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Towards understanding the energy policy Towards understanding the energy policy Towards understanding the energy policy Towards understanding the energy policy preferences of the EU11preferences of the EU11preferences of the EU11preferences of the EU11
Péter KaderjákDirector
„Energy market developments in the Centre and East „Energy market developments in the Centre and East „Energy market developments in the Centre and East „Energy market developments in the Centre and East of Europe” by Bruegelof Europe” by Bruegelof Europe” by Bruegelof Europe” by Bruegel
January 15, 2013, Brussels
IssuesIssuesIssuesIssues
1. Electricity market coupling – something to build upon 2. Regulated prices and elections3. Division on 2050 GHG reduction objectives and
policiespolicies4. RES-E: 2020 targets but no beyond? 5. A V4+ gas target model?
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1. Czech 1. Czech 1. Czech 1. Czech –––– Slovak Slovak Slovak Slovak –––– Hungarian electricity Hungarian electricity Hungarian electricity Hungarian electricity market coupling: something to build market coupling: something to build market coupling: something to build market coupling: something to build upupupupon…on…on…on…
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First result: re-integration of regional
wholesale electricity prices
September 11, 2012EPEX compatibilityPoland and Romania already expressed interest to join
… but where have ivestment … but where have ivestment … but where have ivestment … but where have ivestment incentives gone?incentives gone?incentives gone?incentives gone?
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German negative prices arrived by year-end of 2012
2. Regulated prices and elections2. Regulated prices and elections2. Regulated prices and elections2. Regulated prices and electionsElectricity
BulgariaMarket domination by NEK should be eliminated in favour of a market-based approach where generators and suppliers are free to choose their contracting partiesNeeds to gradually phase out regulated prices
Czech RepublicLoop flowsThe possibilities of market coupling with more neighbouring states should be further explored
HungaryAbolish regulated energy prices in all consumer segmentsAbolish extra taxes on the energy sector
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Hungary Abolish extra taxes on the energy sectorRegional electricity market integration through market coupling should continue to be a priority
PolandCompetition at retail level should be stimulatedContinue engaging with its neighbours
Fully transpose the Third Energy Package Directives without further delayRomania Phase out regulated end-user prices
Set up a functioning intra-day market
SlovakiaFoster the opening of electricity market and in particular step up its efforts to end the regulation of end-user prices
Cooperate with neighbouring countries to solve the problem of loop flows and enhance electricity cross border capacity
EC Internal market report, 2012
3. Different decarbonisation policy 3. Different decarbonisation policy 3. Different decarbonisation policy 3. Different decarbonisation policy preferences within the EUpreferences within the EUpreferences within the EUpreferences within the EU
• RES promotion
• Energy Efficiency
• Nuclear energy
EU15 preferences
EU10 preferences
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• Nuclear energy
• Carbon Capture and Storage
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EU10 preferences
- ???
EU divided on aggressive (80-90%) decarbonisation
objectives and the related green growth vision
The Region’s dilemmas with regard to The Region’s dilemmas with regard to The Region’s dilemmas with regard to The Region’s dilemmas with regard to further decarbonisation further decarbonisation further decarbonisation further decarbonisation • Competitiveness:
‣ Carbon leakage or green growth?‣ Lost political willingness to raise prices‣ Threat to competitive market model
• Supply security: utilization of indigenous solid fuel resources• CAPEX: nuke, RES-E and grid upgrade requires massive • CAPEX: nuke, RES-E and grid upgrade requires massive
CAPEX in times of economic recession • Technology import: limited added value to local growth?• Fiscal austerity: very limited scope for additional subsidies• Grid integration conflict: loop flows• Regional attitude: Regional attitude: Regional attitude: Regional attitude:
‣ keeping the 2020 RES targets but no move beyondkeeping the 2020 RES targets but no move beyondkeeping the 2020 RES targets but no move beyondkeeping the 2020 RES targets but no move beyond‣ Keeping nuke and coal options openKeeping nuke and coal options openKeeping nuke and coal options openKeeping nuke and coal options open
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4. RES4. RES4. RES4. RES----E: 2020 targets but no beyond?E: 2020 targets but no beyond?E: 2020 targets but no beyond?E: 2020 targets but no beyond?
• Investment bubbles and related end customer price pressures (Czech Republic, Bulgaria, Romania)
• Consequent regulatory interventions: extra taxes (Czech), new RES-E network access fee (Bulgaria)
• Green certificate schemes might provide more certainty against bubbles (Poland, Romania)
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5. 5. 5. 5. Lack of interconnectivity conserves Lack of interconnectivity conserves Lack of interconnectivity conserves Lack of interconnectivity conserves high gas prices in high gas prices in high gas prices in high gas prices in EU11EU11EU11EU11
9999Source: QREGaM, Volume 5, Issue 1 : January 2012 – March 2012; p.8.
