June 5, 2018
ENERGY WATCH #1 by Karel Beckman
Energy transition: does it need to be accelerated – or broadened?
June 5, 2018
The International Energy Agency (IEA) reports that “only four of 38 energy technologies and sectors were on target last year to meet long-term climate and air pollution goals”.
The findings are part of a newly updated website from the IEA, Tracking Clean Energy Progress (TCEP), which “assesses the latest progress made by key energy technologies and how quickly each technology is moving towards the goals of the IEA’s Sustainable Development Scenario (SDS)”.
As an institution, the IEA, which has its roots in the oil and gas sector, has for some time been trying to broaden its scope and to become the world’s premier think tank in renewable/alternative energy as well. It competes in particular with IRENA (International Renewable Energy Agency), which was a German initiative set up out of dissatisfaction with the traditional outlook of the IEA. Initiatives such as the new Tracking Clean Energy Progress website and the IEA’s report on electric cars (see below) should be viewed in this context. In addition to the IEA and IRENA, Bloomberg New Energy Finance (BNEF), has become one of the leading suppliers of market insights as well, but BNEF is hampered by the fact that it is a commercial initiative and does not make all its information publicly accessible.
The IEA’s findings confirm what we reported only a few weeks ago: climate policy tends to be focused on a too narrow range of technologies (solar, wind, EVs). Much broader efforts are needed if the world is to meet the Paris targets.
The Tracking Clean Energy Progress report notes that “Some technologies made tremendous progress in 2017, with solar PV seeing record deployment, LEDs quickly becoming the dominant source of lighting in the residential sector, and electric vehicle sales jumping by 54%. But IEA analysis finds that most technologies are not on track to meet long-term sustainability goals. Energy efficiency improvements, for example, have slowed and progress on key technologies like carbon capture and storage remains stalled. This contributed to an increase in global energy-related CO2 emissions of 1.4% last year.”
“There is a critical need for more vigorous action by governments, industry, and other stakeholders to drive advances in energy technologies that reduce greenhouse gas emissions,” said Fatih Birol, the IEA’s Executive Director, adding that: “The world doesn’t have an energy problem but an emissions problem, and this is where we should focus our efforts.”
The TCEP highlights more than 100 “key innovation gaps that need to be addressed to speed up the development and deployment of these clean energy technologies”. It provides an extensive analysis of public and private clean energy research and development investment.
This chart gives an overview of the technologies and how they are performing:
Source: IEA, Tracking Clean Energy Progress
Why a switch to solar and wind is not enough can be seen in the next chart which shows how the various energy sectors can contribute to the overall emission reductions effort:
Source: IEA, Tracking Clean Energy Progress
When it comes to solar and wind, the IEA notes that solar PV is doing well, but progress in wind energy is slowing down markedly.
Onshore wind capacity additions declined by 10% in 2017, marking the second year of decline in a row. “This trend is in contrast with SDS generation targets requiring a continuous growth in new build capacity to maintain annual generation growth of 12% through 2030. As a result, onshore wind lost its “on-track” status this year and needs improvement.”
Source: IEA, Tracking Clean Energy Progress
Offshore wind did expand with 23% generation growth in 2017, “but it needs to accelerate even faster to be in line with SDS target”, notes the IEA.
Solar PV showed record 34% growth in power generation in 2017 and is well on track to meet its SDS target, which requires average annual growth of 17% between 2017 and 2030.
However, as this chart shows, the EU is lagging behind in solar PV growth:
New nuclear power capacity “dropped sharply to only 3.6 GW. Construction starts, a proxy for final investment decisions, remained low. Declining investment, announced phase-out policies and planned retirements, combined with only 56 GW of nuclear capacity under construction in 2017, suggest that meeting the goal of 185 GW of net increase needed by 2030 will be very challenging. Looming construction decisions by China, India and Russia in 2018-2020 will play a major role in whether nuclear power will meet the SDS targets in 2030 and beyond.”
And what about something like energy storage, which is so much talked about as the Holy Grail of the energy transition? According to the IEA, “while battery prices fell by 22% from 2016 to 2017, continuing a very positive trend, additional utility-scale deployments for all storage technologies (excluding pumped hydro) remained flat in 2017 at around 620 MWh. This 2017 deployment rate is insufficient to meet the SDS target, which requires an additional 80 GW of overall storage capacity added by 2030. Additional policy support and ensuring a wider range of storage technologies become cost-effective are crucial.”
Meanwhile, within batteries, the share of lithium-ion continues to go up:
A recent report from the IEA’s competitor, the International Renewable Energy Agency (IRENA), confirms that “despite the dramatic rise of renewables over the past couple of decades, they are not being added fast enough.”
According to IRENA’s Global Energy Transformation: A Roadmap to 2050, we need to further accelerate the speed of global renewable energy adoption by at least a factor of 6 if we are to meet the goals of the Paris Climate Agreement.
IRENA insists that “renewable energy and energy efficiency can, in combination, provide over 90% of the necessary energy-related CO2 emission reductions. Furthermore, this can happen using technologies that are safe, reliable, affordable and widely available. While different paths can mitigate climate change, renewables and energy efficiency provide the optimal pathway to deliver most of the emission cuts needed at the necessary speed.”
The report notes that “The total share of renewable energy must rise from around 18% of total final energy consumption (in 2015) to around two-thirds by 2050. Over the same period, the share of renewables in the power sector would increase from around one-quarter to 85%, mostly through growth in solar and wind power generation. The energy intensity of the global economy will have to fall by about two-thirds, lowering energy demand in 2050 to slightly less than 2015 levels. This is achievable, despite significant population and economic growth, by substantially improving energy efficiency, the report finds.”
