Analysis of RES-E Grid Integration Costs in European Countries

1. RES-E Case Study Analyses and Synthesis of Results Dr.-Ing. Derk J. Swider Institute of Energy Economics and the Rational Use of Energy (IER)Universität Stuttgart, Germany Coordinator of WP2 and WP5 of the GreenNet-EU27 project, financially supported by the European Commission (Contract No. EIE/04/049/S07.38561). Legal Disclaimer: The sole responsibility for the content of this work lies with the authors. It does not represent the opinion of the European Communities. The European Commission is not responsible for any use that may be made of the information contained therein.

2. RES-E Case Study Analyses and Synthesis of Results Introduction Description of electricity systems Conditions for RES-E grid integration Costs for RES-E grid integration Best-practice cases for RES-E grid integration Conclusions Outline

3. Proposition:The costs of integrating RES-E in an existing grid can form a significant barrier for the deployment of RES-E. Just starts to get into the focus of energy policy makers as it gains importance if wind offshore is considered. The allocation of grid reinforcement and extension costs may lead to first-mover disadvantages. This may reduce the willingness to invest and may thus hamper the deployment of RES-E. Motivation

4. For different European countries the questions What conditions apply for RES-E grid integration? Who has to pay for any additional costs? are answered based on literature reviews and stakeholder interviews. Country specific analysis

5. Considered electricity systems differ in terms of their respective size but are similar in consumption per capita. Electricity systems (I)

6. Electricity systems (II) 2010 targets (EU Directive 2001/77/EC)

7. Feed-in tariff Are characterized by a defined price paid to the RES-E generators. Any arising additional costs are passed through to the consumers by way of a premium on the price. Has the advantage of investment security but also the disadvantage of a risk of over-funding. Quota Are characterized by selling RES-E at market prices. The financing of additional costs is remunerated by all consumers (in some countries producers) obliged to purchase a certain number of certificates from RES-E producers. Has the advantage of a market-based instrument but also the disadvantage of risks for investors. Supporting schemes (I)

8. Most of the countries decided to use the feed-in tariff as a supporting scheme for the development of RES-E. The implementation of these schemes is different from country to country which effects the RES-E development. Supporting schemes (II)

9. In general, national governments demand RES-E to be connected with priority compared to conventional generation. They are usually connected to the next available connection point of the existing grid with the procedure defined in grid codes. Normally, RES-E does not have the same requirements as conventional plants regarding the provision of system services. Grid connection (I)

10. Grid connection (II) Distribution grid taken from WP6 presentation Transmission grid taken from WP6 presentation

11. In the case studies three cost categories are distinguished: Shallow grid integration costs; Deep grid integration costs; Other fixed and variable costs. Costs related to the central connection point of a RES-E site are considered as shallow grid integration costs All expenses in the existing grid related to the connection of the new RES-E site are considered to be deep grid integration costs. Grid related costs

12. Cost allocation (I) • Super-shallow approach • Advantage: high incentive to invest • Shallow approach • Advantage: reasonable incentive • Deep approach • Advantage: reflects real costs taken from WP6 presentation All these approaches may lead to an inefficient systemas they do not sufficiently provide locational signals.

13. It can be seen that there is no consensus, due to the fact that there are many different stakeholders involved. RES-E cost allocation is of major importance and can adversely affect the economic viability of RES-E. Cost allocation (II)

14. Grid integration costs are often not specified separately or it is not always clear what they comprise. Grid integration costs are always site specific; influencing factors are most importantly distance, trajectory, etc. Grid integration costs (I) (EUR/kW)

15. Grid integration costs (II)

16. Cost estimation based on the average lifetime levelized electricity generation cost (EGC) approach as applied in the OECD study. The OECD study focused on calculating busbar costs, at the station, and did not include transmission and distribution costs. Unit generation costs (I) • With:It Investment expenditures in the year tMt Operations and maintenance expenditures in the year tFt Fuel expenditures in the year tEt Electricity generation in the year tr Discount rate

17. Feed-in tariffs for established RES-E technologies are usually well chosen and provide sufficient support to invest. Unit generation costs (II) • Feed-in tariffs for newer RES-E technologies, as for example for wind offshore, do often not provide sufficient support to invest.

18. Best practice cases (I) • For RES-E the most important and influencing actors in the energy market are energy policy makers and associated regulators. • Often two partly opposite aims are followed: • establishing an efficient and cost minimized market • introduction of a defined share of RES-E generation • Principally fixed RES-E investment incentives, like a feed-in tariff, reduce the developers’ exposure to risk. • Regarding the past development of RES-E the situation in Germany seems to be the most favorable of all considered countries. • However, for wind offshore the grid integration costs may constitute a significant barrier to invest (lead Germany to switch to a super-shallow approach).

19. Best practice cases (II) taken from WP6 presentation

20. Large-scale RES-E grid integration… …may be hampered by barriers due to the chosen supporting scheme and cost allocation approach (first-mover disadvantages). …requires clarification concerning the distribution of any additional expenses between the market actors (plant and grid operators). Therefore… …create mechanisms in grid regulation policies able to identify and remunerate investments caused by RES-E grid integration. …try to have the major part of the grid integration costs, especially deep costs, covered by the grid operator (remunerate to society). Recommendations Then barriers for new RES-E deployment are reduced and ambitious goals can be met with minimal (extra) costs for society.