Increasing power system flexibility: the utility perspective · Increasing power system...

Increasing power system flexibility:

the utility perspective ESAP Workshop – New policies for ensuring electricity security

15th June 2018 Tokyo, Japan

Gregor Pett,

Executive Vice President Market Analytics / Market Solutions

Uniper at a glance

2

Gas fired

power plants

Nuclear plants

Coal fired

power plants

Gas storage Regasification

Service

Hydroelectric

plants

Gas infrastructure Energy sales to small and large

customers

Trading

Our operations

Power Generation

Commodity Trading

Energy Storage

Energy Sales

Energy Services

We operate in 40+ countries around the world

€1.7bn EBITDA in 2017

100 years Experience

~36 GW Generation capacity

Main activities

Our strengths

Our strengths are based on our experience, expertise and curiosity

We combine technical and commercial expertise and offer solutions for challenging

questions.

We build, optimize and operate large power plants.

We produce and trade large quantities of energy. In these processes, we act as efficient as

possible and minimize risks.

We maintain long-standing partnerships with commercial customers, public utility

companies, grid operators and our suppliers. All of these stakeholders gain mutual benefits

from one another.

Our strengths lie in three areas

3

We support the development of

electricity markets outside

Europe with our own production

activities and services for third

parties

Our trading activities create links

across international raw

materials markets

In Europe, we contribute to

supply security by moving

towards a low-carbon energy

future

Increasing power system flexibility ESAP Workshop – New policies for ensuring electricity security

4

European cooperation and integration of ancillary services

Overview of liberalization in Europe

Influence of regulatory frameworks on power markets

1

2

3

Utility strategies for new market environments 4

Companies need to adapt to new ways to capture value

Increased M&A activity

Liberalization process (generic description)

Similar patterns followed in US, UK and other European countries

1. Legal unbundling of competitive segments (production, distribution, supply), first

accounting, then ownership, creating separate companies

2. Measures preventing a large market share of any one single player

3. Full control of one authority over issues like non-discriminatory 3rd party access to

infrastructures (grid, pipelines, entry points, storage, distribution), network tariffs

and network investments

4. Freedom of choice for large customers to select their supplier

5. Creation of competition in generation/procurement

6. Competition and freedom of choice in the retail market

5

Example Germany: pre-liberalized system Large companies as integrated regional monopolists

6

Energy

source Generation Transmission Sales Customer

Vertically integrated regional monopolies

1

2

3

4

5

6

6

6

6

7 8

1 EnBW

2 Bayernwerk

3 BEW AG

4 HEW

5 PreussenElektra

6 RWE

7 VEAG

8 VEW

Regional power companies pre-1998

Monopoly Competition

Regional utilities existed until 1998

Vertically integrated utilities had a

legally recognized monopoly in their

service area

Bundeskartellamt (Regulator)

responsible for price controls and

enforcement of anti-trust laws

Liberalization changed playing field and actors Potential new winners and losers appeared

7

Fuels Customers

Unbundled generation, trading and sales

Generation Sales Optimization

& Trading Transmission

Regulated Competition

Unbundling of generation,

transmission and sales – and

development of trading

Development of liquid trading points

across Europe (i.e. EEX)

Market participants responsible for

managing multiple types of risk

Exchanges/OTC market enable

hedging against market price

movements

TSOs Exchanges Traders

Suppliers Generators

Heavily interconnected system

8 Source: ENTSOE

Market channels

Hourly day

ahead market

¼-Hourly day

ahead market

Continuous

intraday

market

Balancing

circle steering

OTC

9

Frequency

Containment

Reserve (FCR)

automatic

Frequency

Restoration

Reserve (aFRR)

manual

Frequency

Restoration

Reserve (aFRR)

National markets become European ones

Individual markets developed on a national scale

National system requirements and legal restraints led to national sets of market rules

10

The large variation of markets is harmonized step by step to create an

integrated European Power market.


11




1

2

3


German Renewable Energy Sources Act

The German Renewable Energy Sources Act (EEG) is a series of laws which

first came it force on the 1st April 2000.

The EEG was preceded by the Electricity Feed-in Act (1991) which entered

into force on 1st January 1991 and initiated the first green electricity feed-in

tariff scheme in the world.

It regulates the prioritized feed-in of electricity from renewable sources and

originally guaranteed its producers fixed feed-in tariffs.

The EEG 2014 specified the transition to an auction system which was

introduced with the current version EEG 2017

The EEG is the foundation of the transformation of the German power

market.

12

Significant increase of renewable capacity The system changed significantly within a short period.

