Increasing the Value of Wind Steps Towards Wind Integration 2030

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1 Megavind Strategy Launch: Increasing the Owners Value of Wind Power Plants in Energy Systems with Large Shares of Wind Energy Fredericia 31 August 2015 Increasing the Value of Wind Steps Towards Wind Integration 2030 Martin Risum Bøndergaard Policy Advisor Energy and Economy Danish Wind Industry Association

2 Value of Wind is at the center of our strategy Price on CO 2 is the single most important step 200 DKK as expected when the ETS was constructed could make even offshore wind independent of subsidies within the first half of the 2020 s

3 Danish Wind Power Perspectives Current Energy agreement 7000 MW Danish wind capacity and wind power share % pct. wind by Onshore Offshore Wind power share of total electricity consumption

4 Which path to choose post-2020? 100% RES can be reached in different ways 2 main scenarios are the biomassbased and the wind energy based. 128 Norge GW 2 GW Det nordiske prisområde 137 Sverige 397 Samlet for det Det nordiske prisområde Denmark is a small country with high interconnectivity. No matter what Danish politicians prefer Denmark is already in a high wind penetration area. This will only increase in the coming years with a doubling of the wind capacity in the next 5 years! As shown in the Energy Concept 2030 : It s a no regrets option for Denmark to design an energy system that is capable of utilizing the huge volume of wind energy in the Nordic system. To maximize the value of these investments it s a rational choice for Danish politicians to continue along the wind energy path post Danmark 13 5 GW 19 6 GW Nordtyskland GW GW Kilde: Energinet.dk 13 5 GW 21 8 GW GW GW 4

5 Green Nordic Power House Northern Europe has the potential to become a Green Power House Denmark has some of Europe s best and cheapest wind energy locations. It is cost effective to prioritize deployment on low cost locations The Danish energy system will be increasingly wind power dominated. Danish politicians must decide: how much wind power to produce on Danish territory how much of the cheap wind power in the region we want to utilize in our domestic energy system

6 The current challenge Low electricity prices Since 2008 the electricity price in Denmark (DK1 and DK2) has seen a 40-50% decrease. The energy system in Denmark are currently facing the challenge that the low electricity price can not drive investments. That s why we have subsidies and tax exemptions for renewables El-produktionsomkostninger nye anlæg (LCOE) - 4% rente Kilde: Energistyrelsen juli 2014 Vind er billigst

7 Increasing price gap In markets with high wind penetration it is important to take into account that the realized power price for wind turbines is below the average market price. We are seeing tendencies to increased price gap System modelling suggests that the price gap will increase. In Denmark from around 10 % today to between 15-30% in 2030 depending on the degree of successful integration measures.

8 Many explanations behind the low electricity prices Low CO2 and fuel prices Low electricity consumption combination of low economic growth and ongoing energy efficiency improvements Overcapacity in Northern Europe RES deployment and still limited closure of fossil fuel power plants Too little flexible consumption but also too inflexible production in particular foreign power plants Lack of transmission capacity between as well as within the European countries The internal German bottlenecks are particularly important from a Scandinavian perspective

9 Two necessary steps to increasing the Value of Wind 1) Domestic electrification Creating an intelligent energy system We need to improve our domestic utilization of the wind energy Especially electrifying the heating sector by using heat pumps individual as well as in district heating systems. Heat pumps in relation to existing gas CHP plants create both flexible power plants and flexible demand. Electric vehicles etc. 2) Integrating European electricity markets is the cheapest way to a sustainable and secure energy supply The continued deployment of wind has to be followed by better market integration Both in terms of hardware (Interconnectors) and software (Market design) It is always windy somewhere. Connecting wind power across geographical distances allowing for cross-border balancing is the obvious way to minimize needs for expensive back-up capacity. Therefore market integration is a precondition for a cost-effective maximization of the possible and adequate wind energy share in the future energy system. Both steps are important it is not an either or Significant steps in this direction can and should be taken before 2020!

10 What can be done more specifically? The MM 2.0 project Contributing more to flexibility and possibly functionality Proposals from the Megavind strategy and the MM 2.0. initiatives Stop contributing to the problems Stopping wind turbines when power plants with higher marginal cost are still running is as a general rule wrong and a symptom of malfunctions in the market e.g. as we see in Germany with insufficient grid infrastructure as well as inflexible power plants No matter what the course and whose fault it is when the price is around or below zero turbines should contribute to the solution in stead of worsening the problem. Danish turbines are actually quite flexible especially compared to Germany. But the flexibility incentive is distorted by the subsidy scheme

11 Wind turbines should act more flexible! Neg. pris 46 timer (0,5 pct.) 0 10 øre/kwh 355 timer (4,1 pct.) øre/kwh timer (22,0 pct.) øre/kwh timer (61,4 pct.) øre/kwh 845 timer (9,6 pct.) Over 40 øre/kwh 205 timer (2.3 pct.) Elprisen i DK1 i de enkelte timer af 2014 (8760 timer) delt ud på 6 prisniveauer Kilde: Energinet.dk

12 Hav og kystnære vindmøller: Størstedelen af kapaciteten forventes at være tilknyttet en støtteordning, men støtten bortfalder ved negative priser Prognose for elproduktion fordelt på støtteordninger % af indenlandsk forbrug 34% 1% 33% Støtte ved negative priser 26% 15% 3% 16% 28% 21% Ingen støtte ved negative priser 10% 5% 7% 5% 12% Ude af støtteperiode Note: Kilde: Summer ikke op til 100% fordi der ikke er medregnet produktion fra andet end VE Fremskrivningsdata fra Energinet.dk 12

13 Landvind: Under halvdelen af kapaciteten forventes fremadrettet at være tilknyttet en støtteordning Prognose for elproduktion fordelt på støtteordninger % af indenlandsk forbrug 29% 31% 24% 26% 6% 14% 10 øre (støtte ved negative priser) 13% 14% 9% 25 øre (støtte ved negative priser) 10% 12% 14% 17% Nye fra 2020 (ingen støtte ved negative priser) Ude af støtteperiode 1% Note: Kilde: Summer ikke op til 100% fordi der ikke er medregnet produktion fra andet end VE Fremskrivningsdata fra Energinet.dk 13

14 The Danish Energy Transition has only just begun In 2020 wind power is expected to provide about 8% of the entire energy consumption. Further wind energy deployment is needed post-2020! DWIA s vision: At least 20% by 2030

15 Increasing the value of wind is at the core of the vision for 2030 The wind industry needs: To continuously improve the efficiency and bring down the cost of wind energy Wind energy must be a flexible and active part in the electricity market. The regulatory framework needs to be improved: The MM 2.0 initiatives must be implemented The Danish politicians must reform the energy taxation system to facilitate the necessary electrification of society

16 Back-up

17 Danmark er pristager fra vore nabolande Kilde: Energinet.dk

18 Decreasing LCOE and subsidy The new report identifies LCOEreductions of 18 % from for typical Danish onshore projects Caused in particular by reduced investment costs (from 1.48 to 1.27 million /MW) and increased production (from 2,700 to 3,000 Fullload hours). The policy impact is reduced in roughly the same pace with 17 % from Caused primarily by the fixed Danish premium not indexed to inflation causing ongoing yearly reductions in the subsidy level higher production resulting in a subsidy period covering a smaller part of the life time. Source: IEA Wind Task 26 Wind Technology, Cost, and performance Trends in Denmark, Germany, Ireland, Norway, the European Union, and the United States: