SYSTEM ASPECTS OF RENEWABLE ENERGY SOURCES AND PROMOTION SCHEMES

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					    SYSTEM ASPECTS OF
RENEWABLE ENERGY SOURCES
  AND PROMOTION SCHEMES

          Jaroslav Knápek

  Czech Technical University in Prague
               (CVUT)
                 CONTENT OF LECTURE
System aspects of renewable energy sources (RES)
  Pros and cons of RES compared to fossil fuels
  Why RES has increasing importance in energy policies of MDC‟s
  Potentials of RES – from technical to economic potential

The Czech Energy Policy – the role of RES
  Potentials of different RES in the Czech conditions
  Fossil fuels and RES
  Dominant role of biomass in the Czech Energy Policy
  The current state of RES utilization in ČR – facts and figures

Promotion schemes for RES
  What is the goal of RES support - the different points of view
  Introduction to RES economic - basics on economic effectiveness of
  projects
  Two views on price of electricity (heat) from RES – supply and demand
  curves
  Promotion scheme for RES utilization for electricity generation – case
  example of the Czech Republic
 WHAT ARE RENEWABLE ENERGY SOURCES ?

EU Directive 2001/77 definition:
  renewable non-fossil energy sources (wind, solar, geothermal,
  wave, tidal, hydropower, biomass, landfill gas, sewage treatment
  plant gas and biogases);

  „biomass‟ shall mean the biodegradable fraction of products, waste
  and residues from agriculture (including vegetal and animal
  substances), forestry and related industries, as well as the
  biodegradable fraction of industrial and municipal waste;

Solar energy
  Primary: solar radiation
  Secondary: Wind energy, wave energy, biomass incl. residual
  biomass, (potential) energy of water (rivers)

Sun and Moon motion - Tidal energy

Decay of radioactive elements - Geothermal energy
EU AND INCREASING DEMAND FOR ENERGY
EU’s demand for energy has been growing at a rate of between 1-
2 % since 1986 (esp. transportation, electricity, tertiary sector)

rapid increase o energy consumption in transport sector
  67% of current oil demand (1998: 298 mil.toe, 1986: 203 mil. toe)
  1998: 189 mil vehicles, 1985: 132 mil. vehicles)
  expectation up to 2010:
       passenger transport + 19% (16% road use, 90% air transport)
       goods transport +38% (road +50%)
   CURRENT ROLE OF RES IN EU FRAMEWORK
Two targets:
  White paper: doubling the share of renewables in global energy
  consumption from 6 % in 1997 to 12 % in 2010

  EU Directive 2001/77: increase of share from 13,9% in 1997 to 22,1%
  in 2010

                                      Gross internal consumption
                                               in EU15 (1998)
         TARGET OF DIRECTIVE 2001/77 FOR
             SELECTED EU MEMBERS
         Podíl OZE na výrobě elektřiny
               (směrnice 2001/77)

    90                                                 Electricity generation EU-15
    80                                                       Other  2001    Large Hydro
                                                              2%                11%   Small Hydro
    70                                                                                    3%
                                                                                   Other RES
    60                                                                                1%

    50                                   1997   Natural Gas
%




                                                   30%
    40                                   2010
    30                                                                                     Nuclear
                                                                                            19%
    20
    10
    0
                   o




          an lie
           em ie




           Fi o




                   o
        Šv lsko
           Ř o
                 ko



          D ko




                EU
           ga o
          Fr ko
                  e




         ak o
                sk




               sk




                                                          Oil
                 k




               sk
       r tu s k
                ci




      R dsk
     iz elg




                                                                                    Coal
     Šp Itá
             ec
             ec
             Irs




               s
            an


             ěl




            ou
    Po n
           án




                                                          4%
           B




                                                                                    30%
          ěm




           é
       oz


      N
    N




                                                                Total: 2500 TWh
 ADVANTAGES OF RES COMPARED TO FOSSIL
                FUELS
Why RES has increasing importance in energy policies of developed
  countries ?

