Christian Schneller E.ON Netz GmbH, Bayreuth / Germany The German Wind Power Experience – Integrating large Intermittent Generation Capacities in the Electricity Market Christian Schneller E.ON Netz GmbH, Bayreuth / Germany

Agenda Facts & Figures Operational Challenges Economic & Legal Challenges Conclusions Wind Power Integration Christian Schneller, E.ON Netz GmbH

Wind Power Capacity 180,000 inst. cap. [in MW] 70,000 offshore onshore 75,000 10,000 57,000 48,000 30,000 22,096 2007 2010 2020 2006 2010 2020 Germany Europe Sources: dena, EWEA Wind Power Integration Christian Schneller, E.ON Netz GmbH

Wind Power Geography as of Dec 31, 2007 EU 27 56,535 MW Germany 22,096 MW E.ON Netz 8,687 MW D  40 %  17 % Sources: EWEA, ISET Wind Power Integration Christian Schneller, E.ON Netz GmbH

E.ON Netz`s Perspective In 2007 renewables accounted for… 70% of E.ON Netz`s „revenues“ > 150.000 generators in E.ON`s grid zone 20% of gross power consumption within E.ON`s grid zone > 500 km new eHV lines currently in authorization procedures 1/3 der Fläche / 33.500 km Jahreslänge 25.000 MW / 20 Mio. Menschen 1850 Mitarbeiter 4 Mrd. Jahresumsatz Renewables have become a significant operational and economic factor. 380 kV-Lines Wind Power Integration Christian Schneller, E.ON Netz GmbH

Agenda Facts & Figures Operational Challenges Economic & Legal Challenges Conclusions Wind Power Integration Christian Schneller, E.ON Netz GmbH

The wind blows wherever it pleases. You hear its sound, but you cannot tell where it comes from or where it is going. John 3,8 Wind Power Integration Christian Schneller, E.ON Netz GmbH

1st Challenge: Limited Availability… The wind blows when it wants. Back-up Capacity + “Wind Refinement“ Jan Feb Mar April May June July Aug Sept Oct Nov Dec Wind Power Integration Christian Schneller, E.ON Netz GmbH

… requires sufficient Back-up Generation. Back-up Capacity Wind power feed-in 2007 in E.ON grid: 26 MW - 7569 MW „Capacity credit“ of German wind turbines: 8 % (2006) -> 5 % (2020) Sufficient incentives for back-up generation? From NIMBY to BANANA? Extra capacity needed for the UK From Nimby to banana “Refinement” Who is responsible for “refinement”? Wind Power Integration Christian Schneller, E.ON Netz GmbH

2nd Challenge: Limited Predictability… It is hard to tell when the wind will be blowing 500 1000 1500 2000 2500 3000 3500 00:00 h 03:00 h 06:00 h 09:00 h 12:00 h 15:00 h 18:00 h 21:00 h feed-in [MW] forecast wind energy feed-in + 2130 MW Forecast Tools + Balancing Power Example E.ON control area Wind Power Integration Christian Schneller, E.ON Netz GmbH

Forecast of Wind Speed & Direction … requires reliable Forecast Tools & Balancing Power. Backup Forecast of Wind Speed & Direction P1 (t) E.ON Netz Transformation Pges= ΣaiPi + biPi2 + ... P(t) Pn(t) Continual improvement through artificial neuronal networks Forecast error and gradients rise with capacity Will there be sufficient fast reacting generation units? Balancing Power Forecast of wind speed & direction for 39 reference locations day-ahead feed-in prognosis for E.ON grid control area Wind Power Integration Christian Schneller, E.ON Netz GmbH

3rd Challenge: Different Location of Wind & Demand… The wind blows where it wants “Traffic Regulation” + Grid Expansion < 4 m/s 4 – 5 m/s > 5 m/s Wind Power Integration Christian Schneller, E.ON Netz GmbH

…requires „traffic regulation“… Priority Rules 1. RES-E 2. CHP-E 3. New conventional plants 4. „The rest“ Generation Management Tempory feed-in restrictions in case of 100% RES-E Locational Signals Generators in Germany enjoy free access to the grid. RES-E producers get compensation payments for feed-in restrictions !!! Technology Solutions Temperature Monitoring & „hot cables“ Wind Power Integration Christian Schneller, E.ON Netz GmbH

… and Grid Expansion. Overhead Lines or Underground Cables? Up to 2.700 km new/enforced eHV lines needed by 2020 8 years for authorization on average! Overhead Lines or Underground Cables? How to synchronize RES & Infrastructure Development? Source: dena grid study 2005 Wind Power Integration Christian Schneller, E.ON Netz GmbH

