Southern and Mediterranean Europe a market in transition

1
Southern and Mediterranean Europe a market in
transition

• Paolo Tabarelli de Fatis
• Vestas Mediterranean East, Italy
• President

Athens, 1 March 2006 EWEC 2006
2

• Mediterranean wind markets
• Markets status
• International financing mechanisms in the
  Mediterranean area
• EU export strategy
• Vestas experience in the Mediterranean area
• Future trends and scenario

3
Mediterranean wind markets
4
Wind market in the world, installations and
forecast

• Average growth rate of 16,6 in the period
  2005-2010
• European Market more developed but Asia market in
  strong development
• Off-shore installations in growth
• The growth will be also determined by the
  application of the Kyoto Protocol Flexible
  Mechanisms

Source BTM Consult 2005 Forecast in the years
2005-2010 and real installations in the years
1999-2004
5
World wind market, market shares year 2004

• 47.911 MW by the end of 2004
• 8.154 MW installed in the year 2004, growth rate
  of 20,5
• Vestas keeps its leadership position with a
  market share of 36,7

Source BTM Consult 2005
6
Mediterranean area wind markets, year 2005
Total accumulated capacity by 31 Dec 2005
MW
7
Mediterranean area wind markets, scenario by 2010

• National renewables targets by 2010 (European
  Directive 2001/77/CE) for the European countries
  of the Med area
• European Markets are more developed but North
  Africa countries markets and Turkey market are in
  strong development
• North Africa countries renewables targets by 2010
  have been defined and many projects are in the
  pipeline

others Cyprus, Malta, Bulgaria, Turkey, Libya,
Algeria, Lebanon, Syria, Jordan, Israel
8
Markets Status
9
Italy, market status

• Target
• National target of 22 of renewables by 2010 (EU
  directive 2001/77/EC)
• Target of 2500 MW of wind installations by 2010
  according to the Italian White Paper 1999
• (If the present trend continues the target will
  be already reached in 2007)
• Legislative framework and incentives
• National Decree 387/03 for the promotion of
  renewables
• Green Certificates System and compulsory
  renewables quota system
• Market status
• Interest of investing in wind farms is growing
  (both national and foreign investors), even if
  the wind conditions are in the range of low wind
  sites
• Trend is moving towards larger MW turbines

10
Italy, market shares
Market shares on total capacity by 31 December
2005

• Capacity installed in 2005 of 446 MW
• Growth rate in 2005 of about 35

Source Wind installations connected to the
grid, Pirazzi-ENEA (Italian National Agency for
New Technologies Energy and Environment) and
Vestas Track record
11
Greece, market status

• Target
• National target of 20 of renewables by 2010 (EU
  directive 2001/77/EC)
• National target of 29 of renewables by 2020
• Legislative framework and incentives
• Law 3299/2004 provides financing support up to
  50 of the total investment by grant
• New Legal Framework of Licensing feed in tariff
  of 68,4 Euro/MWh (mainland) and 84,6 Euro/MWh
  (islands)
• Market status
• Interest of investing in wind farms is growing
  (both national and foreign investors)
• Barriers
• Complicated procedures in order to obtain
  authorizations

To be adopted in the first quarter 2006
12
Greece, market shares

• Capacity in the years 2005 of 103 MW
• Growth rate in 2005 of about 20

Source Wind installations with operation
license, CRES (Center for Renewable Energy
sources), February 2006
13
Bulgaria, market status

• Wind potential
• According to a study of Bulgarian Academy of
  Sciences wind potential 2.200 3.400 MW and
  wind speed 6 13 m/sec
• Legislative framework and incentives
• Bulgaria ratified Kyoto Protocol and JI flexible
  mechanism is applicable
• A New legislative framework is going to be
  approved to synchronize the Bulgarian energy
  system with EU directives
• At the moment there are no specific incentives
  for the development of wind farms
• Market status
• There are no operational wind power plants
• As Bulgaria is a EU candidate, EIB and EBRD have
  loans dedicated to Bulgaria

