SESSION 4: Renewable producers participating in the electricity market

SESSION 4: Renewable producers participating in the electricity

market

María-Luisa HuidobroPresident

2008 APEX ConferenceSydney, October 14th, 2008

INDEX

1. European Union electricity targets from renewable sources.

2. Relevant market data.

3. Spanish regulation on power production from renewable sources according to Royal Decrees 661/2007 and 1578/2008.

4. Wind power participating in the day ahead and intra-day market.

5. Conclusions.

1. European Union electricity targets from renewable sources.

PROPOSAL FOR A DIRECTIVE ON THE PROMOTION OF THE USE OF ENERGY FROM RENEWABLE SOURCES

Increase interconnection among countries. The biofuels and other bioliquids, will not encourage the destruction of bio-

diverse lands. Measures that constitute State aid in the sense of Article 87 of the Treaty have to

be notified to and approved by the Commission before their implementation. This Directive establishes:

A common framework for the promotion of energy from renewable sources. Sets mandatory targets for the overall share of energy from renewable sources in

energy consumption Sets the share of energy from renewable sources in transport.

Lays down rules relating to: guarantees of origin, administrative procedures and TPA.

Establishes environmental sustainability criteria for biofuels and bioliquids. “Guarantee of origin” means an electronic document which has the function of

providing proof that a given quantity of energy was produced from renewable sources.

“Support scheme” means a scheme, originating from a market intervention by a Member State that helps energy from renewable sources to find a market by reducing the cost of production of this energy. Includes:

Green certificates. Investment aid. Tax exemptions, reductions or refunds. Renewable energy obligation support schemes. Direct price support schemes: feed-in tariffs & premium payments.

PROPOSAL FOR A DIRECTIVE ON THE PROMOTION OF THE USE OF ENERGY FROM RENEWABLE SOURCES

The Directive lays down the principles according to which Member States need to ensure that the share of renewable energy in the EU final energy consumption reaches at least 20% by 2020, and establishes national overall targets for each Member State.

3 sectors are concerned: electricity, heating and cooling and transport.

The overall approach is for Member States to retain discretion as to the mix of these sectors in reaching their national target. However, it is proposed that each Member State shall achieve at least a 10% share of renewable energy in the transport sector by 2020.

MANDATORY TARGETS FOR THE SHARE OF ENERGY FROM RENEWABLE SOURCES IN FINAL CONSUMPTION OF

ENERGY IN 2020

S20xx = K x (S2020 – S2005)

where: K = 0.25 for the two-year period 2011 to 2012

K = 0.35 for the two-year period 2013 to 2014

K = 0.45 for the two-year period 2015 to 2016

K = 0.65 for the two-year period 2017 to 2018

S2020 = The share for the MS in 2020

S2005 = The share for the MS in 2005

TOTAL INSTALLED WIND POWER

Source: World Wind Energy Association

Worldwide Capacity at 93,8 GW – 19,7 GW added in 2007. Wind energy is used in more than 70 countries – USA, Spain and China take the worldwide lead.

ALLOCATION BY COUNTRIES. INSTALLED WIND POWER IN 2007 (MW)

Source: World Wind Energy Association

WIND ENERGY WORLDWIDEAVERAGE ANNUAL GROWTH RATES (%)

Source: World Wind Energy Association

2. Relevant market data.

RENEWABLES IN THE SPANISH MARKET

Very significant grow in the last 5 years of the installed wind capacity.

Most of the wind producers are selling their electricity production in the daily market and they also bid in the intraday market.

Photovoltaic energy: At present, installed capacity is more than 1,000 MW.

Projections:

3,000 MW in 2010

10,000 MW in 2020

0

5.000

10.000

15.000

20.000

25.000

Solar 17 33 111 467 1.000 3.000

Biomass 486 529 569 593 2.039

Small hydro 1.601 1.717 1.740 1.913 2.199

Wind pow er 8.462 9.910 11.470 13.909 15.527 20.155

2004 2005 2006 2007 2008 2009 2010

INSTALLED POWER FROM RENEWABLE SOURCES IN SPAIN AND FORECAST UNTIL 2010 (MW)

Source: REE, PER 2005-2010 & Government preview

INSTALLED POWER BY TECHNOLOGIESON DECEMBER 2007

Source: REE

20,14

9,32

14,43

10,92

19,84

14,03

11,32

Hydro Nuclear Coal

Fuel/gas Combined cycle Wind power

Other renewables

Total installed capacity: 85.7 GW

Wind power production reached 9.5% in 2007 of the demand coverage. In 2008 a 12% is expected to be reached.

