Post on 22-Apr-2018
Gas and coal competition in the EU power sector
Sylvie Cornot-Gandolphe
CEDIGAZ
Gas and Coal Competition in the EU Power Sector – CEDIGAZ, 13 June 2014
Objectives and Contents of the Report Main findings State of play of gas and coal competition in the EU power
sector The European paradox
Main causes of the European paradox European and international developments
Consequences None of the EU climate and energy objectives are met
Coal renaissance in the EU? Conclusion: Gas and Coal contest
Outline
Gas and Coal Competition in the EU Power Sector – CEDIGAZ, 13 June 2014
Objectives and Contents
Two main objectives: To analyse competition
between gas and coal in the EU power sector (coal renaissance?)
To draw conclusions for future gas demand by the power sector
Gas and Coal Competition in the EU Power Sector – CEDIGAZ, 13 June 2014
Objectives and Contents
Contents: Five Chapters EU electricity market Gas prices in Europe Coal prices The EU CO2 market Gas and coal competition in
the future
Gas and Coal Competition in the EU Power Sector – CEDIGAZ, 13 June 2014
Main Findings
State of play –2013
Gas and Coal Competition in the EU Power Sector – CEDIGAZ, 13 June 2014
EU Gas Demand: the lost decade
420
440
460
480
500
520
540
bcm
0
100
200
300
400
500
600
bcm
Power sector Industry
Non energy consumption Residential/Services
District heating Others
In 2013, EU gas demand decreased for the third consecutive year - 1% in 2013, after -3% in 2012 and –6% in 2011
Gas and Coal Competition in the EU Power Sector – CEDIGAZ, 13 June 2014
EU Gas demand in the Power sector
0
20
40
60
80
100
120
140
160
180
bcm
Germany Netherlands United Kingdom
Spain Italy France
Belgium Others
Decrease in gas consumption by the power sector (2013 vs. 2010): 51 bcm
Germany
12%
Netherlands 8%
United Kingdom
30% Spain 14%
Italy 16%
France 7%
Belgium 5%
Others 8%
Gas demand by the power sector has decreased by 51 bcm since 2010 The equivalent of the total French gas market…
Gas and Coal Competition in the EU Power Sector – CEDIGAZ, 13 June 2014
EU coal market
EU total coal consumption Change in coal use (2012 vs. 2009) Mt
The EU paradox: EU coal demand is rising… While gas demand is falling
Gas and Coal Competition in the EU Power Sector – CEDIGAZ, 13 June 2014
The European paradox
EU electricity generation, Gas vs. Coal and RES US electricity generation, Gas vs. Coal and RES
Coal and RES are displacing natural gas in the EU power sector
Gas and Coal Competition in the EU Power Sector – CEDIGAZ, 13 June 2014
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Coal Natural gas RES
Main causes of the European paradox
European and international developments
Gas and Coal Competition in the EU Power Sector – CEDIGAZ, 13 June 2014
Decrease in total and residual electricity demand
1500
1700
1900
2100
2300
2500
2700
2900
3100
330019
9019
9119
9219
9319
9419
9519
9619
9719
9819
9920
0020
0120
0220
0320
0420
0520
0620
0720
0820
0920
1020
1120
1220
13f
TWh
EU electricity demand
EU electricity demand is declining (economic crisis, efficiency gains). Fast development of RES decreases residual load addressed to other fuels and decreases wholesale electricity prices
