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Aspects of Climate Change and Environmental
Policies
Consequences for the Industrial Energy
Consumers in Germany and the EU
Sept. 14, 2005
AEM-SVSE Conference, Prague
Dr. Annette Loske
VIK Verband der Industriellen Energie- und Kraftwirtschaft
German Federation of Industrial Energy Consumers
IFIEC Europe
Chairwoman of WP Climate and Efficiency
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VIK Verband der Industriellen
Energie- und Kraftwirtschaft e. V.

Federation of intensive industrial energy consumers (member companies
primarily from sectors, in which energy costs really matter like chemicals,
steel, non-ferrous metalls, glass, paper, cement etc.)

VIK membership represents about 80 percent of the German industrial
energy consumption

Representative for the interests of the members towards the policy, the
administration, the economy and the legislation in Germany and the EU

Consultant for the member companies in all energy, environmental and
water related issues

Member if IFIEC Europe – the European federation of industrial energy
consumers
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AGENDA

Climate Change Policy
 The EU Emissions Trading Scheme - Its Impact on the
Electricity Price

Renewable Energies Policy
 The Consequences for Industrial Energy Consumers
3
Industrial Energy Users‘ warning about the
threat of excessive price effects from EU ETS
Mechanism: The inherent flaw
Effect: Excessive price effect
4
Electricity Price Development
since start of EU ETS
Price Development for Electricity Futures
at the German Power Exchange EEX
44
43
42
41
40
€/MWh
39
38
37
36
35
34
33
32
31
Jan
04
Feb März April Mai Juni Juli Aug Sept Okt Nov Dez
04
04
04
04
04
04
04
04
04
04
04
2005
2006
2007
2008
Jan Feb März April Mai Juni Juli Aug
05
05
05
05
05
05
05
05
2009
2010
2011
5
25
.
01 10.2
. 0
08 11.2 04
. 0
15 11.2 04
. 0
22 11. 04
. 20
29 11.2 04
. 0
06 11.2 04
. 0
13 12.2 04
. 0
20 12.2 04
. 0
28 12. 04
. 20
05 12.2 04
. 0
12 01.2 04
. 0
19 01.2 05
. 0
26 01.2 05
. 0
02 01. 05
. 20
09 02.2 05
. 0
16 02.2 05
. 0
23 02.2 05
. 0
02 02.2 05
. 0
09 03. 05
. 20
16 03.2 05
. 0
23 03.2 05
. 0
01 03.2 05
. 0
08 04.2 05
. 0
15 04. 05
. 20
22 04.2 05
. 0
29 04.2 05
. 0
09 04.2 05
. 0
17 05.2 05
. 0
24 05. 05
. 20
31 05.2 05
. 0
07 05.2 05
. 0
14 06.2 05
. 0
21 06. 05
. 20
28 06.2 05
. 0
05 06.2 05
. 0
12 07.2 05
. 0
19 07.2 05
. 0
26 07. 05
. 20
02 07.2 05
. 0
09 08.2 05
. 0
16 08.2 05
. 0
23 08.2 05
. 0
30 08. 05
.0 20
8. 05
20
05
€/t
Price Development on the
CO2-Certificates-Market
EEX CO2 - Index
30,00
27,50
25,00
22,50
20,00
17,50
15,00
12,50
10,00
7,50
5,00
Tagesnotierung Index
Monatsdurchschnitt Index
A. Loske 02.09.2005
6
Baseload Electricity Contract in 2006
CO2-Certifikatsprice
22.08.2005
08.08.2005
25.07.2005
11.07.2005
27.06.2005
36
13.06.2005
30.05.2005
16.05.2005
29.04.2005
15.04.2005
01.04.2005
16.03.2005
02.03.2005
16.02.2005
02.02.2005
46
19.01.2005
05.01.2005
20.12.2004
06.12.2004
22.11.2004
08.11.2004
48
Correlation between Electricity
and CO2-Certificates-Prices
42
40
20
38
15
Correlation: 0,98
32
30
CO2-Certificatesprice, €/t
25.10.2004
Electricity Price, €/MWh
Is there a link?
35
30
44
25
10
34
5
0
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The major flaws in the EU ETS - 1
Electricity Price Increases provide Windfall Profits for the Electricity
Industry
 Quantity:
 RWE Trading: 1 € price increase in CO2-market leads to at least 0.49 €
electricity price increase
price increase since start of EU ETS about 16 €/t:
