Different transition paths to low carbon power: Germany, UK, EU [email protected] University of Salzburg, Austria Carleton University, 1-2 October.

Different transition paths to low carbon power: Germany, UK, EU

[email protected] of Salzburg, Austria

Carleton University, 1-2 October 2015

121.04.23 Volkmar Lauber/Canada

Clarifications on low/zero carbon

• Only renewable power is carbon-free

• German FIT only supports renewable power• UK FIT with CfD supports “low carbon”, i.e.- Renewable power (zero carbon)- Nuclear power is “low carbon”, not C-free- CCS (low carbon - a share of CO2 is emitted)• Current EU policy closer to that of UK


Different evolution of power mix in Germany and UK

• In 1990, both had mostly coal plants, supplemented by nuclear power

• UK started replacing sizeable part of coal by gas starting in 1990s, followed by contraction of gas in 2010s; 65 TWh of renewable power by 2014 (slide)

• Germany:decline of hard coal + nuclear from 2007 onwards; less gas; steady growth of renewable power to 160 TWh in 2014 (slide)


Electricity generation in the United Kingdom by fuel source/technology, 1980-2014

Source: Department of Energy & Climate Change (2015) Digest of United Kingdom Energy Statistics. Infographics, p.7, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/449434/DUKES_2015_Infographics.pdf.

21.04.23 4Volkmar Lauber/Canada

0

100

200

300

400

500

600

700in

TW

h

Source: Adapted from AGEB (Arbeitsgemeinschaft Energiebilanzen) (2015) Bruttostromerzeugung in Deutschland nach Energieträgern, as of 27 Feb 2015.

Electricity generation in Germany by fuel source/technology, 1990-2014

Other energy sources

Photovoltaics

Biomass

Wind power

Household waste

Hydro power

Petroleum products

Natural gas

Hard coal

Nuclear

Lignite


Table of contents:Politics and policy of transition

1. Germany 2000-20102. UK 2000-20083. Germany 2010-20154. UK 2008-20155. EU late 1990s-2015


Part 1: Germany, 2000-2010

Intention and first implementation of the Renewable Energy Act of 2000


The origins of Germany’sRenewable Energy Act of 2000

• Precursor (Feed-In Law of 1990) designed by Conservative Party, pro-renewable power MPs responding to civil society pressure. In 2000 with red-green MPs.

• Rejecting/defeating support schemes pushed by Econ. Affairs Ministry and European Commission

• Recurring battles with European Comm. until 2014


Purposes of Renewable Energy Act 2000 (by red-green government)

Enable full transition from nuclear (phase-out by about 2022) and fossil to renewable power by

• Creating steady demand for renewable power (RP) equipment by reducing risk for small and (unlike utilities) motivated investors

• Supporting rise of RP equipment industry to drive down prices through steady innovation

• Creating new industry, jobs, exports


Instruments of EEG 2000

Priority access for all renewable power tendered to utilities (solar PV only after 2003)

Principle of full cost payments to generators (all investment costs plus small profit for well-run facilities – about 6% then)

Guaranteed 20 year payments, degressive and differentiated by technology

All technologies supported in parallel (unlike UK)


Implementation of EEG 2000

• At first, resistance by European Commission (see below), but big success for about 10 ys:

• rapid deployment (beating minimum targets), • creation of equip. industry, jobs, exports,• big investments despite restive incumbents,• comparatively low cost (3 slides)• highly popular exc. with Liberal party leaders +

Conservative business leaders


0

20

40

60

80

100

120

140

160

180

TWh

Source: Adapted from AGEB (Arbeitsgemeinschaft Energiebilanzen) (2015) Bruttostromerzeugung in Deutschland nach Energieträgern, as of 27 Feb 2015.

Renewable power generation by energy source in Germany, 1990-2014

Photovoltaics

Biomass

Wind power

Householdwaste

Hydro power


Minimum targets regularly over-achieved/ moved upwards till 2010


Source: Unendlich viel Energie (2012): Arbeitsmarkt Erneuerbare Energien. Available on http://www.unendlich-viel-energie.de/de/wirtschaft/arbeitsplaetze-erneuerbare-karriere/arbeitsmarkt-erneuerbare-energien.html, 08.01.2013.

