The Energy Issue 2014 - continued - William Dhaeseleer KU
Leuven Energy Institute
Slide 2
an amount of water [m 3 ] flow rate [m 3 /s] volume of water =
an amount = a package m 3 or kilo-liter = kl flow rate = amount per
time m 3 /s or m 3 /min or m 3 /h or kl/h 1 gallon ~ 3,8 liters 1
minute to fill the cup 5 minutes to fill the cup Energy versus
Power
Slide 3
an amount of water [kFh] flow rate [kF] volume of water = an
amount = a package m 3 or kF * h or kFh flow rate = debiet = dbit
amount per time kl/h or kF 1 gallon ~ 3,8 liters kF = kilo-Flow kFh
= kilo-Flow-hour Energy versus Power
Slide 4
same energy = an amount [kWh] Power [kW] Energy versus
Power
Slide 5
Small plant, running many hours (like small faucet) Large
plant, with large output running shorter period (like large faucet)
Energy versus Power
Slide 6
Small plant, running many hours (like small faucet) Large
plant, with large output running shorter period (like large faucet)
same energy consumptiondifferent power demand different duration
Energy versus Power
Slide 7
Power & Energy Units Energy in Joule J Power in J/s or J/h
Alternative name for power J/s = Watt W or if 1,000 Watt = 1 kWatt
1 kW Thus energy: 1 J = 1 Ws or if 1,000 W during 1 hour 1 kWh
Note: kW=1,000 W MW=1,000,000 W
Slide 8
Session September,2014 Focus points: o Electricity Prices o
Security of supply Gas / Russia Electric power provision / rolling
blackouts
Slide 9
Session September,2014 Focus points: o Electricity Prices o
Security of supply Gas / Russia Electric power provision / rolling
blackouts
Slide 10
/MWh MWh/h NukeCoalCCGT Classic Gas Peak units Wind, Hydro
Supply curve (= marginal cost) Price setting in a perfect
competitive power market
Slide 11
/MWh MWh/h NukeCoalCCGT Classic Gas Wind, Hydro Demand curve
Supply curve (= marginal cost) Peak units Price setting in a
perfect competitive power market
Slide 12
/MWh MWh/h NukeCoalCCGT Classic Gas Wind, Hydro Demand curve
Market price (= marginal cost of most expensive generating unit)
Supply curve (= marginal cost) Peak units Price setting in a
perfect competitive power market
Slide 13
/MWh MWh/h NukeCoalCCGT Classic Gas Wind, Hydro Demand curve
Market price (= marginal cost of most expensive generating unit)
Supply curve (= marginal cost) Full cost Peak units Price setting
in a perfect competitive power market
Slide 14
/MWh MWh/h NukeCoalCCGT Classic Gas Wind, Hydro Demand curve
Market price (= marginal cost of most expensive generating unit)
Supply curve (= marginal cost) Full cost Potential for new
investment Peak units Price setting in a perfect competitive power
market
Slide 15
Slide 16
William Dhaeseleer Third Handelsblatt Annual Conference, Berlin
EU 20-20-20 targets by 2020 Reduction of greenhouse gases Energy
consumption, Efficiency increase Share of renewable energy -20%
100% +20% 8,5%
Slide 17
EUs implementation - currently Much progress build up
renewables (+) seems to be too nice to be true... And it is...
There are major system effects that have been neglected and that
may jeopardize further success of renewables deployment! One has
gone too rapidly recently, with danger of losing support of
population!