This chart shows to what extent efforts need to be accelerated:
Yet, IRENA’s insistence that the energy transition can be realized mostly through renewables and energy efficiency requires some heroic assumptions, as can be seen in this chart:
This assumes very high energy efficiency and electrification levels. IRENA’s own conclusion, that “renewable energy needs to be scaled up at least six times faster”, indicates that it may not be a bad idea to pursue a more broadly based climate policy, as researchers like Schalk Cloete argue.
The slowdown in the European wind sector identified by the IEA could get worse, at least in the important German market.
The main reason is that “the introduction of Germany’s renewables auction system and a general drop in support payments have hit the industry hard.”
Nearly 40 percent of over 1,200 international wind power companies said in a survey that “the situation for onshore wind power Germany is worse than in many other regions in Europe and around the world…. Companies like industrial heavyweight Siemens are calling on the German government to ramp up expansion plans, especially offshore, to avoid layoffs and an expansion gap in the sector.”
And things could even get worse. After having replaced the feed-in tariff with an auctions system, the German government is now planning to limiting the priority renewables still get on the German grid. According to Spiegel Online, energy minister Peter Altmaier could present a draft law this year to diminish the preferential treatment for renewables.
With regard to offshore wind, Europe is of course leading the world. At the Clean Energy Ministerial on 24 May in Denmark, Chairman of the Board of TSO Energinet, Lars Barfoed, presented the vision of the North Sea Wind Power Hub Consortium, which consists of Energinet, Dutch gas TSO Gasunie, the Port of Rotterdam, Dutch TSO TenneT Netherlands and TenneT Germany.
The goal of the North Sea Wind Power Hub is “to connect large-scale offshore wind power to a central hub and create new energy highways and trade corridors between the North Sea countries”.
By 2040, North Sea offshore wind power capacity is expected to reach 70-150 gigawatts of electricity, corresponding to around one fifth of the EU’s power consumption, the consortium said in a press release. “Thus, about 7-15 times more wind production than today is to be entered in the North Sea. In order to achieve that goal, there must be a close degree of planning and coordination between the countries. Furthermore, an international approach will reduce infrastructure costs significantly and lead to competitive energy prices. Instead of having each country connecting its own offshore wind farms, the first calculations show that up to 30% of the costs could be saved by an internationally coordinated roll out.”
“We need to focus more on the whole picture, regional synergies and how we can gradually and coordinated develop wind capacity and infrastructure in the North Sea, instead of each time building new wind farms as if they were the last ones“, said Barfoed.
In addition to examining the perspectives in the central hub as a staging point for offshore wind power, the consortium is also looking into the development of electricity storage and conversion, including Power to Gas, as an activity to unfold offshore and thereby add value to the harvested offshore wind power. In addition, combining the strengths of the electricity and gas supply system can provide a key boost to the use of hydrogen as a sustainable solution in numerous applications in industry, transportation, and the built environment, the consortium said.
The Clean Energy Ministerial is a high-level global network of 25 countries, including China, the US, the UK, Germany as well as the European Commission, aiming to “accelerate” the global energy transition.
ENERGY WATCH #2 by Karel Beckman
EVs are entering crucial phase – and beginning to transform electricity markets
June 5, 2018
How many electric cars will be on the road in two decades from now?
The number of electric and plug-in hybrid cars on the world’s roads exceeded 3 million in 2017, a 54% increase compared with 2016, according to the latest edition of the International Energy Agency’s Global Electric Vehicles Outlook.
The IEA has two “global EV deployment scenarios”, one the “reference scenario” (based on current climate policies, if no additional measures are taken), and an “EV30@30” scenario which assumes that governments will take supportive measures. The outcomes look as follow:
Note that the IEA’s latest Tracking Clean Energy Progress report shows that EVs are one of the 4 technologies out of 38 that are “on track” to meet long-term sustainability goals, which implies that the EV30@30 scenario could come true if the market continues to develop as it is doing now.
The EV30@30 shows around 220 million EVs on the road by 2030. How many would there be in 2040? Morgan Stanley has a similar scenario for 2030, which extends out to 2040 and to 2050:
This projection implies that growth would actually accelerate after 2030. By 2040, there would be almost 500 million EVs on the road, which would still only be a third of the total fleet. A decade later, EV s would surpass internal combustion cars.
Think tank Bloomberg New Energy Finance (BNEF) also produced an EV outlook recently, which is even slightly more bullish, with 559 million EVs projected to be on the road in 2040. BNEF also expects growth to accelerate beyond 2030. By 2040, 55% of all new cars sold will be electric, according to BNEF.
A crucial element in the projection is (battery) costs. BNEF expects $70/kWh lithium-ion battery pack price in 2030. It says “the upfront costs of EVs will become competitive on an unsubsidized basis starting in 2024. By 2029, most segments reach parity as battery prices continue to fall.” This would imply that government support is still needed over the next decade to push EVs.
Current battery costs are still well over $100/kWh, as this chart from the IEA shows:
According to the IEA, “further battery cost reductions and performance improvements are essential to improve the appeal of EVs. These are achievable with a combination of improved chemistries, increased production scale and battery sizes. Further improvements are possible with the transition to technologies beyond lithium-ion.”