Source EBRD (European Bank for Reconstruction
and Development)
14
Turkey, market status

• Target and wind potential
• Technical Potential 88.000 MW
• Turkey is the second most powerful wind market in
  Europe area after UK
• Legislative Framework and incentives
• Renewable Energy law (May 2005) feed in tariff
  equal to the average wholesale price of the
  previous year (about 55 Euro\MWh) for the first 7
  years
• Obligation on retail company to purchase
  renewable energy from producers
• Market status
• 1.250 MW have obtained licenses and more than
  3.000 MW are applying for licenses
• The prospect developers are foreign and Turkish
  private companies

Source European Commission study/Wind Force 12
2005
Source Wind Force 12 2005 of GWEC (Global
Wind Energy Council)
15
Turkey, market shares
Source EWEA (European Wind Energy Association)
2004
16
Egypt, market status

• Wind potential and target
• Risø wind atlas theoretical wind potential of
  20.000 MW, average wind speed 7-11 m/s
• Target of 850 MW by 2010
• Legislative Framework
• Egypt ratified Kyoto Protocol and CDM flexible
  mechanism is applicable
• Egypt has a target of 3 from renewables by the
  year 2010
• Establishment in 1986 of NREA (New Renewable
  Energy Authority)
• Market status
• Installed capacity by 31 Dec 2004 of 145 MW, 63
  MW in co-operation with Denmark and 80 MW in
  co-operation with Germany

Source OME (Observatoire Méditerranéen de
l'Energie), Risø (Denmark)
17
Egypt, market shares
Source OME (Observatoire Méditerranéen de
l'Energie), Risø (Denmark)
18
Tunisia, market status

• Wind potential and target
• Wind potential of 2.000 MW (preliminary wind
  studies), average wind speed 7-10 m/s
• Target of 300 MW by 2010
• Legislative Framework and incentives
• Tunisia ratified Kyoto Protocol and CDM flexible
  mechanism is applicable
• Private investors IPP (Indipendent Power
  Producers), PPA (Power Purchase Agreement) of
  about 30 Euro\MWh
• Establishment of ANER (National Agency for
  Renewable Energy)
• Market status
• Total capacity by 31 December 2005 of 20 MW
• By the year 2010 100 MW are expected to be
  realized by IPP and 200 MW by Steg (Societè
  Tunisienne de lElectricitè et du gaz)

Source OME (Observatoire Méditerranéen de
l'Energie), UNDP (United Nation Enviromental
Programme)
19
Morocco, market status

• Wind potential and target
• Wind potential of 6.000 MW, average wind speed
  8-11 m/s
• Target of 1000 MW by 2010
• Legislative Framework
• Morocco ratified Kyoto Protocol
• Establishment of CDER (Centre for Development of
  RES)
• Renewables development plan target of 10 by the
  year 2010
• Market status
• By 31 December 2005 total capacity of 53 MW
• Koudia al Baida wind farm 50W, 84 Vestas V42
  600kW

Source OME (Observatoire Méditerranéen de
l'Energie), Morocco Ministry of Land-Use
Management, Water and the Environment
20
Spain, market status

• Target
• National target of 29,4 of renewables by 2010
  (EU directive 2001/77/EC)
• New target for wind installations of 20.155 MW by
  2010
• Legislative framework and incentives
• PER - Plan de Fomento de las Energías
  Renovables
• The current feed in tariff is maintained under
  the new regulation
• Market status
• The PER provides a stable framework for future
  development of the wind industry
• The trend goes towards MW WTGs
• About 1500 MW were installed in 2005 and future
  perspectives are at to be at or above this level

21
Spain, market shares
Tot capacity by 31 December 2005 (MW)
10.027

• Capacity installed in 2005 of 1764 MW
• Growth rate in 2005 of about 21

Source AAE (Asociacion Empresarial Eolica) for
market shares and EWEA for market size
22
Portugal, market status

