Financing priorities in the perspective of the European ... · E R E F European Renewable Energies Federation Outline 1. The European Energy Strategy 2. The current European financing

E R E FEuropean Renewable Energies Federation

Financing priorities in the perspective of Financing priorities in the perspective of

the European Energy Strategy

Dr. Dörte Fouquet

Jana Viktoria Nysten

Local Renewables Freiburg 2012


About EREF

� Federation of associations from EU Member States, working in the sector of energy produced from renewable sources

EREF - Dr. Dörte Fouquet, Jana Viktoria Nysten

Local Renewables Freiburg 2012 2

� Representing more than 50,000 MW of installed power capacity and a growing capacity in other sectors

� Voice of Independent Producers of Energy from Renewables

� Member of EREC (European Renewable Energy Council)


Outline

1. The European Energy Strategy

2. The current European financing framework for smart grids



grids

3. The Status Quo: Does it suffice?

4. The future – A market that finances energy system change?

5. Conclusions


The European Energy Strategy



The European Energy StrategyCompetitive, sustainable and secure energy


The European Energy StrategyCompetitive, sustainable and secure energy

European Energy 2020 Strategy defines the energy priorities for the next 10

years



� Efficient use of energy that translates into 20% energy savings by

2020

� Free movement of energy

� Secure, safe and affordable energy

� Technological shift and dearbonisation of the energy sector

� Strong international partnerships


The European Energy StrategyWhere do smart grids fit in?

Free movement of energy and the need for grid infrastructure

„Smart meters and power grids are the keys to full

exploitation of the potential for renewable energy and



exploitation of the potential for renewable energy and

energy savings as well as improvements in energy

services. A clear policy and common standards on smart

metering and smart grids are needed well before 2020 to

ensure interoperability across the network.“



Secure, safe and affordable energy and energy savings

„The international market for oil supplies could become very tight

before 2020, which means that it is important for EU consumers to step



before 2020, which means that it is important for EU consumers to step

up their efforts to reduce oil demand. This is not happening at the

moment. Consumers need to be made more aware of the necessity to

reduce their consumption of fossil fuels and they need to know how

they can reduce their bills at a time of rising prices. "User-friendly"

smart grids, smart meters and billing can help in this respect. “



The technological shift to decarbonise the energy sector

„Without a technological shift, the EU will fail on its 2050 ambitions to

decarbonise the electricity and transport sectors. Given the time scale for the development and dissemination of energy technology, the



for the development and dissemination of energy technology, the urgency of bringing new high performance low-carbon technologies to the European markets is more acute than ever.”

“The Strategic Energy Technology (SET) Plan sets out a medium term strategy valid across all sectors. Yet development and demonstration projects for the main technologies (second generation biofuels, smart grids, smart cities and intelligent networks, Carbon Capture and Storage, electricity storage and electro-mobility, next generation nuclear, renewable heating and cooling) must be speeded up. “


The European Energy StrategyNo regrets options to system change

Energy Roadmap 2050 sets out three „no regrets options“ as

lessons from all different scenarios



lessons from all different scenarios

� Enhanced energy efficiency (saving) and energy demand

management

� A much higher share of renewable energy in the EU's energy

system

� Better and smarter grids

Holistic Approach to „energy system change“!


The current European financing

framework for smart grids



framework for smart grids


European financing framework for smart grids

Overview

� Financing framework consists of public funds provided by

� EU

� National governments

� Regional and local actors

� In the whole EU, over EUR 5.5 billion have already been invested in



� In the whole EU, over EUR 5.5 billion have already been invested in

about 300 smart grid projects during the last decade

� Some EUR 300 million came from the EU budget – financing

priorities:

� Support to Research & Development

� Support to Deployment

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Some sources of EU funding � A number of financing and funding programmes and instruments are

available at EU level to support activities of RD&D of smart grid projects,

but also direct investments in needed infrastructures

� Smart Grids ERA-Net



� Framework Programmes 5, 6 and 7 (in particular, FP7)

� Competitiveness and Innovation Framework Programme (CIP)

� European Investment Bank (EIB)

� European Energy Programme for Recovery (EEPR)

� Trans-European Energy Networks (TEN-E)

� NER 300

� In addition, money from the European Regional Development Fund can be

spend on energy efficiency, renewables and smart grids

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Sharing information

� Dissemination of information via

� European Technology Platform for Smart Grids

� Established in May 2005 to foster and support the deployment of smart grids

in Europe by advising and coordination stakeholders



in Europe by advising and coordination stakeholders

� European Electricity Grids Initiative (EEGI)

