Dr. Annette Loske VIK Verband der Industriellen Energie- und Kraftwirtschaft

1. Renewable Energy Sources in Germany and the EU Influence on Reliability of Transmission and on Electricity Price Sept. 8, 2004 AEM-SVSE Conference, Prague Dr. Annette Loske VIK Verband der Industriellen Energie- und Kraftwirtschaft German Federation of Industrial Energy Consumers

2. VIK Verband der Industriellen Energie- und Kraftwirtschaft e. V. • Federation of intensive industrial energy consumers (member companies primarily from sectors, in which energy costs really matter like chemicals, steel, non-ferrous metalls, glass, paper, cement etc.) • VIK membership represents about 80 percent of the German industrial energy consumption • Representative for the interests of the members towards the policy, the administration, the economy and the legislation in Germany and the EU • Consultant for the member companies in all energy, environmental and water related issues • Member if IFIEC Europe – the European federation of industrial energy consumers

3. German Electricity Price in the EU-Context The electricity price level is a major concern of the German industry!

4. Elements of the German Electricity Price

5. EU Policy on Renewable Energies • Background: Climate Change Policy based on the Kyoto Protocol Obligation EU-15: 8 percent CO2-reduction 1990 - 2010 • Renewable Energies Directive (Sept. 27, 2001) as one of the instruments to meet this target • National targets for the share of electricity produced from renewable energy sources in 2010 • Obligation for the EU-Member States to implement adequate promotion mechanisms to achieve the targets set

6. The National Targets Source: IFIEC Study

7. The National Targets – Additional required power volume from RES Source: IFIEC Study Total for EU-15: 353.3 TWh (= about UK total consumption in 2000)

8. The Promotion Schemes 3 Types: • Guaranteed Feed-in Tariffs (Buy-Back Regime) • Certificates • Taxes • Variaty thereof chosen in the different EU Member States • ► No Common Policy

9. The Promotion Schemes Financing In most of the EU Member States financing through a surcharge on the electricity price X = Final Source X = Intermediate Source Source: IFIEC Study

10. The Promotion Schemes – Focus on Wind • Special focus on wind power in most EU Member States • Special characteristics of wind power to be considered: • Instability of wind power generation E.g.in Germany: Wind Power Share of installed capacity: 15 percent Wind Power Share in power consumption: 3 percent • Necessity for excessive back-up capacities For each MW of wind power capacity 0.8 to 0.9 MW reserve capacity necessary as back-up. ►less efficiently working regime of these power plants • Excessive grid extensions are needed • Planning figures for Germany: 1000 km additional 380 kV grid in the E.on area (investments of 550 mio €) plus 500 km in the Vattenfall area till 2016. • Significant uncertanties for security of supply and significant additional indirect costs resulting from wind power installations

11. The German System Different guaranteed Feed-in Tariffs for different RES for a period of 20 years Financed by surcharges on the electricity price determined depending on the actual volume of RES power input Total Amount of Support: 2003: 2.7 billion € Estimate 2010: 4.8 billion €

12. The German System Special Regime for Industrial Consumers • Capping of surcharge for a limited group of industrial consumers since 2004. From 2005 based on the following criteria: • Yearly consumption > 10 GWh • Share of electricity cost ≥ 15 percent of gross added value (Bruttowertschöpfung) • ►Reduced rate of probably 0.05 ct/kWh* for 90 percent of consumption • Yearly consumption > 100 GWh • Share of electricity cost ≥ 20 percent of gross added value (Bruttowertschöpfung) • ►Reduced rate of probably 0.05 ct/kWh* for whole consumption *) Rate applies if resulting additional charge for other consumers ≤10 percent of whole surcharge, otherwise upwards correction Regime based on Act on RES (2004) to be implemented 1.1.2005

13. The German System Necessity of a Special Regime Threat for the competitiveness of German Industry Cost Structure for Aluminium Production Comparison: Germany – World Average Germany Average Production Cost 1.164 USD/t World Average Production Cost 1.112 USD/t Plus 4.7 percent in Germany Mainly resulting from power cost Source: Study of ewi, Cologne

14. The financial burden throughout the EU • Unlevel playing field: • In Sweden the industrial large consumers are not burdened at all. • In the Netherlands the burden for this group is very low (maximum 62,090 €/a). • In Finland, the promotion measures are totally financed by the state budget resulting in no directly earmarked financial burden for consumers (however, energy tax applies). Source: IFIEC Study

15. The Outlook – Still a hard way to go! Source: EU Commission Still an expensive way to go!

16. Conclusions • Renewable energies may build an important option for the future. But their promotion is a costly political decision. • The financial burdens resulting from renewable energies promotion systems for industrial energy consumers are already currently significant, and are increasing quickly and intensively in the near future. • The resulting financial burden differs significantly. No European level playing field is in sight! • The financing mechanism for renewable energy promotion measures must reflect the long term character of the programme and the overall societal interest in it. • It must not result in a disproportionate threat for the energy intensive industry and lead to de-industrialisation of the EU. • Renewable energies promotion systems should not jeopardize the competitiveness of the industry on the European as well as on the international level.

17. For further questions: Dr. Annette Loske VIK Verband der Industriellen Energie- und Kraftwirtschaft e.V. Richard-Wagner-Straße 41 D-45128 Essen Tel.: ++49-201-810 84-22 FAX: ++49-201-810 84-30 E.Mail: a.loske@vik-online.de Internet: www.vik.de