Germany: Renewable energy sector job growth, 1998-2011


Figure 1. Ownership structure in 2010 of renewable electricity installations in Germany (not including pumped storage) (Total installed capacity: 53,0 GW)

Adapted from: trend:research (2011) p.45.


Payment for Wind Energy in Europe 2011


17

Price ranges (average to minimum support) for direct support of onshore wind in EU27 (average tariffs are indicative) compared to long-term marginal costs (minimum to average costs). Support schemes are normalised to 15 years. CEC:Commission Staff Working Paper SEC(2008)57, The support of electricity from renewable energy sources, pp. 25- 26


Volkmar Lauber/Canada 18

Historically observed efficiency of support for onshore wind: Effectiveness indicator compared to expected profit in 2006.CEC:Commission Staff Working Paper SEC(2008)57, The support of electricity from renewable energy sources, p.32

21.04.23

Part 2: UK 2000-2008

• Intentions and first implementation of Renewables Obligation (RO)


Origins and Purpose

• Designed by Treasury (NFFO model) and DTI - with minimal role for UK Parliament (West-minster model…); Thatcherist economics

• Bring down price of renewable power by competition (DE: also technological learning)

• Supports market creation only for the currently cheapest technologies (not all simultaneously, as in Germany); windfalls if new tech. with higher prices is needed


The instruments of the RO

• Requires utilities to hand in renewable energy certificates for a set (and annually increasing) percentage of their sales (quota), from own generation or bought from outside (traded)

• Generators get market price + certif. price• Certificates are traded -> volatility (“cliff”?)• Volatility eliminates SME participation (high

risk) and deters rise of equipment industry


Impact of RO

• Purpose of RO 2002 was to drive down prices for renewable power -> diffusion

• In practice, RO (and similar schemes in Italy, Belgium, Poland…) led to highest prices in EU

• By excluding small investors, it also freed incumbents largely from competition and deployment pressures -> slow deployment

• Led to little technological learning, little participation in RP industry


0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000in

thou

sand

tonn

es o

f oil

equi

valen

t

Source: Department of Energy & Climate Change (2015) Digest of United Kingdom Energy Statistics,https://www.gov.uk/government/statistics/renewable-sources-of-energy-chapter-6-digest-of-united-kingdom-energy-statistics-dukes.

Renewable power generation by energy sources in the United Kingdom, 1990-2014

Photovoltaics

Offshore wind

Onshore wind

Bioenergy

Hydro


Part 3. Germany 2010-2014: Dismantling EEG?

• By its old opponents: Econ. Aff. Ministry, big incumbents, Liberal leaders, Business wing of Conservative Party

• New opponents: other Conservatives, since 2013 also key Social Democratic leaders

• Interestingly, this is hardly reflected in public support– overwhelming approval rates for “citizen Energiewende” even in 2014 (EMNID)


Arguments for holding down renewable power growth

• Excessive support due to lacking competition

• Leads to market creation for technologies which are not yet market ready (PV?)

• Excessive growth of RP means high consumer cost and danger to competitiveness of German industry… deindustrialisation?


Arguments of Critics

• Excessively rapid deployment of technologies• Excessive support for technologies which are

not market ready (particularly PV, which surged in 2009-2012)

• Lack of direct price competition among generators (all get the FIT)

• High consumer costs • Loss of competitiveness of German industry,

deindustrialisation at end of the road2621.04.23 Volkmar Lauber/Canada

Background: Acceleration of RP growth (Source: AGEB, 2015)

Year Total generation in TWh Annual increase in period

1990 19.7

Average 1 TWh/year

1999 29.1

Average 5.5 TWh/year

2004 56.6

Average 7.6 TWh/year

2009 94.9

Average 13 TWh/year

2014 160,6


Germany: PV growth: Installed capacity (in MW) and energy supply (in GWh) from photovoltaic installations, 1990-2011 (cumulative)

Adapted from: Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (2012). 21.04.23 28Volkmar Lauber/Canada

