Webinar: Trends in renewable energy support

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1 Webinar: Trends in renewable energy support Is the Spanish case a forerunner for the rest of the EU? Matthew Jones Senior Analyst EU Power & Carbon Anise Ganbold Senior Analyst EU Power & Carbon 12 July 2018

2 Housekeeping This live webinar is being recorded If you have technical problems please use the Raise Hand function If you would like to ask a question at any point during the presentation, please submit via the Q&A function at the bottom of your screen We will try to answer as many questions as possible at the end of the webinar The recording and the slides will be available after the live event copyright 2018 ICIS analytics.icis.com 2

4 ICIS who is actually standing in front of you? ICIS is a world leading price reporting agency for commodity markets Chemicals Energy Fertilizers Company facts Part of Reed Business Information (RBI) and RELX Energy Analytics Global leader in carbon analytics (EU, RGGI, WCI, China) EU power analytics Pan-European power price forecasts for the period to 2040 Putting a price impact on market developments Regular updates to our price forecasts and analysis of market developments and regulatory changes Roughly 600 employees globally copyright 2018 ICIS 4

5 Historical developments

7 Number of cases to date 41 complaints by foreign companies under the ECT so far ECT cases against Spain involving renewable scheme reform Source: ICIS 2 3 In favour Spain In favour claimant Dropped Pending 1 copyright 2018 ICIS analytics.icis.com 7

8 Renewable Auctions

9 Spanish renewable auction design The government sets a starting price for each technology type The starting price considers expectation of market prices, capital costs, operating costs, running hours and other factors Government reserves the right to review the starting prices every three years next review is due end-2019 Companies bid a percentage discount to the starting price Deadline for commissioning is 31 Dec 2019 Penalties for 2016 projects that miss deadline, up to 20/kW and for 2017 projects up to 60/kW copyright 2018 ICIS analytics.icis.com 9

10 Renewable auctions resulted in 8.6GW of new RES capacity Auction Date Technology Capacity target (MW) Capacity awarded (MW) Weighted average subsidy price ( /MWh) Jan 2016 Onshore wind in total Biomass Onshore wind 2, May 2017 Other RES 3000 in total Solar Jul 2017 Onshore wind 1, in total Solar 3, Total ,606 Source: ICIS, OMIE copyright 2018 ICIS analytics.icis.com 10

11 /MWh (nominal) Auction strike prices in Spain are lower than in other EU countries 160 Prices at auctions - Spain vs other EU countries May-13 Nov-13 Jun-14 Dec-14 Jul-15 Jan-16 Aug-16 Mar-17 Sep-17 Apr-18 Oct-18 Onshore wind Spain Solar Spain Onshore wind Germany Solar Germany Onshore wind Italy Solar France Source: ICIS copyright 2018 ICIS analytics.icis.com 11

12 /MWh (nominal) Spain has lower auction prices but higher market prices, though volatility is high 70 Lowest subsidy price vs market price Onshore wind Spain Solar Spain Onshore wind Germany Solar Germany Onshore wind Italy Solar France Colourful bars = Lowest subsidy 2020 power price Source: ICIS, EEX, OMIE copyright 2018 ICIS analytics.icis.com 12

13 /MWh (nominal) Spain has lower auction prices but higher market prices, though volatility is high 70 Lowest subsidy price vs market price Onshore wind Spain Solar Spain Onshore wind Germany Solar Germany Onshore wind Italy Solar France Colourful bars Colourful = Lowest bars subsidy = Lowest subsidy 2020 power 2020 price power Revenue price received Source: ICIS, EEX, OMIE copyright 2018 ICIS analytics.icis.com 13

14 /MWh (nominal) Spain has lower auction prices but higher market prices, though volatility is high 70 Lowest subsidy price vs market price Daily average price - Range in 2018 to date Onshore wind Spain Solar Spain Onshore wind Germany Solar Germany Onshore wind Italy Solar France Colourful bars Colourful = Lowest bars subsidy = Lowest subsidy 2020 power 2020 price power Revenue price received Source: ICIS, EEX, OMIE copyright 2018 ICIS analytics.icis.com 14

15 /MWh (nominal) Spain has lower auction prices but higher market prices, though volatility is high Lowest subsidy price vs market price Intra-day price - Range in 2018 to date Daily average price - Range in 2018 to date Onshore wind Spain Solar Spain Onshore wind Germany Solar Germany Onshore wind Italy Solar France Colourful bars Colourful = Lowest bars subsidy = Lowest subsidy 2020 power 2020 price power Revenue price received Source: ICIS, EEX, OMIE copyright 2018 ICIS analytics.icis.com 15

