HOW TO SET UP ECONOMIC RELATIONS IN THE ENERGY MARKET FOR THE REALIZATION OF CLIMATE PRESERVATION POLICY

Goran Granić, PhDGeneral Manager of Energy Institut Hrvoje Požar

Energy day in Croatia,

Zagreb, 28th November 2014

23rd Forum: HOW TO DEFINE AND IMPLEMENT AN ENERGY POLICY IN LIGHT OF NEW EU GUIDELINES FOR THE YEAR 2030?

What is the current climate policy,how was it defined,and what are measures for the implementation of climate policy?

EU policy is expressed through simple marketing message 20/20/20, in which the target (emission reduction) is equated with measures (increase of efficiency and use of renewable energy sources).

Policy with three goals has been implemented as three separate politics with negative consequences.

Consequences of the current climate policy Emissions trading, as an instrument of market mean to determine

prices of climate protection, has not given the expected results. The system is costly and administratively demanding.

Renewable energy support through feed-in tariffs and administrative determination of the position of RES in the sale of electricity, has given the initial results, but after the implementation of more than 10%, it has started to produce negative effects that caused the destruction of the electricity market and a number of negative effects.

Support for energy efficiency gave modest results, mainly because funding sources have not been provided.

Solution to the problem of reducing emissions in traffic is at the beginning, the current model of collecting taxes was not related with actual emissions, and the new model is better, but unnecessary administratively demanding.

Prices of CO2 emissions have discouraged technological development of CCS technology.

In general, measures were not mutually harmonized and evaluated in order to reduce emissions.

Price of electricity and renewable energy in the current concept of

renewable energy support

New EU guidelines by 2030 Reducing greenhouse gas emissions by 40% below 1990 level,

(43% EU ETS sector, 30% sectors outside the EU ETS); EU ETS reform; Share of renewable energy 27% at the EU level; Energy efficiency 27% at the EU level; Electricity interconnection capacity 10% by 2020, 15% by 2030; New administrations responsible for monitoring of the implementation of RES

projects and the improvement of regional cooperation;

Comment New guidelines for 2030 are just superficial changes of the old model

which was valid for period till 2020, keeping in implementation all unsuccessful elements (ETS), or those that cause big problems in energy system (RES).

Main social goals of the EU Policy  Goals Measures Conditions

1. Climate protection

1. Energy Efficiency increase • Financial support

• Technological development 2. More usage of RES • Financial support • Technological development 3. Generation and consumption

of energy without CO2 emission• Technological development

• CSS for fossil fuels • Real price of CO2 emission/ financial support

• Nuclear power plants • Regulated activity?/ financial support 2. Competitiveness Market without borders and

limitations• Cancel any privileged position of

generating facilities 3. Security of

SupplyEnergy infrastructure development

• Security of Supply to be treated as special cost category

Implementation policy should take into account uniqueness of climate preservation policy and all necessary conditions for the market development and security of Supply.

Implementation policy should not disregard market or increase insecurity of Supply.

Basic principles for development of new model for Climate Policy implementation Climate preservation policy has its price which will increase price of electricity for

the costs of its implementation;

Technological development is necessary for the realization of the climate policy;

Gathering of resources for the implementation and all financial supports should be tightly bound for the reduction of CO2 emissions;

Climate policy should be harmonized with development of energy market and Security of Supply;

Measeres for implementation of climate policy and emission reduction should be harmonized to give synergy effect;

Priorities in measures should be based on their contribution to the emission reduction;

Each measure must have financing source from CO2 emissions;

Model of climate policy implementation should have simple administration and be unambiguous in its exertion;

New implementation policy - Proposal

Policy uniqueness, one goal: CO2 and opportunity to measure goal achievement;

Economic connection between all segments of climate policy through a single instrument: a tax or a fee on CO2, the unique measure for all energy sources, all technologies and all measures for CO2 reduction;

Financing activities of emission reduction through unique criteria and priorities resulting from contribution to the CO2 emissions reduction;

Riddance of electricity market administrative restrictions and privileged positions in sale of electricity, allowing the market to "breathe with lungs full capacity";

Promotion of technological development

The implementation concept The implementation concept should not disturb, with any measures, the basic

principle of EU energy policy – open energy market.

