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Energy transition on track or in troubled waters: Insights from recent trends and experiences in Germany and elsewhere
Kyoto University
Dr. Felix Chr. MatthesKyoto, 30th September 2016
• German population 81 million• German GDP in 3,026 bn € (3,359 bn US$) in 2015
- Highly industrialized (26% of GDP from industry)
• Strong manufacturing industry
• Strong primary industries (2015: Crude steel production 43 mln t, Primary aluminum production 531,000 t)
- Strong net exporter (net trade surplus in 2015: ~ 248 bn €)
• Primary energy (2015): Oil 34%, natural gas (21%), hard coal (13%), lignite (12%), renewables (12,5%) , nuclear (7,5%)
• Power generation (2015): lignite (24%), renewables (31%), hard coal (18%), nuclear (14%), natural gas (9%), others (4%)
• Strong federal structures (significant impact of states on energy legislation), strong municipalities (~900 municipal utilities)
• Member of the European Union (internal market, increasing integration of energy and climate policies)
Transforming the energy systemEconomic background
• Primary drivers- contribution to avoid dangerous climate change
- minimize overall vulnerability of the country (e.g. nuclear risks, energy security)
- modernize the country with cutting-edge technology to strengthen the economic basis of the country
• There are however other dimensions- major investment needs exist anyway
- increasingly volatile global fuel markets
- major technological innovation and cost decrease is underway (solar PV, offshore wind, storage, ICT)
- major cost increases for conventional technologies
- deep crisis of coal industry (high fixed costs and uncertain future)
- major uncertainties on the macroeconomic and international policy environment
Transforming the energy systemThere are many drivers
• Liberalised energy markets (since 1996) - utilities are increasingly vulnerable to switching customers
- unbundled electricity and gas network operations (legal/ownership)
- central trading platforms (electricity exchange) provide price transparency
- broad market transparency on generation, networks
• A strong tradition of decentral/cooperative economic activities (since the early 20th century) - strong decentral/cooperative sector (businesses, financial sector etc.)
- robust legal and institutional framework for the decentral/cooperative sector
Transforming the energy systemNot to forget the broader framework
• Highly controversial Energy Concept 2010 (September 2010)- Lifetime extension of nuclear plants (by 8 to 12 years)
- Ambitious climate and energy policy targets
- Some additional policies (Energy & Climate Fund!), significant gaps in respective policies
• Revision of the 2010 decisions (Spring/Summer 2011)- Reversion of NPP lifetime extension, acceleration of phase-out
- Confirmation of targets
- Additional policies (efficiency, CHP, renewables, infrastructure, regulation)
- Result: continuation of (well-discussed and well-prepared) strategies, now with a clear long-term focus
• Comparable debates within the EU (apart from nuclear): Low-carbon Economy Roadmap 2050, Energy Roadmap 2050)
The ‘Double U-turn’ of German PolicyIt was not only about nuclear!
