6 th Bruges European Business Conference Drivers of Growth How to - - PowerPoint PPT Presentation

6th Bruges European Business Conference “Drivers of Growth” How to achieve European energy integration

17th March 2015

Vera Brenzel Head of E.ON EU Representative Office

Energy Union – five dimensions

1. Energy security, solidarity and trust: diversification of gas supplies, EU energy and climate diplomacy on global energy markets 2. Internal Energy Market: trigger investments, reduce market concentration, increase competition (or state aid if there is market failure), regional coordination (like Pentalateral Forums), strengthen ACER 3. Energy efficiency: increase Member States’ energy efficiency efforts, transport and heating sectors, protection of vulnerable customers 4. Decarbonisation: ETS reform, including transport sector, expand RES technologies cost‐ efficiently 5. Research and Innovation: nuclear energy, CCS, multi‐disciplinary scientific initiative to define decarbonisation pathways

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Costs of lack of Energy Union

Estimated welfare loss for the EU due to gas market inefficiency:

11‐18 bln EUR/year [ACER*] 30 bln EUR/year [Booz&Co**] Per household, split by Member States: Conclusion: The costs are mostly borne by customers in CEE region

*ACER, Annual Report on the Results of Monitoring the Internal Electricity and Natural Gas Markets in 2012, November 2013 **Booz&Co report for DG ENER, Benefits of an Integrated European Energy Market, July 2013

Source: ACER*

4

• 1. Security of gas supply: what is the key issue?

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Infrastructure Prices

Source: zerohedge Source: DG Ener

• 2. EU internal energy market or 28x chaos?

Innovation: New technologies shape future energy landscape Structural change: fossil/RES – Centralised/distributed generation Markets: one regulatory framework for highest performance: IEM!

• Volatility. Structural uncertainty,

no investment appetite, SOS!

Political drivers Commercial drivers

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• 2. IEM: what is key for electricity? Capacity markets

Dispatch function Investment function

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 Disconnection of wholesale electricity prices from complete power costs  increase of non market based support

Contribution to fix costs (CAPEX, staff etc.) Demand

Marginal costs

Price

Market price Supply

MW Short term marginal costs (fuel, CO2…)

• 2. IEM: Innovations need a capacity market too

 Endorsement of investment and innovation capability and readiness needed  Intensive competition between all available options (generation, flexibility, storage)  Incentives for innovation  Requirements:  As little public influence as needed  Focus one target – one instrument  Market‐oriented and non‐discrinatory regime, EU compatible  Moderate contract duration to allow market entry of innovative technologies  European coordination and definition of generation adequacy

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• 2. IEM: Distribution grids face significant challenges

 Originally distribution grids were built to transport electricity according to maximum load  Today, installed RES capacity corresponds to factor 3‐5 of maximum load in some parts of DE  Accordingly, distribution grids need to expand significantly

8,000 4,000 1,110 1999 160 2007 2009 2005 2003 2,100 2011 2013 July 2,700 2001 3,200 6,500 3,800 4,900

100%

• Max. load

in MW

Installed RES capacity in E.DIS Distrib. grid

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Challenges

• 2. IEM: E.ON testing new technologies in pilot projects

PV/wind In‐feed into low/medium voltage grids Variable distribution transformers 2020 e‐home Energy project Future grid operation intelligent network management Technical know‐how of regional energy supply is the basis of a holistic smart grid innovation concept

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12,91 11,60 8,62 8,58 9,70 10,25 10,85 11,22 11,72 12,19 12,99 14,12 13,89 13,80 14,17 14,42 13,87 2,33 2,28 1,92 1,97 2,22 2,37 2,48 2,57 2,68 3,30 3,46 3,71 3,78 4,03 4,13 4,60 4,65 1,79 1,79 1,79 1,79 1,79 1,79 1,79 1,79 1,79 1,79 1,79 1,79 1,79 1,79 1,79 1,79 1,79 0,69 0,88 1,02 1,16 1,31 2,05 3,530 3,592 5,277 6,24 0,77 1,28 1,53 1,79 2,05 2,05 2,05 2,05 2,05 2,05 2,05 2,05 2,05 2,05 2,05 2,05

17,11 16,53 13,94 14,32 16,11 17,19 17,96 18,66 19,46 20,64 21,65 23,21 23,69 25,23 25,89 28,84 29,13

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Erzeugung, Transport, Vertrieb MwSt. Konzessionsabgabe EEG-Umlage* KWK-Aufschlag §19 StromNEV-Umlage Offshore-Haftungsumlage abLa-Umlage Stromsteuer

• 2. IEM: What‘s driving electricity prices?

Source: BDEW, Stand: 05/2014 0,09 0,20 0,13 0,25 0,20 0,35 0,26 0,42 0,31 0,51 0,28 0,34 0,34 0,29 0,20 0,23 0,13 * ab 2010 Anwendung AusgleichMechV 0,03 0,08 0,002 0,151

Average power price for a 3‐person household in Germany (ct/kWh)

annual consumption 3.500 kWh

0,126 0,329 0,250 0,178 0,092 0,250 0,009

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• 3. Decarbonisation: ETS needs stability now

Current Market Situation – until 2020 auction volumes

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2013 ≈ 21% 2030 ≈ 45%

• 3. Decarbonisation: The RES increase challenge

5% biomass 10% hydro 6% intermittent 5% biomass 10% hydro a 5x increase in intermittent generation?

21% of electricity mix today to 45% by 2030

National targets_ Market fragmentation EU RES targets with harmonised Support schemes EU RES targets through ETS (mature RES) and R&D support (immature RES) No RES target

EU RES growth Support scheme options

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Conclusion and recommendations for the Energy Union

 Diversify gas supplies  Define a sound basis for future public interventions  Ensure market integration of renewable support  Phase out RES priority dispatch → balance responsibility  Ensure cross border trade in renewable energy  Introduce coordinated regional capacity markets and improve EOM market  Take demand‐side response into consideration to solve the adequacy issue (e.g. flexibility options)  Objective: Use the IEM to its full extent, avoid unnecessary interventions, introduce a capacity market

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E.ON ‐ New Strategy

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