Slide 18
William Dhaeseleer
Slide 19
French Report January 2014
Slide 20
20 EUs implementation Issues / challenges / problems in the EU
market Technical challenges Market-integration problems
Consequences for the CO 2 emissions End-electricity prices for end
consumers
Slide 21
EUs implementation Consequences of renewables quota in
end-energy terms (1) Total end energy = electric energy + fuel for
heat + fuel for transportation EU requirement by 2020: 20% of end
energy from RES For transportation only 10%... for electric sector
~ 34% Expectations / outcome (steered by differentiated subsidies):
o Hydro ~ only small increase possible o Biomass ~ moderated
increase (protests against co-combustion, imported biomass pellets,
sustainability questions) o Wind onshore + offshore / ENOH onsh ~
2200h/a offsh ~ 3500 h/a o Solar photovoltaics (PV) / ENOH Belgium
~ 800 h/y Total: 8760 h/a low capacity factors of these
intermittent sources
Slide 22
EUs implementation Consequences of renewables quota in
end-energy terms (2) Capacity factors intermittent sources (wind +
PV): o Wind onshore + offshore / CF ~ 25% - 30% o Solar
photovoltaics (PV) / CF ~ 10% To produce 34% electric energy with
something that operates only 10% or 25-30% of the time, you must
install a large amount of installed power ( called capacity) leads
to massive overcapacity If there is a lot of wind and sun, and low
demand (e.g., weekends), then too much electric power produced But
sometimes in case of cold spell (cfr winter Feb 2012) with temp
inversion... little wind and dark (hence no PV) at 17.00h-18.00h,
when peak demand arises in NW-Europe! very little RES electricity
produced
Slide 23
EUs implementation Consequences of renewables quota in
end-energy terms (3) Intermittency: defined as variable and partly
unpredictable How deal with massive intermittency in electricity
system? o Back up reserves from flexible dispachable thermal plants
(+ & -) o Electric storage (large scale electric storage not
available) o Expansion of transmission grid o Encourage active
demand response (ADR) o Curtailing of superfluous RES production /
review priority access o Mitigate on local level via smart
grids
Slide 24
24 EUs implementation Issues / challenges / problems in the EU
market Technical challenges Market-integration problems
Consequences for the CO 2 emissions End-electricity prices for end
consumers
Slide 25
25 EUs implementation Some simple technical aspects Power
expressed in Watt... kW...MW...GW o Instantaneous power ~ flow (cfr
water flow from faucet) o Installed power capacity: max power
output of facility Nuc pwr plant ~ typically 1000 MW or 1 GW (but
instantaneous output at shutdown = 0) Wind turbine ~ typically 2
tot 5 MW (but instantaneous output depends on wind) o Examples
Belgium Peak electricity demand ~ 14 GW in winter Low electricity
demand ~ 6-7 GW in summer Electrical energy expressed in
kWh...MWh...TWh Annual production / consumption ~ 90 TWh/a
Difference betwn demand from the grids and consumption ( incl own
consump ) Power variations of flexible plants (ramp rates) MW per
min... MW/h
28 EUs implementation Issues / challenges / problems in the EU
market Technical challenges Market-integration problems
Consequences for the CO 2 emissions End-electricity prices for end
consumers
Slide 29
Common EU electricity market started in 1996,...then
2003,...then 2009 At present third package being implemented Better
European coordination through ENTSO-E, ACER Unbundling (generation,
transmission, distribution, supply) Alligned grid codes... Market
integration elements in place, was bearing fruits... But now anew
price divergence between countries! EUs implementation market
issues
32 Source: ACER, 2013 Price differential Hourly wind generation
DE EUs implementation market issues But... Recent developments...
!!!
Slide 33
Decoupling prices shows poorer functioning of market Lower
wholesale prices seem to be good news (?) But they lead to major
problems for owners/operators of thermal plants which are needed
for balancing! And ironically, end-consumer prices increase rather
than decrease (to pay for the levies/subsidies) EUs implementation
market issues
Slide 34
But... Recent developments... !!! These effects were not
foreseen in liberalized market design... Due to massive injection
of zero marginal cost generation (RES) Most efficient &
flexible plants (CCGTs) are pushed out of merit order... Tendency
for mothballing Leads even to negative wholesale prices !! Need
completely different philosophy whith massive RES, where holding
capacity ready is remunerated... capacity mechanisms
Slide 35
EUs implementation market issues
Slide 36
Ref: F. Roques in The crisis of the European Electricity System
FR 2014 EUs implementation market issues
Slide 37
The merit order effect of RES Ref: Factsheet 2014-1 KULv EI EUs
implementation market issues
Slide 38
Spread = difference price & production cost = gross profit
EUs implementation market issues Prices too low for covering
operational cost of gas plants
Slide 39
EUs implementation market issues The missing money problem !!
