test 1
Test
Friday April 29, 2016
Reality check on renewable energy: long, long road ahead
Official EU statistics overestimate the share of renewables in the energy mix
We all love solar and wind power. We know we will need both, in great quantities, to make the transition to a low-carbon future. But we should not lose sight of the reality of renewables today. Their share in our energy production is still very limited.
Indeed, it is probably even more limited than our official statistics suggest.
The EU has a target of 20% renewables by 2020, which it is confident will reach fairly easily. In 2014 we had achieved 16%, according to official statistics.
But Martien Visser, professor at the Hanzehogeschool (Hanze University of Applied Sciences) in Groningen, argues that these statistics are misleading.
In a new article on Energy Post, he points out that, according to Eurostat, the EU28 used 1600 Mtoe (million tons of oil equivalent) of energy in 2014. However, to arrive at the 16% figure, consumption of only 1100 Mtoe is assumed. The reason is that according to the 2009 Renewable Energy Directive certain areas of energy use are excluded. For example, the usage of fuel oil for international shipping and energy consumption for feedstcoks are not counted in when calculating the renewable energy percentage. So compared to our real energy consumption of 1600 Mtoe, we only have 9.6% of renewable energy in Europe (end of 2014).
Visser concludes that even if we had 100% renewable energy, we would still need a lot of fossil fuels to cover our energy needs! Or conversely: we require 150% renewable energy to become fossil-free!
He also points out that, contrary to what many people think, solar and wind power represent only a small part of total renewable energy supply. Most of our renewables come from biomass (60%). To arrive at the 27% renewable energy target in 2030 with solar and wind only, requires an increase of 400% of those energy sources compared to today.
Visser does not say so explicitly, but the inference is clear: to reach an almost fossil-free future in 2050, there is still a long, long way to go – and no alternatives should be excluded.
***
The fact that renewables have a long way to go was confirmed, indirectly, by the annual Roadmap for a Renewable Future, published by IRENA (the International Renewable Energy Agency) on 17 March. IRENA, based in Abu Dhabi, with R&D headquarters in Bonn, is of course a great cheerleader for renewable energy. The Roadmap claims that “doubling the share of sustainable energy in 2030” will save the world $4200 billion – 15 times as much as the investment needed.
It’s difficult to check figures like this. But the Roadmap also indicates how big the challenge is for such a doubling. At this moment renewables (including hydropower and biomass) are good for 18% of the global energy mix. If all the national climate plans (INDCs) that were submitted to the Paris Climate Conference in December are carried out, this will grow to just 21% in 2030. To get to 36%, renewable energy will have to grow 6 times as fast as it does today, notes the Roadmap. That’s some acceleration.
Not that the world isn’t trying:
- France has recently increased its solar target three-fold by 2023. The consultative industry body Conseil Superieur de l’Energie (CSE) has approved an increase in the solar PV target to 20.2 GW by 2023 from an anticapated 10.2 GW by the end of 2018.
- IKEA has announced the intention to become the world’s number one global residential solar retailer. It is rolling out its residential solar program in three European countries in the coming months (UK, Netherlands and Switzerland) before expanding its solar sales points in stores globally.
- The famous Finnish engineering company Wärtsilä, well-known for its conventional power plants and engineering technology, announced on 21 April that it will enter the solar energy business. Wärtsilä will start offering utility-scale solar PV solutions, including solar PV power plants of 10 MW and more as well as hybrid power plants combining solar PV plants with internal combustion engines.
Last year, global renewable generation capacity grew by 8.3% (152 GW), the highest rate ever, to reach 1985 GW, according to figures from IRENA. Two-thirds of this was hydropower. Wind grew by 432 W and solar by 227 GW:
Jon Moore, head of the well-known consultancy Bloomberg New Energy Finance (BNEF), said at a conference in New York in April that two-thirds of all new energy generation capacity around the world in the next 25 years will come from renewables:
Michael Liebreich, founder of BNEF, showed why solar power is being so successful: costs have come down spectacularly and are still decreasing.
He also showed that the World Energy Outlook (WEO), the flagship publication of the International Energy Agency (IEA), the “bible” of much of the energy world, has consistently underestimated the growth of solar and wind power in the world:
So it may be an uphill battle. But it’s not lost yet.
BRUSSELS INSIDER
By Sonja van Renssen
THIS WEEK: Are capacity mechanisms state aid? DG Competition and DG Energy clash over the future of EU energy market
EU member states are setting up capacity mechanisms that may be unnecessary, expensive and badly designed. This is the Commission’s sobering conclusion in the interim report of its first ever investigation into state aid for electricity generators in the form of capacity mechanisms to safeguard security of electricity supply. The Commission (the Directorate-General of Competition) just stops short of calling them state aid – but that could still happen. Sonja van Renssen examines the implications of DG Comp’s findings for the new energy market design DG Energy is working on.
“There is a lot of room for Member States to improve how they assess whether capacity mechanisms are needed, and how they design them,” said EU Competition Commissioner Margrethe Vestager on 13 April in Brussels. She was presenting the interim report of a sector enquiry into capacity mechanisms that was launched nearly exactly a year ago. “Capacity mechanisms” covers all the arrangements by which Member States pay electricity generators (and occasionally consumers) extra to keep plants open or build new ones (or change consumption patterns) with the explicit goal of security of electricity supply. These schemes can distort competition and have to be approved by the Commission under state aid rules.
