Energy Transformation

German Polish Energy Dialogue Karsten Neuhoff Meeting with Polish Journalists Berlin, 5.12.2012 Energy Transformation

Background on Polishand German Energy System • Energy Transformation in Germany • Economicprospectsofenergytransformation • European dimensionofenergytransformation • Energy Transformation

Comaprison energy use/person 1 Primary energy use (Tone of oil equivalent) per person Poland Germany • Both countries with strong history of coal • Germany shifted first to oil then to gas as domestic heating source • RE growth strong in Germany (as no losses in transformation 3* bigger than depicted) • German ambition – replace nuclear and fossil with efficiency and renewables Source: Based on BP Statistical Review of World Energy June 2012 and Eurostat

Import dependency motivates savings and substitution 1 Share of domestic consumption met by local productin Hard coal: Germany net importer since 1982, Poland since 2011 -> reduced demand will not impact local mining but reduce import costs Lignite: Both Germany and Poland with large lignite share in power -> existing fields operate til approx. 2030 Source: Based on BP Statistical Review of World Energy June 2012

CO2 emissions / head 1 Poland Germany • Both counries have strong reductions since 1989 due to combination linked to efficiency and economic transformation • Despite lower energy use/person, high carbon larger coal share in Poland translates into similar CO2 emissions in both countries. Source: Based on BP Statistical Review of World Energy June 2012 and Eurostat

Investments in energy savings and renewables can reduce fossil fuel import costs 1 Fuel import costs relative to GDP (2011) Source: Based on BP Statistical Review of World Energy June 2012

2 Key for cost effectiveness: Energy efficiency potentials Based on 7 Cent/kWh gas price, 5.5% real interest rate Source: Neuhoff et al., 2011. „EconomicViability, Financial Support, andEnergySavings“ www.climatepolicyinitiative.org

Competition - Chinese energy & climate policy targets 2 Energy efficiency target Carbon efficiency target 12th FYP Carbon intensity 1 2015 2010 2020 20% Energy intensity 16% Energy intensity 17% Carbon intensity Chinese commitments to energy & carbon intensity improvements: 45-50% Carbon intensity Based on Review of Low Carbon Development in China, 2010 and early reports of 12th FYP

Experience curves – from innovation to diffusion 2 Source IEA

Support for renewable energy – learning and improving 2 DIW Discussion Papers 1189, ThiloGrau:: Responsive Adjustment of Feed-in Tariffs to Dynamic PV Technology Development Anlagen bis 30KW

2 Costs for energy transformation – can be managed Distriubutional impacts key – deserve tailored policy Source: DIW Wochenbericht Nr. 41.2012

3 Energy transformation – investing in RE and EE to reduce fuel import costs Average annual energy system costs for Europe (2011-2050) CurrentPolicy Initiatives: 2619 billion Euro (39% Capital cost) High Renewables Scenario: 2590 billion Euro (48% Capital cost) European fossil fuel import bill (2030 / 2050) CurrentPolicy Initiatives: 532 / 704 billion Euro High Renewable Scenario: 375 / 154 billion Euro Savings:157 / 550 billion Euro German FIT “predictable and transparent… long-term” investment framework 2 Source: based on EC 2011, Energy Roadmap 2050 Table 40/41

The job and productivity benefits Green investments reach macro-economic significance They can have long-term productivity gains. In the short-term, some can have high multipliers 3

Gt CO2 in EU-27 5 4 EU Target 20% full CDM 20% no off-sets 30% full CDM 30% no off-sets 3 2 Linear 80-95% reduction trajectory Linear 80-95% reduction trajectory 1 0 2010 2020 2030 2040 2050 4 The role of EU ETS for European companies ETS numbers based on “The role of CDM post 2012” Climate Policy Initiative working paper

4 Capturing Companies’ Attention Companies with higher expectations of the future stringency of permit allocation are more likely to invest in low-carbon innovation Providing Clarity for Decision Making The EU ETS directive has set a cap on ETS emissions that declines at a rate of 1.74% per year from 2013, unless reset, until 2050. This creates a long-term framework to inform company strategy. Creating enabling environment for Low-Carbon Investment Power generators report the following factors are important for investment decisions: Price & access of fuels, Price & access of installations, Price & demand for electricity, Public opinion and the long term carbon price Source: (1) studybyLSE/Imperial/Carlos III interviews with 800 manufacturing companies (3) study by ISI-Fraunhofer/ETH Zürich survey of 65 power companies, as part of Carbon Pricing for Low-Carbon Investment Project http://climatepolicyinitiative.org/publication/344/ The impact of EU ETS for Innnovation and Investment

Assumed emission growth business as usual 1%/year Contribution from energy efficiency Gt CO2 in EU-27 5 Renewables Directive SET Plan Contribution from new low carbon technology portfolio 4 EU Target 20% full CDM 20% no off-sets 30% full CDM 30% no off-sets 3 2 Linear 80-95% reduction trajectory Linear 80-95% reduction trajectory 1 0 2010 2020 2030 2040 2050 Coordination for policies and supply chain 4 EE Directive ETS numbers based on “The role of CDM post 2012” Climate Policy Initiative working paper

The Need for European Action Other regions accelerate implementation of carbon pricing 4 EU ETS WCI (2013) RGGI Korea (2015?) Tokyo PRChina (2013?) Taiwan (201x?) South African Carbon Tax Australian ETS 2012 NSW NZ ETS Graph: Left: Michaelowa et a., right: Andreas Türk, Sonja Klinsky, Michael Mehling, Xin Wang 2012, Climate Strategies

Transmission constraints – Germany in Europe 4 Integrated (European) energymarkets Source: Neuhoff, K, Boyd, R., Grau, T., Barquin, J., Eachavarren, F., Bialek, J., Dent, C., von Hirschhausen, C., Hobbs, B., Kunz, F., Weigt, H., Nabe, C., Papaefthymiou, G., Weber, C., 2011, Renewable Electric Energy Integration: Quantifying the Value of Design of Markets for International Transmission, DIW Berlin, Discussion Paper, 1166.

Grid 2020 – financing needs 4 Envisaged Grid Investment to 2020: 100 Planned by TSOs (ref: Roland Berger), and EC estimate 80 2020 Estimates EC estimate: 60 Debt Roland Berger: approx approx 50% of 50% of planned Equity EUR 100bn investments 40 20 · 1.5% annual equity growth 0 2010 Market Value 2020 Market Value (6 TSOs) (estimate scaled to 6 TSOs) Sources: ‘planned’ from Roland Berger 2011, ‘estimates’ from EC, 2011

Karsten Neuhoff kneuhoff@diw.de

Energy Transformation