Renewables in a low-oil-price environment. Michael Waldron Renewable Energy Division International Energy Agency

Transcription

1 Renewables in a low-oil-price environment Michael Waldron Renewable Energy Division International Energy Agency OECD/IEA 2014

2 A 2DS requires deep transformation of the electricity mix OECD/IEA DS 2DS hi-ren The mix today: The mix in 2050 (2DS/hi-REN): Fossils: 68% Fossils: 20%/12% Renewables: 20% Renewables: 65%/79%

3 Impacts of oil prices on renewables vary by sector and time horizon Renewables compete with different fossil fuels: Electricity: fuel oil (5% global electricity production), gas (21%), coal (41%) Heat: fuel oil (16% global heat use), gas (29%), coal (42%, mostly industry) Transport: gasoline and diesel (95+% global road transport) Short term: RE protected by policy measures such as RES- E targets, financial incentives and blending quotas for biofuels Medium to long term: depends on RE economic attractiveness vs fossil fuels and government willingness to sustain policy support if fossil fuel prices remain low

4 Oil prices have dropped to multi-year lows Brent crude oil prices (USD/barrel) Recent falls from high levels of supply (non-opec) and slower demand growth (e.g. China, decreasing fuel intensity) Market rebalancing to occur relatively swiftly, but with prices stabilising at levels higher than recent lows but substantially below highs of the last three years Price drop partially offset in some economies by a sharp rise in the value of USD OECD/IEA 2014

5 Coupling of oil and gas prices depends on market context USD/Mbtu Oil and LNG prices in 2014 USD/bbl Asian LNG Spot Brent Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Coupling between oil and gas markets varies by region; coal not strongly coupled to oil LNG prices were already falling well ahead of the drop in oil Cheap oil linked gas from new Australian contracts will reduce demand for spot gas OECD/IEA 2014

6 Still strong momentum for renewable electricity Global renewable electricity production, historical and projected TWh Historical data and estimates Forecast Hydropower Bioenergy Natural gas 2013 Onshore wind Offshore wind Solar PV Nuclear 2013 Geothermal STE/CSP Ocean % total generation (right axis) 30% 25% 20% 15% 10% 5% 0% Renewable electricity projected to scale up by 45% from 2013 to 2020

7 Dynamic solar markets Global PV market ~ GW in ~10 ~9 Top 5 Fragmented landscape >2 <2 Australia, Europe slowing on large-scale Rooftop growing in the US, resilient in Australia PV asset finance grew 15% over 2013 Continued cost reductions Si & TF module costs down 9-15% All other costs down, incl. soft costs Record-low bid prices per kwh in 2014

8 Medium term solar PV market forecast Annual capacity additions in GW Residential Commercial Utility Off-grid Enhanced case New markets and evolution of distributed PV are main uncertainties Base case possibly increased

9 Renewable investment costs falling USD 2013/kW Weighted average annual renewable investment costs, historical and projected OECD China Hydro Bioenergy Onshore wind Offshore wind Solar PV residential/commercial Solar PV utility Other non-oecd Notes: Average unit investment costs are based on gross additions, which include capacity refurbishments that are typically lower cost than new capacity. Costs vary over time due to technology changes as well as where deployment occurs in a given year.. With scale up of deployment and learning, investment costs of most dynamic technologies (solar PV and onshore wind) continue to fall Large scale wind and solar now increasingly competitive

10 Cost of capital drives costs.. competition drives cost reduction Components of solar PV generation costs Average awarded tender prices under South Africa Renewable Energy Independent Power Producer Procurement Programme Cost of capital an increasingly important component of cost WACC can be reduced by: Sustainable long-term power purchase agreements that provide revenue certainty and facilitate access to debt and equity capital markets Reducing non-economic barriers, reducing grid integration risks, increasing the creditworthiness of off-takers and reducing currency risks Competition for long term PPAs have been effective at driving cost reductions

