We Need for Electricity Markets?

Transcription

1 How Much European Regulation Do We Need for Electricity Markets? Brüssel, 06 March 2013 Professor Dr. Justus Haucap Heinrich-Heine University of Düsseldorf 1

2 The German Energiewende Tsunami in Japan on 10 March 2011 Immediate shut-down of eight nuclear power plants in Germany (14 March 2011), complete move to nuclear-free electricity until 2022, Switch to renewable energies: 35% of electricity consumption in 2020, 50% until 2030 and 80% until This is called Energiewende (energy turnaround). Regional and local Governments now even try to exceed these quotas. Main instrument to foster build-out: feed-in-tariffs set by Parliament, Feed-in tariffs are guaranteed for 20 years, Transmission line operators are required by law to purchase all electricity produced from renewables or reimburse producers anyway 2

3 The German Energiewende Philosophy: Reimburse producers (cost incl adequate rate of return), This has now lead to a system of about 4000 different feed-in-tariffs because costs differ due to Technology (solar, wind, bio mass, hydro, geothermal), Location (on-shore/off-shore wind, solar on roofs/land), Time of construction, Generation capacity Transmission i line operators have to purchase all electricity it from renewable energies and sell it on at the electricity exchange The difference between feed-in-tariff and revenue from sale at electricity exchange is borne by consumers, as a levy on every kwh. 3

4 The German Energiewende Percentage of power from renewable energies 80% 65% 50% 35% 4% 4% 5% 5% 7% 7% 8% 8% 9% 10% 12% 23%** 20% 14% 15% 16% 17% Source: BDEW 4

5 Electricity Generation in Germany Natural Gas 11,3% Hard Coal19,1% Others 6,0% Wind 7,3% Renewable 21,9% Bio Masses 5,8% Hydro 3,3% Solar 4,6% Garbage 0,8% Brown Coal 25,6% Nuclear 16,0% Source: BDEW 5

6 Electricity Prices for Private Households 17,11 16,53 1,79 2,33 28,50 2,05 2,05 23,21 23,69 25,2325,89 2,05 21,65 5,277 2,05 2,05 3,530 3,592 2,05 1,31 2,05 2,05 1,79 1,79 1,79 1,79 1,79 2,05 1,16 2,05 1,02 2,05 1,79 0,77 2,05 0,88 0,69 1,79 3,71 3,78 4,03 4,13 4, ,32 16,11 17,19 17,9618,6619,4620,64 1,79 13,94 1,79 1,79 1, , ,46 3,30 2,28 1,28 1,53 1,79 1,79 2,48 2,57 2,68 1,79 1,79 2,37 2,22 1,92 1,97 12,91 12,99 11,60 8,62 8,58 9,70 10,25 10,85 11,22 11,72 12,19 14,12 13,89 13,80 14,17 14, Generation, Transmission, Distribution GST Concession Fees Renewable Energy Levy KWK 19-Levy Offshore Electricity Tax Source: BDEW 6

7 Hydro Bio Masses Development of Feed-in-Tariffs Bandwidth and Average Feed-in Tariff 2011 in ct/kwh 9,64 3,43 12,67 19,15 3,40 30,67 Bandwith for Constructions until 31/12/2011 Average Feed-in-Tariff 2011 Bio Gas Geothermal 7,36 4,04 11,00 20,69 7,16 27,00 Bandwith Construction in 2012 Wind on-shore Wind off-shore 9,18 5,28 10,20 15,00 15,00 15,00 40,16 Solar 9,48 62,40 Source: BDEW 7

8 Development of Feed-in Tariffs EEG-Vergütu ung* in ct/kw Wh durchs schnittliche ,0 19,8 16,1 43,6 16,9 40,2 20,7 19,2 36,5 22,1 17,2 32,1 29,4 23,6 24,1 19,6 18,88 26,3 25,6 25,7 24,3 24,5 24,6 16,3 16,2 16,1 15,0 15,0 15,0 15,6 8,8 8,9 9,2 8,8 9,0 9,1 9,1 9,1 9,0 7,8 8,3 9,6 8,5 8,7 8,6 8,5 8,4 8,4 7,1 7,2 7,4 7,2 7,8 7,8 7,9 8,0 8, Bio Masses Hydro Bio Gas Geothermal Wind on-shore Wind off-shore Solar Source: BDEW 8