• Target
• National target of 39 of renewables by 2010 (EU
  directive 2001/77/EC)
• National Target for wind installations 5100 MW by
  2010
• Legislative framework and incentives
• Feed-in tariffs for a 15 year term, reduction on
  new projects
• State grants on a project-by-project basis ( 10
  investment)
• Market status
• High growth experienced in 2005 with a doubling
  of installed capacity from about 500 MW to about
  1000 MW
• Growth driven primarily by developers

23
Portugal, market shares
Market shares on total capacity by 31 December
2005
Tot capacity by 31 December 2005 (MW)
Repower
Others 2,50
3,70
1.022
Siemens
Enercon
4,20
30,30
GE Wind 7
Nordex 12,20
Gamesa
Vestas 27,20
12,90

• Capacity installed in 2005 of 500 MW
• Capacity nearly doubled in 2005

V90-3.0 MW Portugal
V82-1.65 MW Portugal
Source INEGI (Instituto de Engenharia Mecanica
e Gestao Industrial) for market shares and EWEA
for market size
24
France, market status

• Target
• National target of 21 of renewables by 2010 (EU
  directive 2001/77/EC)
• Legislative framework and incentives
• Feed in tariff for a 15 year term and depending
  on the productivity of the sites
• Progressive yearly reduction of the tariff
• Market status
• Total accumulated capacity by 31 December 2005 of
  757 MW
• Installed capacity of 367 MW in the year 2005
  represents a doubling of the total installed
  capacity
• High market growth expected within the coming
  years
• Two calls for tenders of French Government
  designed to approve up to 500 MW of projects

Source EWEA
25
Other Mediterranean countries, market status

• Israel
• By 31 December 2005 total capacity of 8 MW
• IEC is planning to develop 2 wind farms by 2010
  50 MW and 100 MW
• Efforts to create conditions suitable for IPP
  (Indipendent Power Producers)
• Syria
• Wind atlas have been developed with the support
  of Risø (Denmark)
• Technical wind potential of 40.000 MW
• Target of 800 MW by 2011
• Lebanon
• 2 projects in development for about 40 MW

Sources Report 05 by Cyprus to the EC on the
Implementation of Directive 2001/77/EC
26
International financing mechanisms in the
Mediterranean area
27
Kyoto Protocol, status of the ratification
Annex 1 countries
Main countries in the world
Mediterranean Countries
Mediterranean Countries which have not ratified

• Turkey

• Bulgaria
• France
• Portugal
• Spain
• Greece
• Italy

• Canada
• Japan
• Russia
• Ucraina
• European Union
• (25 countries)

Non Annex 1 countries
Main countries in the world
Mediterranean Countries which have not ratified
Mediterranean Countries

• Libya
• Lebanon
• Syria

• Egypt
• Morocco
• Tunisia
• Algeria
• Jordan
• Albania
• Cyprus
• Malta

• Brazil
• Chile
• China
• India

Annex 1 are the developed countries and
Non-Annex I countries are the developing
countries or less developed countries Source
UNFCC (United Nations Framework Convention on
Climate Change)
28
Clean Development Mechanism (CDM)
Development of a CDM project in a Non-Annex 1
country and issue of the CERs
Conversion of the Certified Emission Reductions
(CERs) in Assigned Amount Units (AAUs)
Companies with Kyoto obligations of Annex 1
countries
Project Developer
Trading of Certified Emission Reductions (CERs)
Trading of Certified Emission Reductions (CERs)
Use of the Certified Emission Reductions (CERs)
to satisfy Kyoto Protocol obligations
Countries Annex 1
Annex 1 are the developed countries and
Non-Annex I countries are the developing
countries or the less developed countries
29
Clean Development Mechanism in Morocco, Essaouira
wind farm
Source Project Design Document for CDM
Hypothesis power price30 Euro/MWh, Tot
investment costs1,3 Mil Euro/MW, CERs price10
Euro/ton
30
Price of the Emission Reductions

