Renewable energy: regulatory and market issuesRenewable energy: regulatory and market issues ... Source IEA: Medium-Term Renewable Energy Market Report 2014 . 8 6th ERRA Training:
Post on 04-Jun-2020
0 Views
Preview:
Transcript
www. erranet.org
Renewable energy:
regulatory and market issues
László Szabó
Please feel free to add your logo here!
2 6th ERRA Training: Principles of Electricity Markets
May 7-11,2018 Budapest, Hungary
Outline
Renewable electricity outlook
– Policy context
– Technology development
Regional outlook
Investment challenge
Integration challenge
Regulatory challenge
3 6th ERRA Training: Principles of Electricity Markets
May 7-11,2018 Budapest, Hungary
Major pillars of RES-E policy
Supply security
increasing energy independence
Industrial policy green jobs and technology
export
Climate change avoiding CO2 emissions
4 6th ERRA Training: Principles of Electricity Markets
May 7-11,2018 Budapest, Hungary
Externalities in electricity generation
Source: ECOFYS 2014
• Conventional
technologies,
generally over 80
€/MWh
• Wind external cost
below 10 €/MWh
• PV external cost
generally below 25
€/MWh
• * Technology
development would
further reduce
external costs of PV
5 6th ERRA Training: Principles of Electricity Markets
May 7-11,2018 Budapest, Hungary
In the 2DS, electricity becomes a
near zero carbon fuel by 2050
0100200300400500600700800900
1 000
2009 2030 2050 2030 2050
4DS 2DS
g C
O2
-eq
/ k
Wh
World European Union United States China India ASEAN
Carbon intensity drops by 90% by 2050 in the 2DS (IEA)
6 6th ERRA Training: Principles of Electricity Markets
May 7-11,2018 Budapest, Hungary
Technology learning
6
Source: Fraunhofer 2017
7 6th ERRA Training: Principles of Electricity Markets
May 7-11,2018 Budapest, Hungary
Technology Levelsied Costs
Source IEA: Medium-Term Renewable Energy Market Report 2014
8 6th ERRA Training: Principles of Electricity Markets
May 7-11,2018 Budapest, Hungary
New built electricity generation
in Europe: RES-E
Source: WindEurope (February 2017)
Overall 80% share of RES in new investments.
9 6th ERRA Training: Principles of Electricity Markets
May 7-11,2018 Budapest, Hungary
Global RES power net additions
Source IEA: Medium-Term Renewable Energy Market Report 2015
IEA scenarios under BAU and accelerated cases
- Shift to China and other Non-OECD
10 6th ERRA Training: Principles of Electricity Markets
May 7-11,2018 Budapest, Hungary
Regional Outlook on RES support schemes
11 6th ERRA Training: Principles of Electricity Markets
May 7-11,2018 Budapest, Hungary
European Union
2020 targets:
• Binding national targets, with legal actions and sanctions if 2020 targets are not
met
• National implementation – NREAPs
2030 targets:
• 27%, but binding at EU level, no national targets. (This level might be elevated
to 30% according to present negotiations between EC, Parliament and Council)
The 2322/2014 EU Communication sets up new state aid rules for RES support:
• From 2017 RES support could only be granted through competitive tendering
(FIP or GC)
• Exemptions: demonstration plants, smaller sized plants (under 1 MW)
• RES electricity must be sold on the product market
• Balancing costs must be paid by RES producers
• In case of negative prices – RES-E production should not be supported to
produce
12 6th ERRA Training: Principles of Electricity Markets
May 7-11,2018 Budapest, Hungary
EU Winter Package 1
Main findings of the RES and Market Design IAs:
– improved electricity market, revised ETS could deliver investments in
the most mature renewable technologies by 2030
– less mature renewable electricity technologies will need some
support
– At the beginning of the period, over-capacity, the imbalance on the
ETS market and low wholesale electricity market prices and high
RES-E technology costs make market only driven investment difficult
– support schemes will still be needed at least for a transitional period
RES IA investigates options to ensure that if and where
support is needed, it is cost-effective
RES-E: Some technologies would be viable exclusively from
market revenues but the 2030 target would not be reached
13 6th ERRA Training: Principles of Electricity Markets
May 7-11,2018 Budapest, Hungary
EU Winter Package 2
Planned next steps:
• Let the market reveal the true price of RES-E (auctioning of
support)
• Mandatory partial opening of support schemes (10 % till
2025, 15% afterwards)
• Lower the cost of capital (aligning support schemes,
support mature technologies)
• Further simplify administration (e.g. under 50 kW-
automatic approval after 6 month)