  Non fossil energy sources – they do not contribute to GHG
  emissions or can directly contribute to their decrease (e.g. biogas or
  landfill gas utilization)

      total emissions of GHG‟s by the EU15 are expected to increase by
       at least 5.2 % between 1990 and 2010, if no action is taken.

  Major role of transport
    Although transport accounts for only 28% of total CO2 emissions, it
     will be the main reason for the European Union failing to meet the
     commitments given at Kyoto unless radical changes are made
     rapidly

      In particular, 90% of the expected increase in CO2 between 1990
       and 2010 will be attributable to the transport sector.
ADVANTAGES OF RES COMPARED TO FOSSIL
              FUELS - 2

Renewable energy sources can help with Kjoto targets


             BAU scenario without additional policies

                      Scenario of CO2 emmissions - EU
                               (Green Paper)
             140
             130
             120
                                                               EU
             110
         %




                                                               EU-30
             100
              90
              80
                   1990    2000     2010     2020       2030
ADVANTAGES OF RES COMPARED TO FOSSIL
              FUELS - 3

Reduction of classical emissions – e.g. SO2, NOx

Reduction of waste – e.g. wastes from burning

Saving of non renewable sources - implication to intergeneration
solidarity – concept of sustainable development - contribution towards
sustainability

Symbol of increasing responsibility of developed countries in 90‟s

Increases in local employment and income – dominant role of
biomass, biomass can help with solving of agricultural policy of EU –
opens new business for countryside and agricultural regions

Increase of energy independency - RES are generally accessible

Diversification of energy sources and reduction of import
dependency - increased importance after September 11, 2001
  ADVANTAGES OF RES COMPARED TO FOSSIL
                FUELS - 4


   EU’s primary energy
   sources are quickly
   decreasing !




                                                         Dependency of EU countries on energy import
                                                    80

 EU is highly depend on                            70
                             Share of import in %




                                                    60
  PES import !                                      50
                                                                                                       EU
                                                    40
                                                                                                       EU-30
                                                    30

ČR dependency: 2010 – 45%,                          20
                                                    10
2020 – 50%, 2030 – 60%                               0
                                                          1998        2010        2020       2030
ADVANTAGES OF RES COMPARED TO FOSSIL
              FUELS - 5


Problem of natural gas and oil import – countries of origin
                 DISADVANTAGES OF RES
  (very) low density of energy - large areas to collect enough energy
  are needed

  dependency on external (natural, uncontrolled) conditions – so
  called dependent production – one cannot mechanically compare kWh
  from RES and classical sources

  typically cannot directly compete with “classical” energy sources


Economic implications:
  Potential distortions on opening energy markets

  Energy markets leads to appraisal (evaluation) of electricity based on
  its features

  Higher utilisation of RES cause can decrease national economy
  competitiveness on global markets
           DISADVANTAGES OF RES - 2


The economic and social system is based on centralised
  development around conventional sources of energy
  (coal, oil, natural gas and nuclear energy) and above
  all, around the generation of electricity
   POTENTIALS OF RES – FROM TECHNICAL TO
           ECONOMIC POTENTIAL
Understanding of different meaning

  Technical – done by source presence and by conditions of energy
  transformation (only theoretical meaning)

  Exploitable (available) potential – part of technical potential that can be
  used currently available technologies and limitations are done by legal,
  ecological and other limitations

  Attainable potential – part of exploitable potential that can be used for
  energy purposes

  Economic potential – part of available potential that can be used based
  on current economic condition influencing economic effectiveness of
  project for investors
   POTENTIALS OF RES – FROM TECHNICAL TO
          ECONOMIC POTENTIAL - 2
Understanding of different meaning

ČR example of potential relation – wind power:
  Technical potential: theoretical figure
  Exploitable potential: app. 3800 MW
  Attainable potential (year 2010): 460 MW
  Economic potential (year 2010): depends on value of feed-in tariff

