Energiewende Outlook: Heating sector

Transcription

1 Energiewende Outlook: Heating sector Analysis of various strategies to ensure a successful energy transition. Executive summary

2 Executive Summary Current state of the energy transition in the heating sector It has been only three to four years since Germany embarked on its Energiewende, the transition towards a sustainable energy system (the so-called energy transition ) a process that will take yet another 30 to 40 years. The PwC project Energiewende Outlook (EwO) aims to consolidate various studies and to provide cost-benefit analyses on a wide range of scenarios. The short study on the heating sector is a snapshot of our EwO findings. Heating sector plays an important role in delivering the energy transition. Carbon emissions from heating increased in The heating sector plays a key role in delivering the energy transition. With a share of around 1,500 TWh heating accounted for more than 50% of final energy consumption in Germany in About 45% of energy-related carbon emissions which are generally considered the most important indicator of environmental impact were caused by the generation and use of heat. The amount of carbon that is emitted in the supply of heat has failed to decline over the last few years, and in 2013 even experienced a 9% increase on the previous year. So from a high-level perspective the energy transition has so far not delivered on the goal to reduce the environmental impact of the heating sector by cutting heatrelated carbon emissions. One reason for this development is that the heating sector as a whole has not yet embarked on a trajectory towards lower energy consumption. Retrofit measures in buildings have been taken at a refurbishment rate of around 1%, but this improvement has been offset by an increase in total residential floor space in Germany. The rate of refurbishment also fell short of the 2% target envisioned by the German government. As regards the scale of renovation it has been found that in most buildings only isolated or a few combined retrofit measures are installed, in which case the building does not undergo comprehensive refurbishment. Finally, heat demand for both industrial processes and water heating has been stagnating. The way in which we generate heat is changing only slowly. In addition, around 93% of central heat generators continue to be powered by fossil energy sources, with the share of heat that is generated from renewable energy sources being significantly lower than in the power sector. The mix of fossil energy sources is made up of 43% gas boilers (non-condensing), 26% oil boilers (noncondensing), 20% gas-fired condensing boilers and 3% oil-fired condensing boilers, among others. With a view to the decarbonisation targets it can be stated that the more efficient condensing technology has not yet been deployed on a sufficient scale. Use of heat pumps is only slowly picking up. Further opportunities could also be provided by optimising the use of combined heat and power (CHP) and district heating. And with carbon emissions from power generation following a negative trend in recent years as was analysed in our short study on electricity, this has of course also had its influence on the share of heat supply generated from electricity. 2 Energiewende Outlook: Heating sector

3 If we look at the economic viability and affordability of heat generation the last few years have not been characterised by positive developments, either, as households and industrial customers saw their heating bills rise rapidly. In no small part this was due to the fact that the prices of all relevant primary energy sources used in the supply of heat had been rising since In 2014 the prices of energy sources used in heat generation for both private households and industrial customers started to fall. Whether this is a sustainable development remains to be seen, however. Measures that could be taken to achieve the decarbonisation targets set by the German government and their impact on carbon emissions and costs Considering the past carbon emission developments in the heating sector previously described the question arises what measures could help to deliver a significant reduction in heat-related carbon emissions. Taking the energy balance as a point of reference we would consider it necessary to take action in the following fields: reducing the consumption of useful energy improving the technical efficiency of heat generators across all levels feeding into the energy balance (final and primary energy consumption) optimising the use of energy sources with a focus on carbon emission factors Potential fields of action for decarbonisation measures For the purpose of this study we first defined a baseline scenario that describes the developments in the heating sector in the period to 2050 and which we consider representative of how the energy transition trends that can currently be observed might evolve in the future. Based on that scenario we then defined alternative scenarios and analysed their impact on carbon emissions and costs. The baseline scenario does not assume a negative outlook but rather a realistic one, making it a scenario under which not only energy savings are achieved most notably in space heating but also a scenario in which heat is increasingly generated using highly efficient technologies such as condensing boilers operating at high utilisation rates. We also assumed that in new buildings renewable energy sources would be increasingly used, as required under the German Renewable Heat Act (EEWärmeG). Under the baseline scenario total heat generation costs will increase by some 13.5% to 134 billion a year by 2050, up from around 118 billion in The share of final energy that is used for the generation of heat will decline by some 17% to approximately 1,167 TWh by 2050, down from around 1,410 TWh in This will result in 230 million tonnes of carbon emissions, an amount that is equivalent to a reduction of around 50% below 1990 levels. Total costs will rise by about 13.5% by 2050, with carbon emissions declining by around 50% The above results show that it will be hardly feasible to reduce carbon emissions by between 80% and 95% below 1990 levels by 2050 through action in the heating sector unless additional measures are taken. Given the key role heating plays in delivering the energy transition it thus appears that the decarbonisation strategy currently pursued in the heating sector will need to be adjusted. Energiewende Outlook: Heating sector 3

