Change is sweeping the European power industry as the integration of
renewables gains pace. How Europe eventually navigates through these
dramatic changes will fascinate power decision makers globally.
The
debate over whether renewables would form a significant part of the
future power generation infrastructure has moved on considerably within
the last two years: the question is no longer ‘if’ the transition will
take place, but ‘how’ an industry traditionally comprised of large units
of coal, gas or nuclear power generation running 24/7 as base load is
going to adapt to accommodate it.
Renewables and low carbon technologies are only going to increase
as a proportion of the installed base, yet genuine integration of these
onto European grids has been relatively slow and the practical
implications of this industry transformation are becoming ever more
evident. Moreover, many European nations are actually burning more coal
now than they have been in recent years, due largely to the drop in coal
prices relative to gas prices (the shale boom in the U.S. leading to a
flood of cheap coal on world markets) and also because the collapse of
the EU’s emissions trading scheme has enabled nations to rely more
heavily on older, less clean and efficient coal plants still in
operation.
As such, Europe is struggling both on the delivery of its clean
energy goal and the provision of affordable power. Although the debate
surrounding the recent price hikes by large utilities in countries such
as the UK and Germany is somewhat ill-informed and politicised, there is
no doubt that consumers are feeling the pain and all indicators are
that this may get worse before it gets any better.
The lights may not have gone out yet, but experts are predicting that
within the next year or two, some European countries will see power
cuts, brownouts or rolling blackouts because of aging infrastructure no
longer being available to cover the intermittency of renewable power.
The fact is that the European power industry has so far failed to put in
place the necessary framework to support renewed investment in its
aging infrastructure. Add in the perverse situation that modern, often
relatively new gas fired power plants across Europe are being mothballed
or closed down because they don’t fit the current market model and it
becomes very clear that the industry urgently needs renewed focus.
German Microcosm
Nowhere has the scale and complexity of the challenge been more
apparent than in Germany, where the politically driven ‘Energiewende’
(Energy Transition) has placed the delicate balancing act that Europe’s
power industry must perform at the heart of business and political
discussion: on the one hand, consumers want clean and affordable energy,
politicians want reliable supply, greater interconnection and a single
market for electricity; on the other, the rise in renewables is placing
the margins of established utilities under immense pressure, whilst
replacing conventional power with intermittent sources that ultimately
are less reliable and more costly for the electricity system as a whole.
Germany’s mandated phase-out of nuclear power and boom in renewable
energy has cut dependency on major utilities to the extent that some
have seen the value of their balance sheet drop by half since 2008. This
brings with it a significant impact on the ability of these established
players to invest in the infrastructure required to support for
example, the transmission of electricity to heavy load areas in the
South of the country from the offshore wind turbines being constructed
in the North.
To address this challenge, one of Germany’s major utilities, RWE, is
looking to adopt a new ‘capital-light’ approach under which it will
partner with third parties to fund more expensive renewable projects. It
has also outlined plans to expand in the retail market, in areas such
as energy services and management. Meanwhile, Germany is also seeing the
role of its municipal utilities — which are known as ‘Stadtwerke’ —
grow in prominence as dependence on larger players declines.
Municipal utilities are majority state-owned, have more flexibility
in that they offer combined heat and power, and in some cases water and
steam, and their success is cited by those in Germany pushing for a
renationalising of the power industry — a trend known as
‘re-municipalisation’. One other model being explored by municipals in
partnership with technology providers is the creation of ‘virtual power
plants’, in which a number of small-scale, distributed energy sources
are pooled and operated as a single installation.
Interconnection and Decentralisation
Certainly, utilities across Europe will need to reconfigure their
business models in light of the role they will play moving forward.
Their core expertise lies in constructing and operating plants, but they
own assets across the value chain — i.e. power generation, transmission
grid, and renewables. It will be vital for the industry to exploit this
invaluable expertise and for the utilities to position themselves more
as enablers of the system, rather than being centralised producers of
power.
Decentralisation of the system is already apparent in Germany and
other countries such as Scandinavia and Eastern Europe where municipal
models are already established, but outside these markets, other
solutions will be needed. One potential option is greater cross-border
interconnectivity, but this too can be a mixed blessing. Poland’s
interconnection with Germany for example, has seen the influx of surplus
German wind power place its domestic power plants under extreme
pressure.
In ideal generating conditions renewables can lead to occasional
oversupply, but since their delivery is intermittent, conventional power
plants must back them up in order to guarantee supply and balance of
the grid. Fossil-fired generation and traditional plants are large
scale, operating at extremely high pressures and temperatures, and
therefore cannot simply be fired up and down on demand. Much like a car,
they cannot be taken on frequent short journeys without requiring
shorter gaps between servicing. As this type of maintenance can take
large plants off-grid, this has serious implications for both cost and
security of supply.
Up until recently, carbon capture and storage (CCS) technology was
seen as a means of continuing with large amounts of fossil-fired power
to support base load and at the same time de-carbonisation. However,
development of CCS technologies has not progressed as anticipated and
has failed to materialise on any commercial scale.
Keeping the Lights On
The recession and economic slowdown across Europe has meant the
political focus has been on financial markets, with energy pushed to the
sidelines. But as the economy recovers and the banks become stronger,
the power industry needs to ensure it doesn’t become the next crisis. At
a time when the market is in transition and flux, and with on-going
conflict between European energy policies and those of individual member
states, it is all the more important for power industry professionals
to come together to devise strategies and solutions to keep the lights
on and the industry pumping.
http://www.renewableenergyworld.com/rea/news/article/2014/03/maintaining-the-power-balance-in-europe
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