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The price of energy security in depressed electricity markets;
the case of Belgium
Prof.Dr. Johan AlbrechtFaculteit Economie & Bedrijfskunde
Second Summer School Economics of Electricity Markets 28/08/2014
Structure• The Belgian context• ‘Security of supply’ has two dimensions: follow peak
demand & avoid excessive overproduction (intermittent RES)
• ‘No Policy’ scenario; not sustainable• ‘Security of supply’ scenarios ; new assets, old
thermal assets, DSM & combinations• Surplus risk assessment• Conclusions
The Belgian Context
• Firm capacity of 15 700 MW (13 000 MW today)• Nuclear phase-out: 5 900 MW
Changing Load Factors (LF)
RES <-> Gas
Wholesale prices in CWE
Peak Load; decreasing?
Plan Wathelet
• Extension Tihange 1, 800 MW CCGT, 400 MW DSM
Reserve Margin (RM) 2012/2013
RM in ‘No Policy’ scenario
Supply scenarios for Belgium
• Policy options; incentives for flexible generation (new and old termal), DSM, CFD for RES (with/without Market Participation (MP))
• Investment and system cost of policy options? (with 8% discount rate, LCOE-approach)
• Assumptions on context; peak demand + 0,5%/yr, carbon price up to € 40 per ton CO2 in 2030, endogenous price model (more RES -> lower wholesale prices), network costs increase with RES share
LCOE assumptions
Endogenous price model
Prices in NEA for DE
Network costs as f(RES)
Security of supply; RM > 5% at all times• IF (‘No Policy’ RM < 5%) THEN model triggers CCGT,
OCGT & Biomass investments• Context: old thermal, DSM, BAU RES and High RES
New capacity; split up
Incentive schemes
• Capacity payments for CCGT (€ 900/kW), OCGT (€ 700/kW) and Biomass (€ 1050/kW)
• RES support per MWh (incl. Biomass) ; CFD = LCOE minus price
• CFD-MP includes curtailment (max 5% PV, max 14% wind)
• CFD-MP; lower LF, higher LCOE, higher CFD
Old Thermal & DSM• end of 1 300 MW OT scheduled for 2014-2024; in
reserve capacity, 5% LF @ € 95/MWh (€ 50 to 60 mill)• DSM clearing prices of € 150/MW/day (based on UBS)
Firm capacity in 2030; 18 GW / RM 9%
Peak demand of 14,7 GW in 2030Gas dominates / old thermal; end of life in 2024Biomass; 3 000 – 3 500 MW in BAU RES / 4 000 – 4 500 MW in High RES
Total capacity in 2030; 25 – 30 GW
Electricity production in 2030
CFD-MP; Biomass used in flexible way -> higher LF for CCGTShare of RES in 2030: from 28% in BAU RES CFD-MP to 60% in High RES CFD
Generation portfolio LF
WP Bureau Fédéral du Plan, 2013
Annual subsidy cost: cap pay + CFD• All results: additional to subsidy cost of 2014• One-off capacity payments in year of investment
Cumulative cost up to 2030; € 21 and € 41 bill-> MP of RES matters!
Optimal frameworks and RES share?
• Trade-off between RES share and costs is not linear
LCOE generation mix, 2012-2030
Total annual system costs (gen+netw)
Total costs and RES share
Cumulative System Costs 2014-2030
Cumulative System Costs & RES-share (2030)
Cumulative Subsidy Costs & Cumulative System Costs (2014-2030)
Surplus risks?• Only with ‘New Capacity’ scenarios• Random PV & wind generation in Matlab (10 000
patterns), based on Elia • ‘Must-run’; biomass (MP), CHP & nuclear• Compared to demand variation in 15 min intervals• Demand (15 min) <-> (RES + Must Run)• Export capacity of 3 500 MW; surplus of 3 000 is
problematic• DSM (to increase demand); here not included
Illustration of PV+wind output for 29 days
2014 Surplus Risk
2017 Surplus Risk
2023 Surplus Risk
2027 Surplus Risk
Overview Surplus Analysis
Nuclear prolongation; 3 GW NUC in 2030
Conclusions 1
Conclusions 2• To secure 5% RM, cumulative subsidy costs up to 2030
vary between € 21 and € 41 billion• Smart policy choices will lower costs for society, even at
relatively high RES shares• Market participation by RES is essential to facilitate
further expansion of RES• DSM lowers costs / Old thermal; limited relevance• limitations of this analysis; capacity payments as
institutional challenge (end of EOM?), recovery of demand, delocalisation energy-intensive industries, evolution of interconnection, arrival of smart grid, share of electric vehicles by 2030, EC climate policies,…
Thank you for your attention
• [email protected]• Second Summer School ‘Economics of Electricity
Markets’ @ Ghent University, August 25-29, 2014• http://
www.ceem.ugent.be/SummerSchools/2014/index.htm
