© OECD/IEA 2014
Renewables Medium-Term Forecasts and Long-Term Scenarios
Paolo Frankl
Head, Renewable Energy Division
International Energy Agency
November 2014. All Rights Reserved.
© OECD/IEA 2014 Medium-Term Renewable Energy Market Report 2014
Renewable electricity projected to scale up by 45% from 2013 to 2020
Strong momentum for renewable electricity
Global renewable electricity production, historical and projected
0%
5%
10%
15%
20%
25%
30%
5001 0001 5002 0002 5003 0003 5004 0004 5005 0005 5006 0006 5007 0007 500
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
TWh
Hydropower Bioenergy Onshore wind
Offshore wind Solar PV Geothermal
STE/CSP Ocean % total generation (right axis)
Historical data and estimates Forecast
Natural gas 2013
Nuclear 2013
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Renewables are major source of new generation
Renewables account for 80% of new generation in OECD
Limited upside in stable markets with slow demand and growing policy risks
Cumulative change in gross power generation by source and region, 2013-20
Renewables are largest new generation source in non-OECD, but meet only 35% of growth
Large upside for dynamic markets with fast-growing demand
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2013 2014 2015 2016 2017 2018 2019 2020
TWh
OECD
Renewable generation Conventional generation
2013 2014 2015 2016 2017 2018 2019 2020
Non-OECD
Renewable generation Conventional generation
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Renewables becoming a cost-competitive generation option in more cases
In some dynamic markets with country-specific conditions and market frameworks, new onshore wind is the economically preferred option versus new fossil fuel plants (e.g. Brazil, Chile and South Africa) But fossil fuel subsidies can distort this picture
Germany LCOEs versus wholesale prices
Notes: Onshore wind full load hours are assumed at 2000 and that for CCGT is 3500.
Source: IEA analysis with day-ahead average base-load wholesale prices for 2013
from Bloomberg LP.
In some stable markets, onshore wind with good financing cheaper than new CCGT plants But market design based
on wholesale pricing may not provide adequate remuneration
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200
3% 5% 7% 9% 11% 13% 15%
USD
2013
/MWh
Weighted average cost of capital (real)
Germany onshore wind LCOE
Germany CCGT LCOE
Wholesale price (2013 average)
Typical CCGT LCOE
Typical onshore wind LCOE
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Increasing risks are expected to slow renewable growth
Renewable power annual net capacity additions, historical and projected
Policy and market risks threaten to slow deployment momentum for renewables
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140
GW
OECD Other non-OECD China
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Renewable investment has risen to high levels
Investment in 2013 relatively steady at USD 250 billion, but lower than peak in 2011
Slowing capacity growth and falling technology costs limit investment in new renewable power capacity over medium term
Investment in new renewable power capacity
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2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
GW
.US
D 20
13 billion
Middle East Non-OECD Americas Non-OECD Europe China
Asia Africa OECD Europe OECD Asia Oceania
OECD Americas Net capacity growth (right axis)
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© OECD/IEA 2014 Medium-Term Renewable Energy Market Report 2014
Renewable investment costs falling
With scale up of deployment and learning, investment costs of most dynamic technologies (solar PV and onshore wind) continue to fall
Notes: Average unit investment costs are based on gross additions, which include capacity refurbishments that are typically lower cost than new capacity. Costs
vary over time due to technology changes as well as where deployment occurs in a given year..
Weighted average annual renewable investment costs, historical and projected
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Other non-OECD
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China
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2010 2012 2014 2016 2018 2020
USD
2013
/kW
OECD
Hydro Bioenergy Onshore wind Offshore wind Solar PV residential/commercial Solar PV utility
November 2014. All Rights Reserved.
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Renewable electricity increasingly competitive
Levelised cost of electricity generation continue to decrease for most renewable technologies
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Global RE capacity additions led by wind
Still, onshore outlook less optimistic than in MRMR 2013 Policy uncertainties and grid integration challenges weigh upon outlook
Offshore wind outlook also more pessimistic, with financing and integration challenges
GW 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
World
Onshore 37.2 39.1 43.9 34.0 42.9 41.9 39.2 39.7 41.4 42.1 43.1
World
Offshore 1.0 1.2 1.3 1.7 1.3 2.2 2.5 3.1 3.5 4.5 4.5
Total wind (onshore + offshore) annual capacity additions by region (GW)
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2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Annu
al a
ddition
s (GW)
OECD Americas OECD Asia Oceania OECD Europe China Rest of Non-OECD
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Solar PV annual capacity additions (GW)
Stronger outlook for solar PV
Strong growth in emerging markets and some OECD areas
Policy debates over distributed PV a source of forecast uncertainty
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.