Agenda Facts & Figures Operational Challenges Economic & Legal Challenges Conclusions Wind Power Integration Christian Schneller, E.ON Netz GmbH

Give Marketing & “Refinement” Responsibility to Generators RES Promotion: Effectiveness vs. Efficiency I. Feed-in System: „take & pay“ (and refinement) obligation for grid operators – guaranteed demand & fixed price for the generator High investment safety but RES-E generators stay immature II. Green Certificates: price & marketing (and refinement) risk for the generator More efficiency oriented but risk premium increases RES-E subsidies III. Bonus System: marketing risk & refinement responsibility on the generator, limited price risk Possible compromise solution / 1st step towards market integration Give Marketing & “Refinement” Responsibility to Generators Wind Power Integration Christian Schneller, E.ON Netz GmbH

RES-E Integration is a European Task (I) operationally INERNAL ELEMENTS TIE LINES Wind Power Integration Christian Schneller, E.ON Netz GmbH

RES-E Integration is a European Task (II) Norway 333 Finland 110 Estonia 58 Sweden 788 Latvia 27 economically Denmark 3.125 Lithuania 50 Netherlands 1.746 Ireland 805 UK 2.389 Poland 276 Belgium 287 Germany 22.247 Ukraine 89 Czech Rep. 116 Luxembourg 35 Wind Power in 2007 EU: 56.535 MW Total Europe: 57.136 MW Slovakia 6 Austria 982 Switzerland 12 Hungary 65 Romania 8 France 2.454 Croatia 17 Bulgaria 70 Italy 2.726 Portugal 2.150 Spain 15.145 Greece 871 Turkey 146 Source: EWEA Wind Power Integration Christian Schneller, E.ON Netz GmbH

What would be the Court`s position as RES-E Integration is a European Task (III) On March 13th, 2001 the ECJ ruled: The German renewables act hinders trade in electricity and discriminates against foreign market participants; it is yet compatible with the EC Treaty at the „current state of community law“. legally What would be the Court`s position as of September 16th, 2008? Wind Power Integration Christian Schneller, E.ON Netz GmbH 19

The 2nd Renewables Directive… What we associate with European energy regulation is usually not very attractive: - Bureaucracy – think of the energy efficiency directive - Market Interference – remember the proposed investment control in the Commission`s initial draft for the SoS-directive - Excessive reporting obligations – like in the sector inquiry which seems to aim at glassy, fully transparent energy companies. Yes, it does hurt sometimes. However, it was European regulation which lead to liberalization and thus paved the way to European energy markets. In fact, it was European regulation which made E.ON possible – without the Commission we wouldn`t be sitting here together. It doesn`t need a prophet to predict that Brussels will continue to heavily influence the shape of this company. Therefore, I would like to congratulate the organizers for choosing European Regulation as the main topic of our conference today. Wind Power Integration Christian Schneller, E.ON Netz GmbH

Agenda Facts & Figures Operational Challenges Economic & Legal Challenges Conclusions Wind Power Integration Christian Schneller, E.ON Netz GmbH

Regulatory To-Do List Accelerate approval procedures for new eHV lines & clear “traffic rules” to handle congestions Ensure availability of sufficient back-up and balancing power Marketing risk & refinement responsibility should be on the RES generators to allow for innovative solutions in system integration Harmonize European RES promotion & coordinate system development among TSOs (ENTSO) Wind Power Integration Christian Schneller, E.ON Netz GmbH

Keep the balance! Wind Power Integration Christian Schneller, E.ON Netz GmbH

Back-up

CO2-Emissions in % compared to 1990 levels -25 % -50 % -75 % -100 % 25 % 0 % 50 % 75 % 100 % 1990 2000 2010 2020 2030 2040 2050 IEA / OECD + 57% - 5,2 % - 50% - 80-95% - 25-40% Kyoto IEA/OECD – World Energy Outlook (2030) Szenarien: Referenzszenario – Alternativszenario – High Growth - Anstieg Weltbevölkerung um 30% auf > 8 Mrd. Primärenergiebedarf mehr als 50% höher als heute / 87% des Zuwachses fossil / 22 Billionen $ Invest = 22000 Mrd. / E.ON als größter privater Energiekonzern in Europa hat 60 Mrd. € Invest angekündigt, d.h. 3 Promille Anteil Schwellen- und Entwicklungsländer am Energiebedarf: 22-37-47% Anstieg der CO2-Emissionen um 57% von 27 auf 42 Gt, alternative scenario: 25% Treiber: China und Indien 45% des PE-Anstiegs trotz Erwartung deutlich niedrigeren Wachstums China: 3,2% p.a. (1742 Mtoe SKE/2005 -> 3819 in 2030) / Kohleimporteur seit 2007 Bedarf für 1300 GW Kraftwerksleistung bis 2030, d.h. 52.000 MW/a oder jede Woche ein neues großes Kohlekraftwerk – 1000 MW Indien: 62->96% Zugang zu Strom; statt 668 nur noch 470 Mio. Menschen mit „Hausbrand“ Geopolitisch Konzentration Erdölreserven bei OPEC, Russland, Lateinamerika, also Putin, Achmadineschad und Hugo Chavez; daneben Ölsande in Kanada UK seit 2005 Gasimporteur -> Stromwirtschaft wechselt von Gas zu Kohle Stern-Report (2006): -76% compared to bau G8 IPCC Wind Power Integration Christian Schneller, E.ON Netz GmbH