More integrated gas market: no.1 regional More integrated gas market: no.1 regional More integrated gas market: no.1 regional More integrated gas market: no.1 regional energy policy priority for the energy policy priority for the energy policy priority for the energy policy priority for the V4+ V4+ V4+ V4+ regionregionregionregion
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North-South gas corridor: concept and Action Plan (December 2011)
The vision of an integrated V4+ gas market
EU11 macroeconomic environmentEU11 macroeconomic environmentEU11 macroeconomic environmentEU11 macroeconomic environment
• EU11 economic development below EU15‣ 21% of EU28 population but only 6.8% of EU28 GDP‣ GDP per capita k EUR 9.0 is 32% of the EU15 average (in PPP 55%)
• EU11 GDP growth dynamics is higher‣ GDP growth CAGR (1995-2011): EU11 – 3.4% ; EU15 – 1.9%‣ Forecasts assume continued convergence‣ Forecasts assume continued convergence
• EU11 GDP structure is more energy intensive‣ EU15 has higher share of services: 75% vs EU11 having higher share of
industry• EU11 gross capital formation per capita is threefold lower
compared to EU15‣ But the share of the energy sector in capital formation is significantly
higher in EU 11 (6-10% vs 2-3%)
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EU11 energy industry specificsEU11 energy industry specificsEU11 energy industry specificsEU11 energy industry specifics
• EU11 GDP per capita to approach 90% of EU15 by 2035• Associated energy demand in EU11 is to increase 10-
17% till 2030• Electricity demand increase is much faster (GDP)
‣ PRIMES forecasts additional 41.7 GW of new power generation capacity need by 2030need by 2030
‣ CAPEX need estimated at bn EUR 153 (except for the cost of decommissioning)
• Import dependence in gas and oil is comparable to EU15 but abundant solid fuel resources‣ 55.6% in primary energy production compared to 10.5% in EU15‣ 55.3% in electricity production fuel mix compared to 20.9% in EU15
• Dominant gas and oil import dependence on Russia
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EU11: common energy sector EU11: common energy sector EU11: common energy sector EU11: common energy sector challenges challenges challenges challenges –––– power generationpower generationpower generationpower generation• Significant investment need (new and replacement)
‣ 62% of generation capacity over 30 years old (EU27: 38%)• Constraints on investment
‣ Decarbonisation objectives and RES-E targets‣ Financial market volatility: OECD returns combined with
emerging market risksemerging market risks‣ Supply security requires the utilization of indogenous resources
(including coal and lignite)
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• For baseload generation clean coal /CCS and nuclear should be kept open
• RES-E should be developed as far as it is realistic – not sufficient to meet baseload
• Gas fired units might complement intermittent RES-E development but questionable for baseload
EU11: common energy sector EU11: common energy sector EU11: common energy sector EU11: common energy sector challenges challenges challenges challenges –––– power generationpower generationpower generationpower generation
development but questionable for baseload• The role of gas might depend on the availability of
CAPEX for nuclear, coal and RES-E• Future shale gas development might also change the
role gas plays in power generation• Investment will put a pressure on – already high – prices
and affect economic competitiveness of EU1115151515
Electricity sector decarbonisation Electricity sector decarbonisation Electricity sector decarbonisation Electricity sector decarbonisation scenarios up to 2050scenarios up to 2050scenarios up to 2050scenarios up to 2050
Scenario Target up to 2050
Reference 20% RES, 2000 MW nuclear, new lignite (500 MW) + Gas
Diversification 30% RES, 2000 MW nuclear, new lignite (500 MW) + Gas
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Nuclear 40% RES, 3200 MW nuclear + Gas
Renewable 50% RES + Gas
16161616Source: KMPL-REKK analysis
Two important assumptions: 1) only known technology 2) closed
electricity sector (no foreign trade in electricity)
Capacity mix up to 2050 (without CCS) Capacity mix up to 2050 (without CCS) Capacity mix up to 2050 (without CCS) Capacity mix up to 2050 (without CCS)
3.1
4.1
3.7
6.19.3
15.4
15
20
25
30
GW
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RES can not replace baseload
Only moderate increase in conventional generation is required
Importance of gas based generation is increasingSource: KMPL-REKK analysis
2.0 2.04.0
2.0 2.0 2.0 2.04.0
2.0 2.0 2.0 2.03.6 3.2 3.2
2.0 2.0 2.0
1.6 0.8
0.5
0.5 0.5 1.6 0.8
0.5
0.5 0.5 1.6 0.8 1.6 0.8
2.3 2.9
2.7 5.87.3
2.3 2.9
2.7 5.6 6.52.3 2.9
3.5 3.85.0
2.3 2.9 4.77.4 8.3
2.41.2
0.61.0
1.0
2.41.2
0.61.0
1.0
2.41.2
0.8 1.31.2
2.41.2
0.60.8
1.40.71.1
2.2
3.1
0.71.1
2.3
3.7
0.71.1
2.54.5
0.71.1
2.7
5.2
0
5
10
2010 2020 2030 2040 2050 2010 2020 2030 2040 2050 2010 2020 2030 2040 2050 2010 2020 2030 2040 2050
Reference Diversified Nuclear Renewable
Nuclear Coal Coal CCS CCGT CCGT CCS OCGT RES
CO2 emission in the different scenarios CO2 emission in the different scenarios CO2 emission in the different scenarios CO2 emission in the different scenarios (without CCS) (without CCS) (without CCS) (without CCS)
10.0
12.0
14.0
16.0
18.0
20.0m
illi
on
tC
O2
/ye
ar
Reference
Diversified
Nuclear
1818181818181818
Only the nuclear scenario results in significant (but <60%) CO2 emission reduction
RES penetration can not compensate for loss of nuclear
Source: KMPL-REKK analysis
0.0
2.0
4.0
6.0
8.0
2010 2015 2020 2025 2030 2035 2040 2045 2050
mil
lio
n t
CO
2/y
ea
r
Nuclear
Renewable
Main messagesMain messagesMain messagesMain messages
• Change in fuel mix is insufficient to meet aggressive CO2 reduction targets
• CCS is unavoidable but…
• (beyond finances) estimated CO2 storage capacity is a strict constrain on decarbonisation in Hungary
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is a strict constrain on decarbonisation in Hungary
‣ depleted hydrocarbon fields might store 150 million t
(present emission of electricity generation is 14 m
t/year)
• Assumption of „only known technology” is strong but necessary