• RES heat- ‚gap filler’ – 1 % growth/year, District Heating:
RES and Waste heat –access to network
• RES-Transport: cap on food based biofuel, 2nd generation
biofuel targets (6.8% by 2030)
14 6th ERRA Training: Principles of Electricity Markets
May 7-11,2018 Budapest, Hungary
Middle East and North Africa
Source IEA: Medium-Term Renewable Energy Market Report 2016
O: recently opened, □ ■: under review: ►: closed or suspended for new entrant
15 6th ERRA Training: Principles of Electricity Markets
May 7-11,2018 Budapest, Hungary
Europe
Source IEA: Medium-Term Renewable Energy Market Report 2016
16 6th ERRA Training: Principles of Electricity Markets
May 7-11,2018 Budapest, Hungary
Asia and Pacific
Source IEA: Medium-Term Renewable Energy Market Report 2016
17 6th ERRA Training: Principles of Electricity Markets
May 7-11,2018 Budapest, Hungary
Investment challenge
18 6th ERRA Training: Principles of Electricity Markets
May 7-11,2018 Budapest, Hungary
Potential impact of INDCs on global cumulative investment in
the power sector, 2015 – 2040
18
IEA WEO2015
19 6th ERRA Training: Principles of Electricity Markets
May 7-11,2018 Budapest, Hungary
Definition of LCOE
LCOE equation:
- It = investment cost
- Mt = operation and maintenance (O&M) costs in year t.
- Ft = fuel costs in year t.
- Et = electricity generated in year t.
- r = discount rate (expected return)
- n = planned (or regulated) support period or lifetime
– Used to compare technologies under similar
assumptions
19
20 6th ERRA Training: Principles of Electricity Markets
May 7-11,2018 Budapest, Hungary
Financing costs can dominate all other costs for
renewables
20
Solar PV
Source: IEA
21 6th ERRA Training: Principles of Electricity Markets
May 7-11,2018 Budapest, Hungary
WACC figures – DiaCore (wind onshore)
WACC estimations can
change significantly in
developing markets, even
in SEE
Change between 2014-16
Source: Diacore,
Ecofys 2016
22 6th ERRA Training: Principles of Electricity Markets
May 7-11,2018 Budapest, Hungary
RES integration challenges
23 6th ERRA Training: Principles of Electricity Markets
May 7-11,2018 Budapest, Hungary
Typical problems of intermittent RES-E
Intermittency additional reserve needs, loop-flows
Distance to load high transmission related cost
Source: Swinder (2008)
24 6th ERRA Training: Principles of Electricity Markets
May 7-11,2018 Budapest, Hungary
System impacts
• Due to low or close to zero variable costs in
competitive electricity markets wholesale electricity
price will reduce
• Have twofold effect on consumers:
• A positive impact as wholesale price will drop, also appearing in
end-user price
• A negative one, as subsidy is financed by RES surcharge, which
will increase end-user prices
• Conventional producers will see smaller utilisation rates
and reduced margins
• As in many countries gas based power plants are still
required to serve as balancing entities, they still have to
be kept in the market
Merit order effects of RES
P
Q
Q1
P1
S2
D support for renewables
(Wind) nuclear coal gas oil
P2
S1
Merit order !
Biomass Biomass
Original
Curve
Curve
with FIT
on wind
Nucl.
Coal
Gas
Oil
26 6th ERRA Training: Principles of Electricity Markets
May 7-11,2018 Budapest, Hungary
Merit order effect 2
• Wholesale price reduction reduces the revenues of
traditional producers – ‚missing money problem’
• On the long term traditional producers delay
investments
• This effects reduces the burden on end users – but
there is a price increasing effect by the RES
surcharge to cover subsidies (usually higher)
• Volatility of wholesale price increases (due to
intermittent technologies) which can partly
reduces the price reduction effect
27 6th ERRA Training: Principles of Electricity Markets
May 7-11,2018 Budapest, Hungary
Integration costs
Source: UECKERDT 2013
28 6th ERRA Training: Principles of Electricity Markets
May 7-11,2018 Budapest, Hungary
Additional impacts of higher RES
deployment
Intermittent technologies (PV, wind) Variable production Uncertainty in
production Production is location specific
- As electricity is not a homogeneous product – intermittent production has its ‚price’
- Other, traditional producers operate at lower utilisation level
- Uncertainty in production forecast - Other producers have to step in to balance the unexpected deviations
-Placing production in distant location has higher costs - Due to network constraints, it does matter where the new capacities are located
– ’profile costs’
- ‚balancing cost’
-‚grid costs’
Source: Ueckerdt 2013 But: Do they earn sufficient money to
stay on the market on the long term?
