Offshore wind and the 2020 EU target

Christian KjaerChief Executive, European Wind Energy Association

7th Interparliamentary Meeting on RenewablesBerlin, 6 October 2007

We are already paying the cost of inaction

• For every $20 increase in the price of oil, the cost of Europe’s gas imports rises by €15 bn annually, given the unfortunate link between oil and gas prices

• The increase of oil prices over the past few years from $20 to $80 thus adds €45 bn. to EUs annual gas import bill

• For comparison, EU invested €9 bn. in wind energy in 2006

Offshore wind – the challenge Both in terms of offshore infrastructure and technology development, offshore wind energy should be seen as a strategic resource that Europe needs to develop if we are ever to achieve competitive electricity markets in Europe; reach a larger degree of energy independence; reduce risk exposure to unpredictable fuel prices; ensure low and predictable energy costs; while reducing the environmental impact of energy production.

• 20% energy efficiency target by 2020

• 20% reduction of greenhouse gas emissions (30% if other countries commit) by 2020

• 20% binding target for renewable energy by 2020

- Including 10% biofuels target

27 EU Heads of State adopted on 9 March 2007:

Proposals for EU legislative package expected in December

2007

• Improved cross-border exchange “notably through interconnection, taking into account the integration of onshore and offshore renewable energies”

• Welcomes appointment of European coordinator, including coordinator for connecting offshore wind power in Northern Europe

27 EU Heads of State agreed on 9 March 2007:

The European Commission

“Wind could contribute 12% of EU electricity by 2020. One third of this will more than likely come from offshore installations””(Commission’s Energy Package 10 January 2007)

• 2020: app. 35% renewable electricity is needed to reach the 20% target for renewable energy

• Today: 15% incl. 10% large hydro and 3% wind

• Excluding large hydro the share of renewable electricity must increase from 5% to app. 25%, in 14 years depending on power demand

• From 3% (50 GW) to 11-14% (180 GW) wind power in 2020 (depending on 2020 demand)

• Offshore wind power contribution to EU demand by 20201 between 1.8% (20 GW) and 4.5% (50 GW)

• Without offshore wind power we will not reach the target

• Without infrastructure we will not meet the target

20% target:How much renewable electricity, wind power and offshore wind power?

1 EC baseline scenario EU demand (2020): 4163.7 TW/h

Offshore wind development in Europe (1991-2006)

4,95 4,95 4,95 6,9511,95 28,75 28,75 31,5 31,5

35,5

4

96

50

246

160

505

259

590

85

680

90

878

198

0

100

200

300

400

500

600

700

800

900

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Offshore wind market developmentin Europe (in MW)

Cumulativeinstallation

Annualinstallation

Source: EWEA, BTM consult (2007), Emerging Energy report (2007) and Douglas Westwood (2007)

Offshore wind status

2005 2006

Installed Capacity

(MW)%

Installed Capacity

(MW)%

Onshore 39,824 98,32 47,149 98,2

Offshore 680 1,68 878 1,8

       

Total 40,500 100  48,027 100

Planned New Offshore Wind Capacity (2005-2015)

EU wind power past 14 years … and next 14 years?

Offshore in 2020?:Offshore in 2020?:- Avg. annual onshore growth EU 1992-2006: 33.4%- Offshore in 2020 at 33.4% annual growth: 49.350 MW

Offshore wind development (Cumulative, GW)

3

20

0.93.5 4

10 12

35

15

50

0

25

50

2006 2010 2015 2020

Low Medium High

Scenario 3

Wind Energy in EU (2006 – 2030) and electricity share

47.276.5

112.5145 164.8 180

12

35

74.5

120

3.50.878

0

50

100

150

200

250

300

350

2006 2010 2015 2020 2025 2030

GW

Onshore Offshore

3%5%

12%

8%

EU policy needed to reach targets

• A renewable energy offshore policy for Europe, including offshore infrastructure (wind, tidal, wave)

• Grid extensions and upgrades financed by – ownership unbundled – TSOs (grids are natural monopolies)

• Removal of administrative barriers (one-stop-shop approach)