The German case study‘Energiewende’ as a comprehensive strategy
Gross final consump-
tion
Power generation
Primary energy
Space heating
Final Energy
Power consump-
tion2011 -41%2015 -47%2917 -54%2019 -60%2020 -40% 18% 35% -20% -20% -10% -10%2021 -80%2022 -100%2030 -55% 30% 50%2040 -70% 45% 65%
2050 -80 to -95% 60% 80% -50% -80% -40% -25%
Base year 1990 2008 2008 2005 2008 2010
GHG emissions
Renewable Energies Energy efficiency Nuclear power
BReg 2010+2011
The historical contextElectricity generation & electricity policy
Kohlenstatistik, Matthes (1999, 2015)
0
100
200
300
400
500
600
700
800
900
1.000
1950* 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050
TWh
Other renewables
Biomass
Solar
Wind
Hydro
Other fossil
Natural gas
Hard coal
Lignite
Nuclear
* 1950-1954: Western
Germany only
Take-off &
breakthrough
Stabilized
growthRenewables Policy Main source of
electricity
Mandatory use
of domestic coal
Shift to imported hard
coal & hard coal decline
Decline & phase-out
of hard coal and ligniteCoal Policy
Break-
throughStagnation Phase-outNuclear Policy
The historical contextLong history of CO2 emissions & ambitious goals
CDIAC, UBA, Öko-Institut
0
200
400
600
800
1,000
1,200
1,400
1800 1825 1850 1875 1900 1925 1950 1975 2000 2025 2050 2075 2100
mln
t C
O2
CO2 from other fuels CO2 from gaseous fuels CO2 from liquid fuels CO2 from solid fuels
World War I
Great Depression
German unification
World War II
Industrialization
Post-war recovery
Decarbonizationtargets
Financial crisis
Data include theGerman DemocraticRepublic (GDR) for1948-1990
The EU ETS: Robust long-term commitmentLong-term caps and/or other long-term mechanisms
Öko-Institut 2014
0
1.000
2.000
3.000
4.000
5.000
6.000
1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
mln
t C
O2e
Aviation (national & international) Non-ETS sectors EU ETS (proxy data from 1990 to 2004)
2020 Goal-20...-30%compared to 1990
2030 Goal-40...-55%
2050 Goal-80...-95%
Back-loading
2013/2020
Linear Reduction Factor1.74%2.20% (2021-)
EU ETScap
2050: -75%
The bigger picture on the future electricity systemThe market and regulatory environment
Matthes 2016
New quality of (global) fuel market uncertainties!
New quality of technology development / cost uncertainties!
New quality of regulatory uncertainties?
Liberalisation/ Restructuring
DeepDecarbonisation
New technologies
with neweconomic
characteristicsEnergy
efficiencyimplications
DecentralisationDigitalisation
The competitiveenvironment
is there to stayFree
customer’s choice
Unbundling
New technologies
Strongcoordination
needsNew
playersNew
economicappraisals
Infrastructuredependency
Stronger and partly
new roles fortransmission
anddistribution
gridsUnsettled
roleof storage
Sectorintegration
New energy
demandsFlexibilityoptions
fromsector
integration
The changing costs of new supply systemsStorage costs as (additional) game changer?!
0,1
1
10
100
1 10 100 1.000 10.000 100.000 1.000.000
USD
(201
4) p
er M
W /
MW
h
MW / MWh (cumulative)
Crystalline Si PV Module
Li-ion EV Battery Pack
BNEF, Öko-Institut
Energy transition in GermanyExpansion of power generation from renewables
BMU. BMWi, Öko-Institut 2014
0%
20%
40%
60%
80%
100%
0
100
200
300
400
500
600
700
1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
TWh
Geothermal
Landfill gas
Waste (biogenic)
Biomass
Photovoltaics
Wind - offshore
Wind - onshore
Hydro
Historicaldata
National goals
Legal EUcommittment
Minimum expansionEnergy Concept 2010/2011
Expansion corridor EEG 2014
Expansion corridor forpower generation from RES
to 80-100% in 2050
Germany: Historical & projected roll-out of power generation from RES
Structural change in power generation structuresHistorical patterns (average week, stylized)
Matthes 2016
0
10
20
30
40
50
60
70
80
Mon Tue Wed Thu Fri Sat Sun
GW
Peak
Medium
Base
Load
Average week
Structural change in power generation structuresHistorical data 2015 (average week)
Matthes 2016
0
10
20
30
40
50
60
70
80
Mon Tue Wed Thu Fri Sat Sun
GW
Solar
Wind
Residual
Load
Average week 2015
Structural change in power generation structuresIllustrative projection 2025 (average week)
Matthes 2016
0
10
20
30
40
50