For the creation of the new EU energy policy it is necessary to choose basic principles:

The open energy market in its entire extend and under same legal principles,

The unique climate policy, uniform in the way of fundraising, special CO2 emission tax,

To achieve distribution of funds due to the principle of cost - effectiveness. Subsidies should be solved on the investment side without the energy market destruction,

To continuously invest into technological development and to achieve synergy effect on the EU level.

Tax or CO2 charge

The key issue is the height of the dedicated tax or charge and how to determine it:

to be in correlation with set up reduction emission goals,

to promote technological development,

to promote society and goals development vision, especially in the sense of setting up legal framework as well as standards and norms for the future development of the energy sector,

to promote synergy of science, education and economic development – greater synergy, lower tax.

Renewable energy sources (RES)

Shortcomings of the present model:

Financial funds for subsidizing renewable energy sources are collected from the end users without any climate change policy. Due to the fact that they are on the end of price modeling system they do not affect on the wholesale price of the energy, although the buyer pays the total price.

Preferential status in the placing of produced energy by the state to the rest of the market is not affected.

Preferential status according to defrayment of the balance cost of production as well as all additional costs.

RES – the new approach

In the new model is necessary to set up new relations in order to eliminate imperfections of the present model while keeping the incentive relation to renewable energy sources implementation increase

What should be done?

Introduction  of  dedicated  tax  or  CO2  charge  and financing of RES implementation from these funds in order  to  involve  RES  into  the  climate  preservation policy. 

Abolishment  of  the  renewable  energy  sources preferential status and their positioning  into peer to peer  market  relation  with  respect  to  other  energy sources.  In  that  way,  the  entire  chain,  from equipment  manufacturers,  financial  institutions  to the  investors  becomes  dependent  on  the  achieved production  price  and  in  consequence  positively implicate on the reduction of investment cost.

By transposing the subsidies from the cost side to the investment  side  the  investor  is  into  a  position  to compete  for  placing  its  own  production.  The investment  fostering  could  be  done  through  the share in ownership as well, but without participation in profit.

By  transposing  the  subsidies  to  investment  side  for the  consequence  will  have  reduction  of  investment cost,  i.e. equipment price because  the  insecurity of   production  placing  will  positively  affect  on  the competition as well. 

Wind power plants – prices in 2014 and 2030 –

required support levels

0.045 0.05 0.055 0.06 0.065 0.07 0.075 0.080

200

400

600

800

1000

1200

1400

16002014

Pripadajuća inves-ticija uz zadanu razinu LCOE, €/kW

Potrebni poticaj 2014.g. u ovis-nosti o LCOE, €/kW

Očekivana razina ukupne investicije u VE u 2014.

LCOE, €/kWh

€/kW

0.045 0.05 0.055 0.06 0.065 0.07 0.075 0.080

200

400

600

800

1000

1200

1400

16002030

Pripadajuća inves-ticija uz zadanu razinu LCOE, €/kW

Potrebni poticaj 2030.g. u ovis-nosti o LCOE, €/kW

Očekivana razina ukupne investicije u VE u 2030.

LCOE, €/kWh

€/kW

Energy Efficiency (EE) Energy efficiency could be divided in few groups: buildings, devices, facilities, consumption management.

In buildings sector cooling and heating energy is greatest challenge in regard to energy, economic and organizational aspect.

Renewal of old buildings is first priority.

In regard to appliances and devices cycles of substitution are shorter and standards and technology development are of importance.

Industrial facilities are in group for which technological development is crucial for the increase of EE. Here the substitution of equipment happens naturally often because of the concurrence.

Energy Efficiency (EE) Focus of EE increase is on:

Very urgent making new more strict rules for the new buildings which follow optimal ratio of global costs of buildings (energy commodities and maintenance) and value of investment up to 50 kWh/m2 of primary energy (needed energy for heating 20 – 40 kWh/m2 per year).

