January 27, 2017
France’s precarious power position
January 27, 2017
France has long seemed to be in a rather envious position with regard to its power sector. Its strong reliance on nuclear power (75% of total generation) has made it highly independent. And it has not had to do much to reduce its greenhouse gas emissions: they have always been very low to begin with.
But lately things have not been going so well for the French. The heavy reliance on nuclear has a flip side: it is making the country highly dependent on this one source of power. Many of its power stations are starting to be in need of replacement. What is worse, faults are showing up that are putting their reliability into question.
Another problem: France’s nuclear export strategy is failing. Flagship reactor producer Areva’s fourth generation reactors are turning out to be far too complex and expensive and the company has had to be bailed out by the government.
France’s energy strategy now foresees a reduction of nuclear generation to 50% of total power production. But the question is how to make up for this? As energy journalist Craig Morris points out in a new article, the recent cold spell in Europe showed (not for the first time) that France was heavily dependent on German imports for a while, despite the fact that most of its nuclear power plants were online.
One reason for this is that France relies heavily on electricity for heating purposes. This is also a legacy of its nuclear power history. The International Energy Agency (IEA), based in Paris, issued a warning on 24 January about France’s power supply crunch. The IEA noted that for every 1 degrees Celsius temperature drop, France needs an additional 2.4 GW of electricity capacity. Eurogas, the association of European gas producers, was quick to point out that natural gas is saving the day in France and other countries in Europe that find themselves short of power and heat.
Meanwhile, importing power may not be so easy for France in the future. Belgium and the UK are having their own problems, and Germany is preparing for a massive reduction of its coal and lignite power capacity in the coming years. (See this week’s Energy Watch.) The IEA warns that, as a consequence, France will have to be cautious about its goal of reducing nuclear power capacity.
Full article: France can’t meet its own power demand
How political is gas?
January 27, 2017
For many people the question of whether gas is political (in Europe) is a no-brainer. We know we are heavily dependent on imports from Gazprom and we know that Gazprom is a state-owned company controlled by the Putin government for whom politics and business are two sides of the same coin. After all, the Russian State is in turn heavily dependent on gas (and oil) revenues, so gas cannot be anything other than political for the Russians.
All this is true, but it’s not quite the point. Take for example the oil market. Europe is also heavily dependent on oil imports (even more than gas imports) and oil is supplied by many state-owned oil companies, such as Rosneft or Saudi Aramco, that are inseparable from their owners. Yet no one is really worried about being dependent on Rosneft or Saudi Aramco or through them on Russia or Saudi Arabia. The reason is obvious: oil is a global, highly liquid market. There are plenty of different suppliers and plenty of different routes to market.
So the question is, can the same be said for the European gas market? Until recently, not really. And for Eastern Europe, certainly not. But the EU has not been idle. EU gas markets have been liberalised, a huge LNG import capacity has been built, the amount of reverse flow capacity (from West to East Europe instead of vice versa) has been greatly expanded. According to Danila Bochkarev, Senior Fellow at the Brussels-based EastWest Intitute, what we are seeing is indeed the “depoliticization” of the European gas market.
As evidence he points to last year’s market developments. In 2016, Gazprom’s sales to the EU and Turkey reached an all-time high. Gazprom gained market share. But, Bochkarev points out, the company also saw its profits tumble. Indeed, it charged (had to charge) prices that were highly competitive, sometimes lower than the prices at trading gas hubs such as the NBP in the UK or TTF in the Netherlands. This shows that the EU market is competitive. What is more, the fact that buyers were eager to purchase Russian gas, shows that they are not very concerned about being dependent on Russia.
Bochkarev also points out that not only have prices been low, they are also increasingly aligned across Europe. In the Czech Republic, for example, prices are at the same levels as in Germany and the Netherlands. Finally, he notes that the positive development in the European gas market is good news for climate policy: it will enable countries like the Czech Republic and Germany to switch from coal to gas. They have no excuse anymore not to do so.
The age of base-cost renewables?
January 27, 2017
Fereidoon Sionshansi, in his informative monthly newsletter EEnergy Informer, discusses a number of publications on the cost of solar and wind power compared to other sources – and compared to each other.