The most efficient plants (gas-fired combined cycles CCGT) are
pushed out of the merit order their capacity factor becomes too low
to recover investments the prices are too low to cover operating
costs many CCGTs are currently shut down and will be mothballed or
shut down permanently! Risk: insufficient capacity (generation
adequacy) to do the back up
Slide 40
EUs implementation market issues Negative wholesale prices Ref:
Factsheet 2014-1 KULv EI
Slide 41
EUs implementation market issues 41 Negative prices in Germany
in period October 2008-October 2009
Slide 42
Negative Wholesale Electrivity Prices Ref: F. Roques in The
crisis of the European Electricity System FR 2014
Slide 43
43 EUs implementation market issues Negative prices in Belgium
June 2013
Slide 44
EUs implementation market issues Belgium: the missing money
problem + nuclear phase out Recall: Risk: insufficient capacity
(generation adequacy) to do the back up In case of shortage, peak
prices would skyrocket! But peak prices not high enough to
compensate losses Need for capacity remuneration mechanisms In
Belgium: combined with nuclear phase out... Strategic Reserves
(Plan Wathelet)
Slide 45
Influence Doel 3 Tihange 2 and... Doel 4 Lack of own cheap
generation
Slide 46
46 EUs implementation Issues / challenges / problems in the EU
market Technical challenges Market-integration problems
Consequences for the CO 2 emissions End-electricity prices for end
consumers
Slide 47
GHG Target: -20% compared to 1990 -14% compared to 2005 EU ETS
-21% compared to 2005 Non ETS sectors -10% compared to 2005 27
Member State targets, stretching from -20% to +20% A shared effort
between sectors and MS
Slide 48
EUs implementation Consequences for the CO 2 emissions First
Phase 2005-2007
Slide 49
Second Phase 2008-2012 EUs implementation Consequences for the
CO 2 emissions
Slide 50
EUs implementation Consequences for the CO 2 emissions Second
& Third Phases 2012-2014
Slide 51
EUs implementation CO 2 price
Slide 52
EUs implementation market issues
Slide 53
Consequences for the CO 2 emissions Very low prices for CO 2
emission permits (allowances) Due to o economic crisis (less CO 2
emissions) in 2008-2014 o banking of allowances from phase 2 o
massive injection RES with priority access reduces demand for
fossil generation reduces demand for CO 2 allowances lower CO 2
prices i.e., highly subsidized RES effectively subsidize cheap coal
by keeping the CO 2 penalties low !! EUs implementation
Slide 54
Consequences of shale gas in US for CO 2 emissions in DE System
effect due to low gas prices in USA shale gas Gas extremely cheap
in the USA EUs implementation
Slide 55
IEA WEO November 2013 EUs implementation Consequences of shale
gas in US for CO 2 emissions in DE
Slide 56
Source: CREG, 2014 EUs implementation Consequences of shale gas
in US for CO 2 emissions in DE USA Europe
Slide 57
Consequences of shale gas in US for CO 2 emissions in DE System
effect due to low gas prices in USA shale gas Gas extremely cheap
in the USA Gas pushes coal out of merit order in USA US coal demand
decreased Lower coal prices USA coal offered to world market...
shipped to Germany Cheap US coal used in German coal fired plants
CO 2 emissions electricity generation have gone up! But does not
matter in EU since ETS, only price increase EUAs In mean time:
world emissions CO 2 up up up EUs implementation
Slide 58
58 EUs implementation Issues / challenges / problems in the EU
market Technical challenges Market-integration problems
Consequences for the CO 2 emissions End-electricity prices for end
consumers
Slide 59
Consider following consumers (following CREG report) o
Household (Dc) Electricity 3,500 kWh/y o Professional consumers
Electricity 160,000 kWh/y, low voltage (Ic) Electricity 160,000
kWh/y, medium voltage (Ic1) Evolution of price from January 2007
till May 2013 59 Decomposition of energy retail prices
Electricity
Slide 60
Evolution of final price domestic consumer 60 Decomposition of
energy retail prices Electricity Source: CREG, 2013
Slide 61
Composition of final price o Energy price o Transmission o
Distribution o Public levies o Contribution RES and CHP o Energy
