Universidad Autónoma de Guadalajara Nov.

 4, 2008 N 4 2008

International and Latin‐American  experiences with policies for the  promotion of renewable energy promotion of rene able ener
Detlef Loy Loy Energy Consulting Loy Energy Consulting Berlin/Germany

What makes the difference? What makes the difference?
The example of wind energy: h l f i d we have .... we have • countries with good wind regimes, but hardly  any wind energy use • countries with marginal wind but sizable wind countries with marginal wind, but sizable wind  energy generation What are the reasons for such a divergent  development?
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What is specific about electricity from  Renewable Energy Sources (RES) ? Renewable Energy Sources (RES) ?
• RES RES are often intermittent, i.e. not constantly  f i i i l available (wind/solar); need for parallel grid operation • RES intensity depends very much on location (for wind  on topography, vegetation, turbine height etc.) • RES availability not always matching with site of  electricity demand and near main grid; for wind and  y g ; water: land accessibility sometimes not secured • High up‐front investments leading to long pay‐back High up‐front investments leading to long pay‐back  periods (often > 10 years)
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What is specific about electricity from  Renewable Energy Sources (RES) ? Renewable Energy Sources (RES) ?
• N New technologies – many unknowns, e.g. h l i k ‐ effect on grid stability ‐ environmental impacts i li ‐ construction requirements ‐ d demounting after end of life‐time i f d f lif i ‐ maintenance requirements ‐ security issues it i

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Basic thoughts  about support schemes about support schemes
Support schemes try to balance out market distortions  S h b l k di i and/or are introduced to directly favour electricity from  RES Support schemes have to avoid burdening the state  budget or increasing consumer tariffs b d t i i t iff They should match with regular market functions and fit  into existing legal structures i i i l l Generation‐based incentives are generally better than  one‐time payments They are important, but not the only success factor  for RES technologies !!
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Other important factors are … Other important factors are
Legal structure of the electricity market: Legal structure of the electricity market: ‐ sectors unbundled? ‐ self‐generation allowed? ‐ private‐sector generation allowed? i t t ti ll d? ‐ transmission of electricity by third parties allowed? Public acceptance P bli t Land access Does Power Expansion Plan provide for transmission options  (construction of new lines to potential wind locations)? Is permission procedure established and unbureaucratic ?

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Main RES support schemes Main RES support schemes
oQ t Quota systems (R t (Renewable Portfolio Standards) with  bl P tf li St d d ) ith or w/o certificates o Feed‐in tariffs and premiums o Tenders / call for proposals / call for proposals o Financial incentives (Direct investment subsidies) o Fiscal supports (tax incentives) Schemes vary considerably between countries; most  countries use more than one scheme at a time ti th h t ti
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Basic features of support schemes Basic features of support schemes
Government pays Government pays Investment aid   Support/price level set by authorities Amount of RES set in the market Customers pay Customers pay

Tax support       

Feed‐in‐tariffs (fixed or premium)

Tendering              Support level set in the market Amount of RES set by authorities

Quotas +     green certificates   green certificates

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Support scheme models Support scheme models

Source: BWE

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Countries in Latinamerica with specific  regulations for RES electricity l ti f RES l t i it Argentina ( i i (since 1998/2006) ‐ Premium / ) i ( ) Brasil (since 2002) – Feed‐in tariffs and calls Chile (since 2008) ‐ Quota Costa Rica (since 1990) ‐ Costa Rica (since 1990) Tender Dominican Republic (since 2007) – Quota and  Premium • Ecuador (since 2000) – Feed‐in tariffs ( ) • Nicaragua (since 2002) – Premium and mainly  Tax incentives Tax incentives • • • • •
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Wind power capacity 2007 Wind power capacity 2007
Feed‐in tariff/  calls Tenders


Ecuador:     New in 2007    2.4 MW (= total end of 2007)
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Chile – case study Chile case study
Highly liberalized electricity market High growth rate for electricity demand Insecure energy supply (gas imports) Very limited indigenous fossil fuels Very limited indigenous fossil fuels Favourable wind conditions, large geothermal  potential and biomass resources in many regions Supportive renewable energy policy: funding of pre Supportive renewable energy policy: funding of pre‐ investment activities and new law with quota  g p obligation (since April 2008)
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Chile – situation in the past Chile situation in the past
• Liberalised market was looking at least‐cost options, Liberalised market was looking at least cost options, 
not at long‐term energy security

• Wind regime and geothermal resources mainly Wind regime and geothermal resources mainly 
unknown; speculation with geothermal concessions

• No administrative permission procedures in place • No overall planning for grid integration of RES No overall planning for grid integration of RES 