Reducing emissions and maintaining growth implies carbon productivity must increase by ten times Index: 2008 = 1 11 10 9 8 7 6 5 4 3 2 1 2010 2020 2030 2040 2050 Carbon productivity = GDP GHG Emissions Carbon productivity growth required: 5.6 %/a Real World GDP Growth at Current Trends*: 3.1 %/a Kyoto`s focus on reducing absolute CO2-volumes seems to be politically unsustainable Instead: Curb carbon AND sustain growth -> Increase CO2-productivity Concentrate on specific instead of absolute emissions - Balance efforts for curbing climate change & adjustment policies Enable techno innovations & transfer -> R&D / efficient instruments The „Carbon Revolution“ – co2 productivity increase by factor 10 $ 740/t CO2 -> $ 7300/t CO2 by 2050 US labor productivity increased ten fold between 1830 and 1955 What makes a revolution: Innovation: fertilizers, steam machine Institutions: rule of law, private property, Emissions decrease to reach 20 GtCO2e by 2050: 2.4 %/a *Global insight GDP forecast to 2037, extrapolated to 2050 Source: MGI: The carbon productivity challenge Wind Power Integration Christian Schneller, E.ON Netz GmbH

How to make a revolution… ? Index: Year 0 = 1 10 20 30 40 50 60 70 80 90 100 110 120 130 8 6 4 2 Carbon productivity growth required 2008-50 US labor productivity growth 1830-1955 Years Source: MGI: The carbon productivity challenge Wind Power Integration Christian Schneller, E.ON Netz GmbH

EU Draft RES Directive: Trading with guarantees of origin 1 MWh RES-energy Promotion of „green power“ RES-target fulfilment Every new built RES asset Tradable by member states when fulfilling interim targets Trading by companies, but: member states can limit import and export under specific conditions (if security of supply or environmental targets are threatened) counts for the attainment of the national RES-target in country of payment Wind Power Integration Christian Schneller, E.ON Netz GmbH

Solar Power Capacities in 2006 European Union1: 1246 MW Finland <0,1 Estonia <0,1 Sweden 0,7 Latvia <0,1 Denmark 0,2 Lithuania <0,1 Netherlands 0,5 UK 2,8 Poland 0,1 Germany 1153 Belgium 2,1 Czech Rep. 0,2 Austria 5 Slovenia 0,18 France² 6,5 Italy 11,6 Estimation Overseas departments included Source: Photon Portugal 0,5 Spain 60,5 Greece 1,3 Wind Power Integration Christian Schneller, E.ON Netz GmbH

Regulatory Issues Micro – Regulation (Technical) Grid connection rules safeguard stabilizing operational behaviour of wind farms („voltage funnel“) Guaranteed right to grid access - execution requires not even a contract! Building Code – preferential treatment for new RES installations Priority Rule for connection, access & transportation of „green“ power Macro - Regulation Market orientation of the support scheme European Harmonization of RES support How can RES become an Integral Part of the Internal Electricity Market? Wind Power Integration Christian Schneller, E.ON Netz GmbH

Current Renewables footprint: 1,4 GW Sweden Wind Biomethane 584 245 UK Wind Biomass 11 Denmark Wind 18 16 Portugal Wind 6 USA Wind Poland Wind 250 228 123 1,231 Other Biomass Small Hydro Biomethane Biogas Solar Spain Wind Biomass Small Hydro Germany Wind Biomass Biogas Biomethane Wind Q1/2008: 1,354 Installed renewables capacity as of March 31, 2008 [MW] (excluding large hydro) Wind Power Integration Christian Schneller, E.ON Netz GmbH

Development of installed global and EU PV capacity Source: European Photovoltaic Industry Association Wind Power Integration Christian Schneller, E.ON Netz GmbH