November 2014. All Rights Reserved.
© OECD/IEA 2014 Medium-Term Renewable Energy Market Report 2014
Socket parity emerging as potential deployment driver for distributed PV
Economic attractiveness from offsetting electricity bill requires self-using most of the PV electricity Currently limits potential, in particular for households
Reaching socket parity is a driver for private actors But PV may still have significant impact on total system costs, in
particular depending on allocation of fixed network costs
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2010 2013 2010 2013 2010 2013 2010 2013 2010 2013 2010 2013 2010 2013 2010 2013
Australia France Germany Italy Korea Mexico Netherlands United Kingdom
USD/
MWh
LCOE
Variable
Portion of
Residential
Rate
LCOE of residential PV vs variable portion of electricity tariff
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© OECD/IEA 2014 Medium-Term Renewable Energy Market Report 2014
Distributed solar PV: customer type and system size impacts economic attractiveness
0 500 1 000 1 500 2 000 2 500 3 000 3 500
Consumption
Generation
Consumption
Generation
3 kW
Reside
ntial
.13 k
W R
eside
ntial
0 100 000 200 000 300 000 400 000 500 000 600 000
Consumption
Generation
120
kW Com
merci
al
Annual kWh
Consumption from the grid Generation surplus Prosumed
94% self-use
29% self-sufficiency
100% self-use
4% self-sufficiency
37% self-use
35% self-sufficiency
Comparison of self-use and self-sufficiency shares by solar PV system size and customer
Socket parity reached in several countries is a driver for private investment
But: Economic attractiveness from offsetting electricity bill requires Self-using most of the PV electricity
Fair allocation of fixed network costs
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Higher solar PV under enhanced case
With certain market and policy enhancements - Fair rules and appropriate electricity rate design for allocating the costs and benefits from
fast-growing distributed solar PV
Greater implementation of ambitious policy aims (e.g. Middle East)
Faster-than-expected decreases in solar PV costs
Solar PV capacity could top 500 GW globally in 2020
Solar PV cumulative capacity, baseline versus enhanced case
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2013 2020 2020
Baseline Baseline Enhanced High
Cumulative capa
city (GW)
Rest of World Australia France United Kingdom India Italy United States Japan Germany China
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Other technologies growing slowly
Potential of offshore power remains high, but technical, financial and grid connection issues pose challenges
Storage adds value to CSP, but deployment hampered by relatively high costs
Offshore wind generation Solar thermal electricity generation
0 10 20 30 40 50 60 70 80 90
100
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TWh
OECD Americas OECD Asia Oceania OECD Europe Africa Non-OECD Asia China Non-OECD Europe Non-OECD Americas Middle EastMTRMR 2013
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2006 2008 2010 2012 2014 2016 2018 2020
TWh
OECD Americas OECD Asia Oceania OECD Europe Africa Non-OECD Asia China Non-OECD Europe Non-OECD Americas Middle EastMTRMR 2013
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Progress tracked on different scales
Incremental TWh
increase (2013-20)
1. China + 880
2. Brazil + 207
3. United States + 180
4. India + 127
5. Japan + 72
6. Germany + 71
7. United Kingdom + 52
8. Turkey + 45
9. Canada + 41
10. Mexico + 38
Average annual growth
(2013-20)
1. Saudi Arabia + 117%
2. Jordan + 65%
3. UAE + 51%
4. Qatar + 37%
5. Israel* + 27%
6. South Africa + 25%
7. Cambodia + 22%
8. Ethiopia + 20%
9. Nigeria + 15%
10. Morocco + 15%
Note: countries with at least 1 GW of renewable capacity by 2020
* The statistical data for Israel are supplied by and under the responsibility of the
relevant Israeli authorities. The use of such data by the OECD is without prejudice
to the status of the Golan Heights, East Jerusalem and Israeli settlements in the
West Bank under the terms of international law.
