Main regulatory tasks in RES deployment Prepared by Prof. Vidmantas Jankauskas

Transcription

1 Main regulatory tasks in RES deployment Prepared by Prof. Vidmantas Jankauskas www. erranet.org

2 Agenda 1. Renewable energy era 2. Regulators tasks in supporting RES-E development 3. Renewable energy support in the EU 4. New tasks to EU regulators in RES support 2

3 The renewable energy era 3

4 Development of wind power plants in the world GW ,5 9,7 13, ,3 31,2 39,3 47,

5 Development of Solar PV in the world GW ,8 71,8 41,3 5,1 6,7 9,4 16,2 24,

6 New power generation capacities installed in 2015 in the EU 15 GW Wind Solar PV CSP Coal Oil Gas Nuclear Biomass Installed Decommissioned 6

7 Drivers of renewable energy development Mitigation of the climate change Reduction of air pollution Increased energy security Enhanced resilience of energy system Expanded energy access Local economic value and job creation 7

8 Shrinking cost of Solar PV Source: IRENA 8

9 Global levelised cost of electricity (c/kwh) Fossil Solar CSP Solar PV Wind off-shore Wind on-shore Source: IRENA 9

10 Global weighted average total installed costs $/kw Solar PV On-shore wind Source: IRENA 10

11 Subsidy-free renewable energy projects The falling cost of wind and solar projects combined with advances in battery storage technology will unlock about 20bn of investment in the UK between now and 2030, Aurora Energy Research said. Onshore wind and solar will both be viable without subsidies by 2025 in the UK, it added. The prediction comes as the Swedish energy firm Vattenfall announced that it had won a Dutch government tender to develop a wind farm which will become the world s first without subsidies when built off the Netherlands coast in The Guardian, March 20,

12 2. Regulators tasks in supporting RES-E development 12

13 Regulator s tasks depend on the national legislation (1) The national policy on the RES targets is set by the Government (Parliament) RES-E support principles are defined in the national legislation Concrete support scheme s elements (level of FIT and its adjustment, penalties in TGC) could be set by the ministry, regulator or even by the Law 13

14 Regulator s tasks depend on the national legislation (2) Obligations to purchase RES-E, to connect to the grid, to give a priority of entrance in the national legislation Connection of RES-E to the grid rules, balancing and settlement rules are usually approved by the regulator RES-E licensing and market monitoring is usually a regulator s task 14

15 The main regulatory tasks Contributing to the design and implementation of RES-E support schemes Regulating grid access and integration for RES-E (balancing and settlement regime, grid connection and development rules, etc.) Licensing and monitoring of the RES-E market RES-E certification Promotion cross-border cooperation in RES-E utilization 15

16 Regulatory governance, capacity building for regulators Promotion of RES-E is a relatively new task for energy regulators Considerable regulatory knowledge and human resources are to be developed RES certification, licensing and market monitoring Regular consultations with the sectorial ministry and other stakeholders 16

17 Regulatory and pricing policy All stakeholders Large scale installations Distributed generation Decentralised renewables for electricity access Administratively set pricing mechanisms (FIT, FIP) Net metering/billing Grid arrival policies Legal provisions Quotas and certificates (TGC) Competitively set pricing mechanisms (auctions) Administratively set pricing mechanisms (FIT, FIP) Pricing policies Source: IRENA 17

18 Production support by a regulated feed-in tariff Costs, prices MC: marginal cost of renewable electricity production P FIT P market Feed-in tariff for renewable electricity Price support for 1 MWh of renewable electricity Market price of electricity Q p Q FIT Renewable electricity, MWh 18

19 FIT system should be combined with Obligatory purchase of RES electricity by the market players Priority access to the grid for the RES electricity procedures for access should be clear and transparent, permissions, payments must be simple and reliable 19

