Electricity Market Design on Two Sides of
the Atlantic
The German ‘Energiewende’
MIT, 2 May, 2013
Dr. Bernd-Michael Zinow
Senior Vice President Public Affairs,
EnBW AG
Energie
braucht Impulse
What is „Die Energiewende“?
Def. Energiewende:
Decarbonisation of German energy supply by 2050 – under the
constraint of the phase-out of nuclear energy until 2022.
2
Source: Stadtwerke Duisburg
1
Energiewende: Status Quo
› 1 Every sixtieth German has become a power producer – there are 450 power plants in Germany, but
Renewables
1,3 million decentral generation sites (PV, wind, biomass)
› 2 RES produce roughly a quarter of Germany‘s power generation – RES generation has tripled since
2000; 35 GW of new RES capacity was built since 2008 (almost the capacity of Germany‘s hard coal
plants (about 38 GW)
› 3 Sharp cost decreases: costs for rooftop PV installations (10 kWp) dropped from 5 €/Wp (2006)
to 1,8 €/Wp now; on sunny days, PV in some hours covers 35% of German energy consumption
Conventional
generation
› 4 Conventional generation sharply decreasing – e.g. gas-fired generation: -26% compared to 2011
› 5 Massive price decline on wholesale market: 2012: 42,60 €/MWh (– 9 €/MWh; 17 % below 2011. In
2008 prices occasionally beyond 80 €/MWh
› 6 No improvement expected: forward prices for 2014, 2015, and 2016 hardly higher than 40 €/MWh
› 7 Gas-fired plants with negative margins; margins for coal-fired plants decreasing
(15-20 €/MWh (2009) to 5-10 €/MWh)
› 8 First plant decommissionings announced; govt. prohibits retirement of ‚systemic‘ capacities (‚winter
Downstream
reserve‘)
› 9 Trend towards local supply: 60-70 municipal utilities founded since 2008
› 1 Competition landscape changing: market share of „Big Four“ (e.on, Vattenfall, RWE, EnBW) dropped
0 from more than 70 % to 47 % since 2002 (installed capacity; mostly due to growth of RES)
11 Changes in customer behaviour: churn rates increasing continuously– every industrial and every
fourth household customer will have switched to another supplier by end of a year
3
1 € = US$ 1,30 (Apr. 23)
What is the German Energiewende?
Ambitious long-term targets defined in 2010 for the next 40 (!) years
„Green“ targets…
… and nuclear phase-out
80
65
50
22.000
20.000
16.000
14.000
-­‐ 26
-­‐ 40
-­‐ 55
-­‐ 70
4
-­‐ 10
12.068
10.793
9.509
10.000
-­‐ 25
8.107
8.000
6.000
4.049
4.000
-­‐ 80
Reduction of
greenhouse gas
emissions in %
2011
12.000
7% of electricity generation (2010)
2020
Source: BNetzA 2012
23% of electricity generation (2010)
18.000
35
20
-­‐ 2
20.490
2.000
Reduction of
electricity
consumption
vs. 2008 in
%
2030
RES Share
of gross
power
consumption
2040
2050
0
2010
•
•
2012
2014
2016
2018
2020
2022
Phase-out decision adopted after
Fukushima catastrophe
Creates concerns about security of supply
in the South (‚winter reserve‘ to be
implemented)
2
Shares of RES in Germany
Shares of renewable energy in German power supply
Gross domestic power consumption
%
Gross power generation 2012
35
35
30
25
20
20
14
15
10
Oil, pumped storage, other
Hard coal
Natural gas
6.0%
19.1%
11.3%
23
15
17
16
12
8
Nuclear 16.0%
9
21,9% RES
5
5.8%
Biomass
3.3%
Hydro
4.6%
PV
Waste
Lignite
2002 2004 2006 2007 2008 2009 2010 2011 2012 target
2020
•
•
Wind
0.8%
25.6%
0
7.3%
Germany‘s 2020 RES-targets will be surpassed by far: we expect more than 40% RES share.
Most of RES capacity volatile
Sources: bdew, BMU
5
Increasing costs of RES and beginning reform debate
cause the need to act
Development of EEG-costs
Strong increase of RES and RES support…
… creates political reform debate
20,4
bn. EUR
ct/kWh
13,2
4,5
0,4
200
3
0,7
200
5
14,1
(FIT), especially
›
›
10,8
9,0
2,6
13,5
1,1
200
8
1,1
200
9
2,1
201
0
›  All parties still in support of Energiewende
›  Increasing criticism of support scheme
3,5
3,6
5,3
Main cost driver PV
Efficiency potentials and distribution
effects
›  Probably
fundamental reform of the EEG
after federal election in Sept. 2013
›  concerns
2011
201
2
201
3
about functioning of the market
model (energy-only-market)
Sources: BMWi, BDEW
6
3
Public opinion still in favour of RES but increasingly sceptical
about costs
Opinion polls: Majority supports Energiewende
„Is the RES surcharge too high?“
… speed of RES growth
61
75
51
51
46
32
30
25
10
6
2011
too high
•
•
2011
201
2
adequate or too low
too slow
201
2
good
too fast
RES still with great public support but costs becoming increasingly important.