Memo: EU-28 + 251
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© OECD/IEA 2014 Medium-Term Renewable Energy Market Report 2014
China accounts for 40% of global growth
Strong generation needs, pollution reduction goals and policy environment with ambitious targets support China’s deployment
Renewables comprise 45% of new generation to 2020, ahead of coal
Some emerging challenges – Slower demand outlook than in MTRMR 2013
Integration of large amounts of variable renewables
Uncertainties over favourable economics for distributed PV scale up
Evolution of China’s power generation mix, 2012-20
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Cumulative change in generation (2012-20)
Coal Oil Natural gas Nuclear Renewables Others
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n(TW
h)
Renewable generation (2012-20)
Ocean Geothermal STE Solar PVOffshore wind Onshore wind Bioenergy Hydropower
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China accounts for 70% of growth in world modern renewable heat use in buildings 2013-20
Favorable combination of support policies and cost-competitiveness of renewable heat technologies supports growth of renewable heat in China
Solar thermal (+15%/year) is fastest growing technology
Modern renewable energy use for heat in buildings
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Role of renewable use in heat also increasing, but policy support still limited
Modern renewable heat continues to grow, providing 9% of world final energy use for heat in 2020 Broader adoption of support policies for renewable heat could reduce
energy consumption and enhance energy security
Countries with targets and support policies for renewable heat
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.
November 2014. All Rights Reserved.
© OECD/IEA 2014 Medium-Term Renewable Energy Market Report 2014
0%
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(2DS)
2025
(2DS)
Billion
litres
Biodiesel (advanced)
Ethanol (advanced)
Biodiesel (conventional)
Ethanol (conventional)
Biofuels share in total
transport (energy content)
Transition to advanced biofuels for transport threatened by policy uncertainty
Conventional biofuel production continues to grow, and will provide 4% of road transport fuel demand in 2020
First commercial-scale advanced biofuel plants coming on line Without adoption of long-term policy framework, advanced biofuels sector
faces grim future
Projected biofuel production versus targets in IEA 2°C Scenario (2DS)
Historical Projection Scenario
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© OECD/IEA 2014 Medium-Term Renewable Energy Market Report 2014
Main messages to policy makers Solutions to future development rest in policy makers’ hands
Policy risk main barrier to investment
Policies to focus on cost-efficiency But policy changes must be predictable, and retroactive changes must be
avoided
Given capital-intensive nature, renewables require market context that assures reasonable and predictable returns
Resolving governance question will be key for investor certainty in post-2020 EU framework
Muddled signals may send the wrong messages about renewables at a time when newer markets have opportunity to leapfrog to more flexible and cleaner energy systems
November 2014. All Rights Reserved.
© OECD/IEA 2014 Medium-Term Renewable Energy Market Report 2014
For further insights and analysis…
The Medium-Term Renewable Energy Market Report 2014 can be purchased online at:
www.iea.org
Thank you for your attention!
November 2014. All Rights Reserved.
© OECD/IEA 2014
Retirements add to the investment challenge in the power sector
Power capacity by source, 2013-2040
Despite limited demand growth, OECD countries account for one-third of capacity additions – to compensate for retirements & to decarbonise
2013
Retirements Additions
2040
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4 000
6 000
8 000
10 000
12 000 GW
Renewables
Nuclear
Oil
Gas
Coal
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Renewables supply half of the growth in global power demand; wind & solar PV
Renewables-based power generation and subsidies
Renewables overtake coal to become the leading source of power
Generation
Subsidies
Hydropower
Wind and solar PV
(right axis)
wind & solar PV subsidies decline from 2030 as costs fall & recent higher-cost commitments expire
Generation
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6 000
2013 2020 2040 2013 2030 2040
TWh
30
60
90
120
150
180
Bill
ion
do
llars
(2
01
3) 210
2030 2020
7 000
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The entire global CO2 budget to 2100 is used up by 2040 – Paris must send a strong signal for increasing low-carbon investment four times beyond current levels
The 2 °C goal – last chance in Paris?
