ENERGY EFFICIENCY - BUT AT WHAT COST? 30 May 2017 European Energy - PowerPoint PPT Presentation

ENERGY EFFICIENCY - BUT AT WHAT COST? 30 May 2017 European Energy Forum, Brussels Pavel Cyrani Member of the Board and Chief Sales Officer; ČEZ, a.s.

ENERGY MARKET IS SHIFTING FROM A „SIMPLE“ COMMODITY PRODUCTION AND DELIVERY TOWARDS MORE SOPHISTICATED INTERACTIONS WITH CUSTOMERS TRADITIONAL ENERGY VALUE CHAIN PRODUCTION DISTRIBUTION i n large centralized plants unidirectional CUSTOMERS NEW ENERGY MARKET ENVIRONMENT DISTRIBUTION AGGREGATION PRODUCTION bidirectional ENERGY Intermittent SERVICES Centralized Stable Storage Energy Demand savings mng. Distributed Rooftop AC Heat PV Pumps Demand ... management Lighting PROSUMERS 1

ČEZ OFFERS CUSTOM-DESIGNED COMPREHENSIVE ENERGY SOLUTIONS AND CUSTOMER ORIENTED SERVICES …  Energy services, including energy savings, have been offered by ČEZ subsidiary ČEZ ESCO founded in 2014  In 2015 (first year of its existence), only slightly more than 20% of the EBITDA came from the energy services business, the rest was achieved by the sale of the commodity  In the first two years, ČEZ ESCO focused on the acquisition of the knowledge base and competences by acquisition of existing companies and/or creation of its internal expert teams  ČEZ ESCO now employs 1200 experts in 8 subsidiaries  For the first time, ESCO 2017 profits from energy services will be higher than from commodity deliveries 2

… AND MARKET-BASED ENERGY SAVINGS ARE IMPORTANT PART OF ENERGY SERVICES PORTFOLIO Warranted Energy Savings (EPC)  For public-sector customers, CEZ ESCO offers to implement comprehensive set of measures to reduce energy intensity through the EPC method.  Reference: Energy savings at the National Theatre , having brought overall energy savings (more than 50% of the original costs), guaranteed annual savings of at least 9.9 million CZK and lower CO 2 emissions. Tailor-Made Energy Services for Companies  For customers from private sector, CEZ ESCO offers to reduce energy intensity and especially operating costs.  Reference: Energy savings at Jalta Hotel in Prague, guaranteeing minimum financial savings amounting to 344,000 CZK per year; The real savings achieved were several times higher, delivering also gradual modernization of energy economy 3

HOWEVER, FULFILMENT OF THE 2030 EED OBLIGATIONS WILL REQUIRE SUBSTANTIAL INVESTMENTS FROM EU MEMBER STATES Investment costs needed to fulfill higher of the EED 2030 obligations (30% decrease of final consumption or 1,5% p.a. savings obligation) % GDP 2016 % GDP AT BE BG CY CZ DK EE FI FR DE GR HU IE IT Average estimate* 19% 29% 21% 17% 17% 15% 17% 22% 15% 17% 9% 17% 4% 8% Lower estimate* 7% 10% 7% 6% 6% 5% 6% 8% 5% 6% 3% 6% 1% 3% Upper estimate* 29% 44% 33% 25% 26% 23% 27% 34% 23% 26% 14% 26% 6% 12% % GDP LV LT LU MT NL PL PT RO SK SI ES SE UK Average estimate* 19% 14% 26% 7% 9% 48% 9% 17% 25% 13% 7% 12% 9% Lower estimate* 7% 5% 9% 2% 3% 16% 3% 6% 9% 4% 2% 4% 3% Upper estimate* 29% 21% 40% 10% 14% 73% 13% 27% 38% 19% 11% 18% 13% 30% target > 1.5% p.a. obligation** 1.5% p.a. obligation > 30% target * IA estimates of energy efficiency intensities (table 12, IA Annexes p. 159): Average (5 studies): 364 M EUR/PJ Lower: 127 M EUR/PJ Upper: 564 M EUR/PJ EC estimates an additional total investment expenditure of € 78 billion/year for increasing the target from 27% to 30% (IA p. 65) which translates into 440 M EUR/PJ **Rough estimate: 11.25% (75% from 10*1.5%) from the base consisting of 2015-2020 average final consumption by PRIMES 2016 without 2015-2020 transport consumption by PRIMES 2016 minus 5.3% for final energy which is not being sold (assumption in the IA EED 2016) 4