0

10000

20000

30000

40000

50000

60000

19

901

991

19

921

993

19

941

995

19

961

997

19

981

999

20

002

001

20

022

003

20

042

005

20

062

007

20

082

009

20

102

011

20

122

013

20

142

015

20

162

017

MW

Installed Wind Capacity

offshore onshore

0

10000

20000

30000

40000

50000

60000

19

901

991

19

921

993

19

941

995

19

961

997

19

981

999

20

002

001

20

022

003

20

042

005

20

062

007

20

082

009

20

102

011

20

122

013

20

142

015

20

162

017

MW

Installed Solar Capacity

Source: BmWi, Zeitreihen zur Entwicklung der Erneuerbaren Energien in Deutschland, Feb 2018

0%

5%

10%

15%

20%

25%

30%

35%

40%

0

50,000

100,000

150,000

200,000

250,000

1990 1994 1998 2002 2006 2010 2014

GW

h

gross renewable power generation and share on total generation

generation share

13

1/3rd (220 TWh) of the generation is

covered by renewables

112 GW of installed renewable

capacity

Wind (56 GW) and Solar (42 GW) are

the dominant technologies

Effects on wholesale markets

Hourly day

ahead market

¼-Hourly day

ahead market

Continuous

intraday

market

Balancing

circle steering

OTC

14

Frequency

Containment

Reserve (FCR)

automatic

Frequency

Restoration

Reserve (aFRR)

manual

Frequency

Restoration

Reserve (aFRR)

Exposure to weather increases need for flexibility Uncertainties in the dispatch optimization are rising.

0

5000

10000

15000

20000

25000

30000

22-05-2018 23-05-2018 24-05-2018 25-05-2018 26-05-2018 27-05-2018 28-05-2018 29-05-2018 30-05-2018 31-05-2018 01-06-2018

MW

h/h

Wind power production forecast

EC00Ens Seasonal Normal EC00Ens median EC00Ens Deterministic Actual

Source: data by Wattsight, 23.05.2018

A system with large installed capacity of renewables is exposed to the

volatility and uncertainty of weather forecasts.

Market channels are needed to cope with the uncertainty.

15

The merit order effect Renewables regime fundamentally changes power market economics

and plant operations

16

Nuclear

Lignite

Hard coal Renewable

energies CCGT Peaking

€/M

Wh

E

lectr

icity p

rice [

€/M

Wh]

Price w/o wind and PV

Price with wind und PV

Merit order

renewables

Less carbon emissions

RES expansion not market-driven

Increasing share of intermittent

generation

Decrease in wholesale power prices

Increasing share of conventional

power plants uneconomic and will be

closed

No investment appetite for

conventional power plants

Consequences of renewables

Example for power plant utilization in Germany Conventional generation has to follow volatile renewables.

17

Liquid short term markets Uncertainties increase the need of short term trading opportunities.

Hourly and ¼ hourly auction

Annual trade volume increased to 240

TWh in Germany

Price coupling of regions connects

European exchanges and countries

Integrated electricity market in beneficial

due to increased liquidity, transparency,

efficiency and social welfare

0

50000

100000

150000

200000

250000

300000

2000 2002 2004 2006 2008 2010 2012 2014 2016

GW

h

traded volume on EPEX spot in Germany

hourly 1/4h

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

2010 2011 2012 2013 2014 2015 2016 2017

GW

h

traded volume on EPEX continous intraday in Germany

hourly continous

Source: EEX market data

Day Ahead Auctions

Annual trade volume reached 40 TWh in

2017

Primary market channel to optimize and

balance a portfolio close to real time

XBID project establishes one single

European intraday power market

Continuous Intraday Market

18

Gas Europe – summer/winter spread

0.5

1.0

1.5

2.0

Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17

NCG summer/winter spread

UK – CDS, CSS 2018

Germany – CDS, CSS 2018 Germany – Baseload power 2018

Sweden – Baseload power 2018

Open markets lead to connectivity between

commodities and result in volatility

19

FX

€/MWh €/MWh

Rebased to 100

$/ton €/MWh

£/MWh €/MWh

Source: Bloomberg – market quotes

Note: Quotes include January 2015 until end of July 2017

-20

-10

0

10


Dark spread Spark spread

15

20

25

30

35


Baseload

-5

0

5

10


Dark spread Spark spread

70

85

100

115

130


RUB/EUR SEK/EUR GBP/EUR

30

45

60

75

15

20

25

30

35


Baseload (LHS) Coal (API2)


20




1

2

3


Ancillary services

Hourly day

ahead market

¼-Hourly day

ahead market

Continuous

intraday

market

Balancing

circle steering

OTC

21

Frequency

Containment

Reserve (FCR)

automatic

Frequency

Restoration

Reserve (aFRR)

manual

Frequency

Restoration

Reserve (aFRR)

Different kinds of balancing products do exist to

support grid stability

22

-0.5

-0.3

-0.1

0.1

0.3

0.5

0.7

0.9

-0.5

-0.3

-0.1

0.1

0.3

0.5

0.7

0.9

Exemplary balancing energy activation

frequency

FCR RR / market automatic

FRR

frequency containment reserves (FCR) automatic & manual frequency restoration

reserves (aFRR & mFRR)

replacement reserves or intraday market

(RR)

stabilization regulate FRCE to zero release used FRR

manual

Network Codes foster European harmonization Ancillary services markets evolve from protected schemes to conjoint

European products.