Other reasons for changing attitudes among political leaders

Perceived need to help the ailing big four electricity incumbents suffering from

• problematic take-overs after liberalisation,• nuclear phase-out zig-zag (Con.-Lib. Govt)• neglecting renewable power investments• excessive new build of gas and coal plants at time

of falling demand (since 2008)• Under the merit order, incumbents lose profitable

peak load to PV and wind 2921.04.23 Volkmar Lauber/Canada

0

20

40

60

80

100

120

140

160

180

200

GW

Source: Adapted from Fraunhofer ISE (2015b); * first half of 2015

Installed net capacity for electricity generation in Germany, 2002-2015

Solar

Wind offshore

Wind onshore

Hydro

Biomass

Natural gas

Nuclear

Lignite

Hard coal


Weak government arguments

• Cost to households grew also due to rapid growth of exemptions for big industry (€4bn)

• Also because merit-order savings (PV + wind displace expensive fossil generation) were not passed on to households+SMEs. Paradox:Lower wholesale prices due to RP growth increase “extra cost” of RP to households, SMEs

• Ignores external costs of and subsidies to conventional power (see next slide, also 2015 IMF study)


From Lauber and Jacobsson (2015) PV 2015 8-12 1.18 0.4 11.58

Figure: 1: German PV FITs from January 2004 to October 2013

Bernard Chabot (2013) Diversity in PV Systems Sizes and Market Deployment Management from Prices: Two Strategic Lessons from the German PV Policy and Measures. P. 1. Available at: http://cf01.erneuerbareenergien.schluetersche.de/files/smfiledata/3/0/3/4/9/9/TwoStrategicLessons.pdf, 09.09.2013.



Instruments for slowing growth, reducing costs and re-empowering

corporate actors• EEG 2014: Reducing targets + tariffs, setting

caps for each technology (flexible for PV since 2010; absolute by 2017 with tender system?)

• By 2017: Change to new type of support system: tendering/bidding system, as in European Commission (2014) guidelines

• Favours incumbents, other corporate actors


Goals nearly unchanged since 2010 (not increased as in past)

• Goal: 80% renewable power by 2050, set in 2010 when nuclear phase-out was postponed. Then this was a minimum target; 2014 a cap

• But at EU level, the German government presses for binding 2030 targets, though still modest ones (30% for all renewable energy)

• Currently govt. hesitates to openly put coal phase-out on its agenda


Part 4: UK policies 2008-2015: Contradictory developments

• 2008-10: Strong stimulation of RP growth by banded RO and “German-style” FITs, leads to near-tripling of RP generation in 2010-14

• Since 2010, Cameron govt. formulates new policy (CfD) to privilege nuclear power: Bidding for subsidies

• Simultaneously, govt. plans to terminate banded RO and perhaps FIT by 2016


Britain 2008-2015Zig-zag policies?

• 2008-2010: Reforming RO and introducing FITs almost triples deployment in four years (slide), increases spending, raises ambitions (30% by 2030

• But more or less U-turn with Electricity Market Reform since 2011: Reform stretches FITs with Contracts for Difference (CfD), a method to allocate subsidies by auction for all “low-carbon” - to support nuclear (Hinkley Pt C) and CCS generation.


End of RO in 2016. And also of FIT?

• Banded RO is successful, achieves high growth; terminated “because too expensive”

• FIT tariff benefits above all solar PV: About 8 GW installed by 3rd quarter of 2015 by some 800.000, mostly small investors.

• In summer 2015, DECC announced the end of FITs for onshore wind and strong reductions for biomass and (by 60-70%) for PV by 2016 (new PV FIT: 1.03 to 1.63 pence)


UK position in EU with Cameron

• UK reverts to its old position: At EU level, it opposes binding and ambitious (beyond 27%) 2030 targets for member states. Cost argument credible? (given special treatment for Hinkley Point C)

• Allies with Poland, Czech Republic to hold down EU targets for renewables

• Pleads for more use of gas (Shell intervention with EU in 2013), slowdown for renewables

• CfD fit 2014 EU State aid guidelines for energy4021.04.23 Volkmar Lauber/Canada

Electricity generation from renewable sources in the United Kingdom, 2000-2014

Source: Department of Energy & Climate Change (2015) UK Energy in Brief 2015, p.30, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/449067/UK_Energy_in_Brief_2015.pdf.21.04.23 41Volkmar Lauber/Canada

Feed in Tariffs in the United Kingdom, 2011 to 2015

Source: Department of Energy & Climate Change (2015) UK Energy in Brief 2015, p.28, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/449067/UK_Energy_in_Brief_2015.pdf.


