The German Energiewende and Implications for Utilities. Graham Weale, Chief Economist RWE AG UC Davis IAEE Seminar 3 rd June 2014

Transcription

1 The German Energiewende and Implications for Utilities Graham Weale, Chief Economist RWE AG UC Davis IAEE Seminar 3 rd June 214 RWE AG 24/5/214 PAGE 1

2 Contents 1. What is the position of the German utilities? 2. What has brought them there? 3. What changes are underway in Berlin? 4. What will be the utilities role in the future? RWE AG 24/5/214 PAGE 2

3 The position of the German utilities high capital invested in conventional plants Net Capacity End 212 Indicative capital employed based on 5% new value GW 1 Peak demand bn RES (incl.hydro) Other non-res Gas Hard Coal Lignite Nuclear Big-4 Other Big-4 Other Source: BMWi RWE AG 24/5/214 PAGE 3

4 but making a low EBIT with declining market value and reduced investments bn EBIT Market Value bn -35% E.ON 2-7% 16 EnBW 15 RWE Vattenfall bn % bn Investments Cumulative impairments *215* Source: Company annual reports RWE AG 24/5/214 PAGE 4

5 Gas plants never recovered their full costs; from 211/212 failed to cover depreciation then O&M New plants Old (fully amortised) plants / MW Annual proceeds Normal return on capital Depreciation Staff & Maintenance / MW Annual proceeds Staff & Maintenance RWE AG CEA 1/4/214 Page 5

6 but new coal plants not earning a return on capital whilst old plants covering fixed costs New plants Old (fully amortised) plants / MW 15 / MW 15 1 Annual proceeds Normal return on capital 1 Annual proceeds Depreciation Staff & Maintenance Staff & Maintenance RWE AG CEA 1/4/214 Page 6

7 Contents 1. What is the position of the German utilities? 2. What has brought them there? 3. What changes are underway in Berlin and Brussels? 4. What will be the utilities role in the future? RWE AG 24/5/214 PAGE 7

8 The Energiewende a plan to move from nuclear and coal to renewables: milestones from 1991 Energiewende st Feedin Law Market Liberalization 1st EEG Double RES share of total energy by 21 Nuclear phaseout by 222 EEG % / 2% power share in 21 / 22 Start of EU Emissions Trading Scheme EEG 29 35% power share by 22 Energy concept Nuclear operating lifetime extension Eckpunkte -papier EEG 212 Closure of 8 nuclear plants and change to nuclear law to close all plants by 222 EEG Reform Last nuclear reactor will be shut down 8% to 9% reduction in emissions, and 8% renewables share in power RWE AG PAGE 8

9 Further targets introduced in 211 Firm goals Instruments 1 K1 Phase out nuclear power by Nuclear Power Law C Reduce greenhouse gas emissions compared to 199 by 4% 55% ETS with German version C1 Increase proportion of renewables (RES) in gross final energy consumption to 18% 3% Renewable heating, and Biomass laws, C2 C3 C4 C5 C6 C7 C8 N1 V1 Supply security - - Strategic Reserve W1 Currently only loosely defined goals C C V Increase the proportion of RES in gross elec. consumption to Reduce primary energy consumption compared to 28 to Reduce electricity consumption compared to 28 by Increase energy efficiency compared to 27 by Reduce heat demand of buildings compared to 28 by Increase number of electric vehicles to Reduce final energy consumption in transport vs.28 by Grid expansion according to ENLAG Limit renewables surcharge to 3.5 cents/kwh Reduce heat demand of buildings compared to 28 Annual rate of energy-saving renovation in housing of 2% Additional construction of firm fossil fuel power plant capacity 35% 5% EEG 2% - Environmental tax, EnEV 1% - Environmental tax Environmental tax and other 2% - laws 2% - EnEV 1 Mio. 6 Mio. Energy and climate funds 1% - Reform car tax - - EnLAG N2 Punctuality of the grid connection of offshore wind farms - - EnWG N3 Increase installed capacity of offshore wind to 1 GW 25 GW EEG - - EnEV - - Not availabe Only indirect loan programme 1 GW - Not available RWE AG CEA : 1/4/214 Page 9

10 which were badly off track after just two years, except for renewables growth Sustainability 1. Achievement of federal government s CO 2 reduction target (-4 %) increasingly unrealistic 2. Share of renewables rising in the case of electricity stagnation in the transport and heating sectors 3. Due to first results from coalition talks the watering down of heating efficiecy targets is likely 78% Grid expansion 1. More than 8% of expansion projects still delayed 2. By 215 a number of offshore wind farms will be completed, but key grid expansion projects for overland transmission of electricty will not be ready until that time 3. At least there is some improvement in sight for offshore wind power connections to the grid 15% Costs/EEG levy 1. With 6.2 ct /kwh the EEG levy has exceeded the government s own threshold of 3.5 ct / kwh by far 2. With the new government at least modest reforms that are targeting at limiting the costs are to expect, so we come to an neutral outlook for the next years, but situation will not improve quickly 22% Security of supply 1. Increasing intervention by transmission system operators in the market to avoid critical situations with the power grid. The situation continued in whole End of March 213 there were some severe situations in the German grid due to very high wind feedin. 5% Source: own calculations Adherence to target path: = 41% RWE AG 1/4/214 Slide 1