World CO2 budget for 2 °C ~2300 Gt
25%
50%
75%
100%
Share of budget used in Central Scenario
1900-2012
2012-2040
Average annual low-carbon investment, 2014-2040
Central Scenario
For 2°C target
2013
CCS
Nuclear
Renewables
Efficiency
The entire global CO2 budget to 2100 is used up by 2040
0.5
1.0
1.5
2.0
Trill
ion
do
llars
(2
01
3)
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30
60
90
120
150
180
210
2008 2013 2020 2025 2030 2035
Bill
ion
do
llars
(2
01
2)
$1 425 billion
$565 billion
$1 990 billion
Attracting financing in the 450 Scenario
Subsidies to renewables in the 450 Scenario
New financing vehicles could help lower the cost of capital – a reduction of three pct points would make renewables more competitive, reducing subsidies by 40%
Additional payment without WACC reduction
Up to 2035
Up to 2015
$1 540 billion
with reduced WACC
$800 billion
$1 190 billion
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Focus on Japan
and
Grid Integration
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© OECD/IEA 2014 Medium-Term Renewable Energy Market Report 2014
Two speeds of demand growth for OECD Asia Oceania countries
OECD Asia Oceania countries power demand versus GDP growth
Japan’s power demand growth expected to be modest through 2020, due to power supply constraints, success of efficiency measures and slow GDP growth
By contrast, Korea’s demand expansion expected to be robust, with increasing industrial activity
0.0%
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1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
0
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600
800
1000
1200
CAGR
201
3 -20
20
Deman
d (TWh)
2013
2020
Demand
GDP*
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0%
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n(TW
h)
Ocean STE Geothermal PV Offshore Wind Onshore Wind Bioenergy Hydro %RES-E
Japan’s renewable expansion dominated by solar PV
Japan renewable generation forecast
Solar PV capacity expected to rise to 49 GW in 2020 from over 13 GW in 2013
Onshore wind constrained by non-economic barriers (land, permitting) and grid integration; offshore wind development nascent, but could scale up in long term
Geothermal could be higher in long term, with reduced investment risks and streamlined environmental assessment
Realising this forecast requires progress in implementation of planned electricity market reforms and greater clarity over renewable provisions in 4th Strategic Energy Plan
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Solar PV investment costs remain relatively high in Japan
1 000
2 000
3 000
4 000
5 000
6 000
Australia
2013
Australia
2014
China
2013
China
2014
France
2013
France
2014
Germany
2013
Germany
2014
Italy
2013
Italy
2014
Japan
2013
Japan
2014
United
States
2013
United
States
2014
USD
2013
/kW
Residential rooftop Commercial rooftop Utility ground-mounted
Typical solar PV system prices, by segment, beginning year
Utility-scale PV among the world’s most expensive due to relatively high module prices, permitting, grid connection bottlenecks and land use constraints
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Generation costs seen falling, but still high by global standards
Historical and projected LCOEs for typical solar PV systems, beginning year
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/MWh
Utility ground-mounted
Global reference
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Residential rooftop
Projections Projections Projections
China
Italy
Japan
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What costs can be reduced? How?
Japan solar PV LCOE ranges versus FIT levels, end-user price levels and Germany LCOEs
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/MWh
Solar PV below 10 kW (residential scale)
Feed-in tariff Average household power price (ex tax)
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2012 2013 2014
Solar PV above 10 kW (commercial and utility scale)
Average industry power price (ex tax)
Germany LCOE Japan LCOE
Japan:
Japan has somewhat better solar resources than Germany, but much higher costs
High feed-in tariff levels a reflection of, or contributor to, inflated costs?
Important for government to maintain dynamic approach to FIT adjustments to reflect international cost reductions and national market maturity
International experience shows total costs must be kept under control
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Large PV project pipeline has emerged
Japan planned solar PV capacity by prefecture, March 2014
Utility-scale plants dominate registered PV projects, but only a fraction will likely get built due to project delivery and cost challenges
Insufficient transmission, grid congestion and grid connection availability remain constraints – risk of local deployment hotspots!
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
Fuku
shim
aKa
goshim
aIbarak
iCh
iba
Kumam
oto
Hokk
aido
Tochigi
Miyazaki
Miyagi
Oita
Fuku
oka
Shizu
oka
Gunm
aOk
ayam
aHy
ogo
Mie
Nagasaki
Nagano
Aichi
Iwate
Hiroshim
aGifu
Yamaguchi
Aomori
Saita
ma
Ehim
eKo
chi
Saga
Shiga
Okinaw
aOs
aka
Ishikaw
aKa
gawa
Toku
shim
aNa
raNiigata
Kyoto
Kana
gawa
Totto
riYamagata
Yamagata
Akita
Tokyo
Solar PV
app
roved
capa
city (GW)
>1MW
10kW-
1MW
<10kW
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Focus on Grid Integration: System Operation
© OECD/IEA 2014 33
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© OECD/IEA 2014
IEA Work on Grid Integration
0% 10% 20% 30% 40%
Japan
Brazil
India (South)
France
Sweden
ERCOT
NW Europe
Italy
Great Britain
Germany
Iberia
Ireland
Denmark
Wind PV Additional Wind 2012-18 Additional PV 2012-18
Share of v-Re on annual electricity generation
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Flexible power systems are key
Flexibility of other power system components
©
Grids Generation
Storage Demand Side
More v-RE require flexible power systems
More flexibility implies more diversification and resilience --> increased energy security
IEA Electricity Security Action Plan
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© OECD/IEA 2014
2. Make better use of
what you have
Op
eratio
ns
1. Let wind and solar play their
part
3. Take a system wide-strategic
approach to investments!
