in Russia and EU Andrey Khorshev, Tatiana Pankrushina The Energy - PowerPoint PPT Presentation

Carbon avoided costs for the low- carbon technologies in Russia and EU Andrey Khorshev, Tatiana Pankrushina The Energy Research Institute of the Russian Academy of Sciences 13th Conference on Energy Economics and Technology ENERDAY 2019 Dresden, April 12, 2019 LOGO

LOGO GHG Emissions in Russia 4500000 120% 4000000 100% 3500000 3000000 80% 2500000 60% 2000000 1500000 40% 1000000 GHG Emissions, kt CO2eq (left scale) 20% INDC to Paris agreement (left scale) 500000 Carbon intensity of GDP (% to 1990) (right scale) 0 0% Источники: Второй двухгодичный доклад Российской Федерации, представленный в соответствии с Решением 1/СР.16 Конференции Сторон Рамочной Конвенции Организации Объединенных Наций об изменении климата. Москва, 2015 г . Обзор состояния и загрязнения окружающей среды в Российской Федерации за 2015 год. Росгидромет РФ. Москва, 2016. Russia has signed the Paris agreement but yet to ratify it. Even if Russia ratifies it with submitted INDC we will have the considerable positive gap between the actual emissions and possible limitation. At present, mitigation of GHG emissions is NOT one of the main concerns for Russian Government. 2

LOGO Carbon avoided costs as a marker of carbon price  Power sector forms >25% of GHG and >35% of national CO 2 emissions nowadays  Power sector will be the main area of GHG mitigation through the unique technological opportunities for the inter-fuel competition and competition between fossil fuels and renewables  Carbon avoided costs in electricity generation will form the long-term basis for carbon taxes and/or prices 3

LOGO Russian Power Sector at a Glance – Present Installed Capacity, GW Gross Generation, GWh 250 1200 55 1000 200 57 220 260 58 251 800 150 108 451 600 95 439 84 402 100 400 28 25 203 24 50 160 0.7 177 0.0 0.0 200 0.7 0.0 0.0 48 46 44 179 169 155 0 0 2007 2012 2017 2007 2012 2017 *All data for IPS of Hydro Solar+Wind Nuclear Gas Coal Russia Slow growth of electricity demand (only +7% over 10 years), but 2x faster growth - of available capacities (+14%) => big amount of spare capacities ( ≈30 GW) Mainstay of the power sector is GAS-fired generation – 45% (of which 55% - CHP) - Considerable share of non-carbon generation – 36%, but share of solar and wind - is negligible (0,1%, 700 MW installed) Only 20% of TPPs has up-to-date equipment (efficient CCGT, OCGT) - 4

LOGO Russian Power Sector at a Glance – Future Thermal PPs in 2015 Exceeding lifetime before 2025 Exceeding lifetime before 2035 Exceeding lifetime after 2035 Installed capacity, GW More than 40% of Russian TPPs will exceed their life time until 2025 with another 25% until 2035. It is considered as one of the biggest threats for Russian power sector in near future.

LOGO Russian Power Sector at a Glance – Future: Latest General Scheme of Russian Power Sector Development GW GWh Capacity +12% Demand +30% 1400 300 1200 250 1000 200 800 150 600 100 400 50 200 0 0 2015 2020 2025 2030 2035 2015 2020 2025 2030 2035 *All data for IPS of 1400 -600 Nuclear Hydro RES Fossil Demand Russia 2015 2020 2025 2030 2035 Main Investment Priorities up to 2035: - Modernization of existing TPPs (about 50 GW) - New nuclear reactors (VVER- TOI, “Fast” Reactors) – up to 22 GW - RES (Solar & Wind) – at least 3 GW (later increased to 5 GW) - New effective Thermal Power Plants – CCGT (localized) + Coal USC - Smart-grids and demand response 6

LOGO Methodology of CAC calculation CarbonAvoidedCosts alt = (LCOE alt – LCOE ref ) (Emission alt – Emission ref ) Main assumptions: - Coal USC plant as a REFERENCE technology; LCOE calculations do NOT take into account: - - EU ETS carbon prices; - tax, investment and other support measures for RES; Discount rate – 10%; - - We assumed that all wind and solar capacity is unstable and must be RESERVED by: - existing thermal generation (+O&M costs to maintain the availability of existing gas/coal fired plants are included in LCOE) or; - new open cycle gas turbines (1-to-1) (+ capital costs of OCGT + O&M costs of OCGT) or; - new storage capacity (from 50% to 100%) (+ capital costs of storage + O&M costs of storage + additional losses due to the storage efficiency). 7