When the enquiry was launched, experts said it would show whether the EU is succeeding in keeping Member States on track to a single European energy market and indeed a single European energy policy, the Energy Union. It is the Commission’s first ever sector enquiry into state aid.
Not great
Twelve months later, the findings are not great. The Commission examined 11 Member States – Belgium, Croatia, Denmark, France, Germany, Ireland, Italy, Poland, Portugal, Spain and Sweden – and found no less than 28 capacity mechanisms. Spain alone has four. Aside from a debate over what this means for the internal energy market, much more worrying is that “many” capacity mechanisms were designed without assessing whether or not there was a security of supply problem in the first place. In addition, nearly half the Member States did not define what level of security they actually wanted. When they did assess it, their methods varied “widely” and were often “purely national”. On top of this, most Member States did not decide the price of capacity payments through a competitive process and many simply excluded certain providers (for example, of demand response or from across the border).
What all this suggests is that national governments have found a new way to drive up electricity prices. Or rather, utilities have found a new way to prop up crashing revenues. But Vestager was at pains to stress that this is still an interim report, with a three-month period for Member States and others to submit further comment. A final report will follow by the end of the year. She was also at pains to stress that there are no legal consequences to either report (yet) – these are not state aid decisions. Instead their findings will feed into state aid decisions on individual capacity mechanisms. So far, the EU has approved just one capacity mechanism in Europe – that of the UK in 2014. It launched investigations into two more – both in France – in November 2015. Vestager said the Commission is in informal talks with Germany. More investigations seem likely.
Frustrated
The question is what this all means for the future of the EU energy market, in particular for the proposals on electricity market design that the Commission is preparing for the end of this year. For many stakeholders, DG Energy and DG Competition are not on the same wavelength. They say that while DG Competition’s state aid decisions may be perfectly coherent with its own vision of the future, that vision does not match DG Energy’s. The result is an incoherence between EU competition and energy policy.
“It’s very easy to get frustrated with DG Competition,” said Michael Hogan, a senior advisor at the Regulatory Assistance Project (RAP), a global team of independent energy policy experts. He believes that EU policymakers can do a lot more to make the power market work – without having to resort to capacity mechanisms. He cites the example of Texas: people are investing, it has a stricter security of supply standard than most of Europe, and it has no capacity market. There is however, an intervention by the system operator to adjust balancing prices so that real-time prices reflect the value of flexibility. In fact, Hogan says, all the capacity markets that have been running for the past decade, are shifting “to do more and more scarcity pricing like in an energy [-only] market.”
But DG Comp seems to be moving in the opposite direction: in its interim report, it gives a fresh thumbs-up to the UK capacity market. It concludes that these kinds of market-wide, volume-based capacity mechanisms “appear to be more appropriate to address a long-term, general problem of generation adequacy”. In contrast, schemes like Germany’s strategic reserve – the most common type of capacity mechanism in Europe – “do not solve generation adequacy problems on a long-term basis, and can in fact worsen the situation”.
Risk levels
And yet, for many the previous Commission’s approval of the UK capacity market is an example of a bad decision. Sophie Yule, General Counsel of Tempus Energy, a UK-based company with an innovative demand-side management and trading platform, which has taken the Commission to court over its approval of the UK scheme, says the UK capacity market is trying to keep open exactly those power plants that a carbon price floor, emission performance standard and industrial emissions directive are trying to close: “We’re basically paying twice, to keep open and close the same coal plants.”
DG Energy is working on market redesign proposals that will come out at the end of this year. They will have a lot to say on capacity mechanisms. For example, DG Energy will establish what are “acceptable risk levels for supply interruptions” as well as “an objective, EU-wide, fact-based security of supply assessment.” DG Energy’s second big priority is to force the opening up of capacity mechanisms to cross-border competition. But whatever proposals DG Energy will come up with, DG Competition will always be watching over its shoulders.
ENERGY WATCH
by Karel Beckman
-
Nuclear terrorism
-
Saudi Arabia gets ready for the post-Oil Era
-
Turkey gets ready for Age of Coal
-
Strong growth of LNG imports
-
NGO blasts biodiesel
Nuclear terrorism: how to prevent it
It’s one of the scariest thoughts imaginable: terrorists getting their hands on nuclear materials to make a “dirty bomb”. Or: terrorists “hijacking” a nuclear plant and creating a Chernobyl-like accident in the heart of Europe.
Such attacks would certainly not be simple to carry out – and supporters of nuclear power will point out that terrorists can do plenty of damage in “ordinary” ways. Yet the sheer fear that a nuclear-related attack would raise among the public makes this an unthinkable scenario.
Allison Macfarlane, Professor of Public Policy and International Affairs at George Washington University, and former Chair of the US Nuclear Regulatory Commission (NRC), the federal nuclear regulatory body in the US, has written a very interesting article on “how to protect nuclear plants from terrorists”.
She says countries should follow the example of the US, which – after 9/11 – has turned American nuclear facilities in some of the “best-guarded facilities in the world”. (Note that in addition to the 444 nuclear power plants operating in 30 countries worldwide, there are also 243 smaller research reactors and hundreds of plants that enrich uranium and fabricate fuel for reactors.)
Macfarlane’s article contains a number of practical suggestions for nuclear operators, including practising attack scenarios.