taxes and VAT 61 Decomposition of energy retail prices
Electricity
Slide 62
Composition of final price domestic consumer 62 Decomposition
of energy retail prices Electricity Source: CREG, 2013
Slide 63
Composition of final price domestic consumer 63 Decomposition
of energy retail prices Electricity Source: CREG, 2013
Slide 64
Energy component o Component based on index parameters
Indexation formula changes not frequently o Prize freeze between
April 2012 December 2012 o As from 2013, changes (indexation) in
variable pricing contracts require approval regulator CREG
(ex-post) o Dc: Flanders -1.53 /MWh (-2.83%) o Dc: Walloon region
& Brussels: +2.72 /MWh (+3.63%) Due to evolution index
parameters 64 Decomposition of energy retail prices
Electricity
Slide 65
Evolution of energy price domestic consumer 65 Decomposition of
energy retail prices Electricity Source: CREG, 2013
Slide 66
Transmission tariff o Elias transmission grid tariff Corrected
with loss-percentage of DSO o Minor component o Same for Dc and Ic;
Ic1 different 66 Decomposition of energy retail prices
Electricity
Slide 67
Distribution tariff o Introduction of multi-year tariff o
Public service Flanders: Free electricity, public lighting, green
certificates and actions for rational energy use o Consumers on MV
face lower tariff Cascade principle do not bear costs of
infrastructure downstream o Price evolution: Overall +71.7%
Flanders +41.64 /MWh (+99.96%) Walloon region: +13.80 /MWh
(+32.42%) Brussels: +19.28 /MWh (+47.81%) 67 Decomposition of
energy retail prices Electricity
Slide 68
Evolution and composition distribution tariff 68 Decomposition
of energy retail prices Electricity Source: CREG, 2013
Slide 69
Public levies o Federal contribution (2.98 /MWh) E.g.,
denuclearization of BP1 and BP2 Mol-Dessel o Connection off-shore
wind (0.14 /MWh) o Green certificates (2.2 /MWh) Off-shore wind o
Costs +99.57% 69 Decomposition of energy retail prices
Electricity
Slide 70
Contribution RES and CHP o Obligations supplier o Costs
+119.67% 70 Decomposition of energy retail prices Electricity
Source: CREG, 2013
Slide 71
Energy tax and VAT o Energy tax: 1.9 /MWh o VAT on sum of all
components (including tax) 21% till March 2014 6% as of April 2014
71 Decomposition of energy retail prices Electricity
Slide 72
Waiting time bomb? - Flanders
Slide 73
Slide 74
International positioning 74
Slide 75
Comparison neighboring countries domestic consumer 75
International positioning Electricity Source: CREG, 2014
Slide 76
Comparison neighboring countries domestic consumer 76
International positioning Electricity Source: CREG, 2014
Slide 77
Slide 78
78 Final reflections on costs all energy end products
Slide 79
Slide 80
Session September,2014 Focus points: o Electricity Prices o
Security of supply Gas / Russia Electric power provision / rolling
blackouts
Slide 81
January 01 2006 & 2009
Slide 82
Source: Wood Mackenzie / Fluxys Russia
Slide 83
SoS Structured definition 1. Strategic Security of Supply 2.
Adequacy 3. Avoiding Black outs or Sudden Cuts
Slide 84
SoS Structured definition 1. Strategic Security of Supply 2.
Adequacy 3. Avoiding Black outs or Sudden Cuts
Slide 85
(1)Strategic Security of Supply SoS Structured definition (1)
Strategic Security of Supply 1. Physical availability of primary
energy sources enough non-empty wells (reserves), coal mines,
uranium mines For oil, partly the issue of peak oil
Slide 86
(1)Strategic Security of Supply SoS Structured definition (1)
Strategic Security of Supply 1. Physical availability of primary
energy sources enough non-empty wells (reserves), coal mines,
uranium mines For oil, partly the issue of peak oil 2. Sufficient
investments in production capacity in producer countries e.g.,
investments in oil & gas production also peak oil
Slide 87
(1)Strategic Security of Supply SoS Structured definition (1)
Strategic Security of Supply 1. Physical availability of primary
energy sources enough non-empty wells (reserves), coal mines,
uranium mines For oil, partly the issue of peak oil 2. Sufficient
investments in production capacity in producer countries e.g.,
investments in oil & gas production also peak oil 3.
