rethinking renewables

Rethinking renewables 2nd Vienna Forum on European Energy Law, Energy Community Secretariat

14 March 2014

2 Frontier Economics

Key questions

● Do we need renewables?

● Do we need renewable targets?

● Are there reasons why we should consider supporting

(subsidise) renewables?

● If we support renewables, then how?

1

2

3

4


-1.000

0

1.000

2.000

3.000

4.000

5.000

2011

2020

2030

2040

2050

2011

2020

2030

2040

2050

2011

2020

2030

2040

2050

TW

hErneuerbare Energien

Exporte

Importe

Andere

Pumpspeicherverbrauch

Pumpspeichererzeugung

Öl

GuD

Gas Turbine

Steinkohle

Braunkohle

Kernenergie

BAUEffizienz Positiv Realistisch

Do we need renewables?

Guided by ETS targets met at least

cost by an increasing amount of

electricity and energy production

from renewable energies (even

absent explicit renewable support)

We need renewables …

RES-E: Annual power

generation in Europe

Nuclear

1

Source: Frontier/r2b

* to reduce overall EU domestic

greenhouse gas emissions

compared to 1990

Ambitious

GHG

reduction

Targets in

EU*

ETS as

mechanism

to reach

target

● By 2030: -40 %

● By 2050: -80% to – 95%

Scenario: EU

ETS as the sole

driver for climate

policy

Coal (incl. CCS)


Do we need renewable targets?

… but we need NO target (provided we have climate policy measures (ETS) in place

we can leave to the market when, which and how much)

2

-1.000

0

1.000

2.000

3.000

4.000

5.000

2011

2020

2030

2040

2050

2011

2020

2030

2040

2050

2011

2020

2030

2040

2050

TW

h

Erneuerbare Energien

Exporte

Importe

Andere

Pumpspeicherverbrauch

Pumpspeichererzeugung

Öl

GuD

Gas Turbine

Steinkohle

Braunkohle

Kernenergie

BAUEffizienz Positiv Realistisch

The risk is that we employ subsidies to reach the RES target,

when market dynamics imply that the GHG target is best (i.e.

at lowest cost) reached by a generation mix with a different

share and mix of RES

Scenario: EU ETS

as the sole driver for

climate policy

Scenario: Strong

RES-E policy*

RES-E: Annual power

generation in Europe

2020

2030

2040

22 bn EUR /a

40 bn EUR /a

26 bn EUR /a

Incremental costs with

strong RES-E policy

Hard targets

and overly

ambitious

targets cost

extra

* National RES targets and national support policies, 60% RES by 2050

Source: Frontier/r2b


So what is the logic of the new 2030 „target“ 2

“Renewable energy will play a key

role in the transition towards a

competitive, secure and sustainable

energy system. The Commission

proposes an objective of increasing

the share of renewable energy to at

least 27% of the EU's energy

consumption by 2030.”

An

interpretation

● Political consensus requires speaking of a RES

„target“

● The target number is consistent with the EC‘s projection

of achieving the -40% GHG target at least cost. In

other words: 27% is what the EC expects the market

with tightened ETS and without RES support will deliver

● If RES manage to lower their cost faster than currently

projected the target is redundant (if cost drops slower it

becomes binding and increases cost)


Should we subsidise renewables?

… support infant technologies, but not mature ones

3

Many arguments

have been used But few are compelling

● Internalise environmental cost

● Save resources

● Technology learning spill-over

● Industrial policy

● Fuel independence

● Incomplete capital market

● ETS better suited

● Already reflected in price

● No longer for deployed techno

● For infant technologies

● Doubtful given experience

● But true of other fuels as well

● May require steadying of

income but not a subsidy

?

?

?

Economists will ask for

market failures as justification


If we (still) support renewables, then how? 3

… the EC establishes some economic principles,

but are these comprehensive enough?

● International integration

of support

● Technology neutrality

● Competitive process to

determine support

● Consistency with wider

energy market design

If, then how Practical implications

● Direct marketing

obligation

● Balancing

responsibility

● Premium, quota or

auction “Deployed

technologies”

Draft

State Aid

Guidelines for

RES*

* Full guidelines also extend to „less

deployed technologies“ and „small

technologies“


Is the Commission really rethinking renewables?

Issues of principle Issues of clarity

● Eligibility

o How to define deployed?

o How small is small?

● Why support beyond infant

technologies (when ETS is

strengthened)?

● Why allow existing non-

conforming schemes to continue

for prospective investment?

● What is the timing for transition to

new regimes?

3

● How to define investment aid vs

operating aid (when RES cost are

largely CAPEX)?

…difficult to say

as long as many important details are not clear


Key questions

● Do we need renewables?

Yes, and the market is able to deliver with ETS

● Do we need renewable targets?

No, because the market (with ETS) will guide us to a low cost solution

● Are there reasons why we should consider supporting (subsidise) renewables?

There may be further arguments (e.g. energy independence), but proponents have not

provided a clear reasoning or a willingness to pay

● If we support renewables, then how?

- Focus on infant technologies,

and consider R&D support rather than operating support

- In case support also extended to mature technology: Support scheme with

competitive selection and market risks (and be clear about the behavioural incentives

of design details)

- Make sure capacity incentives in the conventional market are not undermined

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