ROADMAP 2050 PARTNERS

Transmission System OperatorsNGOsManufacturersPlus 40 more companies, NGOs and research institutesCore Working Group participants Further outreachSiemensWWFKEY STAKEHOLDERS WERE INVOLVED BY PROVIDING INPUT AND REVIEWING RESULTS Utilities

THE DECARBONIZATION PATHWAYS ANALYSED ARE SUSTAINABLE, TECHNICALLY FEASIBLE, AND HAVE A POSITIVE IMPACT ON THE ECONOMY

1 Based on the McKinsey Global GHG Cost Curve2 Large efficiency improvements already included in the baseline3 CCS applied to 50% of industry (cement, chemistry, iron and steel, petroleum and gas, not applied to other industries) SOURCE: McKinsey Global GHG Abatement Cost Curve; IEA WEO 2009; US EPA; EEA; Roadmap 2050 Technical Analysis

AT LEAST 80% CO2 EMISSION REDUCTION

ENERGY EFFICIENCY & FUEL SHIFT GIVE OVERALL DEMAND

ELECTRICITY DEMAND 2050(EU-27 + Norway & Switzerland)

Energy production mix over the year, TWh per week40% RES30% CCS30% nuclear60% RES20% CCS20% nuclear80% RES10% CCS10% nuclearTHREE SPECIFIC PATHWAYS MODELED INCLUDING BOTH GENERATION AND GRID COSTS

RES DIVERSITY CONTRIBUTES TO CONSISTENT SUPPLY

COMBINING REGIONAL DEMAND CURVES REDUCES VOLATILITY

INTER-REGIONAL TRANSMISSION REQUIREMENTS

**322122Requirements on top of the baseline2050, GWCURTAILMENT IS KEPT LOW THROUGH GRID EXPANSION AND BACK-UP CAPACITY40% RES 30% CCS30% nuclear80% RES 10% CCS10% nuclear60% RES 20% CCS20% nuclearTransmission & generation capacity requirementsTransmissionBack-up and balancing RES curtail-ment1, %Baseline

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ANNUAL CAPEX DEVELOPMENT

COST OF ELECTRICITY

LONG TERM EU27 GDP

DECARBONIZING THE ECONOMY SAVES MONEY

Introduction

-The ECF has embarked on a project in cooperation with the EC (DG ENERGY) to set out a roadmap on how to fully decarbonize the European Power Sector by 2050. This follows the ambitious energy & climate targets that the EU has set out in 2009 to reduce its GHG emissions with at least 80% by 2050, economy-wide.

- The power sector has a responsibility in this story, and is at the cutting-edge between balancing economic development and environmental impact. We calculated that of the 5.2bn tons of CO2 emissions, 1.2 bn (or around 23%) comes directly from the power sector. -This presentation: -Introduction of the project and the methodology-Insight in the methodology and the key findings of our study

*Setting the scene-Refer to mission statement-ECF embarked on this project in support of ECs engagement to reduce GHG emissions by 2050 with at least 80% Since July 2009

Purpose -Purpose of the study is to catalyse a mature and fact-based debate on future energy supply. What our near-term implications of long-term engagement? Action over the next 5 years is pre-requisite for succeeding in 2050 (lock-in emitting generation, lack of transmission doesnt allow intermittent RES, Energy efficiency measures to manage demand)

Achieved: To debunk certain arguments against creating a framework for high penetration of RES, and on road for a low-carbon economy -Feasible with technologies today, any tech breakthrough is a bonus-Not compromise system reliability we know today 99,97%-At affordable cost: Not kill the economy, and even give competitive advantage and make more resilient. COE remains within similar ranges as today, assuming a carbon price around 20-30 EUR.-The higher RES pathways are the no regrets pathways in terms of resource depletion, risk tolerance, security of supply. The full picture.

Launched on April 13th-Presence of Energy Commissioner G. Oettinger, Climate Action Commissioner C. Hedegaard and the Spanish Presidency-Wide press coverage-High level political and business buy-in

*Who are the partners?

The ECF brought together a group of world-renowned consultancies and research centres to support the analysis.

