IEEJ: January 2013 All Right Reserved

Challenges for the Growth ofRenewable Energy Markets
Paolo FranklHead, Renewable Energy DivisionInternational Energy Agency
IEEJ Seminar, 22 January 2013, Tokyo© OECD/IEA 2013

IEEJ: January 2013 All Right Reserved

Today’s Contents
 Overview of global energy markets
 Projection of renewables market in Asia Japan’s challenges for deploying renewables
 Grid integration of variable renewables
 Conclusions© OECD/IEA 2013

IEEJ: January 2013 All Right Reserved

Today’s Contents
 Overview of global energy markets
 WEO 2012
 1st Medium‐term RE Market Report 2012
 Projection of renewables market in Asia Japan’s challenges for deploying renewables
 Grid integration of variable renewables
 Conclusions© OECD/IEA 2013

IEEJ: January 2013 All Right Reserved

The context
 Foundations of global energy system shifting Resurgence in oil & gas production in some countries
 Retreat from nuclear in some others Signs of increasing policy focus on energy efficiency
 All‐time high oil prices acting as brake on global economy
 Divergence in natural gas prices affecting Europe (with prices 5‐times USlevels) and Asia (8‐times)
 Symptoms of an unsustainable energy system persist
 Fossil fuel subsidies up almost 30% to $523 billion in 2011, led by MENA CO2 emissions at record high, while renewables industry under strain Despite new international efforts, 1.3 billion people still lack electricity© OECD/IEA 2012

IEEJ: January 2013 All Right Reserved

A power shift to emerging economies
Change in power generation, 2010‐2035
CoalGasNuclearRenewables

ChinaIndia
United States
European UnionJapan‐1 0000TWh

1 000

2 000

3 000

4 000

5 000

6 000
TWh

The need for electricity in emerging economies drives a 70% increase in worldwide
demand, with renewables accounting for half of new global capacity© OECD/IEA 2012

IEEJ: January 2013 All Right Reserved

Outlook for renewables
Shares of renewables in different scenarios

IEA, WEO 2012
© OECD/IEA 2012

IEEJ: January 2013 All Right Reserved

The multiple benefits of renewables
come at a cost
Global renewable energy subsidies
Billion $250
Biofuels:
2011‐2035$1 200 billion

$200
$150
$100

Electricity:
2012‐2035
Existing capacity$2 600 billion$50$960 billion
20112015

2020

2025

2030

2035

Renewable subsidies were $88 billion in 2011; over half the $4.8 trillion required to2035 has been committed to existing projects or is needed to meet 2020 targets© OECD/IEA 2012

IEEJ: January 2013 All Right Reserved

RE Market Report Analytical Framework
Japan example

 Generation and capacity

forecast based on ‐
 Power demand Power sector structure Grid and system integration
 Economic attractiveness Financing
 Policy framework
robustness

1 100

Y-o-Y
Chg
8%

1 050

4%

1 0000%950-4%

TWhPower demand vs GDP

900200520082011

DemandGDP, Y-o-Y (RHS)

TWh-8%
2017

2014

Demand, Y-o-Y (RHS)

Power generation

1 200

 Identify drivers andchallenges forrenewabledeployment

800
40002005
CoalNuclearWind2006

2007

2008

OilHydroSolar PV2009

2010

2011

Natural gas
Bioenergy
Geothermal© OECD/IEA 2012

IEEJ: January 2013 All Right Reserved

Growth in renewable power is forecast
to accelerate Hydropower remains the main renewable power source (+3.1% p.a.) Non‐hydro renewable sources grow at double‐digit annual

percentage rates (+14.3% p.a.)TWh7 000

Global renewable electricity production and forecast6 000
5 000
4 000
3 000
2 000
1 00002005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Hydropower

Wind onshore

Bioenergy

Solar PVGeothermalWind offshore

CSPOcean© OECD/IEA 2012

IEEJ: January 2013 All Right Reserved

Growth is led by non‐OECD countries
 Non‐OECD accounts for two‐thirds of the overall growth China, Brazil, India lead; others grow significantly as well

