European heating and cooling strategy Fortum perspectives

Transcription

1 European heating and cooling strategy Fortum perspectives Workshop on EU Heating and Cooling Strategy, June 12 th 2015 Esa Hyvärinen, Senior Vice President, Fortum Oyj

2 Heating and CHP operations in 2014 Total heat sales, TWh 35 Finland Baltic countries Poland Great Britain (sold in 2014) Russia CHP plants accounted for 28% of total power generation and 90% of total heat production In jointly owned companies, heat sales, TWh** Fortum Värme in Sweden TGC-1 in Russia Coal 38% Oil 1% Heat pumps, electricity 1% Waste 3% Peat 3% 8 28 Natural gas 29% Stockholm** Wroclaw Świebodzice Zabrze Järvenpää Joensuu Espoo ST. Petersburg** Pärnu Tartu Jelgava Klaipeda Plock Częstochowa Bytom Argayash Chelyabinsk Tobolsk Tyumen Biomass 25% European heat production 8 TWh (Heat production capacity 3,900 MW) CHP plant locations today District heat supply/networks w/o own production Note: Fortum s total power generation 73 TWh and total heat production 35 TWh in

3 DH price competitiveness with main alternatives /MWh Finland: Espoo Large city Finland: Mid-sized city Finland: Mid-sized city Sweden: Large city Joensuu Keski-Uusimaa Stockholm (gas/coal/other) (biofuels) (biofuels/gas) (bio/waste/coal/ geothermal) DH 2015 Ground heat pump 2015 Total heating cost (CAPEX, variable and fixed OPEX) High fossil fuel taxation of DH production in Finland and Sweden Challenging for gas based CHP but biomass CHP remains competitive Low electricity prices and interest rates are driving ground heat pump competitiveness. Ground heat pumps are competitive with DH with current low power price in the Nordics. Gas boilers are serious competitors to DH i.e. in the Baltic countries. Air heat pumps have also become more efficient and less expensive and might reduce substantially the base load heat demand. 3

4 Renewable CHP and DH investments of Fortum Naantali co-owned bio- CHP (ongoing) Joensuu Pyrolysis oil production in CHP plant Joensuu Brista co-owned waste-chp Stockholm Järvenpää Espoo Jelgava Klaipeda Järvenpää Bio-CHP Värtan co-owned bio- CHP (ongoing) Częstochowa Espoo sewage water heat pump Jelgava Bio-CHP Espoo geothermal heat (ongoing) Klaipeda Waste-CHP Czestochowa Coal/bio-CHP Zabrze Coal/waste-CHP (ongoing) Espoo heat recovery from hospital (ongoing) 4

5 Smart DH networks improve customer engagement and system cost optimization Main objectives for the single DH system operator: Keep DH competitive against alternative heat solutions i.e. individual gas boilers and heat pumps. Optimize DH network system and dispatch from heat production sources at any time and secure heat supply. Act as a fair, equal and transparent counterparty against variety of heat sources. Set up voluntary economic and technical conditions to promote lowest cost and sustainable heat sources for the benefit of end-customers, system and society. 5

6 Heat markets should be driven by customers and competition Electrical heating o Free choice by end-customers enhances engagement and trust on heat providers District heating system Existing and new customers (building owners) Individual gas boilers o Fair competition between alternatives calls for affordability o Equal competition rules that replace uneven regulatory treatment between alternatives Individual heat pumps o New technologies more likely to emerge and to be utilized Heat markets Individual solar thermal o Drives for best resource and system efficiency Increased heat system flexibility required 6

7 EU s heating and cooling strategy - elements to cover Definition and description of the current heating and cooling markets and actors Buildings sector (space heating and cooling) perspective Industrial heating sector perspective Setting up a target heating and cooling market model taking into account the overall energy and climate policy targets of the EU Similarities and departures from electricity and gas markets EU wide steering: pathways towards competitive heating and cooling markets Assessment of the current EU policies, legislation and institutions vis-a-vis the targeted market model EED, EPBD, RESD and circular economy ACER for heating and cooling? Designing specific measures needed to achieve the targeted market model, including a time line Defining supporting measures like R&D needs, statistics, etc. C O M P E T E N C E? 7

