La energía renovable y la caída de los costos de la tecnología

I want to explain the European Union policy towards renewables and how these policies have delivered renewables’ cost to come down that by now everybody uses renewables to generate electricity because they are the cheapest choice. In order to make the case, I want to bring you back to the year of around 2000. You see here on the graph, renewables have been very expensive, four, five, sometimes even many more times more expensive than traditional gas or coal-fired power plants and then European politicians looked at their objectives on climate change to reduce greenhouse gas emissions by -50%, -80 or by now -100%. They were facing two situations from the modelling.

One was you need a very high degree of energy efficiency and the second one was you need a very, very high share of renewables. Now, here is the choice, you have a situation where renewables are expensive and at the same time you need them. So, the EU decided that to have a legally binding target of 20% renewable energy by 2020. At the time we had 6%, mainly large hydro traditional ones, so we needed a very, very high share of this. And here is what this technology delivered and let me explain a little bit how we got there.

By putting a lot of renewables into the market, even if they are very, very high, the costs come down, and that is described as technology learning curves and on average you can imagine If we double the capacity of any immature technology, which wind and solar at the time were, your costs fall around 20%.

So, by really forcing these technologies into the market, you get big cost reduction and the result, you see on the left-hand there, onshore wind went down by almost 40%, solar PV 85%, offshore wind about 50% and you see also concentrated solar power, CSP, by almost 80% and you see also that on the battery side we have similar developments and you can imagine that in many other technologies we had the same. Now, how was this possible? There was a renewable target for the EU, that target was broken down to Member States and Member States now needed to see how they could achieve the target.

They experimented a lot of different policy tools, in the end most of them settled for what we call the feed-in tariffs. These are long-term contracts for those that produce electricity, that could be a power plant, that could be also individuals if you have solar panels on your roof, and you get a guaranteed prize for up to 15-20 years, and this guaranteed price means you have absolutely no risk, commercial risk price risk. So, people went for it and built a lot of these installations on their roofs or otherwise, and what you see that effects are quite important and quite staggering.

I have here the example of Germany on the right-hand side and you see in Germany there was about 40 GW wind and about 40 GW solar built and 1 GW, just for explanation, 1 GW capacity equals roughly one block of a nuclear power plant. Now, obviously a nuclear power plant runs about 80% of the time and the solar panel at that time 10-15%. Is different, but the capacity additions were staggering and you also saw that the support which was given through this feed-in tariffs went down by 80% in 10 years. This is sort of the basics of what happened.

Now, nevertheless, we have costs, costs for this that had to be paid and, on average, we can say European consumers, me as a person using electricity, buying electricity, we all pay roughly around 100 billion per year to make this happening. So, it was a not for free, obviously climate policy is not for free. So, what happened in terms of the compensation? We as consumers we pay an extra charge for this electricity and this extra charge is then used to compensate those for the feed-in tariffs, so the consumers pay. It’s not coming out of the budget. This is an important part, if it comes out of the budget the politics are different.

Now, let me look a little bit now at the implications. I have here a number of graphs. On the left-hand side you see two lines, again we use the numbers for Germany, you have on the red line it shows the costs, the prices of electricity at the wholesale level. After the the renewable energy revolution - I start again - obviously, this policy has implications and I would just like to point out some of them. On the left-hand side, you see the price curves before the renewable revolution, which is in blue, and the red one after the renewable revolution.

What you see, first, costs and prices have come down dramatically, in the German example it is a more than 60% but it was about the same for all, most of all the other Member States. What you also see when you compare the blue line with the red line, prices after the renewable revolution stay more flat, more even, while before we had very much fluctuations in the price.

And the highest price we had always around midday, which is where we have peak demands, where the demand is peaking, the prices are the highest, and these peak demands were now shaved off by solar panels because midday we have the most solar, therefore we have the most electricity generation and therefore we have a much flatter curve.

Now, when you look at the price developments in the different countries, you see clearly where there are more electricity, on average the price is lower and you have the Nordic market where the prices are the lowest where you have the most renewable, you have Central Europe where they are also low and then you have the countries where it’s less renewables, you see that the prices on average are higher. Now, you should also add that, of course, there is still a lot of nuclear in the system, which also has quite an important price effect, but by and large the more renewable energy you have in the system, the lower your prices.

Now, here I show how much we as a customer we pay for the renewable revolution. The green part is what we pay as taxes and levies, the levies are used to compensate the generators to pay for the feed-in tariffs and you see by now our electricity bill has levies and taxes and also the grid costs have a higher share than the electricity part of it, these are the electrons. So, that means our electricity prices are largely now a reflection of this extra cost that we have been incurring at the retail level. When you look forward into the future, there are new challenges emerging and that is really how do you integrate an ever-growing share of renewable energy into the grid.

On the right-hand side, I show you the flexibility needs in Denmark. These are numbers from around 2016, and at that time Denmark had around 45%, let’s say half of its electricity is produced by variable renewable energy, that is wind and solar essentially, and in such a situation you find days where there is zero renewable energy, so you need to have something to compensate and then you also have days when there is far more than you need, 230% which means you have 2.5 times the electricity you need. Now, obviously, having too much is in a way a luxury but it costs money.

You have built the installations and then you produce it and then you don’t use it, so it is a waste of money. But the really difficult part is when you have not enough and there you need flexibility solutions. You have basically four flexibility solutions. Some are on the supply side, you can have your generation more flexible, you add on additional gas capacity, for example, and if you have really too much you have to curtail, it costs money, but the system of course still works. You have a lot of great solutions, you increase the integration between the different Member States.

By doing that, you are linking the electricity system from the South to the North where you have more wind in the North and in the South you have more electricity. You can build also super-grids where you bring a lot of power at the same time across the continent or you have battery storage. Then you have a whole set of demand-side measures where you can reduce demand if there’s a lot of demand and is not met by the supply. So, you imagine we can all switch off your fridges and if millions of people do this this has quite an effect. Also, you can switch off in some industrial processes.

For example, aluminium you can switch off for an hour and that doesn’t really make an impact on on the aluminium production. And, finally, you have all kind of storage capacities which you can install just to make sure you can, at least in the short term, store a little bit of your electricity. So, the grid integration is really now the challenge which the European system, but also all the other systems which increasingly move towards renewable energy, will have to address and there are solutions to do this. Now, when we go back to the key messages on the EU renewable energy policy, it’s clear there was initially strong policies are needed.

Therefore, the EU set legally binding targets and installed in support systems, which were expensive at the time. As I said, European consumers pay on average about 100 billion to bring this renewable revolution about. But now, over time, we are looking more into grid integration, etcetera, etcetera. We might need for the climate debate similar policies for other technologies, for example, electromobility or hydrogen, and in the future really the challenge will be to keep the grid working fine to deal with this variability where on the one hand you can have a lot of renewable and, on the other hand, you can have very little and this is currently happening in the EU and in other parts of the world.