Potentials depends on natural
                                                Technical potential
conditions, availability of tech-
nologies, economic power and                         Exploitable potential

political strategy of given country !                     Attainable potential

                                                                 Economic potential
                                          DOCUMENTATION OF DIFFERENT RES
                                            POTENTIALS IN EU COUNTRIES

Electricity generation from various RES in EU-15 countries in 2001


                                          25
                                                                                  Biogas                     Biomass (excl. waste)
                                                                                  Biodegr. fraction of MSW   Geothermal electricity
                                                                                  Small-scale hydro          Landfill gas
      Electricity generation [TWh/year]




                                          20                                      Sewage gas                 Photovoltaics
                                                                                  Wind on-shore              Wind off-shore

                                          15



                                          10



                                          5



                                          0
                                               AT   BE   DK   FI   FR   DE   GR    IE     IT    LU     NL    PT    ES      SE     UK
                THE CZECH ENERGY POLICY
                    – THE ROLE OF RES

Czech Energy policy (2004)
  basic component of economic policy
  vision – state priorities and concrete targets, outlook up to 2030
  list of instruments and measures for reaching the targets
  basic document for preparation of other related policies


Goals
  Maximization of energy efficiency,
  effective structure of primary energy sources,
  environmental concern,
  accomplishment of transformation and liberalization of energy sector
                                                           THE CZECH ENERGY POLICY
                                                             – THE ROLE OF RES - 2

Decreasing role of coal in ČR - from 65% in 1990 to 51% in 2001

                           ČR                                                                                                         Austria
     1000
                                                                                                                          Austria: Primary Energy Trends
                                                                                                                  600

     800
                                                                                                                  500

     600                                                                                                          400

                                                                                                      1990




                                                                                                             PJ
                                                                                                                  300
PJ




     400                                                                                              1995
                                                                                                      2001
                                                                                                                  200
     200

                                                                                                                  100

       0
                 S truc ture o f primary e ne rg y
            Brown coal   Hard coal   Oil and oil   Natural gas   Nuclear    Electricity   Renewable                 0

                      s o urc e s in ČR 2000
                                     products                              i/e balance     sources
                                                                                                                        Coal    Oil   Natural Gas   Biomass          Hydro    Other RES
     -200
                                                                                                                                        1990   1995   2001




                                                   RES
                                                                                                                        Primary energy consumption
        Electricity Nuclear
         (export)    8,5%                          2,5%                                                                                         Biomass
                                                                                                                                                  11%
                                                                                   Brown coal
           2%
                                                                                     35,1%                               Oil
Liquid fuels                                                                                                            41%                                  Hydro
                                                                                                                                                              12%
   4,1%
  Crude oil
                                                                                                                                                                        Other RES
   13,7%                                                                                                                                                                   1%
                          Gas                                          Hard coal
                                             Other s olid               15,2%
                         18,1%                                                                                                                                   Coal
                                               0,6%                                                                                                              11%




                                                                                   Total: 1672 PJ                                                         Natural Gas
                                                                                                                                                             24%

S ource : S ta te e ne rgy policy, 2004
                                                                                                                               Total: 1280 PJ
                                  THE CZECH ENERGY POLICY
                                    – THE ROLE OF RES - 3
 Expected changes in PES structure
       2000
                                                                                        Expected share of RES in PES [MoIT 2003]
       1800

       1600                                                             RES              2000   2005           2010      2015        2020          2025             2030
                                                                        Nuclear
       1400

       1200
                                                                        Electricity     2.63%   5.38%          8.96%   10.49% 12.03% 14.86% 15.75%
                                                                        Liquid fuels
  PJ




       1000                                                             Crude oil


                                                                                        Great discussion about RES role – can
       800                                                              Gas
                                                                        Other solid
       600
                                                                        Hard coal
       400                                                              Brow n coal     we achieve the targets ?
       200

