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  1. 1. Sustainable Support for Renewable Energy: an alternative energy perspective Tom Briggs, VP Policy & Communications, BP Alternative Energy
  2. 2. Alternative energy: the market today Grossed-up estimate based on disclosed deals. New investment only. Source: New Energy Finance Global new investment in clean energy 2007 0 25 50 75 100 125 $28.6bn 2004 $54.6bn 2005 $86.5bn 2006 $148.4bn $bn 150
  3. 3. Principles for transitional incentives <ul><li>Goal: “accelerate the deployment of low-carbon power technologies” </li></ul><ul><li>Policy understood to be ‘transitional’ – eventually phased down and replaced with a carbon-based measure </li></ul><ul><li>Policy based around a market mechanism, e.g. tradable certificate system – to seek out lowest-cost solutions and to allow business to optimise across a wider playing field </li></ul><ul><li>Policy provides encouragement tailored to each technology without ‘picking winners’ for favored treatment </li></ul>
  4. 4. Priorities to stimulate investment <ul><li>Enduring carbon pricing policies eg continuance of CDM, cap and trade in US and EU </li></ul><ul><li>Stability and predictability in transitional incentives - long-term policies – avoiding stop-go syndrome </li></ul><ul><li>Further tailoring of incentives to technologies </li></ul><ul><li>Regulatory support for Grid expansion and development, including streamlined planning permission. </li></ul><ul><li>Reduce barriers to global trade and investment </li></ul>
  5. 5. Historical cost development and learning rates <ul><li>Capital cost; 2004 USD/W </li></ul><ul><li>Cumulative capacity installed </li></ul><ul><li>MW </li></ul><ul><li>Solar PV 1975 – 2003 </li></ul><ul><li>Solar Thermal 1985 – 1991 </li></ul><ul><li>Wind Power 1981 – 2001 </li></ul><ul><ul><li>Historical learning rates per doubled cumulative capacity of </li></ul></ul><ul><ul><ul><li>23% for Solar PV* </li></ul></ul></ul><ul><ul><ul><li>13% for Wind Power </li></ul></ul></ul><ul><ul><ul><li>15% for Ethanol </li></ul></ul></ul><ul><ul><ul><li>6% for PV inverters </li></ul></ul></ul><ul><ul><ul><li>3% for Solar Thermal </li></ul></ul></ul>Source: UC Berkeley Energy Resource Group; Navigant consulting <ul><li>Ethanol 1978 – 1996 </li></ul><ul><li>PV inverter </li></ul><ul><li>1995 – 2002 </li></ul>“ By the year 2010 we'll be able to halve generation costs. By 2020 we expect a further reduction – half of 2010 – and by 2030 we expect half the 2020 level.” Katsuhiko Machida President, Sharp Corp
  6. 6. BP Alternative Energy <ul><li>In 2008, BP AE will invest $1.5 billion in renewable energy technologies and projects. </li></ul><ul><li>In BP Alternative Energy, ~$800 million has been invested in wind energy projects to date. Two-thirds of the 2008 wind investment spend is in the US </li></ul><ul><li>By end of 2008, we expect to have 1000MW wind capacity installed </li></ul>2008 investment spend ($m) 2008 Alternative Energy investment spend by region
  7. 7. BP Alternative Energy: where we operate Investing $1.5bn in 2008 Solar PV facility / market Wind power Hydrogen power Biofuels facility / market Gas fired power
  8. 8. Overview of Texas electricity market <ul><li>Texas produces and consumes more electricity than any other state: </li></ul><ul><ul><li>9.8% share of US total net electricity generation </li></ul></ul><ul><ul><li>11 th in the world in terms of consumption </li></ul></ul><ul><li>Approximately 50% of electricity produced by gas-fired power plants </li></ul><ul><li>Texas is the largest wind energy producer in the US </li></ul><ul><li>78.5% of Texas’ renewable generation is from wind </li></ul>Source: EIA August 2008 Texas electricity generation mix Texas renewable generation mix
  9. 9. The growth of wind power in Texas Growth of renewable energy capacity in Texas Capacity (MW) <ul><li>As a result of incentives and competitive market forces, Texas has seen an explosion in investment in generation facilities, particularly wind. </li></ul><ul><li>As of 1Q 2008, Texas has installed over 5,300 MW of wind capacity – more than any other state. </li></ul><ul><li>ERCOT predicts that as much as 10,000 MW could be operating by spring 2009. </li></ul><ul><li>The growth surge has been driven by: </li></ul><ul><ul><li>high natural gas prices </li></ul></ul><ul><ul><li>excellent wind resources </li></ul></ul><ul><ul><li>relatively few planning permission issues </li></ul></ul><ul><ul><li>viable retail and wholesale markets in which to sell energy </li></ul></ul><ul><ul><li>favourable transmission policies </li></ul></ul><ul><ul><li>Federal tax credits and Texas Renewable Portfolio Standards </li></ul></ul>
