Deutsche Bank DB Climate Change Advisors

The German CLEAN Program Story, Replication Possibilities in the US

CEN Webinar
Mark Fulton Global Head of Climate Change Investment Research Deutsche Bank Climate Change Advisors http://www.dbcca.com/research

October 12th, 2011

Best-in Class: Driving Transparency, Longevity and Certainty (TLC)

Emissions Control Renewable Electricity Standard (RES) State-level Long-term Energy Efficiency Plan State-level Financial Support Grid Improvement Plan Budget Strength (% of 2010 GDP) Capital Investment 200 0-2010 (USD Bn)

Country

Binding Emissions Target

Feed-in Tariff ( FiT)

Long-term Govt-based Green Bank

Tax Benefit

Long-term Funding Program

China Germany United Kingdom United States California Texas Brazil South Korea India Australia South Africa

COP Acc X COP Acc COP Acc COP Acc

State-level X X State-level State-level

X X X X X X

State-level

State-level State-level

-1.6% -3.6% -11.5% -10.0% -1.0% -2.2% -2.2% -1.1% -5.5% -4.2% -5.3%

148.3 393.2 384.1 164.1 42.3 31.2 27.1 9.8 0.4

Notes: COP Acc = policy is a submission to the Copenhagen Accord and is not legally binding ; = tentative / unconfirmed policy dependent on certain provisions (e.g. funding) Source: DBCCA Analysis 2011 Deutsche Bank DB Climate Change Advisors Mark Fulton The German CLEAN Program Story, Replication Possibilities in the US 2

Germany Has Developed Comprehensive Green Legislation Over Past 20 Years

Increased support for renewables in 2011, as Germany accelerates nuclear phase-out following Fukushima
Market Incentive Program

100/250 MW wind program 1,000 Solar Roofs Program

Adjustments Renewable to FiTs to Energies 100,000 Ecological reflect costs Heat Act EU ETS Solar Roofs Tax Energy & volume EEG Participation in first Program Reform Saving trading period Amendment Ordinance (2005-2007) National Renewable Renewable Biofuels Energy Combined Feed-In Kyoto Energy Quota Act Sources Act Heat and Law Protocol EEG Action Plan (EEG) Power Act Amendment signatory
FiTs emphasized FiTs uncapped

1980

1990

2000

2002 2004

2006 2008 2009 2010

Source: DBCCA analysis 2011 Deutsche Bank DB Climate Change Advisors Mark Fulton The German CLEAN Program Story, Replication Possibilities in the US

Map of Germanys Low Carbon Targets

Greenhouse Gas 40% below 1990 levels by 2020

Renewable Energy Final Energy Target 18% by 2020

RE Thermal 14% by2020

RE Electricity 30% by 2020

RE Transport 10% by 2020

Source: DBCCA analysis 2011 Deutsche Bank DB Climate Change Advisors 10/12/2011 Mark Fulton The German CLEAN Program Story, Replication Possibilities in the US 2010 DB Blue template

Germany Has Led the Way in RE Deployment Through Feed-in Tariffs

2010 annual investment in renewable energy installations exceeded $40 Bn
Renewable Energy Sources Act (EEG) FiTs emphasized Combined Heat and Power Act EEG Amendment FiTs uncapped EU ETS Participation Renewable in first trading period Energies Heat (2005-2007) Act National Renewable Energy Action Plan

EEG Amendment

RE Generation (% of Total Consumption)

Energy Saving Ordinance

18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 1 55 1990 76 6097 2000 186 8750 2001 296 11989 2002 435 14604 2003 1105 16623 2056 18390 2899 20579 4170 6120 9914 17320

22194

23836

25716

27204

50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0

2004

2005

2006

2007

2008

2009

2010

Wind

Solar PV

RE Generation (in relation to total gross electricity consumption)