 OECD growth still largely driven by Europe but Americas

and Asia‐Oceania make significant contributions
TWhGlobal renewable electricity production and forecast

7 000
6 000
5 000
4 000
3 000
2 0001 00002005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
OECD Americas

OECD Asia-Oceania

OECD EuropeChinaBrazilIndia

Rest of non-OECD© OECD/IEA 2012

IEEJ: January 2013 All Right Reserved

Non‐hydro technology deploymentspreads out Number of countries with cumulative capacity larger than 100MW(can cover consumption of 100k households) increases significantly
 Growth areas include Asia, Africa, Latin America and the Middle East
Number of countries with installedcapacity above 100 MW

80Non-OECDOECD604020

OnshorewindOffshore
windBioenergy

Solar PV

CSP

Geothermal201720112005

2017

2011

2005

2017

2011

2005

2017

2011

2005

2017

2011

2005

2017

2011

2005

2017

2011

2005

0Ocean© OECD/IEA 2012

IEEJ: January 2013 All Right Reserved

Today’s Contents
 Overview of global energy market
 Projection of renewables market in Asia Japan’s challenges for deploying renewables
 Grid integration of variable renewables
 Conclusions© OECD/IEA 2012

IEEJ: January 2013 All Right ReservedOECD Asia‐Oceania growth mostly in solar PV
 Japan grows (mostly solar PV) under generous FiTs anduncertain nuclear situation
 Australia’s growth is centered around wind and solar PV New Zealand continues its steady growth Korea and Israel grow from a low base
TWh300Japan power generation by share, 2011

OECD Asia-Oceania forecast renewablegeneration

100%
90%

250

80%
70%

20060%
150

50%
40%

100

30%
500
2011

20%
10%
2012

HydropowerGeothermal

2013Wind onshore
Wind offshore

2014

2015
Bioenergy
CSP

2016
Solar PV
Ocean

2017

0%
2010

Jan 11

NuclearMar 11

May 11

Combustible Fuels

Jul 11

Sep 11
Hydro

Nov 11Other© OECD/IEA 2012

IEEJ: January 2013 All Right Reserved

ASEAN a significant source of other Asia growth Geothermal expands in Indonesia and the Philippines
 Significant hydropower additions expected in Vietnam
 Thailand continues to grow a portfolio of renewable powersources – biomass, biogas, waste‐to‐power, solar PV, windGW
16

Global geothermal capacity forecast

14
12
10
8
6
4
20
2011
USA

2012
Philippines

2013
Indonesia

2014

2015
Mexico2016
New Zealand

2017
RoW

© OECD/IEA 2012

IEEJ: January 2013 All Right Reserved

China accounts for 40% of global growth Drivers:

 Challenges:

 Growing energy needs
 Diversification
 Government targets
 Ample low‐cost finance Robust manufacturing
TWh
1 800

 Pricing framework
 Priority dispatch Grid upgrades Prohibitive licensing forsmall‐scale systems

China forecast renewable generation
 Challenges:

1 500
1 200
900
600
300

China power demand vs GDP growth

TWh8 000

 Pricing framework
 Priority dispatch Grid upgrades Prohibitive licensing forsmall‐scale systems

Y-o-Y
Chg
18%
16%
14%

6 000

12%
10%
4 000
8%
6%
2 000

4%
2%

0
2011
Hydropower

2012

2013

2014

2015

2016

Wind onshore

Bioenergy

Solar PV

Wind offshore

2017
CSP02005
Demand2008

2011
Demand, Y-o-Y (RHS)

20140%
2017
GDP, Y-o-Y (RHS)© OECD/IEA 2012

IEEJ: January 2013 All Right Reserved

Today’s Contents
 Overview of global energy market
 Projection of renewables market in Asia Japan’s challenges for deploying renewables
 A specific focus on solar PV Grid integration of variable renewables
 Conclusions© OECD/IEA 2012

