1 ELECTRICITY PRICES AND RENEWABLE ENERGY Lucia Passamonti Strategy, Research and Documentation Dept. Italian Regulatory Authority for Electricity and Gas Milano, March,

2 List of topics 1. Italy’s electricity generation from renewable sources 2. Italy’s support schemes for renewables 3. Cost of support schemes 4. EU Climate and Energy policy 5. Expected compliance costs of EU policy

3 Italy’s electricity gross generation GWh

4 Italy’s electricity by source gross production, 2008 RES 19% Electricity production: 319 TWh of which RES(*): 60 TWh (*) It includes non-biodegradable waste

5 RES Support Schemes in Italy - 1  Quantity-based instruments Quota obligation to source a specific percentage of electricity from RES generation; Tradable Green Certificates (TGC) prove compliance with the obligation  Price-based instruments Feed-in tariffs: RES generators are paid a fixed price, irrespective of the wholesale price of electricity Feed-in premium: RES generators are paid a premium price in addition to the wholesale electricity price Investments subsidies granted mainly by local governments

6 RES Support Schemes in Italy - 2

7 GSE – Energy Services Operator  State-controlled company (fully owned by Ministry of Finance)  It owns GME (Electricity Market Operator) and AU (Single Buyer)  It is responsible for promoting and developing renewables resources: Buys electricity generated by renewable and assimilated sources and sells it in the market Issues Green Certificates and monitors producers’ and importers’ compliance with renewables obligation Certifies plants using renewables sources Issues the Guarantee of Origin (GO) of electricity generated by renewables Manages the scheme that stimulates electricity generation by photovoltaic plants and solar thermodynamic plants Certifies co-generation plants

8 Breakdown of RES gross production by support scheme, 2008 Total RES production: 60 TWh of which supported: 19 TWh

9 Breakdown of costs by support scheme, 2009 Total estimated costs: - around 2,500 million euro in 2009 on an accrual basis

10 Renewables Costs and Electricity Prices - 1 SUPPORT SCHEMESELECTRICITY PRICE TGCPOWER SUPPLY TRANSMISSION & DISTRIBUTION CIP6 NON-TAX LEVIES PV “All inclusive” TAXES

11 Renewables Costs and Electricity Prices - 2  Rough estimate of impact on electricity prices Around 8 euro/MWh in 2009 (on accrual basis)  Estimated impact of TGC on wholesale prices Around 2 euro/MWh corresponding to 3% of wholesale electricity price in 2009  Estimated impact of carbon costs (EU ETS) on wholesale prices Around 1 euro/MWh corresponding to 1.4% of wholesale electricity price in 2009

12 Renewables Costs and Electricity Prices - 3 Electricity price for households: €/MWh (3 kW, 2700 kWh/y, Euro/MWh) 14% 8% 15% 63% (*) The percentage reflects the cost of incentives paid by the household end-user on a cash basis instead of an accrual basis

13 EU Climate and Energy Policy  March 2007, EU Council Climate and energy targets to be met by 2020: A reduction in EU greenhouse gas emissions of at least 20% below 1990 levels 20% of EU energy consumption to come from renewable resources (of which 10% in the transport sector) A 20% reduction in primary energy use compared with projected levels, to be achieved by improving energy efficiency

14 EU Climate and Energy Package - 1  December 2008, EU Council and Parliament Binding legislation: 1. A revision and strengthening of the Emissions Trading System (EU ETS). A single EU-wide cap on emission allowances will reduce the number of allowances available to businesses to 21% below the 2005 level in An 'Effort Sharing Decision’ governing emissions from sectors not covered by the EU ETS, such as transport, housing, agriculture and waste. Specific national targets will cut the EU’s overall emissions from the non-ETS sectors by 10% by 2020 compared with 2005 levels. 3. Binding national targets for renewable energy which collectively will lift the average renewable share across the EU to 20% by A legal framework to promote the development and safe use of carbon capture and storage (CCS). The package does not address energy efficiency improvements. This is being done through the EU’s Energy Efficiency Action.

15 EU Climate and Energy Package - 2  Italy’s targets: 17% of energy consumption in 2020 to come from renewable resources A reduction in EU greenhouse gas emissions of 13% by 2020 compared to 2005 in sectors not covered by the EU ETS No specific target for sectors covered by the EU ETS since the cap applied from 2013 is EU-wide

16 Compliance costs for Italy - 1  Based on EU Commission Impact Assessment (published in 2008)  Assumptions: Allowed use of CDM/JI credits (from Kyoto flexible mechanisms) to reach the emissions reduction target No RES trading within EU and with Third Countries to reach the renewables target  Estimated results for reaching simultaneously both RES and GHG emissions reduction target: Yearly compliance costs around 10 billion euro (2005 prices) from 2011 thru 2020 Compliance costs around 0.9% of GDP in 2020

17 Compliance costs for Italy - 2  AEEG estimates for RES only compliance costs  Assumptions: Italy’s potential for RES deployment: 21 Mtoe of which 9 Mtoe (104 TWh) for electricity generation (Italian Gvmt Position Paper) No RES trading within EU and with Third Countries to reach the renewables target Linear deployment of RES from current situation and extension of existing support measures thru 2020 while gradually halving support levels Energy efficiency measures to reduce final consumption by 17% with respect to EU baseline projection in order to meet the RES target of 17% with a deployment of RES power plants equal to the potential

18 Compliance costs for Italy - 3  AEEG estimates for RES compliance costs  Results: Compliance costs accounting to more than 5 billion euro in year 2015 and around 7 billion euro in year 2020 More than 3.5 billion euro in year 2020 for supporting PV plants deployment

19 СПОСИБО ЗА ВНИМАНИЕ !!!

20 BACK-UP

21 TRADABLE GREEN CERTIFICATES  Tradable Green Certificates reference prices In the period the reference price of TGCs, issued by GSE on his behalf and sold into the power exchange with reference to RES-sourced CIP6 plants, was based on the difference between the cost of purchasing electricity from supported CIP6 plants and revenues from the sale of such electricity Since 2008 the reference price of TGCs is computed as the difference between a predetermined price (180 €/MWh) and the sale price of electricity produced by RES and micro plants in the previous year