The IEA report includes a complex comparison of TCO (total costs of ownership), of which the most important conclusions are:
- The TCO gap between BEV and ICE cars reduces significantly for vehicles with high annual mileage.
- Battery and gasoline prices have a larger influence on the TCO gap than the size of the car.
- With a battery price of USD 120/kWh and a high gasoline price (comparable to today’s price level in Europe), a BEV is an economical choice for all driving mileage profiles.
- With a battery price of USD 260/kWh, BEVs are competitive in cases of high annual mileage and high gasoline prices.
- Although small BEV cars are more competitive with ICEs cars, large electric cars also have potential to become competitive with similar ICE cars, especially with high annual mileage and high gasoline prices.
- When battery prices are higher, (e.g. in the ramping up phase of production), limiting the battery capacity (and therefore the driving range) can have significant impact to lower the TCO parity threshold between battery electric and internal combustion engine cars.
The analysis also confirms “that fuel taxes and purchase price incentives can have a large influence on the TCO gap between an ICE and electric car, lowering the cost gap between the two technologies.”
The IEA expects lithium-ion to remain the technology of choice for the next decade, “when it is expected to take advantages of a number of improvements to enhance battery performance. Other technology options are expected to become available after 2030.”
There are concerns around the supply of “core elements that make up lithium-ion batteries, such as nickel, lithium and cobalt. The supply of cobalt is particularly subject to risks as almost 60% of the global production of cobalt is currently concentrated in the Democratic Republic of Congo. Additionally, the capacity to refine and process raw cobalt is highly concentrated, with China controlling 90% of refining capacity. Even accounting for ongoing developments in battery chemistry, cobalt demand for EVs is expected to be between 10 and 25 times higher than current levels by 2030.”
As far as policy support is concerned, China is trailblazing the way. The IEA reports that “China remained by far the largest electric car market in the world, accounting for half sold last year. Nearly 580,000 electric cars were sold in China in 2017, a 72% increase from the previous year. The United States had the second-highest, with about 280,000 cars sold in 2017, up from 160,000 in 2016.”
Nordic countries remain leaders in market share. “Electric cars accounted for 39% of new car sales in Norway, making it the world leader in electric vehicle (EV) market share. In Iceland, new EV sales were 12% of the total while the share reached 6% in Sweden. Germany and Japan also saw strong growth, with sales more than doubling in both countries from their 2016 levels.”
Note that according to the IEA “the growth of EVs has largely been driven by government policy, including public procurement programmes, financial incentives reducing the cost of purchase of EVs, tightened fuel-economy standards and regulations on the emission of local pollutants, low- and zero-emission vehicle mandates and a variety of local measures, such as restrictions on the circulation of vehicles based on their pollutant emission performances.”
Clearly the end of government support at this stage could deal a heavy blow to the EV market.
The availability of charging points is also an important critical success factor.
According to the IEA, so far the uptake of EVs is “closely mirrored” by the growth of charging infrastructure. In 2017, private chargers at residences and workplaces were the most widely used:
One market segment that is showing rapid growth is that of electric buses. The IEA reports that ”in 2017, sales of electric buses were about 100,000 … the vast majority was in China.”
Electric two-wheelers are also growing fast, again thanks to China. More than 99% of all electric buses and two-wheelers on the planet are currently in China.
Electric buses are already cost-competitive with diesel buses under some conditions. “Electric buses travelling 40 000-50 000 km/year are cost competitive in regions with high diesel taxation regimes if battery prices are below USD 260/kWh”, notes the IEA. “Expected reductions in battery prices make a compelling case for bus electrification in these regions.”
However, “the mileage threshold for buses operating in regions with lower diesel taxes is much higher, all else being equal.” In the European context, “there is a compelling case for bus electrification”.
Cost comparison between diesel and electric trucks is even more complex than in the case of buses and depends on many assumptions. The IEA notes that “battery electric trucks might have a potential use for urban and regional deliveries in regions where diesel prices are high. As the payback accrues only after many years of operation, electric trucks are likely to be purchased first and primarily by large fleets that have low discount rates and can accept long payback periods. Indeed, large carriers account for nearly all of the orders of prototypes and marketed battery electric trucks to date. But even in developed markets like Europe and the United States, road freight is a very unconsolidated industry; the majority of trucks are owned and operated by individuals or business with fewer than five trucks.”
All in all the coming years look crucial to the ultimate success of the EV revolution. Growth is almost certain, but the size and speed are not. The world could still end up with a heavily mixed fleet rather than one dominated by electric cars.
Certainly a lot of resistance in the existing industry needs to be overcome, which might not be so easy. Even in the Nordic countries there turns out to be a lot of resistance to EVs, according to a scientific paper in Nature Energy reported on by the BBC.
Researchers, who posed as car shoppers in Scandinavia and Iceland found that sales personnel strongly pushed petrol and diesel powered cars, notes the BBC. “Around 77% of dealerships that sold EV brands didn’t discuss their existence with the potential customers.”
In the study, the researchers visited 126 car dealerships across 15 cities in Denmark, Sweden, Norway, Finland and Iceland. The team also interviewed over 250 industry experts across the region. “Of the 126 dealers visited, only 8.8% of the encounters that the shopper has left them preferring an EV option over a petrol or diesel car.”
Excluding Norway, a country where nearly a third of new car sales this year are expected to be electric, the proportion of shoppers opting for EVs dropped to 2.9%. “Most potential customers would remain totally ignorant of EV options in the vast majority of showrooms, especially where dealers sold EV brands.”
