© OECD/IEA 2010

Renewable Energy Financing An IEA Perspective

Amb. Richard H. Jones Deputy Executive Director International Energy Agency

REFIP 2012, Vienna, 31 May 2012

© OECD/IEA 2010

Recent trends - Electricity

Wind Bioenergy Solar PV Hydro other

Generation

2010 [TWh] 338 296 31 3503 74

CAGR 2005-

2010 [%] 26.5% 8.8% 50.8% 3.1% 4.6%

© OECD/IEA 2010

…and in Heat and Transport

• 3% share of road

transport

• Grew at 26% per

year in average

• Growth focussed

in Brazil, US, EU

• Rapid growth in

solar water heating

• Focused mainly

in China

0

10

20

30

40

50

60

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

Mto

e

Brazil bioethanol US bioethanol

EU-27 biodiesel RoW biofuels

0

50

100

150

200

GW

th

Rest of world China

© OECD/IEA 2010

Costs are falling

Growing deployment has led to cost reductions in key technologies

Hydro and some geothermal already cost-competitive

New technologies such as wind onshore and biomass are competitive in a broader set of circumstances

Data from Breyer and Gerlach, 2010

< 1976

< 1980

< 1990

< 2000

< 2010

1

10

100

1 10 100 1 000 10 000 100 000

PV

Mo

du

le P

ric

e (

US

D 2

01

0/W

p)

Cumulative capacity (MW)

Learning Rate: 19.3%

PV still expensive but 19% cost reduction for each capacity doubling; parity with retail prices in the next five years in countries with high insolation and electricity prices

© OECD/IEA 2011

Low-carbon power technologies come of age

Global installed power generation capacity in the New Policies Scenario

Renewables account for about half of all the new capacity added worldwide through to 2035

Nuclear additions

Renewable additions

Fossil-fuel additions

Existing 2010 capacity

0

2 000

4 000

6 000

8 000

10 000

2010 2015 2020 2025 2030 2035

GW

© OECD/IEA 2011

Going green comes at a price

Investment in new power plants and infrastructure in the New Policies Scenario

Renewables make up 60% of investment in new power plants, led by wind, solar PV & hydro, even though they represent only half of the capacity additions

2011-2035: $16.9 trillion

© OECD/IEA 2010

Impact of Capital Costs on Levelised Costs of Electricity

The financing regime is key for RE economics

Note: Simplified calculation for illustration. Assumptions: Gas: 800 USD/kW; annual O&M: 2.5% of capex; FLH: 5000 h/y; 8 USD/Mbtu; 50% thermal efficiency Wind: 2200 USD/kW; 2.5% O&M; 3000 h/y PV: 3000 USD/kW; 1% O&M, 1500 h/y

0

5

10

15

20

25

30

0% 5% 10%

ct

US

D/k

Wh

Cost of Capital

PV

Wind

CC Gas

© OECD/IEA 2010

Cost of capital and risk

Interest rates also depend on risks perceived by investors, influenced by:

1. General economic framework

Large spreads in interest rates among countries

2. Technology risk

RE encompass a wide range of technologies at different stages of maturity

3. Policy risk

Stability of country policy frameworks over time

© OECD/IEA 2011

Policy Schemes and Financing Interact

Different policy instruments yield qualitative differences in financial flows: Certificate Schemes

Generators under a certificate scheme are exposed to volatile prices for certificates and wholesale power

Feed – In Schemes Under a classical FIT, cash flows are very stable and predictable

Different risk/return profiles attract different investors Like returns on government bonds, FIT cash flows

are predictable and well suited for institutional investors

© OECD/IEA 2011

Policy Impact and Cost-Effectiveness

Comparative assessment in OECD, BRICS and other DCs

Example - Wind on-shore:

Leading countries (e.g. DE, DK, PT, SP) have predictable incentives - mostly FITs/FIPs - and good overall policy framework

Some countries using TGCs (IT, UK) show good

deployment but at higher support costs

Non-economic barriers can hamper any kind of support (e.g. in JP and GR)

It is the overall policy framework that matters

© OECD/IEA, 2012

Best-Practice Policy Principles

1. Predictable RE policy framework, integrated into overall energy strategy

2. Portfolio of incentives based on technology and market maturity

3. Dynamic policy approach based on monitoring of national and global market trends

4. Non-economic barriers must be tackled

5. System integration issues must be addressed

© OECD/IEA, 2012

Fully mature

Evolving RE Markets and Policies

Mat

uri

ty L

eve

l & D

ep

loym

en

t

Time

Solar PV

CSP

geothermal

Take-off Consolidation Inception

Hydro

Wind on-shore

• With growing maturity level, policies need to evolve and increasingly expose investors to market risks

Wind off-shore

Ocean

RD&D policies

Predictable technology-specific

incentives

Technology-neutral policies (e.g. C-pricing)

Low-risk High-risk

© OECD/IEA 2010

One “size” does not fit all!

Investor type depends on risk profile

Technology risk

Project-specific risk

Example

RE

Technology

Technology

Risk

Policy /

Deployment

Phase

Typology of

investors

Ocean Very High Inception VC-PE

CSP

Wind offshore

High Take-off ?

Funding gap

PV

Wind onshore

Low Take-off Asset /

Project

Financing

Hydro Low Consolidation Very Large /

Consortia

© OECD/IEA 2010

Size and time matter

RE projects come at very different sizes and investment levels and risks

Lead times for project construction also widely differ

The difference in scale will yield different types of investors and financing products

From home owners to very large investors and consortia.

5 kW PV rooftop 500 MW wind

off-shore

10 GW

large hydro

10 k EUR 1.75 bl EUR 15-20 bl USD

© OECD/IEA 2010

Emerging Financing Sources

Development banks and export credit agencies are increasingly key sources

New institutional and non-traditional investors gradually more active in renewable finance

Pension, infrastructure, sovereign wealth funds; insurance companies; non-utility corporations

New financial innovations emerging

e.g. third-party leasing schemes for small-scale PV

However, new investors have different risk profiles

More experience and time needed

Only gradual impact on markets

© OECD/IEA 2010

Conclusions

Very significant growth of renewables in all IEA scenarios, particularly in the power sector

Investment needed in the 5-10 trillion USD scale by 2035

Different technologies will attract different investors depending on their maturity level and perceived risks

Policies can play a major role in reducing risk for investors

But can be a source of risk themselves

Need to evolve over time