The Technical and Economical was undertaken by McKinsey & company in cooperation with Oxford Economics, KEMA and Imperial College LondonThe ECF has also taken a view on the political implications and in cooperation with E3G (a Brussels EU think tank) and ECN (the Dutch energy research centre) has developed a set of policy recommendations on how to kick-off the low-carbon transition. Today I will focus mostly on the technical & economical part.We also involved the architectural think tank AMO, who is a part of the well-known Dutch architects from OMA (Office for Metropolitan Architecture), by Rem Koolhaas. With their involvement, ECF wanted to bring an extra dimension to the project and to the idea of decarbonising the power sector. They have helped with visual material.

But there is more!

*ECF did not want to create a study that made sense only to consultancies and research centres, but wanted to make sure the assumptions and data used in the study fairly reflected reality on the ground.

Therefore, ECF undertook the technical analysis in cooperation with broad group of stakeholders. You see on the slide this advisory group included: Several of the major European utiliities also active in [country]Several TSOs, who advised us on the grid elementSome clean tech manufacturers known to be investing in clean technology for the power sectorAnd some major Civil Society organisations that are active in the energy field.

This group has come together in Workshops to decide on basic assumptions like: learning rates (15%), load factor, Capex and Opex assumptions, construction time (1y)

ECF strongly feels that this is the added value of our project over many similar studies in the field. We can claim a credible and realistic modeling. ECF tried to stay as close to these, is solely responsible for the choices

So, how did we go about it?

*Philosophy

- In its analysis, the ECF wanted to respect some boundary conditions with one central theme: Can we develop a reliable supply system without compromising any of these conditions?

Security of supply & technology risks: are the current technologies present and reliable?, are they abundantly available? Will it impact on our Energy security and independence?Sustainability: will the power sector transition help to meet our climate goals in mid and long-term up to 2050? Can biomass be combined with land-use restrictions?Economic impact: are the technologies commercially affordable and deployable? can we keep the effect of the transition economically manageable?

What we found is that: Yes, we can move gently towards a on-emitting power sector without compromising the system reliability we know today.

So: lets have a closer look at the methodology that brought us to those conclusions.*Methodology

1st step: Abatement potential This is the core part of the analysis is the abatement potential within each sector, based on the 2009 McKinsey cost curve analysis and on IEA

What we see on this slide is that 5,2 bn tonnes of CO2 emission, economy-wide in the EU and which sectors are responsible for this emission. The Power sector accounts for 1,2 bn of the CO2 emissions.

We then went on to check where lie the economically sensible abatement potentials? They are calculated by a combination of within sector abatement (eg: energy efficiency in Industry) and fuel shift (eg: transport electrification of transport). A good example is the transport sector where the abatement potential within the sector is relatively small (making engines more efficient), but there is a great deal of potential in electrifying the fleet and therefore making a green, non-CO2 powering of the cars more feasible. As you can see, in order to achieve our target of at least 80% by 2050, All sectors need to apply maximum abatement potential. For power sector that means full decarbonisation, because it is of all sectors the most low-hanging fruit with big abatement potential within the sector.

And thats what we focused on in our study, the power sector.

*2nd step: Establish power demand by 2050.

There are two factors that play into the overall energy demand over the next 40 years and that is Energy efficiency and electrification of the transport sector.

-What we see, and we realise the slide needs some explanation, that due to the massive electrification in transport (but also in building heating systems), the energy demand by 2050 could potentially grow with 80%. -However, the aggressive implementation of current EE measures (as set out by the IEA) can keep that increase manageable and reduce the increase to a 40% over the next 40 years. As mentioned, this assumes a very aggressive EE implementation at a rate double than set out in the IEA. Result: Growth from around 3400 TWh/yr to 4900 by 2050. That means that we see that Energy Efficiency measures will define the cost of the transition and increases energy security by reducing the challenge and the dependency. We therefore need an Energy Market that treats EE as a supply-side source, rather than demand-side element. That means that it is more cost-effective to do the same investment in EE measures than on building additional power generation capacity.

Question: How to ensure to respond to 4900 TW/yr demand by zero-carbon power generation?