• CDM projects development is risky
• Project risk
• Country risk
• Registration risk

• Legislative framework uncertainties
• Kyoto Protocol obligations beyond 2012 have not
  been defined
• (NAP) National Allocation Plans are not
  completely defined

Registration process is slow and bureaucratic

• Average CERs price (Certified Emission
  Reductions) of about 10-15 /ton
• Average AAUs price (Assigned Amount Units ) of
  about 30 Euro/ton (July 05)
• Gap between price of CERs and price of AAUs
  (about 20 Euro/MWh)

Source Japan Bank for International
Cooperation, November 2005
31
Advantages, disavantages and future perspectives
of the CDM
Disadvantages

• At the present the CDM does not provide a
  sufficient incentive to develop a wind farm in
  the developing countries

Advantages

• Emission Reductions turnover comes from developed
  countries and is made in strong currencies
• The wind sites in the South Med countries have an
  high production (load factor of 35-40) the
  trading of the Emission Reductions can help to
  cover part of the wind farm costs (about 15-20)
• Possible future increase of the Emission
  Reductions price

Future perspectives

• To carry out the increase of the Emissions
  Reductions price is necessary

• To reduce the legislative framework uncertainties
  
• (definition of the obligations for the years
  beyond 2012)
• To make more effective and more simple the rules
  and the registration process for the CDM

32
TRECs Tradable Renewable Energy Certificates
Trading of the TRECs by bilateral contracts to
private companies of the Potential Partner Country
Development of a wind project in a North African
country (Host country) and issue of the TRECs
Trading of the TRECs in a common market
Critical points

• Grid connection between the Host Country and the
  Potential Partner Country (not essential)
• Energy policy of the Host country harmonized with
  the energy policy of the Potential Partner
• Establishment of a treaty between the Government
  of the Host country and the Government of the
  Potential Partner to confirm the legitimacy
• Reliable Certification system

33
EU Export strategy
34
Export strategy and developing policy of European
Union
Report of EU, 29 September 2005

• Huge potential for cooperation between EU
  countries and South Med countries
• EU to help foster the use of renewables energies
  in developing countries
• Leading financing institutions as the EIB, the
  EBRD, the World Bank and national export credit
  agencies to assign priority to investment in
  renewables and in the South Med countries

Advantages for the South Med countries

• Local industry, local employment, poverty
  allievation, conflict prevention, sustainable
  development, emission reductions

Advantages for EU countries

• Export opportunities for EU companies equipment
  supply, resources assessment mapping, site
  selection, micrositing, operation management
  project management, project appraisal and
  planning
• Possible future import of energy from the South
  Med countries

35
Export strategy tools

• EIB (European Investment bank)
• EBRD (European Bank of Reconstruction and
  Development)
• FEMIP (Facility for Euro-Mediterranean Investment
  and Partnership)
• IFC (International Finance Corporation)
• MIGA (Multilateral Investment Guarantee Agency)
• World Bank

International Financing Institutions Loans e
guarantees
Export credits
Mixed Credits
Soft loans
36
Vestas experience in the Mediterranean area and
case studies
37
Zafarana wind farm Egypt (1\2)
Wind Farm

• 46 Vestas V47, 660 kW (sponsor Denmark)
• 71 Vestas V47, 660 kW (sponsor Germany)
• Installed capacity 77 MW

Power production

• Average wind speed 10 m/sec
• 280 GWh/year
• Load factor 42

Emissions reductions

• 145.000 ton CO2/year

V47-660 kW Egypt
Considering an Emission Factor of 0,52 ton
CO2/MWh
38
Zafarana wind farm Egypt (2\2)
Operator
NREA (New and Renewable Energy Authority)
Tender
NREA has managed the international tenders
Construction

