PROSPECTS FOR RENEWABLES IN THE NEW MEMBER STATES

MSC Anca-Diana Barbu (Carl von Ossietkzy University)

Martine Uyterlinde (ECN), Hage de Vries (ECN)

World Renewable Energy Congress VIII

Denver, 29 August-3September, 2004

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Presentation outline

• Implementation of the RES Directive in Europe: lessons learnt from the EU-15;

• Key factors likely to influence RES development in CEE countries: energy issues, economic and social issues;

• Admire Rebus model: key features, assumptions and scenarios;

• Risk factors and their implementation in the model;

• Model results: technology mix,green electricity trading;

• Conclusions

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Implementation of RES Directive: lessons from EU-15

• Policies and measures currently in place are not sufficient to meet the RES target in 2010;

• The main risk in achieving the target is the significant imbalance between the level of commitments among Member States;

• Main culprits: production of electricity from biomass and sluggish developments in heating and cooling sectors;

• Fragmentation of European market;• Complicated administrative procedures, inadequate local

energy planning to include a larger share of RES and opaque grid connection conditions;

• Implementation of the GOs;

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New Member StatesEnergy related issues I

• Ambitious indicative RES targets;Country RES-E (%) 1999 RES-E (%) 2010Czech Republic 3.8% 8.0%Estonia 0.2% 5.1%Hungary 0.7% 3.6%Latvia 42.4% 49.3%Lithuania 3.3% 7.0%Poland 1.6% 7.5%Slovenia 29.9% 33.6%Slovakia 17.9% 31.0%European Community 12.9% 21.0%

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New Member StatesEnergy related issues II

• Need to diversify primary energy sources

Electricity gross generation in CEE

0%10%20%30%40%50%60%70%80%90%

100%

% o

f tot

al 3

27.9

2 TW

H Others

Gas

Oil

Coal

Biomass

Wind

Geothermal

Hydro

Pumping

Nuclear

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New Member StatesEnergy issues III

• Need to increased security of supply

Import dependency in 2000 (%)Source: EC(2003)

Countries/

fuels

All fuels Solid fuels Oil Nat.Gas

EU-15 49.3 51.2 75 45.2

NMS 29.9 -17.4 95 84.3

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New Member StatesEnergy and environmental issues

• The issue of overcapacity;

• The issue of energy efficiency;

• Climate change commitments;

Surplus installed capacity as of 2002Source: CEU (2003)

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New Member StatesOther issues

Economic issues• High GDP growth rates compared with EU-15;• Scarce public budgets;• Uncertainty about inflation and exchange rates; Social issues• In 1998, one in 5 people lived with under USD2.15

/day in CEE and CIS countries (WB 2002);• Inequality (income distribution) and fuel poverty

increased over the last decade;• The share of energy bill from households

disposable income increased;• Job losses as a result of economic reforms;

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Market simulation Market simulation

Policy-based demand for renewable electricity

Supply curves based on technology

costs & potentials

•Risk•Transaction costs•Lead times

years

•TGC Price(s)•Technology mix•Trade flows

scenarios

The ADMIRE REBUS model

10

TWh

€ct/kWh

0

Supply- and demand curveBidprice: Feed-in tariffDemand size: potential

Bidprice: penaltyDemand size: quota

Ask price: ‘required green price’ after supply supportSize: realisable potential

Discrimination by country/ technology

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Calculations of RES potentials

Technical feasibility

Technical potential

Realistic potential

Realisable potential

Theoretical potential

Acceptability& Planning

Land availability

World-wide industryproduction rate

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AssumptionsProjections for energy consumption: based on EU Energy

Outlook to 2030 Electricity prices: assumed to gradually increase from over

3€¢/kWh in 2002 to over 5 €¢/kWh in 2010 thus accounting also for the effect of emissions trading;

Technology costs: are assumed to be similar to the ones in the EU-15; decrease over time;

Interest rate: 5%Corporate taxation: KPMG corporate tax survey January

2004; for countries not mentioned in the report a rate of 30% has been considered;

Debt to equity ratio: 80/20For quota-based systems: we have assumed a 7€¢/kWh

penalty

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ScenariosAmbition high

(EU targets mandatory 2010)

Ambition low(EU targets achieved later)

Fragmentation Co-operation

ambition level differs per country

Present policies

ClusteringTGC-countries

EU targets / trade 2010

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Risk factors• Political risks (changes in support policies, planning,

changes in tax regime, changes in legal framework , state aid rules, relationships with local authorities12 and public opinion, the performance (and mission) of environmental and energy efficiency funds, future fine tuning of climate policies;

• Market risks (electricity price, increased competition, input fuel price, interest and exchange rates, consider the evolution of gas prices, the continuous change in market structure, SMEs and the performance of financial markets, local banks;

• Technological risks Impact on project development:• Extended project lead times;• Higher transaction costs and• Fluctuations in project revenue.

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Possible technology mix by 2010

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

EU-15 NMS Total

Other

Wind onshore

Small & medium hydro(<10MW)

Large hydro (>10 MW)

Biomass

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Green electricity trade

-10,000

-5,000

0

5,000

10,000

15,000

20,000

25,000

Cyprus CzechRepublic

Estonia Hungary Latvia Lithuania Malta Poland SlovakRepublic

Slovenia

Domestic production Import or export Target

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Minimum required green price in 2010 for small-hydro

RGP 2010- SHPP (<10MW)

-2.04.06.08.0

10.012.014.016.018.020.0

Countries

Eu

ro c

ents

/kW

h

Band 2

Band 3

Band 4

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RGP2010-CHP

RGP 2010-CHP

-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

Countries

Eu

ro c

ents

/kW

h

EnergycropsForestry

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Conclusions

In the short to medium run, investments in developing RES projects in the

new member states are likely to depend on the following:

• Clarity and coherence of various policies (e.g support mechanisms for RES, agriculture, climate change, labour market.); targeted policies will be needed for a wider range of RES technologies;

• The pace in building capacity on the local level in energy planning, transposing national RES targets into local ones, project financing and technology (including promoting local manufacturing of RES technologies);

• The soundness of fiscal and monetary policies and the ability of CEE governments to maintain a stable economic and political environment;

• The availability of innovative financing schemes to allow low income communities to access new technology and energy services.

• Support to allow SMEs to fill in the technology gap including access to seed, working and development capital and business services;

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Thank you for your attention

Contact information:

diana.barbu@uni-oldenburg.de

uyterlinde@ecn.nl

devries@ecn.nl