• Fi Financing sector not accustomed to RES installations i t t t d t RES i t ll ti • No land resource planning in place
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CHILE – Law 20.257 (April 1, 2008) CHILE Law 20 257 (April 1 2008)
• Law is basically amending the Electricity Act of 1982 • All companies selling electricity over the two main grids either to 
distribution companies or directly to final consumers have to prove  from 2010 on that a certain quota of all electricity sold annually  comes from non‐conventional renewable energy comes from non‐conventional renewable energy

• Applies to all sales contracts signed after August 31, 2007 • Only RE generation that was grid‐connected from January 1 2007 Only RE generation that was grid‐connected from January 1, 2007 
on will be counted

• Quota will be 5% between 2010‐2014 and increase from 2015 by Quota will be 5% between 2010 2014 and increase from 2015 by 
0.5% points annually, until reaching 10% in 2024

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CHILE – Law 20.257 (April 1, 2008) CHILE Law 20 257 (April 1 2008)
• Quota can partially be accomplished by hydropower with 20‐40 

• Non compliance will be penalized with 2 2 US ct per kWh non Non‐compliance will be penalized: with 2.2 US‐ct per kWh non‐
supplied electricity (value of Nov. 2008). If it happens again within  g y ,p y p following 3 years, penalty will increase to 3.3 US‐ct per kWh 

• The penalty volume will be transferred to and shared proportionally 
among all customers of those companies that have accomplished  the obligation.

• Flexibility: electricity volumes exceeding the quota can be shifted 
into the following year; part of the obligation can be shifted to the  next year; companies may exchange volumes in excess of their own  quota
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CHILE – Law 20.257 (April 1, 2008) CHILE Law 20 257 (April 1 2008)
Impact of the Law:

• Generators have to incorporate own RES plants or contract RES electricity • Electricity dealers will seek to get RES electricity anywhere on the market
Potential weaknesses:

• Penalty could be too low to really act as a commercial threat • Regulated electricity customers have no choice for other distributor • Wind and geothermal may not be the first option due to relatively high up‐
front costs

• Only 11% of the expected capacity expansion in the next decade will be 
using non‐conventional RES; only 1.400 MW installed capacity estimated  using non conventional RES; only 1 400 MW installed capacity estimated for 2020

• Costs for RES electricity will not be controlled, but 100% transferred on to  Costs for R S electricity will not be controlled, but 00% transferred on to
the final consumer
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Costa Rica – case study Costa Rica case study
• State‐dominated electricity sector: single‐buyer principle d d l l b l • Law of 1990 allowed for private engagement in electricity 
generation, but only with RES and up to 15% (now 30%) of  total installed national capacity (not including hydropower) 

• RES electricity will be purchased for up to 20 years from any 
plant of > 20 MW and < 50 MW

• Electricity must be purchased through a competitive regime
(p (public tender) or at public auctions; tenders follow proposals  ) p p p of the Power Expansion Plan (for period until 2012 only 50  MW wind expected, already in construction; for 2013‐2025  another 250 MW wind) th 250 MW i d)
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Costa Rica – case study Costa Rica case study
• Several regulations state that RES other than hydropower  l l h h h h d
should be given priority.

• Reducing dependence from energy imports is Government 

• Wind regime is matching well with dry season (low available 
capacity from hydropower)

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Ecuador – case study Ecuador case study
• P ti ll privatized electricity market, but still state Partially i ti d l t i it k t b t till t t

• Power tariffs are Government controlled and below cost Power tariffs
coverage (high subsidies)

• High demand increase need for substitution of thermal High demand increase, need thermal 

• Government‘s interest focussed on large scale hydropower Government s on large‐scale • New Ministry for electricity and renewable energy • Feed‐in tariffs in place since 2000, to be paid for 12 years, 
annual revision

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Ecuador – case study Ecuador case study
• Payment procedures are unclear (no mechanism for 
sharing of extra costs)

• Electrification Master Plan not specific about grid 
integration of RES electricity integration of RES electricity

• There is no financial stability (see debt situation of 
distributing utilities)

• Overall political instability leads to low trust of Overall political instability leads to low trust of 
investors and financing sector
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El caso actual de México é
• La Ley del Servicio Público de Energía Eléctrica (LSPEE) permite la  La Ley del Servicio Público de Energía Eléctrica (LSPEE) permite la generación de electricidad para - autoabastecimiento, - cogeneración, ió - exportación, - como productor independiente para CFE, - o como pequeño productor • • Contrato de Interconexión para Autoabastecimiento Contrato de Interconexión para Fuentes de Energía Solar a Pequeña Escala (menos de 30 kW) Iniciativa de Ley para el Aprovechamiento de las Fuentes Renovables de  Energía (LAFRE)
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Overview of RES support systems in EU O i f RES t t i EU

