scaling-up renewable energy in developing countries part i ...scaling-up renewable energy in...

SusTec Sustainability and Technology

SusTec – Group for Sustainability and Technology 1 8 February 2013

Scaling-up Renewable Energy in Developing Countries – Part I Financing Feed-in Tariffs in Developing Countries under the Post-Kyoto Climate Policy Regime - The Case of Thailand Joern Huenteler ETH Zurich, SusTec Co-authors: Christian Niebuhr, Tobias Schmidt, Reinhard Madlener, Volker Hoffmann Sustainability Innovation Seminar Series 36, Tokyo University, 8 Februar 2013c


What to expect from this talk? I will talk about domestic renewable energy policy in the global context

Research question:

Are supported feed-in tariffs a way forward in climate policy (until 2020)?

Analysis:

Techno-economic modeling of Thailand‘s electricity sector to estimate feed-in tariff costs, key uncertainties, and role of different funding sources

Key insights:

FITs are suitable for upscaling NAMAs

RE cheaper than expected

Consistent domestic action often more important than globally concerted effort


Agenda

NAMAs in Post-Kyoto climate finance

Feed-in tariffs as NAMAs

Case: Thailand‘s electricity sector

Methodology

Hybrid NAMA to finance Thai feed-in tariff

Key insights and potential obstacles


Motivation: Non-Annex 1 countries will have to mitigate emissions in post-Kyoto climate policy

Non-Annex 1 countries now emit more than twice as much

as in 1992 and more than twice as much as Annex-1

countries


Scaling up mitigation actions is required

Bali Action Plan (2007) called for „nationally appropriate mitigation actions“ (NAMAs) by developing countries „in the context of sustainable development“

i.e., when co-benefits are to be expected (development priority!)

They can request financial support (e.g., Green Climate Fund)

NAMAs offer possibility to scale up mitigation actions from the bottom up, especially in emerging economies (Chile, Mexico, MENA, Thailand, etc.)

Is bottom-up better than top-down, or just politically more feasible?

Can we design NAMAs that

leverage private sector investment

allow for transparent MRV

and create co-benefits?


Current status in NAMA database (ecofys) shows high diversity!

Waste

10% Industry

14%

Forestry 8%

Energy Supply

27% Buildings

11% Agriculture 3%

Transport

27%

9%

National

78%

Unknown

Sub National

13%

Strategy/Plan

47%

Unknown

18%

Project

15%

Policy/Program 20%

7%

Implementation

Proposal/ Planning 11%

Concepts

82%

Source: www.nama-database.org

Sector

Level Type

Progress


Agenda




Methodology




Feed-in tariffs are successful in attracting private sector finance

Fixed rates paid to producers of renewable electricity (10-20y)

Rates offered to new projects typically decline over time to account for learning effects, but remain constant over project life-time (attractive for investors)

„Incremental cost“ (cost of RE minus cost of baseline) usually refinanced through surcharge to consumers

Successful application in developed countries (GER, IT, Japan?)


FIT‘s arguably most successful policy for diffusion of RE

Number of FITs worldwide

Now >50 % outside industrialized countries

Source: IRENA, 2012


FITs are suitable NAMAs because they allow for scale-up and MRV

FIT rates can be set „appropriate“ to country- and technology requirements

Unlike the CDM, FITs are sector-wide policies that can be scaled with limited transaction costs (leverage!)

FIT payments are performance-based, just as the CDM, meaning that „donor countries“ only pay for verified emission reductions (MRV!)

FITs with fixed deadline could be bridge solution before a broader climate agreement is reached


How would it work?

RE projects

Grid operator pays avoided costs

Feed-in tariff premium

Unilateral contribution

Funds assured from international donor

MRV system to quantify emission

reductions

Generate emission reductions

Credited contribution from carbon market

Investors

Private sector Host country

International contribution


Agenda




Methodology




2008 2010 2012 2014 2016 2018 2020

Electricity mix

Electricity

imports

(dams, esp.

Lao PDR)

Nuclear

NatGas

partially

imported

Coal imports

Lignite

Thai electricity mix highlights political challenges (supply security, nuclear, local pollution)

Source: Amornkosit, N. (2008)


We used Thailand‘s Alternative Energy Development Plan as case study

Thailand is middle-income country

2012: GDP 5,850 USD/head, growth +5,5%

Emissions per capita (2008): 4,18 tons; growth +3,4% 2000-2008

Thailand had a FIT adder in place, announced intention to change to fixed FIT

Alternative Energy Development Plan (AEDP) aims to increase share of non-hydro RE from 4.3 % to 10.5 %

Modeling focus:

What would a fixed FIT cost to achieve AEDP goals? What are possible financing sources? What are key uncertainties?


