The Energy Issue 2014 - continued -

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The Energy Issue 2014 - continued -. William D’haeseleer KU Leuven Energy Institute. Energy versus Power. 1 minute to fill the cup. 5 minutes to fill the cup. flow rate [m 3 /s]. an amount of water [m 3 ]. 1 gallon ~ 3,8 liters.

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## The Energy Issue 2014 - continued -

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1. The Energy Issue 2014- continued - William D’haeseleer KU Leuven Energy Institute

2. Energy versus Power 1 minute to fill the cup 5 minutes to fill the cup flow rate [m3/s] an amount of water [m3] 1 gallon ~ 3,8 liters volume of water = an amount = a “package”  m3or kilo-liter = kl flow rate =  amount per time  m3/s or m3/min or m3/h or kl/h

3. Energy versus Power kF = kilo-Flow kFh = kilo-Flow-hour flow rate [kF] an amount of water [kFh] 1 gallon ~ 3,8 liters volume of water = an amount = a “package”  m3orkF * h orkFh flow rate = debiet = débit  amount per time  kl/h orkF

4. Energy versus Power Power [kW] same energy = an amount [kWh]

5. Energy versus Power Small plant, running many hours (like small faucet) Large plant, with large output running shorter period (like large faucet)

6. Energy versus Power Small plant, running many hours (like small faucet) different duration different power demand same energy consumption Large plant, with large output running shorter period (like large faucet)

7. Power & Energy Units • Energy in Joule  J • Power in J/s or J/h • Alternative name for power J/s = Watt  W or if 1,000 Watt = 1 kWatt  1 kW • Thus energy: 1 J = 1 Ws or if 1,000 W during 1 hour  1 kWh Note: kW=1,000 W MW=1,000,000 W

8. Session September ,2014 Focus points: • Electricity Prices • Security of supply • Gas / Russia • Electric power provision / rolling blackouts

9. Session September ,2014 Focus points: • Electricity Prices • Security of supply • Gas / Russia • Electric power provision / rolling blackouts

10. Price setting in a perfect competitive power market €/MWh Supply curve (= marginal cost) MWh/h Peak units Classic Gas Wind, Hydro Nuke Coal CCGT

11. Price setting in a perfect competitive power market Demand curve €/MWh Supply curve (= marginal cost) MWh/h Peak units Classic Gas Wind, Hydro Nuke Coal CCGT

12. Price setting in a perfect competitive power market Demand curve €/MWh Market price (= marginal cost of most expensive generating unit) Supply curve (= marginal cost) MWh/h Peak units Classic Gas Wind, Hydro Nuke Coal CCGT

13. Price setting in a perfect competitive power market Demand curve €/MWh Full cost Market price (= marginal cost of most expensive generating unit) Supply curve (= marginal cost) MWh/h Peak units Classic Gas Wind, Hydro Nuke Coal CCGT

14. Price setting in a perfect competitive power market Demand curve €/MWh Full cost Potential for new investment Market price (= marginal cost of most expensive generating unit) Supply curve (= marginal cost) MWh/h Peak units Classic Gas Wind, Hydro Nuke Coal CCGT

15. EU 20-20-20 targets by 2020 Reduction of greenhouse gases Energy consumption, Efficiency increase Share of renewable energy 100% -20% -20% +20% 8,5% Third Handelsblatt Annual Conference, Berlin

16. EU’s implementation - currently • Much progress build up renewables (+) • seems to be too nice to be true... And it is... • There are major system effects that have been neglected and that may jeopardize further success of renewables deployment! • One has gone too rapidly recently, with danger of losing support of population!

17. French Report January 2014

18. EU’s implementation Issues / challenges / problems in the EU market • Technical challenges • Market-integration problems • Consequences for the CO2 emissions • End-electricity prices for end consumers

19. EU’s implementation Consequences of renewables quota in end-energy terms (1) • Total end energy = electric energy + fuel for heat + fuel for transportation • EU requirement by 2020: 20% of end energy from RES • For transportation only 10% ...  for electric sector ~ 34% • Expectations / outcome (“steered” by differentiated subsidies): • Hydro ~ only small increase possible • Biomass ~ moderated increase (protests against co-combustion, imported biomass pellets, sustainability questions) • Wind onshore + offshore / ENOH onsh ~ 2200h/a offsh ~ 3500 h/a • Solar photovoltaics (PV) / ENOH Belgium ~ 800 h/y • Total: 8760 h/a  low capacity factors of these intermittent sources

20. EU’s implementation Consequences of renewables quota in end-energy terms (2) • Capacity factors intermittent sources (wind + PV): • Wind onshore + offshore / CF ~ 25% - 30% • Solar photovoltaics (PV) / CF ~ 10% • To produce 34% electric energy with something that operates only 10% or 25-30% of the time, you must install a large amount of installed power ( called “capacity”)  leads to massive overcapacity • If there is a lot of wind and sun, and low demand (e.g., weekends), then too much electric power produced • But sometimes in case of cold spell (cfr winter Feb 2012) – with temp inversion... little wind and ‘dark’ (hence no PV) at 17.00h-18.00h, when peak demand arises in NW-Europe!  very little RES electricity produced