Geopolitics unpredictable (Iran Ukraine/RF Middle East)
Slide 88
Geopolitics
Slide 89
Slide 90
Slide 91
Transit Russian gas through the Ukraine
Slide 92
What if Russian embargo? Ref: EWI Kln
Slide 93
What in case of embargo? Ref: Fluxys
Slide 94
But cold spell in February !!! Supply shortfalls during embargo
of 6 months normal weather in Februarycold spell in February What
if Russian embargo? Ref: EWI Kln
Slide 95
SoS Structured definition 1. Strategic Security of Supply 2.
Adequacy 3. Avoiding Black outs or Sudden Cuts
Slide 96
(2) Adequacy SoS Structured definition (2) Adequacy =
Sufficient investments in consumer and or transit countries
Slide 97
(2) Adequacy SoS Structured definition (2) Adequacy A Electric
power plants, HV grid, high-p NG pipelines, LV and low-p
distribution grid, oil refineries, U-enrichment plants
installations need to be able to cope with baseload, peak load
& variable load (transient flexibility, variability,
unpredictability)
Slide 98
Adequacy
Slide 99
Slide 100
(2) Adequacy SoS Structured definition (2) Adequacy A Electric
power plants, HV grid, high-p NG pipelines, LV and low-p
distribution grid, oil refineries, U-enrichment plants
installations need to be able to cope with baseload, peak load
& variable load (transient flexibility, variability,
unpredictability) B Transit pipelines (NG), LNG ships, cross-border
HV lines, oil-tanker fleet, assure more than one single
route/means
Slide 101
(2) Adequacy SoS Structured definition (2) Adequacy Issues that
may hamper adequacy: Nature of liberalized markets (economic risk)
-- investors demand a higher IRR Unstable regulatory situation
Conflict with environmental policy Uncertain regulatory character;
price caps Complex permitting/licensing processes
Slide 102
(2) Adequacy SoS Structured definition (2) Adequacy Issues that
may hamper adequacy: Circumstantial influencing elements Financial
market expectations/tendencies Energy policy expectations (green
papers, intentions) Political uncertainties (attitude of political
authorities wrt private investment; ideological tensions in
governments on investment choices to be made) Too low electricity
prices (driven by RES); small load factors
Slide 103
SoS Structured definition 1. Strategic Security of Supply 2.
Adequacy 3. Avoiding Black outs or Sudden Cuts
Slide 104
(3) Avoiding sudden cuts (black outs) SoS Structured definition
(3) Avoiding sudden cuts (black outs) = make sure that the overall
system performs as expected (for end customer) even in case of
unexpected events i.e., capacity to absorb transients, dynamics,
mishaps reliability/security = issue of reliability/security
redundancy (e.g., N-1 rule) related to maintenance, control
strategies,
Slide 105
Cope with storms, Need redundancy N-1 (3) Avoiding sudden cuts
(black outs) SoS Structured definition (3) Avoiding sudden cuts
(black outs)
Slide 106
Solutions for SoS General principles Energy efficiency (reduce
demand) o Avoiding kWh and Joules (energy) o Mitigate peak loads
(power) Energy prices must be sufficiently high
Slide 107
Solutions for SoS General principles Diversity; spread risk
portfolio analysis o Types of fuels/renewables
Slide 108
Solutions for SoS General principles Diversity; spread risk
portfolio analysis o Types of fuels/renewables o Origin of the
fuels
Slide 109
Actually, entering BE from the East; So origin RF < 7.1%
Ref: FLUXYS Solutions for SoS Example: origin of Natural Gas
Belgium Year 2013
Slide 110
Solutions for SoS General principles Diversity; spread risk
portfolio analysis o Types of fuels/renewables o Origin of the
fuels o Routes
Slide 111
Solutions for SoS
Slide 112
General principles Diversity; spread risk portfolio analysis o
Types of fuels/renewables o Origin of the fuels o Routes o Types of
technologies sufficient firm generation capacity
Slide 113
Slide 114
Adequacy Components o Generation o Demand o Interconnection
Capacity Security of Electric Power Supply BE 114
Slide 115
Generation: Belgian Energy Mix High dependency on nuclear power
Renewable energy: installed capacity energy produced 115 Sources:
Elia, ENTSO-E, Apere
Slide 116
Nuclear Phase Out 2022-23: -2.014 MW 2015: -866 MW 116 Belgian
nuclear phase out calendar: definitive (?) Current uncertainty with
Doel 3 & Tihange 2
Adequacy Components o Generation o Demand o Interconnection
Capacity Security of Electric Power Supply BE 123
Slide 124
Demand: Peak Security of supply Peak Peak history: High
correlation for peaks between BE, NL & FR Most peaks occur
after 6PM Entso-e[MW]Change 200714074 200813584-3,48%
2009136660,60% 2010142744,45% 201114081-1,35% 2012141910,78%
201313345-5,96% 124
Slide 125
Demand: Peak 2012 125 Sources: FPS Economy, Elia
Slide 126
Demand: Non firm Capacity Renewables 126 Sources: FPS Economy,
Elia
Interconnection Capacity: Doel 3 & Tihange 2 131 Sources:
FPS Economy, Elia But should subtract RES...