Belgium may be one of the countries in which upgrading of nuclear security measures is most urgently needed. According to another recent article, by Robert J Downes and Daniel Salisbury, researchers at the Centre for Science and Security Studies (CSSS), King’s College London, “there are doubts whether Belgian authorities are taking the threat to their nuclear facilities seriously enough”. Perhaps that’s why the German government last week took the unprecedented step to ask Belgium to temporarily shut down two of its nuclear reactors.
Saudi Arabia gets ready for the post-Oil era
As we wind on down the road towards the “post-Oil era” (hard to imagine, but post-Paris it’s what many people agree has to happen), Saudi Arabia is preparing to diversify its economy. As Bloomberg reported recently, “Saudi Arabia is getting ready for the twilight of the oil age by creating the world’s largest sovereign wealth fund for the kingdom’s most prized assets.”
In a five-hour interview, Deputy Crown Prince Mohammed bin Salman, the rising star among the Saudi elite, “laid out his vision for the Public Investment Fund, which will eventually control more than $2 trillion and help wean the kingdom off oil.”
As part of that strategy, the prince said “Saudi Arabia will sell shares in Aramco’s parent company and transform the oil giant into an industrial conglomerate. The initial public offering could happen as soon as next year, with the country currently planning to sell less than 5 percent.”
Although this interview was published on 1 April, it was no joke, because on the 25th of April, Saudi Arabia launched a “Vision for the Kingdom of Saudi Arabia” in which the plan was officially announced. On this occasion, Reuters reported an interesting quote from bin Salman. “I think by 2020, if oil stops, we can survive”, the Deputy Crown Prince apparently said. It was no typo, because he repeated, “I think in 2020 we can live without oil”.
Is the post-Oil era closer than we think?
Turkey gets ready for the Age of Coal
The Istanbul Policy Center at Sabanci University has come out with an alarming report on Turkish coal policy.
According to the Coal Report: Turkey’s Coal Policies Related to Climate Change, Economy and Health, Turkey is planning “to construct more than 70 new coal –fired power plants, making the country fourth in the world after China, India and Russia in terms of highest number of coal-fired power plants. If the current 66.5 GW coal installation plans will be realized, these planned power plants would emit nearly 400 million tons of greenhouse gases. Therefore, the emissions of these new plants will be almost as high as Turkey’s current total annual emissions, which measured 459 million tons in 2013.”
One of the top 20 emitters globally, Turkey’s greenhouse gases have increased 110% between 1990 and 2013, notes the report. “During this time period, the share of coal as a greenhouse gas resource has also increased, with coal contributing approximately 33% of total emissions and increasing 130% during this time period.”
“With one of the fastest growing CO2 emissions globally, Turkey’s per capita emissions almost reached the world average,” says Ümit Şahin, editor of the report and Senior Scholar at Istanbul Policy Center. “Current dynamics in Turkish coal policies suggest that this fast growth will continue if Turkey does not dramatically change its direction away from coal and act in line with the Paris Pledge.”
The report concludes that ““Following the Paris Agreement, many countries around the world pledged to abandon coal powered energy production. We have also recently seen that developing countries such as China and India are changing their policies towards more sustainable energy systems. Turkey’s current coal direction is jeopardizing these global efforts.”
Perhaps this is something EU leaders might bring up with President Erdogan sometime? If the occasion permits …
European LNG imports grow strongly
Good news presumably for those who care about diversification of gas supplies: LNG imports into Europe grew no less than 15.8% last year, according to a detailed annual report from the International Group of LNG Importers (GIIGNL).
Worldwide LNG trade increased by 2.5% to a record 245.2 million metric tons (MT), reports GIIGNL. 72% of demand came from Asian countries compared to 75% a year earlier. 32% was supplied from Qatar.
Most of the growth was absorbed by the Middle East and by Europe. European net imports grew by 15.8% (5.1 MT), almost half of which (2.4 MT) could be attributed to a lower number of reloads from the region (3.6 MT in 2015 vs 6 MT in 2014). Higher deliveries from Qatar into the UK (+1.8 MT) also contributed to this increase.
None of this means the LNG market has suddenly exploded in Europe. As GIIGNL reports, “total European imports in 2015 (37.6 MT) returned to slightly above their level of 2005 (36 MT).” Most LNG import terminals still suffer from very low utilisation rates.
NGO blasts biodiesel
The well-known NGO Transport & Environment (T&E), which has been in the forefront of the fight against misleading emission figures from the EU car industry, has come out with a sharply critical attack on biodiesel.
“Using biodiesel for transport was supposed to reduce CO2 emissions but instead it’s set to increase Europe’s overall transport emissions by almost 4%”, according to the analysis by green group Transport & Environment (T&E) T&E. The figures are based on a “a new analysis of the European Commission’s latest study on biofuels”
T&E notes that “the long-delayed EU study found palm, rapeseed and soy-based biodiesel to have land-use change emissions – which occur when new or existing cropland is used for biofuel feedstock production – that alone exceed the full lifecycle emissions of fossil diesel.”
T&E’s analysis “adds to these figures the direct emissions of biofuels e.g. from tractors, fertilisers, and the installations, and subtracts emissions from the fossil alternative. It finds that on average, biodiesel from virgin vegetable oil leads to around 80% higher emissions than the fossil diesel it replaces. For instance, soy and palm-based biodiesel are even two and three times worse respectively. This biodiesel is the most popular biofuel in the European market and has been forecasted to have an almost 70% share in 2020.”
