Energy transition on track or in troubled waters: Insights ... · 1.000 1950* 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 TWh Other renewables Biomass Solar Wind Hydro Other

Energy transition on track or in troubled waters: Insights from recent trends and experiences in Germany and elsewhere

Kyoto University

Dr. Felix Chr. MatthesKyoto, 30th September 2016

• German population 81 million• German GDP in 3,026 bn € (3,359 bn US$) in 2015

- Highly industrialized (26% of GDP from industry)

• Strong manufacturing industry

• Strong primary industries (2015: Crude steel production 43 mln t, Primary aluminum production 531,000 t)

- Strong net exporter (net trade surplus in 2015: ~ 248 bn €)

• Primary energy (2015): Oil 34%, natural gas (21%), hard coal (13%), lignite (12%), renewables (12,5%) , nuclear (7,5%)

• Power generation (2015): lignite (24%), renewables (31%), hard coal (18%), nuclear (14%), natural gas (9%), others (4%)

• Strong federal structures (significant impact of states on energy legislation), strong municipalities (~900 municipal utilities)

• Member of the European Union (internal market, increasing integration of energy and climate policies)

Transforming the energy systemEconomic background

• Primary drivers- contribution to avoid dangerous climate change

- minimize overall vulnerability of the country (e.g. nuclear risks, energy security)

- modernize the country with cutting-edge technology to strengthen the economic basis of the country

• There are however other dimensions- major investment needs exist anyway

- increasingly volatile global fuel markets

- major technological innovation and cost decrease is underway (solar PV, offshore wind, storage, ICT)

- major cost increases for conventional technologies

- deep crisis of coal industry (high fixed costs and uncertain future)

- major uncertainties on the macroeconomic and international policy environment

Transforming the energy systemThere are many drivers

• Liberalised energy markets (since 1996) - utilities are increasingly vulnerable to switching customers

- unbundled electricity and gas network operations (legal/ownership)

- central trading platforms (electricity exchange) provide price transparency

- broad market transparency on generation, networks

• A strong tradition of decentral/cooperative economic activities (since the early 20th century) - strong decentral/cooperative sector (businesses, financial sector etc.)

- robust legal and institutional framework for the decentral/cooperative sector

Transforming the energy systemNot to forget the broader framework

• Highly controversial Energy Concept 2010 (September 2010)- Lifetime extension of nuclear plants (by 8 to 12 years)

- Ambitious climate and energy policy targets

- Some additional policies (Energy & Climate Fund!), significant gaps in respective policies

• Revision of the 2010 decisions (Spring/Summer 2011)- Reversion of NPP lifetime extension, acceleration of phase-out

- Confirmation of targets

- Additional policies (efficiency, CHP, renewables, infrastructure, regulation)

- Result: continuation of (well-discussed and well-prepared) strategies, now with a clear long-term focus

• Comparable debates within the EU (apart from nuclear): Low-carbon Economy Roadmap 2050, Energy Roadmap 2050)

The ‘Double U-turn’ of German PolicyIt was not only about nuclear!

The German case study‘Energiewende’ as a comprehensive strategy

Gross final consump-

tion

Power generation

Primary energy

Space heating

Final Energy

Power consump-

tion2011 -41%2015 -47%2917 -54%2019 -60%2020 -40% 18% 35% -20% -20% -10% -10%2021 -80%2022 -100%2030 -55% 30% 50%2040 -70% 45% 65%

2050 -80 to -95% 60% 80% -50% -80% -40% -25%

Base year 1990 2008 2008 2005 2008 2010

GHG emissions

Renewable Energies Energy efficiency Nuclear power

BReg 2010+2011

The historical contextElectricity generation & electricity policy

Kohlenstatistik, Matthes (1999, 2015)

