Lec. 08: Support for Renewables Flashcards
True or false?
Motives for renewable support
- Reducing carbon dioxide emissions
- Reducing air pollution (particulate matter, NOx, SO2 from fossil fuel combustion)
- Reducing dependence on finite resources (fossil fuels, uranium)
- Creating energy system with decentralised structure and ownership (reduces market power)
- Reducing cost through knowledge spillovers (leading to lower overall cost energy system)
- Developing an export industry by early specialisation
- Energy security: limiting dependence on fossil fuels imports
- Ancilliary benefit: generating employment
True!
Support for renewables
Why not just rely on market revenues?
Or on carbon pricing to make low-carbon generation attractive?
Support for renewables
There are different reasons for supporting renewables which depend on technology, maturity and the market penetration
- The technology is at the beginning of its learning curve and is expensive. However cost degression which enables the technology to be competitive in the future is expected
- The technology is competitive but not being built because of price risk
- The technology penetration is so high that in the absence of other policy (e.g. carbon pricing) there is a cannibalization of market value
What is the market value (MV)?
How do you calculate it?
What is the market value (MV)?
- MV is the average (monthly) market price a specific type of generation technology receives when it sells electricity
- Formula
–> Technology s
–> Production at time t of g_s,t [MWh]
–> Market price p_t [€/MWh]
MV_s = sum_t_(p_t * g_s,t) / sum_t_(g_s,t)
True or false?
The change in market value MV over time quantifies the cannibalization effect an increasing supply from a VRE source has on the revenue of this VRE source which occurs due to overall lower market prices (merit order effect) as well as the temporal correlation of the generation of this type of VRE source.
True!
Why is it possible that the market value of a VRE source can be higher than the average market price?
How is this affected by the share of this VRE source in the overall capacity mix?
- If share of this VRE source in the overall capacity mix is low it is possible when the VRE source produces in times with high prices (~ high demand)
–> E.g. PV produces a midday when prices are higher than average - With a growing capacity of this VRE source this effect decreases steadily (cannibalization effect)
What is the cannibalization effect of VRE?
Cannibalization effect of VRE
- With a growing share of a specific VRE source in the overall capacity mix the market value of this VRE source will decrease because the revenues are being cannibalized due to lower market prices (merit order effect) as well as temporally correlated generation
- The effect is particularly severe for PV, since the production is highly temporally correlated
What is missing?
In general if you have two competing technologies and you want to encourage the more expensive one, you can either “..” the disfavoured technology until the favoured technology is preferred, or you can “…” the favoured technology.
“tax”
“subsidize”
True or false?
To encourage electric vehicles (EV) over internal combustion engine vehicles (ICEV), we do both - taxes and subsidies - in Germany:
- Energy tax and CO2 tax on diesel and petrol
- Vehicle sales tax (Pkw-Steuer) only applies to ICEV
- Subsidy (“Elektro-Auto-Kaufprämie”) for electric vehicles of up to 9000 € (sinks to 6750€ in 2023, zero in 2024)
- State regulatory and financial support for charging stations
True!
What types of support schemes for renewables do you know?
Types of support schemes for renewables
- Public financing
–> public investments, loans, grants (“Zuschüsse”) - Corporate financing
–> Power Purchase Agreements (PPAs) - Fiscal incentives
–> Subsidies and tax reductions for RES
–> Taxes on carbon - Quotas for consumers
–> Required shares for renewables or clean energy
True or false?
The Federal Environmental Agency (UBA) estimates that in 2018 in Germany there were environment-damaging subsidies of 65.4 billion €, of which 60.6 €billion damage the climate.
Major factors include EEG exceptions, lower tax on diesel relative to petrol, energy-tax-free kerosene for aviation, VAT-free international flights, commuter tax allowance, subsidies for coal, lower VAT for animal products, free distribution of ETS CO2 certifications.
NB: This does NOT include indirect subsidy of not taxing fossil fuel externalities for climate and air pollution.
True!
True or false?
European Union’s climate and energy targets
2030 energy and climate framework
Key targets for 2030 in ‘Fit For 55’ programme (RES regulated in Renewable Energy Directive (RED) III from 2023):
- At least 55% cut in greenhouse gas emissions (from 1990 levels; NB: not just CO2, also other five Kyoto GHG)
- RED III: At least 42.5% share of renewables in final energy consumption (aiming for 45%)
- RED III: 42% of hydrogen should be renewable; 5.5% of transport fuels to be advanced
biofuels or renewable fuels of non-biological origin (RFNBO); minimum 1% RFNBO - Revised Energy Efficiency Directive: reduce final energy consumption by 11.7% compared to projections made in 2020
European Green Deal
- Carbon-neutral economy by 2050 (i.e. net-zero greenhouse gas emissions)
True!