“In total more than three-quarters of biofuels, which includes bioethanol as well as biodiesel, are forecast to have lifecycle greenhouse gas emissions similar or higher than fossil petrol and diesel in 2020.”
Heavy stuff.
T&E adds that “Last year’s reform of EU biofuels policy” did help somewhat, by establishing “a limit on the growing consumption of land-based biofuels, which, because of indirect land-use change (ILUC) emissions, often increase carbon emissions rather than reducing them. But the reform failed to include ILUC emissions in the carbon accounting of biofuels under the Renewable Energy Directive (RED) and Fuel Quality Directive, meaning harmful biofuels can still be counted toward the EU targets and receive public financial support.”
The European Commission is currently reviewing the RED and sustainability criteria for all bioenergy including biofuels, and it will publish a proposal in the final quarter of this year.
In a reaction, the European Biodiesel Board spoke of “a surprisingly biased anti-biodiesel campaign: the green Brussels based communication group seem now decided to lobby against biodiesel and in favour of fossil fuels (that seems to be their solution for decarbonisation) or in favour of algae based inexistent biofuels (whose cost is today of 1000€/kg and whose real outlet are nutraceuticals and pharmaceuticals).”
Frankly, I could not find any reference to algae anywhere nor is it true that T&E is arguing that fossil fuels is a solution for decarbonisation. This kind of sarcastic response misses the mark.
EBB adds that “We are surprised about the fact that T&E focus on unreliable studies such as Globiom, but ignore the study on ILUC done by CARB (California Air Resources Board, the research body that recently unveiled the Volkswagen affair), which identified biodiesel as the best performing GHG biofuel.”
EBB acknowledges that the Globiom study was funded by the European Commission, but says it does not represent the views of the Commission. No doubt to be continued.
Post-Paris: tips for policymakers
If the EU can’t be a climate leader at home, it should go abroad
The world may be euphoric about the Paris Climate Agreement (signed on 22 April by 175 countries, each of which will now pursue ratification domestically), the EU’s own climate policy is increasingly looking rather unambitious. This is ironical, since the EU has traditionally been the world’s climate leader, and the Paris Agreement is in part a victory of EU diplomacy.
The problem is that a number of Member States (Poland first of all) object to ambitious EU climate policies. The 2030 targets, agreed upon in October 2014, were celebrated by the EU as a “landmark deal”, but NGO’s and climate analysts were extremely disappointed by them.
The critics pointed out that between 1990 and 2014, the EU’s greenhouse gas emissions decreased by 23%. Sticking to a 40% emissions reduction target for 2030 would mean that in the coming years emissions will have to decrease by slightly over 1% annually. “At this speed”, Bill Hare and Andrzej Ancygier of climate science and policy institute Climate Analytics point out in an article on Energy Post, “the EU will achieve emissions reduction of only around 60% mid-century, far less than the 80-95% emissions reduction target adopted by the Council in 2011.”
***
The main climate policy challenges for EU policymakers in the coming period, write Oliver Geden and Susanne Dröge of SWP (Stiftung Wissenschaft und Politik – German Institute for International and Security Affairs) in Berlin are:
- to ratify the Paris Agreement, which they says is not likely to happen soon
- to translate its own previously agreed energy and climate headline targets into binding legislation (the 2030 targets adopted in October 2014 are as yet only a statement of intention
Practically, giving hands and feet to the climate targets will require a number of complex dossiers to be tackled, write Geden and Dröge:
- The amendment of the directive for the EU Emission Trading System (ETS) has already been largely pre-structured by the European Council and is currently under discussion in the committees of the European Parliament.
- The creation of new national emissions reduction targets for those sectors that are not covered by the emissions trading system (transport, heating, services) has been postponed. As soon as the Commission publishes its proposal on this issue (Effort Sharing Decision, expected before the summer break in 2016), deep-seated and in part also ideologically driven conflicts between Member States are highly likely. Poland’s new government will almost certainly stand at the center of these disputes.
- To fulfill its international obligations, the EU will for the first time have to define a legal instrument to calculate land use, land-use change, and forestry (LULUCF) as part of the EU’s overall emissions reduction target. This could facilitate negotiations within Europe, but it also entails therisk of diluting the EU climate target.
- Further potentially conflict-provoking legislative procedures that are likely to be opened in 2016 include the amendment of the renewable energy directive as well as a mechanism designed to provide “European Energy Governance.”
- Also expected in the coming year is an equally controversially proposal for a guideline to tighten the CO2emissions limit for passenger cars from 2021 on.
***
So what can the EU do to maintain its international climate leadership in the face of these domestic challenges?
Hare and Ancygier suggest that a number of “ambitious” member states should form a “coalition of the willing” to take up the climate banner. “The legal framework for such cooperation can be found in the Treaty of Lisbon which significantly expanded the possibilities offered by what is called Enhanced Cooperation”, they write. “According to Article 20 of the Treaty, a form of Enhanced Cooperation can be created by at least nine EU member states ‘to further the objectives of the Union, protect its interests and reinforce its integration process’.”