20 Regulated price (FIT) and regulated premium (FIP) schemes Costs, prices MC renewable Costs, prices MC renewable P 2 P 1 Support for RES-E Market value of RES-E Feed-in Tariff Market price t2 Market price t1 P FIP P p Feed-in premium per MWh Regulated premium t1 t2 t1 Market price Q p Q FIT MWh Q p Q FIPt1 Q FIPt2 MWh FIT scheme s quantity outcome is not directly sensitive to changes in market prices FIT support budget is sensitive to changes in market prices FIP scheme s quantity outcome is sensitive to changes in market prices FIP support budget can be capped more easily than a FIT budget 20

21 Tenders/Auctions A tender is not a support scheme by itself; it can be combined with all other support schemes, most commonly with FITs or FIPs In traditional FIT/FIP schemes the support level is determined administratively, usually based on estimated production cost (LCOE) In a tender/auction, the FIT/FIP is determined in a competitive procedure (requirement: demand for support greater than tendered volume) 21

22 Auctions became popular Number of countries using FiT/FiP and auctions Source: IRENA Auctions FiT/FiP The potential of auctions to discover real prices has been a major motivation for their adoption worldwide In 2016, Solar energy was contracted at a global average price of 50 $/MWh, a striking difference from 2010 s average price of almost 250 $/MWh 22

23 Controlling policy costs Cost control can be achieved by tendering the access to a FIT/FIP, or by defining a cap for the support budget Support levels can be adapted also according to predefined and fixed digression rates Alternatively, tariffs can be adapted after a periodic review to enable reaction to unexpected developments Third possibility is to decrease tariffs in line with the additionally installed capacity during a certain time period 23

24 Quota obligations based on tradable green certificates (TGC) The Government defines targets for RES-E deployment and obliges any party of the electricity supply-chain (e.g. generator, wholesaler, or consumer) with their fulfillment The share required usually increases gradually over time, with a specific final target and end-date Compliance is verified by purchased renewable energy certificates Renewable energy certificates are tradable Renewable energy producers sell their products to the main (non-renewable) energy markets 24

25 TGC application scheme Market price of renewable electricity MC A MC MC B P re P e Market price of 1 MWh tradable green certificate Electricity market price Renewable electricity sold without quota obligation Q p Additional renewable electricity after quota obligation Q h Total renewable electricity obligation Renewable electricity, MWh 25

26 Imperfect information one of the regulatory pitfalls Cost, price MC1 Cost, price p2 MC1 MC2 MC2 p1 p1 q1 q2 q FIT system TGC system q1 q 26

27 Net metering It is a variation of a feed-in tariffs that allows a two-way flow of electricity between the electricity distribution grid and customers with their own generation Depending on the system, the producers pay only for the net electricity used, or producers are paid for every kilowatt hour (kwh) they feed into the grid The compensation is usually in energy terms (i.e., credit in kwh), and the credit can be applied to offset consumption of electricity within the current billing cycle (e.g., one month) and often in future billing cycles as well 27

28 Net billing A prosumer can consume electricity generated by its equipment in real time and export any generation in excess of on-site consumption to the utility s grid Net billing allows Solar customers to generate electricity for personal use, and sell any excess energy to the utility company at wholesale or avoided cost prices, while purchasing power at the retail rate However, under net billing, banking of kilowatt-hours within a billing cycle to offset future consumption is not allowed. Rather, all net energy exports are metered and credited at a predetermined selling rate the moment they are injected into the grid 28

29 Net metering/billing: strengths and limitations Can deliver savings both to the end-consumer and the system as a whole Help reduce transmission and distribution losses and congestion and peak demand of the system Source: IRENA Strengths Limitations May jeopardise a system s cost recovery and create crosssubsidisation among those customers who self-consume and those who do not in cases where distributed generation levels are high Risk that retail tariffs do not accurately reflect the actual value of electricity at each location and time period 29

30 Some further approaches of net metering Net metering can have energy storage to store electricity locally instead of sending it to the grid Time of use net metering requires smart meters assessing different price of electricity during the day In the United States, net metering had been adopted in 41 states in 2014, and the majority of solar installations across the country were operating under such a scheme (IRENA, 2017). 30