16 /MWh More renewable capacity cannibalises the capture price Renewables can be a victim of their own success through price cannibalisation Capture prices reflect the actual income that a generator achieves in the market A rapid build-out of renewable capacity could depress capture price as projects will have the same production profile Capture price declines with more RES generation 2018: fewer generators capture an average higher price Income for RES in 2018 RES generation MWh/h copyright 2018 ICIS analytics.icis.com 16

17 /MWh More renewable capacity cannibalises the capture price Renewables can be a victim of their own success through price cannibalisation Capture prices reflect the actual income that a generator achieves in the market A rapid build-out of renewable capacity could depress capture price as projects will have the same production profile Capture price declines with more RES generation 2030: more generators capture an average lower price Income in 2030 RES generation MWh/h copyright 2018 ICIS analytics.icis.com 17

18 2020 Targets

19 % Spain s RES target is 20% of final energy consumption 25 Spain RES share in final energy consumption Heating & Cooling Transport Electricity 2020 Target Source: Eurostat copyright 2018 ICIS analytics.icis.com 19

20 GW In an ideal scenario auctioned capacity could be enough In a high case assumption where all successful capacity comes online, total installed RES capacity reaches 56.7GW in Spanish RES capacity with auctions +8.6GW of auctioned capacity Source: ICIS, Eurostat copyright 2018 ICIS analytics.icis.com 20

21 TWh GW In an ideal scenario auctioned capacity could be enough When you take into account the load factors used by the government* during the auctions, you can convert the auctioned capacity into generation *27% solar, 34% wind, 57% other. We assumed 69% for biomass GW of auctioned capacity auctioned capacity Spain Spanish RES RES E-generation capacity with auctions +24TWh from Source: ICIS, Eurostat copyright 2018 ICIS analytics.icis.com 21

22 TWh What is needed to reach the 2020 target? In a scenario where 1. energy demand is flat between 2016 and 2020 and 2. RES in heating & cooling and transport is also flat The auctioned RES capacity of 24TWh would bring total RES generation to 19.7% of energy demand Spain RES output scenario with auctions - assume other inputs flat between Heating & Cooling Transport Electricity 20% Target Source: ICIS, Eurostat copyright 2018 ICIS analytics.icis.com 22

23 TWh What is needed to reach the 2020 target? If In instead a scenario renewables where in heating & cooling 1. energy and demand transport is flat grow between at modest rates 2016 and 2020 and The 2. RES share in heating of renewables & cooling would and be 20.3% transport by 2020 is flat between 2016 and 2020 Therefore there is some margin for key variables The auctioned such as RES capacity of 24TWh -would Load factors: bring total the government RES generation used to 19.7% relatively of energy high load demand factors in its auctions - Energy demand development - RES closures - RES in other sectors, H&C and Transport Spain RES output scenario with auctions - with growth in H&C and Transport sectors Heating & Cooling Transport Electricity 20% Target Source: ICIS, Eurostat copyright 2018 ICIS analytics.icis.com 23

25 The auctioned projects which are likely to come online? TOTAL PROJECT SIZE BY PARENT COMPANY Other, 1.4 GW Forestalia, 1.9 GW Jorge Group, 0.1 GW EDP, 0.1 GW Greenalia, 0.1 GW OPDE, 0.2 GW Siemens Gamesa, 0.2 GW Solaria, 0.3 GW Alfanar, 0.7 GW ACS Group, 1.6 GW Naturgy, 0.9 GW Source: ICIS Enel, 1.1 GW copyright 2018 ICIS analytics.icis.com 25

26 Capacity (GW) The auctioned projects which are likely to come online? Most of the progress reported in 2018 comes from the largest parent companies Source: ICIS Yes Unknown Projects owned by local companies have regional expertise and links but have limited funds Projects owned by large parent companies could afford to pay the penalties if they miss the target Iberdrola is noticeably missing possible it is waiting for better auction conditions next time? copyright 2018 ICIS analytics.icis.com 26

27 Developments up to 2020 The results of the renewables auctions are promising All of the successful capacity bid subsidy-free Spanish prices can be volatile Almost 60% of auctioned capacity has reported some progress this year, we expect the same share to meet the end-2019 deadline We think the government will take a wait-and-see approach this year copyright 2018 ICIS analytics.icis.com 27

28 Developments to 2030: targets, capacity and support systems

29 Spanish 2030 RES target in the EU context EU 2020: 20% (binding) 2030: 32% RES (binding) Spain 2020: 20% RES (binding) 2030:?% RES (non-binding) Spain s plans to 2030 need to be drawn up by the end of 2018 The government is aiming to release its climate change law by August copyright 2018 ICIS analytics.icis.com 29