Agenda




Methodology




We modeled the Thai electricity sector on a plant-level

Bottom-up modeling of electricity sector

Resolution: single power plant

Modeling of cost of renewable energy, carbon revenues, and avoided baseline cost

21 technologies

Technology-specific local and global learning rates, cost data based on ETH Zurich SusTec database of RE cost

Detailed modeling of project finance (consideration of tax breaks, technology-specific depreciation rates, loan conditions, etc.)

Assumption: Financing of RE diffusion through FITs that bring project to break-even


Agenda




Methodology




2012-2041: Total annual payments and avoided baseline costs

0.0

0.5

1.0

1.5

2.0

2.5

Co

st (

bn

USD

)

2019 2016 2013

Incremental Cost

2040 2037 2034 2031 2028 2025 2022

Cost of FIT Payments

Avoided Cost Total incremental cost:

7.93bn$, or 63.59$/tCO2

0.3 c$/kWh in 2021


If domestic benefits are included, the funding gap is only about 12 % of the total FIT costs

0.8

0.6

30.3

3.5

0

5

10

15

20

25

30

35

Incremental Cost

Funding Gap Health Benefits**

Investment/ Innovation*

3.1

Emission Certificates

(CERs)

Avoided Cost (BL 1)

22.3

Cost of FIT Payments

Co

st (

bn

USD

)

Leverage of 9!

Policy Cost

Credited

Unilateral

Total

Multilateral

*BOI investment credits that apply to 6 sectors, including energy **Source: Sakulniyomporn, et al. 2011.


We use four scenarios to analyse relative importance of key cost drivers

high

low

low high

Global climate policy and international RE diffusion

Domestic policy and RE

promotion

“Domestic Effort” “Green Case”

“Limited Support” “Global Effort”


Do

mes

tic

po

licy

and

RE

pro

mo

tio

n high

low

“Domestic Effort”

Cost of Equity: Low 9,2%

Domestic RE diffusion: High Exponential

“Green Case”

“Limited Support”

Cost of Equity: High 13,2%

Domestic RE diffusion: Low Disruptive

Carbon price: Low 2 $

Global RE diffusion: Low IEA 6DS

“Global Effort”

Carbon price: High 7 $ to 34$

Global RE diffusion: High IEA 2DS

Global climate policy and international RE diffusion low high

Base Case

US$ 7.36 bn

The four scenarios differ in cost of equity, local/global diffusion, and CO2 price


low

Total cost of policy for different scenarios shows that consistent domestic action is more important to reduce mitigation costs

Global RE

diffusion, climate

agreement

Consistent

policy, derisking

Limited support

10,22

-42%

Domestic effort

5,93

10,22

10,22

-26%

Global effort

7,58

-69%

Green case

3,17

10,22

“Domestic Effort” “Green Case”

“Limited Support” “Global Effort”


Agenda




Methodology




Key take-aways

FITs are suitable NAMAs because they create co-benefits and allow for scale-up and MRV

For a hybrid NAMA, the funding gap is only about 1/10 of the total FIT costs – significant leverage for international investment!

Total cost of policy for different scenarios shows that consistent domestic action is at least as important to reduce mitigation costs as a global framework

NAMAs are suitable to support consistent and appropriate local policies, thus a promising way forward for emerging economies


Potential obstacles

Incremental cost / financing needs to be determined ex-ante

Who determines sectoral baseline?

Which fuel costs to assume? (esp. for fuels with imperfect markets, such as natural gas and lignite)

Strong incentives for planning authorities to overestimate future electricity demand

Strong political commitment needed by donor countries to reduce regulatory uncertainty for investors

NAMA support by industrialized countries look likely be abused as bargaining tool in international climate negotiations


Thank you for your attention!

please visit

www.sustec.ethz.ch

Key sources: • Amornkosit, N. (2008). Current Fuel Mix for Power Generation in Thailand and Plans for the Future. Ministry of Energy - Energy

Policy and Planning Office - Presentation at IEA Workshop on Fuel Options for Power Generation in ASEAN. • DEDE, 2012a. The Renewable and Alternative Energy Development Plan for 25 Percent in 10 Years (AEDP 2012-2021). • Ecofys, 2012. NAMA database. accessible online at http://www.nama-database.org/. • EPPO, 2012b. Power Development Plan 2010, Revision 3 (June 2012) 2030. • IRENA, 2012b. IRENA Handbook on Renewable Energy Nationally Appropriate Mitigation Actions (NAMAs) for Policy Makers and

Project Developers. • Sakulniyomporn, S., Kubaha, K., Chullabodhi, C., 2011. External costs of fossil electricity generation: Health-based assessment in

Thailand. Renewable and Sustainable Energy Reviews 15, 3470–3479.

http://www.nama-database.org/



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