Wind power growth in Germany and EU 180,000 inst. cap. [in MW] 70,000 offshore onshore 75,000 10,000 57,000 48,000 30,000 22,096 2007 2010 2020 2006 2010 2020 Germany Europe Sources: dena, EWEA Wind Power Integration Christian Schneller, E.ON Netz GmbH

Forecasting wind power is critical ! Backup Forecast of wind speed & direction for 39 reference locations Day-ahead feed-in prognosis for E.ON grid control area P1 (t) E.ON Netz Transformation Pges= ΣaiPi + biPi2 + ... P(t) Pn(t) Continual improvement through artificial neuronal networks Wind Power Integration Christian Schneller, E.ON Netz GmbH

BACK-UP Different dimensions Three basic problems Technical solutions Regulatory aspects Wind Power Integration Christian Schneller, E.ON Netz GmbH

Sufficient conventional generation remains indispensable Back-up capacity Minimum feed-in 2007 in E.ON grid: 26 MW (max. feed-in: 7569 MW) Calculative „capacity credit“ of German wind turbines: 8 % (2006) -> 5 % (2020) Wind power hardly substitutes conventional capacity Balancing power Forecast error rises with wind power capacity Growing need for balancing power More fast reacting generation units needed Wind Power Integration Christian Schneller, E.ON Netz GmbH

Stochastic feed-in – conversion into supply profiles (I) “Wind energy refinement“ a) Day-ahead balancing between forecast and pre-defined supply profile wind power forecast Pre-defined supply profile „surplus“ „deficit“ day-ahead balancing power Wind Power Integration Christian Schneller, E.ON Netz GmbH

Stochastic feed-in - conversion into supply profiles (II) “Wind energy refinement“ b) Intra-day balancing between prognosis and actual wind power generation wind power generation forecast actual wind power generation „surplus“ Intra-day balancing „deficit“ Wind Power Integration Christian Schneller, E.ON Netz GmbH

Bottleneck Management: Generation Management - an Interim Solution Critical load level Station A B8 B9 C1 T1 T2 B1 B2 B3 B4 B5 B6 C7 C2 B7 1252 123 123 123 123 123 123 123 123 123 123 123 123 123 123 123 123 Control center Reduction signal Signal: feed-in restriction lifted again To avoid critical overload wind farms receive electronic signals to reduce feed-in power Once sufficient capacities are available again operators resume unrestricted feed-in Wind Power Integration Christian Schneller, E.ON Netz GmbH

BACK-UP Different dimensions Three basic problems Technical solutions Regulatory aspects Wind Power Integration Christian Schneller, E.ON Netz GmbH

Key elements of the draft european renewables directive Ambitioned development goals Licenses National support systems and flexibility in target fulfilment through GoO trading In Europe 20% renewables until 2020 Grid access EC&R - June 2008

Key Points of the RES-Directive EU - RES directive E.ON`s Position 20% overall RES target and burden sharing between member states (based on economic capability, not potentials) Effort sharing not based on geographical RES potential, but on flatrate and GDP Introduce limited flexibility via GoO-trade with restricted participation by companies Targets provide long-term framework to establish RES in energy mix Very ambitious targets require efficient use of renewables (boutique to industry) E.ON supports targets by own activities Flexiblity in target fulfillment of member states required GoO-trade appropriate tool RES trade key for cost-efficient EU-wide RES expansion 1st step into right direction, further steps would be full opening of GoO-trade Wind Power Integration Christian Schneller, E.ON Netz GmbH

The flow and transfer of guarantees of origin Governments and others can resell in a secondary market Insurance Producers of renewable energy are entitled to GOs GOs are sold with electricity to TSOs in exchange for the feed-in tariff GOs are sold to TSOs in exchange for the feed-in premium GOs are sold as green certificates to electricity suppliers facing obligations GOs are sold to member state govern- ments GOs are sold to other interested parties (banks, suppliers, traders, NGOs) GOs transferred for tax benefits Transfer Cancellation GOs cancelled by independent body Wind Power Integration Christian Schneller, E.ON Netz GmbH

Aktuelle Diskussion in EU-Parlament und EU-Rat Vorschläge von Turmes und DE/UK/PL E.ON`s Position Herkunftsnachweise (GoOs) wie bisher nur für Vermarktungszwecke Handel auf Unternehmensebene stark erschwert (Turmes) oder abgeschafft (DE/UK/PL) Alternative Flexibilitätsmechanismen auf Ebene der Mitgliedsstaaten (statistische Zählung) Beibehaltung des EU-KOM Vorschlags Unternehmen kommt als Investoren und Händlern wichtige Rolle in der Realisierung des EE-Ausbaus zu, daher muss Handel auf Unternehmensebene zugelassen werden Kein neues System erforderlich, da vorhandenes GoO-System bereits im internationalen Umfeld bewährt Alternative Flexibilitätsmechanismen zu komplex für zeitnahe und rechtssichere Umsetzung Wind Power Integration Christian Schneller, E.ON Netz GmbH