30 GW What 2030 renewable target will Spain go for? Spanish Commission of Experts released a baseline scenario, which would lead to a 29.7% RES share in final energy consumption In light of the EU agreement on a % share, will Spain attempt a 10 higher share? Solar/wind capacity scenarios (GW) 2016 (17% RES share) 2020 (20% RES share) 2030 (29.7% RES share) 2030 (32% RES share) Wind Solar Source: ICIS/Spanish Commission of Experts copyright 2018 ICIS analytics.icis.com 30

31 GW Capacity additions At a target of 29.7% RES, Spain would require 39.4GW of additional wind and solar At a target of 32% RES, this would rise to 50.5GW According to Spanish solar association UNEF, there are already 24GW of solar projects in the approval process RES capacity additions vs. capacity required RES Capacity additions RES required p.a (29.7%) RES required p.a (32%) Source: ICIS/IRENA copyright 2018 ICIS analytics.icis.com 31

32 How can Spain bring this capacity online?

33 /MWh Full merchant risk Merchant projects are risky given uncertainty over future prices and volatility While we expect wholesale prices to increase, downside risk remains Will lenders be scared off by the scale of the risk? What rates of return will they expect on investments? Hourly prices Average price Source: OMIE Spanish hourly prices July 2017-July 2018 copyright 2018 ICIS analytics.icis.com 33

34 /MWh Full merchant risk Merchant projects are risky given uncertainty over future prices and volatility While we expect wholesale prices to increase, downside risk remains Will lenders be scared off by the scale of the risk? Will large utilities be willing to invest in Spain or will they prefer less risky markets? Source: ICIS Uncertainty over future direction of Spanish prices +/- 2 p.a. Forward curve copyright 2018 ICIS analytics.icis.com 34

35 Power Purchase Agreements (PPAs) PPAs de-risk projects by locking in long-term prices We are starting to see the first PPAs signed for RES projects in Spain Corporate Wholesale reseller PPA copyright 2018 ICIS analytics.icis.com 35

36 GW Power Purchase Agreements (PPAs) PPAs de-risk projects by locking in long-term prices We are starting to see the first PPAs signed for RES projects in Spain The question is whether there will be enough demand for PPAs to enable large-scale subsidy-free rollout? Spain is likely to set up a trading platform for PPAs European corporate PPA demand vs. Spanish RES capacity requirements Source: ICIS/WindEurope European RES capacity sourced through PPAs RES required p.a (29.7%) RES required p.a (32%) copyright 2018 ICIS analytics.icis.com 36

37 /MWh Minimum price floors The implicit floor price from the previous auctions is of questionable relevance If merchant projects struggle to obtain financing on sign PPAs, the government may have to rethink this model Will they introduce a higher floor price to improve project bankability? Recent minimum prices vs. forward curve and price uncertainty /- 2 p.a. Forward curve Wind price floor Solar price floor Source: ICIS copyright 2018 ICIS analytics.icis.com 37

38 /MWh Minimum price floors The implicit floor price from the previous auctions is of questionable relevance If merchant projects struggle to obtain financing on sign PPAs, the government may have to rethink this model Will they introduce a higher floor price to improve project bankability? Recent minimum prices vs. forward curve and price uncertainty /- 2 p.a. Forward curve Wind price floor Solar price floor Source: ICIS copyright 2018 ICIS analytics.icis.com 38

39 Conclusion: Is the Spanish case a forerunner for the rest of the EU? Subsidy-free projects are beginning to emerge in a number of EU member states However, Spain will be the first EU country to attempt to roll out subsidy-free capacity at scale Spain will therefore provide a test case to the rest of the EU as to what is possible Investor appetite for risk given market price uncertainty will remain the greatest challenge going forward Given the quantity of capacity that needs to come online to meet targets, the government will need to provide better terms than those on offer in the recent auction copyright 2018 ICIS analytics.icis.com 39

40 Contact information Matthew Jones Senior Analyst EU Power and Carbon Markets Anise Ganbold Senior Analyst EU Power and Carbon Markets ICIS Power Perspective is an online tool designed to put power market developments into perspective regarding their price impact Our experts analyse the cross-border impact of national developments and provide you with a roadmap of market drivers throughout Europe ICIS Power Horizon features a power price forecast for the EU 28 as well as underlying data on demand, supply and cross-border flows Our regularly-updated model forecasts hourly prices up to 2040, building on our strength in forecasting carbon, renewables and changes in supply and demand copyright 2018 ICIS 40

ICIS Power and Carbon Analytics Translating market developments and regulatory changes into their price impact Pan-European power and carbon price forecasts Ad-hoc scenario analysis whenever market

41 ICIS Power and Carbon Analytics Translating market developments and regulatory changes into their price impact Pan-European power and carbon price forecasts Ad-hoc scenario analysis whenever market conditions change Foresee risks and spot profitable opportunities. Fast. Find out more Speak to us to find out more Tel:

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