Phase II of Renewable Energy in America

National Policy Conference

November 28-29

Cannon Caucus Room, Washington, DC

American Council On Renewable Energy (ACORE)

Hello, ladies and gentlemen.  Thank you very much, Chairman, for your kind introduction. In this capacity, I'm responsible for energy technology collaboration, but also the renewable energy unit is in my division.  We have a very close collaboration with Wren 21 [ph?] network.  We are sharing the data and providing a lot of input.  We are sharing also staff with the Wren 21, and the secretariat have a memorandum of understanding, with REEP [ph?], with Global Energy Partnership, we are collaborating. In my former, former, former life, I was responsible-- had the pleasure to set up the first German 100 megawatt program for demonstration.  At that days, 100 megawatt of wind energy meant 800 turbines.  This shows the breathtaking development in this area and in this technology.  Today wind turbines are on average 20 times larger or even 100 times larger than those days, which are less than 20 years ago.  Also, those days, we have been looking across the border.  We were looking at what was successful or not so successful, in Denmark, but also we were inspired by the US Pripalow [ph?] and other incentive schemes, those days.  We were trying to pick the best for the conditions in Germany.  So far, I assumed there were so many overviews about global developments, including financing, technology developments, the capacities all over the place, I was trying to keep my presentation a bit around three myths that we are still seeing, that comparable renewable energies are confronted with.  And in particular, being here in the vicinity of policy making, I thought this would be also most appropriate to be addressed.  But for introduction, we have seen so much about global energy shares and growth rates, which is fantastic and really breathtaking.  There's still in the talk about they're contributing today some 13 percent of total primary energy supply.  I would like to say, in this context, renewable energy still have a problem, because we have the so called physical content method, whatever that means, but this is not really reflecting the final consumption of energy.  So it does not reflect, let's say, the relevance for the consumer.  But we are still sticking to these figures, because this is an internationally agreed procedure.  I'm just explaining it, because the extent is not to try to play down the role of renewable energies, but if we would take the substitution method, then we would end up with let's say a relevance to total primary energy supply, which is close to 20 percent today, largely coming from renewable combustibles, which is mainly noncommercial renewable energies, from hydropower and many others.  We've heard today already, and I was very positively surprised that we've issued a study this summer, that solar thermal is possibly the still sleeping giant, because 40 percent of global energy demand goes into space heating and cooling, and this is where renewables really could play a major role.  But I think we still lack a lot of analysis in this area.  What could be done?  What would be the best approaches and some kind of a development of a road map to work with that?  The main difficulty is that in the end consuming sector, demand sector, statistics are very difficult to produce and to assess.  And this is why you will also see not too much yet in IEA's projections on the possible role of renewable energy in the space  heating.  So you will see very much myself also concentrating on electricity.  World electricity production, renewables already contribute some 18 percent.  This is the status of 2005.   You may wonder why we are always so much behind.  Because these are the improved data that we are receiving through our constant exchange with the member countries.  So these are our member countries' data, and others can be of course a bit more speculative, and can give more recent data, nevertheless.  The challenge is, we all know, is really to achieve-- and we all agree, energy security needs to improve, access to energy to many people still around the globe, climate protection, economic growth.  These things, everybody agrees, are urgent to be addressed.  The G8 have a consensus on that.  Our own energy ministers share this view, and solutions in all of the three often go hand in hand: renewable energies have great potential to further contribute to these solutions.  But this is the bird's eye perspective, and just to contribute again, one thing, renewable energies can contribute to transport fuels, to electricity, to low temperature heat, but also, to a certain extent, to process heat, which is for higher temperatures.  In principle, we are hearing from some time, this is all fine, but in detail, it's so complicated, and sometimes it's taken as an excuse not to take action.  Very often, as an argument, three myths are stressed.  I would like to ask the question that very often, these are taken as reasons not to take action.  Even if we see that already so many countries do take action.  One of the myths is that markets should fix everything.  Markets can regulate everything.  Second of the myths is, renewable energies are too intermittent.  The production is too much varying and therefore it's too difficult to handle and to integrate them into existing energy supply systems.  And also, the third myth is, renewable energies are too expensive.  We cannot afford it.  Working backwards from the three, you will read in the IEA's flagship publication that comes out every year, the World Energy Outlook, and it was launched on 7th November, so this is really pretty new, which say, "...But the trends in energy demand, imports, coal use and greenhouse gas emissions to 2030 in this year's World Energy Outlook are even worse than projected in WEO 2006."  That means this is not what the IEA wishes, that the demand is increasing, but this is simply what is happening.  I'm highlighting this, because this means the IEA's projections from last year were even more conservative, let's say were more optimistic, than the real behavior of market participants has come out.  