ENERGY PRODUCED BY TECHNOLOGIESIN 2007 (%)

Source: REE and AEE

Total production: 261,273 GWh

Biomass; 3,76

Solar; 0,68

Small hydro 12,64

Wind power; 82,92

INSTALLED POWER FROM RENEWABLE SOURCES IN 2007 (%)

Source: REE

Total installed capacity: 24.2 GW

Small hydro; 13,68

Biomass; 6,99

Solar; 0,34

Wind power; 78,99

ENERGY PRODUCED IN THE SPECIAL REGIME IN 2007 (%)

Source: REE

Total production: 56,302 GWh

3. Spanish regulation on power production from renewable sources according to Royal Decrees 661/2007 and 1578/2008.

Cogeneration and waste energy.

Renewable energy:• Group b.2 Wind power.

• Group b.2.1 Windmills onshore.• Group b.2.2 Windmills offshore.

Waste energy with energy value.

Installed power per unit must be < 50 MW.

KINDS OF FACILITIES

Installation licence corresponds to regional authorities.

Nevertheless, this competence is of the State Government when:• The installed power is > 50 MW.• Its location affects more than one Region.• It is located offshore.

Regulated price corresponds to the State Government:• Fix price applied to wind energy.• Premium over the market price:

Wind power onshore: Fixed by the Government.Wind power offshore: Established by auction.

ADMINISTRATIVE COMPETENCES

ACCESSING THE NETWORKS

Priority for accessing the transmission and distribution network:• If producer bids to the market then in the

same conditions that all producers.

• Mandatory guarantee to be applied when accessing the transmission and distribution network:• 20 €/kW for wind power facilities.• 500 €/kW for solar power facilities.

Once the wind power facility starts up, the guarantee is cancelled.

Adscription to a generation control centre, as a dispatch centre connected to the system operator:

• Producer.

• Special dispatch in the system operator.

All the facilities with capacity > 10 MW should be connected to a control centre or establish by itself a control centre.

• Information will be transmitted to the system operator and instructions to control centre will be executed in real time.

• This obligation will be a necessary condition for the perception of the tariff or the premium.

REQUIREMENTS APPLIED TO WIND POWER FACILITIES (I)

The wind facilities will have to fulfil certain response requirements when a voltage dip.

• This requirement will be a necessary condition for the perception of the tariff or the premium:

A transitory period is established until the 1st of January of 2010 without penalty, for the existing facilities before the Royal Decree is in force.

A transitory period is established for the facilities previous to 1 of January of 2008, during a maximum term of 5 years, for maintaining the continuity of supply, receiving a complementary income of 0.38 c€/kWh (around 20%).

REQUIREMENTS APPLIED TO WIND POWER FACILITIES (II)

SELLING THE WIND ENERGY

The wind energy producer has two options: To sell the wind energy at a fix regulated tariff

equal for all the hours (option a).

To bid in the organized market, through the system of auctions managed by the market operator, to establish a bilateral contract, or a forward contract (option b).

OPTION A: TO SELL AT A REGULATED TARIFF

The wind power producer communicates the day ahead schedule to the distributor:

The auction system managed by the market operator considers this schedule as a bid at null price.

The schedule can be communicated directly or through a representative.

Producers can send bids also to the intra-day market

The wind power producer is paid by:

The market operator for the amount that corresponds to daily and intra-day market.

The system operator by the amount that corresponds to the ancillary services and deviations.

The Energy Regulatory Commission for the rest of the fix price of the tariff. This part of the retribution is paid until 2009 by the distributors.

OPTION B: TO SELL IN THE MARKET (I)

The wind power producer send the bids for the day ahead market to the market operator: The bid can be sent directly or through a representative.

Producers can also send bids to the intra-day market.

The price is paid to the wind power producer by: The market operator for the amount that corresponds to daily and intra-

day market.

The system operator by the amount that corresponds to the ancillary services and the deviations.

The Energy Regulatory Commission for the premium. This part of the retribution is paid until 2009 by the distributors.

Alternatively the power producer can sign a bilateral contract or operate through the forwards market.

OPTION B: TO SELL IN THE MARKET (II)

Negotiated price+

Premium+

Reactive energy complement-

Deviations+

Complement to help voltage dip problems(applicable to wind facilities previous to 1/1/2008 and

maximum 31/12/2013, that support voltage dip)

REQUIREMENTS THAT THE WIND PRODUCERS SHOULD COMPLY

In case the entity accessing the market on behalf of the wind producer is not a market agent, then the wind producer should be a market agent.

