An Industry Perspective

Oliver Schaefer, Policy Director, European Renewable Energy Council

EUFORES, Interparliamentary Meeting, Berlin, 5-5th of October 2007

EREC European Renewable Energy CouncilUmbrella organisation representing all RES sectors:

AEBIOMEuropean Biomass AssociationEGECEuropean Geothermal Energy CouncilEPIAEuropean Photovoltaic Industry AssociationESHAEuropean Small Hydropower AssociationESTIFEuropean Solar Thermal Industry FederationEUBIAEuropean Biomass Industry AssociationEWEAEuropean Wind Energy AssociationEUREC AgencyEuropean Renewable Energy Research Centres Agency

Associate members:EU-OEAEuropean Ocean Energy AssociationEBIOEuropean Bioethanol Industry AssociationEREFEuropean Renewable Energy Federation

Representation of European RES industry, trade & research

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

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

We are already paying for inactionFor 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 pricesThe increase of oil prices over the past few years from $20 to $80 thus adds 45 bn. to EUs annual gas import billFor comparison, EU invested 9 bn. in wind energy in 2006

The forgotten COST: The REAL PRICE of our energy supplyWho is paying the real price?

The Electricity/Energy customer

The general populationIndirect burden via taxes, insurances and socialcontributions

The StateIncreasing environmental costs,political costs

Global Loss of quality of life

Electricity/Energy Price External Costs

Three targets on renewable energy, energy efficiency and greenhouse gases have beenagreed for 2020.

None of these targets has primacy over the others.RES 2020 Target and Climate Change Package

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.

Division of the target

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.

Pre-Conditions for RES uptakeChange in Paradigm: individual responsibility for own energy supply, as local and decentralised as possibleHouseholds and private sector in general should primarily produce their own heat and electricity from RES sources in an efficient environmentCombination with drastic change in consumption pattern and increase in efficiencyPolitical commitment beyond ideologies and short term thinking to go for strong national RESClear instruments, targets for rapid uptake and enforcementHigh level of market penetration by Independent RES Power ProductionSwift abatement of open and hidden harmful subsidies to incumbent industryAs long as one or more of these conditions are not met counterbalance is necessity

Precondition for reaching the targetsRenewable Action Plans with sectoral targets for RES-electricity, RES heating & cooling BiofuelsInterim targets every second year to check whether development is on trackPenalities in case of not reaching the targetEnsuring: development of ALL renewable energy technologies

Sectoral approachOn 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 R&D for second generation biofuels.

Support Schemes in the RES-Electricity sectorHarmonisation 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.

- 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.Strong Sustainability Criteria

Ensuring sustainability on global levelImported 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.

EU-wide trading mechanismSuch 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.

EU wide Trading MechanismThere is no reason to introduce such an artificial mechanism if it is meant to: produce disincentives for domestic investment endanger prosperous support schemesprovide additional bureaucratic mechanisms.

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.

What does the investor in new capacity needA 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

The Main Question to askWill 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)

Trading RE vs Trading EmissionsETS:When introduced there was nothing, i.e. trade could only improve the situationEmission allowances does not require physical infrastructureREWe are seeing the concrete results of the successful RES-E Directive, i.e. something can be disturbedThe product needs physical infrastructure (grids)

Our Main Concern

National support schemesGrid access and strategic grid planningPlanning and administrative proceduresPublic acceptanceHow will trading impact national frameworkswith regards to?

Adverse incentivesDisincentive 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

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

Effect on existing national mechanismsIn 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

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)

Renewables Market Development in the EU

Cumulative Wind Energy Installed CapacitySource: EWEA,GWECAverage AnnualGrowth Rates Europe 1995-2000 38.8%, 2000-2005 25.7% World 1995-2000 29.4%, 2000-2005 27.8%

Chart1

4.87.6

6.510.2

9.713.6

12.917.4

17.323.9

23.231.1

28.7239.43

34.6447.62

40.8959.09

48.5474.22

Europe

World

GW

Sheet1

1997199819992000200120022003200420052006

Europe56,5009,70012,90017,30023,20028,72434,64040,89848,545

World7,60010,20013,60017,40023,90031,10039,43147,62059,09174,223

1997199819992000200120022003200420052006

Europe4.86.59.712.917.323.228.7234.6440.8948.54

World7.610.213.617.423.931.139.4347.6259.0974.22

Sheet1

Europe

World

GW

Sheet2

Sheet3

Relative Wind Energy Capacity in Germany and Spain with respect to the rest of EU (% MW) Source: EWEA

Cumulative Installed PV CapacitiesSource: EPIAPV

1994199519961997199819992000200120022003200420052006EU90128188266373543108918812730GLOBAL50258066979594811501428176222012795384751526627

