promotion of renewable energies in the eu member states

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IFIEC Europe

International Federation of Industrial Energy Consumers

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 Forum21 October 2003

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IFIEC Europe


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

The Role of Renewable Energies

SECURITY OF SUPPLY

ENVIRONMENTALPROTECTION

ECONOMY

Increasing dependence on energy imports within the EU:Today 50 percentAfter 20 to 30 years 70 percent

Kyoto-Protocol: Obligation for CO2 reduction of 8 % within the EU (1990 – 2010)

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


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.

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IFIEC Europe



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.

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IFIEC Europe


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

In order to investigate the economic side of renewable energy promotion, the situation in the following EU Member states has been analysed:


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IFIEC Europe


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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IFIEC Europe


THE NATIONAL TARGETSPercentage of Electricity from Renewable Energies1997 and 2010

70

1.1 4

.5

15

24

.7

1.7

16

3.5

49

.1

78

.1

6

12

.5

21

31

10

9

60

25

0

10

20

30

40

50

60

70

80

90

A B D F FIN GB I NL S

% o

f g

ross n

ati

on

al co

nsu

mp

tio

n

Electricity from RES, 1997 Electricity from RES, Target 2010

112

545

278

126

588

156

257

122140

0

100

200

300

400

500

600

700

1 2 3 4 5 6 7 8 9

Rate of Increase

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IFIEC Europe


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)

4.5

3.8

44.3

26.4

4.9

34.4

26.1

5.4

16.0

0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0 45.0

TWh

A

B

D

F

FIN

GB

I

NL

S

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IFIEC Europe


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 generationE.g. in Germany:

Wind Power Share of installed capacity: 15 percentWind Power Share in power consumtion: 3 percent

Necessity for excessive back-up capacitiesFor 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 neededPlaning 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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IFIEC Europe


0

20

40

60

80

100

120

140

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21Years

€/M

Wh

France Germany, OnshoreGermany, Offshore Italy (Buy-Back)Belgium Italy (Certificates)Netherlands United KingdomFinland SwedenAustria Assumed normal price level

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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IFIEC Europe


42

28

.5

44

37

55

.2

42

.6

85

85

72

36

80

.8

40

.48

0

45

45

6.9

6.91

5

15

48

31

.2

80

0102030405060708090

100

over 10 years over 20 years

€/M

Wh

France Germany, Onshore Germany, Offshore Belgium

Italy (Buy-Back) Italy (Certificates) Netherlands United Kingdom

Finland Sweden Austria

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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IFIEC Europe


THE FINANCIAL PROMOTIONIs it realistic?

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

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

EXAMPLE

EXAMPLE

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IFIEC Europe


THE FINANCIAL PROMOTIONWhat are the consequences for industrial consumers?

Source: Estimates of IFIEC Member Federations

1.5

4.4

6.3

0.5

2.9

6.0

3.2

5.4

8.9

3.953.4 3.4

1.4

3.7

4.8

3.0

3.8

4.5

0

1

2

3

4

5

6

7

8

9

10

2002 2005 2010

€/M

Wh

Belgium France Germany Italy United Kingdom Austria

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IFIEC Europe


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.

THE FINANCIAL PROMOTIONWhat are the consequences for industrial 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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IFIEC Europe


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

THE FINANCIAL PROMOTION Electricity cost really matter for industrial consumers!

20022002RES surcharge: 3.2 €/MWh

Power price increase by: 9.4 percent

20102010RES surcharge: 8.9 €/MWh

Power price increase by: 26.2 percent

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IFIEC Europe


419.04289.12

360.84

366.96

128.04

100.08

116.40

133.44

139.68

222.40

0

200

400

600

800

1000

1200

1400

Germany World Average

US

D/t

Power Aluminium Oxyd Labour Anodes Various

THE FINANCIAL PROMOTION Consequences for the competitiveness!

Cost Structure for Aluminium ProductionComparison: Germany – World Average

GermanyAverage Production Cost

1.164 USD/t

WorldAverage Production Cost

1.112 USD/t

Source: Study of ewi, Cologne

Plus 4.7 percent

in Germany

Mainly resulting

from power cost

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IFIEC Europe


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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IFIEC Europe


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.

promotion of renewable energies in the eu member states

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