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The Dutch Electricity/Heat sector in the battle between Economy, Environment and Security of Supply in the liberalized European market drs. ing. Teus van Eck T.U. Berlin, 19 Jan. 2004, Fac. Economics and Management Contents • Market situation • Economy • Environment • Security of supply • Regulation • Behavior of stakeholders • Recommendations Market situation Generating Capacity Netherlands Generating Capacity Netherlands Renewables ( 561 ) 3% WI ( 424 ) 2% Conv. Coal ( 3940 ) 20% CHP ( 7628 ) 38% Conv. Gas ( 2100 ) 11% HW CCGT ( 2308 ) 12% CCGT ( 2079 ) 11% Generating Capacity 19.660 MW (2001) Peak ( 171 ) 1% Nuclear ( 449 ) 2% The Dutch High Voltage Grid The most important marketplayers • • • • • • Essent: 25% production capacity+ 30% grids +Supplier Nuon: 21% production capacity + 30% grids + Supplier Electrabel: 21% production capacity + Supplier Eon: 9% production capacity + Supplier. Eneco: 1% production capacity + 25%grids + Supplier TenneT: T.S.O. + owner of the 150(partly)/220/380 kV grids • Gasunion: Gassupplier and owner of the gastransportgrid. • APX: The Electricity Exchange, owned by TenneT Other market parties • Regulatory • Dte: The Dutch Regulator for gas and electricity. • The Ministry of Economic Affairs for the Energy Strategy • The Ministry of Environment for permits • E.U Directives. • NGO’s and interest groups as EnergieNed, VEMW, VNO/NCW, Cogen Fuel situation • Natural gas: Own resources + import from Norway and Russia and exporter/balancing supplier • Coal: 100% import world market coal., perfect logistic harbor facilities • Biomass: Partly imported by governmental incentive policy • 15% of electricity consumption is imported. • Nuclear is marginal Facts • Total electricity consumption is 110 TWh/yr. • ~15% is traded by the APX • Off Peak electricity price €15 - €20/MWh based on marginal cost op coal fired power plants • Peak electricity price the last 2 years rising from €40 €60/MWh and strongly fluctuating. • Reserve capacity only a few % • Import/export capacity ~3500MW. • 100% unbundling of the grids • 01-07-2004 liberalisation completed Dutch and E.U. Energy Policy • Energy production and supply should be as clean as possible, as cheap as possible and with nearly 100% security of supply. • The implementation will be done by the free market • But we have no clear common objectives and operational strategy The actual situation DGO’s Producers Traders Grid Operators Government Consumers Regulators CHP / DH The Balance “Economy” Environment Security of supply The long en short term values??? Reality T.V. The future of our children Environment Politicians Low prices High earnings Low risks Market power Free market Dream versus Reality Prosperity/ Welfare? Dream: No coal and nuclear and efficient gas CHP in the transition period to 100% sustainability Reality:Growing demand, gas CHP nearly in bankruptcy and only 2% of total production is renewables Economy Weekday Demand Curve Electricity in the Netherlands Ren ew abl es 100% • Peak Load 75 50 • Base Load 25 0 0:00 5:00 10:00 15:00 20:00 Heat Consumption Curves 10500 10000 9500 9000 Hot W. 8500 Coal Stagg 8000 7500 7000 6500 0 100 200 300 Power Output [MWe] 400 500 600 Use of fuel CO2 Costprice kJ/kWh g/kWh baseload €ct/kWh Renewables COGEN (gas) CCGT Coal unit 0 5000 6700 9000 0 280 375 830 2 - ….. 3,5 - 5 3,5 3,5 Fuel Costs for different Power Units Fuel cost CCGT, Hot windbox CCGT, Conventional Gas, Conventional Coal Gas commodity 3,2 €/GJ, Coal 1,7 €/GJ 40,0 Fuel cost [€/MWh] 30,0 CONV GAS 20,0 HW CCGT CCGT CONV COAL 10,0 0,0 0 1000 2000 3000 4000 5000 Operation time [h] 6000 7000 8000 9000 Consequences • • • • Gas CHP too expensive in night and weekend. Environment is not an item. Bad investment climate for CHP. Bad investment climate for coal and nuclear by uncertainty concerning future environmental regulation • Prices too low for renewables The Netherlands: structural importer or exporter of electricity? In a European level playing field the Netherlands should be an exporter because we have: • Strong position in sourcing and transport of natural gas • High experience in CHP and gas turbine technology • Sea harbor facilities for import of world market coal • Cooling water facilities • Strong connections with the European E-grid • Etc. Environment Availability of heat excluding industrial heat 43% electricity 4% E grid losses 100% fuel for 9% useful heat by CHP electricityproduction 44% is waste heat = 13 billion m3 natural gas= 23,4Mton CO2 Waste heat % of power plants • • • • • • • Lignite >60% Coal fired > 55% Conventional gas > 55% Hot Windbox > 50% CCGT > 45% Incinerator > 70% Nuclear > 60% Priorities? • Only promoting Renewables vs. the lowest level of fossil fuel consumption and emissions for the total energy demand? • Energy savings vs. the fossil fuel use/emission level per unit electricity/heat? • Clear