4 Other than the baseline scenario, in which current heating trends are continued into the future, this study therefore also examines other concepts through the alternative scenarios described below and analyses their impact on future carbon emissions and costs: delivering additional energy savings in buildings (retrofit scenario) deploying electrical heating technologies (electrification scenario) driving a consistent growth of natural gas-fired and CHP generation capacity (gas-and-chp scenario) increasing the use of bioenergy in the generation of heat (bioenergy scenario) combining the bioenergy scenario and the retrofit scenario The individual scenarios and their variations from the baseline scenario are described in the table provided in the Annex to this study. The differences between the results obtained for the individual scenarios in terms of their cumulative total costs and cumulative carbon emissions over the period 2014 to 2050 are presented and compared against the baseline scenario in the figure below. Total costs and carbon emissions ( ) for all scenarios compared to baseline scenario 2, Cum. differences in present value (discounted at 4%/a, bn) Retrofits No retrofits Electrification Electrification RES Gas 1, Bioenergy 1, Bioenergy plus retrofits 1,750 1, Cum. differences in carbon emissions (million tonnes) CO 2 emissions relative to baseline scenario Costs relative to baseline scenario Scenarios relying on larger shares of renewable energy produce lowest carbon emissions but incur highest total costs. Fuel costs are the primary driver of total costs. As can be seen in the chart, the scenarios relying on large shares of renewable energy sources the bioenergy scenario, the combined bioenergy and retrofit scenario, and the renewable electrification scenario show the best results for carbon emissions. Yet between them and the baseline electrification scenario, these scenarios also entail the highest total costs. The retrofit and gas scenarios show rather small variations from the baseline scenario. A breakdown of total costs by cost category for each of the scenarios shows that costs are primarily driven by fuel costs in all scenarios, followed by capital costs. Other operating costs, in contrast, are of rather secondary importance. 4 Energiewende Outlook: Heating sector

5 Breakdown of total costs by cost category Cumulative present values for the period (discounted at 4%, bn) 1,617 1,542 1,672 1,801 1,822 1,522 1,697 1, Baseline scenario Retrofits No retrofits Electrification Electrification RES Gas Bioenergy Bioenergy plus retrofits Cum. operating costs Cum. fuel costs Cum. capital costs All alternative scenarios considered in the course of this study (with the exception of the no retrofits scenario) have been designed so as to achieve additional improvements beyond those expected to be delivered as a result of current developments. Delivering additional energy savings in buildings (retrofit scenario) Increasing the rate and/or scope of retrofit measures could help to reduce final energy consumption by around 24% below 2014 levels by 2050, compared to only about 17% in the baseline scenario and no more than 10% if no significant retrofits were to take place at all. Under the retrofit scenario carbon emissions will fall by approximately 54% compared with 1990 levels by 2050 (50% in the baseline scenario). This will only be the case, however, if the effects on which we based our calculations of potential savings can actually be delivered. If no retrofit measures were to be taken at all, then carbon emissions would only fall by around 45%. The additional retrofit measures modelled for the period would add costs of 29 billion and reduce carbon emissions by 471 million tonnes, which is equivalent to carbon abatement costs of around 62 per tonne of carbon saved in comparison with the baseline scenario, a rather moderate amount. Deploying electrical heating technologies (electrification scenario) In analysing the electrification scenario PwC has examined what impact it would have if a higher share of heat was generated from electricity. If based on the current power generation trends as provided in the amended Renewable Energy Sources Act 2014 (EEG), the benefits the electrification scenario delivers over the entire period are very small in comparison with those achieved under the baseline scenario. Still, if the share of renewable energy generation were to be further increased, carbon emissions could be reduced by no less than 6%. Given the high cost of electricity generation this case would involve additional costs of 304 billion by Additional retrofit measures would result in carbon abatement costs of 62 /tonne CO 2 Electrification scenarios only deliver notable decarbonisation benefits if based on large shares of renewable power generation Energiewende Outlook: Heating sector 5