On the other hand, there's also some light at the horizon, because as you will see in the following slides, the implementation of energy-relevant policies that are currently under discussion would lead for the consumers to some $400 billion net savings over 2006 to 2030.  How come?  I will come to that.  What do we see in the world primary energy demand?  Again, this is the business as usual scenario that we always publish.  This is not a scenario that the IEA wishes to happen, but this is what the IEA projects to happen.  As I said, the projection from last year 2006 was even too conservative compared to what we are seeing this year.  If no further action in policy making would be taken, then possibly by 2030, world energy demand would increase by 55 percent.  Again, if no further action would be taken.  This would imply an increase of world C02 emissions in the year 2030 by 57 percent.  So even stronger than the increase of energy demand.  This goes way beyond what IPCC have told the world would need to be achieved to stabilize the temperature increase globally around maybe 2 degrees Celsius.  We also, as a standard scenario, we are publishing the so called alternative policy scenario.  The alternative policy scenario is the scenario that assesses what would happen if the policies currently under discussion would successfully be implemented in national policies.  So once the directive in Europe is discussed, this is not considered to be an implemented policy.  But after it's really translated into national policy making, this would then flow into the alternative policy scenario.  And the outcome is that consumers in this alternative policy scenario would spend, by the year 2030, some $2.3 trillion more helping to reduce supply-side capital needs, which then on the other hand-- so replace, you could say $2.7 trillion on the supply side, which means that there would be, for the consumer, some $400 billion net savings over 2006 to 2030.  These savings do not include any cost for climate change.  These savings do not include savings that might be achieved through reducing energy demand and leading to even higher oil prices.  But through this alternative policy scenario, we only would achieve by 2030 some 34 gigatons of global emissions.  This is the reduction compared to the baseline scenario of 19 percent.  IPCC is telling us that this is still by far too little of what should be achieved.  So again, this is not a scenario that the IEA thinks should happen, but is the scenario, what would happen if policies under discussion would be implemented.  It tells us it's not yet enough.  We have recognized that what IPCC has told the world, that for reducing the impact of CO2 emissions on climate change, CO2 content in the atmosphere would have to be stabilized around 450 parts per million.  In this case, our estimate is that by 2030, the global CO2 emissions would have to be brought down again to 23 gigatons per year, compared to 42 gigatons in the baseline scenario.  What this means in practice is, here we were for the first time developing a back casting case.  It's not a scenario, so we did not play through the whole cost implications, not what is the usual exercise for the scenarios.  But the outcome was that from 2012 onwards, any new installed electricity production would have to be CO2 free.  And of course, there is still some space or some room to move between various CO2 free production sources.  But this would also mean, for wind energy then, if we go into details, growth compared to today, that wind energy would have to contribute 35 times more to the electricity production by the year 2030 than it does today.  So a huge, huge increase.  Also, energy efficiency, the most important contributor to this CO2 reduction, the energy intensity that is increasing, or is improving every year at a rate of 1.6 percent would have to be increased to an improvement rate every year of 2.7 percent, which turns out to be a huge challenge as well.  What does it mean, this stabilization case in electricity production?  Renewable energies would have to become the largest source of electricity.  It would account for 40 percent of global generation.  But also other technologies would have to contribute, because it's seen that still many coal fired, gas fired power stations will have to be built, which means some bridging technology will have to be introduced.  We're talking about carbon kitchen storage, and when the IEA speaks about nuclear power, then this is recognizing that still many countries have an active policy to build more nuclear power plants.  But renewables will become the largest source of electricity.  For investment, we see also again confirming the same result of the scenarios.  The alternative policy scenario has a total would even show lower total investment compared to the reference scenario.  Altogether, by 2030, it would be some $5.5 trillion compared to $5.6 trillion in the reference scenario.  And in the 450 stabilization case, it would add up to some $7.5 trillion altogether between 2006 and 2030.  And if you ask how much this difference is between $5.5 trillion and $7.5 trillion, this corresponds to roughly 0.1 percent of global GDP, 0.1 percent.  We have, together with the OECD, also have had a look into the consequence of high oil prices.  The estimate in 2004, what we've published was that the impact on economic growth of high oil prices would be around 0.5 and 4 percent of GDP in various countries.  The lower range, 0.5, would be in the OECD countries, and 3 to 4 percent in developing countries.  So you can say the extra cost that would have to be accepted for such a 450 stabilization case are much lower, or the impact on-- the extra costs which would be much lower than the impact of high oil prices.  Even not yet considering the impact of the costs of, for example, calculated by the Stern review for climate change.  Renewable energies are intermittent, and therefore are they too difficult to handle?  One typical statement we are still hearing: "Every wind turbine needs a coal fired power plant as a backup."  This is a very basic consideration.  Yes, it is a challenge, but not only, and there are ways to deal with it.  IEA has looked into it and has issued a report in 2005, and has also come up with, let's say, a concept for efficiently dealing with those challenges, in a report that has been requested by the G8, and will be published next year.  