29 6th ERRA Training: Principles of Electricity Markets
May 7-11,2018 Budapest, Hungary
Integration costs 2
Source: UECKERDT 2013
30 6th ERRA Training: Principles of Electricity Markets
May 7-11,2018 Budapest, Hungary
‚Cannibalisation’ effect
• Definition: Renewables tend to earn less than
average market price with increasing market share
• Mechanisms: with higher deployment levels, VRES
generators reduce wholesale price in their
respective production hours. e.g. PV in the summer
daily hours. This reduces their ‚benchmark’ prices,
and their economic benefits.
• Coordination of day-ahead, intra-day and
balancing markets can help to reduce these system
wide impacts
31 6th ERRA Training: Principles of Electricity Markets
May 7-11,2018 Budapest, Hungary
Impact of higher PV deployment
on Wholesale Prices
Source: REKK, 2018
32 6th ERRA Training: Principles of Electricity Markets
May 7-11,2018 Budapest, Hungary
Regulatory tasks –
Network integration issues
33 6th ERRA Training: Principles of Electricity Markets
May 7-11,2018 Budapest, Hungary
Regulatory tasks
• Contribute to the design of RES-E support schemes
(production price support or quota obligation schemes)
• Regulate grid access and integration for RES-E
– connection queue management
– grid connection and cost allocation rules
– balancing and settlement rules, e.g. intra-day
– remuneration for additional reserve needs
• License and monitor the RES-E market
• Provide RES-E certification
• Promote cross-border cooperation in RES-E utilization
34 6th ERRA Training: Principles of Electricity Markets
May 7-11,2018 Budapest, Hungary
Grid integration issues
• Methods determining the maximum intermittent
RES-E capacity to be connected to the grid
• Methods handling the queue of renewable
generation projects waiting for system connection
• Tariff methods determining the connection charge
of RES producers
• Potential regulatory incentives for DSOs
connecting new renewable generators
• System balancing needs and rules
35 6th ERRA Training: Principles of Electricity Markets
May 7-11,2018 Budapest, Hungary
Asymmetric incentives for RES-E
generation versus network
• RES-E generation: fast; attractive; simple incentives
• Network upgrade: slow; complicated; counter-incentives
• Integrated resource and network planning
• Sufficient incentives for transmission and distribution upgrade is key
36 6th ERRA Training: Principles of Electricity Markets
May 7-11,2018 Budapest, Hungary
Regulatory tasks –
Designing tariff schemes
37 6th ERRA Training: Principles of Electricity Markets
May 7-11,2018 Budapest, Hungary
Support schemes 1
• Investment support schemes
– Investment grants, supported investment credits, tax
credits (US)
• Tradable green certificate schemes (quantity based)
– RES-E obligation on retailers
– Two products (sources of revenue) by RES-E generators:
electricity and Green Certificate; both tradable
– GC price is determined by supply and demand
• Feed-in tariff or feed-in premium schemes (price based)
• Priority dispatch obligation
– Who is the party to purchase RES-E?
38 6th ERRA Training: Principles of Electricity Markets
May 7-11,2018 Budapest, Hungary
Support schemes 2
• Functioning principle:
• Support renewables through their production
• Create an almost ‘financial’ instrument:
• High upfront investment cost is covered by a fix cash-flow
attached to the RES-E production up to 10-20 years
• Supplementary tools: priority connection, priority dispatch
• Three fundamental instruments:
• Feed-in Tariffs (FIT): Support RES-E price is fixed, production
quantity is flexible
• Feed-in Premium (FIP): higher market orientation, support explicitly
over market price
• Green Certificate (GC): Supported RES-E quantity is fixed, price
becomes volatile
• FIT is more effective to promote RES-E. Also it was more
popular/applied in the EU and in other countries.
• BUT: EU 2015 step: phasing out FIT based support schemes
The second-best regulation – subsidies to RES generation
P
Q
Q1
P1
S
D support for renewables
Supply of non-renewables
Supply of renewables
P2
!
Average cost
based supply
curve!