21. EU’s implementation Consequences of renewables quota in end-energy terms (3) • Intermittency: defined as “variable” and “partly unpredictable” • How deal with massive “intermittency” in electricity system? • Back up reserves from flexible dispachable thermal plants (+ & -) • Electric storage (large scale electric storage not available) • Expansion of transmission grid • Encourage active demand response (ADR) • Curtailing of superfluous RES production / review priority access • Mitigate on local level via smart grids

22. EU’s implementation Issues / challenges / problems in the EU market • Technical challenges • Market-integration problems • Consequences for the CO2 emissions • End-electricity prices for end consumers

23. EU’s implementation Some simple technical aspects • Power expressed in Watt ... kW...MW...GW • Instantaneous power ~ flow (cfr water flow from faucet) • Installed power capacity: max power output of facility • Nuc pwr plant ~ typically 1000 MW or 1 GW (but instantaneous output at shutdown = 0) • Wind turbine ~ typically 2 tot 5 MW (but instantaneous output depends on wind) • Examples Belgium • Peak electricity demand ~ 14 GW in winter • Low electricity demand ~ 6-7 GW in summer • Electrical energy expressed in kWh...MWh...TWh • Annual production / consumption ~ 90 TWh/a • Difference betwn demand from the grids and consumption (incl own consump) • Power variations of flexible plants (ramp rates) MW per min... MW/h

24. EU’s implementation – technical issues Ref: Lehner & Schlipf, VGB Powertech, 8/2011

25. EU’s implementation – technical issues

26. EU’s implementation Issues / challenges / problems in the EU market • Technical challenges • Market-integration problems • Consequences for the CO2 emissions • End-electricity prices for end consumers

27. EU’s implementation – market issues • Common EU electricity market started in 1996,...then 2003, ...then 2009 • At present ‘third package’ being implemented • Better European coordination through ENTSO-E, ACER • Unbundling (generation, transmission, distribution, supply) • “Alligned” grid codes... • Market integration elements in place, was bearing fruits... • But now anew price divergence between countries!

28. EU’s implementation – market issues But ... Recent developments... !!! decoupling Ref: CREG 2014

29. EU’s implementation – market issues But ... Recent developments... !!! Source: ACER, 2013 68% 50%

30. EU’s implementation – market issues But ... Recent developments... !!! Hourly wind generation DE Price differential Source: ACER, 2013

31. EU’s implementation – market issues But ... Recent developments... !!! • Decoupling prices shows ‘poorer’ functioning of market • Lowerwholesale prices seem to be good news (?) • But they lead to major problems for owners/operators of thermal plants which are needed for balancing! • And ironically, end-consumer prices increase rather than decrease (to pay for the levies/subsidies)

32. EU’s implementation – market issues But ... Recent developments... !!! • These effects were not foreseen in “liberalized market design”... • Due to massive injection of zero marginal cost generation (RES) • Most efficient & flexible plants (CCGTs) are pushed out of merit order ... Tendency for mothballing • Leads even to negative wholesale prices !! • Need completely different philosophy whith massive RES, where ‘holding’ capacity ready is remunerated...  capacity mechanisms

33. EU’s implementation – market issues

34. EU’s implementation – market issues Ref: F. Roques in “The crisis of the European Electricity System” – FR 2014

35. EU’s implementation – market issues The merit order effect of RES Ref: Factsheet 2014-1 KULv EI

36. EU’s implementation – market issues Prices too low for covering operational cost of gas plants Spread = difference price & production cost = gross profit

37. EU’s implementation – market issues The “missing money problem” !! • The most efficient plants (gas-fired combined cycles – CCGT) are pushed out of the merit order  their capacity factor becomes too low to recover investments  the prices are too low to cover operating costs  many CCGTs are currently shut down and will be mothballed or shut down permanently! Risk: insufficient capacity (generation adequacy) to do the back up

38. EU’s implementation – market issues Negative wholesale prices Ref: Factsheet 2014-1 KULv EI

39. EU’s implementation – market issues Negative prices in Germany in period October 2008-October 2009

40. Negative Wholesale Electrivity Prices Ref: F. Roques in “The crisis of the European Electricity System” – FR 2014

41. EU’s implementation – market issues Negative prices in Belgium June 2013

42. EU’s implementation – market issues Belgium: the “missing money problem” + nuclear phase out Recall: Risk: insufficient capacity (generation adequacy) to do the back up • In case of shortage, peak prices would skyrocket! • But peak prices not high enough to compensate “losses” • Need for capacity remuneration mechanisms • In Belgium: combined with nuclear phase out... •  “Strategic Reserves” (Plan Wathelet)

43. Influence Doel 3 – Tihange 2 and ... Doel 4 Lack of own cheap generation

44. EU’s implementation Issues / challenges / problems in the EU market • Technical challenges • Market-integration problems • Consequences for the CO2 emissions • End-electricity prices for end consumers

45. A shared effort between sectors and MS GHG Target: -20% compared to 1990 -14% compared to 2005 EU ETS -21% compared to 2005 Non ETS sectors -10% compared to 2005 27 Member State targets, stretching from -20% to +20%

46. EU’s implementation Consequences for the CO2 emissions First Phase 2005-2007

47. EU’s implementation Consequences for the CO2 emissions Second Phase 2008-2012

48. EU’s implementation Consequences for the CO2 emissions Second & Third Phases 2012-2014