The four most common ways in which dealers steer customers away from EVs:
- Dismissive of EVs – “the economics of fuel efficiency doesn’t make sense…”
- Misinforming the customer – “it only goes 80km..”
- Neglecting to mention EVs – “you can only get this in diesel or petrol..”
- Depicting EVs as inferior – “it will ruin you financially…”
The authors say that “the dealers perceived EVs as less profitable, they lacked technical knowledge and believed that EVs took longer to sell.”
A very important factor, according to the researchers, are the signals coming from the government.
“Policy and signalling from the government and the industry are reflected in the marketplace, they are making EVs a less attractive option to sell for the sales personnel and for consumers to buy,” lead author Gerardo Zarazua de Rubens told BBC News.
Many, including the UK, are signalling that the internal combustion engine will be phased out over the next 20-30 years. Despite the objections from sales personnel in his study Gerardo Zarazua de Rubens, believes it will happen much more quickly.
“EVs will come faster than most people think. Replacing the entire fleet will take a long time as we can’t just get rid of all the cars but I think EVs will dominate new sales in the next decade, and not in 20 years.”
The UK government is certainly signaling that it wants to expand EVs. As the Telegraph reports, “the world’s largest battery and vehicle-charging network could roll out across British roads through a new £1.6bn scheme due to start in Southampton next year.”
The Telegraph notes that “a brand new energy start-up”, Pivot Power, has won the backing of National Grid and private investors (including BNEF founder Michael Liebreich) “to dot the UK with grid-scale 50MW batteries and rapid vehicle charging docks across 45 sites.”
Pivot Power aims to roll out 10 of its mega-batteries within 18 months to power public rapid charging stations, electric bus depots and bases for large transport fleets.
Graeme Cooper, of National Grid, said Pivot Power’s plans “will help accelerate adoption by providing a network of rapid charging stations across the country enabling cars to charge quickly, efficiently and as cost-effectively as possible”.
“It will also give the system operator more choice and flexibility for managing the demands in the day to day running of the network, and also help mass EV charging,” he added.
The newspaper writes that “the burgeoning market for electric vehicles and batteries is expected to revolutionise the power market in the UK over the coming decades as efforts to phase out combustion engine vehicles gains traction.”
The emergence of electric vehicles and batteries could also help National Grid balance the country’s demand for power against the ebb and flow of renewable power as it becomes available.
The initiative of Pivot Power shows the likely way forward in the electricity sector. As EVs become more and more widespread, there will be an increasing integration of systems – with EV charging systems at home and in the workplace connected both to the grid and to solar-plus-storage systems.
Such a combination will become available to oil company Shell as it is becoming more and more active in the electricity market. After acquiring the Dutch supplier of EV home charging systems NewMotion last year, market leader in Europe, Shell has now invested €60 million in the German solar-plus-storage supplier Sonnen, also a market leader in its own field.
Sonnen CEO Ostermann told Energy Storage News that “the investment would enable Sonnen to pursue expansion plans predominantly in the US and Australia, but also to ramp-up the development of its domestic aggregated storage platform Sonnencommunity, its nascent virtual power plant solution and its grid-related services initiative.”
Shell in March year also acquired UK electricity retailer First Utility. When it first announced the deal in December 2017, Shell said its energy supply, trading and marketing expertise would enable First Utility to grow beyond its 825,000 customers and hoped to develop “more innovative” services for its customers.
If Shell were to offer Sonnen batteries to First Utility customers it would follow a path well-trodden by other utilities over the course of the past year, notes Energy Storage News. “The likes of EDF, Eon and Ovo Energy have all partnered with battery manufacturers to offer domestic services, usually alongside rooftop solar and/or home energy management solutions.”
Meanwhile, the “the city of Munich, home to carmaker BMW, will test a new multi-purpose (taxi, car-sharing, and goods transport) electric car developed by Adaptive City Mobility (ACM) as of autumn 2018”, the Süddeutsche Zeitung reports.
The ACM car will have a range of about 300 kms. Empty batteries can be replaced with freshly charged ones at designated changing stations. The idea behind the project is to free up space and reduce traffic by giving people a very convenient and flexible option for car-sharing.
ENERGY WATCH #3 by Karel Beckman
Has European Commission de-fanged the Russian bear?
June 5, 2018
Is the European Commission’s decision on 24 May to impose “binding obligations on Gazprom to enable free flow of gas at competitive prices” in Eastern Europe – but no fine – a victory for Gazprom?
It is interpreted by some in this way. Countries like Lithuania and Poland had pressured Competition Commissioner Margrethe Vestager to impose a (steep) fine on Gazprom for its violation of EU competition rules, but Brussels decided otherwise.
The Commission published a Statement of Objections in April 2015, which set out “the Commission’s preliminary view that the company breached EU antitrust rules by pursuing an overall strategy to partition gas markets along national borders in eight Member States (Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland and Slovakia). This strategy may have enabled Gazprom to charge higher gas prices in five of these Member States (Bulgaria, Estonia, Latvia, Lithuania andPoland)”, says the Commission.
The Commission decision of 24 May “puts an end to this behaviour by Gazprom”, Brussels said in a press release, while stopping short of fining the company.
The decision It imposes on Gazprom “a detailed set of rules that will significantly change the way Gazprom operates in Central and Eastern European gas markets”:
- No more contractual barriers to the free flow of gas: Gazprom has to remove any restrictions placed on customers to re-sell gas cross-border.