Notes: Investment data converted from Euros to USD according to average of monthly USD-EUR foreign exchange rate; RE generation includes hydro Sources: German Federal Ministry for the Environment; Bloomberg New Energy Finance 2011; DBCCA Analysis 2011 Deutsche Bank DB Climate Change Advisors 10/12/2011 Mark Fulton The German CLEAN Program Story, Replication Possibilities in the US 2010 DB Blue template 5

MW Installed

Germany Has Exerted Consistent Downward Pressure on PV Prices Through FiT Degressions
Germanys Solar PV Rates (EUR cents / kWh) and Capacity Additions
(2001 - 2010)
8,000 7,400 7,000 0.62 0.60 0.56 6,000 0.53 0.51 0.48 5,000 0.46 0.46 0.43 0.41 0.38 4,000 0.35 3,806 0.32 0.30 3,000 0.24 0.20 2,000 1,271 1,000 110 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 110 139 0.00 951 670 843 0.10 1,809 0.43 0.39 0.40 Added MW Upper Bound Lower Bound 0.52 0.50 0.60 0.70

Source: DBCCA analysis 2011 Deutsche Bank DB Climate Change Advisors 10/12/2011 Mark Fulton The German CLEAN Program Story, Replication Possibilities in the US 2010 DB Blue template

German PV FiT Rates Have More Closely Tracked Solar System Costs Than in Other Markets
NPV of European Feed-in Tariffs and System Cost ($ / Watt)
8 7 6 5 4 3
Italy Spain System Cost ($/W) Germany

2 1 0 Q2 06 Q4 06 Q2 07 Q4 07 Q2 08 Q4 08 Q2 09 Q4 09 Q2 10 Q4 10 Q2 11 Q4 11
Czech Republic

Notes: NPV calculated at 4% discount rate; system cost represents German average and excludes impacts of value-based pricing in high FiT markets Source: Bloomberg New Energy Finance Deutsche Bank DB Climate Change Advisors 10/12/2011 Mark Fulton The German CLEAN Program Story, Replication Possibilities in the US 2010 DB Blue template 7

Germanys Volume Sensitive Degression Schedule for Solar FiTs

Scenario < -2 GW -2 GW -1 GW Base case +1 GW +2 GW +3 GW > +3 GW

MW installed < 1500 1500 2500 3500 4500 5500 6500 > 6500

Degression (2010) 6% 7% 8% 9% 10% 11% 12% 13%

Degression (2011) 1.5% 4% 6.5% 9% 12% 15% 18% 21%

Source: DBCCA analysis 2011 Deutsche Bank DB Climate Change Advisors 10/12/2011 Mark Fulton The German CLEAN Program Story, Replication Possibilities in the US 2010 DB Blue template

A Policy That Works: Solar PV Already Below or Close to Below Retail Electricity Rates in Germany
0.60
3500 MW Corridor (<30 kW) > 7500 MW Corridor (<30 kW) 3500 MW Corridor (Freestanding) > 7500 MW Corridor (Freestanding) Average Elec. Price Euro / kWh

0.60

0.50

0.50

0.40

0.40

Euro / kWh

0.30

0.30

0.20

0.20

0.10

0.10

0.00 2004 2005 2006 2007 2008 2009 2010 Year 2011 2012 2013 2014 2015 2016

0.00

Source: DBCCA analysis 2011 Deutsche Bank DB Climate Change Advisors 10/12/2011 Mark Fulton The German CLEAN Program Story, Replication Possibilities in the US 2010 DB Blue template

Euro / kWh

Germany a Global Leader in Renewables

Share of power from renewables is expected to more than double by 2020 Also expect 11.4% reduction in power production by 2020 due to efficiency gains
Germanys Electricity Supply Mix 2010A
Biomass 6% Hydro Wind Solar 3% 6% 2% Oil 1% Nuclear 21% Coal 52%