0

100

200

300

400

500

600

700

800

900

1.000

1950* 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050

TWh

Other renewables

Biomass

Solar

Wind

Hydro

Other fossil

Natural gas

Hard coal

Lignite

Nuclear

* 1950-1954: Western

Germany only

Take-off &

breakthrough

Stabilized

growthRenewables Policy Main source of

electricity

Mandatory use

of domestic coal

Shift to imported hard

coal & hard coal decline

Decline & phase-out

of hard coal and ligniteCoal Policy

Break-

throughStagnation Phase-outNuclear Policy

The historical contextLong history of CO2 emissions & ambitious goals

CDIAC, UBA, Öko-Institut

0

200

400

600

800

1,000

1,200

1,400

1800 1825 1850 1875 1900 1925 1950 1975 2000 2025 2050 2075 2100

mln

t C

O2

CO2 from other fuels CO2 from gaseous fuels CO2 from liquid fuels CO2 from solid fuels

World War I

Great Depression

German unification

World War II

Industrialization

Post-war recovery

Decarbonizationtargets

Financial crisis

Data include theGerman DemocraticRepublic (GDR) for1948-1990

The EU ETS: Robust long-term commitmentLong-term caps and/or other long-term mechanisms

Öko-Institut 2014

0

1.000

2.000

3.000

4.000

5.000

6.000

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

mln

t C

O2e

Aviation (national & international) Non-ETS sectors EU ETS (proxy data from 1990 to 2004)

2020 Goal-20...-30%compared to 1990

2030 Goal-40...-55%

2050 Goal-80...-95%

Back-loading

2013/2020

Linear Reduction Factor1.74%2.20% (2021-)

EU ETScap

2050: -75%

The bigger picture on the future electricity systemThe market and regulatory environment

Matthes 2016

New quality of (global) fuel market uncertainties!

New quality of technology development / cost uncertainties!

New quality of regulatory uncertainties?

Liberalisation/ Restructuring

DeepDecarbonisation

New technologies

with neweconomic

characteristicsEnergy

efficiencyimplications

DecentralisationDigitalisation

The competitiveenvironment

is there to stayFree

customer’s choice

Unbundling

New technologies

Strongcoordination

needsNew

playersNew

economicappraisals

Infrastructuredependency

Stronger and partly

new roles fortransmission

anddistribution

gridsUnsettled

roleof storage

Sectorintegration

New energy

demandsFlexibilityoptions

fromsector

integration

The changing costs of new supply systemsStorage costs as (additional) game changer?!

0,1

1

10

100

1 10 100 1.000 10.000 100.000 1.000.000

USD

(201

4) p

er M

W /

MW

h

MW / MWh (cumulative)

Crystalline Si PV Module

Li-ion EV Battery Pack

BNEF, Öko-Institut

Energy transition in GermanyExpansion of power generation from renewables

BMU. BMWi, Öko-Institut 2014

0%

20%

40%

60%

80%

100%

0

100

200

300

400

500

600

700

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

TWh

Geothermal

Landfill gas

Waste (biogenic)

Biomass

Photovoltaics

Wind - offshore

Wind - onshore

Hydro

Historicaldata

National goals

Legal EUcommittment

Minimum expansionEnergy Concept 2010/2011

Expansion corridor EEG 2014

Expansion corridor forpower generation from RES

to 80-100% in 2050

Germany: Historical & projected roll-out of power generation from RES

Structural change in power generation structuresHistorical patterns (average week, stylized)

Matthes 2016

0

10

20

30

40

50

60

70

80

Mon Tue Wed Thu Fri Sat Sun

GW

Peak

Medium

Base

Load

Average week

Structural change in power generation structuresHistorical data 2015 (average week)

Matthes 2016

0

10

20

30

40

50

60

70

80

Mon Tue Wed Thu Fri Sat Sun

GW

Solar

Wind

Residual

Load

Average week 2015

Structural change in power generation structuresIllustrative projection 2025 (average week)

Matthes 2016

0

10

20

30

40

50

60

70

80

Mon Tue Wed Thu Fri Sat Sun

GW

Solar

Wind

Residual

Load

Average week 2025

Structural change in power generation structuresIllustrative projection 2035 (average week)

