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Ana Quelhas, Directora de Planificación Energética del Grupo EDP

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V SIMPOSIO EMPRESARIAL INTERNACIONAL FUNSEAM: LOS RETOS DEL SECTOR ENERGÉTICO

MESA 1. RETOS PARA EL SECTOR DE LA ELECTRICIDAD
Inversión en proyectos intensivos en capital y señales de mercado: Dña. Ana Quelhas, Directora de Planificación Energética del Grupo EDP
Preside la mesa: D. Ferran Tarradellas, Director Representación en Barcelona de la Comisión Europea

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Ana Quelhas, Directora de Planificación Energética del Grupo EDP

  1. 1. Mesa 1 Retos para el sector de la electricidad Ana Quelhas Directora de Planificación Energética EDP Inversión en proyectos intensivos en capital y señales de mercado
  2. 2. 2 Europe has assumed a long term economy-wide decarbonization goal of at least 80% emission reductions by 2050 compared to 1990 • Strong push for energy efficiency • Strong electrification of energy demand • Full decarbonization of power sector EU GHG emissions by sector 100% = 1990 Source: EC, “A Roadmap for moving to a competitive low carbon economy in 2050”, 2011
  3. 3. 3 Renewables and energy efficiency are the main instruments to achieve decarbonization Source: IEA – International Energy Agency Average annual investment in low carbon techs Trillion $13, 2014 - 2040 Greenhouse gas emissions reduction by driver Gt, 2010 - 2040
  4. 4. 4 Source: BNEF For renewables, innovation and mass production led to a strong reduction in the costs of these technologies, namely for wind and solar PV Onshore wind levelized cost2 $/MWh Solar PV module cost1 $/W 1. Prices are in real (2015) USD. Current price is $0.4/W 2. Pricing data has been inflation corrected to 2014. Data is for Northern Europe.
  5. 5. 5 Source: IEA The boost in the competitiveness of RES technologies led to frequent upwards revisions of the forecasts for installed RES capacity Solar energy installed capacity forecast GW, 2013 - 2030 Wind energy installed capacity forecast GW, 2013 - 2030 0 50 100 150 200 250 300 350 400 450 500 550 600 20302020 2015 2006F 2010F 0 100 200 300 400 500 600 700 800 900 1 000 1 100 2020 2030 2006F 2015F 2010F 20132013 x6.9 x8.0 x2.0 x2.5 x3.6 x6.2
  6. 6. 6 The EU needs to invest $2.2 trillions in the power sector up to 2035 to renew the infrastructure and meet the decarbonization goals Needed investments in the European power sector in the period 2014-2035 billions of USD 166 655 254 254 574 103 Other renewables 117 2,223 TotalT&DNuclear 100 GasCoal Solar PVHydro Wind Source: IEA, “World Energy Investment Outlook 2014” Generation represents 70%
  7. 7. 7 The EU needs to invest $2.2 trillions in the power sector up to 2035 to renew the infrastructure and meet the decarbonization goals Needed investments in the European power sector in the period 2014-2035 billions of USD 166 655 254 254 574 103 Other renewables 117 2,223 TotalT&DNuclear 100 GasCoal Solar PVHydro Wind Source: IEA, “World Energy Investment Outlook 2014” Renewables represent 75% of generation
  8. 8. 8 Levelized Required Revenues by technology in Iberia1 €’16/MWh, 2016 127 Biomass 79 66 Wind onshore Coal 88 108 108 Solar PVCCGT Nuclear 86 51 Hydro Wind offshore FixedVariable 1. Assumes 5000h for CCGT and Coal plants. Assumes plant enter into operation by 2016. Source: EDP However, pool prices are not signalling the need for those investments, even in countries where generation adequacy is an issue Pool price Pool prices do not remunerate the full costs of any tech
  9. 9. 9 Although renewables are competitive, the energy-only market design is not adequate for massive decarbonization Marginal pricing model MWhNuclearWind Hydro CCGTCoal Variable cost Fixed cost Comments • Decarbonization leads to technologies based on fixed costs (e.g., renewables, nuclear, thermal backup, storage, networks, etc.) • In a capital intensive sector, the marginal pricing model is not an efficient instrument: - Prices tend to zero in the absence of market power - Price uncertainty and volatility increase the risk premium, hence the cost of capital… - … which will be reflected in higher end user prices €/MWh Price Supply curve Demand curve
  10. 10. 10 As the share of renewables increases, the wholesale price drops, making it insufficient to remunerate any technology… Wholesale price of electricity vs. share of renewables in power demand Portugal €/MWh vs. %, weekly data, Jan 2012 – Dec 2016 Source: Reuters, REN, OMIE, DPE analysis R² = 0,66 0 10 20 30 40 50 60 70 80 90 20% 40% 60% 80% 100% 120% 140%
  11. 11. 11 … particularly the fixed costs of CCGT plants, which are needed to ensure security of supply Source: REN, REE, DPE analysis 2004 2006 2008 2010 2012 2014 2016 1 000 7 000 9 000 8 000 3 000 5 000 2 000 4 000 6 000 0 Working hours of gas plants (CCGT) Hours, 2004 - 2016 Gas spread required to cover fixed costs of CCGT (€/MWh vs. annual equiv. hours) 0 25 50 75 100 125 150 175 200 10 0006 000 8 0004 0002 0000 • Renewables replace conventional thermal generation, but do not avoid the need of firm capacity as backup, which is a service offered by conventional thermal technologies • In energy-only markets, backup capacity is only remunerated with unacceptable price spikes
  12. 12. 12 Factor Measures to achieve an adequate market Renewables Thermal backup Spot market ETS Inter connections > Introduce ex-ante competition for long term contracts (ex. Contracts for Differences auctions, preferably at European level) to reduce risk premium > Recognize the value of backup capacity > Harmonize the rules to adequately remunerate backup capacity > Implement regional CRM, namely at the Iberian level > Maintain spot prices for short term optimization and dispatch signal > Deepen markets integration allowing for flexibility valuation and renewables participation > Reinforce the CO2 price by adopting the reform measures proposed by the European Parliament > Adopt a EU-level strategy against possible national approaches > Reinforce the necessary interconnections for the internal market efficient operation > Make investment decisions based on thorough cost-benefit analysis Key reforms are required at various levels to adapt the current market design to the new reality of European policies and utilities
  13. 13. 13 Source: Bloomberg New Energy Finance Mechanisms to remunerate renewables by country 2010 2016 A broad set of countries are implementing auctions/tenders as a mechanism to define renewables’ remuneration
  14. 14. 14 Source: IHS It is also observed regulatory changes regarding mechanisms to remunerate capacity in the majority of the European countries Regulatory developments regarding capacity remuneration mechanisms (2015)
  15. 15. 15 Key messages CONTEXT: Europe has ambitious targets of GHG emissions’ reduction, which will imply full decarbonization of the power sector This requires strong investments in RES, which are already competitive vs thermal plants MARKET FAILURES: The energy-only market is not adequate in a context of techs with low/null variable costs, since prices tend to zero in a competitive market Backup capacity, which is needed to ensure security of supply, is only remunerated with unacceptable price spikes REFORMS: Decarbonization requires a strong CO2 price signal and a reform in the wholesale market design based on competitive mechanisms for long- term contracting

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