Ancillary services are affected by two Network Codes.

System Operation Guideline

Members approved the guideline on the 4th of May 2016

Composition of the former network codes on Operational Planning and Scheduling,

Operational Security and Load Frequency Control and Reserve

Affects the market design and requirements of the FCR market

Balancing Guideline

Members approved the guideline on the 16th of March 2017

Affects the market design and requirements of the FRR and RR market

23

Network Codes Five keys to a European Market for Ancillary Services

24

Integrated

balancing markets

Standardized

products

Harmonization

of national

markets

Cross border

balancing capacity

Cross border

balancing energy

Source: ACER, Mathieu Fransen, Final steps to the European guideline on electricity balancing

Frequency Containment Reserve in Germany Less market barriers lead to more efficient markets yet new challenges

for utilities.

25

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

0

1000

2000

3000

4000

5000

6000

7000

01 11 21 31 41 51 09 19 29 39 49 06 16 26 36 46 04 14 24 34 44 02

€/M

W a

nd

wee

k

0

1000

2000

3000

4000

5000

6000

7000

20

19

20

23

20

27

20

31

20

35

20

39

*Based on IHS multi client study Steady at 50

Base case scenario (no new technology and reduced thermal capacity)

Strong penetration of renewable and battery capacity

Source: regelleistung.net

Capacity prices of frequency containment reserve show a declining trend

Changing market design reduced market barriers and fosters the integration of

new disruptive technologies

Battery penetration will be one important price driver

2017 2016 2015 2014 future*


26




1

2

3


Optimization of market channels

Hourly day

ahead market

¼-Hourly day

ahead market

Continuous

intraday

market

Balancing

circle steering

OTC

27

Frequency

Containment

Reserve (FCR)

automatic

Frequency

Restoration

Reserve (aFRR)

manual

Frequency

Restoration

Reserve (aFRR)

Short term market channels in Germany Complexity is rising significantly with short term markets.

Timing Market Market design Products

Week ahead FCR One-shot pay-as-bid

auction 1

Week ahead aFRR One-shot pay-as-bid

auction 4

Day ahead 10 am mFRR One-shot pay-as-bid

auction 12

Day ahead 12 am EPEX hourly

auction

One-shot uniform price

auction 24

Day ahead 3 pm EPEX quarter

hourly auction

One-shot uniform price

auction 96

Up to 5 min before

start of delivery Intraday market Continuous trading 132

Real-time Imbalance-

market

TSOs charge for open

positions 96

C

o

m

p

l

e

x

i

t

y

28

Portfolio effect – simplified Diversified portfolios have a competitive advantage.

Company A

Only nuclear asset

Company B

Only coal asset

29

Company C

Nuclear and coal asset

Market Prices

Base week 33 €/MWh

Base weekend 20 €/MWh

Base weekday 38.2 €/MWh

Generation Costs

Nuclear plant 8 €/MWh

Coal plant 35 €/MWh

38.2 − 35 €𝑀𝑊ℎ × 120 ℎ + 35 − 20 €

𝑀𝑊ℎ ×240

40𝑀𝑊 × 48 ℎ = 4704 € 𝑀𝑊

33 − 8 €𝑀𝑊ℎ × 168 ℎ = 4200 € 𝑀𝑊

38.2 − 35 €𝑀𝑊ℎ × 120 ℎ + 20 − 8 €

𝑀𝑊ℎ × 48 ℎ = 960 € 𝑀𝑊

Attention: Provision costs need to be calculated on a hourly basis

30

Portfolio usage in ancillary services Diversified portfolios have a competitive advantage due to lower

opportunity costs.

gas coal nuclear

Net capacity by country and fuel type (GW)1,2

Well-diversified portfolio supports optimization Different generation technologies and geographies

31

1. Net capacity for 2016 (accounting view); net generation capacity is reported for plants if plants were in operation at end of 2016

2. Excluding net generation capacities from Hydro LTCs in Austria and Switzerland of 820 MW in 2013, 629 MW in 2014, 629 MW in 2015

and 629 MW in 2016 as well as contracted generation capacities

3. Electricity production contains Pumped Storage production (2013: 0.8 TWh, 2014: 0.8 TWh, 2015: 1.0 TWh)

Note: Deviations may occur due to rounding

Electricity production by technology (TWh)1,3

27.4

GW

3.6 Hydro

1.9 Nuclear

9.1 Hard coal 10.7 Gas

2.2 Other

84.0

TWh

19.1 CCGT

11.0 Hydro

13.6 Nuclear

40.3 Steam

and Biomass

Net capacity by fuel type (GW)1,2

10.5

6.4

5.1

2.1 0.4

Germany

Hungary France

UK

Sweden

Hydro Hard Coal Other Gas Nuclear

2.9

Benelux

Advanced asset modelling & simulation Prequalified capacity of coal fired plant increased

32

• Development and deployment of a

dynamical simulator to improve SR

capability

• Dynamical simulator reduces

expensive and time consuming real

plant tests

• Simulator includes detailed models of

steam generator, turbine, boiler feed

water pre-heating system, pumps, air

system, flue gas system, mills and

existing control system.