Additional request for greater number of buildings with almost zero energy up to 10% of the new buildings.

Requirements for buildings with almost zero energy, with primary energy of 23  kWh/m2 (heating <15 kWh/m2, cooling, lightening, ventilation), with obligatory usage of 30 to 50% energy from RES.

Difference in investment for the zero energy buildings and new buildings is between 500 and 1500 HRK/m2.

Yearly is necessary to build about 150.000 m2 of buildings with almost zero energy to realize goals of decreased energy consumption in buildings.

Energy Efficiency

Income from tax or fee on CO2 from households for the heating technologies and insulation

33.8

3

112.

76

187.

93

263.

11

338.

28

413.

45

488.

63

563.

800.00

500.00

1000.00

1500.00

2000.00

2500.00

3000.00

3500.00

4000.00

PP

ELLU

CTS

ELEN

UNP

PP_50kWh

ELLU_50kWh

CTS_50kWh

ELEN_50kWh

UNP_50kWh

Ostala potrošnja energijeTax on CO2, kn/tCO2

Inco

me, H

RK

TransportNew model starting from next year is more advanced than

previous, but administratively too complicated.New model is suggested based on the principle „polluter pays“, where CO2 is integrated as only criteria. That measure promotes more efficient vehicles.

Special tax can also influence fuel choice, promoting usage of CNG.

New technologies and electric cars should be in the fist phase financially supported.

Some researches show that till 2050 should be more than 50% of personal cars on electricity to satisfy EU goals for reduction of emissions from transport sector.

Transport

Dependence of the tax rate and tax on CO2 for some types of the

personal cars in accordance with recommended system

Support distribution Model

Structure of distribution of income for the three scenarios

1. EE, waste, transport and RES not connected on the power grid

2. EE, waste, transport and RES connected to the grid

3. EE, CCS, waste, transport and RES connected to the grid

Energy efficiency

RES Waste Transport

67,33% 9,53% 3,67% 19,47%

Energy efficiency

RES Waste Transport

62,56% 15,94% 3,41% 18,09%

Energy efficiency

RES CCS Waste Transport

58,45% 16,24% 5,22% 3,19% 16,90%

Support distribution Model – analysis results For Croatia, case II is of interest Results show Energy efficiency as

priority. Results point also on need to secure

enough resources for EE, which is enabled by introduction of special fee on CO2.

Income distribution, I

Income distribution, II

Income distribution, III

Implementation Model

  Support % Eur Bonus %

Eur Total

Residental Buildings

25 93 118 044 10 37 247 218 130 365 262

Business Bulidings

25 11 972 320 10 4 788 928 16 761 248

Total 105 090 364 42 036 146 147 126 510

Total EU OIE Waste Transport56,88% 23,57% 3,1% 16,44%

300.000.000 € 170640000 € 70710000 € 9300000 € 49320000 €500.000.000 € 284400000 € 117850000 € 15500000 € 82200000 €

Implementing extra fee or tax of 15 Eur/tCO2 overall income od would be cca 300 mil. Eur, and for the 25 Eur/tCO2 500 mil. Eur.

Implementing new model for all RES, distribution of support should be as in table:

First priority – energy efficiency Price of renewal of residental buildings is about 800 Eur/m2; for the

business buildings could be for about 50% more, up to 1 200 Eur/m2.

Recommendations• Focus of the new energy policy should be on the CO2 emissions - on

the side of the income through special fee on CO2, and on the other side on the promotion of energy efficiency, RES and technological development.

• For all the new projects should be defined aims for the energy efficiency on the higher level; Specially in the building sector.

• Standard qualities of EE should be determined for devices and appliances, excluding from the market those which don’t satisfy new requirements.

• Through the new model new possibilities open for the RES usage.

• In transportation is important to use more efficient cars, combining restrictive and supportive measured in regard to new and old technologies.

Thank You for Your attention!

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