Webinar - Experience with Support Policies for Renewable Energy in EU

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Which instruments should be chosen to support renewable electricity? What are their cost implications? Could renewables support be aligned across Europe?

These are some of the hot questions of the European policy debate. The webinar will give an overview of renewable electricity support schemes currently applied in Europe. Corinna Klessmann will present best practices, trends and challenges in renewable energy policy design, based on recent assignments for the European Commission.

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Webinar - Experience with Support Policies for Renewable Energy in EU

  1. 1. Experience with renewable electricity (RES-E) support schemes in Europe Current status and recent trends Dr. Corinna Klessmann 08/04/2014
  2. 2. © ECOFYS | |08/04/2014 Dr. Corinna Klessmann2 • Feed-in tariff (FIT) • Feed-in premium (FIP) • Quota • Tenders Note: This map does not include secondary support instruments like tax incentives, investment grants, etc. Source: Ecofys What are the main RES-E support schemes in Europe? Diversity of RES-E support schemes in the EU-28
  3. 3. © ECOFYS | | We will explore three major policy trends for RES-E 1. Quota schemes are losing ground 2. More and more countries use sliding feed-in premiums/contracts for difference (Cfd) 3. More and more countries experiment with tendering schemes 08/04/2014 Dr. Corinna Klessmann3
  4. 4. © ECOFYS | | A closer look will explain these trends… 08/04/2014 Dr. Corinna Klessmann4
  5. 5. © ECOFYS | |08/04/2014 Dr. Corinna Klessmann5 • Feed-in tariff • Feed-in premium • Quota • Tenders Source: Ecofys Trend 1: Quota schemes are losing ground Trend 2: More countries use sliding FIPs/Cfds  Countries that (plan to) phase out their quota scheme  Countries that have recently introduced sliding FIP/Cfds (or plan to do so)
  6. 6. © ECOFYS | | The main support schemes expose RES-E producers to different levels of risk 08/04/2014 Dr. Corinna Klessmann6 Market price RES-support Green certificate revenues FIT FIP sliding/ Cfd cap & floor fixed Quota Volume basedPrice based support Source: Ecofys
  7. 7. © ECOFYS | | The main support schemes expose RES-E producers to different levels of risk 08/04/2014 Dr. Corinna Klessmann7 Market price RES-support Green certificate revenues FIT FIP sliding/ Cfd cap & floor fixed Quota Electricity market price risk Green certificate market risk No market price risk Limited market price risk Full electricity market price risk Certificate market price risk RES-E producer sells directly to the market Volume based Market integration through TSO Price based support Source: Ecofys
  8. 8. © ECOFYS | | The level of risk exposure plays a crucial role for the effectiveness and efficiency of support schemes 08/04/2014 Dr. Corinna Klessmann8 Low cost of capital Low risk = High investor certainty Low support level required (efficiency)  Risk-mitigating support schemes can reduce levelised cost of electricity and resulting support costs to consumers by up to 30% (de Jager et al. 2011) Many investors attracted Low risk = High investor certainty High RES-E growth (effectiveness)
  9. 9. © ECOFYS | | Conclusions on risk exposure Risk-conscious RES-E support policies that limit risks to investors are generally more effective and efficient than high-risk support schemes  Several European countries have abandoned their quota schemes for support schemes with potentially lower risk and cost to consumers Exposure to certain market price risks may still be beneficial from a macro-economic perspective, if the RES-E producer is able to react  Several countries have introduced sliding FIPs/Cfds as compromise between revenue security of investors and RES-E exposure to market signals  The European Commission calls all Member States to move from FITs to FIPs (or other schemes with market exposure); discussion on whether this is the right approach for supply-driven RES-E 08/04/2014 Dr. Corinna Klessmann9
  10. 10. © ECOFYS | |08/04/2014 Dr. Corinna Klessmann10 • Feed-in tariff • Feed-in premium • Quota • Tenders Source: Ecofys Trend 3: Countries experiment with tendering schemes  Countries that have recently introduced or are planning to introduce tendering (price competition) Note: The draft State Aid Guidelines by the European Commission push for the increased use of tendering schemes