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Fast development of RES
Residual demand
Other RES
Wind
Hydro (incl.Pumped hydro)Nuclear
Gas and Coal Competition in the EU Power Sector – CEDIGAZ, 13 June 2014
Coal competitiveness Cheap coal import prices thanks to US shale
gas revolution Coal import prices
0
50
100
150
200
250
US$
/ton
ne
Asia Europe
Coal imports in the EU, by supplier (2012)
Coal prices have decreased by 38% since the middle of 2011
Gas and Coal Competition in the EU Power Sector – CEDIGAZ, 13 June 2014
Coal competitiveness Reinforced by the increase in gas import prices and
the collapse of CO2 prices
European gas import prices increased by 42% from 2010 to 2013, in line with crude oil prices. CO2 prices collapsed
0
5
10
15
20
25
30
35
€/tC
O2
CO2 Settlement Price
0
5
10
15
20
25
30
US$
/MBt
u
Regional gas prices vs. crude oil prices
Crude oil, Brent LNG, Japan
Natural gas, Europe Natural gas, US
Gas and Coal Competition in the EU Power Sector – CEDIGAZ, 13 June 2014
A perfect storm for CCGTs
-30
-20
-10
0
10
20
30
€/M
Wh
German clean spark and dark spreads
Average Clean Dark spot base
Average Clean Spark spot base
Running gas-fired power plants is a loss-making business
Gas and Coal Competition in the EU Power Sector – CEDIGAZ, 13 June 2014
Consequences
None of the EU climate and energy objectives are met
Gas and Coal Competition in the EU Power Sector – CEDIGAZ, 13 June 2014
The EU ETS is not leading to decarbonized electricity
CO2 emissions by the EUETS power sector
0
200
400
600
800
1000
1200
1400
2008 2009 2010 2011 2012
Mt
Coal Gas Others
Switch from gas-to-coal means that CO2 emissions in the EU ETS have not decreased since 2009.
Gas and Coal Competition in the EU Power Sector – CEDIGAZ, 13 June 2014
Loss of competitiveness of EU industry
0
20
40
60
80
100
120
140
160
180
2004 2006 2008 2010 2012
$/M
Wh
Electricity prices to industrial users
Germany France
Netherlands United Kingdom
Average OECD Europe United States
Growing subsidies and energy bills
0
5
10
15
20
25
30
35
€cen
t/kW
h
Household prices - Germany
Taxes and levies
Network costs
Energy and supply
Gas and Coal Competition in the EU Power Sector – CEDIGAZ, 13 June 2014
Security of supply is no more guaranteed Mothballing/Closure of CCGTs
• Low utilization of CCGTs • Closure or mothballing of gas-
fired power plants – 25 GW in the past two years – including new-build efficient CCGTs
• Financial and operational consequences
• No investment in new conventional plants
0
2
4
6
8
10
12
14
16
18
2010 2011 2012 2013
€ bi
llion
Generation asset write-downs by major EU power utilities
If all gas plants under review by EU power utilities are closed, a total capacity of about 50 GW will close, or 28% of the current gas fleet capacity
Gas and Coal Competition in the EU Power Sector – CEDIGAZ, 13 June 2014
A coal renaissance in the EU?
Gas and Coal Competition in the EU Power Sector – CEDIGAZ, 13 June 2014
This period of grace should end by 2020. Before if CO2 prices increase Highly dependent on EU ETS reform and Government interventions
2013: a turning point?
