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Wind Power in the Electricity Mix
Today and Tomorrow
Dr. Paolo Frankl
Head, Renewable Energy Division
International Energy Agency
Intercontinental Wind Power Congress 2015, Istanbul, 1 April 2015
© OECD/IEA 2014
© OECD/IEA 2014
In 2040…
1. Wind larger than coal worldwide?
2. First source of electricity in Europe?
Yes! According to the WEO 2014 450 Scenario
© OECD/IEA 2014
Strong momentum for renewable electricity
Global renewable electricity production, historical and projected
TWh
Historical data and estimates
7
7
6
6
5
5
4
4
3
3
2
2
1
1
Forecast
500
000
500
000
500
000
500
000
500
000
500
000
500
000
500
30%
25%
20%
15%
10%
5%
2005
2006
Hydropower
Offshore wind
STE/CSP
2007
2008
2009
2010
2011
2012
Bioenergy
Solar PV
Ocean
2013
2014
2015
Natural gas 2013
Nuclear 2013
2016
2017
2018
2019
Onshore wind
Geothermal
% total generation (right axis)
 Renewable electricity projected to scale up by 45% from 2013 to
2020
© OECD/IEA 2014
2020
0%
TWh
Different barriers in different regions
limit deployment
4
4
3
3
2
2
1
1
500
000
500
000
500
000
500
000
500
0
Cumulative change in gross power generation by source and region, 2013-20
OECD
Non-OECD
2013
2014
2015
2016
Renewable generation
2017
2018
2019
2020
Conventional generation
 Renewables account for 80%
of new generation in OECD
 Limited upside in stable
markets with slow demand
and growing policy risks
© OECD/IEA 2014
2013
2014
2015
Renewable generation
2016
2017
2018
2019
Conventional generation
2020
 Renewables are largest new
generation source in non-OECD,
but meet only 35% of growth
 Large upside for dynamic markets
with fast-growing demand
 Still barriers in access to grids
and financing
Renewables contribute to energy security in Europe
0
© OECD/IEA 2014
Wind growth continues to strengthen in
emerging markets
Total wind (onshore + offshore) annual capacity additions (GW)
Non-OECD Europe and
Eurasia
1
0.5
0
2013
2017
2020
20
OECD Europe
10
2013
2017
2020
0
OECD Americas
10
China
20
0
10
2013
2017
2020
5
2013
2017
2020
0
Africa
5
0.5
0
2013
2017
2020
1.5
Middle East
1
0
0.5
3
0
2013
2017
2020
2013
2017
2020
0
Asia
 Global RE capacity additions led by wind
OECD Asia
Oceania
1.5
0
2013
2017
2020
3
10
1
2013
2017
2020
Non-OECD
Americas
 Still up & downs in additional capacities; due to policy uncertainties,
integration and financing challenges in some areas
© OECD/IEA 2014
This map is without prejudice to the status of or sovereignty over any territory to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.
Onshore wind markets today, drivers of
tomorrow
US: RPS with long-term
PPAs as low as USD
25/MWh (USD 48 with
PTC)
Brazil: Tenders with long-term
PPAs
• USD 50-57/MWh
• Up to 50% capacity factors
• good financing from BNDES
EU: FiT, FiP, GC or CfD
• 2020 RE targets
• Uncertainty in 2030
• USD 75-110/MWh
China: FiT + long-term gov.
capacity targets
• good financing
• grid integration
problems
• USD 60-80/MWh
India: REC and local FiT+ tax
incentives with gov. targets
• grid integration
problems
• USD 65-80/MWh
South Africa: Gov.
procurement with longLatin America: Tenders
term PPAs
with long-term PPAs
USD 65/MWh
• USD 62-75/MWh,Slow demand •growth*
Dynamic demand growth*
• Grid connection
• 40-50% capacity
issues
factors
* Compound annual average growth rate 2012-20 , slow <2%, dynamic ≥2%; region average used where country data unavailable
OECD/IEA
2014
This©map
is without
prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.
Silent technological revolution of wind –
unlocking more sites
Source: Wiser et al. 2012.