The entity accessing the market on behalf of the wind producer can send several bids for the set of facilities of the wind producer.

The dominant operators will only be able to act as representatives of their own facilities when their participation is greater than 50%.

The non dominant operators, will be able to act as representatives, until they reach a maximum of 5% of all the suppliers.

REGULATED TARIFF AND PREMIUM

Group TermRegulated

tariff c€/kWh

Reference premium c€/kWh

Upper limit

c€/kWh

Lower limit

c€/kWh

Onshore wind

facilities

First 20 years 7.3228 2.9291 8.4944 7.1275

After 20 years 6.1200 0.0000

Offshore wind

facilities

The maximum and minimum reference premium

16.4000 8.4300

LOWER AND UPPER PRICE LIMITS TO BE PERCEIVED BY WIND FACILITIES

Market price

Price to receiveUpper limit = 8.7790

Lower limit = 7.3663Premium = 3.0272

If the price of the market plus the premium is below the lower limit, this limit will be received

THE REGULATED TARIFF AND THE PREMIUMSFOR WIND POWER FACILITIES (I)

Parameters for establishing:

• Regulated tariff option: IRR of 7%

• Market option:

Lower and upper limits IRR of 7%, with a minimum of 5% and a maximum of 9% are the limits of the band.

Updates:

• Renewable: annual based on the RPI – 0.25 up to 31/12/2012 and from then RPI – 0.50.

Revisions. Every 4-years period:

• Costs associated to each of the technologies.

• Degree of participation from renewable sources in the demand coverage.

• Incidence in the technical and economic management of the system.

THE REGULATED TARIFF AND THE PREMIUMSFOR WIND POWER FACILITIES (II)

RETRIBUTION OF PHOTOVOLTAIC ENERGY (I)

The present regulated tariffs fix the following values: Royal Decree 661/2007 and ITC 3860/2007

Installed Capacity ≤ 100 kW: 455.134 €/MWh Installed Capacity > 100 kW and ≤ 10 MW: 431.486

c€/MWh Installed Capacity > 10 MW : 237.461 €/MWh

Royal Decree 1578/2008, first quarter call in January 2009:

On the building roof or in the wall, installed capacity ≤ 20 kW: 340 €/MWh

On the building roof or in the wall, installed capacity > 20kW: 320 €/MWh

Based on ground: 320 €/MWh

RETRIBUTION OF PHOTOVOLTAIC ENERGY (II)

The regulated tariff Evolution of the regulated tariff in each quarter call depends on the

capacity grow of the previous quarter: If call was fully covered then regulated tariff diminish with the following

formula: 100 * (1 – 0.91/4) = 2.6% If call covered more than 75% and less than full, new tariff will be

obtained multiplying previous tariff value by the following factor:

[(1 – 0.91/4) * (P0 – P) / (0.25 * P0] + 0,91/4

Being: P0 the power quota of the previous call and

P the assigned power in the previous call. If previous call covered ≤ 75% then regulated tariff remains invariable. If during two consecutive calls, power contracted cover was < 50%,

then regulated tariff increases by 100 * (1 – 0.91/4) = 2.6% Updating yearly regulated tariff from the second January 1st after

the date of the corresponding call: Regulated tariff increases in RPI – 0.25 until 2012. Regulated tariff increases in RPI – 0.5 after 2012.

The market price

ROYAL DECREE 1028/2007WIND FACILITIES OFFSHORE

The construction or extension of the electrical systems for wind generation offshore requires:

The production licence given by the Ministry of Industry regulated in the Royal Decree 1955/2000.

The licence to set the installation on the sea as public dominion by the Ministry of Environment (Law 22/1988, of 28 of July, relative to coasts).

The auction result licence that grants the applicant the zone reserve, regulated in the Royal Decree 1028/2007.

4. Wind power participating in the day ahead and intra-day market.

Current(MW)

In the market(%)

CCGT 21,439 100.0

Cogeneration 6,497 37.3

Windmills 15,527 92.0

Installed capacity in CCGT,cogeneration and windmills

INSTALLED CAPACITY IN CCGT,COGENERATION AND WINDMILLS

Source: OMEL. Sept. ‘08

10%

12%

21%

2%8%

18%

28%

1%

DAILY ENERGY BY PRODUCTION TECHNOLOGIES

WIND ENERGY OTHER RENEWABLE NUCLEARIMPORT HYDRO COALCOMBINED CYCLE FUEL-GAS

SEPTEMBER 99 – AUGUST 00 SEPTEMBER 07 – AUGUST 08

0

100

200

300

400

500

600

700

800

900

1000

1100

01/0

8/08

03/0

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20/0

9/08

ENER

GÍA

S (G

Wh)

8%

12%

21%

2%6%14%

35%

2%

DAILY ENERGY BY PRODUCTION TECHNOLOGIES1 Aug 08 - 21 Sep 08

WIND ENERGY OTHER RENEWABLE NUCLEARIMPORT HYDRO COALCOMBINED CYCLE FUEL-GAS

TYPICAL BID OF A WIND POWER PRODUCER

Bid at 0 €/MWh to be matched.

