NER300’s project selection process27/07/2010

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Illustrative Annex I A

• CCS- CCS1- CCS2

•Innovative RES-Bioenergy

- Topic B1- Topic B2

-Geothermal- G1- G2

-Photovoltaic- P

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Projects submitted to government of country Red:

Topic

All public subsidy*/ performance

Request from NER300

B1 45€/MWh 35 M€

B2 35€/MWh 45 M€

B2 50€/MWh 45 M€

G1 70€/MWh 40 M€

P 100€/MWh 50 M€

By end December 2010

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* See ‘Ranking cost’ in final slide

Projects submitted to government of country Red:

By Q2 2011

Red chooses which applications to submit to the EIB. There are two B2 proposals. This one, with the higher subsidy/MWh is effectively out of the competition at this stage.

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Topic All public subsidy / performance

Request from NER300

CCS2 45€/tonne 500 M€

P 115€/MWh 80 M€

By Q2 2011

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EC/EIB receives all MSs’ proposals

€/perf. M€ €/perf. M€ €/perf. M€

CCS1 65€/t 600 70€/t 400

CCS2 100€/t 500 45€/t 500

B1 45€/MWh 35 40€/MWh 300 50€/MWh 30

B2 35€/MWh 45

G1 70€/MWh 40 60€/MWh 45

G2

P 100€/MWh

50 90€/MWh 100 115€/MWh

80

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Total cost of CCS Group and RES Group is now calculated

€/perf. M€

CCS1 65€/t 600

CCS2 45€/t 500

1100

B1 40€/MWh 300

B2 35€/MWh 45

G1 60€/MWh 45

P 90€/MWh 100

G2 - No proposal -

490

The “CCS Group”

The “CCS Group’s” total cost to NER300

The “RES Group”

The “RES Group’s” total cost to NER300

Total NER300 requirement of 1590 M€. But – tragedy! – value of 200 M carbon allowances is only 1000 M€. “Deselection” is now needed to match proposals’ demands to the available funding.

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Deselection

CCS limit 1000 M€* (1100/1590) = 691 M€

RES limit 1000 M€* (490/1590) = 308 M€

1) Apply a proportional cut to CCS Group and RES Group budgets to get limits

2) Arrive at a revised CCS Group and RES Group by deselecting projects from the Groups in order of decreasing €/perf.

€/perf. M€

CCS1 65€/t 600

CCS2 45€/t 500

B1 40€/MWh 300

B2 35€/MWh 45

G1 60€/MWh 45

P 90€/MWh 100

G2 - No proposal -

Rigid application of the rule leads to a CCS Group of only CCS2 and a RES Group of B2, with 455 M€ unused and two countries without a project

⇒ The rule probably won’t be applied rigidly.

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Selection procedure flexibility – anticipating contingencies

• Yellow gets no project (s1/3)

€/perf. M€ €/perf. M€ €/perf. M€

CCS1 65€/t 600 70€/t 400

CCS2 100€/t 500 45€/t 500

B1 45€/MWh 35 40€/MWh 300 50€/MWh 30

B2 35€/MWh 45

G1 70€/MWh 40 60€/MWh 45

G2

P 100€/MWh

50 90€/MWh 100 115€/MWh

80

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Selection procedure flexibility – anticipating contingencies

• Yellow gets no project (s2/3)

€/perf. M€

CCS1 70€/t 400

CCS2 45€/t 500

900

B1 40€/MWh 300

B2 35€/MWh 45

G1 60€/MWh 45

P 90€/MWh 100

G2 - No proposal -

490

CCS Group limit: 647 M€RES Group limit: 353 M€

€/perf. M€

CCS1 70€/t 400

CCS2 45€/t 500

900

B1 40€/MWh 300

B2 35€/MWh 45

G1 60€/MWh 45

P 90€/MWh 100

G2 - No proposal -

490

Cutting the most expensive CCS eliminates Yellow again. Use Yellow’s below-threshold project? Recalculate…

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Selection procedure flexibility – anticipating contingencies

• Yellow gets no project (s3/3)

€/perf. M€

CCS1 65€/t 600

CCS2 45€/t 500

1100

B1 50€/MWh 30

B2 35€/MWh 45

G1 60€/MWh 45

P 90€/MWh 100

G2 - No proposal -

220

€/perf. M€

CCS1 65€/t 600

CCS2 45€/t 500

1100

B1 50€/MWh 30

B2 35€/MWh 45

G1 60€/MWh 45

P 90€/MWh 100

G2 - No proposal -

220

CCS Group limit: 833 M€RES Group limit: 167 M€

380 M€ of NER300 left over. Negotiation on the size of CCS1 and fund it, too?

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Selection procedure flexibility – anticipating contingencies

• Insufficient competition in B2, combined with need to give Yellow a project

€/perf. M€ €/perf. M€ €/perf. M€

CCS1 65€/t 600 70€/t 400

CCS2 100€/t 500 45€/t 500

B1 45€/MWh 35 40€/MWh 300 50€/MWh 30

B2 35€/MWh 45

G1 70€/MWh 40 60€/MWh 45

G2

P 100€/MWh

50 90€/MWh 100 115€/MWh

80

How do you now create CCS and RES Groups to give Red and Yellow a project?

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Some conclusions

1 – Three levels of competition1. Within your country within your subcategory2. Within EU-27 within your subcategory3. Within EU-27 against all other subcategories

2 – This simplified model shows that different solutions are possible depending on the relative importance of:

• rolling over as little budget as possible from the first to the second Call• €/perf.• the “min. 1 project per Member State rule” ruleIn real-life, with 27 Member States and 34 + 8 project openings, the

solution to the puzzle of selecting an acceptable portfolio of projects will be found in politics rather than in the rigid application of the €/perf. criterion.

3 – It will be very difficult for the Commission to distinguish between projects selected purely on the basis of €/perf. and other projects.

There are some other interesting features of NER300’s selection procedure. Contact NER300.com for details.

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“Relevant cost” and “ranking cost”

“Relevant cost” is a term used in the NER300 legislation to determine the sum that NER300 can refund, up to 50%

“Ranking cost” is not a term used in NER300, but means the basis for calculating cost as it is defined for the ranking of proposals.

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OperatingBenefit 5 yrs

CAPEX

OPEX 5 yrs

Value of marketsupport schemes

5 yrs

DEMOREF RELEVANT COSTS

Developercontribution

Investment aid from MS (from 0 to any %ageof relevant costs allowable by State Aid)

NER300 grant(from 0 to 50% of relevant costs)

RANKING COSTS