11 The implications of the Energiewende together with the 27 global recession 1. Renewables subsidy system without any cap annual support originally expected to be,6 bn, not 22 bn has its origins in the 2 EEG, rather than the 211 Energiewende GW 15 Renewables capacity build-up Total PV Wind Biomass Water (exc. PS) costs (esp. PV) continually lower than subsidies = strong incentive Subsidies for the Energiewende 2. Recession 3. Low CO 2 prices 4. Low coal prices 5. Over-investment in conventional plant based on trend from early 2 s bn Offshore charges Levy based on 19 CHP EEG levy EEG Surcharge cts/ kwh RWE AG 24/5/214 PAGE 11

12 Generators suffered from two effects cutting volume by 15% vs. expected level... Actual and expected (as of 25) demand and renewables TWh 7 6 Gross demand expected Gross demand actual Thermal power supplied by large generators 2 Renewables actual 1 Renewables expected base on trend to 25 Lower residual demand % lower than expected demand due 6% to recession and 4% to renewables RWE AG 24/5/214 PAGE 12

13 and five effects cutting price by 5% vs. expected level (greater effect on margins) German power prices 1. Volume effect of higher than expected RES also pushed out merit-order curve 2. Volume effect of recession pushed out merit-order curve /MWh Indicative full cost of new plant 3. PV had effect of flattening out daily peak price important part of earning component Peak Base 4. High CO 2 price expected - 3 / t rather than 5 / t 2 1 Spread 5. Higher coal price expected flattened out merit-order curve RWE AG 24/5/214 PAGE 13

14 Thermal plant Merit-Order 29: new gas and hard coal plants competing strongly Germany: Merit Order 29 ( / MWh) Oil / Gasoil Gas Hard Coal Lignite Nuclear Renewables / CHP Min load Peak load MW Average available Wind / PV / Hydro / other Renew. RWE AG 1/4/214 Page 14

15 Thermal plant Merit Order 212: hard coal plants with high utilisation but gas weakening Germany: Merit Order 212 ( / MWh) Oil / Gasoil Gas Hard Coal Lignite Nuclear Renewables / CHP Min load Peak load MW Average available Wind / PV / Hydro / other Renew. RWE AG 1/4/214 Page 15

16 The PV reduced the mid-day prices which accounted for high share of earnings Progressive reduction of mid-day price through PV-generation [%] Hour of day RWE AG 1/4/214 Page 16

17 The Consumer Price has been driven up by the surcharge despite a falling wholesale price EEG Subsidies and Consumer Price Surcharge bn cts/ kwh Offshore charges Levy based on 19 CHP EEG levy EEG Surcharge Power prices for households (2.5-5 MWh) ct/kwh incl. all taxes Consumer Peak price Power prices for industrial consumers (2-7 GWh) ct/kwh excl. VAT Consumer Base price Source: BMWi Energiedaten and EEX RWE AG CEA - Weale PAGE 17

18 The renewables policy has led to work for.8% of the German workforce Employees in the renewables sector s R&D / Admin Hydropower Geothermal Biomass Windpower PV Unclassified e Earlier Red-Green Coalition had hopes that 5 T jobs would be created by 22 But loss of jobs (including growth prospects) in other sectors should be deducted Growing number of bankruptcies in renewables area since 211, especially PV but also wind RWE AG CEA - Weale PAGE 18

19 Contents 1. What is the position of the German utilities? 2. What has brought them there? 3. What changes are underway in Berlin? 4. What will be the utilities role in the future? RWE AG 24/5/214 PAGE 19

20 The proposal for revision of the EEG agreed in Cabinet on 8th April 214 Aim to reach 4-45% by 225 then 55-6% by 235 renewables share of power but always ensuring affordability and supply security Reduce average RES cost level from cts 17 / kwh to 12 / kwh RES growth corridor will be legally fixed, with technology-specific instruments and focus on the most cost-efficient technologies Offshore wind 6.5 GW to 22 and 15 GW to 23 and afterwards 2 wind-parks p.a. Onshore wind and PV each a maximum growth of 2.5 GW p.a. (excluding repowering), with appropriate tariff adjustment Biomass maximum 1 MW p.a. (considered too expensive for more) Improved market integration through a market-premium approach and direct marketing New EEG (renewables law) will be fully EU-conform, including industry privileges Market design a capacity market is envisaged medium-term not clear whether it will be technologically-neutral and all plants will be eligible Time-plan Parliamentary process to be followed with am of entering into law 1 st August 214 RWE AG CEA - Weale Page 2