We are offering this report to distinguish between market classes, these different market classes that demonstrate a little bit what the implications would be.  If we have a market with strong shares, high shares of hydropower, then it's very integrate other intermittent renewable energies, than if we have a high share of nuclear power, which cannot be as easily powered up and down then it's more difficult.  So there are different measures that need to be taken, but the outcome is, it's not undoable.  I will skip the next slide, just demonstrating we really have had a very close look into it.  To deal with statistics, you need to understand the statistics, so the simple argument for every power plant you need a coal fired power plant, that does not really reflect the reality, not the real capacity planning of utilities and _________ managers as well.  The options for managing intermittencies are not surprising:  it's capacity reserve, it's storage, it's interconnection, it's distributed generation, demand-side response and curtailment.  The last myth is what we often here, that markets should fix everything and then let markets decide which are the best or competitive technologies.  Best and competitive is often used synonymously, but it's not.  Competitive, let's say, put into competition, technologies which are in a very different stage of development.  If we would, for example, let wind energy compete nowadays with ocean energy, the result would actually be quite obvious.  Ocean energy probably would never make it, because it's still in it's infant stage, but the potential seems to be very high, in the range of today's global energy production, or maybe even higher.  Something I did not believe 20 years ago, I must personally confess, because everybody told me the energy density of ocean energy is much too low, and the masses, just the tonnage of steel and concrete etc., is much too high, so it will never make it, and other prejudgments of that kind that have been circulated for quite a while.  So one has to be very careful when you open up the markets for competition, and this is only then applicable-- only reasonable once new technologies have come out of this stage of infancy.  And if you look into reality, almost all new energy technologies have received, and still need and receive, substantial support from the patient investor, which is the public domain and the state governance.  And the second issue is market oriented support mechanisms still have to prove that they are the most efficient.  And if we then distinguish, or if we then compare the performance of ____________ and portfolio standards and certificates, in one of my next slides I will come to that.  There we see that market mechanisms with this regard have not been the most successful and have not yet been able to prove that they're the most efficient one, which also means the most cost effective.  This is what we've seen in the past on the R&D domain.  Renewable energies had received support from governments, and we see it's also competing in the R&D budgets with other energies, with conservation, with fossil fuels, with nuclear fission, nuclear fusion, and renewable energies-- I'm starting from bottom up-- power storage and other research funding.  Most of the funding was provided in three countries:  United States, Japan and Germany.  But also other countries like Italy, the Netherlands and Switzerland and the United Kingdom have had substantial programs in renewable energies.  The consequence was that first initiated through R&D programs, costs were brought down.  Here is just the trend for wind energy, and now we see already a slight price bubble, because the demand is so high, so that is not quite clear how fast this cost reduction will continue.  And the same thing applies also for many other renewable energies.  Here these are the main results for selected countries.   You don't have to read the details.  Just the color patterns are interesting.  What has happened in the context of market deployment programs, and for wind energy, onshore wind energy.  Here we see the correlation that FIT _________ indeed were the most successful ones, which I think I marked in green.  The new report will come out with this assessment in February or March, in time for being available for the Wired conference.  Where we see that FIT ___________ indeed were the most successful, and also the most cost efficient.  Why is that?  Because certificate systems in the past very often had such high volatilities that the margins for the investors needed to be much higher than the margins for people thinking about FIT _________.  If FIT ___________ are let's say cautiously monitored, then the cost, even if you think about subsidies, the cross subsidies in the system-- because every new technology receives cross subsidies-- can be held much lower than if we think about highly volatile systems dealing with certificates.  This is basically the outcome that has been also worked out in close conjunction with the European Commission, and we're adopting a similar assessment method.  Now summing up the three myths.  All of them turn out that there's no reason not to take action.  Markets indeed are the most effective means to make things happen, but in some cases, a patient investor is needed, particularly when we think about R&D, public-private partnerships, about market introduction programs.  Secondly, renewable energies indeed vary over time, but this can be handled, and some renewables can even help when we think about hydropower or biomass, or concentrating solar power production.  The question whether renewable energies are too expensive, we see developments in China, in the United State, even where sometimes no cross subsidies are given at all.  But even in the global context, it makes perfect sense to look into more energy conservation, energy efficiency, together with renewable energies, and the energy policies under discussion would lead to net savings for the consumer of some $400 billion over 2006 to 2030, even without taking into account the possible costs of climate change.  For further information, you may refer to our open bulletin.  There everything is published about databases, ongoing work and our groups, and thank you very much for your attention.

[Applause.]