System friendly
VRE
Technology spread
Geographic spread
Design of power
plants
Three pillars of system transformation
© OECD/IEA 2014 36
Investm
ents
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German hard coal plants carry most of ramping duty in Germany Lignite and nuclear ramp as well, even nuclear at some times
Ramping costs can be minimised at low cost; retrofits are possible e.g. Flexible Coal: Evolution from Baseload to Peaking Plant (NREL, 2013)
Flexibility: ask for it…. and it appears
© OECD/IEA 2014 37
A sunny 1st May 2013 in Germany – actual production
Source: Fraunhofer ISE
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Forecasting of VRE production key strategy for cost-effective operation
Forecasts improve dramatically with shorter horizon
Real-time generation data key for short-term accuracy
More mature for wind than for PV
VRE production forecasts Where do Japanese EPCOs stand?
© OECD/IEA 2014 38
0%
5%
10%
15%
20%
25%
1 5 9 13 17 21 25 29 33 37 41 45
Mea
n a
bso
lute
err
or
/ av
erag
e p
rod
uct
ion
Forecast horizon (Hours before real-time)
2008 2009
2010 2011
2012
Accuracy of wind forecasts in Spain
Source: REE
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Short scheduling intervals (5min best practice)
Adjust schedules up to real time (5min best practice)
Generation and transmission schedules Are EPCOs going with the flow?
© OECD/IEA 2014 39
6 7 8 9
Cap
acit
y (M
W)
Time (hours)
Actual load curve
Load schedule -15 minutes
Load schedule -60 minutes
Balancing need 15 min schedule
Balancing need60 min schedule
Impact of scheduling interval on reserve requirements, illustration
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Very strong focus on PV currently in Japan
Deployment of a portfolio of renewables key strategy
Complementarities: wind, solar PV
Flexibility: hydro power, biogas
Firm capacity: biomass and geothermal
Reaping technology synergies
© OECD/IEA 2014 40
Monthly production, wind and PV, Germany, 2013
Source: Fraunhofer ISE
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Importance of coordinated development of grid and generation well understood
Chicken and egg problem for first-off, distant VRE projects Competitive
Renewable Energy Zones (CREZ), Texas
Irish gate system
Appropriate cost recovery is key
What is the approach in Japan?
Getting the grid - transmission
© OECD/IEA 2014 41
345 kV double-circuit upgrades identified in
CREZ transmission plan
CREZ, Texas
Source: NREL
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Current situation in Japan
© OECD/IEA 2014 42
Hokkaido
4.54 GW
Tohoku
13.34 GW
Kansai
29.23 GW
Hokuriku
5.27 GW
Kyushu
16.47 GW
Chugoku
11.26 GW
Shikoku
5.51 GW
1.3GW
4.0GW
2.59GW 1.2GW
2.5GW 0.3GW
0.6GW
4.95GW
1.2GW
DC Tie line
BTB
DC Tie line
Chubu
26.68 GW
Tokyo
54.36 GW
1.4GW
Frequency in West: 60Hz
FC
* DC – direct current, FC – frequency conversion
Frequency in East:
50Hz
Operating capacity in 2014 Aug.
0.55GW
2.7GW
1.6GW
1.84GW
0.65GW
Peak demand in 2013 Aug.
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Priorities for RE Japan Objective should remain to foster a well-balanced portfolio of RE
technologies
Policies on PV should be adapted in order to Reduce unit costs as much as possible and rapidly align to international
best-practice benchmarks
Foster self-consumption where and when it is most needed
Reap out the great value opportunity of PV substituting expensive oil and/or LNG for peak and mid-merit electricity production
Proceed in the power system reforms Strengthen interconnections and enlarge balancing areas
Allow for fair and equal grid access conditions
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Contact : [email protected]