Taking stock of clean energy policy and private sector investment

Robert Gross and Becky MawhoodCentre for Energy Policy and Technology

Imperial College London

Imperial College Energy Futures Lab

Outline

• Context – the decarbonisation challenge and growth in green energy

• The policy map• The investment challenges• What’s policy been doing and what does policy

need to do?• Conclusions

The scale of the climate challenge

IEA, 2010 “Energy Technology Perspectives: Scenarios & Strategies to 2050”

Increasing demand from developing countries

Source: IEA WEO 2012 Presentation to Press

Investment flows

Ren 21 Global Status Report 2012

Global new investment in renewable energy increased17% in 2011, to a new recordof USD 257 billion.

This was more than six timesthe figure for 2004, and 94%more than the total in 2007,the last year before the acutephase of the recent globalfinancial crisis.

A growing fraction of investment

Proportion of investment in developing countries

Source: Frankfurt School-UNEP Centre/BNEF (2013). Global Trends in Renewable Energy Investment 2013.

Increasing policy

interest

• 138 countries have targets

• 127 countries have support policies

• Two-thirds of these are emerging economies

Source: REN21(2013) Global Status Report

Diverse targets and policiesLocation Targets Policies & fiscal incentivesGermany 18% of final energy consumption by 2020; 60% by 2050

35% of electricity production by 2020; 80% by 205014% renewables in total heat supply by 2020

FIT/premium paymentBiofuels obligation/mandateHeat obligation/mandateCapital subsidyTax credits/reductionProduction payment

India 10% of electricity production by 20123.5 GW new renewables over 2011-129 GW wind by 201220 GW grid-connected solar by 20222 GW off-grid solar by 202020 million solar lighting systems by 202214 GWth solar thermal by 2022

FIT/premium paymentUtility quota obligationNet meteringBiofuels obligationHeat obligation (State)Tradable certificatesCapital subsidyTax credits/reductionProduction payment

Guatemala 80% of final energy consumption by 202660% of electricity production by 2022

Net meteringBiofuels obligationTax credits/reduction

Senegal 15% of primary energy by 202560% rural electrification by 2017 (not exclusively renewables)

FIT/premium paymentTax credits/reduction

Source: REN21 (2013) Global Status Report

BUT all is not entirely well….

• Swinging FiT cuts in some countries • Dissatisfaction and reaction against price

impacts amongst some publics• The ‘solar bubble’ and trade war• The ‘shale gas effect’ – cheaper coal,

changed perception of scarcity, rewards to FF innovation

• Climate scepticism (or boredom?)

OECD issues – financing the transitione.g. Britain’s investment challenge - scale

What do we need?– £75b required for new gen capacity *

– £30b alone for offshore wind ?**

– Current big 6 spend around £5b/year

– Dash for gas was about £11b total

– Total market value of all existing UK generation plant is c. £50b***

– Huge plans for economic infrastructure at UK, EU and global level

– UK policy/investment environment attractive vs peers?•EMR WP, Chapter 2 ** DECC Roadmap (at current prices) *** SSE, An Energy White Paper

Africa’s is scale too – but also source

Source data: AFD/WB (2010). Africa’s Infrastructure – A Time for Transformation

Capital investment in Sub Saharan Africa’s electricity sector by source

Increasing private investment?

Source: World Economic Forum (2013) .The Green Investment Report.Source data: AFD/WB (2010). Africa’s Infrastructure – A Time for Transformation

Capital investment in Sub Saharan Africa’s electricity sector by source

Looking ahead – what’s policy trying to achieve?

1. Buy down costs

IEA 2000, Learning curves report

Mott Macdonald and the CCC 2011

Average module price reduction over time (left) versus annual PV cell/module production (right)O'Rourke et al., 2009 in FITT Research Report. Deutsche Bank. May 2008. 2009.

PV – policies and buy down….

EPIA and EU PV Technology Platform, Solar Europe Industry Initiative (SEII). Summary implementation plan 2010-1012, in EPIA Draft Report, April 2010. 2010.

2. Create stability, meet investor needs

-1,500

-1,000

-500

-

500

1,000

1,500

2,000

Gas Coal -low

Coal -high

nuclear nuclear- lowcap

nuclear- highcap

Net

Pre

sen

t Val

ue

(£/k

W)

0

10

20

30

40

50

60

Gas Coal -low

Coal -high

nuclear nuclear -low cap

nuclear -high cap

Lev

elis

ed C

ost

£/M

Wh

Spread in levelised costs arising from different CO2 and fuel price scenarios (taken from UK Energy Review ) (Working Paper by Will Blyth 2006)

Net present value representation of the spread of returns arising from different CO2 and fuel price scenarios (taken from UK Energy Review ) (Working Paper by Will Blyth for UKERC 2006)

Policies like the UK CfD FiTs transfer risk

But also 3. suit the context….

• Institutional and political feasibility are key– E.g. Senegal ASER

• conceptually strong, popular with donors, good leverage but… slow progress, turbulent management, ‘blocking’ by Senelec, etc…

• Need to avoid tail wags dog – liberalised approach to suit donor beliefs not beneficiary needs

• Affordability and believability also essential• Who does what, with what?

• Incumbents/new entrants, large scale/small scale, new tech/old tech, government/companies, community/profit….

Conclusions/thoughts

• Green growth is already a reality • Policy more contested, trade offs now central• Continuation is not a given, FF renaissance…? • Policy essential, we know (broadly) what works• What works is context specific – IF is key• Decades of experience

– opportunity to learn from what works– Avoid pointless policy ‘innovation’ = ground hog day?

• Interesting times…!