- Obligation to facilitate gas flows to and from isolated markets: Gazprom will enable gas flows to and from parts of Central and Eastern Europe that are still isolated from other Member States due to the lack of interconnectors, namely the Baltic States and Bulgaria.
- Structured process to ensure competitive gas prices: Relevant Gazprom customers are given an effective tool to make sure their gas price reflects the price level in competitive Western European gas markets, especially at liquid gas hubs.
- No leveraging of dominance in gas supply: Gazprom cannot act on any advantages concerning gas infrastructure, which it may have obtained from customers by having leveraged its market position in gas supply.
Combined, “these obligations address the Commission’s competition concerns and achieve its objectives of enabling the free flow of gas in Central and Eastern Europe at competitive prices”, the Commission said.
The “new obligations (so-called “commitments”) are legally binding on Gazprom under Article 9 of the EU’s antitrust Regulation 1/2003,” the Commission stresses. “If a company breaks any of these obligations, the Commission can impose a fine of up to 10% of the company’s worldwide turnover, without having to prove an infringement of EU antitrust rules.”
In a separate statement, Commissioner Vestager acknowledged that “some would have liked to see us fine Gazprom instead, no matter the solution on the table.”
However, she said “a fine would not have achieved all of our competition objectives in this case. We can only make sure that Gazprom takes positive steps to integrate isolated gas markets, if Gazprom commits to do so. And we can only offer Gazprom’s customers an effective right to adjust their gas price, if we bind Gazprom to a structured process. With today’s decision Gazprom has accepted that it has to play by our common European rules, if it wants to sell its gas in Europe. In fact, it has accepted to play by a rulebook that is tailor-made to ensure that European consumers can benefit from the free flow of gas at competitive prices.”
“The case doesn’t stop with today’s decision – rather it is the enforcement of the Gazprom obligations that starts today.”
In other words, Vestager implied that imposing a fine on Gazprom would have prolonged the case (which started in 2011) even further, since Gazprom may have appealed it. The Commission was apparently eager to end the uncertainty around it.
Interestingly, Vestager also said that the decision “matters to our climate. If we want to achieve our ambitions from the Paris Agreement we need to increase the share in our energy mix of renewable energy, such as wind and solar. That also means we need gas as a flexible back-up capacity for the days when the sun is not shining and the wind is not blowing.”
It seems a remarkable statement in the context of a decision in a competition case. It rather puts Europe in a weak position, openly admitting it is dependent on gas.
Many observers were disappointed by the Commission decision.
Andrew Rettman of the EUObserver dubbed 24 May “a good day for Russia in Europe”.
He noted that on the same day, French President Macron visited Russian leader Putin in St. Petersburg:
They met in a palace and ate caviar. Macron addressed Putin as “cher Vladimir” and quoted Russian writers, while Putin gave his wife flowers in what Russian media called “bouquet diplomacy”.
France and Russia disagreed on various things, Macron said, but called for “strong multilateralism” on Iran nuclear non-proliferation. “I hope Russia understands France is a credible and trustworthy European partner,” he said. The visit focused on Iran and was not linked to the Gazprom decision, but Macron brought a business delegation, including French energy firm Total, who invested $2.5bn in Russian gas projects. French firm Engie is among EU backers of Nord Stream 2, along with Anglo-Dutch company Shell, Austria’s OMV, and German firms Uniper and Wintershall, who also sent top men to meet Gazprom in St Petersburg on Wednesday.
“The St Petersburg crush came one week after German chancellor Angela Merkel met Putin and agreed to build Nord Stream 2”, Rettman adds, with some hyperbole!
Merkel did visit Putin on 18 May. On this occasion she defended Nord Stream 2, but did add that “Germany believes Ukraine’s role as a transit country should continue after the construction of Nord Stream 2… it has a strategic importance“. She added that Germany was ready to help ensure such an outcome.
According to Rettman, “the settlement mends Gazprom’s image, with its chiefs, Alexei Miller, who is on a US blacklist, and Alexander Medvedev, welcoming the ‘reasonable’ EU decision. It comes amid the firm’s plan to build a controversial pipeline from Russia to Germany this year. The Nord Stream 2 (NS2) pipeline would make it easier for Putin to cut-off Western allies, including Ukraine, for strategic reasons, and to gouge prices, Poland and Nordic states have said. It would also help Putin to line the pockets of his friends, such as Gennady Timchenko and Arkady Rotenberg, whose firms build pipelines for Gazprom, hardening the Russian leader’s grip on power.”
But other commentators take a much more positive view of the Commission’s decision. Writing on Bloomberg, analyst Leonid Bershidsky contended that “Europe has tamed Gazprom, not let it off the hook”. It’s an evaluation I personally sympathize with.
Bershidksy writes that the settlement “shows that the company has been defanged and is no longer a threat to Europe’s energy security.”
He observes that “it forces Gazprom to make up for the lack of interconnector pipelines in Bulgaria and the three Baltic states by letting customers buy gas at lower prices set for other countries and have it delivered to these four nations. Gazprom customers with long-term contracts now have the right to demand lower prices if they’re paying more than West European customers with competitive markets.
The Russian supplier has also agreed to a number of other conditions, including a waiver of any compensation for the cancellation of the South Stream project. The pipeline, which was supposed to carry gas from Russia to Austria via Bulgaria, Hungary and Slovenia, died a painful death in 2014 after the EU interfered to scupper construction deals.”