         0
         2000    2005   2010   2015     2020      2025       2030
                               Year     Source: State energy policy, 2004
                                                                                                Expected changes in electricity
                                                                                                generation structure production
                                                                                                      Structure of electricity

                                                                                                       100

                                                                                                       90

Expected share of RES in electricity                                                                   80

                                                                                                       70                                                            RES/*

generation (gross) [MoIT 2003]                                                                   TWh
                                                                                                       60
                                                                                                                                                                     Nuclear
                                                                                                                                                                     Liquid fuels
                                                                                                       50
                                                                                                                                                                     Gas
                                                                                                       40
                                                                                                                                                                     Hard coal
2000          2005      2010          2015          2020              2025             2030            30                                                            Brow n coal
                                                                                                       20
2.32%         5.32%     9.92%         12.17% 13.63% 16.23% 16.89%
                                                                                                       10

                                                                                                        0
                                                                                                        2000    2005   2010   2015    2020     2025        2030
                                                                                                                              Year
                                                                                                                                             Source: State energy policy, 2004
           DOMINANT ROLE OF BIOMASS IN THE CZECH
                      ENERGY POLICY
           Structure of used RES and "non-traditional
                            sources"

     300                                                                             Share of biomass in primary energy
     250
                                                                                     sources
     200                                                      Waste
                                                              Other RES
PJ




     150
                                                              Secondary heat         (about 85 % share of biomass in
     100                                                      Biomass
                                                                                     target year)
     50

      0
      2000    2005   2010   2015   2020    2025     2030
                            Year
                                          Source: State energy policy, 2004




                                                                              16
                                                                              14
     Structure of electricity generation                                      12                                                       Biogas

     from RES                                                                 10                                                       Photovoltaics
                                                                        TWh




                                                                              8                                                        Wind pow er
                                                                              6                                                        Small hydro
                                                                              4                                                        Biomass
                                                                              2
                                                                              0
                                                                              2000    2005   2010   2015   2020   2025      2030
                                                                                                    Year
                                                                                                                  Source: State energy policy, 2004
         SOURCES AND TYPES OF BIOMASS


                 300


                                                                   Wooden w aste
                                                                   Wood
                 200                                               Straw
                                                                   S.R.C.
            PJ




                                                                   Planted biomass2
                                                                   Planted biomass1
                 100                                               Biodisel
                                                                   Ethanol
                                                                   Biogas


                  0
                       1   2   3    4     5   6             7
                                   Year           Source: Ministry of environment, 2003




Target cannot be reached without intentionally planted biomass !
    THE CURRENT STATE OF RES UTILIZATION IN
           ČR – FACTS AND FIGURES
Share of biomass on total RES utilization in ČR, 2003 [MPO statistics]

                                                    Gross electricity   Produced                       Share on energy
                                  Heat production
                                                      generation         energy        Share on PES    production from
                                       (GJ)                                                                 RES
                                                          (GJ)            (GJ)
    Biomass*/                          29 625 688          1 342 701     30 968 389         1,7462 %           73,97 %

    Biodegradable part of waste         2 047 484             34 519       2 082 003        0,1174 %            4,97 %
    Biogas                                780 639            388 282       1 168 921        0,0659 %            2,79 %

    Hydro power                                 0          4 980 481       4 980 481        0,2808 %           11,89 %
    Wind power                                  0             14 040         14 040         0,0008 %            0,03 %
    Liquid fuels **/                    2 660 000                   0      2 660 000        0,1500 %            6,35 %

    Total/***                          35 113 811          6 760 023     41 873 835         2,3611 %          100,00 %


/*production outside household and estimate for households, /** CZSO estimate consumption
    for driving mechanisms, /*** heat pumps and solar energy not included
      THE CURRENT STATE OF RES UTILIZATION IN
            ČR – FACTS AND FIGURES - 2
Structure of electricity generation in ČR, 2005
              Total: 82 TWh
                                                            Electricity generation Austria 2002
                                                                            Other
                                                                             2%