Slide 132
Interconnection Capacity: Are there sellers? 132 Sources:
ENTSO-E Can we import 3.500 MW? o Technically speaking yes o Are
there sellers?
Slide 133
Interconnection Capacity: Are there sellers? 133 Sources:
ENTSO-E Imports form France: High sensitivity of the load to low
temperatures No surplus generation capacity under severe weather
conditions
Slide 134
Recall w/o Doel 3 & Tihange 2 2 134 Sources: FPS Economy,
Elia But should subtract RES...
Slide 135
KCD 3 & CNT 2 out / no RES no import
Slide 136
Doel 3 & Tihange 2 available
Slide 137
KCD 3 & CNT 2 in / no RES no import
Slide 138
Adequacy Components o Generation o Demand o Interconnection
Capacity Plan Wathelet Security of Electric Power Supply BE
138
Slide 139
A public tender aiming for 800 MW of new gas-fired units
Nuclear phase out: o 10 year lifetime extension of the nuclear
plant Tihange 1 o Removal of art.9 Creation of strategic reserves
Creation of strategic reserves Demand side management & storage
Interconnection (Nemo, Brabo and ALEGrO) Plan Wathelet 139
Slide 140
Elia analyzed the situation and the risks for security of
supply for the upcoming winter Based on Elias analysis the
Secretary for Energy decided on the need to create a strategic
reserves of 800 MW Elia has organized a tender for this strategic
reserve Have to participate: all production units for which closure
is announced + all production units which are temporarily shut down
Can participate: demand side (large consumers, aggregators) CREG
checks the contracted prices and approve the functioning rules Plan
Wathelet: Strategic reserves 140
Slide 141
Plan Wathelet: Strategic reserves 141 Sources: FPS Economy,
Elia Non-firm RES Doel 3 & Tih 2 ?? -2014 MW
Slide 142
KCD 3 & CNT 2 out / no RES no import 800 MW does not help
in 2014 Hopefully KCD 4 back
Slide 143
Range [MW] Winter 2014/150 - 800 Winter 2015/161.200 2.200
Winter 2016/171.300 2.300 Plan Wathelet: Strategic reserves
Ministerial Decree 3 April 2014: The creation of a Strategic
reserve of 800 MW from 1 November 2014 for 3 years. Now, 850 MW
strategic reserve foreseen: - 485 MW Seraing - 265 MW Verbrande
Brug (but still construction works till Jan 2015?) - 100 MW demand
reduction large customers ELIA & CREG force suppliers to be in
balance penalty 4000 /MWh Further needs according to Elia analysis:
143
Slide 144
Generation adequacy at stress o Major decrease of flexible
generation capacity o Uncertain generation from renewables o Forced
outage of Doel 3 & Tihange 2 o Deterministic approach fatal /
probabilistic approach LOLE perhaps Result: o High dependency on
(uncertain) imports to meet peak demand o Challenging integration
of the growing share of renewables due to loss of flexible
generation capacity Lessons Learned on Missing Money 144April 30
2014K.May U-WETOCO
Slide 145
Conclusions The challenges on energy provision are considerable
o Geopolitics gas - Russia o Electricity Provision Should learn
lessons from past experience: o Do not repeat no-no-no attitude
(nuc, coal, HV lines) o Now crisis: let ELIA do its job politics
not to intervene! Energy issue is very complicated because
interactions more need to study the system effects A careful energy
policy on EU and Belgium level is necessary to be taken out of
ideological sphere...