SLED scenario assessment for Macedonia

1. SLED scenario assessment for Macedonia László Szabó, PhD – András Mezősi, PhD –Zsuzsanna Pató, PhD Regional Centre for Energy Policy Research Skopje, Macedonia November 20, 2015

2. Outline of the presentation 1. Modelling methodology 2. Scenario definitions • Main assumptions on demand supply and taxation • Input data 3. Model results • Prices • Generation mix • Carbon emissions • RES support costs • Investment costs 4. Regional outlook

3. Methodology The SLED analysis is based on assessing three scenarios: • Reference scenario (REF); • Currently Planned Policies (CPP); • Ambitious Climate Scenario (AMB). • For Macedonia the SLED scenarios were based on Markal model scenarios (Macedonian Academy of Sciences and Art (MANU)). • Scenario assumptions were related to six dimensions: • carbon value; • energy/excise tax; • environmental standards; • deployment of renewable energy technologies; • deployment of conventional generation technologies; and • electricity demand (integrating assumptions on end-use energy efficiency improvement). • Main tools: Electricity Market Model and Network model

4. 1. European Electricity Market Model and EKC networkmodel

5. Introduction • Market impacts in the three analysed scenarios of SLED (REF, CPP, AMB) are modelled with REKK European Electricity Market Model (EEMM) • Network impacts with EKC network model • Highlights: • Electricity trade is modelled within the whole EU • Hydro generation is modelled under average rainfall conditions, but in the sensitivity assessment the impacts of dry years are also simulated • Benchmark costs on investment, RES supports are calculated

6. Model functionality Comments: • The map shows the main results of the model: • Competitive market equilibrium prices by countries • Electricity flows and congestions on cross-border capacities • 36 countries are handled in the model. • Morocco, Tunisia, Turkey, Moldova, Russia and Belarus are considered as exogenous markets • In these markets the net export position are equal with the fact in 2013 (assumed a baseload flow) • The model is calculating the marginal cost of around 5000 power plant blocks and sets up the merit order country by country. • Taking into consideration the merit order and exports/import, the model calculates equilibrium prices. • Power flow is ensured by 85 interconnectors between countries. 6

7. Basic economics in the model • Competitive behavior by power generators • „if someone is willing to pay more for my energy than what it costs me to produce it, then I will produce” • Prices equalize supply and demand • Efficient cross-border capacity auctions • „we export electricity to wherever it is more expensive and import from wherever it is cheaper” • Capacity limits • in production and cross-border trade • Large country prices around the region are exogenous to the model, the rest are determined by the model

8. Economic description and main assumptions Main model assumptions Main inputs and outputs of the model • The applied model is a partial equilibriummicroeconomic model in which a homogeneous product is traded in several neighboringmarkets. • Production and trade are perfectly competitive, there is no capacity withholding by market players. • Production takes place in capacity-constrained plants with marginal costs and no fixed cost. • Electricity flows are modeled as bilateral commercial arrangements between marketswith a special spatial structure. • Power flows on an interconnector are limited by NTC values in each direction. • Fuel prices reflect power plant gate prices, transportation/ transmission costs are taken into consideration. • Only ETS countries buy CO2 allowances • The model calculates regional power supply – demand balance at certain capacity and import/export constraints • Demand evolution, power plant capacities, availability and cross border power flow defines market price • Fuel prices are estimated based on available information

9. Model characteristics • In a year 90 reference hours are modelled, representing well the daily, weekly and seasonal variations • Power plant data comes from international database (PLATTS), but modelled country capacity data are coming from national sources of information • Future capacity expansion are from national strategic documents • Fossil fuel prices are based on international forecasts of EIA and IEA. • Natural gas price projections depend on the country: • TTF Spot price (Western Europe) • OIL index price • Mix of oil index and spot price

10. Components of marginal cost

11. Efficiency parameters, utilization rates • Taken from literature; dependent on the commission year and the type of the PP • Availability/utilization rates: • Hydro availabilities: dependent on country and season (based on historical utilization rates) • Wind an PV: taken from JRC