                        Renewable
                                                              Natural gas                           Hydro run-of-
                                                                 13%                                    river

        Nuclear           0,1%
                                                                 Oil
                                                                 3%
                                                                                                        49%


        29,9%                                                Coal
                                                             9%



      Hydro                                        Coal
      3,7%                                        63,1%   Biomass
                                                             4%

         Gas
         3,2%                                                  Hydro storage
                                                                   20%
                                                                                    Total: 63 TWh




     The Czech Republic and Austria have quite different structure of
     electricity generation
   THE CURRENT STATE OF RES UTILIZATION IN
         ČR – FACTS AND FIGURES - 3

Electricity generation from RES including expectations for 2005 and
   2006 [ERO statistics]

                                    2001     2004     2005     2006     2010
                                   [MWh]    [MWh]    [MWh]    [MWh]    [MWh]
       Small hydro (<10 MW)        826228   842840   914000   930000   1121000
            Photovoltaic             0        19       0       111      15000
            Wind energy             591      9901    76000    180000   930000
         Geothermal energy           0        0        0        0       15000
     Biomass incl. co-combustion    117     355207   665000   660000   2100000
               Biogas               5824    90497    99000    160000   250000
              TOTAL                832760   1298464 1754000 1930111 4431000
    THE CURRENT STATE OF RES UTILIZATION IN
          ČR – FACTS AND FIGURES - 4

Development of RES-E share on Czech gross electricity consumption
  [ERO statistics]
RES                                                          2001    2002    2003    2004    2005*   2010**
Electricity generation from supported power plants [GWh]      833     953     785    1299    1754     4431
Electricity generation from non-licensed sources [GWh]        129      19      36       -       -       -
Electricity generation from large hydro power plants [GWh]   1497    1864     967    1619    1600     1600
Total RES-E production [GWh]                                 2459    2836    1788    2918    3354     6031
Gross national consumption of electricity [GWh]              65108   64961   67014   68616   68522   75382
Share of RES-E on gross national consumption [%]              3,78    4,37    2,67    4,25    4,89      8

 */ expectation ERO, /** possible scenario of meeting Directive 2001/77 target



    EU Directive 2001/77 target up to the year 2010: 8%
   THE CURRENT STATE OF RES UTILIZATION IN
         ČR – FACTS AND FIGURES - 5

Structure of heat generation from RES in ČR, 2004 [MPO 2004]
                                                 Gross          Own        Delivery   Share on heat
                                             production   consump./*                     from RES
                                                   [TJ]          [TJ]          [TJ]             [%]
           Solid biomass total                   36480         34561          1614         90.89%
           Biomass industrial/**                 16980         15061          1614         42.30%
           Firewood                                387           375             12          0.96%
           Wooden chips, sawdust, etc.            8044          6202          1538          20.04%
           Pulp extracts                          8409          8409              0         20.95%
           Plant materials                         109             46            62          0.27%
           Briquettes and pellets                    31            30             2          0.08%
           Biomass households                    19500         19500 -                     48.58%
           Biogas total                            968           881            88          2.41%
           Municipal sewage                        723           723             0          1.80%
           Industrial sewage                        74            71             4          0.19%
           Biogas from agriculture                  68            68             0          0.17%
           Landfill gas                            104            19            84          0.26%
           Solid municipal wastes                 2052           570          1481          5.11%
           Heat pumps                              580           580 NA                     1.45%
           Solar thermal collectors                 57            57 NA                     0.14%
           Total                                 40138         36649          3183        100.00%

                /* consumption for own purposes plus losses in delivery,
                 /** except households and small consumers
  THE CURRENT STATE OF RES UTILIZATION IN
        ČR – FACTS AND FIGURES - 6