• Removal of grid access barriers including excessive technical requirements

• Increased cooperation on interconnectors• Dramatic refocus of R&D spending, taking

into account historic levels of funding

• 220 Mt of CO2 avoided p.a (22% of EU reduction target)

• Avoided CO2 cost p.a. (€20 / tonne CO2): €4.4 bn

• Avoided fuel cost p.a. ($48 / brl oil): €12 bn

• Avoided fuel cost p.a. ($93 / brl oil): €18 bn

o €25 bn avoided fuel cost at €/$=1.00

Effect of scenario incl. 35 GW offshore wind in 2020

1 EC baseline scenario EU demand (2020): 4163.7 TW/h

Is there enough capital?

Investment required between 2005 and 2020 to reach 180 GW in 2020 or 12% of EU electricity consumption will require app: €215 billion

Combined 2005 profits of Exxon Mobil, Shell, BP and Chevron: €78 billion

Cost of energy subsidies 1995-1998 per year*:

Fossil fuels and nuclear: $215 billionRenewables and efficiency: $9 billion

*Source: UNDP

There is an urgent need to address inefficiencies, distortions and historically determined institutional and legal issues related to the overall structure, functioning and development of the broader European electricity markets.

The Commission points out four key reasons for the lack of success in achieving a competitive market:

•Lack of cross-border transmission links•Existence of dominant, integrated power companies•Biased grid operators, and•Low liquidity in wholesale electricity markets

The four main barriers outlined above are not only barriers to creating effective competition in European power markets, they are also the main institutional and structural deficiencies preventing new technologies such as wind power from entering the market.

Barriers to competition according to the Commission

On strictly economic terms, wind energy’s future competitive position will to a large degree be determined by the fuel cost of competitors; the cost of CO2; and the degree to which liberalising electricity markets will start reflecting the true cost of building new capacity

True prices are an advantage for wind

EWEA calls for real competitionin the Internal Energy Market

EWEA calls for real competitionin the Internal Energy Market

EWEA’s position EWEA welcomes the effort to create an undistorted Internal

Electricity Market (IEM) EWEA supports to eventually adopt support mechanisms for

renewables that are compatible with an undistorted internal market

Due to the natural interactions between the conventional power market and renewable power market it is premature to force renewables into a distorted Internal Energy Market – it would distort both markets

Any shift must be well prepared to maintain investor confidence and follow after more effective competition in the IEM has been achieved

A hasty move towards a EU-wide support system would put EU-leadership in renewables at risk

Reminder

“the issues relating to compatibility of support mechanisms and the desirability of not distorting cross border trade are concerns which are secondary to the main objective of ensuring a certain level RES production in each Member State on the basis of individual national targets”..European Commission’s Strategy Paper “Medium term vision for the Internal Electricity Market” (1 March 2004)

IEA: same production, different market share ???

Nuclear

World - 2004

Hydro

2.740

TWh

2.809

16%

% electricity

16%

714

Mtoe

242

6%

% primary energy

2%

Source: IEA

Nuclear

European Union - 2004

Hydro

988

TWh

300

31%

% electricity

10%

257

Mtoe

26

14.6%

% primary energy

1.48%

Source: IEA

IEA: same production, different market share

The Root Problem of Energy Importing Nations

They are going to import an ever growing share of our energy at unpredictable (but most likely higher) prices in competition with the rest of the world and at unbelievable environmental cost.

Regardless of whether they are successful in energy diplomacy or not, they have no idea about the future cost of energy they will be paying to maintain current supply

The economic future of Europe and other importing nations can be planned on the basis of known and predictable cost of electricity, derived from an indigenous energy source free of the security, political, economic and environmental disadvantages associated with the current energy supply structure

Turn the climate and energy challenge into an opportunity in the 21st century energy battle

Follow a strategy of developing, deploying and exporting renewable energy technology to a world that, few years from now, cannot afford

to live without it.

Offshore wind – 2007 Offshore wind – 2007

European Offshore European Offshore Wind Conference Wind Conference (December 2007)(December 2007)

www.eow2007.info