• Project with sponsor Germany

Consortium Vestas, ABB and Kolaly Engineering

• Project with sponsor Denmark

Vestas as main contractor and local companies as
subcontractors
Financing
DANIDA (Danish International Development Agency)
and KFW Soft Loans
39
Zafarana wind farm Egypt, local industry
Transport
Towers

• Inland transportation

Civil works
Installation

• Roads
• Foundations
• Site offices
• Storage Area

• Cranes
• Erection
• Commissioning

Electrical works
Services

• Cables
• Transformers
• Substation

• Operation Maintenance
• Repair
• Monitoring

training carried out in Vestas centres
40
Vestas Mediterranean East

• Vestas Mediterranean East Sales and Services Unit
• Production Unit for all the world of the V52 850
  kW turbines
• Headquarter Taranto (Italy)

• Europe
• Italy
• Greece
• Turkey Cyprus
• South Balkans Area

• Africa
• Egypt
• Libya
• Tunisia
• Lebanon

• Middle East
• Israel, Gaza Jordan
• Iran, Iraq UAE
• Syria, Kuwait, Bahrain
• Oman Quatar

41
Vestas Mediterranean West

• Vestas Mediterranean West Sales and Services Unit
• Production Unit of the V82-1,65 MW turbines and
  control systems
• Headquarter Barcelona (Spain)
• Sales and Service offices Brazil, Argentina,
  Maia (Portugal), Montpellier (France), Madrid and
  Zaragoza (Spain)

42
Wind industry in Italy

• 2 Sites in Taranto (South Italy)
• Production start in 1998
• Production of approx. 400 units/year
• Only factory of Vestas Group in all the world
  specialized in the manufacturing of the V52 - 850
  kW turbines
• The number of workers of the factory is 500 units
  and the number of indirect workers is estimated
  about 2000 units

V52 850 KW factory
43
Wind industry in Spain

• V82 1,65 MW factory
• 2 Sites in Viveiro in Galicia (North of Spain)
  and in Olvega (Soria)
• Production start in 1998
• Production of approx. 300 turbines/year and 400
  panels/year
• The number of workers of the factories is 155
  units

• V90 factory
• Site in Villadangos (León)
• Opening estimated 1st quarter of 2006
• Production of approx. 300 units/year
• The number of workers estimated of the factory
  will be 150 units

44
Future trends and scenario
45
EU 15, renewables market status and targets (1/2)
Present status and target by 2010

• Renewables target of 22,1 by 2010 (Directive
  2001/77/CE)
• Hydro, geothermal and photovoltaics are in line
  with the expectations
• Wind is the fastest growing electricity
  generation technology and it has been
  underestimated in the target
• Biomass is below the target
• The renewable target will be met if the measures
  set out in the directive are fully implemented
  and some additional misures are taken
• A part of the overestimation of biomass could be
  balanced by the underestimation of wind energy

Target by 2020

• Renewables target of 33 by 2020 (EU Report,29
  September 2005)

46
Spain, Portugal and France future trends and
scenario

• To develop further on wind markets in Spain,
  Portugal and France it is necessary
• Spain to extend the grid in the same growth rate
  as the target for wind
• France to reduct the administrative barriers and
  reinforce the incentives scheme
• Portugal to reduct of the administrative
  barriers and to develop the grid

47
Greece and Italy future trends and scenario
To reinforce wind markets in Italy and Greece is
necessary

• to improve Authorization process
• to create a favourable climate of opinion on wind
  development
• to improve grid connection and grid development
  rules
• to develop further on the grid
• to increase National Targets for wind
  installations

48
Middle East and North Africa Countries, energy
needs (1\2)

• Present Power Production mainly from conventional
  sources
• Low cost for power production from conventional
  sources but the price of oil will increase in the
  future because of the oil reserves exhausting
• Middle East and North Africa Countries are
  exporters of gas and oil and they will be crucial
  to satisfy the growing world energy needs