Matthes 2016

0

10

20

30

40

50

60

70

80

Mon Tue Wed Thu Fri Sat Sun

GW

Solar

Wind

Residual

Load

Average week 2035

Structural change in power generation structuresIllustrative projection 2045 (average week)

Matthes 2016

0

10

20

30

40

50

60

70

80

Mon Tue Wed Thu Fri Sat Sun

GW

Solar

Wind

Residual

Load

Average week 2045

Structural change in power generation structuresHistorical patterns (windy & sunny week, stylized)

Matthes 2016

0

10

20

30

40

50

60

70

80

GW

Peak

Medium

Base

Load

Week No. 16

Structural change in power generation structuresHistorical data 2015 (windy & sunny week)

Matthes 2016

0

10

20

30

40

50

60

70

80

Mon Tue Wed Thu Fri Sat Sun

GW

Solar

Wind

Residual

Load

Week No. 16 2015

Structural change in power generation structuresIllustrative projection 2025 (windy & sunny week)

Matthes 2016

0

10

20

30

40

50

60

70

80

Mon Tue Wed Thu Fri Sat Sun

GW

Solar

Wind

Residual

Load

Week No. 16 2025

Structural change in power generation structuresIllustrative projection 2035 (windy & sunny week)

Matthes 2016

0

10

20

30

40

50

60

70

80

Mon Tue Wed Thu Fri Sat Sun

GW

Solar

Wind

Residual

Load

Week No. 16 2035

Structural change in power generation structuresIllustrative projection 2045 (windy & sunny week)

Matthes 2016

0

10

20

30

40

50

60

70

80

Mon Tue Wed Thu Fri Sat Sun

GW

Solar

Wind

Residual

Load

Week No. 16 2045

0%

20%

40%

60%

80%

100%

0

50

100

150

200

250

300

350

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

GW

Geothermal

Landfill gas

Waste (biogenic)

Biomass

Photovoltaics

Wind - offshore

Wind - onshore

Hydro

HistoricalData

National targets

Legal EUcommitment

Load range

Expansion corridor forpower generation from RES

to 80-100% in 2050

Maximum effective load coverage of the RES-based

generation fleet

Expansion of German RES generation capacities Phases of the transition towards a new market design

BMU. BMWi, Öko-Institut 2014

The early deployment phase:• minor shares• support schemes• innovation & lead markets• learning

The phase beyond the niche:• significant shares• transition from support

schemes to market design• system & market integration

The new energy system:• a renewables-based system• new market design• storage as a significant

feature of infrastructure

Germany: Historical & projected roll-out of RES generation capacities

What about the costs?Perspective 1: Historical wholesale prices

Matthes 2016

0

20

40

60

80

100

EUR

/ M

Wh

Different wholesale (base) electricity price trends and levels in Europe

What about the costs?Perspective 3: Retail electricity prices (households)

Öko-Institut 2016

0

5

10

15

20

25

30

2003 2005 2007 2009 2011 2013 2015 2017 2019

ct /

kWh

Value added tax (VAT)

Electricity tax

Offshore liability surcharge

Renewables surcharge

Demand response surcharge

Cogeneration surcharge

Industrial network access fee privilege ( §19) surcharge Concession fee

Sales & profits

Network access fees

Wholesale market price (previous year future)

What about the costs?Perspective 2: Financing actual RES investments

Öko-Institut 2016

5.8 5.4 5.8 5.34.2

3.6 3.12.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5

2.23.8

3.75.4

6.46.3

6.47.0 7.4 7.5 7.7 7.7 7.7 7.6 7.4 7.2 6.8 6.7 6.4 6.4 6.0 5.4 4.9 4.5 4.5 4.5

8.0

9.29.5

10.7 10.6

9.99.5 9.5

9.9 10.0 10.2 10.2 10.2 10.19.9 9.7

9.3 9.2 8.9 8.98.5

7.97.4

7.0 7.0 7.0

0.0

2.5

5.0

7.5

10.0

12.5

15.0

2010 2015 2020 2025 2030 2035

ct/k

Wh

(201

6)