Such a coalition wouldn’t only be driven by the need to deal with climate change but also by economic factors, Hare and Ancygier note: “Whereas the transformation towards a low-carbon economy poses a challenge to established industries, it also opens doors to new opportunities. The Paris Agreement will only speed up the innovation race in the area of low-carbon technologies, in which EU countries are increasingly losing their competitive advantage. The EU, with its knowledge base and large domestic market, is well equipped to regain it, provided the political will is there.”
Geden and Dröge offer a different way out: they suggest that the EU should start providing more (financial) support to developing countries in their efforts to fight climate change.
According to Geden and Dröge, the Paris Agreement provides a solid foundation for such a course. “The Paris Agreement requires that the industrialized countries specify absolute emissions reduction targets in their NDCs. Developing countries, on the other hand, are to increase their mitigation efforts, which can be set as relative targets or as pathways over time.” Under the Agreement, developing countires are entitled to “financial, technical, and practical support.”
Under Article 9 of the Agreement, “the OECD countries are obligated to provide funding, while the developing countries can do so on a voluntary basis.” To this end, the Green Climate Fund has been set up, to which the rich countries are supposed to donate $100 billion a year. In fact, the idea is that this amount will be increased in the future.
“The new climate regime thus demands leadership by the industrialized countries.” And that is where the opportunity lies for the EU: “If the EU can’t have a fully satisfactory climate policy of its own, it can at least redeem itself by helping others with their efforts.”
***
As countries across the world are looking to grow renewable energy in the wake of Paris, they will need to think about how to do so. Researchers Jan Frederik Braun and Nicole de Paula have written a Quick Guide for policymakers: How to scale up renewables in 10 steps, exclusive for Energy Post.
Braun and De Paula note that there are a number of pitfalls to be avoided and come to a list of 10 things to keep in mind when designing renewable energy support structures:
- Ensure that there is an appropriate level of ambition in terms of scope (e.g. not just focus on adaptation but also on mitigation) and targets (have well-defined, transparent targets).
- Have a well-designed and stable incentive scheme in place.
- Ensure that the system has the capacity to overcome noneconomic barriers that may prevent the proper functioning of the market (such as administrative hurdles and obstacles to grid access).
- Ensure that the system includes stakeholders outside of government such as industries, NGOs and citizens in a broad and bottom-up participatory process of decision-making.
- The choice of policy instruments, policy design and complexity of the regulatory regime should be tailored to the actual conditions of the market.
- The appropriate legal and regulatory frameworks for resource and land use and the allocation of permits and rights must be in place before renewable energy policy is introduced or adjustments to existing policies are made.
- Ensure that there are clear rules for grid interconnection and integration with other markets.
- Assess the compatibility of policy and regulatory mechanisms and incentives, as their combined impact may result in inefficient outcomes.
- Allow for the possibility to review progress, make changes and manage risks.
- Make sure the system is financially sustainable.
Should Europe integrate its electricity grids (more than it is doing now)?
Time for a European System Regulator
One of the goals of the Energy Union is – presumably – one day to have the EU electricity system functioning as a “single copper plate”.
The advantages of such integration have been described many times, especially in view of the increasing amounts of intermittent renewable energy that will be connected to the system in the coming decades. Transporting solar power from Southern Europe to the north – offshore wind power from the North Sea to the south – etc. There are also gains to be had from increased competition. The arguments are familiar.
But how to go about this? At this moment, the EU is proceeding gradually through Network Codes that aim to harmonise market and grid operations, writes Philip Baker, a consultant with the well-known Regulatory Assistance Project (RAP) in an article for Energy Post. Baker was at one time responsible for the overall operation and planning of the transmission system in England & Wales with National Grid, and is now still a member of the Balancing & Settlement Code Panel, which oversees the operation and development of the electricity balancing and settlement arrangements in Great Britain.
In addition, the EU intends to create a number of “regional security coordination service providers” (RSCSPs) that will “provide a regional short-term planning capability.”. The first RSCSP that has been set up is Coreso, whose mission it is “to proactively help TSOs to ensure security of supply on a European regional basis.” Coreso covers a number of EU Member States. Eventually, RSCSPs are intended to provide services to all of the EU’s 42 TSOs.
“Once fully established”, writes Baker, “the RSCSPs will collect real-time data on the status of all of Europe’s national transmission networks and the power flows between them. Collectively, they will provide a unique real-time oversight of the state of Europe’s interconnected transmission grid that no individual TSO could possibly have.”
Yet for Baker the RSCSPs are a less than perfect solution. He points out that “the RSCSPs will have no executive powers and their activities will be restricted to providing planning services to individual TSOs, who can choose to accept or reject those services and who will retain full control of and accountability for the short-term planning and real-time operation of their individual networks.”
According to Baker, “Given the challenges that market integration and decarbonisation will impose in operating Europe’s interconnected electricity grid, this situation represents something of a lost opportunity and does not seem tenable in the longer term. As market integration and decarbonisation progress, the efficient and safe operation of the interconnected grid will demand that decisions are taken on a regional, and ultimately pan-European, basis.”
Baker advocates following the example of Regional Transmission Organizations (RTOs) in North America. Rather than just providing short-term planning advice to national TSOs on a “take it or leave it” basis, the RSCSPs could take on decision-making responsibilities for all “market-critical” assets (i.e. those assets that significantly impact market operation)”.
As market integration progresses, “the RSCSPs could begin to exploit their unique access to regional real-time data. Using these data, they could provide real-time operational oversight of the interconnected grid, much as the RTOs do in the United States.”