12. Determining short-term marginal cost Short term marginal cost = Fuel cost + CO2 cost + Variable part of the OPEX + Energy tax

13. Merit order curves - examples

14. Modelled baseload prices in 2015 (€/MWh), and the yearly trade flows 14

15. Modelled baseload prices in 2025 (€/MWh), and the yearly trade flows 15

16. Model output • Equilibrium price in a demand period • Baseload and peakload prices • Electricity trade between countries • Price of cross border capacities • Production by plants • Gas consumption • CO2 emission

17. Network modelling • EKC network model was used for the assessment • Representatives hours of years 2020 and 2025 were modelled, to assess the network impacts on the whole region • The following assessments were carried out: • Steady-state and contingency analyses • Evaluation of net transfer capacity • Transmission grid losses

18. 2. Scenariodefinitions

19. Outline • Main information sources • The consultation process • Scenario definitions • Main input datatothemodels

20. Main information sources • Macedonian Academy of Sciences and Arts (RCESD-MASA), Scenarios based on the First biannual update report on Climate Change (September 2014) – based on the WOM, WEM and WAM scenarios of Markal • Second Energy Action plan of Macedonia (2014) • Report on Energy & Climate Policy – Macedonia (2014) • Strategy for utilisation of renewable energy sources in the Republic of Macedonia by 2020 (2010) • Important information source was the stakeholder consultation with Ministry representatives held in November 2014

21. The consultation process A two-phase feedback-loop was built in the SLED project: • 2014: consultation on main scenario assumptions • 2015: preliminary results were delivered - further alignment of assumptions and data • Timeline:

22. SLED Scenario definition- Reference

23. SLED Scenario definition- CPP, AMB

24. Electricity consumption • Reference: we can observe a significant difference between the REF and CPP-AMB scenarios, due to the nature of REF – it represents a Without Additional Measure (WAM) scenario • Energy efficiency improvements are the main drivers for further reductions in the energy efficiency scenario

25. Renewable electricity assumptions • They refer to the WOM, WEM and WAM scenario RES penetration. • Only capacity values are applied in the model • In this way capacity development is determined, while production is forecasted by the model up till 2030 assuming country specific utilisation hour (solar and wind) and average rainfall for hydro

26. RES-E capacities 1 REFERENCE and Currently Planned Policy scenario (CPP) capacity values (MW) Assumptions: • Hydro capacity expansion is limited to 2016 level • From 2017 no any new capacity is installed in the scenario • Thus it serves as a comparative scenario

27. RES-E capacities 2 CPP scenario capacity values (MW) AMB scenario capacity values (MW) • Significant increase in hydro capacities (over 60% in next 15 years) • Wind also contributes with up to 150 MW capacities

28. Present cross-border capacity HR HU 758 429 689 507 RS BA 403 488 162 250 BG 253 583 440 223 96 491 540 483 215 ME MK GR 329 151 0 223 400 IT 250 0 400 250 AL

29. Planned cross-border capacities HR HU RO 800 800 RS BA 600 600 BG 500 600 1000 600 400 600 600 Under construction and approved categories are used in the model runs till 2030. IT-AL is not realised in the modelling period. ME MK GR 1000 600 1000 600 500 IT 500 500 AL

30. Assumed capacities I. Present installed capacity in the Region • Serbia is the biggest producer in the region followed by Macedonia • Hydro generation presents very high shares compared to EU average shares (E.g. Albania, Montenegro) • Natural gas has limited role in the regional generation mix

31. 3. Scenario Assessment Results

32. Outline • Wholesale price impacts • Generation mix, CO2 impacts • Impacts on system costs: • Investment costs, • RES support costs • Sensitivity assessment: Impacts of reduced rainfall • Network impacts • Contingencies • NTC valuations • Network loss impacts