Germany Klimaschutzgesetz (2019, updated 2021 and 2023)
In 2021 the Germany Climate Protection Law (Klimaschutzgesetz) was updated after the Federal Consistitution Court (Bundesverfassungsgericht) ruled that the original 2019 targets would infringe on the rights of future generations.
New targets:
- Reduction of greenhouse gas (GHG) emissions in 2030 by 65% versus 1990 levels
- In 2040 by 88%
- Climate neutrality (zero net GHG emissions) by 2045
- Sector-specific targets for 2030, including for land use and forestry
- Expertenrat fu ̈r Klimafragen monitors progress (modelled on Committee for Climate Change in UK); Sofortprogramm for ministries if targets not met
- 2023 Novelle: sector-specific targets abolished, replace with overall target
True!
True or false?
German Renewables Act (2021)
EEG 2021 had targets:
- At least 65% share of renewable energy in gross electricity demand in 2030
- 100% CO2-neutral electricity generation and consumption by 2050
- Continuous, cost-efficient and grid-adjusted RES expansion.
True!
New targets in 2021-3 from the Traffic Light Coalition
The coalition raised the ambition of previous targets; renewables regulated in EEG 2023.
- Gross electricity consumption assumed to rise to 750 TWh/a in 2030
- 65% → 80% renewable electricity target by 2030 (600 TWh/a RES)
- 100 GW → 215 GW solar PV target by 2030
- 71 GW → 115 GW onshore wind, 20 GW → 30 GW offshore wind target by 2030 50% climate-neutral heating
- Coal exit ideally by 2030
- Need hydrogen-ready gas turbines
- 6 million heat pumps, 15 million electric cars by 2030 10 GW of electrolysers by 2030
- Abolished EEG-Umlage on 01.07.2022
True!
What renewable electricity support schemes generally exist in Europe?
Support policies
Note: Support levels in these schemes can be set both using auctions or administratively
- Investment-based
–> Investment subsidies
+ Subsidies based on installed capacity/investment - Production based
–> Quantity based schemes
+ Tradable green certificates / RPS
–> Price based schemes
+ Fixed subsidies
(Feed-In-Tariff (FIT), PPA)
+ Variable subsidies
(Variable feed in premiums, Fixed feed in premiums, CfD)
Explain the following RES support mechanisms:
Production and price based support schemes
Feed-in tariff (FIT)
Production and price based support schemes
–> Feed-in tariff (FIT)
Feed-in tariff (FIT) (“Feste Einspeisevergütung”)
- Renewable generators receive a fixed amount of money per produced MWh
Explain the following RES support mechanisms:
Production and price based support schemes
Market premium (MP)
Production and price based support schemes
–> Market premium (MP)
- Each month a variable MP is paid to the generator
- MP = SP - average MV_s
–> If SP > MV –> MP > 0
–> If SP < MV –> MP = 0 - SP: Pre-determined individual strike
–> In Germany the strike price (SP) is in most cases determined in tenders/auctions (RV: reference value, “Anzulegender Wert”) or otherwise administratively set to a specific value - MV_s: Average monthly market value of specific RES technology s
–> In Germany the fours TSOs are obliged to calculate for each month what the market value (MV) was for a reference PV or wind turbine - General incentives
–> Direct marketing provides an incentive to produce more during times of high prices (and high demand)
–> Since the MP depends on the average MV_s the generator has an incentive to maximise its own MV_i to maximize its actual market revenue
(E.g. east-west orientation for PV panel to capture morning/evening prices or a low-wind-speed turbine)
Compare the market premium (MP) mechanism and the contract for difference (CfD) mechanism with each other.
Visualize the difference.
–> Draw comparison, slide 31
Contract for difference (CfD)
- If SP > MCP –> State pays difference to generator
- If SP < MCP –> Generator pays difference to state
- Pro: Generator does not earn more than the SP (no “excess profits”)
Market premium (MP)
- If SP > MCP –> MP > 0 –> State pays MP to generator
- If SP < MCP –> MP = 0 –> State pays nothing to generator
–> The generator does not pay back when the market price (MCP) exceeds the strike price (SP). This leads to a lower strike price (SP) - Pro: Generator is incentivised to feed in power when prices (and demand) are high!