In addition, “Gazprom has agreed to eight years of close supervision by the EU, which will arbitrate any disputes. Vestager and her successors can fine the company up to 10 percent of its global revenue if it violates the settlement terms.”
How will the competition decision influence Nord Stream 2?
Bershidsky believes “the settlement also provides evidence that it might make sense for both Germany and Russia to let the EU regulate Nord Stream 2, the pipeline into Germany that Gazprom has started building even though it lacks some necessary permits from Denmark and Sweden.”
That seems a bit too optimistic to me. “Regulating” Nord Stream 2 under the EU Gas Directive, as the European Commission wants to do, would scarcely be acceptable to Russia. (See this and this article for more information on the Commission’s proposal to extend the EU Gas Directive to “import” pipelines such as Nord Stream 2.)
Anders Aslund, a Russia expert at the Atlantic Council, and a fierce critic of Russia, takes the opposite view. He told EUObserver: “That the EU competition case against Gazprom had not been concluded was a strong argument against Nord Stream 2, which now has disappeared.” In other words, according to Aslund, the European Commission, which has repeatedly said it opposes Nord Stream 2, cannot now use the threat of a fine anymore as a weapon in negotiations with Gazprom.
But that would not be regarded as proper in any case by the competition officials in Brussels. It is true that there has been talk of a ‘grand deal’ with Russia which would involve both the competition case and Nord Stream 2, but if such a deal has been made at all, it would not of course be presented as such.
What does seem possible is that the Commission’s competition decision is part of a silent understanding between the Commission, Merkel and Putin including a Russian promise not to entirely close off its Ukrainian transit after Nord Stream 2 is built.
But that is speculation on my part. Certainly the timing of the decision is extremely sensitive. European relations with Russia are frayed as a result of the occupation of Ukraine and incidents such as the downing of the MH17 airplane and the Skripal case. At the same time, the EU is furious with U.S. president Trump over his decisions to ditch the Iran deal and impose tariffs on European steel and aluminium. Both Merkel and Macron discussed the Iran nuclear deal with Putin and confirm the EU’s commitment to it. In this respect, Trump’s confrontational policies play right into the hands of Putin.
In any case, to view the EU-Russian gas relation as a form of unilateral dependence, does not do justice to the facts.
Not only has the EU managed to successfully “liberate” EU gas markets (including literally liberating it from dependence on Gazprom and a few other big suppliers), what should not be forgotten is that Russia is also dependent on the revenue it obtains from the European market.
Bershidsky even finds Gazprom’s position “precarious”, he writes. “At any point, it could need its European customers more than they need it. The company’s executives understand they face a competitive and politically difficult environment in Europe. That requires them to play nice and offer prices that are difficult to undercut. It also makes supply disruptions highly unlikely, even for geopolitical reasons.”
That may be slightly exaggerated, but most analysts agree that the dependence is mutual. International energy consultancy IHS Markit has just released a new report – European Natural Gas – the New Configuration, which argues that “a major transformation is poised to advance Europe’s energy security goals and improve natural gas flows in European markets.”
According to the report, “new sources of supply via increasing global liquefied natural gas (LNG) capacity and pipelines, along with continued market integration, will provide European gas customers greater flexibility and choice and further the integration of Europe with global gas markets and prices.”
“Most European gas customers will have greater opportunity to choose among competitive supply options by the early 2020s”, notes IHS Markit.
The report is based on a new Pan-European Gas Flows and Price Differentials Model, which explores the implications of key developments such as new infrastructure, competitive purchasing and global pricing dynamics.
“Greater capacity for gas imports—from several currently planned and potential pipelines such as Nord Stream 2, Eugal, Turk Stream and Trans-Adriatic Pipeline (TAP) and Trans-Anatolian Pipeline (TANAP)—along with greater LNG import capacity, will more than compensate for the reduction in indigenous supply”, the report says.
IHS Markit projects that global LNG capacity will increase by 40 percent from the beginning of 2017 to 2022. Part of this growth will come from the United States, where new LNG capacity to export globally will more than triple to 67 million tons over the same period.
The report expects Europe’s total natural gas import capacity to increase by more than 20 percent by 2020. In 2017 European consumers imported 348 billion cubic meters of gas, which meant that Europe’s total import capacity was used at 58 percent. There is significant spare capacity, notably in LNG regasification facilities in western Europe.
Additional investments—primarily pipelines—could increase import capacity by more than a further 100 bcm. “These levels of capacity will be sufficient to meet a growing demand for natural gas imports as onshore and North Sea supplies decline, and critically, support the role of storage in meeting winter and weather fluctuations.”
“Gas supply to Europe is on the cusp of a fundamental shift that will ultimately transform flow patterns for the entire continent,” said Daniel Yergin, vice chairman, IHS Markit. “Europe will continue to become more integrated with the world market, marking the globalization of European gas.”
“Europe is well positioned for these transformative changes as the traditional sources of supply are replaced by imports from an emerging diversified and growing global gas market,” said Michael Stoppard, chief global gas strategist for IHS Markit. “The expanded availability of diverse sources of supply is built on the twin pillars of pipelines and LNG.”
As a result of growing imports and greater connection to LNG, IHS Markit expects European gas prices to be increasingly set by the global market. “Spot gas prices across the EU should converge within a narrow price range. This closer convergence in pricing will stand in contrast to North America where prices can vary widely across the continent.”
The report observes that “a vast majority of customers in the European Union are today located in highly liquid and competitive markets—the result of a decades-long path of regulatory liberalization and competition policies.”
