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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

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Drs ing teus van eck t u berlin 19 jan 2004 fac economics and management

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


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

Market situation


Drs ing teus van eck t u berlin 19 jan 2004 fac economics and management

Generating Capacity Netherlands


The dutch high voltage grid

The Dutch High Voltage Grid


The most important marketplayers

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

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

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

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

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

The actual situation

DGO’s

Producers

GridOperators

Traders

Government

Consumers

Regulators

CHP / DH


The balance

The Balance

Environment

Security of supply

“Economy”

The long en short term values???


Reality t v

Reality T.V.

Low prices

High earnings

Low risks

Market power

The future of our children

Politicians

Freemarket

Environment


Dream versus reality

Dream: No coal and nuclear and efficient gas CHP in the transition period to 100% sustainability

Dream versus Reality

Reality:Growing demand, gas CHP nearly in bankruptcy and only 2% of total production is renewables

Prosperity/Welfare?


Economy

Economy


Drs ing teus van eck t u berlin 19 jan 2004 fac economics and management

10500

10000

9500

9000

Hot W.

8500

Coal

Stagg

8000

7500

7000

6500

0

100

200

300

400

500

600

Power Output [MWe]

Heat Consumption Curves


Drs ing teus van eck t u berlin 19 jan 2004 fac economics and management

Use of fuel

CO2

Costprice

kJ/kWh

g/kWh

baseload

€ct/kWh

Renewables

0

0

2 - …..

COGEN (gas)

5000

280

3,5 - 5

CCGT

6700

375

3,5

Coal unit

9000

830

3,5


Fuel costs for different power units

Fuel Costs for different Power Units


Consequences

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

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

Environment


Availability of heat excluding industrial heat

43% electricity

4% E grid losses

9% useful heat by CHP

44% is waste heat =

13 billion m3 natural gas=

23,4Mton CO2

Availability of heat excluding industrial heat

100% fuel for electricityproduction


Waste heat of power plants

Waste heat % of power plants

  • Lignite >60%

  • Coal fired > 55%

  • Conventional gas > 55%

  • Hot Windbox > 50%

  • CCGT > 45%

  • Incinerator > 70%

  • Nuclear > 60%


Priorities

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

The environmental ranking on base of CO2 emissions

Renewables

Good gas CHP

CCGT

Bad gas CHP

Hot Windbox

Good coal CHP

Modern coal units

Bad coal CHP

Quality

Ranking on base of operational results and

not on design efficiency


Cogen methodology

Energy savings CHP

Separate

Production

E + H

Cogeneration

H

ref

H

=

Reference

Boiler

Fuel

CHP Part

CO

Fuel

2

CO

Reference

2

CO

E

powerplant

2

Fuel

E

-

Powerplant

E

-

COGEN

E = E CHP+E

Grey

CO

or Fossil fuel free

2

electricity

COGEN Methodology


Investment opportunities risks of chp

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


District heating in the netherlands

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

Income

> 80% fixed costs

>80% variable without influence

Risks of District Heating


Heat distribution

Heat Distribution

E

E

E

E

F

CHP

Storage

H

Alternative Consumer

F

H

Grid

Consumer

F

Back-up/peak

E= Electricity

F= Fuel

H= Heat

H

Energy savings for the total chain between +90% and –40%


Some figures

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

Security of Supply


Chp security of supply

CHP (Security of Supply)


Security of supply1

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

Regulation


Dutch 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

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

The unworkable Regulation for CHP

Traders/producers

E.U. directive CO2 trading

Regulator

E.U. directive CHP

Consumer

Organisations

CHP / DH

Fuel markets

Local Governments

DGO’s

National support

Convenants between

government/market parties


Behaviour of stakeholders

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

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

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

Recommendation

Translate our smile in market power.

Result: a structural, payable big smile.

Smile for the environment

Power of the market


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