11 Increasing examples of wind and solar PV costs comparable to new-build alternatives Recent long-term remuneration contract prices (e.g. auctions and FITs) Ireland 69 $/MWh Germany $/MWh Onshore wind Utility PV STE US 48 $/MWh Chile 89 $/MWh 85 $/MWh US ~75 $/MWh UK $/MWh Morocco 160 $/MWh Brazil 81 $/MWh Brazil 54 $/MWh UK 120 $/MWh SA 72 $/MWh Dubai 60 $/MWh 60 $/MWh SA 97 $/MWh Turkey 73 $/MWh South Africa Base 124 $/MWh Peak 335 $/MWh India 88 $/MWh China $/MWh Australia 65 $/MWh Transition to new era of economic attractiveness for renewables where good resource and appropriate policy and regulatory framework are in place

12 Even with lower oil and gas prices, renewable electricity can be price competitive USD/MWh 300 Weighted average annual renewable investment costs, historical and projected 250 LCOE New OCGT Japan LCOE New CCGT USA: avg HH spot, Jan 2015 Japan: avg contracted spot LNG, Jan USD/MMBTU Solar PV LCOE ranges EU: avg NG import, Jan 2015 Onshore wind LCOE ranges Note: Based on EGC median case, LCOE for OCGT is calculated using a 15% capacity factor and 7% discount rate and LCOE for CCGT is calculated using a 65% capacity factor and 7% discount rate. No carbon pricing is included in LCOEs. Japan: avg contracted spot LNG, Mar 2014

13 Socket parity emerging as potential deployment driver for distributed PV LCOE of residential PV vs variable portion of electricity tariff LCOE USD/MWh Variable Portion of Residential Rate Australia France Germany Italy Korea Mexico Netherlands United Kingdom Economic attractiveness from offsetting electricity bill requires self-using most of the PV electricity Currently limits potential, in particular for households Reaching socket parity is a driver for private actors But PV may still have significant impact on total system costs, in particular depending on allocation of fixed network costs

14 Other technologies growing slowly Offshore wind generation Solar thermal electricity generation TWh OECD Americas OECD Asia Oceania OECD Europe Africa Non-OECD Asia China Non-OECD Europe Non-OECD Americas Middle East MTRMR 2013 TWh OECD Americas OECD Asia Oceania OECD Europe Africa Non-OECD Asia China Non-OECD Europe Non-OECD Americas Middle East MTRMR 2013 Potential of offshore power remains high, but technical, financial and grid connection issues pose challenges Storage adds value to STE (CSP) but deployment hampered by relatively high costs Continuing need for market introduction and RD&D

15 Renewable heat economic where resource and market conditions right, but with wide variations Comparison of building sector heating costs Heating Source Oil Electricity Gas Solar district heating (C Europe) Solar water and space heating Solar water pumped (C and N Europe) Solar water thermosiphon (S Europe) Solar water thermosiphon (China) Geothermal district heating Solid biomass commercial ( kW) Solid biomass domestic (1-10kW) USD/MWh th In heating sector, renewable options (e.g. biomass) remain cost-competitive for building space heating in many cases, unless oil prices continue to decrease substantially OECD/IEA 2014 Current developments may, however, delay investment decisions by private households as well as industry stakeholders

16 Only some 50 countries have Renewable Heat Policies Countries with targets and support policies for renewable heat This map is without prejudice to the status of or sovereignty over any territory to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. Non economic barriers holding back adoption Broader adoption and higher priority for support policies for renewable heat needed Integration with energy efficiency measures

17 Varied impact of lower oil prices on renewables in transport Conventional biofuels economic attractiveness determined by blending requirements and agricultural fundamentals, in part influenced by oil prices Policy uncertainties and structural challenges in established markets (US, Brazil, EU) have slowed biofuels growth New policy support blending mandates (before oil price crash) from Africa and Asia

18 Advanced biofuels production growing slowly Historical Projection 400 9% 350 8% Biodiesel (advanced) Billion litres % 6% 5% 4% 3% 2% Ethanol (advanced) Biodiesel (conventional) Ethanol (conventional) (2DS) 2025 (2DS) 1% 0% Biofuels share in total transport (energy content) Slow progress in deployment of advanced biofuels, but several plants currently being commissioned and some policy frameworks present (e.g. Italy, Finland) Significant scale up needed to help sector towards greater learning and competitiveness However a prolonged period of low oil prices could reduce policy motivation to bring forward advanced biofuels, delay positive measures and lead to abandoning of projects