Coal 8,9
Gas -10,4
Oil -0,6
Nuclear -2,5
Hydro -0,6
Biomass 2,9
Wind -0,9
Solar 1,9
-15
-10
-5
0
5
10
TWh
Germany - Electricity generation 2013/2012
Coal -11,5
Oil -0,2
Gas -4,3
Nuclear 0,2
Hydro -0,6
Wind and Solar 8,6
Others 2,4
-15,0
-10,0
-5,0
0,0
5,0
10,0
TWh
UK - Electricity generation 2013/2012
Gas and Coal Competition in the EU Power Sector – CEDIGAZ, 13 June 2014
Closure of aging coal power capacity
0 5 102013
2003
1993
1983
1973
1963
Lignite (64 GW)
0 5 10 152013
2003
1993
1983
1973
1963
Hard coal (128 GW)
GW
40% of capacity is more than 40 years old
Date of commissioning of EU coal power capacity
Source: Enerdata
Gas and Coal Competition in the EU Power Sector – CEDIGAZ, 13 June 2014
Air emissions regulation (LCPD/IED)
• Large Combustion Plants Directive limits SOx and NOx emissions • Opt in (FGD investment) or Opt out and close by end 2015
– 15 GW of old coal plants closed by end 2015 at the latest, mainly in UK and France (some already closed)
• Industrial Emissions Directive replaces LCPD on 1 January 2016 • Further tightens limits on SOx and NOx emissions • Opt in (SCR investment) or Opt out and closure by 2023 • Some flexibity (Transitional National Plans)
– Additional closure of old coal-fired plants: 50 to 55 GW, mainly in the United Kingdom, Germany, Spain, Poland
Overall, these closures account to almost a third of current EU coal capacity
Gas and Coal Competition in the EU Power Sector – CEDIGAZ, 13 June 2014
CO2 taxes/energy policies against coal in some countries
UK introduced a Carbon Price Floor (CPF) on 1 April 2013 at £15.70/tCO2 Power companies must pay £4.94/t and this rises to £18.08 by 2015-16 (until 2020). That is on top
of the EU carbon price
UK requires at least 300MW net CCS on any new coal project
The Netherlands introduced a coal tax in 2013 at a level of €13.65/t of coal. Additionally 10% biomass co-firing is mandatory.
Dutch National Energieakkoord: deal with four electricity producers to close down five older coal fired power plants.
Spanish economy cannot sustain coal subsidies and has announced they will end in December 2014
ETS derogation decision impacting on investment decisions in Poland Scandinavian countries: Phase-out of coal. Conversion to biomass
Gas and Coal Competition in the EU Power Sector – CEDIGAZ, 13 June 2014
EU ETS reform Can the phoenix rise from the ashes?
• Structural reform of the EU ETS • 2030 Climate and Energy Framework • Emissions reduction by 40% by 2030 • Fast-track EUAs backloading (Feb 2014) • Market stability reserve
Different possible futures
Source: Climate Economics Chaire, January 2014
Gas and Coal Competition in the EU Power Sector – CEDIGAZ, 13 June 2014
Conclusion
Gas and Coal contest
Gas and Coal Competition in the EU Power Sector – CEDIGAZ, 13 June 2014
Future coal and gas demand by the EU power sector?
-
50
100
150
200
250
300
1990 2011 2020CPS
2020NPS
2020450 S
2035CPS
2035NPS
2035450 S
Mto
e
Coal
-
50
100
150
200
250
300
1990 2011 2020CPS
2020NPS
2020450 S
2035CPS
2035NPS
2035450 S
Mto
e
Natural gas
Decrease in coal demand does not automatically means more gas demand
Gas and Coal Competition in the EU Power Sector – CEDIGAZ, 13 June 2014
A period of grace for coal, but short-lived
Short term Security of supply and competitiveness favour coal (even
with the recent decrease in gas prices) BUT Government intervention (UK carbon tax, end of subsidies to
coal mining in Spain, etc) Air quality regulation RES development: coal is starting to be pushed out of the
system CO2 price signal? Caveat: Russia-Ukraine crisis
Gas and Coal Competition in the EU Power Sector – CEDIGAZ, 13 June 2014
Capacity crunch must be adressed
Almost of third of gas and coal capacity are closing/at risk of closure
No investment in new conventional plants Security of electricity supply must be adressed urgently
Capacity adequacy (GW) Flexible generation (TWh)
Gas and Coal Competition in the EU Power Sector – CEDIGAZ, 13 June 2014
A future with gas: reinventing the business case
Gas prices Market liberalisation New partnerships and pricing Shale gas development
Decarbonisation/EU ETS reform Price signal
Investment: adressing the security of supply issue and the need for flexible generation
Gas and Coal Competition in the EU Power Sector – CEDIGAZ, 13 June 2014
GAS AND COAL COMPETITION in the EU Power Sector (June 2014)
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Gas and Coal Competition in the EU Power Sector – CEDIGAZ, 13 June 2014