Paolo Frankl Renewable Energy Division International Energy Agency 27 March 2012

1. What are the limits to
current policy success?
Paolo Frankl
Head, Renewable Energy Division
International Energy Agency
REWP-RIAB Workshop ‘Renewables – Policy and Market Design Challenges’
Paris, OECD, 27 March 2012

2. Policies push RE growth
Wind Bioenergy Solar PV Hydro other
Generation
338 296 31 3503 74
2010 [TWh]
CAGR 2005-
26.5% 8.8% 50.8% 3.1% 4.6%
2010 [%]
© OECD/IEA 2012

3. Costs are Falling
• Hydro and some 100
PV decreasing costs by
biomass and < 1976
-19% for each doubling of
cumulative installed capacity
geothermal already
PV Module Price (USD 2010/Wp)
< 1980
cost-competitive
• Additional technologies 10
getting competitive in a < 1990
broader set of < 2000
circumstances
Learning Rate: 19.3%
• Opens up new < 2010
deployment 1
1 10 100 1 000 10 000 100 000
opportunities Cumulative capacity (MW)
Data from Breyer and Gerlach, 2010
© OECD/IEA, 2011

4. Mature Markets Facing New
Challenges
Deployment
Inception Take-off Consolidation
Hydro
DNK – Wind
onshore
DEU – Wind
DEU – Solar
PV
CHN – Wind onshore
USA – PV
CSP
Time
Adequate Possible Problems Progress Blocked
© OECD/IEA 2012

5. Grid may act as a constraint
 Strong wind, low
load case depicted
 Expected load
flows for 2013
(based on 2009
analysis)
 Enhancement
required
Conv. generation
EEG, CHP gen.
Load
Load flow (at max)
Load flow
Source: German TSOs, public data © OECD/IEA 2012

6. Flexibility is key for managing v-RE
There are 4 flexibility resources
Demand side Interconnection
Flexible Energy storage
Response with adjacent
power plants facilities
(via smart grid) markets
Source: IEA, Harnessing Variable Renewables, 2011
Industrial
A biomass-fired residential A pumped hydro Scandinavian
power plant facility interconnections
© OECD/IEA 2012

7. Grid expansion vs RE Deployment
Example: Germany Example: Spain
30 30 30 25
25 25 25
20
20 20 20
thousand km
thousand km
15
GW
GW
15 15 15
10
10 10 10
5
5 5 5
0 0 0 0
2000 2002 2004 2006 2008 2010 2000 2002 2004 2006 2008 2010
Source: IEA Wind,
380kV 220kV Wind UCTE, ENTSOE
380kV 220kV Wind
© OECD/IEA 2012

8. Hydro & pump-hydro: enablers of vRE growth
• Hydropower generation continues growing as fast as all non-hydro
renewables together since 2000
• Global pumped-hydro capacities: 98 GW by 2005, 140 GW today,
up to 200 GW by 2015 or soon thereafter
© OECD/IEA 2012

9. Lack of Policy Coordination Jeopardising Outcomes?
Today’s
1990s Tomorrow
Policies
• RE Power
• EE
• CO2 • Low carbon
• Unbundling
• Buildings generation
• Liberalisation competitive?
• RE Heat
• Market
Integration
© OECD/IEA 2012

10. Variable RE penetration impact on electricity prices
(Merit Order Effect)
Source: IEA, C. Philibert, 2011
© OECD/IEA 2012

11. Reducing Conventional Capacity Factors
Example: Spain
GW
60% 90
80
50%
70
40% 60
50
30%
40
20% 30
20
10%
10
0% 0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Conventional capacity Peak Load Conventional capacity factor Variable RE share
 Capacity markets emerging in several European
countries  New Market Integration issues? © OECD/IEA 2012

12. Exposure to fuel price variability in spot markets
Source: IEA, C. Hood, 2011
© OECD/IEA 2012

13. Market design and the “missing money” issue
• In liberalised markets, renewables not competitive:
too expensive and bearing the fuel volatility risk
Past
• FiTs and RPS-driven PPAs offset fuel risk and fill the cost gap
Now • Renewables expand, learn and reach competitiveness
• Larger shares of renewables drive spot market prices down (merit
order effect) and squeeze capacity factors of conventional plants
Now
• With current market design and no support framework, further
expansion of (competitive) renewables threatened by marginal
Next? (running) cost pricing reduction and high fossil price volatility risk
© OECD/IEA 2012

14. Conclusions
 RE policies successful in driving down costs and
deploying RE to take-off phase
 New challenges emerging at system and market design
level
 How to foster investment in flexibility resources?
 How to reduce investment risk in low-C, up-front capital
intensive energy technologies?
 How to coordinate with climate change policies?
 Portfolio-, system-, and investment risk-oriented policy
approach needed
© OECD/IEA 2012