31 Financial and fiscal instruments Aim to render RES technology less expensive and encourage the respective industry leading to cost reductions To improve access to capital, lower financing costs, reduce the burden of high upfront costs or the production costs of large-scale renewable energy projects Can be introduced in the form of tax incentives, rebates, grants, performance-based incentives, concessional loans and guarantees, and measures to mitigate risk 31

32 Some financial and fiscal instruments Tax incentives are typically offered in the form of reductions in sales, energy, value-added or other taxes or in the form of investment tax credits, production tax credits or accelerated depreciation. Capital subsidies can be used to help create a level playing field with conventional energy technologies and reduce upfront capital costs. Grants are normally provided by local governments, utilities or non-profit institutions to fund feasibility studies; research and development; system demonstration, installation and operation; and business development. 32

33 Regulatory objectives when connecting RES-E plants to help meet RES-E policy objectives (e.g. quantitative RES-E capacity or consumption targets) to promote the utilisation of best quality RES resources to select best quality applications to ensure that what is licensed will indeed be built to minimise the cost of RES-E integration for end customers 33

34 Poor RES-E support design may lead to excess demand for grid connections and development stress on the support budget negative reaction of the customers and investors undermine credibility in regulatory decisions 34

35 The main problems of the renewable support policy Too high or badly designed feed-in tariffs or premiums Too low penalties in tradable green certificates schemes Administrative barriers: licenses, permits, planning procedures Barriers for the grid connections Etc

36 3. Renewable energy support in the EU 36

37 The problem High dependency on imports Dependency on limited fossil fuels The impact of fossil fuels on the environment The need to combat the global climate change 37

38 RES in the centre of the EU energy policy RES Directive, enacted in 2009, set a EU wide target: 20% of RES in the energy consumption in 2020 Individual targets for all Member States (MS) At the end of MS have already reached the target Share of RES has already increased from 9% in 2005 to 17% in 2016 A new target for % 38

39 The aim of making the EU world number one in RES RES are playing a major role in energy security ( 16 bn savings for fossil fuel imports in 2015) Thanks to fast decreasing costs, RES can gradually be integrated into the market RES go hand in hand with energy efficiency RES are one of the pillars of decarbonisation (reduced GHG emissions by 436 Mt in 2015) RES play a major role in making the EU a global leader in innovation European Commission, February

40 Share of renewable energy in gross final energy consumption 40

41 Installed RES capacity (MW per cap) 41

42 RES support schemes in the EU MS 4 main support instruments: FiT, FiP, TGS and investment grants 42

43 Share of total electricity produced receiving RES support in 2014 Source: CEER 43

44 Different support schemes: in 2015 FiT was the most popular (21 MS applied, 13 of them used only this scheme) FiP was applied in 6 countries (Czech Republic, Finland, Germany, Italy, Netherlands, and the UK ) Green certificates schemes were implemented in seven countries although they are being phased out in Italy, Poland and in the UK Investment grants were used as support type in Austria, Finland, Luxemburg, Malta (for PV) and in Sweden (for PV). Source: CEER: Status Review of Renewable Support Schemes in Europe,

45 Weighted average support level in 2014 and 2015, by country Source: CEER 45

46 Tendering procedures introduced Tendering procedures for the determination of support levels (basis for FIT and/or market premium) have been introduced: in Croatia (all new plants under FIT & FIP scheme), in Germany (ground mounted PV Pilot tender in 2015, and from 2017 onwards for all PV and wind onshore installations > 750 kw, and biomass > 150 kw), in Italy (for larger RES power plants > 5 MW), in Poland (2016), Slovenia (end of 2016) and in Spain (all new plants since 2016). 46

47 New RES support scheme in Spain Investment compensation: Income for capacity unit that covers investment costs, for Investment costs O&M costs IC OC Market every average facility, not recovered through the market sales revenues in the entire life of each standard facility (per MW) Operational compensation: Income covering, where applicable, the difference between operation costs and market sales revenues for each standard facility (per kwh)