LOGO Assumed Fuel Prices in Russia and EU, $2016/toe Russia (Moscow) EU (CE) 400 150 140 350 300 130 120 250 200 110 150 100 100 90 50 80 gas coal gas coal gas coal gas coal 2016 2030 2016 2030 Currently, Russia maintains regulation of domestic gas prices and their - level is about 2.5 times lower than in EU - It seems realistic that Russian policy of keeping the growth of gas prices around inflation will continue up to 2030. It will keep the 2-3 times gap between gas prices in Russia and the EU Despite the fact that coal prices in Russia are formed using market - mechanisms, they still will be lower than in the EU by 20-30% Source: for Russia – ERI RAS forecast, for EU – based on Columbia University (2018). The Role of Natural Gas in 8 Europe's Electricity Sector Through 2030.

LOGO Assumed Capital Costs for Russia and EU, $2016/kW Russia EU 3500 6500 3000 5500 2500 4500 2000 3500 1500 2500 1000 1500 500 500 Coal USC CCGT Nuclear onshore Solar PV Coal USC CCGT Nuclear onshore Solar PV Coal USC CCGT Nuclear onshore Solar PV Coal USC CCGT Nuclear onshore Solar PV Wind Wind Wind Wind 2016 2030 2016 2030 Until recently, the development of large CCGT and RES in Russia was based on the imported - equipment. This made their cost almost equal in Russia and the EU. - However, a sharp drop in the ruble exchange rate and imposed sanctions made imported equipment too expensive or difficult to acquire. This led to the launch of a government localization program. - Its implementation is already bringing results. At the 2018 auction for RES PPA capital costs of wind decreased 2 times, solar PV – almost 3 times (comparing with 2014-2016 auctions) There is a big difference in the cost of nuclear power plants in Russia and the EU . Mass construction - of VVER- 1200 units in recent years will keep their cost as low as 2200 $/kW. It’s assumed that introduction of new VVER-TOI units after 2025 will reduce the cost for another 10-15% making nuclear very cost competitive in Russia 9 Source: for Russia – ERI RAS forecast, for EU – based on Columbia University (2018). The Role of Natural Gas in Europe's Electricity Sector Through 2030.

LOGO LCOE Ranges in Russia and EU, $2016/MWh Russia (Moscow) EU (CE) 500 450 Cost of the capacity reserve Cost of the capacity reserve 450 400 400 350 350 300 300 250 250 200 200 150 150 100 100 50 50 0 0 2015 2030 2015 2030 2015 2030 2015 2030 2015 2030 2015 2030 2015 2030 2015 2030 2015 2030 2015 2030 Coal USC CCGT Nuclear Wind Solar PV Coal USC CCGT Nuclear Wind Solar PV (Reference) onshore (Reference) onshore - At present, on average both in Russia and the EU most effective technology is CCGT, even considering long-term cost reduction of RES and the growth of gas prices. However, in Europe all non-carbon technologies remain more expensive, while in Russia, - nuclear power plants, both now and in the future are competitive carbon-free sources of electricity. - An important factor limiting the development of RES is the need for capacity reserve. Related costs are comparable to the actual LCOE values of these technologies even in the long-term. 10

LOGO Carbon Avoided Costs in EU, $2016/ t CO 2 EU (CE) 450 439 2030 400 350 2015 300 250 262 200 194 115 150 97 97 68 100 71 68 43 23 23 43 16 50 -14 0 -50 - At present conditions best technology for carbon mitigation in the EU is CCGT. All other options need some support or carbon prices over 70$/t CO2 In 2030 decrease in capital costs of RES will sharply decrease the amount of needed - support. For example, at carbon price about 20$/t CO2 solar PV will be more effective than coal generation, at 40 $/t CO2 - onshore wind plants. - When considering the cost of RES capacity reservation those types of plants will be significantly more expensive than any other option even with assumed decrease in cost 11 of RES generation and storage

LOGO Carbon Avoided Costs in Russia, $2016/ t CO 2 550 482 Russia (Moscow) 450 2030 2015 350 269 269 244 250 160 150 104 104 34 34 27 26 50 17 -37 -50 -34 -6 In Russia as well as in the EU most efficient way of cutting carbon emissions is to - substitute coal plants with CCGTs. But unlike the EU nuclear generation could be a way to go, especially after 2030. - - It appears that by 2030 amount of needed support for RES in Russia will become comparable to the one in EU – at carbon price of about 30$/t CO 2 Solar and Wind could be effective sources of carbon mitigation 12

LOGO The Energy Research Institute of the Russian Academy of Sciences www.eriras.ru Andrey Khorshev, PhD, Head of the Centre for Energy Modeling epos@eriras.ru The research was supported by the Russian Science Foundation (project No. 17-79-20354) 13