Challenges of the current European Energy Policy

1. Challenges of the current European Energy Policy Rafael Miranda CEO of Endesa President of Eurelectric Athens, 22th of May of 2008

2. The global energy scenario will face profound change The world's population will grow to 8 billion in 2030 Global primary energy consumption will increase by 55% over the next 25 years China and India will increase their primary energy demand by 125%, equal to 45% of worldwide growth Primary energy consumption (Mtoe) +55% 17.721 11.429 +125% 5.018 2.279 2005 2030 World China India Source: World Energy Outlook 2007 (IEA)

3. 3% 25% 53% 19% Oil Coal Electricity Gas The energy industry will need a huge investment effort in the future 2006-2030 investments in the energy industry: US$ 21.936 billion • Electricity industrywill represent 53% (US$ 11,560 billion)of total investments. Electricity sector will gain ground versus other energy uses. • 15% (US$ 1,728 billion) is earmarked for Europe. • In the next 25 years new global installed capacity will be equivalent to the one commissioned on the last 125 years. Source: World Energy Outlook 2007 (IEA)

4. Global population affected by global warming in 2080 The combat on climate change will be a relevant driver in the energy industry (*) IPCC :”Most of the observed increase in global average temperatures since the mid-20th century is very likely due to the observed increase in anthropogenic greenhouse gas concentrations” If the European target of a 2ºC rise in temperatures is reached, by 2080: 2,7 billion people will be exposed to the risks of drought, 250M to malaria and 30M to hunger. Source: Intergovernmental panel on climate change (ONU)

5. Heavy dependence on fossil fuels Global primary energy mix WEO 2030 Baseline Scenario Alternative Scenario Fossilfuels will remain as the dominant technology for decades Renewables will grow significantly in absolute terms (2.800-3.500 TWh in 2030) 2005 25% 28% 23% Coal 35% 32% 31% Oil 21% 22% 22% Natural gas 11% 11% 14% Renewables 6% 5% 7% Nuclear 2% 2% 3% Hydro 100% 100% Total 100% Baseline Scenario: No inclusion of Government new energy policies Alternative Scenario: Inclusion of additional measures from Governments to face SoS and Climate Change Issues. 450 millions of particles in the atmosphere Source: World Energy Outlook 2007 (IEA)

6. Commodity prices would be driven in the future by its scarcity Reserves (in years of consumption) and main countries where they are located Price increases (dic03 vs. May08) Saudi Arabia, Iran, Iraq, Kuwait and Venezuela 41 years (down from 41 years in 1996) +319% Oil 63 years (down from 66 years in 1996) Russia, Iran, Qatar, Saudi Arabia and A.U.E. +90% Natural Gas 147 years (down from 224 years in 1996) U.S.A., Russia, China, India and Australia Coal +143% … and its prices have risen sharply Energy commodities are scarce and mainly located in geopolitically unstable countries… Sources: EIA y BP Statistical Energy Review.

7. In this challenging global environment, the EU has set the guidelines of its energy policy Strategic European Energy Review 2007 (SEER) 2009 A real pan-European energy market 2015 12 fossil-fuel plants with CCS Developments in the Green Package 20% of renewables in primary energy mix 20% CO2 emissions reduction in the EU (vs 1990), up to 30% reduction may be set 20% increase in energy efficiency 2020 2050 50% CO2 emissions reduction by 2050 (vs 1990)

8. EU is leading the combat on climate change Europehas set anambitiousemission reduction targets … … however, climate change is a global problem where Europe's impact is not significantly relevant World CO2 Emissions (MtCO2) % World CO2 Emissions EU Emissions Targets 41.905 2020 +57% -20% or -30% (vs. 1990) 2005 2030 (15.285) 19% 27% China 26.620 22% 16% USA 2020 -50% (vs. 1990) Europe 15% 10% 44% 47% Others 2030 2005 Source: World Energy Outlook 2007 (IEA)

9. X,X X,X The EU is clearly committed to achieve its emission target through a further development of renewables EU Renewables policy and breakdow by country 2020 General characteristics: • Increase of 5.5% for all + individual additional based on the GDP of the country • No consider historical effort and potential of renewable is not consider • 10% of biofuels in transport in 2020 • “National Action Plan” before march 2010 27% 21,8 5,2 1. Italy 15% 1,3 13,7 2. UK 23% 10,3 12,7 5. France 18% 5,8 12,2 6. Germany 20% 8,5 Average UE 11,5 20% 8. Spain 8,7 11,3 Industry views of the European energy policy: • Main effort made by the electricity sector • Electricity prices will increase • Incentives for renewables should be market based • Homogeneous European policy in renewables is needed. 18% 6,9 11,1 9. Greece 15% 7,2 7,8 21. Poland Renewable effort 2006-2020 Renewables a 2005 Renewables 2020 + = X,X% Nota: the EU considers that renewable energy includes wind, solar, hydro, biomass, but do not include cogeneration. Only main countries represented.

10. Renewables growth have significant benefits for Europe Impacts of renewables to the European Industry: Renewables evolution in Europe (ex-hydro) 2030 (TWh) 850  14 • No CO2 emissions • No contribution to the acid rain formation • Reduce external dependency • Acomplishment of Kioto targets • Create jobs • Tech development that can benefit trade • Some contributes with distributed generation to the electrical system • High volatility • Backup power needed • Need to be subsidized 58 9   552 429   259 170  78 217 17 146 84 1990 2005 2012 2030  Biomass and waste Wind  Geothermal  Solar Tide and wave  Source: World Energy Outlook 2007 (IEA)

11. A balanced energy policy is required Energy efficiency Diversification of technologies Energy policy More R&D investment Competition Security of supply Sustainability Agreements with energy commodities producers Minimising impact on the environment and climate change Development of interconnections Market development

12. Moving towards a single European market will be crucial • The EU ultimate objective is to create a single electricity market • Regional markets could be a necessary interim step To achieve an efficient and competitive single market it is key to define an homogeneous and stable regulation based on market mechanisms

13. All generation technologies must be considered Wind energy Energy dependency Security of Emissions supply Natural gas Price volatility Reserves Coal Cost Nuclear energy No single technology meets all these goals, but combined provide an optimal solution

14. To solve the energy quiz it will be necessary the development of new technologies 2010 2020 2030 2040 2050 Towards a cero-emission and efficient energy • Offshore wind • 3G nuclear fission • Hybrid cars • 1G Biofuels • Subsidized solar • Smart meters • CCS technologies • 4G nuclear fission • Electric cars • 2G Biofuels • Wave energy • Competitive solar • Smart Grids • Nuclear fusion • Hydrogen car and turbine • Unknown technologies nowadays

15. The EU should promote energy efficiency more actively Energy intensity (base 100: EU15 2004) Primary energy intensity (kpte / M€) Europe and Japan are economic regions with the high levels of energy efficiency… … however Europe still has significant room for improvement

16. Summary • The European Union is leading the combat on climate change. A critical levers will be the development of renewables • Renewables have significant benefitsfor both the European electricity system and the European economy, with some “cons” that must be offset • Europe should not leave aside the other main drivers of a balanced energy policy: Security of Supply and Competitiveness

17. Challenges of the current European Energy Policy Rafael Miranda CEO of Endesa President of Eurelectric Athens, 22th of May of 2008