Manuel Lago, Ljubljana,Slovenia, 12/02/20131 Economic analysis of water use: future solutions for the Hydropower sector Dr Manuel Lago “Future water use and the challenge of hydropower development in western Balkan” February 2013

2 Outline 1.POLICY BACKGROUND - EC Blueprint - feedback relevant for the sector 2.Applications of the economic analysis of water use to hydropower sector 3.Examples of possible solutions Manuel Lago, Ljubljana,Slovenia, 12/02/2013

3 POLICY BACKGROUND - EC Blueprint - feedback relevant for the sector (I) The information provided by Member States in their RBMPs shows that more than 40% of the water bodies in the EU are affected by significant hydromorphological pressures and impacts. Economic activities such as hydropower generation, navigation, agriculture, land drainage, urban sprawl and flood protection have physically altered the aquatic ecosystems across the EU, reducing their capability to function properly and their ability to host a rich biodiversity and reducing the delivery of valuable ecosystem services. The promotion of strategic approaches for hydropower planning is necessary to assist authorities in taking decisions on best solutions and projects which are in the pipeline as well as for a better-informed and transparent application of WFD article 4.7 on new modifications of water bodies. –ACTION: Enlarge the scope of the Strategic Environmental Assessment Directive to cover all hydropower development plans. Manuel Lago, Ljubljana,Slovenia, 12/02/2013

4 POLICY BACKGROUND - EC Blueprint - feedback relevant for the sector (II) Need for policy integration: –especially EU energy policy, transport policy and agricultural policy. For instance, renewable energy targets can be met while at the same time protecting aquatic ecosystems. –Wider use of SEA in relation to renewable energy plans and RBMPs –Policies promoting greater energy efficiency to reduce GHG emissions also interact with water policies, such as influencing choices for technologies to be employed to treat waste water. –Member States should also ensure coherence between renewable energy targets and Programmes of Measures in the RBMPs. It is also important to note that policies promoting water efficiency can support energy efficiency objectives (e.g. by requiring less energy to pump water). Manuel Lago, Ljubljana,Slovenia, 12/02/2013

5 Applications of the economic analysis of water use to hydropower sector Analysis of possible trade-offs between alternative water policies and economic sectoral strategies. Policy integration!!!! By informing decisions on water allocation, pricing and infrastructure development. –Provide Information on water use and demand and from there we could establish some concept of value if linked with economic data per sector. CEA,CBA...ESA. Support decisions on policy instruments (design, monitoring and evaluation) and their possible impact on the selection of Programme of Measures as dictated by the WFD. –Different policy streams: resource efficiency. –application of other measures (i.e. cooperation agreements – example Lower Ebro between HP and agriculture in relation with e- flows) and economic instruments (i.e. green certificates - Swiss) and incentives (i.e. the role of subsidies for green energy in Germany). Manuel Lago, Ljubljana,Slovenia, 12/02/2013

6 Green certificates in Switzerland (I) Hydropower main water user. Accounts for about 59% of the electricity supply. Negative public opinion due to their negative impacts on ecosystems and landscapes. Certification scheme for green hydropower energy created  development of the green hydropower standard, which is based on scientific criteria and applied voluntarily Measure has two main objectives: –Economic objective: to have a reliable and objective certification scheme that is trustfully accepted by consumers and ensures fair competition on the market –Ecological objective: the improvement of local river conditions by setting an incentive to develop sustainable hydropower Manuel Lago, Ljubljana,Slovenia, 12/02/2013

7 Green certificates in Switzerland (II) Two delivery mechanisms: –Standard covering 45 scientifically-defined criteria. They allow a supra-regional comparable certification of different power plants, regardless of their age, size, or how they are built or operated –Eco-investment, financed by a fixed mark-up on every kilowatt-hour sold as green hydropower—on an annual basis, this surcharge must be re-invested in the river system in which the plant is located in the form of river restoration measures adapted to the demands of the individual river system. Currently 0.08 Eurocent (0.1 Swiss Rappen) per produced kWh and 0.7 Euro cent (0.9 Swiss Rappen) per sold kWh Evaluation: Only 3% uptake. Although instrument considered inspirational. Problem: In order to get the nature star label for the power plant Wettlingen, and in the context of renewing the concession, the environmental performance was increased. The minimum flow was changed from 0,6 m3/s to 7,5 to 12 m3/s depending on the season. This resulted in a loss of 10% of production capacity. Manuel Lago, Ljubljana,Slovenia, 12/02/2013

8 Green subsidies in Germany (I) Hydropower is at present the third most important renewable source of energy (22 %) after wind power (44 %) and biomass (24 %). In 2010, persons have been working in the hydropower sector. Investments in hydropower in Germany amounted to 70 million EUR in 2009 whereas the economic turnover was million EUR. The 2000 Renewable Energy Sources Act (EEG) is the main instrument to promote the use of renewable energy sources. It guarantees for electricity production a defined remuneration per kWh which is above free market prices. The increased remuneration proposed after the establishment of ecological improvements on the plants. Remuneration could increase of 2 cents/kWh to 9.67 cents/kWh. Manuel Lago, Ljubljana,Slovenia, 12/02/2013

9 Green subsidies in Germany (II) Measures: subsidies for the establishment of migration possibilities for fishes upstream, fish protection measures for migration downstream and the provision of minimum water flows Evaluation: 10 % of the existing large hydropower plants installed equipment which assists the upstream migration of fishes and / or provide minimum flow conditions. Cons: SHP do not recover costs. The implementation of the minimum flow requirements on existing SHPs would lead to an average reduction of electricity production of 25 %. SHPs need feed in tariffs to be viable. Manuel Lago, Ljubljana,Slovenia, 12/02/2013

10 Thank you Manuel Lago, Ljubljana,Slovenia, 12/02/2013