Bid at a price different from 0 €/MWh with risk of none being matched

Power producers in the Spanish power production market: On September, 671 power producers are participating in the daily

and intraday markets.

Number of wind power producer facility owners that are selling directly in the daily market: 46

Number of wind power producer facility owners that are selling in the daily market through units managed by other kind of agents (representative or seller agent): 563

Number of power producer agents without wind power facilities: 62

NUMBER OF MARKET PARTICIPANTS

0

2

4

6

8

10

12

14

16

18

20

22

24

26

28

30

01/0

1/0

4

01/0

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7/0

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9/0

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01/1

1/0

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01/0

1/0

5

01/0

3/0

5

01/0

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5

01/0

7/0

5

01/0

9/0

5

01/1

1/0

5

01/0

1/0

6

01/0

3/0

6

01/0

5/0

6

01/0

7/0

6

01/0

9/0

6

01/1

1/0

6

01/0

1/0

7

01/0

3/0

7

01/0

5/0

7

01/0

7/0

7

01/0

9/0

7

Date

0

100.000

200.000

300.000

400.000

500.000

600.000

700.000

800.000

900.000

1.000.000

1.100.000

1.200.000

1.300.000

1.400.000

1.500.000

Maximum hourly price

Average price

Minimum hourly price

Energy executed + Assimilated to bilateral contracts + Energy in matching result schedule

Energy assimilated to bilateral contracts + Energy in matching result schedule

Energy in matching result schedule

0

2

4

6

8

10

12

14

16

18

20

22

24

01/1

0/05

01/1

1/05

01/1

2/05

01/0

1/06

01/0

2/06

01/0

3/06

01/0

4/06

01/0

5/06

01/0

6/06

01/0

7/06

01/0

8/06

01/0

9/06

01/1

0/06

01/1

1/06

01/1

2/06

01/0

1/07

01/0

2/07

01/0

3/07

01/0

4/07

01/0

5/07

01/0

6/07

01/0

7/07

01/0

8/07

01/0

9/07

01/1

0/07

01/1

1/07

01/1

2/07

01/0

1/08

01/0

2/08

01/0

3/08

01/0

4/08

01/0

5/08

01/0

6/08

01/0

7/08

01/0

8/08

01/0

9/08

0

100.000

200.000

300.000

400.000

500.000

600.000

700.000

800.000

900.000

1.000.000

1.100.000

1.200.000

Precio medio aritmético de la energía en el mercado diario de electricidad Periodo Precio 01/10/2005 21/09/2008 5,087 cEur/kWh

PRICES AND ENERGY IN THE DAILY MARKET1st October 2005 – 21st September 2008

MWhc€/kWh

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Maximum hourly price Average price Minimum hourly price

0

2

4

6

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01/0

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1.000.000

Precio medio aritmético de la energía en el mercado diario de electricidad Periodo Precio España Precio Portugal 01/08/2008 21/09/2008 7,172 cEur/kWh 7,398 cEur/kWh

c€/kWh

PRICES IN THE SPANISH SYSTEM IN THE DAILY MARKET1st August 2008 – 21st September 2008

MWh

THE WIND ENERGY PRICE IN 2007

This participation of the wind energy in the electric market diminishes the price of the electricity due to:

The incorporation of the wind energy moves the market supply curve causing a lower price.

In addition, the wind production is greater in periods of low/medium prices, because the local winds take place in the periods of diurnal transition that in many cases does not correspond with the highest demand.