 New turbine technology makes low-medium wind sites bankable unlocking
more capacity to be exploited
© OECD/IEA 2014
Still large difference in investment costs
(CAPEX) among different markets
3000
USD/kW
2500
2000
1500
1000
500
Brazil
China
Germany
India
Japan
Turkey
USA
 Market competition, supply chain, administrative and regulatory policies
drive cost differences in addition to topological difficulties
 China and India have lowest CAPEXs globally with high competition in
supply chain and low construction and grid connection costs
© OECD/IEA 2014
Cost of financing very important factor in
levelized energy costs
Typical onshore wind WACC (real terms in 2014)
USA
UK
South Africa
Japan
India
Germany
China
Brazil
0.00%
2.00%
4.00%
6.00%
WACC - 2014 (real)
8.00%
10.00%
12.00%
 Economic and non-economic barriers to effect risk premium and overall
energy cost of a renewable project
 FITs and PPAs usually decrease risk premium while grid connection problems
and social acceptance to increase premium
 Policy uncertainty risks difficult to manage by investors and challenging for
financiers
© OECD/IEA 2014
Large ranges in LCOEs persist
Offshore wind costs higher but decreasing
USD 2014/MWh
300
Typical onshore wind LCOEs (2006-2020)
Typical offshore wind LCOEs (2006-2020)
300
250
250
200
200
150
150
100
100
50
50
0
0
2006
2008
2010 2012
Brazil PPAs
2014
2016 2018
US PPAs
2020
2006
2008
2010
UK CfD
2012
2014 2016 2018
Denmark Horns Rev 3
2020
Horns Rev 3 project PPA does not include grid connection
costs (+15-25%).
 Lower onshore LCOEs values already possible in exceptional sites with
good financing
 Can offshore wind have the same success story of onshore wind?
 Latest tender prices indicate an ambitious cost reduction goals in 20192020. Long-term policy framework is an important factor to achieve
significant cost reductions.
© OECD/IEA 2014
Even with lower oil and gas prices, renewable
electricity can be price competitive
Weighted average annual renewable investment costs, historical and projected
USD/MWh
300
Japan
250
LCOE New OCGT
200
LCOE New CCGT
150
100
50
EU: avg NG
import, Jan 2015
USA: avg HH
spot, Jan 2015
Japan: avg
contracted spot
LNG, Mar 2014
Japan: avg
contracted spot
LNG, Jan 2015
0
0
1
2
3
4
6
Solar PV LCOE ranges
7
8
9
10
11
USD/MMBTU
12
13
14
16
17
Onshore wind LCOE ranges
Note: Based on EGC median case, LCOE for OCGT is calculated using a 15% capacity factor and 7% discount rate and LCOE for CCGT is
calculated using a 65% capacity factor and 7% discount rate. No carbon pricing is included in LCOEs.
© OECD/IEA 2014
18
Grid Integration is the key challenge
“Renewable energies such as sun, hydro or wind cannot
cover more than 4% of our electricity consumption – even
in the long run” (Die Zeit, 1993).
Today: Portugal and Denmark >90% vRE share for several
days
© OECD/IEA 2014
Large-scale integration accomplished
today, but more to come
Share of v-Re on annual electricity generation
Denmark
Ireland
Iberia
Germany
Great Britain
Italy
NW Europe
• Instantaneous shares
ERCOT
reaching 60% and above
Sweden
France
• Higher shares locally:
e.g. wind in Tamil Nadu
(India) approx. 13%
India (South)
Brazil
Japan
0%
Wind
© OECD/IEA 2014
PV
10%
20%
Additional Wind 2012-18
30%
40%
Additional PV 2012-18
Integration vs. transformation
 Classical view: VRE are
integrated into the rest
 Integration costs:
balancing, adequacy, grid
 More accurate view:
entire system is
re-optimised
 Total system costs
Integration is actually
about transformation
© OECD/IEA 2014
Remaining
system
VRE
Power system
• Generation
• Grids
• Storage
• Demand Side Integration
Total system costs (USD/MWh)
Cost-effective integration means
transformation of power system
Grid cost
140
+40%
120
+10-15%
100
DSI
80
Fixed VRE
60
Emissions
40
Fuel
20
Startup
0
Legacy
low grid costs
0% VRE
Legacy
high grid costs
Transformed generation &
8% DSI, low grid costs
45% VRE penetration
Fixed
non-VRE
Test System / IMRES Model
 Large shares of VRE can be integrated cost-effectively
 Significant optimization on both fixed and variable costs
© OECD/IEA 2014
© OECD/IEA 2014
16
Three pillars of system transformation
of power
plants
System
friendly
VRE
© OECD/IEA 2014
2.
Make better use of
what you have
Operations
1.
Let wind
Geographic
spread
and
solar
play their
part
Design
Investments
Technology
spread
3.
Take a system wide-strategic
approach
to investments!
© OECD/IEA 2014
17
Policy uncertainty remains a major barrier to
deployment –an example from US
US annual onshore wind additions
14
12
GW
10
8
6
4
2
Result of expiration of
production tax credit in previous year
?