6 Yet under both electrification scenarios the carbon balance would improve significantly over time. In 2050 alone the renewable electrification scenario would deliver a benefit of about 21%, and even the baseline electrification scenario would carry an advantage of 13%, which implies that it would be a reasonable move to also use electricity as a heat source in the medium to long term to ensure that the decarbonisation targets are achieved. Using renewably generated electricity for heating purposes would then also have a positive impact beyond Gas-and-CHP scenario delivers better results than baseline scenario. Biomethane would have a positive impact on carbon emissions but can be used as an energy source to a limited extent only. Even combined retrofits-plus-bioenergy scenario reduces carbon emission by no more than 64%. Driving a consistent growth of natural gas-fired and CHP generation capacity (gas-and-chp scenario) In its gas-and-chp scenario PwC has analysed what impact an increased use of natural gas in conjunction with CHP plants would have. The scenario delivers better results than the baseline scenario both in terms of its carbon emissions and total costs. No carbon abatement costs would be incurred at all, but emissions would reduce no more than 3.2% below baseline scenario levels in the period Increasing the use of bioenergy in the generation of heat (bioenergy scenario) If the share of biomethane in the gas supply was increased significantly (by up to 20% by 2050) and more heat was generated from wood, both of which are assumptions underlying the bioenergy scenario, then carbon emissions would fall by 10.8%, generating an additional cost of 160 billion. The rise in costs would primarily be due to notably higher procurement costs for biomethane compared with natural gas. However, with regard to the bioenergy scenario it must be pointed out that given the scarcity of resources and in view of potential conflicts about the uses of biomass biomethane generation is subject to certain limitations. Combining the bioenergy scenario and the retrofit scenario Even under a combined scenario assuming both a reduction in heat demand for space heating purposes and use of a large share of bioenergy sources PwC calculations have shown that carbon emissions would decrease no more than by 64% on 1990 levels by In this case the added cost would rise to as much as 183 billion. This shows clearly that considerable improvements in the carbon balance can be delivered if appropriate measures are taken, but achieving emissions savings of 80% to 95% below 1990 levels in the heating sector cannot be deemed a realistic outlook even in the most optimistic of scenarios. Recommendations Based on our findings it can be summarised that if we are to achieve ambitious targets that go beyond the trends modelled in the baseline scenario, then similar to our findings for electricity this will require a more radical transformation of our heating sector, too. Industrial heat demand can only be reduced if efficiency is improved significantly In this context the largest improvements in the residential segment could be delivered by improving the carbon balance of space heating; in industry a key role falls to the heating and cooling of manufacturing processes. Increases in the rate and scale of retrofit measures could drive major reductions in the amounts of energy required for space heating. Not least due to the expected growth in economic output it will be more difficult to drive down the level of carbon emissions generated by process heating than those caused by space heating. Any efficiency increases gained would first have to offset the rise in carbon emissions associated with higher economic output before they could deliver notable heat savings in industrial processes. In view of this background it would probably be necessary to provide appropriate incentives for industrial users to improve the heat efficiency of their processes to achieve a more significant level of savings in this field. 6 Energiewende Outlook: Heating sector

7 In addition to implementing measures aimed at reducing heat demand we would recommend to supplement these measures from the generation side by increasing the replacement rate for old heat generation equipment, which currently stands at a rather moderate level of 3%. This process should be aimed at providing particular support for the deployment of highly efficient technologies such as condensing boilers as well as low carbon sources of energy. An important contribution in this context could be delivered by district heating-connected CHP plants and heat pumps (that harness heat from the environment), the latter especially in the medium to long term, when the decarbonisation benefits of generating heat from electricity will have trickled down over time as a result of the rising share of renewables used in power generation. Moreover, as in electricity the share of renewable energy sources should be increased in the heating sector. In comparison with the electricity sector this should turn out to be a more difficult enterprise for various reasons, among them the scarcity of bioenergy resources and the limited scope of applications for solar thermal systems (which is why they must usually be operated in conjunction with conventional energy sources). Nevertheless, there is room to make better use of the existing potential. For example, we believe that flexibly deploying biomethane via the gas networks might be an option. This would also enable a better integration of the electricity and heat markets, for example by means of electrically powered CHP applications using natural gas/biomethane as fuel and operating in conjunction with heat storage units. Finally, we would also see a greater potential for the deployment of wood-fired boilers. Energiewende Outlook: Heating sector 7

8 Contact Dr Norbert Schwieters Tel.: Philipp Kohlmorgen Tel.: Dr Volker Breisig Tel.: Dr Peter Claudy Tel.: About us Our clients face diverse challenges, strive to put new ideas into practice and seek expert advice. They turn to us for comprehensive support and practical solutions that deliver maximum value. Whether for a global player, a family business or a public institution, we leverage all of our assets: experience, industry knowledge, high standards of quality, commitment to innovation and the resources of our expert network in 157 countries. Building a trusting and cooperative relationship with our clients is particularly important to us the better we know and understand our clients needs, the more effectively we can support them. PwC. 9,400 dedicated people at 29 locations billion in turnover. The leading auditing and consulting firm in Germany. July 2015 PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft. All rights reserved. In this document, PwC refers to PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft, which is a member firm of PricewaterhouseCoopers International Limited (PwCIL). Each member firm of PwCIL is a separate and independent legal entity.

9