• When talking about wind power, the following
  characteristics of wind power have to be
  considered
• Instability of wind power generation
• E.g. in Germany
• Wind Power Share of installed capacity 15
  percent
• Wind Power Share in power consumtion 3 percent
• Necessity for excessive back-up capacities
• For each MW of wind power capacity 0.8 to 0.9 MW
  reserve capacity is necessary as back-up.
• This leads to less efficiently working regime of
  these power plants.
• Excessive grid extensions are needed
• Planing figures for Germany 1000 km additional
  380 kV grid in the E.on area (investments of 550
  mio ) plus 500 km in the Vattenfall area till
  2016.
• Significant additional indirect costs from wind
  power, which are even not covered in this
  investigation.

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THE FINANCIAL PROMOTIONRemuneration Rates for
Electricity generated from Wind Power
These figures are guaranteed ones for buy-back
regimes, or estimated ones for certificates
systems (Italy, Belgium).
Significant differences in duration and amount of
given support !
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THE FINANCIAL PROMOTION OVER TIME Premium
Remuneration for each MWh electricity generated
from wind power (in excess to a normal market
price)
) Assumed at 30 /MWh
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THE FINANCIAL PROMOTIONIs it realistic?

• If renewable energy companies can offer a Return
  on Investment of 23 over the next 15 years?

EXAMPLE

• If compared with investment costs for 1 kW of
  installed wind power generation capacity of about
  1100 ?

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THE FINANCIAL PROMOTIONWhat are the consequences
for industrial consumers?
Source Estimates of IFIEC Member Federations
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THE FINANCIAL PROMOTIONWhat are the consequences
for industrial consumers?

• Only 6 from 9 EU Member States are shown on the
  previous graph, because
• In Sweden the industrial large consumers are not
  burdened at all.
• In the Netherlands the burden for this group is
  very low (maximum 62,090 /a).
• In Finland, the promotion measures are totally
  financed by the state budget resulting in no
  directly earmarked financial burden for consumers.

• Only single countries up to now appreciate and
  regard the special significance of additional
  energy costs for industrial consumers.
• No level playing field!

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THE FINANCIAL PROMOTION Electricity cost really
matter for industrial consumers!
Example GERMANY The average electricity price
for an industrial consumer (50 100 GWh
consumption) in Germany in 2002 was (excl. Taxes
and fees) about 34 /MWh
2002
2010
RES surcharge 3.2 /MWh
RES surcharge 8.9 /MWh
Power price increase by 9.4 percent
Power price increase by 26.2 percent
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THE FINANCIAL PROMOTION Consequences for the
competitiveness!
Cost Structure for Aluminium Production Comparison
Germany World Average
Germany Average Production Cost 1.164 USD/t
World Average Production Cost 1.112 USD/t
Plus 4.7 percent in Germany Mainly resulting
from power cost
Source Study of ewi, Cologne
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Conclusions (1)

• Renewable energies may build an important option
  for the future. But their promotion is a costly
  political decision.
• The financial burdens resulting from renewable
  energies promotion systems for industrial energy
  consumers are already currently significant, and
  are increasing quickly and intensively in the
  near future.
• The resulting financial burden differs
  significantly. No European level playing field is
  in sight!
• In most of the countries, the promotion systems
  hardly address any measures to strengthen the
  competitiveness of renewable energies, but simply
  guarantee revenues over an extensive period.
• Thus improvements in the economics of generating
  electricity from renewable energies are hardly
  provoked, and an overfinancing of renewable
  energy plants is not excluded in case of
  technological and economic progress.

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Conclusions (2)

• The financing mechanism for renewable energy
  promotion measures must reflect the long term
  character of the programme and the overall
  societal interest in it.
• It must not result in a disproportionate threat
  for the energy intensive industry and lead to
  de-industrialisation of the EU.
• Renewable energies promotion systems should not
  jeopardize the competitiveness of the industry on
  the European as well as on the international
  level.