However, for all this to happen, “fundamental changes to Europe’s governance and regulatory arrangements would be required. … Member States and national TSOs would need to surrender some of their responsibility for short-term planning and real time operation to the new RSCSPs in order for activities in these timescales to be regionalised.”
Similarly, “a European regulator would be required to oversee these regionalised activities and to regulate what would ultimately become a European System Operator.”
Surely an interesting suggestion from Philip Baker – although in these days of renewed nationalism, the idea of a European System Operator may be a bridge too far.
PS Note that in October 2015, we published an article with a different suggestion to integrate electricity markets, namely to create an Overlay Network in Europe. So far this plan has not achieved any traction, although it should be noted that a recent study from researchers at the prestigious National Oceanic and Atmospheric Administration (NOAA) in the US concludes that the US can cut greenhouse gas emissions from the electricity sector by 80 per cent while keeping prices at or below current levels if it builds a high-voltage direct current (HVDC) transmission overlay transmission network.
The impacts of Brexit on the UK energy sector
The UK has had more influence on EU energy policy than the other way around
National Grid, the UK electricity and gas transmission system operator, has asked consultancy Vivid Economics to investigate the effect of a Brexit on the UK energy sector.
It turns out that the answer is not simple. This is because “there is a wide range of possible outcomes from post-Brexit negotiations leading to a number of regulatory and market options for the UK’s relationship with the EU, with differing implications for investment and trade.”
The impact of Brexit depends first of all on whether the UK will continue to be a member of the Internal Energy Market (IEM), a scenario that is similar to the status quo (and similar to Norway’s current arrangements), or whether the UK will be excluded from the IEM (similar to arrangements in Switzerland).
From an investor’s perspective, “higher returns are required to compensate them for the risk of less favourable post-Brexit arrangements. This puts upwards pressure on the cost of financing, raising the cost of investment in the UK energy sector.”
The report notes that “the scale of planned infrastructure investment in the electricity sector over the next decade means that even small increases in the cost of financing could have large consequences for total investment costs. Further upwards pressure on costs would result from the likely devaluation of the Pound, given the role imported goods and services play in UK energy supply.”
Thus, the report concludes that “higher costs of investment in energy infrastructure is the most significant Brexit risk to the energy sector”.
Additionally, if Brexit leads to the UK being excluded from the IEM, the country “could also forgo the benefits from market integration initiatives, such as market coupling and cross-border balancing and capacity market integration. … Over the longer term (beyond 2020), these losses in value could have a knock-on impact of undermining the business case for further investment in interconnection between the UK and its neighbours. In total, the potential impacts resulting from exclusion from the IEM, but excluding Brexit impacts on the cost of investment, could be up to £500m per year by the early 2020s . However, placed in the context of overall energy costs, these cost increases would be relatively small.”
All of this applies to the electricity sector. The report notes that the risks of Brexit for the natural gas sector are “minimal” in the short term. This is because “The UK is fundamentally different to most other EU countries in that it has domestic production of gas, good connections to the LNG market and active hub trading. This means it is well placed to maintain liquidity, adequacy and supply security even in the event of a Brexit.”
Over the longer term, Brexit could increase exposure to gas supply security risks, as the UK “could find itself excluded from EU ‘solidarity principles’ in which European nations agree to supply to their neighbours in the event of a gas supply crisis.”
The report does not find any real advantages of a Brexit for the UK energy sector.
Earlier, in March, David Buchan and Malcolm Keay from the Oxford Institute for Energy Studies wrote a very thorough analysis on Brexit Britain: the balance sheet on climate and energy. They note that the Business for Britain lobby grouphas argued that for the energy sector, the disadvantages of EU membership overwhelmingly outweigh the advantages. The Brexit lobby argues that EU climate policy is leading to higher costs for the UK, but according to Buchan and Keay this is not correct, because UK and EU climate policies are quite convergent.
They also note that the UK has had more influence on EU energy policy than vice versa, “first with liberalisation of the EU energy market in order to foster cross-border integration and competition, more recently with intervention in the energy market in order to foster low-carbon generation.” And the EU may not like the UK’s support for the Hinkley C nuclear project, it has not stood in the way so far.
Who’s for Brexit?
Opponents of wind turbines and solar farms on grounds of cost and unsightliness, climate sceptics, some industrialists with energy-intensive plants and, less vocally, a few smaller oil and gas companies which fear possible further EU regulation eroding their declining profit margins in the North Sea.
One prominent Brexit supporter who has made energy policy a key reason for quitting the EU is the former Conservative environment minister, Owen Patterson; he claims “our current energy policy is a slave to a flawed [EU] climate action”.
Who’s against?
“Those in favour of remaining in the EU, for reasons of energy and climate policy, are an amalgam of the environmental movement, the renewable energy sector, and the major gas and electricity utilities and oil companies. Most of the latter group are multinationals with shareholders and/or operations in the rest of the EU. Four of the UK’s Big Six generators are European-owned, and the two UK-majority owned ones, Centrica and SSE, favour the UK staying in the EU – as do the dominant oil majors in the UK part of the North Sea – BP, Shell and Total.”
Nick Test
Friday April 15, 2016
Move over coal and gas; generators favour RES
This week’s major news was a report from investment bank UBS which said that the influx of renewable energy sources such as wind and solar into European energy markets is forcing coal and gas fired generation out of the market with unprecedented speed.