� Industry-driven initiative established in June 2010 under SET Plan to

accelerate deployment of smart grids technologies

� Cooperation and action at regional and local level in form of the

Covenant of Mayors Initiative and SET Plan Initiative Smart Cities

and Communities

13



Future European framework

� Key elements of the future financing framework (2014-2020)

� Horizon 2020

� EUR 80 billion research and innovation funding programme (2014-2020),

bringing together 3 separate programmes (including FP7)

� Support of a single, smart European electricity grid



� Support of a single, smart European electricity grid

� Connecting Europe Facility

� Support for large-scale deployment of smart grid technologies across Europe

� European Regional Development Fund

� 20% to go to renewable energy

� Continued support by other programmes

� E.g. NER 300 – Support for Innovative RES demonstration projects, with

smart grids as “Distributed Renewable Management”

14


National and regional Financing

Different levels of ambition and different approaches

Selected national smart grid demonstration and deployment efforts

Italy In 2011, the Italian regulator awarded 8 tariff-based funded projects on active medium voltage

distribution systems to demonstrate at-scale advanced network management and automation

solutions necessary to integrate distributed generation. The Ministry of Economic Development

granted over EUR 200 million for demonstration of smart grids features and network modernisation



granted over EUR 200 million for demonstration of smart grids features and network modernisation

in Southern Italian regions.

Spain In 2008, Spain mandated distributors to replace existing meters with new smart meters. The utility

Endesa aims to deploy automated meter management to more than 13 million customers on the low

voltage network from 2010 to 2015. The utility Iberdrola will replace 10 million meters.

Germany The E-Energy funding programme has several projects focusing on ICTs for the energy system.

France The electricity distribution operator ERDF is deploying 300 000 smart meters in a pilot project

based on an advanced communication protocol. If the pilot is deemed a success, ERDF will replace

all of ist 35 million meters with smart meters from 2012 to 2016.

United

Kingdom

The energy regulator OFGEM has an initiative that will encourage distributors to develop and

implement innovative solutions to connect distributed generators to the network. OFGEM has set up

a fund that will allow up to GDP 500m support to DSO projects that test new technology, operating

and commercial arrangements.





National and regional financing Different approaches

Loans under favorable conditions

In Germany, for example, loan programs by the KfW offer municipalities investment loans for smart grids and smart metering

Direct grants by national or regional authories



Direct grants by national or regional authories

In Germany, for example, the „Länder“ have their own programs funding up to a certain percentage of the eligible costs (e.g. 50% for industrial application…)

Often financed by from European Regional Development Fund (ERDF)

Partnerships and cooperatives as ownership structure

...

…


The Status Quo:



The Status Quo:

Does it suffice?


Financing framework for smart grids

Does it suffice?� Considerable gap between current und optimal investment in Europe

� Commission Communication on Smart Grids identifies several reasons

� Economic downturn

� Substantial investment risk

� Uncertainty about the right technical standards



� Uncertainty about the right technical standards

� Uncertainty whether consumers will embrace new technology

� Current EU financing regime is not appropriate for a coherent and continuous

support of the development and, in particular, the deployment of smart grids

� EU RD&D funding schemes lack long-term perspective

� Renders it difficult to create links and synergies among relevant projects

� National and regional programs exist, but coordination is lacking and

ambitions differ


Financing framework for smart grids

So what is needed?

� Two-fold approach in financing smart grids is required:

� Improved and enhanced financing structure for research and

development:

� Combined and coordinated EU and national support schemes to cover costs

of market players related to new activities and opportunities



� New tariff scheme to make smart grids a sustainable “business case”

� Leveraging private sources through improved cost allocation

� According to Third Energy Package, grid tariffs should ensure that network

operators are granted appropriate incentives, including support to research

activities

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Need for a „new“ market design?