• Prequalified capacity could be

increased.

• Further improvements are expected.

Dynamical simulation of aFRR

Asset flexibility improvement minimum load of coal fired plant reduced by coal mill optimization

33

Reduction of Pmin by ~50%

Very stable operation at 15% of the

boiler load and thus about 10% of the

rated power of the plant

Results are used to follow-on

upgrades at French thermal plants

Emile Huchet 6 and Provence 5

Single coal mill mode

New technologies used to optimize portfolio Hybrid battery storage system in operation for grid services

34

49.700

49.800

49.900

50.000

50.100

50.200

50.300

-500

0

500

1.000

1.500

2.000

2.500

10:0

0

10:1

5

10:3

0

10:4

5

11:0

0

11:1

5

11:3

0

11:4

5

12:0

0

12:1

5

12:3

0

Fre

qu

en

cy

Po

we

r

Power in kW

Frequency in mHz

Unique hybrid battery storage combines

different battery technologies to evaluate

technology specific characteristics

Testing new applications

Generating synergies in the portfolio

Very suitable to provide grid services for

TSOs and DSOs due to immediate reaction

to charging and discharging requests

M5BAT

Digital transformation for competitive advantage Enhanced trading systems and capabilities

35

Required for increased performance

and data

Acceleration of end of day batch

processing and intra day calculations

Lower total cost of ownership

Provides the business with a security

stack and integration into the

downstream systems

Contributor to Uniper’s transformation

RPA benefits are beside cost savings,

improved quality and speed and better

compliance

Integrating digital workforce requires

fundamental changes and needs

employee acceptance

Robotic Process Automation

Cloud

36

To be able to react quickly, dispatch operations are

centralized and closely linked to trading

Liberalization and regulation have constantly changed the

environment for generation and trading in Europe

Flexibility and agility were and still are key to stay

competitive including new technologies and digitalization

1

2

3

Cooperation with power plant operations is very strong to

enhance and use all plant flexibilities 4

Increasing power system flexibility The utility perspective: Conclusions

This presentation may contain forward-looking statements based on current assumptions and forecasts made by Uniper SE management and

other information currently available to Uniper. Various known and unknown risks, uncertainties and other factors could lead to material

differences between the actual future results, financial situation, development or performance of the company and the estimates given here.

Uniper SE does not intend, and does not assume any liability whatsoever, to update these forward-looking statements or to conform them to

future events or developments.

Speaker Head of Singapore Office

[email protected] [email protected]

Getting in touch:

Uniper Global Commodities SE - Holzstraße 6 - 40221 Düsseldorf, Germany

37

Speaker’s Biography

38

Since 2017 Executive Vice President Market Analytics/Market Solutions: responsible for commodity market analytics and market solutions.

2014-17 Director Market Operations, Uniper (until Dec 2015 E.ON Global Commodities SE), responsible for wholesale market pricing and commodity market analysis. Corporate restructuring projects. 2017: Interim Director Power Trading and Optimization.

2008 - 2014 Senior Vice President, E.ON SE responsible for commodity risk management and steering of commercial operations across the group

1994 – 2008 various roles within the gas business of Ruhrgas/E.ON Ruhrgas: Technical planning, gas supply negotiations, gas portfolio planning, risk management and commercial gas portfolio optimization

Membership of various E.ON group supervisory boards including E.ON Global Commodities, E.ON France and E.ON Energie.

2009-2016 member/Chairman of the Energy Trading Steering Committee in German Energy Industry Association BDEW, Member of the BDEW Market Design and Gas Market Design Project Groups

Member of the Energy Business Council, International Energy Agency, Paris. Regular peer reviewer of IEA publications

Member 131. Baden-Badener Unternehmergespräche (since 2012)

Degree in Physics (1994)

Gregor Pett, Executive Vice President Market Analytics/Market Solutions, Uniper, Düsseldorf

More than 23 years energy industry experience (incl. more than 16 years in executive positions). Wide

range of in depth energy market expertise: trading, optimization, risk management, commodity market

analysis and market design, corporate restructuring and change management.

Uniper | Holzstraße 6 | 40221 Düsseldorf | phone: +49 (0) 211 73275 2124 | [email protected]

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