1. PROSPECTS FOR RENEWABLES IN THE NEW MEMBER STATES MSC Anca-Diana Barbu (Carl von Ossietkzy University) Martine Uyterlinde (ECN), Hage de Vries (ECN) World Renewable Energy Congress VIII Denver, 29 August-3September, 2004

2. 2 Presentation outline Implementation of the RES Directive in Europe: lessons learnt from the EU-15; Key factors likely to influence RES development in CEE countries: energy issues, economic and social issues; Admire Rebus model: key features, assumptions and scenarios; Risk factors and their implementation in the model; Model results: technology mix,green electricity trading; Conclusions

3. 3 Implementation of RES Directive: lessons from EU-15 Policies and measures currently in place are not sufficient to meet the RES target in 2010; The main risk in achieving the target is the significant imbalance between the level of commitments among Member States; Main culprits: production of electricity from biomass and sluggish developments in heating and cooling sectors; Fragmentation of European market; Complicated administrative procedures, inadequate local energy planning to include a larger share of RES and opaque grid connection conditions; Implementation of the GOs;

4. 4 New Member States Energy related issues I Ambitious indicative RES targets; Country RES-E (%) 1999 RES-E (%) 2010 Czech Republic 3.8% 8.0% Estonia 0.2% 5.1% Hungary 0.7% 3.6% Latvia 42.4% 49.3% Lithuania 3.3% 7.0% Poland 1.6% 7.5% Slovenia 29.9% 33.6% Slovakia 17.9% 31.0% European Community 12.9% 21.0%

5. 5 New Member States Energy related issues II Need to diversify primary energy sources

6. 6 New Member States Energy issues III Need to increased security of supply Import dependency in 2000 (%) Source: EC(2003) Countries/ fuels All fuelsSolid fuelsOilNat.Gas EU-1549.351.27545.2 NMS29.9-17.49584.3

7. 7 New Member States Energy and environmental issues The issue of overcapacity; The issue of energy efficiency; Climate change commitments; Surplus installed capacity as of 2002 Source: CEU (2003)

8. 8 New Member States Other issues Economic issues High GDP growth rates compared with EU-15; Scarce public budgets; Uncertainty about inflation and exchange rates; Social issues In 1998, one in 5 people lived with under USD2.15 /day in CEE and CIS countries (WB 2002); Inequality (income distribution) and fuel poverty increased over the last decade; The share of energy bill from households disposable income increased; Job losses as a result of economic reforms;

9. 9 Market simulation Policy-based demand for renewable electricity Supply curves based on technology costs & potentials Risk Transaction costs Lead times years TGC Price(s) Technology mix Trade flows scenarios The ADMIRE REBUS model

10. 10 TWh €ct/kWh 0 Supply- and demand curve Bidprice: Feed-in tariff Demand size: potential Bidprice: penalty Demand size: quota Ask price: ‘required green price’ after supply support Size: realisable potential Discrimination by country/ technology

11. 11 Calculations of RES potentials

12. 12 Assumptions Projections for energy consumption: based on EU Energy Outlook to 2030 Electricity prices: assumed to gradually increase from over 3€¢/kWh in 2002 to over 5 €¢/kWh in 2010 thus accounting also for the effect of emissions trading; Technology costs: are assumed to be similar to the ones in the EU-15; decrease over time; Interest rate: 5% Corporate taxation: KPMG corporate tax survey January 2004; for countries not mentioned in the report a rate of 30% has been considered; Debt to equity ratio: 80/20 For quota-based systems: we have assumed a 7€¢/kWh penalty

13. 13 Scenarios Ambition high (EU targets mandatory 2010) Ambition low (EU targets achieved later) FragmentationCo-operation ambition level differs per country Present policies Clustering TGC-countries EU targets / trade 2010

14. 14 Risk factors Political risks (changes in support policies, planning, changes in tax regime, changes in legal framework, state aid rules, relationships with local authorities12 and public opinion, the performance (and mission) of environmental and energy efficiency funds, future fine tuning of climate policies; Market risks (electricity price, increased competition, input fuel price, interest and exchange rates, consider the evolution of gas prices, the continuous change in market structure, SMEs and the performance of financial markets, local banks; Technological risks Impact on project development: Extended project lead times; Higher transaction costs and Fluctuations in project revenue.

15. 15 Possible technology mix by 2010

16. 16 Green electricity trade

17. 17 Minimum required green price in 2010 for small-hydro

18. 18 RGP2010-CHP

19. 19 Conclusions In the short to medium run, investments in developing RES projects in the new member states are likely to depend on the following: Clarity and coherence of various policies (e.g support mechanisms for RES, agriculture, climate change, labour market.); targeted policies will be needed for a wider range of RES technologies; The pace in building capacity on the local level in energy planning, transposing national RES targets into local ones, project financing and technology (including promoting local manufacturing of RES technologies); The soundness of fiscal and monetary policies and the ability of CEE governments to maintain a stable economic and political environment; The availability of innovative financing schemes to allow low income communities to access new technology and energy services. Support to allow SMEs to fill in the technology gap including access to seed, working and development capital and business services;

20. 20 Thank you for your attention Contact information: diana.barbu@uni-oldenburg.de uyterlinde@ecn.nl devries@ecn.nl