19 Other challenges remain salient for renewable development

20 Grid Integration is the key challenge Denmark Ireland Share of v-re on annual electricity generation Iberia Germany Great Britain Italy Instantaneous penetration of 60% and more NW Europe ERCOT Sweden France India (South) Brazil Japan 0% 10% 20% 30% 40% Wind PV Additional Wind Additional PV OECD/IEA 2014

21 Three pillars of system transformation Technology spread 1. Geographic Let wind and spread solar play their part Design of power plants System friendly VRE 3. Take a system wide-strategic approach to investments! 2. Make better use of what you have Investments Operations OECD/IEA 2014 OECD/IEA

22 Policy uncertainty remains a major barrier to deployment an example from US 14 US annual onshore wind additions GW Result of expiration of production tax credit in previous year? * 2016 Policy uncertainty over the extension of production tax credit to result in boom and bust cycles. 13 GW deployed in 2012, only 1 GW in 2013 and 4.8 GW in 2014 OECD/IEA 2014

23 Retroactive policies to be avoided at all times Romania solar PV and onshore wind LCOE vs GCs and market price Utility-scale PV LCOE and wholesale market price + GCs Onshore wind LCOE and wholesale market price + GCs EUR/MWh Jan-13 May-13 Sep-13 Jan-14 May-14 0 Jan-13 May-13 Sep-13 Jan-14 May-14 Solar PV LCOE Market price +GCs for Solar PV Min Market price Market price + GCs for Onshore wind Romania introduced 6 GCs for PV and 3 for onshore wind both technologies boomed with generous incentives Too expensive! Government changed bending retroactively. Some projects will still be built but bust cycle in WACC for wind projects estimated to increase from 9% to 14% OECD/IEA 2014

24 What has not worked (yet) EU ETS carbon price (EUR per tonne) OECD/IEA 2014 Low carbon prices insufficient to trigger investment in low-c technologies Fossil fuel subsidies act as an incentive to emit Other barriers persist, e.g. policy uncertainty in OECD countries and access to grids and markets in some non OECD countries

25 Despite major efforts, fossil-fuel subsidies remain a major issue Economic value of fossil-fuel subsidies by fuel Billion dollars (nominal) Dollars per barrel 100 (nominal) Electricity Coal Gas Oil IEA average crude oil import price (right axis) In 2013, the global value of fossil-fuel subsidies that artificially lower end-use prices was estimated at $548 billion, $25 billion lower than the previous year OECD/IEA 2014

26 The 2 C goal last chance in Paris? World CO 2 budget for 2 C ~2300 Gt Average annual low-carbon investment, % 75% 50% 25% Trillion dollars (2013) CCS Nuclear Renewables Efficiency Share of budget used in Central Scenario 2013 Central Scenario For 2 C target The entire global CO 2 budget to 2100 is used up by 2040 Paris must send a strong signal for increasing low-carbon investment four times beyond current levels OECD/IEA 2014

27 Designing future power markets Wholesale spot power markets unlikely to deliver on: Financing capital-intensive variable renewables Flexible power systems assets with uncertain capacity factors Various ways to combine the following three elements: Long-term price signals to attract investment in high-capex technologies Short-term price signals to reflect the value of power and flexibility at all time Pricing of externalities to achieve energy security and climate goals OECD/IEA 2014 OECD/IEA

28 Concluding remarks 1 Low oil prices have so far had limited impact on the prospects for renewables, in particularly in the electricity sector Though in some markets low gas prices will impact on the competitiveness of renewables Lower fossil fuels prices also represent an opportunity for governments to reduce consumer subsidies If oil prices continue at a low level for an extended period (say to 2020) then this could have some impact on governments motivated by energy security or economic factors Could reduce the priority given to some energy efficiency initiatives, and on the development of advanced biofuels technologies

29 Concluding remarks 2 Electricity Renewables increasingly deployed at lower costs and lower levels of financial support Policies should focus on creating the right market and regulatory frameworks Electricity market designs sub-optimal today for low-carbon generation Heat RE heat can be a cost-competitive option but not given sufficient policy attention Transport Policy uncertainty and inadequate frameworks constraining advanced biofuels development