60
70
80
Mon Tue Wed Thu Fri Sat Sun
GW
Solar
Wind
Residual
Load
Average week 2025
Structural change in power generation structuresIllustrative projection 2035 (average week)
Matthes 2016
0
10
20
30
40
50
60
70
80
Mon Tue Wed Thu Fri Sat Sun
GW
Solar
Wind
Residual
Load
Average week 2035
Structural change in power generation structuresIllustrative projection 2045 (average week)
Matthes 2016
0
10
20
30
40
50
60
70
80
Mon Tue Wed Thu Fri Sat Sun
GW
Solar
Wind
Residual
Load
Average week 2045
Structural change in power generation structuresHistorical patterns (windy & sunny week, stylized)
Matthes 2016
0
10
20
30
40
50
60
70
80
GW
Peak
Medium
Base
Load
Week No. 16
Structural change in power generation structuresHistorical data 2015 (windy & sunny week)
Matthes 2016
0
10
20
30
40
50
60
70
80
Mon Tue Wed Thu Fri Sat Sun
GW
Solar
Wind
Residual
Load
Week No. 16 2015
Structural change in power generation structuresIllustrative projection 2025 (windy & sunny week)
Matthes 2016
0
10
20
30
40
50
60
70
80
Mon Tue Wed Thu Fri Sat Sun
GW
Solar
Wind
Residual
Load
Week No. 16 2025
Structural change in power generation structuresIllustrative projection 2035 (windy & sunny week)
Matthes 2016
0
10
20
30
40
50
60
70
80
Mon Tue Wed Thu Fri Sat Sun
GW
Solar
Wind
Residual
Load
Week No. 16 2035
Structural change in power generation structuresIllustrative projection 2045 (windy & sunny week)
Matthes 2016
0
10
20
30
40
50
60
70
80
Mon Tue Wed Thu Fri Sat Sun
GW
Solar
Wind
Residual
Load
Week No. 16 2045
0%
20%
40%
60%
80%
100%
0
50
100
150
200
250
300
350
1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
GW
Geothermal
Landfill gas
Waste (biogenic)
Biomass
Photovoltaics
Wind - offshore
Wind - onshore
Hydro
HistoricalData
National targets
Legal EUcommitment
Load range
Expansion corridor forpower generation from RES
to 80-100% in 2050
Maximum effective load coverage of the RES-based
generation fleet
Expansion of German RES generation capacities Phases of the transition towards a new market design
BMU. BMWi, Öko-Institut 2014
The early deployment phase:• minor shares• support schemes• innovation & lead markets• learning
The phase beyond the niche:• significant shares• transition from support
schemes to market design• system & market integration
The new energy system:• a renewables-based system• new market design• storage as a significant
feature of infrastructure
Germany: Historical & projected roll-out of RES generation capacities
What about the costs?Perspective 1: Historical wholesale prices
Matthes 2016
0
20
40
60
80
100
EUR
/ M
Wh
Different wholesale (base) electricity price trends and levels in Europe
What about the costs?Perspective 3: Retail electricity prices (households)
Öko-Institut 2016
0
5
10
15
20
25
30
2003 2005 2007 2009 2011 2013 2015 2017 2019
ct /
kWh
Value added tax (VAT)
Electricity tax
Offshore liability surcharge
Renewables surcharge
Demand response surcharge
Cogeneration surcharge
Industrial network access fee privilege ( §19) surcharge Concession fee
Sales & profits
Network access fees
Wholesale market price (previous year future)
What about the costs?Perspective 2: Financing actual RES investments
Öko-Institut 2016
5.8 5.4 5.8 5.34.2
3.6 3.12.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5
2.23.8
3.75.4
6.46.3
6.47.0 7.4 7.5 7.7 7.7 7.7 7.6 7.4 7.2 6.8 6.7 6.4 6.4 6.0 5.4 4.9 4.5 4.5 4.5
8.0
9.29.5
10.7 10.6
9.99.5 9.5
9.9 10.0 10.2 10.2 10.2 10.19.9 9.7
9.3 9.2 8.9 8.98.5
7.97.4
7.0 7.0 7.0
0.0
2.5
5.0
7.5
10.0
12.5
15.0
2010 2015 2020 2025 2030 2035
ct/k
Wh
(201
6)
RESA surcharge
Wholesale electricity price
Insights from the EU Energy Roadmap 2050Primary energy supply for different trajectories
0
200
400
600
800
1.000
1.200
1.400
1.600
1.800
2.000
2005 2030 2050 2030 2050 2030 2050 2030 2050 2030 2050 2030 2050 2030 2050
Base Reference CPI HighEfficiency
HighRES
HighNuclear
HighCCS
DiversifiedOptions
Mtoe
Renewable energies Electricity Nuclear Natural gas Oil Solids
European Commission, E3MLab 2011
Stat
us Q
uo
Busi
ness
as
usua
l (n
o am
bitio
us c
limat
e po
licy)
Decarbonisation
Focu
s: E
nerg
y Ef
ficie
ncy
Focu
s: N
ucle
ar
(sus
tain
able
???)
