CHP as a part of energy transition - Opportunities for investors

Transcription

1 CHP as a part of energy transition - Opportunities for investors Esa Hyvärinen, SVP Corporate Relations Fortum Corporation Fortum s district heat / CHP operations in 2013 Production capacity, 31 Dec 2013, MW CHP + heat-only boilers Nordic countries Baltic countries Poland Great Britain Russia Total Heat business in Norway divested in 2014 Heat Power Total heat sales 45 TWh, EUR 1.5 bn CHP plants accounted for 33% of total power generation and 83% of total heat production TWh Heat sales Grangemouth Stockholm Joensuu Järvenpää Espoo Pärnu Tartu Jelgava Klaipeda Wroclaw Plock Świebodzice Częstochowa Zabrze Bytom Argayash Chelyabinsk Tobolsk Tyumen CHP plant locations District heat supply/networks w/o own production 2 * incl. Fortum Värme; heat sales 8.2 TWh (EUR 0.7 bn); heat production capacity MW, power generation capacity 610 MW Note: Fortum s total power generation 68.7 TWh and total heat production 42.8 TWh in

2 Fortum mid-sized European power generation player; major producer in heat Power generation Heat production Customers Largest producers in Europe and Russia, 2012 TWh EDF E.ON Enel RWE Rosenergoatom *) Gazprom Vattenfall GDF SUEZ **) Inter RAO UES RusHydro NNEGC Energoat. Iberdrola EuroSibEnergo Fortum CEZ EnBW ***) IES Statkraft PGE DTEK DEI *) Gazprom ***) IES Dalkia **) Inter RAO UES Fortum RusHydro Vattenfall ****) Sibgenco EuroSibEnergo Quadra DTEK, Ukraine TGC-2 Lukoil Minskenergo KDHC, Korea Tatenergo Dong Energy PGNiG *****) ELCEN. TGC-14 Largest global producers, 2012 TWh Enel EDF E.ON RWE Iberdrola DEI Centrica CEZ EDP Vattenfall SSE EnBW GDF SUEZ Tauron PGE Gas Natural Fenosa Fortum Dong Energy Hafslund Electricity customers in EU, 2012 Millions * incl. MOEK, ** incl. Bashkirenergo, *** incl. TGC-5, TGC-6, TGC-7, TGC-9, **** incl. TGC-12, TGC-13, ***** figure 2011, Fortum incl. Fortum Värme; power generation (1.2 TWh) and heat production (8 TWh). Source: Company information, Fortum analyses, 2012 figures pro forma, heat production of Beijing DH not available. 3 Fortum s Mission and Strategy Mission Fortum s purpose is to create energy that improves life for present and future generations. We provide sustainable solutions for society and deliver excellent value to our shareholders. Strategy Build on the strong Nordic core Create solid earnings growth in Russia Build a platform for future growth Strong competence in CO 2 -free hydro and nuclear, efficient CHP production and energy markets 4 2

3 Fuel mix in heat production 5 EU policy and legislation environment Source: COGEN Europe 6 3

4 Wholesale prices for electricity do not support market-based investments EUR/MWh Spot prices Forward prices 1 September Dutch German Nordic Russian* * Including weighted average capacity price Source: Nord Pool Spot, NASDAQ OMX Commodities Europe, APX-ENDEX, Bloomberg Finance LP, ATS, NP Market Council, Fortum 7 Key heat market aspects to promote efficient CHP Competitive heat pricing Access to DH networks DH competitiveness and attractiveness against alternative space heating solutions CHP heat pricing based on alternative and best-available-technique HOB (combines economic rationale and best-practice regulation approach) Well-optimized CHP as preferred base load capacity energy efficiency Security based on long-term heat supply agreements with DH networks Parity with other preferred heat sources RES and industrial surplus heat Fuel sourcing and taxation Utilization of local, renewable fuels with relatively stable prices Equal fuel taxation and CO 2 treatment with other heating methods Operative and investment support Parity with other RES sources (heat and electricity) Eligibility of co-firing biomass and fossil fuels 8 4

5 District heating price setting market or regulation? Liberalized DH systems Sweden and Finland Heat price level is set to be competitive with best-alternatives for end-customers Transparent price adjustment rules Cost-reflectiveness Economic incentives for cost efficiency as profits are non-regulated DH supplier/network operator (singlebuyer) has an economic incentive to always seek for lowest cost heat production sources (waste heat sources that would otherwise be lost e.g. efficient CHP and industrial surplus heat) Heat production price is set based on own production costs or based on voluntarily negotiated long-term heat supply agreements with 3 rd parties CHP returns are non-regulated and electricity revenues may be supported Best-practice approach End-customers (building owners) Competitive and value adding retail heat pricing against alternative space heating solutions DH supply/network (single-buyer) Competitive wholesale heat pricing against alternative heat sources Long-term heat supply contracts Voluntary access rules CHP production (preferred base load) Regulated DH systems Baltic countries, Poland and Russia Heat price level is capped with economic regulation principles Revenue cap = Justified cost plus return on capital (RAB*WACC) Very limited economic incentives Returns comparable with other regulated utility sectors Heat production price from CHP is capped and indexed based on the regulated heat price of alternative heatonly boiler (biomass, coal or gas) for base load; methods vary country by country Mandatory but negotiable 3 rd party access based on short-term heat supply contracts (rules for priority order, access pricing etc) CHP returns are non-regulated and electricity revenues may be supported 9 Long-term system optimization targeting improved capacity utilization Gas/oils Biomass/coal/gas Biomass/coal/gas DH system specific priority order Waste/biomass/coal/gas Optimizing the cost of peak heat load through heat trading between customers having own capacity and DH operator Fortum is running a pilot program on Open DH system in Stockholm, Sweden Improving CHP capacity utilization Fortum will start industrial scale bio-oil production in Joensuu CHP plant, Finland 10 5