RESA surcharge

Wholesale electricity price

Insights from the EU Energy Roadmap 2050Primary energy supply for different trajectories

0

200

400

600

800

1.000

1.200

1.400

1.600

1.800

2.000

2005 2030 2050 2030 2050 2030 2050 2030 2050 2030 2050 2030 2050 2030 2050

Base Reference CPI HighEfficiency

HighRES

HighNuclear

HighCCS

DiversifiedOptions

Mtoe

Renewable energies Electricity Nuclear Natural gas Oil Solids

European Commission, E3MLab 2011

Stat

us Q

uo

Busi

ness

as

usua

l (n

o am

bitio

us c

limat

e po

licy)

Decarbonisation

Focu

s: E

nerg

y Ef

ficie

ncy

Focu

s: N

ucle

ar

(sus

tain

able

???)

Focu

s: R

enew

able

s

Focu

s: C

CS(s

usta

inab

le??

?)

Dive

rsifi

ed o

ptio

ns

Status Quo

Power generation for different trajectoriesRenewables dominate for each trajectory

0

1.000

2.000

3.000

4.000

5.000

6.000

2005 2030 2050 2030 2050 2030 2050 2030 2050 2030 2050 2030 2050 2030 2050

Base Reference CPI High

Efficiency

High

RES

High

Nuclear

High

CCS

Diversified

Options

TWh

Others Renewable energies Nuclear Natural gas Oil Solids CCS

European Commission, E3MLab 2011

Insights from the EU Energy Roadmap 2050The longer-term system cost trends

European Commission, E3MLab 2011, Matthes 2012

0

20

40

60

80

100

120

140

160

180

200

2005 2030 2050 2030 2050 2030 2050 2030 2050 2030 2050 2030 2050 2030 2050

Base Reference CPI High

Efficiency

High

RES

High

Nuclear

High

CCS

Diversified

Options

€/ M

Wh

Network & sales costs Energy taxes and CO2 costs Variable & fuel costs Fixed & capital costs

1. higher system costs 2. (very) comparable system costs 3. capital-intensive4. medium-term challenge: storage costs

≈

Reminder: From today‘s perspective

(extremely) optimistic assumptionsfor nuclear,

rather pessimistic for renewables,

probably realistic for CCS,future storage costs

widely unknown

A long-term thought experiment on GermanyEmbarking on different tracks

Öko-Institut (2016)

0

50

100

150

200

250

300

350

400

w/obattery storage

withbattery storage

Fossilstandard mix

Naturalgas-basedpower system

95% Renewable energy sources Conventional new-built system

GW

Other renewables

Photovoltaics

Offshore wind

Onshore wind

Batteries

Pumped-water

Other fossil

Natural gas OGT

Natural gas CCGT

Hard coal

Lignite

Hydro

PtG capacity

A thought experiment on GermanyGoing renewables is the more robust way

Öko-Institut (2016)

-100%

-75%

-50%

-25%

0%

0

25

50

75

100

0/36 27/26 20 50 103 20 50 103 20 50 103 20 50 103

GW EUR/t CO2 EUR/t CO2 EUR/t CO2 EUR/t CO2

Battery/PtG Fuel prices low Fuel prices high Fuel prices low Fuel prices high

Renewables(wind/solar)

Fossil mix (mainly coal-based) Natural gas-based

CO

2 em

issi

ons

vs 1

990

Syst

em c

osts

EU

R b

n

Grid infrastrcuture Operational costs Capital costs CO2 emissions (→)

• The traditional German power system- Running a (centralized) system based on 500 large generation units

• The emerging new power System in Germany (as of summer 2015)- approx. 1.5 million PV installations

