EUROPEAN PERSPECTIVES. March 2016

Transcription

1 EUROPEAN MARKETS PERSPECTIVES March

2 MARKET PRICES ARE THE RESULT OF THE SUPPLY / DEMAND BALANCE Variable cost of production ( /MWh) Renewable production Residual demand Peak supply (peakers, demand Demand Hydro (STEP) response) CCG Market price Coal Run off river, wind, PV Nuclear Installed capacity (MW) For each hour, the forecasted demand is covered by the production of power plants with the lowest variable cost of production. The dispatch of the fleet is optimised to minimise the global cost of the system. The supply curve is built piling the power plants in an increasing order of variable cost of production. The demand curve is forecasted on an hourly basis through a bottom-up analysis. 2

3 A EUROPEAN MERIT ORDER LIMITED BY THE INTERCONNECTIONS AND DOMINATED BY THERMAL UNITS West & South Europe Merit Order (projection 2017) le costs Variabl /MWh Nuc CHP New Nuc Lignite New coal Average Residual Demand Lignite & Coal 100 Industrial Cogen ~60% Old coal New CCGT Old CCGT Pumping Peak P90% Residual Demand CCGT~25% Capacity in GW 3

4 ANNUAL POWER PRICE IN FRANCE IS MADE OF VARIABLE COST OF MARGINAL POWER PLANTS Annual power price is made of variable cost of marginal power plants and the marginality percentage of each type of power plant (including import and export) Marginality analysis shows that French price is most of the time included between variable cost of coal power plant and CCGT Import and export variable cost is close to coal power variable cost because it is made of other countries marginal cost which is, as in France, made of coal power and CCGT variable cost In 2014, 80% of power price is made of marginal cost between German coal power ( frontières ) and CCGT variable cost Marginality duration of each type of power generation Source : CRE - [%] : share of the power plant in the national power generation Coal power variable cost = 0,4 x Price coal ( /t) + 0,9 x Price CO2 ( /t) CCGT variable cost = 2 x Price gas ( /MWh) + 0,4 x Price CO2 ( /t) Power plant efficiency Power plant emission rate 4

5 IN THE PAST YEARS, POWER PRICE EVOLUTION IN EUROPE FOLLOWED COMMODITY PRICE EVOLUTION Source : Powernext (power and gas prices Y+1) ; ICE (coal and dco2 prices Y+1) The main driver which explains electricity prices decrease in the last few years is the impact of lower commodity prices, mainly coal and CO2 prices (decrease of the variable cost of coal power plant and also CCGT) 5

6 ... BUT WAS ALSO IMPACTED BY THE OVERCAPACITY In Europe, the demand addressed to the thermal power plants (demand net of renewables) was decreased by more than 15% (350 TWh) during the last decade leading to an overcapacity situation. This overcapacity is due to the economic crisis and to the developments of RES production. 1 Drop in Electricity demand Economic crisis 3 Over allocation of certificates 4 Drop ofresidual demand addressed to centralized power units CO 2 price fall 2 p Coal and gas price fall 5 Drop of mid merit and peak power plants load factors Inversion of merit order between gas and coal power plants Drop in mid merit variable costs Occurrences of low ornegative prices 2 Intermittent RES development Lower wholesale energy prices 2014 as of as of EUR/MWh 35~40 EUR/MWh 6

7 WITH HUGE CONSEQUENCES ON THE PROFITABILITY OF FOSSIL FUEL PLANTS ESPECIALLY CCGT 50 Existing CCGT EBITDA (440MW, 56% efficiency) 40 M 2014/year Since 2011, margins on the energy only market for CCGTs are not sufficient to cover their fixed O&M costs (negative EBITDA). CCGTs are more impacted than coal plants : Gas prices are higher than coal prices CO2 prices are low and do not penalize coal assets that emit 2 to 3 times more CO2 than gas assets CCGTs are very far from covering their investment cost. 7

8 CO2 PRICE IS VERY LOW AND SHOULD INCREASE UNDER EUROPEAN COMMISSION AND LOCAL REGULATIONS The 2030 European Climate-Energy targets were approved by Member States in October 2014 European Council : - 40% CO 2 emissions / 1990 (-43% EU-ETS / 2005) ; 27% RES in energy consumption (40% to 45% of electricity consumption) ; 27% Energy Efficiency. i Today EU-ETS CO2 price is not high and stable enough to incentivize market players to operate and develop lower carbon intensive technologies. With the current EU-ETS price gas technologies are less competitive than coal technologies. A CO2 price of about 30 /t is needed to reverse the use of coal and gas assets. A high CO2 price would also lower the RES subsidies. The Market Stability Reserve mechanism (MSR) in the EU-ETS will be implemented but only in 2019 and with an expected limited impact. 8

9 HIGHER COMMODITY PRICES LEVEL ARE EXPECTED BY 2025 Source : ICE - gas prices Y+1 Source : ICE - coal prices Y+1 Current coal price is not sustainable and should recover by 2020, driven by production cuts, mining costs increase and the increase of imports in Asia After a period of over capacity gas price should recover, depending on the dynamics of the LNG markets and the Russian strategy 9

10 IT IS UNLIKELY THAT OTHER FUNDAMENTAL DRIVER HAVE A SUBSTANTIAL EFFECT ON POWER PRICES Early decommissionings and mothballings 10 GW 4 GW 8 GW +12 GW (nuclear) 1GW 1 GW 3 GW 1 GW 3 GW 5 GW 3GW Natural closures and already announced economic decommissionings could be compensated with the increase in renewable generation even with stagnating demand level Existing German nuclear plants are planed to shut down due to political decision (12 GW before 2022) In the last 3 years, 40 GW of fossil fuel assets have been taken off-line for economic reasons in Europe The wave is not over : about the same volume of additional early decommissionings in the next 5 years could be announced (ie ~10% of the centralized power plants capacity) 10

11 EC REGULATION EMPHASIZES FUTURE ROLE OF WHOLESALE MARKET FOR RENEWABLES The guidelines on State Aid foresee that new renewables investments will need to sell in wholesale markets (gradual replacement of feed-in tariffs by feed-in premiums, which expose renewable energy sources to market signals), and that the wholesale price should eventually be the main investment signal The most competitive wind farms could be profitable in the years to come on the wholesale market if market prices increase. A number of conditions must coexist: Good wind conditions and high power prices Reasonable side costs : land rent, system overcosts (network, backup, ) Reasonable development lead time. Only the best PV plants (with high sunlight conditions) could be competitive on the market in the years to come if market prices increase substantially.