Structure of total biomass utilization, ČR, 2004 [MPO 2004]

     Biomass type                                         Utilization           Total [t]
                                              electricity [t]        heat [t]
     Wooden chips, sawdust, w. waste etc.        243834             864912      1108747
     Firewood                                        -               36794       36794
     Plant materials                              11590              11498       23087
     Briquettes&pellets                           1227                2251        3478
                                                 157203             862042      1019245
     Pulp extracts
     TOTAL                                        413854            1777497     2191351
     Estimate of wood consumption in households                                 1500000
     Biomass export (suitable for energy purposes)                               322955
     TOTAL                                                                      4014306
              PROMOTION SCHEMES FOR RES

What is the goal of RES support - the different points of view
  Similar effects of different tools
     RES for electricity generation
     RES for heat production and delivery (industrial, households)
     Energy savings
     Energy efficiency (e.g. cogeneration)


   One cannot concentrate only at EU Directive 2001/77 targets !

   What are the system goals ? Just RES support ?

   Economic rule about scarce resources – invest into fields with
   highest marginal effects !

   Is it rational to use biomass for electricity generation ?
 INTRODUCTION TO RES ECONOMIC - BASICS
ON ECONOMIC EFFECTIVENESS OF PROJECTS
 Private investors run RES projects

 Investors expects (fair, adequate, required) rate of return on capital
 invested – they need to sell at least for the minimum price cmin

                          Tž                                                          Tž                                Tž
     NPV  CFt  (1  rn )  0                           t
                                                                                       c min t  Qt  (1  rn ) t
                                                                                                                       Vt  (1  rn )t
                          t 1                                                        t 1                              t 1


        Th                                                                                      Th
c m in1   (1  inf)  Qt  (1  rr )  (1  inf)
                                     t                           t                   t
                                                                                               Vt  (1  rn ) t
       t 1                                                                                    t 1

                     Th                                        Th

                   V         t    (1  rn )   t
                                                               V     t    (1  rn ) t                   NPV=0 means that
 c min1           t 1
                                                     t
                                                              t 1
                                                               Th                                          production is sold for cmin
              Th
                                (1  rn ) 
             Q           t                                 Q     t    (1  rr ) t                   price and investor gains rate
              t 1              (1  inf)                    t 1                                        of return equal to discount
                                                                                                           rate !
INTRODUCTION TO RES ECONOMIC - BASICS ON
 ECONOMIC EFFECTIVENESS OF PROJECTS - 2
How cmin is calculated:
  data of reference projects are necessary
  decision on discount rate value

Meaning of discount – WACC
                 E                    D
WACC  red          i  1  d  
                ED                  ED
E ... equity (own capital)
                                                                        40
D ... debt (external capital)
                                                                        35
i ... cost of external capital

                                           return on o wn capital [%]
                                                                        30
d ... tax rate
                                                                        25                                                                  E/D=10/90
red... return on own capital                                                                                                                E/D=20/80
                                                                        20
                                                                                                                                            E/D=30/70
                                                                        15                                                                  E/D=40/60

                                                                        10
What is the “fair” return on capital ?
                                                                        5

                                                                        0
Higher risk - higher return,                                                 5   5,5   6     6,5    7    7,5   8    8,5      9   9,5   10

lower risk – lower return !                                                                External capital (interest) [%]
 TWO VIEWS ON PRICE OF ELECTRICITY (HEAT)
  FROM RES – SUPPLY AND DEMAND CURVES
Price of production (e.g. electricity from RES)
   point of view of producers – cmin price
     supply curve

  point of view of consumers – cmax price
    demand curve
    derived from prices of competitive products on market
                Cmin=f(Q) [EUR/MWh]




                                                                   Cmin

                                         Cmax*
                                                                                        Cmin*