*This means: Opportunity

- The good news is that investments are due in any of the pathways- Besides hydroelectric facilities, almost all of the power generation capacity required is still to be built or even planned (only 700 of the 4900 still running). There is an opportunity This assumes of course a timely retirement schedule of existing plants (25y solar PV, 45y nuclear)- Investments in zero-carbon power generation: Now that we still have the luxury to decide our future Energy mix over a reasonably manageable transition period.

*3rd step: Filling the gap: decarbonization pathways

The ECF recognized that there are different ways to achieve reliable zero-emitting power in 2050. in our study, we tested different Energy-mixes that could safely supply the energy demand in Europe over the entire year. As you will see later, all pathways are technically feasible, reliable, affordable and make economic sense.

We applied a Backcasting Logic. That means that the end-result of Co2-free energy was taken as given input which applied retrospectively to define what the short-term implications are to meet that goal.

In the end it is all a matter of the optimal use of natural occurrence of renewables within the regions in Europe. This has major benefits for matching the demand fluctuations over the years. As you can see on the slide, due to that optimal usage of energy sources (especially renewables) all three pathways allow to match the power demand at all times of the year.

-Good to know: conservative assumptions means we have many bonuses:Geography:, EU-27 only, except for 100% pathway (including NA solar power). NA power is a surplus for all other pathways. The model is based on massive deployment of mainly Solar CSP, but we also ran a model with Solar PV (though less cost-effective) -All pathways are technically feasible, reliable, affordable and make economic sense.No technological breakthroughs: We only made use of existing and proven technologies or late-stage development (CCS).No behavioral change: we do not assume any significant shift in societal behavior or energy consumption.

*So, what we need to do is to bring together EU potential -Sun in the south, wind in the north and Hydro storage in Scandis and biomass in the east and central-EU areas-RES diversity contributes to consistent supply.-Seasonally interrelated.

*Power generation: Demand

This has major benefits for matching the demand fluctuations over the years. As you can see on the slide, due to that optimal usage of energy sources (especially renewables) all three pathways allow to match the power demand at all times of the year.

You tackle volatility of EU-27 demand Its the best answer to massive storage installation. Reducing by 40%. For every 7-8 MW intermittent capacity, about 1 additional MW back-up needed.

Increasing transmission capacity and interconnection are an absolute pre-requisite for high RES penetration, and to make the economic case more compelling.

*B. Power NetworksBut to reap the full benefits of that, crucial is interconnection and expansion of EU transmission grid. The study methodology is uniquely robust on the crucial question of system reliability keeping the lights on

Benefits:Supply-side-integration of high Levels of RES, making use of natural occurrence and EU potential. Optimise use of resources-Balancing intermittent RES-Increase energy security and independence to within more reliable EU borders. But by increasing our integration and interdependence within the EU, we allow to become less dependent to neighbouring, less predictable nations (where energy is a political instrument.-Reduce costly storage installation with +- 40% -demand response lowers cost

The latter is important as it tackles one of main economical and technical arguments against high RES integration. Interconnection and increased transmission is far more cost-effective than regional or national installation of storage capacity.

Good to know: we see recent major technological developments in HVDC power cable (High Voltage Direct Current) which allow for mutliple GW of capacity with one single cable. This will also improve the societal accetance and environmental impact of this big infrastructural planning.

*Looking at the slide, we see that a wider view and optimisation of system operations would be needed to achieve the solution. There is huge positive benefit in sharing renewable resources over a wide area.

Transmission and backup generation both rise with rising % of renewables in the system. Baseline shows that little extra transmission is required, even with 34% renewables. That is becasue we assume that the works currently planned are business as usual and will also be carried out to under the pathways to restore the long-term position of low congestion, therefore they do not figure as an incremental cost. Renewable curtailment remains low, between 1 -3%. This shows again optimal use of generation capacity across the regins. Very few % of the installed RES capacity is not used in the modelling. Investments in capacity pay off much better in this integrated system. Currently in Spain: high levels of RES curtailment at some days, no option to transmit / sell overcapacity.

