Promotion of Renewable Energies in the EU Member States

1. Promotion of Renewable Energies in the EU Member States Consequences on the Price of Electricity for Industrial Consumers Dr. Annette Loske, VIK Germany IFIEC Europe Forum 21 October 2003

2. The Role of Renewable Energies The role of renewable energies has to be checked against the three main issues of any energy policy: Increasing dependence on energy imports within the EU: Today 50 percent After 20 to 30 years 70 percent SECURITY OF SUPPLY ENVIRONMENTAL PROTECTION Kyoto-Protocol: Obligation for CO2 reduction of 8 % within the EU (1990 – 2010) ECONOMY Non competitive towards fossil fuel energy sources Renewable Energies may have an important role to play to help reaching objectives related to security of supply and environmental protection. However, economic aspects are critical!

3. IFIEC Europe Study on the Promotion of Renewable Energies and the Consequences for Industrial Users in the EU • Electricity Price really matters for Industry! • In most of the EU Member States, renewable energy support is financed by means of surcharges to the electricity price. • Every electricity price increase is a threat for the competitiveness of the industry and may lead to production decommissioning or transfers! • The IFIEC Europe study gives an overview of the consequences of promotion measures for renewable energies and of the extent of financial burdens for the industry.

4. IFIEC Europe Study on the Promotion of Renewable Energies and the Consequences for Industrial Users in the EU • The main findings of the study are: • The financial surcharges on the electricity price resulting from renewable energies promotion systems for industrial energy consumers are already significant, and are planned to increase quickly and intensively in the near future (e.g. in Germany up to 8.9 €/MWh in 2010). • The financial burdens resulting from renewable energies support differ significantly from country to country. No European level playing field is in sight! • Only some of the EU Member States (e.g. Sweden, Netherlands) have recognised how important the electricity price is for the competitiveness of industrial energy consumers competing in global markets when establishing financing mechanisms for the renewable energies support schemes.

5. IFIEC Europe Study on the Promotion of Renewable Energies and the Consequences for Industrial Users in the EU In order to investigate the economic side of renewable energy promotion, the situation in the following EU Member states has been analysed: • Austria • Belgium • Finland • France • Germany • Italy • Netherlands • Sweden • United Kingdom

6. Renewable Energies Promotion – The Background • Climate Change Policy based on the Kyoto Protocol Obligation EU: 8 percent CO2-reduction 1990 - 2010 • Renewable Energies Directive (Sept. 27, 2001) as one of the instruments to meet this target • National targets for the share of electricity produced from renewable energy sources • Obligation for the EU-Member States to implement adequate promotion mechanisms to achieve the targets set

7. THE NATIONAL TARGETSPercentage of Electricity from Renewable Energies1997 and 2010

8. THE NATIONAL TARGETSAdditional Required Power Volume from RES 1997 - 2010 Total for EU-15: 353,3 TWh(which is about the UK total consumption in 2000)

9. FOCUS ON WIND ENERGY • In most of the countries investigated, there is a special focus on wind power for reaching the targets set for 2010. Therefore, the study gives special attention to the promotion schemes for wind power. • When talking about wind power, the following characteristics of wind power have to be considered: • Instability of wind power generation E.g.in Germany: Wind Power Share of installed capacity: 15 percent Wind Power Share in power consumtion: 3 percent • Necessity for excessive back-up capacities For each MW of wind power capacity 0.8 to 0.9 MW reserve capacity is necessary as back-up. This leads to less efficiently working regime of these power plants. • Excessive grid extensions are needed • Planing figures for Germany: 1000 km additional 380 kV grid in the E.on area (investments of 550 mio €) plus 500 km in the Vattenfall area till 2016. • Significant additional indirect costs from wind power, which are even not covered in this investigation.

10. THE FINANCIAL PROMOTIONRemuneration Rates for Electricity generated from Wind Power These figures are guaranteed ones for buy-back regimes, or estimated ones for certificates systems (Italy, Belgium). Significant differences in duration and amount of given support !

11. THE FINANCIAL PROMOTION OVER TIME Premium Remuneration for each MWh electricity generated from wind power (in excess to a normal market price)* *) Assumed at 30 €/MWh

12. THE FINANCIAL PROMOTIONIs it realistic? • If renewable energy companies can offer a Return on Investment of 23 % over the next 15 years? EXAMPLE • If compared with investment costs for 1 kW of installed wind power generation capacity of about 1100 €?

13. THE FINANCIAL PROMOTIONWhat are the consequences for industrial consumers? Source: Estimates of IFIEC Member Federations

14. THE FINANCIAL PROMOTIONWhat are the consequences for industrial consumers? • Only 6 from 9 EU Member States are shown on the previous graph, because: • In Sweden the industrial large consumers are not burdened at all. • In the Netherlands the burden for this group is very low (maximum 62,090 €/a). • In Finland, the promotion measures are totally financed by the state budget resulting in no directly earmarked financial burden for consumers. • Only single countries up to now appreciate and regard the special significance of additional energy costs for industrial consumers. • No level playing field!

15. THE FINANCIAL PROMOTIONElectricity cost really matter for industrial consumers! Example GERMANY: The average electricity price for an industrial consumer (50 – 100 GWh consumption) in Germany in 2002 was (excl. Taxes and fees) about: 34 €/MWh 2002 2010 RES surcharge: 3.2 €/MWh RES surcharge: 8.9 €/MWh Power price increase by: 9.4 percent Power price increase by: 26.2 percent

16. THE FINANCIAL PROMOTIONConsequences for the competitiveness! Cost Structure for Aluminium Production Comparison: Germany – World Average Germany Average Production Cost 1.164 USD/t World Average Production Cost 1.112 USD/t Plus 4.7 percent in Germany Mainly resulting from power cost Source: Study of ewi, Cologne

17. Conclusions (1) • Renewable energies may build an important option for the future. But their promotion is a costly political decision. • The financial burdens resulting from renewable energies promotion systems for industrial energy consumers are already currently significant, and are increasing quickly and intensively in the near future. • The resulting financial burden differs significantly. No European level playing field is in sight! • In most of the countries, the promotion systems hardly address any measures to strengthen the competitiveness of renewable energies, but simply guarantee revenues over an extensive period. • Thus improvements in the economics of generating electricity from renewable energies are hardly provoked, and an overfinancing of renewable energy plants is not excluded in case of technological and economic progress.

18. Conclusions (2) • The financing mechanism for renewable energy promotion measures must reflect the long term character of the programme and the overall societal interest in it. • It must not result in a disproportionate threat for the energy intensive industry and lead to de-industrialisation of the EU. • Renewable energies promotion systems should not jeopardize the competitiveness of the industry on the European as well as on the international level.