Source World Energy Outlook 2005 reference
scenario IEA (International Energy Agency)
49
Middle East and North Africa Countries, energy
needs (2\2)
Electricity Generation in MENA countries
TWh

• Strong growth of the electricity generation and
  consumption
• Electricity generation growth per year (years
  1971-2003) 9,4 (years 2003-2010) 5,1 (years
  2003-2020) 4,1
• Electricity consumption growth per year (years
  1971-2003) 9,2 (years 2003-2010) 5,3 (years
  2003-2020) 4,3

Source World Energy Outlook 2005 reference
scenario IEA (International Energy Agency)
50
Middle East and North Africa Countries, wind
development

• Huge potential for wind development and wind
  studies has been carried out potential of 12.000
  MW by 2020 in South-East Mediterranean Countries
  
• Wind power can serve a good part of the energy
  needs
• Great interest in wind and renewables
  technologies of the Local Governments
• The targets by 2010 for wind and renewables have
  been defined
• National Authorities for the promotion of the
  renewables have been established
• Numerous studies and pilot projects

Source MEDREP (Mediterranean Renewable Energy
Program)
51
Other Mediterranean wind markets
To carry out the development of wind markets in
other Med Countries it is necessary

• Legislative framework and incentives
• To create a legislative framework to attract
  investments of foreign and local private
  investors and developers
• To create a system of PPA (or incentives) that
  allows the projects to be financially feasible
  (Ex. Kyoto Protocol Mechanisms, TRECs etc.)
• European countries have to help other Med
  countries to identify realistic renewable energy
  portfolio targets and to assess the resources
• To get through the technological barriers
• Grid development and grid connection, wind data
  etc.
• European Union export strategy
• Cooperation between European countries and other
  Med Countries
• Priority to investment in renewables of
  International Institutions

52
Other Mediterranean wind markets, Scenario by 2010
By the year 2010 it is possible to reach in other
Mediterranean wind markets more than 2000 MW of
wind installations
Others Cyprus, Malta, Bulgaria, Libya,
Algeria, Lebanon, Syria, Jordan, Israel
53
Data Sources and assumptions
Data Sources for market shares, market size and
scenarios

• Italy ENEA, Vestas Track Record
• Greece CRES, Vestas Track Record
• Spain EWEA, IDAE, AEE, Vestas Track Record
• Portugal EWEA, INEGI, BTM consult 2005, Vestas
  Track Record
• France EWEA, ADEME, BTM consult 2005, Vestas
  Track Record
• Morocco OME, BTM consult 2005, Ministry of
  Land-Use Water and Environment, Vestas Track
  Record
• Tunisia OME, UNDP, BTM consult 2005, Vestas
  Track Record
• Egypt OME, Risø (Denmark), BTM consult 2005,
  Vestas Track Record
• Israel IEC, Vestas Track Record
• Turkey EWEA, BTM consult 2005, Vestas Track
  Record
• Bulgaria and Cyprus EWEA, Vestas Track Record

Assumptions for scenarios for all Mediterranean
markets

• Present Trends of renewables and wind markets
• National targets for wind installations and
  renewables
• Vestas forecast
• BTM Consult scenario

• ENEA (Italian National Agency for New
  Technologies Energy and Environment), CRES
  (Center for Renewable Energy Sources), IDAE
  (Instituto para la Diversificacion y Ahorro de la
  Energia), AAE (Asociacion Empresarial Eolica),
  INEGI (Instituto de Engenharia Mecanica e Gestao
  Industrial), ADEME (Agence de l'Environnement et
  de la Maîtrise de l'Energie), OME (Observatoire
  Méditerranéen de l'Energie), UNDP (United Nation
  Enviromental Programme), IEC (Israel Electric
  Corporation), EWEA (European Wind Energy
  Association)

54
Wind, Oil and Gas
V47-660 kW Egypt