Chart1

1994502

1995580

1996669

1997795

90948

1281150

1881428

265.71762

372.72201

542.72795

1088.73847

1880.75152

2730.16627.3

EU

GLOBAL

MWp

Sheet1

EU - 2520012002200320042005200620072008200920102011

pessimistic77.7107170546792849.41033.0351372.697251629.69128752046.8332381252294.2248714688

growth0.37709137710.58878504672.21176470590.45054945050.07247474750.21619378380.32880033110.18721829410.25596378520.120865554

policy driven83311251712233029903617

20012002200320042005200620072008200920102011

source: pessimistic scenario EPIA334439594105213051475.317682272272533803855

source: policy driven scenario EPIA33443959410521305147021793130434056506937

source: PV Solar Generation 2006334439594815139718832540342046305550

source:Photon consulting (global production)1700260039006100960014000

growth after EPIA scenario31.437125748535.307517084377.104377104424.049429657813.049808429119.840032535828.506787330319.938380281724.036697247714.0532544379

silicon production after EPIA14.51617222530

material efficiency111098.587.5

silicon need14.35514.75315.91219.31221.825.35

1994199519961997199819992000200120022003200420052006

EU90128188266373543108918812730

GLOBAL50258066979594811501428176222012795384751526627

Sheet1

EU

GLOBAL

MWp

Sheet2

Sheet3

Annual Installed Global Capacity Nuclear vs Wind

Geothermal Electricity

Small Hydro Power

BiomassSource: Aebiom 2007 statistics report

Major barriers to be removedFailure of Governments to deliver:Consequent action planningAdministrative capability and coherencePublic Information on RESSticking to promises givenAbility to agree to new, decentralised market structureFlexibilityMarket incentivesMarket Fairness

Further informationERECEuropean Renewable Energy CouncilRenewable Energy House63-67 Rue dArlon, 1040 Brussels, Belgium

www.erec.org

Thank you very much for your attention!

Global Energy [R]evolution Results:

Why Scenarios?

images of alternative futuresneither predictions nor forecastsimage of how the future could unfolduseful 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

Objective of the study:

Provide an outline of a global energy supply system that complies with key sustainability criteria

Key Targets:.

A) climate change:

Limit global mean temperature rise to below 2 C(-> 2 C Scenario)

B) TechnologyOnly proven technologies phasing out of nuclear energy on a global level

C) incentives for sustainable economic development

Approachdevelopment of a 10-region model (based on IEA regions)implementation of energy balances in MESAP/PlaNet, model calibration with IEA 2003 statisticseconomic 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: Ecofyssupply scenarios: DLRReview process:regional counterparts (academia, NGO)EREC / Greenpeace

CO2-reduction target:

- Limit global mean temperature rise to < 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

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

Energy Consumption and Economic Development in China (1980-2004)

Key facts:REF: CO2-emissions double till 2050 -> Climate Chaos Energy [R]evolution: CO2-emissions cut by half till 2050 -> Avoids dangerous climate change

~ 2015 onwards: Energy [R]evolution cheaper

Further informationERECEuropean Renewable Energy CouncilRenewable Energy House63-67 Rue dArlon, 1040 Brussels, Belgium

www.erec.org

Thank you very much for your attention!

****Martin: impact of trade in germany I share that analysisDiscussing trade is like discussing how we reenter Earths athmosphere and land at Cape Canaveral before having even thought about how to bild the Space shuttle.We need to move the discussion from being for or aginst trade (noone is against trade) to being what needs to be in place what are the preconditions for trade?Trading renewables cannot be compared with trading emission allowances / White certificateselectricity is different from any other commodity. If we had the infrastructure we would have effective competition in electricity. But the infrastructure is key to getting the market to work and this Mandatory Trade proposal makes it very difficult for MS to make strategic planning for grid investments as I will come back toIt is not only about the impact on national support mechanisms it is the impact on all the determinants of a successful framework that has to be addressedMartinIt becomes a strategic gaming excersise where MS try to adjust their national mechanism according to how mush domestic action they want not a competition among producers to produce the cheapest electricity. Each MS plan for renewables will be affected by decissions taken in other MS. Another element of uncertainty has been introduced on top of the existing uncertainty about whether the national system is changed.Strategic Grid Planning: Bye byePublic acceptance: How long will citizens in a MS importing RE be willing to pay for job creation and CO2 reductions in other countries?MartinSad: ITA investor that cannot get planning permission Happy: Danish RE producer that does not get adequate compensation for installing new RE capacity. Unhappy government because it has to buy back the GoO from ITA at a higher priceMartin*