Focu
s: R
enew
able
s
Focu
s: C
CS(s
usta
inab
le??
?)
Dive
rsifi
ed o
ptio
ns
Status Quo
Power generation for different trajectoriesRenewables dominate for each trajectory
0
1.000
2.000
3.000
4.000
5.000
6.000
2005 2030 2050 2030 2050 2030 2050 2030 2050 2030 2050 2030 2050 2030 2050
Base Reference CPI High
Efficiency
High
RES
High
Nuclear
High
CCS
Diversified
Options
TWh
Others Renewable energies Nuclear Natural gas Oil Solids CCS
European Commission, E3MLab 2011
Insights from the EU Energy Roadmap 2050The longer-term system cost trends
European Commission, E3MLab 2011, Matthes 2012
0
20
40
60
80
100
120
140
160
180
200
2005 2030 2050 2030 2050 2030 2050 2030 2050 2030 2050 2030 2050 2030 2050
Base Reference CPI High
Efficiency
High
RES
High
Nuclear
High
CCS
Diversified
Options
€/ M
Wh
Network & sales costs Energy taxes and CO2 costs Variable & fuel costs Fixed & capital costs
1. higher system costs 2. (very) comparable system costs 3. capital-intensive4. medium-term challenge: storage costs
≈
Reminder: From today‘s perspective
(extremely) optimistic assumptionsfor nuclear,
rather pessimistic for renewables,
probably realistic for CCS,future storage costs
widely unknown
A long-term thought experiment on GermanyEmbarking on different tracks
Öko-Institut (2016)
0
50
100
150
200
250
300
350
400
w/obattery storage
withbattery storage
Fossilstandard mix
Naturalgas-basedpower system
95% Renewable energy sources Conventional new-built system
GW
Other renewables
Photovoltaics
Offshore wind
Onshore wind
Batteries
Pumped-water
Other fossil
Natural gas OGT
Natural gas CCGT
Hard coal
Lignite
Hydro
PtG capacity
A thought experiment on GermanyGoing renewables is the more robust way
Öko-Institut (2016)
-100%
-75%
-50%
-25%
0%
0
25
50
75
100
0/36 27/26 20 50 103 20 50 103 20 50 103 20 50 103
GW EUR/t CO2 EUR/t CO2 EUR/t CO2 EUR/t CO2
Battery/PtG Fuel prices low Fuel prices high Fuel prices low Fuel prices high
Renewables(wind/solar)
Fossil mix (mainly coal-based) Natural gas-based
CO
2 em
issi
ons
vs 1
990
Syst
em c
osts
EU
R b
n
Grid infrastrcuture Operational costs Capital costs CO2 emissions (→)
• The traditional German power system- Running a (centralized) system based on 500 large generation units
• The emerging new power System in Germany (as of summer 2015)- approx. 1.5 million PV installations
- approx. 30,000 wind power installations
- approx. 10,000 biomass power plants
- approx. 30,000 small- and medium-scale cogeneration plants
- approx. 700 conventional power generation units
• The need for a new market design- for phase 1 of roll-out of renewables (0…25% market share)
investment certainty and broad economic participation are priority #1
- for phase 2 a new balance needs to be found between priorities from phase 1 and the increasing need for coordination and an appropriate sharing of risks
Beyond the economics of the systemNew structure of players … and assets
Expansion of power generation from renewablesNew structure of players & the need for coordination
Individuals35%
Project developers 14%
Major four utilities5%
Other utilities7%
Fonds / Banks13%
Industry14%
Farmers 11% Others 1%
Total Capacity72,900 MW
(2012)
The geographic dimension of Energiewende The old geography
Low load / medium conventional region NorthLow loadMedium nuclear capacitiesLow conventional capacities
High load / high coal region WestHigh loadHigh coal capacitiesHigh CHP capacities
Low load / high coal region EastLow loadHigh coal capacitiesHigh CHP capacities