IEEJ: January 2013 All Right Reserved

Japan’s Power Sector: Renewables & energy
efficiency leading the charge

TWhJapan electricity generation by source
1 200Renewables

1 000

OilNuclear800Gas
Coal600
400
20001990

1995200020052010

2015

2020

2025

2030

2035

A decline in nuclear is compensated by a 3‐fold increase in electricity fromrenewables, a continued high reliance on LNG imports & improvements in efficiency© OECD/IEA 2012

IEEJ: January 2013 All Right Reserved

Japan grows strongly under uncertain nuclear
situation and new feed‐in tariff policy
TWh Drivers:
 Uncertainties about
nuclear restart New feed‐in tariffs
 Good match of solar PV
for shaving peak load

 Challenges:
 Power systemfragmentation
 Relatively high capitalcosts of renewable energy
 Location of wind andgeothermal resources far
from demand centres

Japan forecast renewable generation

180160140120
1008060402002011

2012

2013

2014

2015

2016

2017

Hydropower

Bioenergy

Solar PV

Wind onshore

GeothermalWind offshore

Japan power generation by share, 2011
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%0%
2010

Jan 11

NuclearMar 11

May 11

Combustible Fuels

Jul 11

Sep 11
Hydro

Nov 11Other© OECD/IEA 2012

IEEJ: January 2013 All Right Reserved

Solar PV ‐ from volatility to smoother growth Short term volatility and slowing growth in Europe•

In some markets, cost reductions outpaced incentive reductions

 Japan’s high incentives could cause deployment to surge tounsustainable levels if incentives are not adjusted overtime
GW

Annual capacity additions , solar PV

25201510502010

2011
OECD AO2012OECD AM2013

2014

OECD EUR

2015
China

2016

2017

Rest of non-OECD© OECD/IEA 2012

IEEJ: January 2013 All Right Reserved

Ongoing Issues for PV
 Impact on electricity

bills in some countries

Supply in 2011
(Manuf. Capacity 55 GW)

 German EEG‐surcharge

will increase 45% in2013
 But likely to stabilise
from 2014 on Emerging tradedisputesDemand in 2011
(New Installations 30GW)

 Imbalance is smaller ifwhole value chain istaken into account© OECD/IEA 2012

IEEJ: January 2013 All Right Reserved

PV Module Prices
Short-term siliconshortage

Sustainable price
Lowest market price Technology improvements and economies ofscale drive sharp cost reduction
 Overcapacity leads to price setting below costs© OECD/IEA 2012

IEEJ: January 2013 All Right Reserved

2012 PV Market stronger than expected Another >7 GW year in Germany
 Italy slows down but less than expected, other markets accelerate Cumulative world capacity around 100 GW© OECD/IEA 2012

IEEJ: January 2013 All Right Reserved

Today’s Contents
 Overview of global energy market
 Projection of renewables market in Asia Japan’s challenges for deploying renewables
 Grid integration of variable renewables
 Conclusions© OECD/IEA 2012

IEEJ: January 2013 All Right Reserved

A power system perspective is important Variability and uncertainty are not new But at high shares (of VRE) the challenge will be considerable
DemandResidual demand Residual demand shape is irregular (particularly wind, wave)© OECD/IEA 2011

IEEJ: January 2013 All Right Reserved

Grid Integration of Variable Renewables(GIVAR)
 2011: IEA publishedtechnical assessment ofintegration
 Key points:
 Feasible share of variable RE
depends on system flexibility;
no principle ceiling Technical assessment ofpower system flexibility basedon case studies

 New phase: Refined definition offlexibility
 Assess Economics of Flexibility© OECD/IEA 2012

IEEJ: January 2013 All Right Reserved

Flexibility is key
There are 4 flexible resources

Dispatchable
power plants

Demand sideResponse(via smart grid)