8 Thank you! More information in back-up slides 8

9 Regulatory oversight on DH price-setting in selected countries Main focus DH competitiveness and long-run price levels (promotion against alternatives) Cost recovery, return allowance and annual cost scrutiny (customer protection against inflation; separate regulation of heat distribution and production tariffs) Alternative-based heat pricing as main pricing principle to promote DH against other heating solutions DH company sets competitive/cost-reflective prices while authorities monitor pricing based on competition law Ex-ante price control based on established methodology and regulator s discretion Heavy-touch ex-ante price control based on multi-level approval from state, regional and local authorities For example in Norway For example in Sweden, Finland, Germany, Austria, Belgium, France and UK For example in Denmark, Estonia, Latvia, Lithuania, Poland, Czech Republic, Slovakia, Hungary, Bulgaria and Macedonia For examples in Russia, Romania, Belorussia and Ukraine. Sources: KPMG DH country-by-country benchmark surveys and Fortum analysis NOTE! Alternative-based heat production price caps for CHP plants are used in several countries Heat reform in Russia is considering an alternative-based, end-customer DH price caps 9

10 Utilization of heat that otherwise would be lost Heating strategy Energy efficiency, sustainability SSO* Construction and refurbishment of DHC networks empowering to capture full resource efficiency potential Single DH retailer to seek for lowest cost heat sources (commercial) Single-system operator to optimize heat supply to network and DH system according to seasonal heat demands (exclusive) Voluntary (long- and short-term contracts) No or light-touch regulatory steering (local adaptation) Industrial surplus heat without risking further energy savings potential by industries High-efficient co-generation to replace separate production of heat and electricity Deployment of biomass and non-recyclable waste derived fuels to replace fossil fuels Geothermal heat and heat pumps from ground, sea and sewage water Biogas from landfills New technologies (i.e. gasification of waste, pyrolysis) * Single DH System Operator 10

11 Comparison with electricity and gas (3 rd energy package) Core elements from 3 rd energy package Status of development EU goals Electricity markets (product/fuel markets) Gas markets (fuel markets) Legislative package for an internal electricity and gas market (3 rd energy package) adopted in 2009 Heating and cooling markets (for discussion purposes; product markets) Heating and cooling strategy to be proposed during 2015 Secure, competitive and sustainable supply of energy to the economy and society Enhance linkages between heating and electricity systems flexibility, de-carbonization and security of supply Market size 1 Xxx Over 20 % of final energy Over 40 % of final energy Effective competition in contestable markets Vertical integration and unbundling Establishment of national regulatory authorities and their co-operation Legislative proposals Sector specific goals Retail and wholesale Cross-border trade Transmission capacity as enabler Mandatory ownership unbundling and independent system/transmission operators to safeguard that market does not suffer from vertical integration Establishment of national independent regulators Agency for co-operation between energy regulators (ACER) ENTSO-E association of European electricity TSOs Several directives which transposition in Member States is still not complete Accelerate investments in electricity and gas infrastructure De-carbonization and primary energy savings in electricity production Free choice of customers shall enhance effective competition between alternative solutions (level playing field) Fair and equal market rules as enabler Non-discriminatory access conditions to heat networks (level playing field) Promotion of resource efficiency Organize EU wide co-operation between heat regulators and competition authorities to set up transition pathways to contestable heating and cooling markets Removal of complex and unnecessary regulations; departures from social policy Enhancement of EED, EPBD, RESD and circular economy is this sufficient? Primary energy savings system perspective De-carbonization of heating and cooling Security of supply Competitiveness 1 Source: Xxxx Other sources: Fortum analysis, Oxera Consulting and other sources 11

12 EU s heating and cooling strategy takeaways from electricity Heat markets link to electricity markets but have also some departures. Relevant, contestable heat markets ~ local space heating markets of building owners where alternative heating solutions compete against each others. Industry can either consider to build or outsource its energy production, and be connected to DH/electricity networks to search for further primary energy savings. Heat markets are contestable and are not specifically regulated. However in many countries DH systems are heavy-handed regulated although cost-plus network regulation does not enhance resource efficiency and competitiveness of DH. Also gas supply and distribution to heating is under EU and national regulatory oversight. Current situation creates unequal conditions for heat market participants which conditions vary a lot across EU member states. CHP and heat storages enable flexibility of intermittent RES-E but CHP plants are driven mainly by heat demand. This will call for even higher flexibility and more optimization in DH production compared to power generation. 12