stairway to heaven kvgn · advisory stairway to heaven kvgn 20 april 2016 strictly private and...

Advisory

Stairway to HeavenKVGN

20 April 2016

Strictly private and confidential

PwC

20 April 2016Strictly private and confidential

CO2 emissions Renewable energy

What drives?

• Emission Trading System

• Carbon price floor

• Carbon tax

• Feed-in tariff

• Net-metering

• Quotas

What thrives?

Examples

Climate Change Act to reduce

emission levels by 80% in 2050

compared to 1990 levels

Energiewende has resulted in a

bonanza of installed RES, while

nuclear is being phased out

Energy regulation broadly knows 2 distinctive methods for actively steering the transition…

Source: PwC Analysis

2

PwC


The United Kingdom has embarked on an ambitious program to reduce its CO2 emissions, backed by a national carbon price floor

3

Stairway to Heaven

UK carbon floor1)

EUR/tCO2

Installed Electricity Capacity in the UKGW

100

0

50

25

7541

18

22

19

79

2000

61

82

63

-19%

58

98

2010

94

2015E2005

71

Coal + Gas + Oil

Carbon-free

CAGR

’00-’15

Note: 1) Exchange rate of 1.2EUR/GBP has been applied for currency conversion

Source: GlobalData, DECC, PwC analysis

+5.5%

60

55

50

46

41

3634

3129

2624

‘24‘20 ‘23‘22 ‘25‘21‘17

+11%

‘18‘16‘15

+8%

‘19

Current CO2

prices EU ETS in

range 4-5EUR/t

PwC


German paradox: The praised Energiewende has resulted in an impressive surge of installed RES capacity, but the CO2 intensity of E-production has not declined due to booming coal-fired power generation…

4

Stairway to Heaven

Installed Electricity Capacity in GermanyGW

CO2 Intensity Electricity Germany kt CO2 per GWh

0.1

0.0

0.7

0.6

0.5

0.4

0.3

0.2

0.55

0.60

2000

0.63

2015E

0.56

2005 2010

50

0

25

150

200

125

100

75

175

2000

162

79

198

82

2015E

83

2005

55

116

78

116

2010

130

75

38

Carbon-free

Coal + Gas + Oil

+7.7%

CAGR

’00-’15

CAGR

’00-’15

~ 80% from coal-

fired generation

Peak demand

~80GW

Source: GlobalData, ENTSO-E, UBA, PwC estimates for 2015, PwC analysis

+7.7% -0.9%

CAGR

’00-’15

CAGR

’00-’15

~ 80% from coal-

fired generation

Peak demand

~80GW

PwC


Many countries have adopted carbon emission targets, but are applying different benchmarks…

5

Stairway to Heaven

Reduction

depends on

accounting of

forestry sector

and actions by

other major

emitters

Reduction

below business-

as-usual

scenario

Reduction in

emissions per

unit of GDP

Reduction in

emissions per

unit of GDP

Source: C2ES, World Bank, PwC analysis

Countries with CO2 reduction targets for 2020

90% of global

GDP has CO2

targets for 2020

Countries with 2020 target

Countries without 2020 target

PwC


Emission Trading Systems are regarded as the most important tool to actually realize these targets, but except for the EU ETS they are not (yet) linked across borders…

Existing and emerging Emission Trading Systems

Source: EurActiv, PwC Analysis

6

Implemented,

but at sub-

national level:

e.g. California

Implemented,

but at sub-

national level:

e.g. Quebec

Under consideration

Implemented

Implementation scheduled

Status of implementation:

Link:

Link

Planned link

Planned

link EU

ETS and

Switzerland

China has

already some

regional

systems

PwC


The number of countries with at least one RE target in place has almost quadrupled in the past decade: from 43 to 164 countries.