about 8 €/MWh price effect on electricity price
 RWE – Harry Roels: 16 million t CO2 certificates purchase need per year,
i.e. cost of 350 million € at 22 € per t CO2,
about 1.8 €/MWh real cost from EU ETS for RWE
„The important point is not the windfall profit for utilities, but the other
side of this coin – the windfall loss for electricity intensive industries
that compete globally“ (analyst from Markedskraft)
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The major flaws in the EU ETS - 2
Freezing Market Shares – Conflict with Competition Rules
 When incumbent players are granted allowances based on
grandfathering, i.e. their historical market share, any new player seeking
market share will:
 cause to his competitor retaining revenues for allowances not used,
and
 have to buy the allowances necessary for his production.
 Significant disadvantages for potential “winners” and significant
advantages for potential “losers”
Missing Stimulation of Investment into CO2 Emissions Reduction
Measures
 negative consequences from reduction measures within the scheme in the
form of less allowances granted in future
 polluter-earns-principle consequence of the current ET regime
 EU ET scheme reason for inactivity regarding climate change measures
within industry
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An Alternative Approach
Option of an output related CO2 emissions regime, granting allowances ex
post adjusted, i.e. only depending on actual production based on a
relevant performance standard
(at least or in the first step: for electricity industry)
 Opportunity cost principle would not apply, since the opportunity “to use or to
sell” would not exist.
 The situation for the electricity producers changes from:
 if electricity is produced and delivered, the relevant amount of allowances can
not be marketed (in the present ex ante cap and trade system), to
 only if electricity is produced and delivered, the free amount of allowances
resulting from better efficiency can be marketed.
 Allowances could be marketed only in case of a CO2 efficiency level higher
than the established performance standards.
 Output related system really gives incentives for CO2 improvement measures and
rewards the more efficient player in the market. The polluter pays-principle is
followed.
 No freezing of market share. New entrants with more efficient technologies not
hindered but rewarded by exceeding certificates compared to the benchmark
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Correcting the failures of the
EU Emissions Trading Scheme
Not only cosmetics and minor changes to the system for the
next trading period !
Healing the major flaws of the system urgently !
Otherwise EU ETS has no chance to be accepted by others and
to be exported to other parts of the world !
Urgent action needed:
Current monitoring process
New NAPs for 2008 – 2012 to be presented mid 2006
Pressure from ÉU Member States is needed!
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The Failure of the EU ETS and the Market
Power in the Electricity Market
Thesis: Only in a market without functioning competition, the
companies can really price in the EU ETS opportunity costs!
 VIK has launched a complaint at the Federal Cartel
Office to investigate a potential abuse of market power in
the area of electricity prices and CO2-opportunity costs
 Federal Cartel Office has opened an official investigation
against RWE and E.on
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AGENDA

