An Industry Perspective

1. An Industry Perspective Oliver Schaefer, Policy Director, EuropeanRenewable Energy Council EUFORES, Interparliamentary Meeting, Berlin, 5-5th of October 2007

2. EREC – European Renewable Energy Council Umbrella organisation representing all RES sectors: AEBIOM European Biomass Association EGEC European Geothermal Energy Council EPIA European Photovoltaic Industry Association ESHA European Small Hydropower Association ESTIF European Solar Thermal Industry Federation EUBIA European Biomass Industry Association EWEA European Wind Energy Association EURECAgency European Renewable Energy Research Centres Agency Associate members: EU-OEA European Ocean Energy Association EBIO European Bioethanol Industry Association EREF European Renewable Energy Federation Representation of European RES industry, trade & research

3. The Root of the Energy Problem for the EU • We 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 we are successful in energy diplomacy or not, we have no idea about the future cost of energy we will be paying to maintain current supply

4. Each dollar we spend on securing oil fields, borrowing money to pay for oil imports, or cleaning up an oil spill is an opportunity missed to invest in a sustainable energy future Richard G. Lugar Chairman, U.S Senate Committee on Foreign Relations, 30th of March 2006

5. We are already paying for 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

6. The forgotten COST: The REAL PRICE of our energy supply Who is paying the real price? The Electricity/Energy customer The general population Indirect burden via taxes, insurances and social contributions The State Increasing environmental costs, „political“ costs Global Loss of quality of life Electricity/Energy Price External Costs

7. RES 2020 Target and Climate Change Package Three targets on renewable energy, energy efficiency and greenhouse gases have been agreed for 2020. None of these targets has primacy over the others.

8. The 20% by 2020 EU target will only be met if legislation is adopted timely.The Directive should be in force as soon as possible in order not to cause market instability around 2010 (ending of RES-E & Biofuels Directives) The Framework Directive must be adopted as soon as possible.

9. Division of the target

10. Division of the 20% target among Member States How to best avoid lengthy negotiations ? Each Member State increases its renewable energy share by 13 percentage points from today’s 7% to 20% in 2020.

11. Pre-Conditions for RES uptake Change in Paradigm: individual responsibility for own energy supply, as local and decentralised as possible Households and private sector in general should primarily produce their own heat and electricity from RES sources in an efficient environment Combination with drastic change in consumption pattern and increase in efficiency Political commitment beyond ideologies and short term thinking to go for strong national RES Clear instruments, targets for rapid uptake and enforcement High level of market penetration by Independent RES Power Production Swift abatement of open and hidden harmful subsidies to incumbent industry As long as one or more of these conditions are not met – counterbalance is necessity

12. Precondition for reaching the targets Renewable Action Plans with sectoral targets for RES-electricity, RES heating & cooling Biofuels Interim targets every second year to check whether development is on track Penalities in case of not reaching the target Ensuring: development of ALL renewable energy technologies

13. Sectoral approach On Electricity: Provisions on grid issues and administration procedures must bemaintained or strenghened. On Heating/Cooling: Properdefinition, reliablestatistics, renewableheat obligation On Transport: ensuringsustainability. Promote R&D for second generationbiofuels.

14. Support Schemes in the RES-Electricity sector Harmonisation is premature at this stage. Nevertheless, a list of criteria applying to all national support mechanisms should be set to ensure successful deployment of renewable energy.

15. Strong Sustainability Criteria - Sustainability criteria should cover not only biofuels but also biomass whatever its final use (biofuels, food, construction, electricity...) - Criteria such as greenhouse gas reductions could be covered by the cross compliance rules. - No biomass outside these sustainability criteria should be counted towards the target.

16. Ensuring sustainability on global level Imported products should comply with similar standards as the cross compliance rules to avoid competition distortion. If these existing schemes meet the defined European criteria, they should be recognised as eligible for certification.

17. EU-wide trading mechanism Such a trading mechanism requires sellers and buyers. So far Member States calling for an EU-wide trading mechanism only expressed an interest in buying, not in selling.

18. EU wide Trading Mechanism There is no reason to introduce such an artificial mechanism if it is meant to: produce disincentives for domestic investment endanger prosperous support schemes provide additional bureaucratic mechanisms.

20. Market Based System: • It is not more “market oriented” to regulate prices rather than regulating quantities. The important thing is whether the regulation is effective. • OPEC is not “market oriented” just because it uses quotas to regulate – it’s a cartel. • WTO accepts price regulation not quantitative measures.