Energy storage
facilities

Interconnection
with adjacentmarkets

Source: IEA Harnessing Variable Renewables 2011

Industrial

A biomass‐fired
power plant

residential

A pumped hydrofacility

Scandinavian
interconnections© OECD/IEA 2012

IEEJ: January 2013 All Right Reserved

GIVAR
Snapshot of present penetration potentials© OECD/IEA 2011

IEEJ: January 2013 All Right Reserved

GIVAR III Scope & Objectives
GIVAR III
Publication
MarketMarket design
designandand policy
policyrecommendations
recommendations
VariableVariable RERE
ImpactImpactAnalysisAnalysis

Flexible
Flexible
ResourcesResources
AnalysisAnalysis
Case
Case StudiesStudies•• Market
Market review
review•• Quantitative
Quantitative
methods
methods© OECD/IEA 2012

IEEJ: January 2013 All Right Reserved

Case Study Regions
PJM,
PJM, ERCOT
ERCOT

China

Inner
Inner Mongolia
Mongolia

ES&PT

India

Tamil
Tamil Nadu
Nadu forfor
wind,
wind, Rajasthan
Rajasthan forfor
solar
solar

Japan

NW
EuropeUS

NOR,NOR, DNK,DNK, SWE,SWE,FIN,FIN, DEU,
DEU, GBR,
GBR, IRL,
IRL,
FRA
FRA

© OECD/IEA 2012

IEEJ: January 2013 All Right Reserved

Revised FAST ToolOutput

Input
Flexible Resources
Flexible
Generation

Interconnection

Storage

DSM

Variable Resources

WindWind and solar
statistics

FAST2.0

Net load
statistics

Penetration /curtailment
curvesSolarLoad

Start-up ofconventionalunits© OECD/IEA 2012

IEEJ: January 2013 All Right Reserved

Relevance for Japan Grid integration of renewables will be key issue

with growing shares of v‐RE
 IEA analysis brings together expertise fromleading institutions world wide
 Co‐operation could be very fruitful:
 Benefit from international best practice Help the IEA to better understand the situation inthe Japanese system, which is an important andspecial case

© OECD/IEA 2012

IEEJ: January 2013 All Right Reserved

Today’s Contents
 Overview of global energy market
 Projection of renewables market in Asia Japan’s challenges for deploying renewables
 Grid integration of variable renewables
 Conclusions© OECD/IEA 2012

IEEJ: January 2013 All Right Reserved

Is renewable energy under pressure?
 In the short term, there are pressure indicators, particularlyin the most dynamic segments: solar PV and wind
 Challenging macroeconomic and financing conditions
 Policy uncertainty, (e.g. stop‐and‐go decision making) in some key markets
 Economic incentives cut in some markets
 Market competition from other energy sources, particularly gas in the US
 Industry upheaval and integration challenges

 In the long term, larger integration issues to emerge
 Renewables becoming more competitive over time Market design reforms needed for high penetrations of low marginal cost,variable renewables into power systems

 Yet, the overall renewable outlook is quite positive Robust fundamentals and drivers remain; huge long‐term potential of RE
 Outlook will depend on policy robustness© OECD/IEA 2012

IEEJ: January 2013 All Right Reserved

Policy messages
 Clarity, predictability and a long‐term orientation of RE

policy frameworks are keys to maintaining investment
 Policymakers should avoid stop‐and‐go decision making, which cancause investment to stall These frameworks should focus on the whole portfolio ofrenewables (incl. hydropower, bioenergy, RE heat, etc.)
 Meanwhile, there needs to be increased focus on market

designs that integrate higher levels of renewables in powersystems (both variable and dispatchable)
 A radical turn away from renewables now would be morecostly in the long run in terms of climate costs and energy
import bills© OECD/IEA 2012

IEEJ: January 2013 All Right Reserved

For further insights and analysis…
 The Medium‐TermRenewable Energy
Market Report 2012
online at:www.iea.org
 Thank you for yourattention!
paolo.frankl@iea.org© OECD/IEA 2012

Contact: report@tky.ieej.or.jp