9 Subsidy per kwh of fgreen Electricity ti it in Germany Source: Own Calculations based on BDEW Data 9

10 Subsidies for Renewable Energies in Germany Subsidy per MWh in /MWh 182 /MWh 138 /MWh 126 /MWh 121 /MWh 20 /MWh 30 /MWh 49 /MWh Bio Gas Hydro Wind on- Bio Mass Wind off- Geothermal Solar Average shore shore Source: BDEW 10

11 (More) Problems with Feed-in Tariffs Producers of Green Energy have developed a produce and forget - mentality, Price signals do not play any role for investment or production of green electricity, New model: Decentrally planned economy. If you are even paid if you do not produce, but just would have been able to, where do you locate best? 11

12 A Riddle 12

13 (And More) Problems with Feed-in Tariffs So-called redispatch costs are increasing (but that is only minor) Costs for necessary network investment (both transmission and distribution lines) is increasing network stability is increasingly being jeopardised, Necessary investment into traditional (fossil) electricity generation plants may be jeopardised d Government response: Government order to run and maintain certain power plants, more subsidies Common European market for electricity (any market) will disappear. 13

14 Alternative: A Renewable Quota Obligation Obligation on (a) electricity retailers, (b) electricity users which import, generate or buy electricity on wholesale markets, and (c) electricity-intensive firms to use x % of green electricity per year (example: Sweden). To the extent to which electricity-intensive firms purchase electricity from retailers they do not need to fulfill the quota obligation (to avoid a double double obligation) Green electricity generators receive a (tradable) green certificate for every 100 kwh of electricity they produce. 14

15 A Renewable Quota Obligation Starting on 1 January 2015 an additional z % of green electricity can be added per year z=(35-b)/6, where B is the percentage of green electricity in If B was 26%, then we had z=1,5 % additional per year. Duty to fulfill obligation is demand side in wholesale electricity markets. Duty to connect generators to the grid and distribution networks remains. No ex post change for green electricity plants built until 31 December

16 A Renewable Quota Obligation To fulfill their quota electricity retailers can produce green electricity on their own, purchase green electricity or simply purchase green certificates Obliged firms can contract for green electricity as they see fit. If firms fail to fulfill their obligations a penalty must be paid (e.g., 150% of average certificate price) Banking of certificates should be allowed, but no deferral of fulfillment. 16

17 A Renewable Quota Obligation Advantage 1: Build-out of green energy can be better planned, hence also expansion of gird and distribution ib i lines. Advantage 2: Electricity retailers compete for customers concern for cost efficiency. Advantage 3: Competition between contractual forms (unlike in case of public procurement). Advantage 4: Self- consumed electricity can be rewarded with green certificates. Advantage 5: Partial quotas (e.g., for offshore wind) can be added. Advantage 6: European market integration is possible, huge efficiency gains Details (in German): fur-eine-grundlegende-reform-der-eegforderung--das-quotenmodell.aspx der das aspx 17

18 Capacity Mechanisms (National?) capacity payments? (State aid?) Public procurement for security of supply (public good?) Is there really a problem? Alternatives? Details (in German): /diceop/24 html 18

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20 Market Monitoring National market monitoring is of little use as markets are increasingly integrating (Böckers/Heimeshoff, 2012, / / /di d /50 As markets are integrating market surveillance should be located at the European level (ACER) German initiative for a market transparency body has come too late and may provide only few benefits (if any), given that market integration has significantly ifi increased 20

21 Conclusions The current system of purely national (apart from Sweden/Norway) subsidy schemes for renewable energies jeopardizes the European integration of power markets Huge efficiency gains are lost, as green electricity is produced inefficiently i A European quota system could heal many of the weaknesses of the current subsidy schemes based on national feed-in tariffs Capacity mechanisms should not be designed at the national level, but rather at a regional (supranational) level to account for the extent of European power markets Similarly, market monitoring is a European task rather than a national one, as electricity markets are no longer national. 21

22 Thank you for your attention! Professor Dr. Justus Haucap Heinrich-Heine-Universität Düsseldorf Universitätsstr. 1 D Düsseldorf, Germany Fax: haucap@dice.hhu.de 22