Demand response can reduce Grid and Back-up investments by 20-30%.Transmission capacity and back-up generation capacity can be significantly reduced where demand is much more responsive and can be moved to times where there is excess supply.

That means the benefits of sharing power generation builts up to 3 important aspects:

1. Optimizing return on investments: Not least ensuring these high Capex resources are well utilised. Interconnecting is about optimizing the Capex investments in generation which increases value of these investments.

2. Managing variability of intermittent RES: Already some countries share reserves. Our modelled approach allowed even wider reserve sharing, which is beneficial as the level of reserves increase to manage the variability of some renewable sources and coordinate the demand response over a wider area.

3. Managing the costs: Reserve sharing between regions reduces total reserve requirements by ~40%. Storage technologies are very cost intensive. If countries want to become entirely self sufficient in energy supply then they will have to build quite considerable storage in their country. But perhaps the solution shouldnt be just about backup but more about transmitting oversupply of power across the grid to match demand peaks in neighbouring countries.*So: What is the challenge?

We need upfront Capex to kick-off the transition to a zero-carbon power sector. More specifically,a doubling of capital spent is required over the next 15 years.

Note that interestingly, the pathways are all in the same range of challenge. All low-carbon technology carry a high upfront Capital cost.The costs is split over: Generation: Higher investment per MW: from 25 55bn EUR / year to 2035, then decrease!Transmission and back-up: although only 10% of the overall cost. This is in line with ENTSO-e TYNDP that says 5bn over next 5 years. Hence, in the short-term we need policies to incentivize:-Massive and sustained mobilization of investment to deploy and commercialize low-carbon technologies.-Policy framework to provide certainty needed for investors to ensure stream from private sector mainly.

Delaying action increases costsIf climate and energy goal of 80% reduction is taken seriously, any delay of action would cramp the required capital together in a shorter period of time, leading to increased cost and potential disruptive measures. No guarantee of smooth transition and pressure on markets.

*Effort is worth it: Leveled cost of electricity (CoE) to the Economy remains within similar ranges

-This is average or leveled CoE toward 2050.-There is of course a timing difference with upfront Capex (higher RES) and Opex This needs policy framework to stimulate early deployment of low-carbon technologies.-Low impact of system balancing due to transmission and interconnection. Another myth that is unmasked, against high penetration of RES

We found out that:-Average cost of electricity to the economy stays within similar ranges to baseline, non-decarbonised pathway. -Due to EE and away from fossil fuels, the energy bill per unit of output starts declining after 2020-EU economy gets more cost-effective with respect to energy spending

Assumptions: This is based on a WACC of 7% (real after tax), computed by technology and weighted across technologies based on their production; including grid. COE ranges are based on: Carbon price from 0 to 35 per tCO2e Fossil fuel prices: IEA projections +/- 25%; Learning rates: default values +/- 25%

Concepts:Capex: investment costs covering a.o. construction costs. Opex: operational cost covering a.o. salaries, fuel cost working,

*Macro-economic modeling:-EU-27 comes out as better economy-resilient economy-protected against fossil fuel peaks, which historically has initiated economic down-turns-Overall Energy Bill of the EU-27 starts coming down, due to EE and decrease in Opex

Short-term issues to be dealt with due to high required Capex, framework for investments.

Positive effect is subject to:- Long term positive impact on GDP highly dependent on action outside EU-27- Large upside if EU-27 manages to keep its cost of energy low through early investment in CO2 free power If the rest of the world also switches to cheap CO2 free power early on as Europe, than the opportunity for the upside would be reduced The reduction of employment in the fossil fuel supply chain is more than compensated by employment in renewables and efficiency

*-Due to EE and away from fossil fuels, the energy bill per unit of output starts declining after 2020-EU economy gets more cost-effective on energy spending

*What about the effect on employment?

Of course we recognize there will be winners and losers and in some regions in Europe in-depth reorientation and reeducation programmes are needed to deal with the employment and transitional issues.

Still, this should not refrain us from making the step. As in every transition, the benefits fully overrule the transitional pains and it is about managing these well. The evidence makes it clear that the low-carbon pathway is ultimately the only winning economical strategy for Europe.

*[Closing remarks]