physical CHP electricity definition vs. lowest level of fossil fuel consumption The environmental ranking on base of CO2 emissions Quality Renewables Good gas CHP CCGT Bad gas CHP Hot Windbox Good coal CHP Modern coal units Bad coal CHP Ranking on base of operational results and not on design efficiency COGEN Methodology Energy savings CHP Separate Cogeneration H H ref = Reference Fuel CHP Part Boiler Fuel CO 2 CO 2 CO 2 ECOGEN E = E CHP+E Production E - E Reference powerplant Powerplant Grey CO 2 or Fossil fuel free electricity Fuel E+H Investment Opportunities/Risks of CHP • Opportunities: Energy/emissions savings, proven technology, grid cost savings • Risks: Continuity of heat demand and or heat source, economy of scale, weak and uncertain position in electricity and fuel market, level playing field?, no structural financial valuation of environmental aspects CHP Renewables wind and sun Grey electricity CO2 free ~25% 100% 0 Investment >€700/kW >€1000/kW >€650/kW Security of supply >95% <25% >95% Market position Uncertain Government supported Strong position, gas price? District Heating in The Netherlands • Only 3% of the heat market • Big opportunities for energy savings but bad investment climate (very unclear regulation) • For producers the electricity market is the first priority • The heat market is not a free market Risks of District Heating It is never in balance Costs > 80% fixed costs Income >80% variable without influence Heat Distribution E F E E CHP Back-up/peak Storage H F E H Grid Consumer H Energy savings for the total chain between +90% and –40% Alternative Consumer E= Electricity F= Fuel H= Heat F Some figures • 100 km by car –15 kg CO2 • 1 Dutch family with DH saves 1500 kg CO2/yr • 1 Windmill of 1 MW saves 700 ton CO2/yr • 1 MWth CHP saves 700 ton CO2/yr Security of Supply CHP (Security of Supply) Generation capacity and CHP contribution during max and average load Avr. Daily Load 25.000 23.000 CHP contribution approx. 3200 - 3500 M We of obse rv e d CHP capacity 18.550 Gen 85% - H, RRV,UCTE 11460 20.000 15.200 Gen 95% - H, RRV,UCTE 11290 15.000 11290 Gen 85% Available 13000 14242 12020 12920 3910 Other 3910 3350 3350 560 5.000 13540 Gen 95% Available 14440 7630 10.000 CHP (O bs er Renewables ad (O Lo oa d A vr L ax M ve d) ) bs er ve d or r -C 85 % en G en 95 % -C or r A vb G G en 95 % en G 85 % A vb ) bs er ve d en G Im p + en G (O (O lG en bs er + ve d) Im p 0 To ta Supply, Demand [MWe] Max. Daily Load Import Security of supply • Technical, availability fuels, the environment • Separate electricity production results in 45-75% waste heat • Political risks • Distributed vs. centralized generation • Grid capacity and load flows Regulation Dutch Regulation • MEP for renewables. A price guarantee for 10 years for different types of renewables. • CO2 index for CHP • Energy tax exemption for District Heating • Different convenants between government and “industry” • Different Codes from the Dte • Consumers of green electricity have partly exemption of energy tax. Export of tax money. E.U and international Regulation • There is no level playing field in the E.U. • Every country has its own fuel position and own regulation • Big energy flows all over Europe are structural not economical. • Kyoto. The Netherlands have a bad starting position, but a lot of clean technology • The Netherlands is now in a bad position, their interest is a real level playing field and a consequent energy policy The unworkable Regulation for CHP Traders/producers E.U. directive CO2 trading Regulator Consumer Organisations E.U. directive CHP CHP / DH DGO’s Fuel markets Local Governments National support Convenants between government/market parties Behaviour of stakeholders • • • • • • • • • Nobody is responsible for security of supply Short term behavior A natural urge to monopoly No money for research The market is too risky for new entrance Many legal conflicts Loans become expensive Nobody has the long term overview Short term money is leading Recommandations • Formulate a clear long term energy policy in a formulate balance between economy, environment and security of supply on base of the available alternatives • Make that policy operational with a mix of the advantages of the utility and the free market. • We will present our proposals mid 2004. First impression of our Recommendations • We define a number of possible market structures from 100% utility to 100% free market • We define a number of possible scenario´s for the balance between economy, environment and security of supply • We present the consequences, opportunities and risks of the different possible combinations of market structures and scenario´s including regulation and behavior of market parties • The final choice is a political choice Recommendation Smile for the environment Power of the market Translate our smile in market power. Result: a structural, payable big smile.