Evolving Business Models in the Electricity Sector Marc Oliver Bettzüge | 07 July 2016 | CEEPR EPRG EDF Energy Forum

Significant overcapacity even w/o accounting for RES Lignite Oil Gas Nuclear Hydro Wind Solar Hard coal Geothermal Biomass Other Peak 2015 Source: BMWi; EWI; Agora EEG

Some perspectives 1.Conventional generation with very limited contribution margins 2.Some upside from nuclear and, potentially, coal phase-out (beyond 2022) 3.RES investment still largely driven by Feed-in-law – market value of electricity much lower than guaranteed remuneration 4.However, most of the value sits with the landowner (challenged by auctioning) 5.Feed-in-law still politically robust, …

Households still accepting steep electricity tariffs 10,67 0,25 6,34 17,26 13,88 6,17 8,76 28,81 + 4,0 % p.a. Sources: BDEW (2015) German household electricity tariff, 3-persons, 3,500 kWh/a real €ct/kWh, 2000 vs Generation, grid, retail RES levy Other state-administered taxes, levies, and fees + 2 % p.a % p.a % p.a.

Renewables in Germany – a story of redistribution LEVY Instead of STATE BUDGET (SOME) INDUSTRY EXEMPTED GERMANY- WIDE RATE instead of INDIVIDUAL RATES BY FEDERAL STATES Political support for renewable-support-scheme GERMAN LOCATIONS Instead of EU INTERNAL MARKET

Some perspectives (cont.) 1.Conventional generation with very limited contribution margins 2.Some upside from nuclear and, potentially, coal phase-out (beyond 2022) 3.RES investment still largely driven by Feed-in-law – market value of electricity much lower than guaranteed remuneration 4.However, most of the value sits with the landowner (challenged by auctions) 5.Feed-in-law still politically robust, … 6.… but pressure is mounting (wind farm siting, curtailment, cost) 7.Autogeneration increasingly relevant

Individually, PV investments in the money even without state guarantees FiT tariff Household tariff LCOE PV

Individually, PV with Storage not yet feasible FiT tariff Household tariff LCOE PV LCOE PV plus storage Break-even by 2020?

Simulation study for 1-/2-family homes in Germany Total load of all households (one- and two-family houses) in Germany Capacity expansions (induced by PV Grid Parity) on the household level in Germany by 2030: + 82 GW of rooftop PV systems + 65 GWh of (small-scale) storage systems On-going debate regarding auto- consumption in EEG-law Source: Jägemann et al. (2013)

Renewable expansion and degree of decentralisation Source:BNetzA Key challenge: Temporal and locational flexibility

Key role for Power-to-Heat in future energy system TWh 394 TWh 125 TWh Electricity (w/o Power-to-Heat) Power-to-Heat Heat (w/o Power-to-Heat) Final energy consumption, Germany, 2012 RES excess supply Redundancy

Evolving business models in German electricity 1.Integrated, large utility business models: disintegrated by liberalisation, and deeply challenged by continued overcapacity 2.Evolving new business models: vertically fragmented, rather small-scale, and mostly service-oriented 3.Interesting (niche) aggregator models emerging (esp. intra-day, balancing as well as auto-generation and, potentially, power-heat-integration) 4.‘Big data’ increasingly important: Improving processes (short-term), managing the system (long-term) 5.Speed of transition strongly influenced by policy choices, in particular with respect to guarantees and tariff structures

ewi Energiewirtschaftliches Institut an der Universität zu Köln Thank you very much for your attention. Questions? Comments? Marc Oliver Bettzuege |