Gegenargumente gegen GoO-Handel tragen nicht E.ON`s Position Gefährdung der nationalen Zielerreichung“ „Unterminierung der nationalen Fördersysteme“ „Ausschluss neuer Technologien“ „Erzeugung von Wind Fall Profits in Höhe von 30 Mrd. €“ Schutzklauseln zur Steuerung des GoO-Handels geben ausreichende Kontrolle Bestandsanlagen nicht einbezogen Zusätzliche Technologieförderung möglich Nationale Fördersysteme kein Selbstzweck Neue Technologien nicht gefährdet Teilnahme am GoO- Handel und zusätzliche Förderung möglich Falsche Annahmen: Angaben zu 30 Mrd. € beruhen darauf, dass zu teure Technologien den Preis im GoO-Handel bestimmen Zu hohe Windfall Profits gefährden EE-Förderung Wind Power Integration Christian Schneller, E.ON Netz GmbH

Wichtige Argumente für einen GoO-Handel Argumente für GoO-Handel E.ON`s Position Flexiblere Zielerfüllung führt zu erheblichen Kostenersparnissen Studien belegen handfeste Kostenvorteile „Ausschluss neuer Technologien“ „Erzeugung von Wind Fall Profits von 30 Mrd. €“ Folgekostenabschätzung KOM: GoO-Handel bewirkt Ersparnis von 8 Mrd. € Pöyry-Studie für UK-Regierung: 7 Mrd. € Schutzklauseln zur Steuerung des GoO-Handels geben ausreichende Kontrolle Bestandsanlagen nicht einbezogen Zusätzliche Technologieförderung möglich Nationale Fördersysteme kein Selbstzweck Neue Technologien können am GoO- Handel teilnehmen und zusätzliche Förderung erhalten Falsche Annahmen: die angegebenen 30 Mrd € Windfall Profits beruhen darauf, dass zu teure Technologien den Preis im GoO-Handel bestimmen GoO-Handel erzeugt Wettbewerbsdruck: Kosten für erneuerbare Energien sinken Wind Power Integration Christian Schneller, E.ON Netz GmbH

Gegenargumente tragen nicht „Erzeugung von Wind Fall Profits von 30 Mrd. €“ Folgekostenabschätzung KOM: GoO-Handel bewirkt Ersparnis von 8 Mrd. € Falsche Annahmen: die angegebenen 30 Mrd € Windfall Profits beruhen darauf, dass zu teure Technologien den Preis im GoO-Handel bestimmen GoO-Handel erzeugt Wettbewerbsdruck: Kosten für erneuerbare Energien sinken „Ausschluss neuer Technologien“ Neue Technologien könnten am Handelssystem teilhaben und sollten zusätzlich gezielte strukturpolitische Förderung erhalten Wind Power Integration Christian Schneller, E.ON Netz GmbH

Warum ein GoO-Handel erforderlich ist EU-weiter GoO-Handel bewirkt Wettbewerb und damit Kostenreduzierung Nutzung der besten Potenziale Schaffung von Wettbewerb im EE-Erzeugungsmarkt Stärkeres Vorantreiben der technologischen Entwicklung Ausbau: 2003: 8%, davon fast 4% Wasserkraft, d.h. angestrebter Ausbau bedeutet Vervierfachung der EE ausser Wasserkraft, da diese bereits ausgeschöpft Ziel sollte die Ausschöpfung aller Effizienzpotenziale und die Heranführung der erneuerbaren Energien an eigenständige Marktexistenz sein.

Fazit Die ambitionierten EU-Ziele für den Ausbau der erneuerbaren Energien in der EU erfordern einen effizienten Förderrahmen. Der europäische Handel mit Herkunftsnachweisen stellt hierfür eine ausbaufähige Grundlage dar. Industrie- und Strukturpolitik müssen mit anderen Instrumenten umgesetzt werden. Ein europäischer Handel wird langfristig Kostenvorteile für den Endverbraucher generieren. In diesem Rahmen kann E.ON mit den umfangreichen Aktivitäten der E.ON Climate&Renewables einen wichtigen Beitrag zum Ausbau der erneuerbaren Energien leisten. KOM-Vorschlag für GoO-Handel gegenwärtig bester Lösungsansatz für diese Zielsetzungen Wind Power Integration Christian Schneller, E.ON Netz GmbH