Part 5: European Union politics and policy on renewable power

• Political controversy extended above all to definition of “renewable energy” (nuclear? waste?), targets, support schemes, and state aid guidelines

• Outcomes are codified in -Renewable Energy Directive 2001/77/EC,-Renewable Energy Directive 2009/28/EC,-State aid guidelines on environment/energy, most recently from 2014


Transformation in EU-28 is much slower than in UK or Germany

• Renewable power generation doubled between 2002 and 2012 (next slide)

• Phase-out of generation from fuel oil, coal and nuclear started (upcoming slide), but fossil/nuclear resistance hardened since 2010

• Post-2010 EU policy is to go slow on renewables deployment (“Europe alone cannot save the world” – Oettinger)


Share of renewable electricity in EU-28, 2002-2012

Volkmar Lauber/Canada21.04.23 45

Source: SolarPower Europe Global Market Outlook (2015), http://www.solarpowereurope.org/fileadmin/user_upload/documents/Publications/Global_Market_Outlook_2015_-2019


Biggest controversies over choice of support instruments and targets • Before first (2001) RP Directive: Effort by

European Commission to push through quota cum tradable certificate scheme (such as RO)and to ban FITs; founders in Parl. and Council

• Before 2nd (2009) RP Directive: Similar Commission effort, fails again

• 2013-14: Similar Commission effort to phase out FITs by backdoor of state aid guidelines; legality still controversial (is before Court)


Different philosophies and interests

• Stimulate RP growth via “competition by incumbents” (UK most of the time, EU Commission, EURELECTRIC) or via supporting technological learning and innovation?

• Rapid shift to RP power to limit global warming (Denmark, Germany,…) or slow shift nursing existing fossil and nuclear generation (UK most years, power incumbents, Poland, Czech Rep., some other Eastern Europeans)

• Physical trade of RP or just certificate trade? 4821.04.23 Volkmar Lauber/Canada

Conflict over Dir. 2001/77/EC

• Energy Commissioner Papoutsis tried to push through a quota cum tradable certificates model, similar to later RO. Sends emissaries to EU capitals (governments, utilities). Supports lawsuit challenging German FIT.

• Met with strong resistance from renewable power assoc. (exc. British and Danish wind power), Parliament, German and Spanish governments


…2001/77/EC

• Commission resigns, de Palacio is new energy commissioner. Submits a draft proposal (=bill) that leaves choice of support up to member states (“subsidiarity”), but they respect state aid and internal market provisions - opens back door challenge to FIT

• However, Court in PreussenElektra vs. Schleswag rejects COM argument that FIT are state aid or violating internal market


Conflict over Dir. 2009/28/EC …

• Comparative studies of quota systems (UK, IT, BE, PL) and FIT (most other member states) show greater efficiency and effectiveness of FIT – issue appears settled in favour of free choice of support system by member states

• But in 2007 attempt by certificate trading advocates in COM (=neoliberals, UK) to introduce a trading mechanism “so that small states” (UK?) “can meet now binding quotas”


… Dir. 2009/28/EC …

• Renew. power stakeholders claim this would destroy FITs, energy commissioner Piebalgs grants them a hearing

• Result: Opt-outs from trading mechanism are introduced into proposal

• Legal experts “discover” that opt-outs would not hold up in Court

• Certificate trading advocates concede defeat


…Dir. 2009/28/EC

• Commissioner Piebalgs stands by as Parliam. and Council negotiate a new version (unusual given the Commission’s exclusive right to legislative initative).

• Green MEP Turmes and Council led by core group formed by UK(!) /Poland /Germany negotiate new bill: free choice of support system plus ”non-trading flexibility” to satisfy target fulfilment anxieties of small countries

•


Commission (2014) guidelines on state aid to energy – new attempt

• These guidelines require bidding, ban FIT from future support schemes except for small installations (1 MW for PV, 6MW for wind),

• This will inhibit decentralised energy transition by motivated citizens, many SMEs

• Likely to give electr. incumbents and other corporate actors a new chance to take over the renewables business – and to keep it small


2014 state aid guidelines

• European Renewable Energy Foundation has challenged guidelines in Court for violating renewable energy directive 2009/28/EC, which is valid until 2020

• But no political resistance from member state governments so far since Germany accepted Commission view (this was different with similar, earlier COM efforts)


Legal nature of guidelines

• In theory, these guidelines only inform on criteria that Commission will apply when accepting/rejecting national support schemes (not a legislative document)

• In practice, they influence the formulation of national support schemes -> deter FITs and thus small investors and SMEs, the most motivated group so far and favouring decentralised transition


EU falling behind on renewables and climate action?