70 GW of coal and gas power plants have been shut down over the past five years (2010-2014), as shown in this chart…
UBS is expecting another 24 to 54 GW will be killed in 2015-2016. What is more, half of the remaining power stations (265 GW) are currently cash-flow negative.
Perhaps surprisingly, the coal power stations will be hit harder than the gas fired power stations, according to UBS. This is because the report assumes a CO2-price of €40/tonne.
Historic deal in Brussels opens the way to a renewed EU ETS
How realistic is it for UBS to assume a CO2-price of €40/tonne, when the price is only around €7 today?
Well, the answer came from Brussels on Wednesday where a historic deal was reached between the European Parliament and Member Statesabout the so-called “Market Stability Reserve” (MSR) fund.
They essentially agreed to take 2.1 billion “surplus allowances” – equivalent to a whole year of EU greenhouse gas emissions – out of the market to get the CO2-price up. The surplus is the result of overallocation in the past, a lack of demand as a result of the economic crisis and energy efficiency gains, and an influx of international carbon credits into the European market.
At an event organized by the Cologne Institute for Economic Research in Brussels (the first German economic research institute to have opened a permanent branch in Brussels), Peter Zapfel, head of policy coordination at the European Commission’s climate department, said “the EU has decided the future of the ETS”. He called the deal “courageous” and said it would pave the way for the Commission to issue further proposals for reform before the summer.
The CO2-price did not immediately respond to the deal, but that may have been because the MRS deal is only the first part in a two-part reform process. A lot depends on what comes next. The Commission’s proposals for deeper reform will be shaped by what EU heads of state and government decided last October. There will have to be:
- A new carbon leakage regime (to compensate industries at risk of leaving Europe for regions with weaker carbon constraints)
- Low-carbon funding mechanisms (including an innovation fund, a modernization fund, and extra support for power plants in poorer countries)
- A ratcheting up of the annual rate at which the EU ETS cap declines to bring it in line with a 40% greenhouse gas emission reduction target for 2030.
Analysts expect that the CO2-price to rise substantially if the reform process is successfully completed, which looks increasingly likely.
Shell’s approach to climate change under fire
Shell should be glad with the ETS deal reached in Brussels. After all, the company believes that “carbon pricing” is one of three key measures that the world should take against global warming. The other two are: carbon capture and storage (CCS) and fuel-switching (from coal to gas in power production).
Shell’s CEO Ben van Beurden said this in an important and controversialspeech on climate change he gave in London on 8 February.
He also said that oil companies should be “less aloof and more assertive” in the climate change debate. They should make it clear to policymakers, said Van Beurden, that oil and gas will dominate the world’s energy supply for a long time to come. He hoped, therefore, that countries would take a “realistic” and “pragmatic” approach at the upcoming climate conference in Paris in December.
KEY QUOTE:
“The world’s energy needs will underpin the use of fossil fuels for decades to come. So, rather than ruling them out, the focus should remain on lowering their carbon emissions. Three things are crucial to achieving that goal. Firstly, a shift from coal to natural gas. Secondly, carbon capture and storage. Thirdly, and most importantly, a well-executed carbon pricing system. This would help promote natural gas as well as CCS, and a whole range of other low-carbon technologies.” Ben van Beurden, CEO of Shell
Ben van Beurden’s speech drew the ire of John Ashton, founder of the influential London-based consultancy E3G and former UK Climate Change Representative for three British governments.
Ashton, who now is an independent speaker and writer with impressive rhetorical skills, answered Van Beurden with a full-frontal attack, taking apart the Shell CEO’s claims one by one, in a speech he gave in Paris last week (at a conference of the World Energy Council). The speech, which was distributed unofficially on the internet, has caused quite a stir – including in the Shell offices, we have been told.
Ashton gave Energy Post permission to be the first to officially publish the speech, which we did on Thursday. Ashton essentially putsdown Van Beurden as hypocritical. “You want a transformation”, he said, “as long as it does not transform. You want to deal with climate change, as long as it does not touch your business model.” He called on Van Beurden to “stop frustrating climate ambition” and to lead the oil industry into a “new golden age of energy”.
For anyone involved closely in the climate-and-energy-debate, this is recommended reading.
Note: Greenpeace reportsthis week that Shell has launched a highly questionable “video competition”, which invites young people to submit short films that “challenge preconceptions that fossil fuels, especially natural gas, have no part in our future lives.” They can win a prize of $50,000. The videos, however, are not to make any mention of “Arctic oil” nor use the word “backup”, Greenpeace reveals. This looks like it could turn into a serious PR disaster for Shell. We have not seen a response yet from Shell –Energy Post is preparing an interview with Jeremy Bentham, the company’s Chief Strategist. We will tackle him about these issues.
BRUSSELS INSIDER: ExxonMobil bumps into Brussels
If Shell’s climate change approach does not sound very credible to commentators like John Ashton, what about its great competitor ExxonMobil?
William Colton, Vice President Corporate Strategic Planning at ExxonMobil, came to Brussels this week, to the Centre for European Policy Studies (CEPS), to present the American oil company’s view of the world’s energy future to representatives from EU institutions. It turned out to be a clash of two worlds that spoke in different tongues.