48 New tasks to EU regulators in RES support Source: Arthur Cox 48

49 RES support policies are not flexible enough Costs of RES electricity due to technological improvements and economies of scale are quickly becoming lower RES support policies are not flexible to follow the change It causes discontent of consumers seeing increase of their energy bills Politicians want to change the situation by making amendments and even retroactive actions It limits investments in RES and makes them more risky 49

50 Regulatory failures in the EU MS 50

51 Need for revision of the support schemes Sometimes too fast and uncontrollable RES penetration was due to wrong, not flexible support policies There is a need for more market oriented RES support policies, with a fast adaptation to the changes in technologies and electricity markets 51

52 New guidelines on the RES support policy in the EU Under the new rules, renewable energy subsidies will have to be replaced by marketbased mechanisms for all but the smallest of clean electricity generators by 2017 Feed-in tariffs will be replaced by feed-in premiums that expose RES-E to market signals Competitive bidding processes will become the rule, forcing power generators to sell electricity on the market 52

53 RES support mechanisms Support mechanisms must be designed to integrate RES in the market and should be granted in an open, transparent, competitive, non-discriminatory and cost-effective manner Consistent with the Guidelines on aid for environmental protection and energy Support schemes must be open to projects from other Member States for at least 10% of the new capacity between 2021 and 2025, and 15% thereafter Co-operation Mechanisms retained Guarantees of Origin continue: if a RES support scheme exists, Guarantees of Origin will be auctioned to offset the cost of the RES support 53

54 Regulator s role in supporting RES (according to the Winter Package) - Licensing procedure with special license conditions (setting support period, obligatory purchase conditions, balancing requirements) - Supporting network connection of RES facilities (discovering and eliminating the disincentives of the DSOs) - Supporting smooth system integration of RES (special conditions in the Grid and Distribution Codes) - Setting Balancing Responsible Party(-ies) for RES producers - Announcing new conditions of RES support schemes targeting new players 54

55 Priority dispatch Current position: priority dispatch for all RES, CHP, some indigenous resources; lacks clarity Issue: when everybody has priority, no one has priority; distorts market; loss of flexibility incentives Solution: merit order dispatch, exemptions for small scale and demonstration projects 55

56 Priority access Current position: priority access for all RES & CHP, no definition Issue: balancing economic efficiency, secure system operation, and achieving decarbonisation objective; legal certainty Solution: clear curtailment rules: voluntary & market-based where possible, clear curtailment order 56

57 Balancing responsibility Current position: no principles defined Issue: BR is fundamental for flexibility (e.g. aggregation), stable network & liquid shortterm markets Solution: BR for all with possible exemption for small scale and demonstration projects or compensation when scheme was approved 57

58 Self-consumption Falling technology costs mean that more and more consumers are able to reduce their energy bills by using rooftop solar panels and batteries. The revised Electricity Directive defines 'active consumers' and requires Member States to ensure their right to generate electricity for either their own consumption or to sell it on the market without discrimination, subject to adequate contribution to network costs. 58

59 Self consumption of RES The new Renewable Energy Directive defines renewable self-consumers as a sub-category of active consumers. It ensures that self-consumption behind the meter is possible. It also enables joint self-consumption for persons living in multi-apartment blocks. Renewable self-consumers should be remunerated for the electricity they feed into the grid through an administratively set price or aggregators. 59

60 Energy communities Citizen participation through renewable energy communities has already resulted in substantial added value in terms of local acceptance of renewable energy and access to additional private capital. The revised Electricity Directive requires Member States to put in place an appropriate legal framework to enable the operation of local energy communities and allow them to consume the electricity they generate with or without a connection to distribution systems. The revised Renewable Energy Directive sets forth new provisions to empower renewable energy communities to generate, consume, store and sell renewable energy, without being subject to disproportionate procedures and charges that are not cost-reflective 60

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