Financing framework for the European Energy

StrategyThe broader perspective

Smart grids are just part of the broader objective of „energy system change“ in Europe

Energy efficiency and renewable energy face similar financing



Energy efficiency and renewable energy face similar financing problems

Current market design is based on price competition on generation

However: market distortions exist e.g. through intransparent subsidies to fossil fuels and nuclear power


The problem with the energy only market

Financing energy efficiency, renewable energy and smart grids

Problem 1: Volatile renewables as wind and solar change the market and conventional generation becomes uneconomical� Large amounts of renewable electricity are fed into the market at low generation price and due to

merit order, energy prices fall!� Residual load generation falls as well

� Conventional power plants become uneconomical and secured generation capacity decreases



� Conventional power plants become uneconomical and secured generation capacity decreases

� So: Member States fear threat to security of supply

Problem 2: Within energy only markets, there are next to no incentives to invest in energy efficiency� Consumers have no incentive to save energy

� Prices of energy are low and will continue to fall thanks to merit order effect

� Suppliers have no incentive to invest in energy efficiency, as energy savings reduce their returns

No investment environment for the Commission‘s holistic approach!


The Future:

A market that „finances“ energy



A market that „finances“ energy

system change?


What kind of a market? Revisiting support schemes for energy efficiency, and renewable energy

„New“ solutions for energy efficiency and renewable energy are under way

� Incentive and financing schemes for energy efficiency� Also prescribed by new Energy Efficiency Directive

� Energy savings obligation to be implemented by the Member States may lead to innovative



� Energy savings obligation to be implemented by the Member States may lead to innovative mechanisms� e.g. UK with the Green Deal and Energy Company Obligation

� Rules on intelligent meters to give final customers more insight into their electricity bills and allow adapting demand

� Trends to revisit the support schemes for renewable energy� Moving towards exposion to market risks

� (e.g. premium systems)

� And demanding renewable energy more and more to deliver system services� Self-consumption and net-metering schemes to take off pressure from the grid


What kind of a market? Do we need additional capacity?

Background: additional renewable energy generation decreases the price and the needed amounts from conventional generation

= Overcapacity in generation!



Overcapacity needs to be reduced to allow the remaining power plants to operate economically again

Normally no problem… provided still sufficient capacity to ensure security of supply

In Germany at the moment and until 2022 no capacity problems

(Source: BDEW)

However: Needs to be ensured in all EU countries

Question of capacity market seems premature?!

(Source: Dr. G. Brühl, Stadtwerke Rosenheim)


What kind of a market? Do we need additional capacity?

Rather „Artificial capacity markets“ could distort the functioning of the energy market

The balancing market could be the „necessary capacity market“� Spot market determines the price for energy

� Allows for beneficial effects of renewable energy and price decrease



� BUT: more timely balancing needed � Supplier has to take on renewable energy on quarterhourly basis

� And at any point for any point of time responsible for sufficient residual current!

� Balancing market can provide the residual current � Options for generation sold to system operators

� Possibly with premiums to compensate for the non-generation

� That could keep old generation capacity in the market as long as it is needed

Decrease in capacity is – from a market perspective – likely and would set the right price signals for necessary new generation capacity to be build

(Source: Dr. G. Brühl, Stadtwerke Rosenheim)


What kind of framework and market?

Questions to be answered

First Step: Look to the future and to the scenario aimed for� EU with 97% renewable electricity in 2050?

� Germany with 80% renewable energy in 2050?

Second Step: Based on this scenario, what would the energy world have to look like



Second Step: Based on this scenario, what would the energy world have to look like then?

� What does the grid have to look like?

� What and where do we need investment? Local generation or centralized, or both?

� What technical problems do we have to adress? Still priority dispatch for renewables?

Third Step: With a clear and well-defined vision of the future, design the right framework and set the appropriate incentives

� What rules do we need for a clear and stable regulatory framework?

� What are the market failures and how to overcome them?

In that framework, the three „no regrets“ options must be integrated!


Conclusions



Conclusions


Conclusions

A lot of work on the way to energy system change

The existing European financial framework so far enabled several smart grid projects and there are

mechanisms in place to continue this support

� Focus has been on research and demonstration initiatives and on deployment of small-scale

projects

� Improvement needed for large-scale grid solutions, in particular better coordination

between Member States



between Member States

� Better integration with other objectives of the European Energy Strategy to get to holistic

approach to financing

However, the question arises whether it is in the long term sufficient or whether

there is a need for a new – and holistic - framework and market design, in order

to accommodate the energy system change objectives.

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Thank you for listening!

Looking forward

to your questions and comments!

EREF – Dr. Dörte Fouquet, Jana Viktoria Nysten


to your questions and comments!

www.eref-europe.eu

[email protected]

[email protected]

Documents

Financing priorities in the perspective of the European ... · E R E F European Renewable Energies Federation Outline 1. The European Energy Strategy 2. The current European financing