Source: Optres, 2008

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Feed‐in tariffs: The German Example Feed in tariffs: The German Example
Fixed feed‐in tariffs since 1991 feed in tariffs since 1991 Three main amendments (2000/2004/2009) Constant monitoring and revisions Technology and site specific tariffs Technology and site specific tariffs Tariff structure prevents concentration on „prime“  wind locations (negative: low medium capacity factor) Amendment of 2009 will stimulate off shore wind  Amendment of 2009 will stimulate off‐shore wind development (higher tariffs)

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Germany: Renewable Energy Sources Act -M i F Main Features Outcome-based, cost-reflective incentive (preferential purchase price per kWh) i Priority for grid connection, purchase and transmission of electricity from renewable energies Consistent purchase price (“tariff”) paid by the grid operators g p p y (15–30 years) y ) - Long-term perspective and investment security ( - Incentive for opening up new potentials and technologies Strong incentive for efficiency boost and cost reduction - Tariffs differentiated by so rce and si e of the plant b source size - Annual degression rates taking into account technical development Nationwide equalization between all grid operators and electricity suppliers for fees paid; customers pay for additional costs, no state subsidy ! Exemption for energy-intensive industries and rail system

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German Renewable Energy Policy: Renewable Energy Sources Act (EEG) - 2004 Feed-in tariffs for renewable energy plants (commissioned in 2007 and degression in 2008)
Cents/kWh 6.65 - 9.67 8.03 - 21.14 7.16 15.00 7 16 - 15 00 5.18 - 8.19 6.19 - 9.10 37.95 54 21 37 95 - 54.21 Duration (a) Degression 2008 ( ) g 30 20 1% 20 1% 20 1% 20 20 5 - 6 5% 6.5%

Small Hydro Power Biomass Geothermal Wind onshore Wind offshore PV

Source: BMU: Renewable Energies in Figures, 2007, EEG

Note: tariffs and degression rates will change as from Jan. 1, 2009
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Germany – renewable energy electricity G bl l i i
Contribution of renewable energy sourced electricity generation in Germany 1990 - 2007
100,000 90,000 80,000 70,000 60,000

Hydropower Biomass Biomass*

Wind energy Photovoltaics
New EEG 1. August 2004

50,000 40,000 30,000 20,000 20 000 10,000 0

First feed-in tariff 1. January 1991

EEG 1. April 1 A il 2000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
* solid, liquid, gaseous biomass, biogenic share of wast e, landf ill and sewage gas; Elect ricit y f rom geot hermal energy is not present ed due t o t he low volumes of elect ricit y Source: Source: BM U according t o Working Group on Renewable Energies / St at ist ics (AGEE-St at )


Germany: Decrease of feed‐in tariffs German Decrease of feed in tariffs
Wind Energy A partir del 2013: remuneración eólica < costos de generación convencional

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Germany - C G Components of Electricity Price f
Private Households, 2007 20.7 EUR-Cent/ kWh
Grid cost 34% Electricity generation and sale 25%

Cogeneration fee 2% Concession fee 9% EEG levy 5% Electricity tax 10%

VAT 16%

= 1 €-ct/kWh

Source: BMU

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Germany: External costs Germany: External costs

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Support/cost comparison for  on‐shore wind in EU countries h i d i EU ti

Source: Optres, 2008

Feed-in tariff F d i t iff
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Premium Quota/ P i Certificates

Installed global Wind Capacity Installed global Wind Capacity
A finales de 2007: • Total Global: 94,100 MW • Total Europa:57,140 MW • Total Alemania: 22,250 MW 87 MW • Total México: • Instalada 2006: 20,100 MW
Source: GWE EC UAG 04.11.2008 Loy Energy Consulting 32

Installed PV Power in OECD countries Installed PV Power in OECD countries

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Source: IEA-PVPS

Conclusions: Well constructed support  schemes for RES electricity should ..... schemes for RES electricity should be consistent and not interfere with the electricity  be consistent and not interfere with the electricity or CO2‐certificate markets  level the playing field in comparison with other  level the playing field in comparison with other energy sources be predictable and transparent – credibility and  be predictable and transparent credibility and political stability are important for investments be cost efficient by minimizing costs to the energy  be cost efficient by minimizing costs to the energy consumer, energy companies and public budgets  not create bureaucracy not create bureaucracy be specific to country conditions !!
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Muchas Gracias por su atención ! h ó ! Si desean mas información: dloy@freenet.de For country survey: www.gtz.de/wind For country survey: www gtz de/wind For RES in Germany: www.bmu.de For legal aspects of RES electricity in EU:  www.res legal.eu www.res‐legal.eu
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