21 Renewables growth path proposed by new EEG compared with past GW Annual growth PV Wind Onshore Wind Offshore Biomass GW 15 Total capacity Total 1 PV Wind Onshore Wind Offshore 5 Biomass RWE AG CEA - Weale Page 21

22 The cost for power supply with a 35% RES share (target for 22) Price (ct/kwh) EEG* 1. EEG* 2. Ensure a cost efficient expansion of renewables Capacity remuneration mechanism to ensure security of supply cost efficient 4 conventional generation 15 TWh 6 TWh 39 TWh 35 % RES 65 % Conventional ~6TWh Source: Federal Ministry of Economic Affairs and Energy * EEG = German renewable energy act RWE AG CEA : 1/4/214 Page 22

23 The plan to reduce the average cost for incremental RES to cts 12 /kwh Remuneration ct/kwh Offshore wind Average depends on technology mix Biomass PV Onshore wind Power generation in TWh Source: Federal Ministry of Economic Affairs and Energy * EEG = German renewable energy act RWE AG CEA : 1/4/214 Page 23

24 and putting a limit on subsidies and the EEG surcharge even in a worst case Subsidy costs by type bn % 5 4% Onshore Offshore Biomass Hydro PV Others EEG-Surcharge cts/kwh Wholesale prices: Constant Rising RWE AG CEA - Weale Page 24

25 Contents 1. What is the position of the German utilities? 2. What has brought them there? 3. What changes are underway in Berlin? 4. What will be the utilities role in the future? RWE AG 24/5/214 PAGE 25

26 Three essential elements to the supply 1. Affordability the commodity (kwh) and service level must be delivered at lowest cost Use lowest cost fuels consistent with meeting EU carbon targets and most efficient plants Make use of existing thermal plants to provide service element 2. Supply-security Achieved by the round-the-clock availability of conventional plants and their increasing flexibility Also by introduction of further flexibility along delivery chain smart grids, smart meters etc 3. Carbon reduction Controlled by Emissions Trading Scheme ensures targets are met Achieved by combination of renewables and fuel-switching RWE AG 24/5/214 PAGE 26

27 The integration of renewables will require a much higher service component Indication of the role for thermal plants in August 222 GW 8 Almost no thermal plant contribution Some 2-3 GW contribution Demand PV 6 Thermal plants Water 4 2 Wind Onshore/Offshore Biomass Mo Tu We Th Fr Sa Su Wind and PV will become the basis for power supply; the remaining plants will optimise themselves around this supply Most thermal plants will be only needed in the future at times of low wind / sun there will be no longer base-load plants Source: Agora Energiewende (12 Thesen zur Energiewende, 212) RWE AG PAGE 27

28 Where are the utilities going? Shifting from kwh production to even higher emphasis on service Less conventional production (indicative figures) More effort on service Qualititive Index vs. 21 TWh RES - other Retail Network Trading Therm - other RES - utilities Therm - utilities Ren. firm capacity Therm. flexibility Therm. firm capacity * 22* 235* RES. = renewables, Therm. = conventional thermal plants RWE AG 24/5/214 PAGE 28

29 What does flexibility mean for power plants? Dynamic performance High rate of changing load output Short-times for ramping up/down Operational flexibility 8 Power -production (MW) 1 Inflexible plant Flexible plant Low minimum load with high efficiency High number of start p.a. 6 2 Low costs for ramping up/down Short minimum load times 4 Organisational flexibility Flexible shift models with wide range of staff qualifications Market-orientated maintenance plan Additional factors Permit restrictions, fuel quality and contract flexibility 5 Wholesale price vs. variable costs ( /MWh) Variable costs EEX RWE AG PAGE 29

30 Example Weisweiler Lignite Plant: renewal of the Control Technology increases the load rates Retrofitting of all 6-MW-Blocks with modern digital control in combination with the required technical adjustments to the plant Renewal of the control system is the requirement to improve the ramping Increasing the flexibility of the 6-MW Lignite blocks: ramping rate increased to 1 MW/ minute and minimum load to 17 MW MW MW - Block new position Time (minutes) 6 MW - Block old position Contributes to life-time extension Allows the plant to operate in the secondary markets RWE AG PAGE 3

31 RWE Contributions downstream - Smart grids Quelle: ZSW RWE AG 1/4/214 31

32 Summary examples RWE: future earnings shifting from production to service side RWE develops towards an attractive stable downstream business profile with additional focus on renewables and upside potential from conventional power generation Operating result in bn Upstream Gas & Oil Renewables Distribution and Supply 48% 55% e 1% 15% Conventional power generation 51% 24% Trading Gas Midstream e >6% <2% >7% 5% 1% Mid-term Of which circa 4%-5% regulated RWE AG 1/4/

33 THANK YOU VERY MUCH FOR YOUR ATTENTION or RWE AG PAGE 33