                                                 S uppo rt                             Cmax



                                                             Production for given support

                                      Ele c tric ity g e ne ratio n fro m RES in TWh
    TWO VIEWS ON PRICE OF ELECTRICITY (HEAT)
    FROM RES – SUPPLY AND DEMAND CURVES - 2
Supply curve of RES reflects different cost of production for different
RES

                                                     Potential of the Electricity Production from RES - Costs up to 7 CZK/kWh

                  7

                  6
Costs [CZK/kWe]




                  5

                  4

                  3

                  2

                  1
                                                                                        Electrictity market price                                                    9 321 GWh/year
                  0                                                                                                                                                  = 14.3% of gross
                      0             1 000        2 000        3 000          4 000            5 000       6 000         7 000         8 000                 9 000    electricity
                                                                                                                                                                     consumption in CR
                                             Electricity produced from RES [GWh/year]
                                                                                                         target - 8% of total gross electricity
                                                                                                         consumption in CR in 2010


                          Water waste treatment - average      Land-fills                             Water - I.                              Water - II.
                          Water - III.                         BIOM thermal power plant - fluid       Biogas - min                            Water - IV.
                          BIOM thermal power plant             Wind - min                             Water - V.                              Water - VI.
                          Water - VII.                         BIOM CHP in DH - wood+straw            BIOM CHP in DH - wood                   Wind - feasible
                          Water - VIII.                        Biogas - average                       Water - IX.                             Wind - less feasible
                          BIOM CHP in industry - wood+straw    Wind - non-profitable                  Biogas - max                            BIOM ORC technologies
 TWO VIEWS ON PRICE OF ELECTRICITY (HEAT)
 FROM RES – SUPPLY AND DEMAND CURVES - 3
Demand curve – point of view of consumers

  Technical features of production are taken into account
    Reliability
    Diagram of delivery
    Possibility of regulation
    Electricity: power and system services

  Competition of different producers

  Role of electricity market
 TWO VIEWS ON PRICE OF ELECTRICITY (HEAT)
 FROM RES – SUPPLY AND DEMAND CURVES - 4
RES and electricity generation
  typical problem of dependency on actual external conditions
           Utilization of available capacity - small hydro
                            power plants

    130%

    120%                                                     SH 1

    110%
                                                             SH 2      Example of utilization of available capa-
                                                             SH 3
                                                                       city for selected small hydro power
%




    100%                                                     SH 4

    90%
                                                             SH 5
                                                             SH 6
                                                                       plants
    80%                                                      Average

    70%
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                                                                                         40.0
                                                                         výro ba [MWh]   35.0
                                                                                         30.0
                                                                                         25.0
                                                                                         20.0
                                                                                         15.0

    Example of fluctuation of power                                                      10.0
                                                                                          5.0
    generation in wind power plant                                                       -




                                                                                                                                                                                                   1.10.2002


                                                                                                                                                                                                               1.11.2002

                                                                                                                                                                                                                           1.12.2002
                                                                                                1.1.2002

                                                                                                           1.2.2002

                                                                                                                      1.3.2002

                                                                                                                                 1.4.2002

                                                                                                                                            1.5.2002

                                                                                                                                                       1.6.2002

                                                                                                                                                                  1.7.2002


                                                                                                                                                                             1.8.2002

                                                                                                                                                                                        1.9.2002
     MEASURES FOR CHANGING POSITION OF
        SUPPLY AND DEMAND CURVES
How support renewables – case example of electricity generation
  affection of supply or demand curves

Moving supply curve down
  investment subsidy
  operational subsidy related to power generation – green bonus
  reduction of investors risk – investment to R&D, good conditions for
  investors
  reduction of cost of financing – preferential loans (zero or reduced
  interest)
  tax exemptions (income tax holidays, real estate tax)
  green certificates – sale of emission reduction
  combination of quota system and sale of certificates
     MEASURES FOR CHANGING POSITION OF
       SUPPLY AND DEMAND CURVES - 2
Moving demand curve up
  feed-in tariff and obligation of purchase
  quota system
  information campaigns (voluntary purchase of green electricity for
  higher price)
  ecological taxation imposed to classical electricity generation (carbon
  tax)
  emission allowances