Public (esp. local) acceptance being another major issue
Sources: Infratest Akzeptanzumfrage 2012, 4000 persons; shares of persons interviewed; BDEW Energiemonitor June 2012,
Forschungsgruppe Wahlen, interviewed persons: 1.011
7
Conventional power generation will be decreasing in the
future
Load factors and forward prices
Decreasing load factors of conventional
power plants…
… and decreasing wholesale prices
price
(€/MWh)
Full load hours
6060
Lignite
5555
Base 2016
E UR /MWh
Hard coal
N-Germany
5050
Hard coal new
plant (since 1985)
Base 2015
4545
Base 2013
2006
›
›
8
2007
2008
2009
2010
Hard coal old
plant
(before1970)
2011
4040
Base 2014
3535
01/12
03/12
01/12
Base Y-­‐13
05/12
07/12
Base Y-­‐14
09/12
11/12
Base Y-­‐15
01/13
03/1303/13
Base Y-­‐16
RES-expansion puts pressure on prices and load factors
Overcapacities in European market due to historical investment decisions and more
efficient market design (more efficient cross-border dispatch)
4
Reduced margins put economic viability under pressure
Spreads of conventional power plants
C lean Dark S pread (B as e)
Clean Dark Spread (Efficiency:
36%)
Wirk ung
s g rad: 36%
12
›  German merit order
10
curve is very flat;
significant margins rare
€ /MWh
8
6
›  No improvement
4
2
0
01.01.2012
31.03.2012
29.06.2012
2013
27.09.2012
2014
26.12.2012
2015
26.03.2013
2016
›  Additional new
C lean S park S pread (P eak )
capacities unlikely;
amount of capacities to
leave the market
difficult to predict
Wirk ungs
grad: 50%
Clean8Spark Spread (Efficiency:
50%)
4
0
€ /MWh
expected due to new
(now being built)
capacities
›  Political concerns
-­‐ 4
about security of
supply
-­‐ 8
-­‐ 12
01.01.2012
31.03.2012
2013
29.06.2012
27.09.2012
2014
26.12.2012
2015
26.03.2013
2016
9
Even efficient gas-fired plants out of merit
Example: Irsching 5, 860 MW CCGT, commissioned 2010
June – August 2012
20.000
20.000
16.000
16.000
Generation(MWh)
Genereation(MWh)
June – August 2011
12.000
12.000
8.000
8.000
4.000
4.000
0
June
2011
July
2011
η : 59,7 %; Investment: 400 mln. €
•
August
2011
0
June
2012
July
2012
August
2012
Source: E.ON
To be fair: Plants rendered uneconomic not only because of Energiewende (economic
crisis and lack of energy demand in Europe)
10
5
Lack of redispatch capacity triggered decommissioning
prohibition of ‚systemic‘ plants (‚winter reserve‘)
›  Plant decommissionings announced (also in the South) in
Nuclear phase-out
addition to planned retirements of nuclear capacities
Shutdowns in
2011
Shutdowns in
2015-2022
›  Govt. and TSOs concerned about lack of redispatch
capacity
›  Govt. to issue regulation to implement ‚winter reserve‘
›  Prohibition to decommission ‚systemic‘ plants; plant
owners may receive compensation for incremental costs
›  Industry recommends Strategic Reserve instead
›  similar to solutions in Sweden and Finland
›  capacity payments determined competitively (via
tender)
›  Strategic Reserve may be used both
›  for redispatch and
›  to balance national capacity household (if necessary,
in second half of decade)
11
Capacity not scarce until end of decade but generation gap
of 4 – 8 GW in 2022 due to plant decommissioning
Sufficient new capacity commisioned until
2016
… but scarcity may occur by end of decade.
MW
GW
8.000
7.157
7.000
80,0
12,5
2,5
12,5
2,5
4,0-8,0
6.000
72,0
80,0
5.000
4.013
4.000
Plant
retirements
3.000
2.000
734
1.000
0
-­‐ 1.000
-­‐ 2.000
2012
existing
2012
-­‐ 875
-­‐ 1.357
-­‐ 1.646
2013
2014
2015
2016-?
new
built
cap.
credit
RES
phaseout
nuclear
cap.
buffer
gap
Capac needed
.
2022
2022
total
Debate sparked: Does Germany need a capacity market?
Simulation of European power plant utilisation until 2022 shows capacity gap in GER – problem only in case of autarky
requirement; Range of gap caused by different assumptions about plant retirement decision behaviour.
12
Sources: Consentec; EnBW
6
Implementing of Energiewende requires investments of >
€650 bln. into the German electricity sector until 2050
Forecast of cumulated necessary investments into German electricity system (target
scenario)
669
250
3
Electricity
generation
Storage
4
115
-distribution grid
42
44 -transmission grid
-Maintenance
29
Grid
372
Consumption
Total until 2030
Total until 2050
Signficant investments, esp. in generation and grids required.