  10. 10. Transmission plays a key role in promoting the growth of renewable energy <ul><li>Within ERCOT, there is no multi-state licensing and permitting that can often delay project development </li></ul><ul><li>No limit to interconnection and a standard interconnection agreement – “plug and play” </li></ul><ul><li>Within ERCOT, all transmission costs are spread among customers within the region </li></ul><ul><li>The PUC is building transmission to the windiest areas in Texas - Competitive Renewable Energy Zones (CREZ) </li></ul><ul><li>The “Wild West of Open Access” </li></ul>From the perspective of network upgrade needs, there are generally 4 sets of potential CREZs: COASTAL PANHANDLE MCCAMEY AREA ABILENE AREA
  11. 11. Transmission CREZs in Texas <ul><li>TX PUC approved Competitive Renewable Energy Zones that will be able to accommodate 18,456 MW of renewable energy by 2017 </li></ul><ul><li>PUC selected the lowest cost scenario, estimating total transmission cost at $4.93 bn. Does not include .8 billion in estimated generator connection costs. </li></ul><ul><li>PUC estimated savings of $38 per MWH relative to other scenarios. </li></ul><ul><li>Study found that 23% wind penetration could be managed reliably by ERCOT. </li></ul><ul><li>The impact of the decision is significant: Wind developers have confidence that grid capacity and operations will not be a barrier to development. </li></ul>
  12. 12. Conclusion <ul><li>TX PUC decision on Grid development provides a useful example of how regulators can support renewable energy. </li></ul><ul><li>However, one reason this approach may work in Texas is due to the relative ease of building transmission lines. </li></ul><ul><li>Approach may not be possible in other jurisdictions. </li></ul>
  13. 13. Additional Slides
  14. 14. Texas electricity market structure <ul><li>Texas spans four regional power grids </li></ul><ul><li>85% of usage occurring in the Electric Reliability Council Of Texas (ERCOT) grid </li></ul><ul><li>ERCOT lies solely within the state so the production and sale of electricity is not subject to regulation by the FERC </li></ul><ul><li>Market and utility restructuring began in 2001, with implementation of Texas Senate Bill 7 </li></ul><ul><li>Transmission, generation and competitive retailers were unbundled into separate market segments </li></ul>
  15. 15. Electricity market structure in ERCOT Generation companies Transmission & distribution utility Retail electricity providers End user REP REP REP <ul><li>Market prices subject to ERCOT-ISO and PUC rules </li></ul><ul><li>Regulated by the PUC </li></ul><ul><li>Open access </li></ul><ul><li>Unregulated rates </li></ul>
  16. 16. Texas wholesale electricity pricing history Source:2007 State of the market report for the ERCOT wholesale electricity markets 2003 2004 2005 2006 2007 $/MWh Average all-in price for electricity in ERCOT 2003-2007 Natural gas price ($/MMbtu) Ancillary services Uplift Energy Natural gas price
  17. 17. The retail electricity market in Texas <ul><li>Most Texas residents have a choice in their Retail Electricity Provider (REP) </li></ul><ul><li>There are a proliferation of consumer offerings for all types of customer (industrial, commercial and residential) </li></ul><ul><li>Prior to restructuring, only a fraction of such offerings existed </li></ul>Some of the REPs serving Houston
  18. 18. Transition incentives are needed for new technology <ul><ul><li>Longer term CO2 price driven by economics of supply and demand, and fiscal regime </li></ul></ul>* Solar costs reflect combination of rooftop PV and CSP costs, weighted average across regions. Wind cost is onshore weighted average across regions <ul><li>Solar </li></ul><ul><li>CO 2 price </li></ul><ul><li>$/t </li></ul><ul><li>Year </li></ul><ul><li>Wind </li></ul><ul><li>Carbon price </li></ul><ul><li>Where cost of abatement technology is greater than the carbon price, there is a need for transition incentives to drive investment </li></ul><ul><li>Carbon price “funnel” </li></ul>
  19. 19. Incentives can accelerate maturity R&D Demo. Commercialisation Capital - based Production - based ( MWh ) TRANSITIONAL INCENTIVES CARBON PRICING (CO2 tonnes) Time + trading e.g. capital grants, inv tax credits e.g. feed - in - tariffs, prod tax credits e.g. RO, RPS Cap - and - trade programs, carbon taxes H2 power with CCS Solar PV Onshore wind Gas power Tech Cost Offshore wind Deployment Solar nano
  20. 20. Transmission constraints in Texas <ul><li>Large distances between wind resources and load centres </li></ul><ul><li>The grid is increasingly congested. </li></ul><ul><ul><li>The PUC is reviewing the move to a nodal marketplace from a zonal one </li></ul></ul><ul><ul><li>New transmission infrastructure is being added </li></ul></ul>West South North Houston Northeast Commercially Significant Constraint (CSC) Zonal market Nodal market