33. Modelling result – baseload electricity price, (wholesale) €/MWh in real term

34. Modelling result – peakload price, (wholesale) €/MWh in real term

35. Wholesale price evolution • Both baseload and peakload electricity wholesale prices have a significant drop between 2015-2020, followed by a continuous increase in the later periods. • The main factors influencing the wholesale price developments in Macedonia are the followings: • Generation expansion in the fossil based generation in the region is high. Over 7000 MW capacity (mainly lignite and coal) is built in the countries: AL; BA; BG; GR; HR; HU; ME; MK; RS; RO according to the national plans • New RES capacities above 12000 MW are also contributing to the price drop till 2020. • Higher interconnectedness in the region also allows trade of electricity (higher NTC) • These new capacity expansion is illustrated in the following slide for the region

36. New PPs in the wider region* New coal-based power generation, MW New RES-E generation capacity, MW Region includes the following countries: AL; BA; BG; GR; HR;HU; ME; MK;RS;RO;

37. Electricity mix

38. Generation mix and CO2 emissions • Macedonia is characterised by dominating coal and lignite generation share and low level of import in the modelled period. • The Reference scenario sees further expansion of fossil generation with increasing carbon emission levels. • Import is increased in the scenarios except for the AMB scenario, where it remain at low level. • For comparison WEM of MARKAL modelling is at 600 GWh, and WAM is 300 GWh export. • Concerning renewables, hydro is expanded in the CPP and AMB scenarios, the rest of the technologies have limited contribution (lower utilisation rates) • Significant drop in CO2 emissions is observable in the CPP and AMB scenario compared to the reference year values. • Still, Macedonia is characterised by higher carbon intensity than the ENTSO-E average in all years.

39. CO2 emissions per capita

40. Total investment cost of new PPs, m€, 2015-2030 Source of investment cost: Serbian Energy Strategy and Fraunhofer (2013) • There is a significant investment cost need in the various scenarios: • The Reference scenario has a 2.3 Billion € investment need over the following 15 years period, reduced to 1.4 Billion in the AMB scenario due to the lower coal and lignite expansion • The main contributing part in the REF scenario are the coal and lignite plants , while in the CPP and AMB scenarios these are the hydro investments, but these are still the most economical RES options in the country.

41. Calculation of the RES-E support budget • Support budget = (LCOEt-P)*Generated electricity • LCOEt: Levelized cost of electricity generation of technology t ~ average cost of electricity production • P: Modelled baseload electricity price (except PV, where peak load electricity prices are taken into account) • LCOE figures are based on literature data (Ecofys, 2014) • 55 €/MWh for hydro • 90 €/MWh for wind • 110 €/MWh for biomass • 105 €/MWh for PV • 80 €/MWh for geothermal • Baseload and peakload prices are the results of the modelling • RES fee = RES support budget/ electricity consumption

42. Yearly RES-E support need, m€/year

43. Unit RES-E support, €/MWh

44. RES-E support • For comparison: Germany has a support level of over 60 €/MWh, Czech Republic, Portugal: over 12 €/MWh in 2012. • LCOE values show that this level of support will be sufficient to cover Hydro based generation, but other types of RES-E would require higher rates. • The higher rates for the AMB scenarios shown in previous figure is due to the new RES capacities in biomass, PV and wind, so careful timing of these capacities should be planned. In PV and Wind high cost saving could still appear due to the technology learning effect.

45. RES-E support vs CO2 revenues

46. Sensitivity runs: dry years In order to check the impacts of a dry year sensitivity runs were carried out on all scenarios: • A severe drought is modelled (lowest precipitation of last 8 years) • Droughts assumed to take place in the whole region of South-East Europe • Capacity values are the same as in the original scenarios, but hydro availability reduced according to the reduced rainfall

47. Impacts of reducing rainfall 1

48. Impacts of reducing rainfall 2

49. Impacts of reducing rainfall 3 – wholesale price increase

50. Network modelling results- contingencies The increasing consumption level and new generation pattern does not cause problem in the transmission network of Macedonia.