  11. 11. © ECOFYS | | Some background on RES-E tenders/auctions > A tender is not a support scheme by itself; it can be combined with all other support schemes, most commonly with FITs or FIPs > In traditional FIT/FIP schemes the support level is determined administratively, usually based on estimated production cost (LCOE) > In a tender/auction, the FIT/FIP is determined in a competitive procedure (requirement: demand for support greater than tendered volume) 08/04/2014 Dr. Corinna Klessmann11 Volume (e.g. in MW) Price(supportlevel) Successful bids Unsuccessful bids Tendered volume Clearing price
  12. 12. © ECOFYS | |08/04/2014 Dr. Corinna Klessmann12 > Not all winning projects will be implemented  risk of under- fulfilling political targets > Higher risk for RES-E producers than FIT/FIP, favouring bigger market actors – Uncertainty in the preparation phase – Sunk cost for unsuccessful bidders – Penalty risk for successful bidders > Risk of underbidding or winner‘s curse leading to prices below costs > Risk of strategic behaviour (collusion) leading to high prices and producer rents > Control of maximum volume and support cost > Support level is determined by the market, not the administration > Competition between RES-E producers may lower prices (compared to administrative FIT/FIPs) > Potential to discover real production cost of RES-E Opportunities Challenges Specific opportunities and challenges of tenders/auctions
  13. 13. © ECOFYS | | The experience with tendering schemes in Europe is mixed and limited Too early to conclude on overall best practice for Europe – further policy learning required Some ingredients for potentially successful RES-E tender design  Adjust the tender design to the specific RES-E market structure (requires detailed knowledge on market actors, project risks, etc.)  Find the right balance between stringent penalties/qualification requirements and limiting risks for bidders (high implementation rates = high costs)  Allow time for testing, evaluating and up-scaling tendering schemes 08/04/2014 Dr. Corinna Klessmann13
  14. 14. © ECOFYS | | Trends and challenges ahead that cannot be further explored in this presentation… 08/04/2014 Dr. Corinna Klessmann14
  15. 15. © ECOFYS | | Further trends and challenges for RES-E policy Some countries have stopped their support schemes or changed them retroactively  How to attract renewables investments under strong budgetary constraints?  When can support be phased out? Not yet a trend: increased cooperation between Member States, e.g. partial opening of RES-E support schemes  How to open support schemes?  Role of cooperation beyond 2020? High RES-E deployment impacts the electricity system and markets  How to further align RES-E policies and general power market regulations? 08/04/2014 Dr. Corinna Klessmann15
  16. 16. © ECOFYS | | Recent reports on RES-E policy in the EU > Held et al. (2014). Design features of support schemes for renewable electricity. http://www.ecofys.com/en/publication/renewable-electricity-support-schemes-and- cooperation-mechanisms-in-/ > Klessmann et al. (2014). Cooperation between EU Member States under the RES Directive. http://www.ecofys.com/en/publication/renewable-electricity-support- schemes-and-cooperation-mechanisms-in-/ > Resch et al. (2014). Beyond2020 – Design and impact of a harmonised policy for renewable electricity in Europe. http://www.res-policy-beyond2020.eu/downloads.html > Klessmann et al. (2013). Policy options for reducing the costs of reaching the European renewables target. Renewable Energy 57(2013), 390-430 > Ragwitz et al. (2012). RE-Shaping: Shaping an effective and > efficient European renewable energy market. http://www.reshaping-res-policy.eu/ > Klessmann (2012). Increasing the effectiveness and efficiency of renewable energy support policies in the European Union. http://dspace.library.uu.nl/handle/1874/218063 > Rathmann et al. (2011). Towards triple-A policies: More renewable energy at lower cost. http://www.reshaping-res-policy.eu/downloads/Towards-triple-A-policies_RE- ShapingD16.pdf > de Jager et al. (2011). Financing Renewable Energy in the European Energy Market. http://ec.europa.eu/energy/renewables/studies/doc/renewables/2011_financing_renew able.pdf 08/04/2014 Dr. Corinna Klessmann16
  17. 17. © ECOFYS | |08/04/2014 Dr. Corinna Klessmann17 Please contact us for more information Ecofys Germany GmbH Am Karlsbad 11 10785 Berlin Germany T: +49 (0)30 297 735 79-0 E: c.klessmann@ecofys.com I: www.ecofys.com

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