7

Stairway to Heaven

Countries with RE target

Countries without RE target

Source: IRENA, PwC Analysis

Countries with RE target Number of countries with RE targets

2005

2015

71

42

27

2

Total

Electricity

Transport

Heating/Cooling

256

150

59

47

Total

Electricity

Heating/Cooling

Transport

3%

38%

59%

100%

19%

24%

57%

100%

PwC


Most countries have concrete renewable electricity targets in the range of 20-40% of their total E-consumption

Spectrum of renewable energy targets

Source: IRENA

8

Political

announcement and

vision statements

Energy strategies

and scenarios

Detailed roadmaps

and actions plans

Legally biding

renewable energy

targets

Increasing specificity, measurability and biding character

0%

20%

40%

60%

80%

100%

Ren

ew

ab

le e

lectr

icit

y t

arg

et

South Africa

MexicoJapan

Chile

Brazil

Cuba

Burkina Faso

Saudi Arabia

Turkey

Indonesia

Dominican Republic

PhillippinesChina

UK

Denmark

Ukraine

India

Germany

Italy2020-2021

2030-2032

2023-2025

250 TWh

PwC


Obviously, targets are just the start. Governments have to act to actually realise these (often highly ambitious) targets...

Framework for using policy to transform energy markets

Source: NREL, PwC analysis

9

Barriers• Access to grid • Investor uncertainty

• Lack of existing markets

• Technology costs

• Investment uncertainty

• System integration

• Back-up capacity

Measures

(utility scale

generation)

• Transmission

access

• Renewable portfolio

standards

• Financing models

• Public benefits funds

• Production incentives

(feed in tariff)

• Capacity markets

• De-regulation

Examples

Market preparation Market creation Market expansion Market saturation

PwC


Economic instruments are the most occurring type of policies within NW Europe targeting various types of RES target groups last place

10

Stairway to Heaven

90% 100%20% 60% 80%50% 70%0% 30% 40%10%

UK

13

53%

50%

Netherlands

30%

33%

63%

France

18%

19%

Belgium

10%

37%

8 17

23%

25%

Germany

22%

52%

17 29

29%

37%

Economic Regulatory policy

12%

16%

11%

31%

4%

22%

4%

Wind

Multiple

Technology

100%

Solar

Bioenergy

Ocean

Geothermal

Hydro

Amount and type of policies for 5 selected countriesAmount & type of RES policies 1990-2014

Target group of rewables% of RES polcies

One third of all

policies target

multiple RES

technologies

Source: IEA, PwC analysis

PwC


Europe is getting up to speed in RES development against the backdrop of two decades of increased policy intensity

11

Stairway to Heaven

0

8

16

24

32

40

48

100

150

200

50

250

0

TWh

20152010

# of policies

2000 200519951990

Economic

Regulatory

Policy

RES production

EuropeRES production (TWh) & # of policies

PwC


China provides numerous incentives to RES driving growth, while Russia makes no effort to do so…

ChinaRES production (TWh) & # of policies

Source: IEA, PwC Analysis

RussiaRES production (TWh) & # of policies

12

0

8

16

0

1,200

600

1990

TWh # of policies

20001995 2005 2010 2015

Hydro makes up

~95% of Russia’s

RES production

0

8

16

0

600

1,200

TWh # of policies

20151995 20052000 20101990

Policy

RES production

Economic

Regulatory

PwC


A policy paradigm shift is key to attract financing in renewables

Source: IEA, PwC Analysis

13

Providing financial

support

before 2015…

Enabling policy and

market framework

Level playing field

• Carbon pricing instead of

capital subsidies

• Phasing out of fossil fuel

subsidies

2016-2020

Main Policy

Regulation & Market Design

• Competition

• Predictable long-term income

streams

• Short-term market value

signals

System Approach

• RE portfolio

• Energy System Integration

Reduction in financing costs

PwC


Stairway to heaven?

• In the ideal world we have a proper CO2 price and no other (side) incentives

• However, we now have multiple targets, multiple policies, and they all interact

• Sometimes the reinforce each other, but in many instances they nullify each other

• Instead of getting the CO2 price right, we create mitigating RES policies, further exacerbating the

problem and increasing costs to society

• Should we see the CO2 price as a “heaven”?

14

Stairway to Heaven

PwC


15

Stairway to Heaven

Thank you!

Paul NillesenPartner [email protected]: +31 610038714

stairway to heaven kvgn · advisory stairway to heaven kvgn 20 april 2016 strictly private and...

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