A LOCAL INDEPENDENT STUDY SHOWS THE CZECH REPUBLIC WOULD NEED TO SPEND 700 BN CZK (MORE THAN 15% GDP) TO ACHIEVE ARTICLE 7 CZECH REP. Energy Savings Potential - Total Investment Costs [bln. CZK] 2.500 180  Analysis shows that Total Investment Costs [bn. CZK] in order to reach 160 Total Energy Savings [PJ] 75 PJ of energy 2.000 savings (required 140 exclusively by 120 Article 7), 1.500 the investment 100 costs of 700 bn CZK (26 bn. EUR) would 80 be required during 1.000 75 PJ 2021-2030 60  Graph reflects real 40 500 26 bln. EUR potential of different energy efficiency 20 measures 0 0 Total Investment Costs [bln. CZK] Energy Savings [PJ] Target 2030 [PJ] 5 Art 3: 30% target compared with 2007 energy consumption projection; Art 7: 1,5% of 2016-2018 energy sales to final consumers, subject to some exemptions

TOO AMBITIOUS ENERGY EFFICIENCY TARGET COULD EASILY BECOME COUNTERPRODUCTIVE IN TERMS OF COST-EFFICIENCY OF THE EU CLIMATE POLICY ILLUSTRATIVE Illustrative energy savings supply curve  There are economical, M EUR/PJ market incentives to realize cost-effective New RES savings measures costs**  Indeed, GDP has grown by 40% since 1995 while the energy consumption 5.3 - decreased in absolute 560 M terms EUR*  Expenses increase faster than New energy proportionally savings are compared with the Savings and RES more or economically volume of required less same price irrational savings  At some point, costs of Savings potential energy savings Savings cheaper PJ measures become than RES more expensive than * EC IA, (table 35, p. 265); increase from 27% to 30% will require an average cost of 440 M cost of new RES and EUR/PJ according to the IA (p. 61) therefore it is irrational ** Latest DE PV auctions cleared at 65.8 EUR/MWh which means 310 M EUR/PJ (27years with to realize them 4% discount factor) 6

EED PROPOSAL FORCES COUNTRIES WITH ALREADY LOW ENERGY CONSUMPTION PER CAPITA TO OVERACHIEVE THE EUROPEAN 30% TARGET Decrease of the final energy consumption in 2030 after the 1.5% p.a. savings obligation* and consumption per capita % against the 2007 reference scenario, GJ/cap 2015 47% 30% target > 1.5% p.a. obligation 45% 43% 1.5% p.a. obligation > 30% target 41% 40% 40% 38% 38% 38% 36% 32% 32% 30% 30% 29% 27% 27% 27% 26% 297 25% 24% 23% 22% 185 21% 20% 17% 16% 136 133 134 120 109 103 101 96 88 95 91 82 78 85 74 80 70 80 73 65 55 69 64 46 LU BE DK PL DE AT FR CY FI SE SK UK NL IE CZ EE HU IT SI ES PT BG LT LV GR RO Decrease of final energy consumption compared to 2007 projections Final energy consumption per capita / * 30% target compared with 2007 energy consumption projection, 1,5% of 2016-2018 energy sales to final consumers, subject to some exemptions 7

CONCLUSIONS Based on presented views … … CEZ Group proposes to:  Allow for reflection of cost-efficiency of energy savings measures vis-a-vis other options to help MS to tackle associated high investment costs.  Neutralize negative effect of overlapping climate policies by placing the volume of allowances equivalent to the emission savings achieved outside the EU ETS market by means of the RES and EE support schemes into the MSR. Decrease of the final energy consumption in 2030 after the 1.5% p.a. savings obligation*  Create balance and establish link and consumption per capita % against the 2007 reference scenario, GJ/cap 2015 45% 47% 30% target > 1.5% p.a. obligation 43% between Article 3 and Article 7, in order to 1.5% p.a. obligation > 30% target 36% 38% 38% 38% 40% 40% 41% 32% 32% prevent suboptimal choice of costly 29% 30% 30% 20% 21% 22% 23% 24% 25% 26% 27% 27% 27% 297 measures for energy savings while 185 17% 16% 133 134 136 120 achieving EU energy efficiency targets. 109 103 101 96 95 91 88 82 85 78 80 80 74 73 69 70 65 64 55 46 LU BE DK PL DE AT FR CY FI SE SK UK NL IE CZ EE HU IT SI ES PT BG LT LV GR RO Decrease of final energy consumption compared to 2007 projections Final energy consumption per capita 8