Source: Boston Consulting Group
13
Germany: Two capacity mechanism paradigms under
discussion
Customer-based definition of required
capacity
Def.: amount of capacity needed defined by
customer demand for reliable supply
›  Capacity requirement defined by decentral
demand, retail as market intermediary
›  Capacity price determined e.g. via tradeable
capacity certificates
›  Investment decisions based on energy and
capacity prices; individual risks remains at
indivdual investor
›  Capacity creation only to the extent needed to
Central buyer-approach
Def.: amount of capacity needed defined by
state authorities (e.g. regulator)
›  Capacity requirement defined administratively
according TSO forecasts
›  Capacity price determined by central auction
›  Investment decisions based on capacity price,
wholesale energy price becomes short term
optimisation (dispatch) instrument; investment
risks socialised
›  Tendency to create excess capacity; danger of
existing plants being discriminated to keep
system ‚cheap‘
meet customer demand
›  Ex.: French capacity market model; systems
proposed by German utility Thüga and German
municipal utility association VKU
›  Ex.: UK capacity market model, EWI (Cologne
Completely ‚privatised‘ capacity Tradeable capacity certificates
supply
(VKU, FR)
University), Öko-Institut
Central buyer approach
(Öko-Institut, EWI, UK)
14
7
Europe: rag rug of capacity mechanisms
Ireland
Capacity payments
introduced 2005
England and Wales
Capacity payments between 1990
and 2001. Re-introduction
(capacity auctions) 2015
Sweden and Finland
TTR administrated by TSO
Energy-Only-Market
Capacity mechanism
Belgium
Introduction of
Capacity Mechanism
planned
France
Market for capacity
certificates 2016/2017
Poland
TTR administrated by
TSO
Romania
Auction for capacity
certificates
Spain
Capacity payment
since liberalisation;
reform 2007
Italy
Capacity payment
introduced 2004
Greece
Capacity obligation
introduced 2005
Source: F. Roques, IHS CERA; EnBW
15
Capacity mechansims so far not discussed in European
context
Concerns about vicious circle of externalities
Prices artificially dampened in one Member State
by adding new capacity via a capacity mechanism (CM)…
p
Investments
New CM
p
GW
…will reduce investment incentives in other MSs and
possibly prompt another CM there, which in turn
might make the first region intensify its CM again…
16
8
German FIT (EEG) appropriate to kick-start RES, but
costly and incompatible with wholesale market
The system has turned out to be
effective…
›  System kick-started RES in Germany.
›  FIT for up to 20 years
›  Priority dispatch
›  Grid access guarantee
›  Broad public acceptance; several ways
to profit individually (‚democratisation
of energy supply‘); system meets widespread desire for local autarky
… but needs an overhaul
›  Market integration necessary to deal
with signficant amount of RES
production; esp. to provide incentives
to meet demand (incl. forward and
ancillary service markets, where
technically feasible)
›  Support of RES still necessary but
funding system should be more
market-oriented (e.g. market premium)
›  No fundamental change needed: lowrisk (‚optional‘) market premium
system already introduced as
alternative to FIT in Germany since
2012; can easily be modified to
become a simple fixed premium
system
17
RES-support schemes: all kinds implemented in Europe
FIT
Some observations:
FIT/Premium
Quota
FIT/Auction
›
Quota systems often
underperformed in
meeting national RES
targets
›
FIT often with
unexpected growth of
RES capacities
›
Almost all systems
support different RES
technologies (PV,
wind…) differently
FIT/Quota
Not specified
18
Sources: Frontier Economics, EnBW
9
Efficient market design comprises more than capacity
mechanisms and RES support schemes
Core elements of future market design
What is needed:
We need a consistent
approach considering the
following aspects:
›  Markets based on short-run
marginal costs
›  RES must respond to
market signals
›  Options for market
participants (e.g. ability to
choose between RESmarket integration models)
›  Prevention of market
splitting and preservation of
high liquidity
›  European market is the
target
Smart Grids
Demand
participation
Infrastructure
enhancement
Capacity
incentive
mechanisms
RES Market
integration
Energy
efficiency
European market
integration
Storage
EnBW is in strong support of market-based solutions.
19
Some concluding remarks
Energiewende irreversible but RES support and market design
controversial
›
Energiewende still enjoys great public support and is consensual across all political parties: in our
view, it is irreversible
›
However: there are some problems and contradictions:
›  Costs becoming increasingly important
›  Concerns about regional grid stability in the South after phase-out of nuclear
›  Concerns about security of supply after 2020 sparked intensive debate about introduction of
capacity mechanisms
›  Costs and lack of market conformity of German feed-in-tariff system triggered debate about
reform of German RES support mechanism (EEG)
›
›
Currently interim ‚winter reserve‘-sytem installed
›
Capacity Mechanisms will be implemented independently in Europe: interferences? Energiewende
creates massive cross-border effects: European co-ordination will become a major issue
›
RES support mechanism to be reformed in Germany after 2014; quota system unlikely, we expect
revised version of existing market premium system; European system not before 2020
Capacity market design will be defined after election in Sept. 2013; mechanism likely to be
implemented after 2017
20
10
Thank you!
Energie
braucht Impulse
11