21. What does the investor in new capacity need A stable mechanism that replicates a bankable long-term Power Purchasing Agreements! • The longer the contracts… • … the lower the risk to investor • … the lower the cost to consumers • … the lower price/kWh required • 1 year contracts (spot market): Very expensive / kWh • 20 year contracts (Germany): Cheap / kWh • 10 year contracts: Certainty in investment period Uncertainty will make it very expensive to meet the target

22. The Main Question to ask Will the introduction of trade make it easier for MS to meet their targets cost effectively? Will trade attract investors and increase their confidence? What impact will trade have on existing successful mechanisms? (NB: Trade is a tool, not an end-goal in itself)

23. Trading RE vs Trading Emissions • ETS: • When introduced there was nothing, i.e. trade could only improve the situation • Emission allowances does not require physical infrastructure • RE • We are seeing the concrete results of the successful RES-E Directive, i.e. something can be ”disturbed” • The product needs physical infrastructure (grids)

24. Our Main Concern • National support schemes • Grid access and strategic grid planning • Planning and administrative procedures • Public acceptance How will trading impact national frameworks with regards to?

25. Adverse incentives Disincentive to develop national frameworks, including planning procedures and strategic grid planning Importing countries leaves the ”tricky” planning parts to exporting countries. Exporting countries bear grid operation, balancing and grid extension costs Public acceptance could be reduced if a MS – via GC trading – is funding employment abroad, paying for foreign CO2 reductions while getting no benefit in terms of diversification, reduced imports, increased security of supply and lower prices from zero-fuel RE sources

26. What would be the competition element? There is no incentive in the system to produce renewable energy most effectively ”Virtual trading” will create strategic gaming excersises where MS will adjust the national systems constantly to ensure payment is high enough to maintain domestic action (CO2 benefits, employment, economic activity) but not high enough to catch the attention of foreign exporters Result: Initial high payments. After that an avalanche towards the lowes common denominator with a price reflecting the cost of producing themarginal kWh

27. Effect on existing national mechanisms In MS with quota system: Producers will sell GC to UK / Italy. Existing investors experiance an immediate fall in ROCs prices the day the proposal is tabled In MS with price system (feed-in or premium): Could become very costly as producers sell GC abroad at highest price possible, while the governement will have to buy back GC from abroad

28. “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)

29. Renewables Market Development in the EU

30. CumulativeWind Energy Installed Capacity Europe 1995-2000 38.8%, 2000-2005 25.7% World 1995-2000 29.4%, 2000-2005 27.8% Source: EWEA,GWEC Average Annual Growth Rates

31. Relative Wind Energy Capacity in Germany and Spain with respect to the rest of EU (% MW) Source: EWEA

32. Cumulative Installed PV Capacities PV Source: EPIA

33. Annual Installed Global Capacity – Nuclear vs Wind

34. Geothermal Electricity

35. Small Hydro Power

36. Biomass Source: Aebiom 2007 statistics report

37. Major barriers to be removed • Failure of Governments to deliver: • Consequent action planning • Administrative capability and coherence • Public Information on RES • Sticking to promises given • Ability to agree to new, decentralised market structure • Flexibility • Market incentives • Market Fairness

38. Further information • EREC • European Renewable Energy Council • Renewable Energy House • 63-67 Rue d’Arlon, • 1040 Brussels, Belgium • www.erec.org • Thankyouverymuch for your attention!

39. Global Energy [R]evolution Results:

40. Why Scenarios? images of alternative futures neither predictions nor forecasts image of how the future could unfold useful tools for investigating alternative future developments and their implications Scenarios help us understand the limitations of our ‘mental maps’ of the world – to think the unthinkable, anticipate the unknowable and utilise both to make better strategic decisions Scenarios can create a vision for the future and guide decision makers

41. Objective of the study:Provide an outline of a global energy supply system that complies with key sustainability criteriaKey Targets:.A) climate change: Limit global mean temperature rise to below 2° C (-> “2 °C Scenario”)B) Technology Only proven technologies phasing out of nuclear energy on a global levelC) incentives for sustainable economic development

42. Approach • development of a 10-region model (based on IEA regions) • implementation of energy balances in MESAP/PlaNet, model calibration with IEA 2003 statistics • economic development and population development according to IEA World Energy Outlook 2004 (extrapolated to 2050) • Reference Scenario: based on IEA World Energy Outlook 2004 (extrapolated to 2050) • Alternative Scenarios: • demand scenarios: Ecofys • supply scenarios: DLR • Review process: • regional counterparts (academia, NGO) • EREC / Greenpeace

43. CO2-reduction target:- Limit global mean temperature rise to < 2° C- Reduce energy related CO2-emissions from 23 Gt/a today to ~ 11 GtCO2/a in 2050- Per-capita emission rights in 2050: ~ 1 tCO2/a

44. The Logic of “energy (r)evolution scenario” • From principles to practice - Use the current “time window” for • Step 1: Energy Efficiency • Step 2: Structural Changes • Decentralised energy and large scale renewables • Cogeneration • Step 3: Energy Efficiency and Transport • Efficient Public Transport Systems • Efficient Cars, Trucks etc. • sustainable Biofuels • Scenario principles in a nutshell • Smart consumption, generation and distribution • Energy production moves closer to the consumer • Maximum use of locally available, environmentally friendly fuels

47. Energy Consumption and Economic Development in China (1980-2004)