Germanys Electricity Supply Mix 2020E

Other 2.1% Biomass Hydro 5% 7.5% Solar 6.5% Geothermal 0.3%

Coal 37%

Wind 23%

Oil 0.1% Nuclear 5.5% Natural Gas 17%

Natural Gas 9%

17% RE
Deutsche Bank DB Climate Change Advisors 10/12/2011 Mark Fulton The German CLEAN Program Story, Replication Possibilities in the US 2010 DB Blue template

38% RE

Note: Totals may not add due to rounding; Germanys National Renewable Energy Action Plan (NREAP) targeted 38.6% RE by 2020; Other includes waste-to-energy, biogas and landfill gas Sources: EWI; GWS; Prognos; DB Research 10

German Government Has Ambitious RE Forecasts

Germanys Electricity Supply Mix 2030A

Other Hydro 3.6% 7% Biomass 9% Solar 9% Geothermal 0.4% Coal 19%

Germanys Electricity Supply Mix 2050E

Coal Hydro 10% Biomass 4% 9% Geothermal Natural Gas, 2% 10%

Solar 14% Natural Gas 22% Wind 30%

Wind 50%

55% RE

80% RE

Notes: Totals may not add due to rounding; Germanys Energy Concept Plan(2010) targeted 50% RE by 2030 and 80% by 2050 - upward revisions are post-Fukushima and accelerated nuclear phase-out plan; Other includes waste-to-energy, biogas and landfill gas Sources: German Energy Concept Plan 2010, German Federal Ministry for the Environment, Nature Conservation and Nuclear Safety; EWI; GWS; Prognos; DB Research; , DBCCA Analysis 2011 Deutsche Bank DB Climate Change Advisors 10/12/2011 Mark Fulton The German CLEAN Program Story, Replication Possibilities in the US 2010 DB Blue template 11

Rapid Growth in German Clean Energy Industry

Growth in Market Cap and Number of Renewable Energy Companies
(CAGR, 2004 2011)
40% 35% 30% 25% 20% 15% 10% 5% 0% Market Cap of RE Companies (CAGR 2004 - 2011) Japan US Number of RE Companies (CAGR 2004 - 2011) Germany 1% 10% 6% 16% 16% 38%

Note: Includes all quoted companies tracked by Bloomberg New Energy Finance with an exposure of 50% or greater to clean energy; market capitalization data calculated as of year-start (2004 and 2011) Sources: Bloomberg New Energy Finance, Bloomberg Deutsche Bank DB Climate Change Advisors 10/12/2011 Mark Fulton The German CLEAN Program Story, Replication Possibilities in the US 2010 DB Blue template

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Sales of German Renewable Energy Companies Will Be Increasingly Export-Based

Germanys Renewable Technology Exports Over Time
70 60

Various Forecast Scenarios

59.1 47.8 41.3

Billions of Euros (EUR 2005)

50 40 30 20 10 0 Minimum Cautious 6.6 6.6 6.6 6.6 19.9 6.6

32.7

32.9

2007 2020 2030

6.6

Optimistic

Maximum

Source: German Federal Ministry for the Environment, Nature Conservation and Nuclear Safety, 2010 Deutsche Bank DB Climate Change Advisors 10/12/2011 Mark Fulton The German CLEAN Program Story, Replication Possibilities in the US 2010 DB Blue template

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Germanys Renewable Energy Sector Employed 339,500 in 2009, a 2x Increase from 2004
Germanys Renewable Energy Jobs Over Time
Thousands of Jobs by Renewable Energy Sector
700 600 500 400 300 200 100 0 2004 Wind 2007 Biomass Solar 2008 Hydropower 2009 Geothermal 2020E 2030E Public / Non-Commercial 161 277 340 580
450

600
500

Expected range

322

Source: German Federal Ministry for the Environment, Nature Conservation and Nuclear Safety, 2010 Deutsche Bank DB Climate Change Advisors 10/12/2011 Mark Fulton The German CLEAN Program Story, Replication Possibilities in the US 2010 DB Blue template

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US Has History of Inconsistent Federal Policy Support for Renewables

Production Tax Credit Expiration Years
12,000

Forecasts / Estimates

Annual Wind Capacity Additions (MW)

10,000 8,000 6,000 4,000 2,000 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Will wind market drop off again in 2012?