Explain the renewables support levy (green fee, “EEG-Umlage”).
Renewables support levy (green fee, “EEG-Umlage”)
- Renewables support levy levied on customers (like German EEG-Umlage until July 2022)
RES levy = (RES support payments − RES marketing revenue) / Adjusted non-preferred final electricity consumption
Adjusted final electricity consumption is equal to total final electricity consumption minus:
- Share of electricity consumption of energy intensive industries, which are exempted from the levy
- Own generation (self-consumption), which is partly exempted from the levy
Explain the following RES support mechanisms:
Production and quantity based support schemes
Green Certificates (GC) + Guarantees of origin (GoO)
Production and quantity based support schemes
–> Green Certificates (GC) + Guarantees of origin (GoO)
- If there are quotas for RES share (either governmental or voluntary corporate targets), a market for green certificates (GC) or guarantees of origin (GoO) can be established
Green certificates (GC)
- If there are quotas for RES share fossil fuel-fired generators are required to replace a certain percentage of their electricity production with RES or to purchase GC from renewable energy suppliers
- GC are traded separately from the electricity
- The GC price is determined based on the demand (from generators and importers) and supply (RES generators) of GC
- The additional costs linked to purchase of GCs are transferred to the final customers through the electricity price (on wholesale or retail market)
–> No external subsidy required! - Visualization, slide 37
Guarantees of Origin (GoO)
- They certify that a specific amount of energy (usually 1 MWh) was produced from renewable sources.
- Are traded separately from the underlying energy
- GoOs enable consumers to buy “green” energy
- They are not tied to subsidy schemes but are more about disclosure and consumer choice
Production and quantity based support schemes
Green Certificates (GC) + Guarantees of origin (GoO)
1) What is the problem with both?
2) What other market tool does eliminate this particular problem?
Production and quantity based support schemes
Green Certificates (GC) + Guarantees of origin (GoO)
1) What is the problem with both?
- Problem: No additionality
–> Neither a GCs or a GoOs market guarantee additional investments in RES generation capacity - Problem: Annual simultaneity
–> Consumers can cover their annual energy demand with GCs or a GoOs even though they have consumed fossile fuel based energy in many hours during the year (compare slide 39)
2) What other market tool does eliminate this particular problem?
- Solution: True additionality
–> Fixed-price PPAs promote true additionality because they remove the generator’s price risk (like a CfD or swap) - Problem of PPAs: Potential promotion of grid congestions and curtailment
- Problem of PPAs: Annual simultaneity
–> Consumers can cover their annual energy demand with PPAs even though they have consumed fossile fuel based energy in many hours during the year (compare slide 39)
Green Certificates (GC) + Guarantees of origin (GoO) + PPA
Problem: Annual simultaneity
- Consumers can cover their annual energy demand with PPAs even though they have consumed fossile fuel based energy in many hours during the year (compare slide 39)
What is a solution?
Hourly simultaneity
- By combining wind and solar and/or using storage and/or dispatchable low-carbon resources hourly matching can be improved
What is the difference between grey, blue and green H2?
Grey H2
- Steam reformation of methane or coal
- CO2 emissions
Blue H2
- Steam reformation of methane or coal + CCS
- Less but not no CO2 emissions (imperfect capturing + methane leakages)
Green H2
- Electricity from RES + electrolysis
- No CO2 emissions
What is missing?
Green hydrogen in Europe: definition
There are several factors that have to be addressed in the definition:
-“..”: What do we define as renewable generation?
- “…”: Should the renewable generation be newly built, or can we use capacity built in the past that has already been subsidised? What about generation that has fallen out of subsidy period (like wind and solar older than 20 years in Germany)?
- “…”: Do the electrolyser and renewable generation have to be co-located, at same grid node, same bidding zone, same country or just same continent? What if there is congestion in the grid?
- “…”: Does the electrolyser only consume the same energy as the renewable generation supplies per hour, month or year? Is it sufficient that they just run at the same time?
“Renewable”
“Additionality”
“Location”
“Timing”
What is the German H2Global scheme?
German H2Global scheme
- Provides support for the production of renewable hydrogen in non-EU countries, to be imported and sold in the EU
- It covers the difference between production costs and what consumers are willing to pay
- Double auction
–> Producers bids for hydrogen purchase agreements (HPA) that run for 10 years (providing investment security)
–> Consumers bid for hydrogen service agreements (HSA) of duration one year
