The document discusses trends and challenges in decarbonizing the EU power sector. It summarizes that power demand growth has declined since the 1990s and fossil fuels are being squeezed by rising renewable generation. A key challenge is that most coal and nuclear plants are over 30 years old. Meeting long-term decarbonization goals will require a large shift to renewable and low-carbon sources. However, integrating high shares of variable renewables poses economic and technical challenges to maintaining grid stability. Reforming the EU Emissions Trading System will also be important to provide a stronger carbon price signal to encourage needed investment in cleaner technologies.

1. © OECD/IEA 2015
Argus Emissions Markets 2016
Decarbonising EU Power
Trends and Challenges
3rd March 2016
Matt Gray
Consultant Analyst
International Energy Agency
matthew.gray@iea.org

2. © OECD/IEA 2015
Overview
1. Trends
 Changes to power demand
 Fossil-fuel versus low-carbon generation
 New net capacity
 Plant technology ages
2. Challenges
 Implications of policy scenarios on demand and fuel mix
 Impact of EU ETS reforms on carbon price
 Integrating variable renewable energy and distributed solar PV
 Managing disruption of the sector

3. © OECD/IEA 2015
1. Trends
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
1975
1981
1987
1993
1999
2005
2011
TWh
Power Demand in OECD Regions
(1975-2013)
OECD
Americas
OECD Asia
Oceania
OECD Europe
Source: OECD data
0
100
200
300
400
500
600
1975
1980
1985
1990
1995
2000
2005
2010
TWh
Power Demand in EU Markets
(1975-2013)
Germany
France
United
Kingdom
Italy
Spain
Power demand in OECD markets is stagnating or declining

4. © OECD/IEA 2015
1. Trends (cont.)
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
EU28 Germany France United
Kingdom
Italy Spain Others
CAGR
5-year CAGR of EU28 Markets
1995-00
2000-05
2005-10
2010-13
Source: Eurostat data
Power demand growth has been declining since the 1990s

5. © OECD/IEA 2015
1. Trends (cont.)
60
80
100
120
140
160
180
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
EU28 GDP versus EU28 Power Demand
(1995-2013) (1995 = 100)
EU28 Power Demand EU28 GDP EU28 Power Intensity
Source: Eurostat data
Power intensity of GDP has decreased over 30% since 1995

6. © OECD/IEA 2015
1. Trends (cont.)
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
1990 1995 2000 2005 2010
TWh
EU28 Gross Generation Mix
(1990-2013)
Other
Oil
Solar
Wind
Biofuels and Waste
Hydro
Nuclear
Natural Gas
Lignite
Coal
Source: Eurostat data
0
500
1,000
1,500
2,000
2,500
3,000
3,500
1990 1995 2000 2005 2010
TWh
EU28 Gross Generation Mix
(1990-2013)
Renewable
Fossil and Nuclear
26%
12%
74%
88%
Fossil-fuels and nuclear are being squeezed by renewables

7. © OECD/IEA 2015
1. Trends (cont.)
1,375
1,205
954
89 82 46 30 4 3 0.1
-118
-326 -396-0,600
-0,400
-0,200
0,000
0,200
0,400
0,600
0,800
1,000
1,200
1,400
1,600
GW
EU28 Net Installations in EU28 (2000-2015)
Source: European Wind Association (2016)
Most new capacity is non-hydro renewables

8. © OECD/IEA 2015
1. Trends (cont.)
Source: World Electric Power Plants Database, April 2015
68% of coal capacity and 60% of nuclear capacity is >30 years old
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
200,000
< 10 years 10-20 years 20-30 years 30-40 years 40-50 years < 50 years Unknown
MW
Age Distribution of EU28 Plants
Others
Oil
Nuclear
Hydro
Gas
Coal

9. © OECD/IEA 2015
2. Challenges (cont.)
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
2012 2020 2030 2040 2050
TWh
EU28 Power Generation – 6D Scenario
Other
Renewables
Nuclear
Gas
Coal with CCS
Coal
44% of mix by 2050
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
2012 2020 2030 2040 2050
TWh
EU28 Power Generation – 2D Scenario
Other
Renewables
Nuclear
Gas with CCS
Gas
Coal with CCS
Coal
Source: Energy Technology Perspectives 2015
68% of mix by 2050
3,927 TWh by 2050
3,686 TWh by 2050
Structural shift in the fuel mix is required for 2-degree outcome

10. © OECD/IEA 2015
2. Challenges (cont.)
0
5
10
15
20
25
30
35
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
€/tones
Front-year EUA price
(2006-2015)
Phase 1.
2005-07
Phase 2.
2008-12
Phase 3.
2013-20
Source: ICE data, European Commission data
68% of mix by 2050
To date the EU ETS has produced a volatile and low carbon price
0
5
10
15
20
25
0
500
1,000
1,500
2,000
2,500
2008 2009 2010 2011 2012 2013
€/tonnes
Milliontones
ETS Balance vs. Average EUA Price
Cumulative Balance (LA) Average EUA price (RA)

11. © OECD/IEA 2015
2. Challenges (cont.)
Source: Carbon Tracker (2015), Point Carbon (2015), World Energy Outlook (2014) *450, NPS & CPS based on interpolations and USD/EUR of 0.75
Will EU ETS reform bring reduced volatility and higher prices?
0
10
20
30
40
50
60
70
80
2010 2015 2020 2025 2030
€/tonnes
EUA Price Forecasts and Scenarios
Historical Carbon Tracker Point Carbon IEA (450) IEA (NPS)

12. © OECD/IEA 2015
2. Challenges (cont.)
Without policy reform renewables penetration will crimp investment
Wind Solar Wind Solar
Gas Turbine (OCGT) -54% -40% -87% -51%
Gas Turbine (CCGT) -34% -26% -71% -43%
Coal -27% -28% -62% -44%
Nuclear -4% -5% -20% -23%
Gas Turbine (OCGT) -54% -40% -87% -51%
Gas Turbine (CCGT) -42% -31% -79% -46%
Coal -35% -30% -69% -46%
Nuclear -24% -23% -55% -39%
-14% -13% -33% -23%
Loadlosses
Profitability
losses
Electricity price variation
10% Penetration level 30% Penetration level
Source: NEA (2012), Nuclear Energy and Renewables: System Effects in Low-Carbon Electricity Systems, OECD, Paris

13. © OECD/IEA 2015
2. Challenges (cont.)
Source: Carbon Tracker (2015)
“grid parity” turns customers into “prosumers”
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
2008 2009 2010 2011 2012 2013 2014
€/KWh
Levelised cost of electricity of German household solar PV vs. Retail Power Price
German Household Solar PV LCOE German Retail Power Price

14. © OECD/IEA 2015
2. Challenges (cont.)
Source: Nykvist and Nilsson (2015)
Commercialization of battery storage – not if, but when

15. © OECD/IEA 2015
Thank you for your attention
Matt Gray
Energy Analyst
(33-1) 40 57 66 37
matthew.gray@iea.org