European Power Market Pilots of a Global Energy Transition?

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Warren Hall
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1 Siemens 160 years in Finland VIP Seminar, December 10, 2015 European Power Market Pilots of a Global Energy Transition? Dr. Volkmar Pflug, Head of Market and Competitive Intelligence, Power and Gas Division

Challenges of electricity supply drive power generation markets The transition of power generation translate into key challenges GHG emission reduction targets Maturing of RES/ Battery Storages

2 Challenges of electricity supply drive power generation markets The transition of power generation translate into key challenges GHG emission reduction targets Maturing of RES/ Battery Storages Climate protection Technology Development Retail Electricity Price/Subsidies Levies, Taxes Grid Generation 2015 Wholesale Electricity Price Affordability/Market Design Supply Security Backup Power/ Reserve Margin Page 2

3 Global power demand to increase by 2.5% p.a., nearly 5,000 GW global capacity additions by Power Generation Power plant capacity, retirements, capacity additions TWh 23,820 3% 2% 16% 1 2.5% 35,171 3% 3% 7% 14% 1 26% Other RES Solar Wind Hydro Gas GW 6,308 1,523 4,813 9,597 Engines Geothermal, Biomass/Waste Wind Onshore Wind Offshore Solar CSP Solar PV Hydro 23% 4% 40% 34% Oil Coal Steam Power Simple Cycle Combined Cycle Retirements Capacity Additions Source: Siemens Page 3

4 Fuel prices outlook is more moderate than one year before for Europe and globally as well European Fuel Price Projections Development from November 2014 to November 2015 EUR/GJ (2014real) 16 Nov 2014 Outlook Crude Oil Nov 2015 Outlook 10 8 Nov 2014 Outlook Gas 6 Nov 2015 Outlook 4 Nov 2014 Outlook Coal 2 Nov 2015 Outlook Fossil fuel supply/demand is well balanced on a global basis Lower demand growth than projected (esp. China) High production levels due to US shale gas and tight oil production New entrants in global gas trade (Iran) No effort of OPEC to support oil price and therefore is the price outlook more moderate in the longer run than one year before Higher LNG capacity will support global gas trade and price balance Diversification of gas supply (by LNG terminals) will enhance price competition Source: IHS Energy, Europena Fuel Price Long-term Outlook, November 2015 Page 4

5 EU28 has set challenging targets for GHG-emission and energy consumption reduction and RE-installations Share of RE in Energy Supply GHG Emission Reduction Mt CO 2 e Energy Consumption/Efficiency Overall target Overall projection Power Sector target Power Sector projection Target Real/Projection Target Real/Projection 35% 45% -18% -20% -40% -8% -20% -27% 1) 27% 15% 26% 20% 17% 33% 2 42% Well on track for the energy supply from Renewables so far For total energy supply as well as for electricity For mid-term 2020 target as well as for long-term target Source: Siemens Page 5 CO 2 emissions compared to baseline % by 2020, -40% by Roughly -18% reached by 2013, well on track with 2020 target target is challenging Energy efficiency in primary energy use compared to baseline projection -20% by 2020 (max Mtoe), non-binding target for -27% 2013: 1676 Mtoe, means a reduction of -8% and therefore to fail the targets 1) Only indicative, non binding target

6 EU28: Moderate Power demand growth, capacity additions mainly for Wind and Solar PV Power Generation Power plant capacity balance TWh 3,200 2% 3% 16% 1 0.6% 3,500 3% 3% 7% 14% 1 Other RES Solar Wind Hydro GW 1, ,190 Engines Geothermal, Biomass/Waste Wind Onshore Wind Offshore Solar CSP Solar PV Hydro 23% 4% 26% Gas Steam 40% 34% Oil Coal Simple Cycle Combined Cycle Retirements Capacity Additions Source: Siemens Page 6

7 The conventional power plant fleet in EU28 is ageing and requires replacements in spite of RE installations EU28 power plant fleet age structure (as of 2013) GW Unknown 55 Combined Cycle Simple Cycle 51 + yrs 2 Steam yrs yrs 40 Hydro yrs yrs yrs yrs yrs yrs yrs yrs 259 Solar PV Solar CSP Wind Offshore Wind Onshore Geothermal, Biomass/Waste The European power plant fleet is ageing significantly Nearly 170 GW older than 40 years More than 330 GW older than 30 years Means beyond new installations of Renewables need for new build of conventional power plants as backup power in midterm in parallel. Planning for closure of and Coal power plants in several countries (e.g. UK, Germany, Denmark) Source: Siemens Page 7