First fact to note: solar is becoming cheaper than wind. Especially utility-scale solar-generated power, and especially of course in sunny parts of the world. The figures are based on a number of recent auctions in Chile and the Middle East as reported by Bloomberg New Energy Finance (BNEF).
In Chile in August a solar tender reached a record low price of $29.10/MWh. “That is roughly half what it costs to generate power from a coal-fired plant these days – even with today’s depressed coal prices.”
Ethan Zindler, head of BNEF’s US policy analysis attributes “a huge part” of this to China, “which has not only been rapidly expanding its own solar capacity but actively promoting and/or financing other countries to do the same. As the biggest manufacturer of solar panels in the world, there is a lot at stake in how fast solar capacity is installed beyond China’s own borders.”
BNEF’s chairman Michael Liebreich declared, “Renewables are robustly entering the era of undercutting” fossil fuel prices. He said he was basing his statement on numerous solar projects completed in 2016 with more to follow in 2017.
In an article on the BNEF website Liebreich writes that “Super-low-cost renewable power – what we are now calling ‘base-cost renewables’ – is going to force a revolution in the way power grids are designed, and the way they are regulated. The old rules were all about locking in cheap base-load power, generally from coal or hydro plants, then supplementing it with more expensive capacity, generally gas, to meet the peaks. The new way of doing things will be about locking in as much locally-available base-cost renewable power as possible, and then supplementing it with more expensive flexible capacity from demand response, storage and gas, and then importing the remaining needs from neighbouring grids.”
Sionshansi notes two important caveats. One, as everyone knows, wind and solar are variable, so they need back-up, which adds costs.
Second, a point that’s not so well appreciated, “the low prices most apply to developing countries”, he points out, “where new capacity is needed and can be added at scale”. As Liebreich has acknowledged, “the shift to clean energy can be more expensive in wealthier nations, where new solar and wind capacity has to compete with existing coal and gas plants.”
It is not surprising, then, as BNEF notes, that emerging markets have taken the lead over the OECD in renewables investment. “The lower costs of renewables and the need for new capacity additions makes renewables a good fit for rapidly growing economies. Climate concerns and the Paris Agreement to cut down emissions is mere icing on the cake.”
Full article: Turning point: solar cheaper than wind
How oil theft undermines global political stability
January 27, 2017
We have all heard of corruption in oil states like Nigeria, but do we realise the magnitude of this problem globally?
A new study, Downstream Oil Theft, published by the Atlantic Council recently, paints a distressing picture of what is going on in the world of illicit oil trade. The study is unique in that it focuses not on crude oil, but on refined products like petrol and diesel, which are more difficult to track. Ten “case studies” are discussed.
Probably the two countries where the most refined oil gets stolen are Mexico and Nigeria. In the latter country anywhere between $3 and $8 billion in crude and refined oil is siphoned away each year and traded on black markets. The EU is not as corrupt, but even here smuggling takes place wherever opportunities present themselves, such as between northern Ireland and Ireland.
Oil theft is so pervasive that, according to the author of the study, Ian M. Ralby, it threatens global economic and political stability. Ralby notices three worrisome trends that have emerged.
First of all, “the line between licit and illicit actors is blurring. … Increasingly, criminals no longer find themselves in opposition to people trying to stop them; rather they are the people who are charged with the responsibility of stopping illegal conduct. Similarly, criminals, who traditionally are a threat to the safety, security, and stability of society, are actually finding themselves in the role of providing essential public services.”
A second trend is what Ralby describes as “the increasing use of laws, regulations, and policies as tools for engaging in illicit activity. Criminals are generally quite adept at finding and exploiting gaps or loopholes in the legal, regulatory, and policy structures pertaining to lucrative industries like the oil and gas sector. They are also increasingly using law, regulation, and policy as means to refine and escalate their illicit activity and maximize their criminal profits.”
The third trend is that criminals increasingly make use of physical “countermeasures” to counter measures that are being taken against them. Thus, for example, “The European Union has, for more than a decade, used various dyes to mark fuel. In particular, several red dyes are used to mark agricultural diesel, which is taxed at a much lower rate than other fuels. A sizeable criminal element works to counter this mitigation tactic and remove the dye. This process of “laundering” the fuel in order to remove the red coloring of the low-cost agricultural diesel makes it possible to then sell it as high-cost, undyed, or “white,” fuel.”
Full article: Theft of refined oil products threatens global stability