Renewables Medium-Term Forecasts and Long-Term Scenarioseneken.ieej.or.jp/data/5821.pdf · ©...

© 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

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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



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



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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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



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



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)



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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2010 2012 2014 2016 2018 2020

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



Renewable electricity increasingly competitive

Levelised cost of electricity generation continue to decrease for most renewable technologies



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



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.



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



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



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



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

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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

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OECD Americas OECD Asia Oceania OECD Europe Africa Non-OECD Asia China Non-OECD Europe Non-OECD Americas Middle EastMTRMR 2013



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



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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Generatio

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Cumulative change in generation (2012-20)

Coal Oil Natural gas Nuclear Renewables Others

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Generatio

n(TW

h)

Renewable generation (2012-20)

Ocean Geothermal STE Solar PVOffshore wind Onshore wind Bioenergy Hydropower



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



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.



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2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2020

(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



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



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!


http://www.iea.org/

© 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

2 000

4 000

6 000

8 000

10 000

12 000 GW

Renewables

Nuclear

Oil

Gas

Coal


© OECD/IEA 2014

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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2013 2020 2040 2013 2030 2040

TWh

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Bill

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do

llars

(2

01

3) 210

2030 2020

7 000


© OECD/IEA 2014

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

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© OECD/IEA 2014

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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



Focus on Japan

and

Grid Integration



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

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CAGR

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Deman

d (TWh)

2013

2020

Demand

GDP*



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2012 2013 2014 2015 2016 2017 2018 2019 2020

Generatio

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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



Solar PV investment costs remain relatively high in Japan

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Australia

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2014

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France

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Italy

2014

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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



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

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Global reference

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Projections Projections Projections

China

Italy

Japan



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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Solar PV below 10 kW (residential scale)

Feed-in tariff Average household power price (ex tax)

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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



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!

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Nagasaki

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Solar PV

app

roved

capa

city (GW)

>1MW

10kW-

1MW

<10kW


© OECD/IEA 2014

Focus on Grid Integration: System Operation

© OECD/IEA 2014 33


© 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


© OECD/IEA 2014

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


© 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


© OECD/IEA 2014

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


© OECD/IEA 2014

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%

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1 5 9 13 17 21 25 29 33 37 41 45

Mea

n a

bso

lute

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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


© OECD/IEA 2014

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


© OECD/IEA 2014

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


© OECD/IEA 2014

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


© OECD/IEA 2014

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.



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


Contact : [email protected]

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