6 Open DH utilizes local heat that otherwise would be unused CHP Local bio Solar Data centers Customers DH network Customers Industry New solutions 11 More stable heat load pyrolysis oil production integrated with a CHP plant Fast pyrolysis is one of the most cost efficient ways to liquefy biomass Pyrolysis oil is bioenergy in a dense form Combustion of Fortum Otso helps to decrease CO and SO x emissions Pyrolysis oil production is integrated into CHP-power plant. Benefits of integrating include: Increase in CHP-plant s utilization rate More green electricity production due to the increased heat load Complete utilization of by-products in energy production Combined raw material and fuel purchase Combined control room operations 12 6

7 Bio-oil production in Joensuu, Finland Low sulphur bio-oil produced in Joensuu replaces fossil fuel oils in heat and steam production. Leads even up to 90% reduction of CO 2 emissions when replacing fossil oils First oil produced in November 2013 Video, Joensuu bio-oil production plant: =share&list=uunj7hecepkuqwqbzrot_8_a&index=6 Technical details Production capacity 30 MW bio-oil Yearly production tn / 210 GWh of bio-oil. Raw materials: forest residues and other wood biomass Increases CHP utilization outside CHP full capacity season (April- October) Increases green electricity production in Joensuu Production by-products, coke and uncondensed gases, are utilized 100% in CHP boiler s energy production. The same staff is operating both the CHP and the bio-oil production site 13 Bio CHP investment in Jelgava, Latvia Replacement of inefficient HOB production by efficient biomass-chp Transforming from expensive natural gas to more sustainable and price-stable biomass Reduction of CO 2 emissions Incentivized by a capacity FIT for greenfield renewable and efficient electricity production. Video, Jelgava CHP plant: Technical details 23 MW e / 45 MW th bubbling fluidised bed technology Steam parameters 117 bar / 527 C Production 110 GWh electricity 230 GWh heat Covers ~85 % of district heating demand of Jelgava Started commercial operations in September

8 Bio CHP investment in Järvenpää, Finland Replacement of inefficient gas and oil-fired HOB production by efficient biomass-chp Long-term increase of competitiveness of DH Increased fuel flexibility with better CO 2 performance; leads up to 95% reduction of CO 2 emissions Video, Järvenpää CHP plant: Technical details 23 MW e / 48 MW th + 15 MW th from flue gas condenser; bubbling fluidised bed technology Steam parameters 117 bar / 527 C Production 130 GWh electricity 280 GWh heat Started commercial operations in June New Waste-to-Energy plant in Klaipeda, Lithuania Klaipeda DH system heat sales 800 GWh City of Klaipeda as heat distributor and supplier main fuel naturalgas Several independent heat producers Rationale for investing in Klaipeda Heat production was based on natural gas with increasing price forecasts Utilization of CHP potential for electricity production A developing waste market providing opportunities for waste fuel procurement Benefits for the citizens Enables the heating company to reduce heat prices Reduces usage of imported fuels Increases the production of domestic electricity Provides a solution to meet EU requirements of waste management Reduces CO 2 emissions Video, Klaipeda CHP plant: Technical details 20 MW e / 50 MW th + 15 MW th from flue gas condenser Live steam parameters 30 kg/s / 400 C / 47 bar Firing capacity 38 t/h (8 MJ/kg), 260,000 t/a Production 120GWh electricity 380GWh heat Started commercial operations in May

9 New Waste-to-Energy plant in Brista, Sweden Lower production costs in existing DH network Reduction of the primary energy usage and lower global CO 2 emissions Introduction of a new fuel - waste - to Fortum Värme s (co-owned together with City of Stockholm) existing DH network Utilization of the existing infrastructure Video, Brista CHP plant: Technical details 20 MW e / 45 MW th + 15 MW th from flue gas condenser Live steam parameters 28 kg/s / 415 C / 60 bar Firing capacity 32 t/h (9 MJ/kg), 240,000 t/a Production 155 GWh electricity 495 GWh heat Started commercial operations in November Värtan, Sweden % biofuel in combined heat and power plant in Heat and electricity will be produced from wood chips. Annual production of 1,700 GWh heat and 750 GWh electricity equals the annual heat consumption of about 190,000 Swedish households. The CO2 emissions in Stockholm will decrease by 126,000 tonnes annually equals emissions from the road transport in Stockholm during 1,5 months. The global CO2 emissions will decrease by 650,000 tons annually ,000 will be employed during the construction period

10 Bio CHP in Naantali, Finland Turun Seudun Energiantuotanto Oy (TSE), partially owned by Fortum (49,5%) has decided to invest in a new Naantali 4 multi-fuel CHP plant to replace existing aging coal fired capacity. Total investment cost is about 260 M, Capacities: 437 MW f / 142 MW e / 194 MW h / 52 MW steam, Annual volumes: 2900 GWh f / 900GWh e / 1450 GWh h / 200 Gwh steam In addition to the new NA4 CHP plant, TSE will invest to refurbish existing Naantali 3 unit and to update emission control system. Start of the Project: Project Completion: Conclusions Fortum is a leading district heat and CHP operator in Europe focusing on local fuels Promotion of efficient DH and CHP should be further enhanced in EU policy by developing coherent heating strategies Current electricity market is challenging to new CHP investments Future CHP will require better capacity utilization (e.g. pyrolysis, open DH) and sourcing of local fuels (e.g. waste fuels and biomass) Heat market conditions / regulation are crucial to enable efficient CHP 20 10

11 Thank you! 11