Climate Change Policy
 The EU Emissions Trading Scheme - Its Impact on the
Electricity Price

Renewable Energies Policy
 The Consequences for Industrial Energy Consumers
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1997 (Basis Year of EU Dir.)
2002
2003
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an
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Fr
an
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G
er
m
an
y
G
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e
H
un
ga
ry
Ire
la
nd
Percent of Consumption
Renewable Energies in the EU
Volume Development
80
70
60
50
40
30
20
10
0
2010 Target acc. To EU Dir.
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Implementing the EU Directive
National measures installed with the objective to meet the targets
Often financed through surcharge on electricity price
In the meantime: in most of the EU Member States special regimes
for energy intensive industrial comsumers
However: Financial burden for industrial consumers stays
 Substantial
 Unequal
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Renewable Energies in the EU
The Cost Burden for Industrial Consumers
Direct RES Surcharges on the Electricity Price for Industrial Consumers, 2004
13
12
11
10
9
7
6
5
4
3
2
1
50 GWh/a
100 GWh/a
150 GWh/a
U
K
ed
en
Sw
nd
s
N
et
he
rla
ly
Ita
m
an
y
G
er
nc
e
Fr
a
nd
Fi
nl
a
k
ar
D
en
m
R
ep
.
C
ze
ch
um
B
el
gi
tr
ia
0
A
us
€/MWh
8
Source: IFIEC Europe Survey 16
The German Situation
Development of RES Surcharge
Based on German feed-in tariff system
German Hardship Regime
4,50
1,00
Erhöhung (VDN) [ct/kWh]
Weitergabe an Endkunden [ct/kWh]
3,60
3,50
1,50
0,31
0,28
2,16
2,02
3,05
3,21
2,68
0,60
0,61
0,55
0,56
0,48
0,50
0,47
0,46
0,80
0,70
0,50
0,51
0,47
0,40
0,43
0,39
0,37
0,34
0,22
0,70
0,69
2,74
0,53
2,30
0,45
0,41
2,00
0,39
2,01
2,00
2,66
2,50
2,39
0,63
2,80
0,66
3,00
ct/kWh
0,90
0,83
0,79
3,33
Rechn.
0,91
3,48
4,21
ct/kWh
4,00
0,93
[ct/kWh]
3,47
Quartalspreis EEX-Base
0,34
0,36
0,30
0,29
1,00
0,20
0,22 0,21
0,21
0,17
0,50
0,10
Q2 - 2005
Q1 - 2005
Q4 - 2004
Q3 - 2004
Q2 - 2004
Q1 - 2004
Q4 - 2003
Q3 - 2003
Q2 - 2003
Q1 - 2003
Q4 - 2002
Q3 - 2002
Q2 - 2002
Q1 - 2002
Q4 - 2001
Q3 - 2001
Q2 - 2001
0,00
Q1 - 2001
0,00
Hardship Regime
Reduction
1st Regime: Since July 2003:
consumption > 100 GWh and share of
electricity costs at least 20 percent of the
gross value added
(“Bruttowertschöpfung”)
reduced rate of 0.5 €/MWhfor
consumption beyond 100 GWh
2nd Regime: Since Jan. 2005:
consumption > 10 GWh and share of
electricity cost at least 15 percent of gross
value added
reduced rate of minimum 0.5 €/MWh
for 90 % of consumption or for 100 % with
the criteria of 1st regime; rate calculated
based on a maximum of 10 percent
surcharge increase for the other
consumers, resulting in fact in about
0.11Ct/MWh in 2005
59 TWh (about 25 percent of industrial
electricity consumption) benefit from 2nd
special regime
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Renewable Energies in the EU
The Cost Burden for Industrial Consumers
These direct costs are only one part of the burden package
 Further environmentally founded surcharges
Examples:
 Austria: CHP surcharge 1.5 €/MWh
 Denmark: CHP surcharge of 5.3 €/MWh for first 100 GWh/a
 Germany: CHP surcharge of 0.5 or 0.25 €/MWh and Ecotax of 12.3 €/MWh
(partial recompensation)
 Finland: Energy tax 4.2 €/MWh
 France: CSPE Package (public service obligation and environmental
purposes) 4.5 €/MWh
 Necessary grid investments and reserve capacity requirements
 Dena grid study in Germany: 850 km additional TS lines necessary till 2015 –
1.1 billion € investment leading to 3.6 to 4.6 €/MWh for non-privileged
consumers and 1.5 €/MWh for priviledged consumers
 Much more investment with start of off-shore wind program beyond 2015
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Conclusions
Electricity is an important production input in manufacturing
industries
Financial burdens put on it means a significant distortion in the
competitiveness
Achievement of the EU Lisbon Strategy („more and better jobs
in a more dynamic, innovative and attractive Europe“) is only
possible with a sound EU industrial basis
EU industry‘s high efficiency standards in manufacturing must
be understood as a major contribution to the EU‘s climate
change policy but not as a threat to it!
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For further questions:
Dr. Annette Loske
VIK Verband der Industriellen Energie- und Kraftwirtschaft e.V.
Richard-Wagner-Straße 41
D-45128 Essen
Tel.: ++49-201-810 84-22
FAX: ++49-201-810 84-30
E.Mail: [email protected]
Internet: www.vik.de
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