Challenges of the current European Energy Policy

Rafael Miranda CEO of Endesa President of Eurelectric Athens, 22th of May of 2008

The global energy scenario will face profound change

The world's population will grow to 8 billion in 2030

Primary energy consumption (Mtoe)

+55% 17.721

Global primary energy consumption will increase by 55% over the next 25 years 11.429

+125%

China and India their primary energy demand by 125%, will increase equal to 45% of worldwide growth 2.279

2005

5.018

2030

World China India

Source: World Energy Outlook 2007 (IEA)

2

2006-2030 investments in the energy industry:

US$ 21.936 billion

3% 25% 53% 19% Oil Coal

Source: World Energy Outlook 2007 (IEA)

Electricity Gas

The energy industry will need a huge investment effort in the future

Electricity

industry will represent

billion)

uses.

53% (US$ 11,560

of total investments.

Electricity sector

will gain ground versus other energy

15% (US$ 1,728 billion

) is earmarked for Europe.

In the next

25 years

new global installed capacity will be equivalent to the one commissioned on the last

125 years.

3

The combat on climate change will be a relevant driver in the energy industry

IPCC :”Most of the observed increase in global average temperatures since the mid-20th century is very likely due to the observed increase in anthropogenic greenhouse gas concentrations”

Global population affected by global warming in 2080 If the European target of a 2ºC rise in temperatures is reached, by 2080:

2,7 billion people will be exposed to the risks of drought, 250M to malaria and 30M to hunger.

Source: Intergovernmental panel on climate change (ONU) 4

Heavy dependence on fossil fuels Coal Oil Natural gas

Renewables

Nuclear Hydro

2005 25% 35% 21%

11%

6% 2%

Global primary en ergy mix

WEO 2030

Baseline Scenario Alternative Scenario 28% 23% 32% 31% 22% 22%

11% 14%

5% 7% 2% 3% Total

100% 100% 100%

Baseline Scenario: No inclusion of Government new energy policies Alternative Scenario: Inclusion of additional measures from Governments to face SoS and Climate Change Issues. 450 millions of particles in the atmosphere Source: World Energy Outlook 2007 (IEA)

Fossil fuels

decades will remain as the

dominant

technology for

Renewables

will grow significantly in absolute terms (2.800-3.500 TWh in 2030) 5

Commodity prices would be driven in the future by its scarcity

Oil

Reserves (in years of consumption) and

main countries where they are located 41 years (down from 41 years in 1996) Saudi Arabia, Iran, Iraq, Kuwait and Venezuela Natural Gas Coal 63 years (down from 66 years in 1996) Russia, Iran, Qatar, Saudi Arabia and A.U.E.

147 years (down from 224 years in 1996) U.S.A., Russia, China, India and Australia Energy commodities are scarce and mainly located in geopolitically unstable countries…

Sources: EIA y BP Statistical Energy Review.

Price increases

(dic03 vs. May08)

+319% +90% +143%

… and its prices have risen sharply

6

In this challenging global environment, the EU has set the guidelines of its energy policy

Strategic European Energy Review 2007 (SEER)

2009 2015 2020 2050 A real pan-European energy market 12 fossil-fuel plants with CCS 20% of renewables in primary energy mix 20% CO 2 emissions reduction in the EU (vs 1990), up to 30% reduction may be set 20% increase in energy efficiency 50% CO 2 emissions reduction by 2050 (vs 1990)

Developments in the Green Package

7

Europe

has set an

ambitious

emission reduction targets …

EU Emissions Targets 2020

-20% or -30%

(vs. 1990)

2020 -50%

(vs. 1990)

Source: World Energy Outlook 2007 (IEA)

EU is leading the combat on climate change … however,

climate change is a global

problem where Europe's impact is not significantly relevant

World CO2 Emissions

(MtCO2)

41.905

+57%

(15.285)

26.620

% World CO2 Emissions China USA Europe Others

2005 19% 22% 15% 44%

2030 27% 16% 10% 47%

2005 2030 8

The EU is clearly committed to achieve its emission target through a further development of renewables

EU Renewables policy and breakdow by country 2020

1. Italy 21,8 5,2

27%

2. UK 13,7 1,3

15%

5. France 12,7 10,3

23%

6. Germany

Average UE

12,2

11,5

5,8

8,5 18% 20%

8. Spain

11,3 8,7 20%

9. Greece 11,1 6,9

18%

21. Poland 7,8 7,2

15% Renewable effort 2006-2020 + Renewables a 2005 = Renewables 2020

X,X X,X

X,X%

Nota: the EU considers that renewable energy includes wind, solar, hydro, biomass, but do not include cogeneration. Only main countries represented.

General characteristics:

• Increase of 5.5% for all + individual additional based on the GDP of the country • No consider historical effort and potential of renewable is not consider • 10% of biofuels in transport in 2020 • “National Action Plan” before march 2010

Industry views of the European energy policy:

• Main effort made by the electricity sector • Electricity prices will increase • Incentives for renewables should be market based • Homogeneous European policy in renewables is needed.

9

Renewables evolution in Europe (ex-hydro) 2030 (TWh) 850

14 9 58

170 17

78 84 1990 2005 Biomass and waste Wind Geothermal Solar Tide and wave

Source: World Energy Outlook 2007 (IEA)

429

259 146 2012 Renewables growth have significant benefits for Europe 552 217 2030

Impacts of renewables to the European Industry:

• No CO2 emissions • No contribution to the acid rain formation • Reduce external dependency • Acomplishment of Kioto targets • Create jobs • Tech development that can benefit trade • Some contributes with distributed generation to the electrical system • High volatility • Backup power needed • Need to be subsidized           10

A balanced energy policy is required Energy efficiency Diversification of technologies

Energy policy

Competition Security of supply Minimising impact on the environment and climate change

More R&D investment Agreements with energy commodities producers Development of interconnections Market development 11

CENTRAL WEST NORTHERN UK & IRELAND SOUTH WEST CENTRAL SOUTH CENTRAL EAST BALTIC Moving towards a single European market will be crucial The EU ultimate objective is to create a single electricity market Regional markets could be a necessary interim step To achieve an

efficient and competitive

single market it is key to define an

homogeneous and stable

regulation based on

market mechanisms

12

Wind energy Natural gas Coal Nuclear energy

All generation technologies must be considered

Energy dependency Emissions Security of supply Price volatility Reserves Cost

No single technology meets all these goals, but combined provide an optimal solution 13

To solve the energy quiz it will be necessary the development of new technologies

2010 2020 2030 2040 2050

Towards a cero-emission and efficient energy      

Offshore wind 3G nuclear fission Hybrid cars 1G Biofuels Subsidized solar Smart meters

      

CCS technologies 4G nuclear fission Electric cars 2G Biofuels Wave energy Competitive solar Smart Grids



Nuclear fusion



Hydrogen car and turbine



Unknown technologies nowadays

14

The EU should promote energy efficiency more actively

220% 200% 180% 160% 140% 120% 100% 80% 60% 40%

Energy intensity (base 100: EU15 2004)

1994 EU25 EU15 USA 2004 JAP Europe

and Japan are economic regions with the

high levels of energy efficiency

… Primary energy intensity (kpte / M€) … however Europe still has

significant room for improvement

15

Summary The European Union is

leading the combat on climate change

. A critical levers will be the development of renewables

Renewables have significant benefits

European electricity system and the European economy, with some “cons” that must be offset for both the Europe should not leave aside the other main drivers of a balanced energy policy

: Security of Supply and Competitiveness

16

Challenges of the current European Energy Policy

Rafael Miranda CEO of Endesa President of Eurelectric Athens, 22th of May of 2008