Feed-in tariffs – widely used instrument
PROMOTION SCHEME FOR RES UTILIZATION
  FOR ELECTRICITY GENERATION IN ČR
up to the year 2002 – no system approach
  electricity sold at market conditions

    only not guaranteed investment support from State environmental
     fund and Czech energy agency

2002-2005: regulatory authority set up feed-in tariffs on yearly base
(price decisions of ERO) – no specific legislation

2003-5: discussions on legislation, several major changes

from 2006: systematic support according to Act 180/2005
   PROMOTION SCHEME FOR RES UTILIZATION
    FOR ELECTRICITY GENERATION IN ČR - 2
Main logic of Act 180/2005
  deals only with electricity generation

   feed-in tariffs and green bonus scheme – producer choose for each year

   tariffs and bonuses are set up by ERO

   feed-in tariff scheme:
     obligation of purchase for distribution company
     tariffs differentiated according to type of RES
     fixation of tariff for 15 year (annual adjustment by PPI)
     tariff should be set up for 15 year of payback time
     principle of time matrix – tariffs are related to the year of placing into
      operation (next year tariffs – max. possible decrease 5%)
   PROMOTION SCHEME FOR RES UTILIZATION
    FOR ELECTRICITY GENERATION IN ČR - 3

   green bonus scheme
     electricity is sold for market price
     distribution company pays green bonus
     necessity to solve responsibility for deviations in electricity generation
     higher market risk is reflected in volume of bonus
     co-firing of biomass and coal can use only green bonus scheme

Open questions of Act 180/2005
  utilization of heat in combustion processes (ERO applied logic of
  “reasonable” utilization of originated heat)
  doesn‟t solve problem of parallel support
  differentiation of (solid) biomass utilization
  what will happen after 15 year
   PROMOTION SCHEME FOR RES UTILIZATION
    FOR ELECTRICITY GENERATION IN ČR - 4

Logic of feed-in tariff
  Cmin (from NPV=0) is base for feed-in tariff setting

Logic of green bonus
  green bonus=cmin* - market price
  cmin* is recalculated for adequate discount (level of risk)

Higher risk in green bonus scheme
   business risk
   depends on share of market price in cmin
   PROMOTION SCHEME FOR RES UTILIZATION
    FOR ELECTRICITY GENERATION IN ČR - 5

Feed-in tariffs for the year 2006
                                               F. tariff   G. bonus
                     Type of RES
                                              cE/kWh        cE/kWh
           Small hydro (<10 MW)                  8.21         5.02
           Photovoltaic                         46.32        44.18
           Wind energy                           8.63         7.09
           Geothermal energy                    15.79        12.77
           Biomass                           8.04-10.28    4.63-6.88
           Biomass co-firing                       -       1.89-4.14
           Biogas stations                      10.46         7.05
           Landfill gas                          7.82         4.42
           Biogas - sewage plants                7.82         4.42

           Note: Valid for new plants, 1 EUR=28.5 CZK, tariffs and bonuses
           are differentiated according to type of solid biomass used
   PROMOTION SCHEME FOR RES UTILIZATION
    FOR ELECTRICITY GENERATION IN ČR - 6

Green bonuses calculation needs:
  cmin* (recalculation of cmin for given discount rate)
     three categories of RES – increase of discount by 0,5-1,5%
     wind, photovoltaic, geothermal/biomass and biogas
      applications/small hydro
     modification of discount rate by share of revenues from electricity
      sale on total revenues

   estimates of market price
      depends of price and diagrams of electricity at electricity market (for
       given year)
      wind 18,95 EUR/MWh
      photovoltaic 28,42 EUR/MWh
      all other RES 37,26 EUR/MWh
Thank you for attention