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015* 2016
 Policy uncertainty over the extension of production tax credit
to result in boom and bust cycles.
 13 GW deployed in 2012, only 1 GW in 2013 and 4.8 GW in
2014
© OECD/IEA 2014
Retroactive policies to be avoided at all times
Romania solar PV and onshore wind LCOE vs GCs and market price
Onshore wind LCOE and wholesale market price + GCs
Utility-scale PV LCOE and wholesale market price + GCs
400
400
350
300
250
200
150
100
50
0
350
EUR/MWh
300
250
200
150
100
50
0
Jan-13
May-13
Solar PV LCOE
Sep-13
Jan-14
May-14
Market price +GCs for Solar PV
Jan-13
Min
May-13
Market price
Sep-13
Jan-14
May-14
Market price + GCs for Onshore wind
 Romania introduced 6 GCs for PV and 3 for onshore wind…both
technologies boomed with generous incentives
 Too expensive! Government changed bending retroactively. Some projects
will still be built but bust cycle in 2014.
 WACC for wind projects estimated to increase from 9% to 14%
© OECD/IEA 2014
What has not worked (yet)
EU ETS carbon price (EUR per tonne)
 Low carbon prices insufficient to trigger investment in low-C technologies
 Fossil fuel subsidies act as an incentive to emit
 Other barriers persist, e.g. policy uncertainty in OECD countries and
access to grids and markets in some non OECD countries
© OECD/IEA 2014
Despite major efforts, fossil-fuel
subsidies remain a major issue
Economic value of fossil-fuel subsidies by fuel
120 Dollars
per barrel
100 (nominal)
Billion dollars 600
(nominal)
500
400
80
300
60
200
40
100
20
2007
2008
2009
2010
2011
2012
Electricity
Coal
Gas
Oil
IEA average crude oil
import price (right axis)
2013
In 2013, the global value of fossil-fuel subsidies that artificially lower end-use prices
was estimated at $548 billion, $25 billion lower than the previous year
© OECD/IEA 2014
The 2 °C goal – last chance in Paris?
World CO2 budget for 2 °C
~2300 Gt
2012-2040
75%
50%
1900-2012
25%
Share of budget used
in Central Scenario
Trillion dollars (2013)
100%
Average annual low-carbon
investment, 2014-2040
2.0
CCS
Nuclear
Renewables
Efficiency
1.5
1.0
0.5
2013
Central
Scenario
For 2°C
target
The
The entire
entire global
global CO
CO22 budget
budget to
to 2100
2100 is
is used
used up
up by
by 2040
2040 – Paris must send a strong
signal for increasing low-carbon investment four times beyond current levels
© OECD/IEA 2014
Designing future power markets
Wholesale spot power markets unlikely to deliver on:
Financing capital-intensive
(variable) renewables
Flexible power systems
assets with uncertain
capacity factors
Various ways to combine the following three elements:
Short-term price
Long-term price
Pricing of
signals to reflect
signals to attract
externalities to
the value of
investment in
achieve energy
power and
high-Capex
security and
flexibility at all
technologies
climate goals
time
© OECD/IEA 2014
© OECD/IEA 2014
23
A 2DS requires deep transformation
of the electricity mix
2011
 The mix today:
 Fossils: 68%
 Renewables: 20%
© OECD/IEA 2014
6DS
2DS
hi-Ren
 The mix in 2050 (2DS/hi-REN):
 Fossils: 20%/12%
 Renewables: 65%/79%
Wind power deployment to 2050
20%
2DS
18%
7000
16%
Wind TWh/yr
6000
14%
5000
12%
4000
10%
3000
8%
6%
2000
4%
1000
2%
0
0%
China
OECD Europe
United States
Other Developing Asia
Middle East
OECD Asia Oceanic
Other OECD NA
Africa
India
Eastern Europe and FSU
Latin America
hiRen (TWh)
share of total
hiRen (share)
 Wind power to provide 15% to 18% of global electricity
 China, Europe and the USA together account for two thirds
© OECD/IEA 2014
of global electricity production
8000
Concluding remarks
 High levels of financial support no longer required for RE
electricity (wind in particular) if appropriate market and
regulatory framework in place
 However, solutions to future development rest in policy
makers’ hands
 Policy risk main barrier to investment
 Electricity markets sub-optimal today for low-carbon generation
 Policies and market design should focus on fostering




© OECD/IEA 2014
Competition,
Innovation
Flexible energy systems
Pricing of carbon and other externalities