Capacity markets may provide security of supply, but at the cost of further depressing wholesale markets Capacity remuneration mechanisms in Europe No

8 Capacity markets may provide security of supply, but at the cost of further depressing wholesale markets Capacity remuneration mechanisms in Europe No unified capacity remuneration system across Europe Capacity markets, e. g. in UK, France Strategic reserves in Germany Source: Fortum Energy Review 2015 Page 8

9 Nordic Countries (Sweden, Norway, Finland, Denmark) 2014 Power Generation Energy Mix Power plant capacity balance TWh Other RES Wind 156 7% 6% % 16% 2% 2% Solar GW Biomass/Waste Wind Onshore Hydro 43% 19% 43% Wind Offshore Solar PV 96% 35% Hydro1) Gas Coal 40% 2% 10% 20% 9% 29% Oil Steam Simple Cycle Combined Cycle Sweden Norway Finland Denmark 2014 Retirements Capacity Additions Source: Siemens Page 9

10 Nordic countries are in a comfortable position regarding specific CO 2 emissions and electricity prices, but dispatchable capacity shrinks Nordic average carbon emissions Electricity Prices 2014 for Residential ( ct/kwh gco 2 /kwh Nordics with 80 gco 2 /kwh vs gco 2 /kwh in Germany and UK EU Sweden Norway Finland Denmark Germany France UK Electricity Prices 2014 for Industry ( ct/kwh Generation/Grid Taxes/Levies Source: Fortum Energy Review 2015 Page 10 Power generation in Nordic countries (exect Denmark) with low carbon footprint and low consumer electricity prices compared to other European countries EU Sweden Norway Finland Denmark Germany France UK Source: Eurostat (Residential 2,500-5,000 kwh/a; Industry ,000 MWh/a)

11 Capacity reserve margins melt down in EU and already reached critical levels in some countries Capacity Reserve Margins of European Countries % 50 Projection Ireland Germany Denmark UK Hungary France Finland Belgium UK Significant decrease of reserve margin due to shut-down of Coal and plants France Insufficient capacity in winter due to high demand for electric heating, only attenuated by mild weather in the past Finland Insufficient capacity since years due to delay in NPP commissioning Belgium Capacity gap die to coal power plant retirements and problems with NPPs -15 Source: IHS, European Power 2015 Page 11

Finland to rely on peak capacity from neighboring countries, but reserve margin also to deteriorate in neighboring countries Build capacity!

12 Finland to rely on peak capacity from neighboring countries, but reserve margin also to deteriorate in neighboring countries Build capacity! Available capacity and peak demand in Finland Interconnector capacities to Finland (2014) Scandinavia 2,700 MW Baltics: 1,000 MW Russia 1,400 MW Challenges in Finland s power sector: Finland power generation capacity to decrease from present level to 2018 (mainly condensing power plants due to insufficient economics at low power price) Capacity gap will reach maximum of about 2.8 (normal weather) 4.0 GW (cold weather) Gap will be reduced when Olkiluoto-3 will get commissioned in 2018+, but a significant deficit will remain In addition to nuclear, new capacity installation mainly in wind power, not supporting dispatchable capacity (availability factor at peak load only 6%) Build conventional power plants beyond nuclear Rely on interconnector capacity of 5.1 GW (Sweden, Russia, Estonia) Source: Pöyry, Capacity Adequacy Report 2015 (Central Scenario) Page 12

Siemens offers a broad product portfolio for energy markets equipment to support high efficiency along the whole value chain Conventional Power Plants: Oil&Gas: High efficiency H-class Gas Turbine

13 Siemens offers a broad product portfolio for energy markets equipment to support high efficiency along the whole value chain Conventional Power Plants: Oil&Gas: High efficiency H-class Gas Turbine Stronghold through Dresser-Rand Turnkey CCPP/SCPP plants Compressor train (turbo-/reciprocating compressors) Industrial power plants (CHP) Automation & Control Power solutions for O&G Source: Siemens Page 13 Wind Power: No. 1 in global Wind Offshore Low/medium Wind Onshore turbines 6 MW direct-drive wind turbine High energy yield for all wind classes Power Grid: Power transformers, switchgears High voltage transmission (HVDC) Grid Automation (protection, quality) Smart grids solutions

Power Generation. Lilian Macleod Power Supply Manager National Grid

Power Generation. Lilian Macleod Power Supply Manager National Grid Power Generation Place your chosen image here. The four corners must just cover the arrow tips. For covers, the three pictures should be the same size and in a straight line. This text box and image can