Section 1603 Treasury Cash Grant Extended in December 2010 for 1 year only

92% Drop

76% Drop

76% Drop

Advanced Energy Manufacturing Tax Credit Expired end2010 Sections 1703 & 1705 Loan Guarantees Expiring in 2011
2010 2011 2012

Further extension of the Section 1603 Treasury cash grant program can help to create and preserve green jobs
Sources: AWEA, 2011; Bloomberg New Energy Finance, 2011 Deutsche Bank DB Climate Change Advisors 10/12/2011 Mark Fulton The German CLEAN Program Story, Replication Possibilities in the US 2010 DB Blue template

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2010-2030: US Electricity Supply Mix Becomes Greener and More Gas-Intensive

Assumes from 2010-2030 energy efficiency measures limit growth in electricity demand to 0.7% CAGR
US Electricity Supply Mix 2010A (% Total TWh) US Electricity Supply Mix 2030E (% total TWh)

3% 8%
Coal Coal CCS

17% 7% 17%

20% 1%

19%

45%

Natural Gas Nuclear Baseload Renewables

38%

24%

Wind and Solar

11% RE 24% Nat Gas

Note: 2010 values sum to to 99% due to 1% electricity supply from petroleum (not shown), Sources: EIA; DBCCA Analysis 2011 Deutsche Bank DB Climate Change Advisors 10/12/2011 Mark Fulton The German CLEAN Program Story, Replication Possibilities in the US 2010 DB Blue template

24% RE 38% Nat Gas

16

~500,000 Net New Jobs in 2030 as Compared with 2010 Annual Net New Job Additions by Sector and Type,
2010-2030

Sources: WPK Model, DBCCA analysis 2011.

Deutsche Bank DB Climate Change Advisors 10/12/2011

Mark Fulton The German CLEAN Program Story, Replication Possibilities in the US 2010 DB Blue template

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Renewables are trending towards grid parity

Conventional technologies have started out at very high cost and have only achieved cost reduction with economies of scale Solar and Wind are still more expensive than fossil generation and require interim support until adequate scale is reached
2200 2000 1800
2,200 2,000 1,800

U.S. Electricity Generation and Retail Cost by Energy Source 1930 2010
Coal, Natural Gas, and Nuclear required massive achievements in improving scale to achieve current favorable cost structures
Solar and Wind are experiencing significant improvements in their cost structure with small increases in scale

1.4 1.4

1.2 1.2

Generation (TWh)

1,600 1600 1,400 1400 1,200 1200 1,000 1000 800 800 600 600

1.0 1.0

0.8 0.8

0.6 0.6

0.4 0.4

400 400
0.2 0.2

200 200 0 0
1930 1930 1935 1935 1940 1940 1945 1945 1950 1950 1955 1955 1960 1960 1965 1965 1970 1970 1975 1975 1980 1980 1985 1985 1990 1990 1995 1995 2000 2000 2005 2005 2010 2010 Coal Generation Coal Generation Coal Cost Trend Gas Generation Gas Generation Gas Cost Trend Nuclear Generation Nuclear Generation Nuclear Cost Trend Solar Generation Solar Generation Solar Cost Trend 0.0 0.0 Wind Generation WindGeneration

Coal Cost-trend

Gas Cost-trend

Nuclear Cost-trend

Solar Cost-trend

Wind Cost-trend

Wind Cost Trend

Source: Hudson Clean Energy Partners Analysis, 2011 Deutsche Bank DB Climate Change Advisors Mark Fulton The German CLEAN Program Story, Replication Possibilities in the US

Retail Cost $/ kWh

Retail Cost ($/kWh)

Generation (TWh)

Disclaimer
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I-024263-1.1 Deutsche Bank DB Climate Change Advisors Mark Fulton The German CLEAN Program Story, Replication Possibilities in the US 19