What are the limits to current policy success? Paolo Frankl Head, Renewable Energy Division International Energy Agency

REWP-RIAB Workshop ‘Renewables – Policy and Market Design Challenges’

Paris, OECD, 27 March 2012

© OECD/IEA 2012

Policies push RE growth

Wind Bioenergy Solar PV Hydro other

Generation

2010 [TWh] 338 296 31 3503 74

CAGR 2005-

2010 [%] 26.5% 8.8% 50.8% 3.1% 4.6%

© OECD/IEA, 2011

Costs are Falling

• Hydro and some biomass and geothermal already cost-competitive

• Additional technologies getting competitive in a broader set of circumstances

• Opens up new deployment opportunities

Data from Breyer and Gerlach, 2010

< 1976

< 1980

< 1990

< 2000

< 2010

1

10

100

1 10 100 1 000 10 000 100 000

PV

Mo

du

le P

rice

(U

SD 2

01

0/W

p)

Cumulative capacity (MW)

Learning Rate: 19.3%

PV decreasing costs by -19% for each doubling of cumulative installed capacity

© OECD/IEA 2012

Mature Markets Facing New Challenges

De

plo

yme

nt

Time

Adequate Possible Problems Progress Blocked

USA – PV

DEU – Solar PV

CHN – Wind onshore

CSP

DNK – Wind onshore

Take-off Consolidation Inception

Hydro

DEU – Wind

© OECD/IEA 2012

Grid may act as a constraint

Strong wind, low load case depicted

Expected load flows for 2013 (based on 2009 analysis)

Enhancement required

Conv. generation

EEG, CHP gen.

Load

Load flow (at max)

Load flow

Source: German TSOs, public data

© OECD/IEA 2012

There are 4 flexibility resources

Flexible power plants

Energy storage facilities

Interconnection with adjacent

markets

Source: IEA, Harnessing Variable Renewables, 2011

A biomass-fired power plant

A pumped hydro facility

Scandinavian interconnections

Demand side Response

(via smart grid)

Industrial

residential

Flexibility is key for managing v-RE

© OECD/IEA 2012

Grid expansion vs RE Deployment

0

5

10

15

20

25

30

0

5

10

15

20

25

30

2000 2002 2004 2006 2008 2010

GW

th

ou

san

d k

m

380kV 220kV Wind

0

5

10

15

20

25

0

5

10

15

20

25

30

2000 2002 2004 2006 2008 2010

GW

tho

usa

nd

km

380kV 220kV Wind

Example: Spain Example: Germany

Source: IEA Wind, UCTE, ENTSOE

© OECD/IEA 2012

Hydro & pump-hydro: enablers of vRE growth

• Hydropower generation continues growing as fast as all non-hydro

renewables together since 2000

• Global pumped-hydro capacities: 98 GW by 2005, 140 GW today,

up to 200 GW by 2015 or soon thereafter

© OECD/IEA 2012

Lack of Policy Coordination Jeopardising Outcomes?

1990s

• Unbundling

• Liberalisation

Today’s Policies

• RE Power

• EE

• CO2

• Buildings

• RE Heat

• Market Integration

Tomorrow

• Low carbon generation competitive?

© OECD/IEA 2012

Variable RE penetration impact on electricity prices (Merit Order Effect)

Source: IEA, C. Philibert, 2011

© OECD/IEA 2012

0

10

20

30

40

50

60

70

80

90

0%

10%

20%

30%

40%

50%

60%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

GW

Conventional capacity Peak Load Conventional capacity factor Variable RE share

Reducing Conventional Capacity Factors

Example: Spain

Capacity markets emerging in several European countries New Market Integration issues?

© OECD/IEA 2012

Exposure to fuel price variability in spot markets

Source: IEA, C. Hood, 2011

© OECD/IEA 2012

Market design and the “missing money” issue

Past • In liberalised markets, renewables not competitive:

too expensive and bearing the fuel volatility risk

Now

• FiTs and RPS-driven PPAs offset fuel risk and fill the cost gap

• Renewables expand, learn and reach competitiveness

Now

• Larger shares of renewables drive spot market prices down (merit order effect) and squeeze capacity factors of conventional plants

Next?

• With current market design and no support framework, further expansion of (competitive) renewables threatened by marginal (running) cost pricing reduction and high fossil price volatility risk

© OECD/IEA 2012

Conclusions

RE policies successful in driving down costs and deploying RE to take-off phase

New challenges emerging at system and market design level

How to foster investment in flexibility resources?

How to reduce investment risk in low-C, up-front capital intensive energy technologies?

How to coordinate with climate change policies?

Portfolio-, system-, and investment risk-oriented policy approach needed