• Europe has played a big role in promoting renewable power until 2010, building up the first renewable energy industry

• But COM unable (unwilling?) to build a truly European RP sector, preferring liberalisation

• Since 2010, resistance from fossil/nuclear incumbents slows deployment dynamic

• COM accepted their claims that renewables are competitive already and that high costs of support endangers EU competitiveness


EU now falling behind on renewables and climate action (2)

• That is likely result of the 2014 COM guidelines on state aid to energy

• Renewable power now does better in high-growth developing countries without entrenched fossil/nuclear incumbents and without an Emissions Trading System (which in the EU practically ignores climate costs – lately €5-10/t of CO2 instead of about €80 – UBA estimate 2012, Alberici et al., 2014.


WWF/Lichtblick (2015) Megatrends der globalen Energiewende,http://www.energiewendebeschleunigen.de/fileadmin/fm-wwf/lichtblick/Megatrends-der-globalen-Energiewende.pdf


Current policy intensifying upcoming shocks?

The likely result of EU slowdown for RP and its protection of fossil power::

• Higher impact on climate –more costs borne by future generations (Stern report)

• EU may lose /has lost its leadership in RP industry - China and other regions caught up

• Even bigger shock likely to hit EU’s big utilities once cheaper+cleaner+simpler sources defeat utilities’ efforts at holding them at bay. Will incumbents survive that?


Merit order effects explained by sfv (Solarenergieförderverein)

• The following slides (62 to 73) are taken from a presentation by SFV (updated versions can be found on its homepage: www.sfv.de)

21.04.23 Volkmar Lauber/Canada 61

62

Es gibt im Binnenland viel

mehr Flächen für die Windenergie als notwendig!

62

How wind-generated

electricity reduces the price of

power at the electricity

exchange

63

Volume of electricity generated

Price per kWh

63

18 cent

27 cent

32 cent

11 cent

3,5 cent3 cent 4 cent

Demand

Different generators have different costs, are dispatched in merit order (lowest cost first) until demand is satisfied. Red line shows where demand is cut off

64

volume

Price

64

Not sold

18 cent

demand

65

Profit15 cent

Price of the electricity exchange applies to all

3 centvolume

Price

65

18

Demand

66

18 cent

volume

Price

66

z.B. für Atom-kraftwerk

Profits of onventional electricity generators

Price bids of generators

Demand

67

Purchasing price of suppliers

Strom-menge

Preis

67

Nachfrage

68

volume

price

68

demand

18

Wind power

Profits of conventi-onal generators

Wind power fed into grid reduces demand for

conventional electricity

69

volume

price

69

Demand

18

Wind power

4

What has to be paid for wind power?

Feed-in tariff

70

volume

price

70

Demand

18

Wind- power

4

Feed-in tariff

Purchasing price for conv. electricity

Plus cost for wind power

71

volume

price

71

Demand

18

Wind power

4

Feed-in tariff

Purchasing price of convent. plectr.

Plus costs for wind power

Savings from wind power= lower profits of conventional generators

72

volume

price

72

Demand

18

Wind power

4price conventional gen.

Savings of suppliers= lost profits for conven-tional generators Cost of

wind power

Savings due to wind power

73

Result: Conventional generators do not like

wind generators

73

Main references• Jacobsson and Lauber (2006) on Germany: The politics and policy

of energy system transformation, Energy Policy 34:3, 256-276• Lauber and Jacobsson (2015) on Germany: The politics and

economics of constructing, contesting and restricting socio-political space for renewables, Environmental Innovation and Societal Transitions, in press.

• Lauber and Schenner (2011) on EU: The struggle over support schemes for renewable electricity in the EU, Environmental Politics 20:4, 508-527.

• Lauber (2012) on UK-Germany comparison: Wind Power Policy in Germany and the UK, in Szarka et al., Learning from Wind Power, Basingstoke: Palgrave Macmillan.

21.04.23Volkmar Lauber/Canada

74

Different transition paths to low carbon power: Germany, UK, EU [email protected] University of Salzburg, Austria Carleton University, 1-2 October.

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