Mike Parr of the independent consultancy PWR was there and wrote an account for Energy Post. The storyline from ExxonMobil, he said was that:
- gas would become the dominant fossil fuel for power generation in the period up to 2040
- renewable energy sources (RES) would continue to be a minor player
- full hybrid cars would provide a solution to emissions in the transport sector
In addition, Colton emphasised how oil exploration technology was improving all the time. He barely mentioned climate change and said the EU was an exception in the world with its insistence on developing renewable energy and emission reductions.
Colton presented this chart showing the high costs, according to ExxonMobil, of renewable energy:
According to Parr, however, this represents a completely false picture of the current reality: “Mediterranean basin solar PV costs around 5 eurocents/kWh (similar to the 5 UScents in Texas). On-shore wind in North Germany is around 7 eurocents/kWh and perhaps 5.5 eurocents/kWh in the UK. By contrast, onshore wind in the US is around 3 to 4 UScents/kWh.”
Parr notes that Colton was bombarded with critical questions from the audience. Nor did the representative of the European Commission, StefaanVergote, Head of the unit Economic Analysis and Financial Instruments at DG Energy, buy into the line that Colton was peddling, Parr writes.
It seems clear that ExxonMobil was unable to convince representatives from the EU that it should swerve from its “exceptional” climate change and renewable energy policies.
Winner takes all
By Karel Beckman
Last but not least, the IEA this week published its annual Energy Technology Perspectives (ETP). This has become another landmark IEA series in addition to its annual World Energy Outlook (WEO), which usually appears in November.
ETP takes the 450 ppm/2 degrees scenario from the WEO and then shows how various technologies could/should be combined to achieve the emission targets under this scenario.
The IEA’s overall conclusion is that “it is realistic and economically sensible to pursue a clean energy agenda”, but, it adds: “clean energy progress is falling well short of the levels needed to limit the global temperature increase to no more than 2 degrees Celsius”. Governments, said the IEA, must do much more to stimulate the uptake of clean energy and energy efficiency technologies, and not just by supporting R&D, but also the uptake of renewables.
Two graphs from the report, which we got permission to republish show very clearly what progress needs to be made on renewables, nuclear, energy efficiency, CCS and fuel switching, according to the IEA, and what this means for the various regions of the world.
What the first graph shows, among other things, is that renewables play an important role in decarbonising the power sector, but a very limited role in other sectors, such as industry, transport and buildings, where energy efficiency technologies can deliver the most reductions. The second graph makes it clear that countries have a lot of work to do, in particular in reducing oil and coal production, and stimulating renewables (for example, in Russia!).
ENERGY WATCH: weekly summary of other essential new
Tesla announced this week that it will introduce a lithium-ion battery for households in the US this summer, the Powerwall. There will be a 10 kWh version for $3500 and a 5 kWh version for $3000. Analysts expect that if successful, the Powerwall can in time lead to a major shift in the way in which households use energy. Combinations of solar power with batteries will become very attractive. Gas peaking plants will probably be hit hardest. Read more… Tesla to introduce lithium-ion battery for households
Electricity prices in the Netherlands dropped by 20% in 2014, according to a new Market Review published by Tennet, the Dutch transmission system operator (TSO), which is also active in Germany. According to the Review, electricity prices went down across Europe. Prices in the Netherlands and Germany showed convergence, but there was little convergence overall in Europe. The report also shows that coal-fired power plants are taking over from gas-fired power plants in back-up supply. Read more… Dutch electricity prices down by 20% in 2014
Remarkable gas lobby: Jean Claude Depail, President of Gas Infrastructure Europe, said this week at the Annual Conference of the GIE in Dublin that: “gas infrastructure is key to achieve all the five dimensions of the Energy Union: security of supply and solidarity, effective internal market, decarbonisation, energy efficiency, innovation and competitiveness”.
Really? That’s perhaps claiming a bit too much! Surely without gas infrastructure it would still be possible to improve energy efficiency, be innovative, competitive and decarbonise.
Depail made another remarkable remark. He said if the result of COP21 (climate conference in Paris) is disappointing, the EU should reconsider (i.e. lower) its own climate targets. Does GIE want to call the EU’s climate targets into question? And if so, what would be in it for the gas infrastructure sector? If lower targets translate into more gas infrastructure, what does this say about the role for gas in “decarbonisation” and climate protection?
Remarkable nuclear lobby: Has the nuclear lobby in Europe started a new campaign for (more) government support? It looks like it. In Brussels on 16 April a roundtable took place organized by the pro-nuclear lobby groupNew Nuclear Watch (NNEW), led by the British parliamentarian Tim Yeo. At this meeting, Baptiste Buet, the EU representative of Areva, said that “state support is an essential element for the development of the nuclear industry in Europe”.
Note that this was just days before French newspapers reported that the new EPR nuclear power station Areva is building in Flamanville, France, is experiencing major technical problems, which could lead to more delays. Areva’s EPR in Finland is already six years overdue and many billions of euros. The UK government has signed a contract with EDF to build an Areva EPR at Hinkley Point.
Then, at a meeting of the World Nuclear Association(WNA) in Prague on 22 april, Agneta Rising, Director-General of the WNA, said: “Deregulated markets, while promoting competition, are leading to prioritisation of short-term returns over more environmentally sustainable and economically sound long-term investments.”Presumably, Rising considers nuclear power one of the “environmentally sustainable and economically sound long-term investments” which is being hampered by “deregulated markets”. Does Rising want to re-regulate markets, do away with competition and rely on government subsidies again?