“This coming transformation of European gas flows encapsulates profound and ongoing steps toward the goal of creating a single, pan-European gas market,” said Shankari Srinivasan, vice-president, gas & power for Europe at IHS Markit. “The physical point at which gas enters the European market, whether by pipeline or LNG tanker, and the identity of the supplier is becoming of less and less significance. Market forces are creating checks and balances that bring cost-effective gas supply to consumers.”
So much for the European market from a European perspective. But how do the Russians themselves look at the European gas market?
Well, “everyone knows” Russia “uses gas a geopolitical weapon” and strategy is of course decided at the highest level, in the Kremlin. However, that idea may be a tad simplistic.
According to Tatiana Mitrova, director of the Energy Centre at the Moscow School of Management Skolkovo, Russia’s energy strategy isn’t really a strategy at all. In a panel discussion organized by the Atlantic Council, and reported on by Drew Leifheit in Natural Gas World Magazine, Mitrova “described Russia’s actions as more about the choices it faces in this sphere: whether to seek more international co-operation or to pursue a more solitary path; to increase entrepreneurship or increase the role of the state; or to go for a market-driven economy or more of an administrative command system.”
Tatiana Mitrova (Credit: Atlantic Council)
Mitrova said “the different groups of influence inside the Russian establishment are pushing things in different directions. The Russian ‘Energy Strategy 2035’ document, which had not been approved since its unveiling two years ago, she explained, is a good illustration of the conflicts between those dynamics. ‘Different parties are trying to put inside this document different ideas, goals and, as a result, it is absolutely impossible at the moment to find any consensus,’ she said.”
Mitrova listed the official goals of the Russian energy strategy: “to sustain Russia’s position in the global energy market; to seek market diversification with a significantly higher share of its sales going to Asia; energy availability and affordability for domestic customers; and a strong reduction in energy intensity and emissions and more renewable energy.”
“The first two pillars of the strategy have been given the most weight”, according to Mitrova.
Although Russia’s energy strategy is undecided, “it doesn’t mean that there are no tactical goals,” Mitrova added.
Indeed, according to her, recent “tactical adaptations” have been extremely successful. She named the “Opec Plus” deal, which she said had provided high revenues from oil exports, with Russia contributing by cutting its own output. This, she said, is something which would have been unimaginable just a few years earlier.
Gas, Mitrova said, “is a very high priority, and Russian gas exports have been on the increase for several years in a row. It is not only pipeline gas which is booming: it is also a new position in the global LNG market, which even the Russian government did not see coming.”
“Novatek’s ambitions and a really strong effort to develop Yamal LNG have been extremely successful. Moreover, they are now preparing a series of new projects – four different plants, which could make Russia a large LNG exporter, as large as Qatar or Australia,” she noted.
Moreover, she said Novatek has obtained a patent for its new liquefaction technology that can be produced domestically and functions in Arctic conditions, saving 30-40% on liquefaction costs.
ENERGY WATCH #4 by Karel Beckman
Nuclear power balance may shift East
June 5, 2018
Nuclear energy expert Mark Hibbs of the Carnegie Endowment for International Peace (CEIP) has published a new book which gives a comprehensive overview of China’s efforts to develop its commercial nuclear energy program, writes nuclear energy journalist Dan Yurman on his Neutron Bytes blog.
Hibbs believes “China is on course to lead the world in the deployment of nuclear power technology by 2030. Should it succeed, China will assume global leadership in nuclear technology development, industrial capacity, and nuclear energy governance.”
Hibbs’ report says China’s ambitious plans for nuclear energy “could see it operating several hundred power reactors by 2050, implementing a transition from pressurized water reactors (PWRs) to more advanced nuclear systems”. Hibbs also writes that China “has or will demonstrate a closed fuel cycle at industrial scale.”
The impacts will be strategic and broad, according to Hibbs, “affecting nuclear safety, nuclear security, nonproliferation, energy production, international trade, and climate mitigation.”
Especially critical is “whether China achieves an industrial-scale transition from current nuclear technologies to advanced systems led by fast neutron reactors.” In that case, China would definitely surpass the U.S. as premier nuclear energy superpower.
But the country has not reached that stage yet.
As Hibbs reports:
- China today is poised to make these investments but lacks deep industrial expertise for some technologies it has selected; to succeed it must effect transitions from R&D to commercial deployment.
- China’s current heavy nuclear R&D spending must be sustained to succeed since some systems may not be ready for commercial deployment before the 2030s.
- China’s nuclear industry must depend on state enterprises to make its nuclear technology transition; Beijing must down-select technologies and decide whether to trust the market to make economic decisions especially in the area of exports.
Whether and to what extent China succeeds or fails, will matter a lot:
- If China merely replicates others’ collective past experience, it will reinforce the view that fast reactors and their fuel cycles are too risky, complex, and expensive to generate large amounts of electricity.
- China has placed a lot of bets on various advanced nuclear reactors designs. Which ones will transition to commercial development remains to be seen.
- If, instead, China clearly succeeds in its ambitions, it may significantly raise the profile of nuclear power toward later in this century, but likely after 2050.
- If so, China will deeply influence global rules and understandings governing the risks associated with nuclear power systems.
It seems that already the future of nuclear power is in China’s hands.
The website NucNet notes in its review of Hibbs’ book that China has “massively invested” in human and material resources needed to replicate the PWR-based systems that foreign countries had developed. China may become an important global supplier – perhaps the most important supplier – of civilian nuclear goods, including modern power reactors built at comparatively low costs.