Support Schemes – Feed-in Tariff (FIT)
40
kWh
Market price Pp
MC renewable
Q
p
PFIT
QFIT
Costs, prices
FIT support / kWh
Two main characteristics of FIT
schemes:
• Obligatory takeover of
electricity
• Fixed purchase price,
independently from market
price
• In the EU the ‚favorite’ supply tool
• It is one of the most effective tool, but not the most cost
efficient
• It is most suitable to apply in the early phase of the RES
deployment, but can lead to over-subsidisation and
overshootings
Support Schemes: Feed-in Premium (FIP)
time
Pp
Market price
PFIP
FIP over support
Costs,
prices
FIP efficient
MC RES
Market price + FIP
Premium / kWh
• Electricity is sold on the product
market
• Once sold, gets premium as well
• Premium systems are more
efficient than FITs
• Higher risks for green producers
• Closer to market operations
• Various forms: fixed or variable
premiums
• Also cap and floor values
• FIPs get higher and higher shares in the EU RES support systems
• More market oriented instrument
• Could also be applied in competitive tendering schemes
Support schemes: Green certificates (GCs)
42
Producer of
Renewable electricty
ele
ctr
icity
„rene
wable”
attribute
s
Buyer „A” Buyer „B”
€ €
• Consumers are obliged to buy certain amount of green certificates (GCs)
• Authority checks at the end of the years if sufficient GCs are purchased
• GCs are tradeable
• Physical trade of electricity and green attributes are separated and sold separately
• Green producers sell electricity on the traditional product markets, while GCs on the green certificate markets
• Non-compliance is punished –it is important to set fines at reasonably high levels
Although one of the most market based instrument, there is a mixed
picture in those EU countries applying GC schemes
RES support tools and risks
Source: Dr. Corinna Klessmann, 2014, Ecofys
44 6th ERRA Training: Principles of Electricity Markets
May 7-11,2018 Budapest, Hungary
FIT – Does it follow
technology learning curves ?
45 6th ERRA Training: Principles of Electricity Markets
May 7-11,2018 Budapest, Hungary
EU State Aid Rules and Renewable Support
The 2322/2014 EU Communication sets up new state
aid rules for RES support:
• From 2017 RES support could only be granted through
competitive tendering (FIP or GC)
• Exemptions: demonstration plants, smaller sized plants
(under 1 MW, or 6 MW wind)
• RES electricity must be sold on the product market
• Balancing costs must be paid by RES producers
• In case of negative prices – RES-E production should not be
supported to produce
• Opening up support schemes with other Member States
46 6th ERRA Training: Principles of Electricity Markets
May 7-11,2018 Budapest, Hungary
RES auction design elements – main questions to
be answered
What is auctioned? - Technology-specific / neutral
- Output-based / investment grants
- Sliding / fixed premiums
- Support duration, adjustment
How much is auctioned? - Single-item / multiple items
- Volume (capacities / budget)
How should the winners be selected? - Price-only
- Multiple criteria
How should the price be determined? - Pay-as-bid
- Uniform / pay-as-cleared
Should there be special bidding rules? - Price caps / floors
- Quotas for diversity
Should there be safeguards? - Pre-qualification rules
- Penalties (non-compliance/delays)
SOURCE:EU AURES project, 2017
47 6th ERRA Training: Principles of Electricity Markets
May 7-11,2018 Budapest, Hungary
Trade-offs in auction designs
47
• Low entry barrier
• Low participatory risk
• Uniform conditions
amongst bidders
Competition
• Pre-qualification
conditions
• Penalties
• Simple, transparent
rules
• Pre-defined rules,
definitions
• Give preferential
treatment to small
players
Many
participants
Trans-
parency
High
realisation
rate
Source: Finger, 2016
48 6th ERRA Training: Principles of Electricity Markets
May 7-11,2018 Budapest, Hungary
German and Greek PV tenders
48
• Price trends between 2015 and 2017 Eurocent/kWh
• Only PV technology
• Why do we observe this difference between DE and GR
• for 2017?
DE GR
2017
49 6th ERRA Training: Principles of Electricity Markets
May 7-11,2018 Budapest, Hungary
RES auctions results
PV and wind technology auctions:
49
Source: Fortum 2016
PV: Germany: latest 2017 PV auction: 56 €/MWh, Greece 2017 – 83-98 €/MWh,
Off-shore wind: Denmark 2016: 54-72 €/MWh; DE, DK 2017: zero premium (Dong)
W
THANK YOU
FOR YOUR ATTENTION!
László Szabó
E-mail: laszlo.szabo@rekk.hu
Web: www.rekk.hu
top related