Wind price in the daily market: 37.96 €/MWh, is lower 3.53% to the arithmetic average price of the daily market (39.35 €/MWh)

Wind Price in regulated tariff: 72.73 €/MWh

AVERAGE PRICE OF WIND ENERGY INTHE DAILY MARKET (2005 – 21 Sep 2008)

Source: OMEL

Year €/MWh

2005 53.9

2006 48.38

2007 37.96

2008 62.22

-1.000

0

1.000

2.000

3.000

4.000

5.000

6.000

7.000

8.000

0,0 0,5 1,0 1,5 2,0 2,5 3,0 3,5 4,0 4,5 5,0 5,5 6,0 6,5 7,0 7,5 8,0 8,5 9,0 9,5 10,0 10,5 11,0 11,5 12,0 12,5 13,0 13,5 14,0

Precio marginal (c€/kWh)

En

erg

ía c

asad

a (M

Wh

)

Source: OMEL

WIND ENERGY MATCHED IN THE DAILY MARKET AND MARGINAL PRICE IN 2007

0

1.000

2.000

3.000

4.000

5.000

6.000

0,0 0,5 1,0 1,5 2,0 2,5 3,0 3,5 4,0 4,5 5,0 5,5 6,0 6,5 7,0 7,5 8,0 8,5 9,0 9,5 10,0 10,5 11,0

Precio marginal (c€/kWh)

En

erg

ía c

asad

a (M

Wh

)

Source: OMEL

WIND ENERGY MATCHED IN THE DAILY MARKET AND MARGINAL PRICE IN 2008

MARKET ENERGY OF POWER UNITS FROM RENEWABLE SOURCES (2006-Sept 08)

-1.0000

1.0002.0003.0004.0005.0006.0007.0008.0009.000

10.00011.00012.00013.00014.00015.00016.00017.00018.00019.00020.00021.00022.00023.00024.00025.000

01

/01

/06

29

/01

/06

27

/02

/06

28

/03

/06

26

/04

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25

/05

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23

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18

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/12

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31

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26

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/12

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/06

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12

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10

/09

/08

EN

ER

GÍA

(M

Wh

)

-1.00001.0002.0003.0004.0005.0006.0007.0008.0009.00010.00011.00012.00013.00014.00015.00016.00017.00018.00019.00020.00021.00022.00023.00024.00025.000

PO

TE

NC

IA (

MW

)

Mercado diario (con restricciones) Mercado intradiario Potencia instalada

PARTICIPACIÓN EN EL MERCADO DE INSTALACIONES DE RÉGIMEN ESPECIAL

WIND PRODUCERS ACTING IN THE INTRA-DAY MARKET

The wind producers are very active in the intra-day market:

As weather forecast is close to real time, the producers modify schedules to more accurate figures.

To solve the power production unavailability.

THE FORWARD CONTRACTS AND THE DAILY MARKET

The participation of the wind power producers in the daily market serves to them as a base to be able to take part in the CESUR (last resort supply), VPP auctions and the forward organized market, buying or selling the necessary amounts of energy to fulfil their compromises.

INCORPORATING OFFERS INTO DAILY MARKET

OMEL

Source: REE

DAILY WIND GENERATION (GWh) IN 2007

0

20

40

60

80

100

120

140

160

180

ene-07

feb-07

mar-07

abr-07

may-07

jun-07

jul-07

ago-07

sep-07

oct-07

nov-07

dic-07

Source: REE

On April 18th, 2008, a maximum in wind power production was achieved with an average daily energy of 213,169 MWh and an hourly energy of 10,727 MWh.

DAILY WIND GENERATION (GWh)(January 1st — September 24th, 2008)

10

60

110

160

210

Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08

WIND ENERGY SOLD AT REGULATED TARIFFAND IN THE MARKET (GWh)

0

5.000

10.000

15.000

20.000

25.000

30.000

2004 2005 2006 2007

GW

h

Participating in the market Sold to distributors

5. Conclusions.

WWEA Secretary General Stefan Gsänger 

Rising oil, gas, coal and uranium prices, increasing awareness of the threats of climate change, irresolvable difficulties surrounding nuclear energy, as well as increasing energy demand from emerging and developing countries are only some of the myriad reasons the world is looking into alternative energy solutions. Renewable energies are shifting toward the centre of such deliberations, but in order for them to meet rising demand, they will need to be harvested in a decentralized manner. Moving away from a centralized model will benefit everyone from small communities to sovereign nations. Countries such as Denmark and Germany are already reaping rewards and it's not too far-fetched to think that the United States could share in the success as well.

Source: WWEA

CONCLUSIONS

From 1994 to now, wind energy production have been growing in an uninterrupted way.

The price of the market plus the premium has been attractive enough to build 15,500 MW of installed wind power.

The management of the electric system has changed to integrate many small producers whose production will increase or diminish based on the wind regime.

Most of the wind energy producers have chosen the option of bidding into the market instead of the option of the fix price.

THANK YOU FOR YOUR ATTENTION