- approx. 30,000 wind power installations

- approx. 10,000 biomass power plants

- approx. 30,000 small- and medium-scale cogeneration plants

- approx. 700 conventional power generation units

• The need for a new market design- for phase 1 of roll-out of renewables (0…25% market share)

investment certainty and broad economic participation are priority #1

- for phase 2 a new balance needs to be found between priorities from phase 1 and the increasing need for coordination and an appropriate sharing of risks

Beyond the economics of the systemNew structure of players … and assets

Expansion of power generation from renewablesNew structure of players & the need for coordination

Individuals35%

Project developers 14%

Major four utilities5%

Other utilities7%

Fonds / Banks13%

Industry14%

Farmers 11% Others 1%

Total Capacity72,900 MW

(2012)

The geographic dimension of Energiewende The old geography

Low load / medium conventional region NorthLow loadMedium nuclear capacitiesLow conventional capacities

High load / high coal region WestHigh loadHigh coal capacitiesHigh CHP capacities

Low load / high coal region EastLow loadHigh coal capacitiesHigh CHP capacities

Medium load / storageregion CenterMedium-/ high-loadHigh pump-storage capacities

High load / high nuclear region SouthHigh loadHigh nuclear capacities

The geographic dimension of Energiewende The new geography

High wind region NorthLow loadHigh onshore/offshore wind

High load /medium RES region WestHigh loadMedium RESHigh CHPCoal phase-out

Low load / high wind Region EastLow loadHigh windHigh CHPCoal phase-out

Medium load / infra-structure & storage Region CenterMedium/high loadMedium RESHigh pump storage capacitiesLarge electricity transits

High load / high PV /high storage region SouthHigh LoadHigh PVAccess to storage capacities abroad

New DC corridors

SuedOstLink

SuedLink

Ultranet

The future is unknown and uncertain …… but we may be able to describe it structurally

• From an overall perspective on all challenges and (foreseeable) trends some structural features of the future energy system will probably be robust ones- Significantly more energy efficient but not necessarily less consuming

- Mid-term low CO2 and longer-term zero CO2

- Much more diverse (technology options, centralized / distributed / decentralized, economic perspectives and appraisals etc.)

- Much more (but not exclusively) distributed and decentralized

- Much more coordination-intensive

- Much more capital-intensive

- Much more infrastructure-intensive (and subject to much more regulatory efforts?!)

- Much more sensitive to public acceptance

- Not significantly more expansive (than the counterfactual)

• Transition will be step-wise and priorities will differ in different steps / phases. Without reflection on these long-lasting and robust structural features one might end on a dead track

Energy transitionWhat do we know and what are the challenges?

• Energy transition: a policy-driven structural change of the energy system

• The target system is technically feasible and affordable- manifold options at the supply & flexibility side exist already or are in

the pipeline

- costs of the target system do not differ significantly from the counter-factual, transition costs and distributional effects are however significant)

• The real challenges arise from structural changes that needs to be reflected carefully for the design of the transition process a - structurally changing technology patterns

- structurally changing economics (a zero marginal costs system)

- structurally changing players / market participants

- structurally changing spatial patterns

Effective, innovative & efficient strategiesThe Four-Pillars Approach

• Paving the Way – for clean generation and flexibility options (renewables & complementary flexibility) J

- innovation, level-playing-field & roll-out

- sustainable economic basis (coordination & enabling investments)

• Designing the Exit-Game – for the non-sustainable capital stocks- security of supply, flexibility, emission levels and fixed costs

- output management (ETS etc.) vs. capacity management

- nuclear power (J) and high-carbon assets (L )

• The infrastructural dimension: Triggering adjustments in time L

- integration of centralized and distributed and storage and demand flexibility options

- reflection of the new geography of the energy system

• The innovation side: Making innovation work in time J

- for energy efficiency, generation, flexibility, storage and integration

Thank you very much

Dr. Felix Chr. Matthes Energy & Climate DivisionBerlin OfficeSchicklerstraße 5-7D-10179 [email protected] www.oeko.detwitter.com/FelixMatthes