Medium load / storageregion CenterMedium-/ high-loadHigh pump-storage capacities
High load / high nuclear region SouthHigh loadHigh nuclear capacities
The geographic dimension of Energiewende The new geography
High wind region NorthLow loadHigh onshore/offshore wind
High load /medium RES region WestHigh loadMedium RESHigh CHPCoal phase-out
Low load / high wind Region EastLow loadHigh windHigh CHPCoal phase-out
Medium load / infra-structure & storage Region CenterMedium/high loadMedium RESHigh pump storage capacitiesLarge electricity transits
High load / high PV /high storage region SouthHigh LoadHigh PVAccess to storage capacities abroad
New DC corridors
SuedOstLink
SuedLink
Ultranet
The future is unknown and uncertain …… but we may be able to describe it structurally
• From an overall perspective on all challenges and (foreseeable) trends some structural features of the future energy system will probably be robust ones- Significantly more energy efficient but not necessarily less consuming
- Mid-term low CO2 and longer-term zero CO2
- Much more diverse (technology options, centralized / distributed / decentralized, economic perspectives and appraisals etc.)
- Much more (but not exclusively) distributed and decentralized
- Much more coordination-intensive
- Much more capital-intensive
- Much more infrastructure-intensive (and subject to much more regulatory efforts?!)
- Much more sensitive to public acceptance
- Not significantly more expansive (than the counterfactual)
• Transition will be step-wise and priorities will differ in different steps / phases. Without reflection on these long-lasting and robust structural features one might end on a dead track
Energy transitionWhat do we know and what are the challenges?
• Energy transition: a policy-driven structural change of the energy system
• The target system is technically feasible and affordable- manifold options at the supply & flexibility side exist already or are in
the pipeline
- costs of the target system do not differ significantly from the counter-factual, transition costs and distributional effects are however significant)
• The real challenges arise from structural changes that needs to be reflected carefully for the design of the transition process a - structurally changing technology patterns
- structurally changing economics (a zero marginal costs system)
- structurally changing players / market participants
- structurally changing spatial patterns
Effective, innovative & efficient strategiesThe Four-Pillars Approach
• Paving the Way – for clean generation and flexibility options (renewables & complementary flexibility) J
- innovation, level-playing-field & roll-out
- sustainable economic basis (coordination & enabling investments)
• Designing the Exit-Game – for the non-sustainable capital stocks- security of supply, flexibility, emission levels and fixed costs
- output management (ETS etc.) vs. capacity management
- nuclear power (J) and high-carbon assets (L )
• The infrastructural dimension: Triggering adjustments in time L
- integration of centralized and distributed and storage and demand flexibility options
- reflection of the new geography of the energy system
• The innovation side: Making innovation work in time J
- for energy efficiency, generation, flexibility, storage and integration
Thank you very much
Dr. Felix Chr. Matthes Energy & Climate DivisionBerlin OfficeSchicklerstraße 5-7D-10179 Berlinf.matthes@oeko.de www.oeko.detwitter.com/FelixMatthes
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