However, the report says that for this to happen, “China would have to overcome severe technical barriers and achieve significant scientific and engineering breakthroughs which are still in the future.
It must, for at least the next three decades, effectively support and control the flow of funds to and from nuclear organizations and assure that costs are manageable, predictable, and comparatively favorable. It must develop sufficient public trust and confidence to permit leaders to make decisions consistent with their plans for the nuclear industry. These objectives are equally applicable to other nations developing advanced reactors.”
The report warns, “if China fails [to do these things], its nuclear energy program may not sustain itself through the second half of the century.”
Until now, China’s nuclear development has relied on technologies invented by others. “China has duplicated them or acquired them as it did with Westinghouse in building four AP1000s. During this century, China plans to replace light-water nuclear power plants with advanced systems including HTGRs and possibly thorium fueled reactors.”
Nevertheless, China is already on the point of outcompeting western countries in international markets. Hibbs points out that “the nuclear engineering sectors of companies in France, Japan, and the US, which supplied nearly three quarters of the world’s nuclear reactors, are in decline and their futures are uncertain. These firms are experiencing low-capacity utilization, rising costs, loss of expertise, and waning political support. In the US the low price of natural gas is proving to be a formidable competitive challenge to the existing fleet with predictions that even more plants in merchant markets may be forced to close.”
Hibbs warns that should China’s nuclear development remain on track, “its industry’s anticipated massive economies of scale and high turnover will also put foreign competitors under even greater commercial pressure.”
Regarding exports China is developing its global reach with a new 1000 MW PWR, the Hualong One, and has plans to market a 1400 MW version of the AP1000 called the CAP1400. Reference units of both designs are under construction in China., An HTRG is also being developed for export. China first two FOAK units are slated for commercial use later this year.
As Hibbs writes, “China’s industry is poised to invade the world’s nuclear goods markets. Continued Chinese success in nuclear power will add to the challenges faced by a nuclear industry in the West that is in deep trouble. Chinese state-owned enterprises (SOEs)—which were, until recently, expected to become “second tier” suppliers—may penetrate established nuclear power plant export markets.”
“China’s business model may give its SOEs supreme competitive advantage over all foreign private sector companies in the nuclear industry. If Chinese business practices prevail, China might eventually become the world’s leading provider of nuclear fuel, nuclear power plants, and nuclear engineering services.”
The book includes a section of technical notes on sources which include many interviews with experts in China on that country’s nuclear energy efforts.
As a sign of China’s growing importance in the international nuclear energy market, Yurman reports that Canadian Nuclear Laboratories (CNL) has announced that it has signed a cooperation agreement with China’s largest nuclear organization, China National Nuclear Corporation (CNNC) “to support the transition to a greener, low-carbon economy.”
One of the potential work areas between the two organizations may be in the development of thorium fueled molten salt reactors, observes Yurman. In May 2017 Canada’s SNC-Lavalin signed an agreement with CNNC to build two next-generation CANDU nuclear reactors at a site about 60 miles southwest of Shanghai. One of the options for the project is to develop the capability of the CANDU units to burn thorium nuclear fuel.”
China is also pursuing other thorium molten salt projects. The Asia Nuclear Business Platform reported that in December 2017 the China Academy of Sciences and the government of Gansu Province signed a co-operation agreement to work together on China’s Thorium Molten Salt Reactor (TMSR) project and to have a demonstration or research reactor built in Gansu Province by 2020.
The total investment is reported to be $3 billion.
The Chinese central government has selected molten salt reactor as one of its R&D focuses of the nuclear GEN IV technology, writes Yurman.
Meanwhile, fuel loading began in April at Taishan-1, China’s first Generation III 1660 MW EPR unit which is under construction in the southeastern province of Guangdong. It is being developed by China General Nuclear Power (CGN), the same company that will be building two EPR reactors at Hinkley Point C in the UK together with EDF of France.
EDF is still struggling to get its two existing EPR projects connected to the grid. The EPR at Finland’s Olkiluoto plant has been under construction since 2005 and has seen several revisions to its start-up date, with grid connection now scheduled to take place in December and the start of regular electricity production in May next year.
Fuel loading at the Flamanville EPR in France, construction of which began in 2007, is expected to begin the fourth quarter of this year.
All of this makes one wonder whether the German decision to phase out nuclear power was such a smart decision after all.
Following the 2011 Fukushima nuclear disaster in Japan, Germany made the unprecedented decision to close down all its nuclear power plants — the oldest eight power plants were closed immediately, while the remaining nine are scheduled to be turned off by 2022.
The Federal Constitutional Court in Karlsruhe ruled two years ago that RWE and Vattenfall’s property rights had been violated by that decision, enabling the possibility of compensation.
The German cabinet has now agreed to grant compensation of up to €1 billion to the two utilities forced.
The cabinet has approved a draft law to that effect. A definitive figure could only be calculated in 2023, the cabinet said, but the German Environment Ministry (BMU) has said “payments for the two utilities would not exceed a low single-digit-billion-euro amount and would more likely be in the high three-digit-million-euro range.”
Vattenfall took its case for compensation to the International Center for Settlement of Investment Disputes (ICSID) in Washington in 2012, which has yet to reach a conclusion, notes World Nuclear News.
Federal Environment Minister Svenja Schulze said the bill passed by the cabinet “ensures that the accelerated phaseout of nuclear power in Germany will continued and each nuclear power plant will retain its current statutory cut-off date of 31 December 2022.”