Balance of power
A new report sets the scene for Europe's attempts to meet increasing demand for energy while also reducing carbon emissions.
Energy issues are continually at the top of political, industrial, financial and company agendas.
Capgemini is a worldwide consulting, technology and outsourcing company. In their 9th European Energy Markets Observatory, they paint a picture of a region that is struggling to get to grips with the economic realities of a reduced carbon future.
The basic facts are there for all to see. The worldwide demand for oil was sustained in the last 12 months, boosted by Asian economies that are using more fuel to power their manufacturing industry.
It seems that, behind the numbers, the energy habits of the planet were moving in two directions. In developed countries, and in particular in the European Union (EU), obligations to conserve energy and use renewable sources - both to reduce carbon dioxide emissions and maintain energy security - are expected to ease pressure on oil supplies.
But that trend is being more than offset by rapidly developing nations. While they still consume far less energy per capita, they are also manufacturing goods for rich countries and increasingly adopting Western lifestyles that require heavy energy consumption. As a consequence, the developing world and emerging industrialised economies will see their share of world oil consumption rise from 42 per cent to 46 per cent by 2012.
Due to Europe's mild winter of 2006/2007, gas prices decreased, and natural gas inventory levels were at an all-time-high, significantly above the five-year average.
In Europe, average gas prices have stabilised since April 2006 at around €20/MWh. However, these moderate prices are hiding real strategic issues.
While the EU is challenged by issues related to gas supply, Russia is fighting the challenges related to access to the market. This clash of agendas is threatening Europe's security of supply.
Europe is highly dependent on imported gas. In 2006 imports were 54 per cent, with Russia providing, through Gazprom 1, around 25 per cent of the total needs. According to the EU Green book, 50 per cent of Europe's total supply will come from Russia by the year 2030.
The report concludes that the EU Climate Change 2020 objectives are a good road map but very challenging to meet. The general awareness about the looming climate change threat increased following the assertive results by the Intergovernmental Panel on Climate Change (IPCC) on climate change.
In March 2007, EU Ministers asked Member States to commit to a 20 per cent reduction in energy consumption and green house gas (GHG) emissions, as well as to reach a portion of 20 per cent of renewable energies in their energy production.
The deadline for this "three times 20 per cent objective" is 2020. It is a short time-frame for building large, carbon-free plants, for the industrialisation, at reasonable cost, of CO2 sequestration equipment, for the renovation of a significant portion of the existing buildings and houses, and to switch the present car fleet to electrical cars.
While the situation differs between European countries, the EU's overall objective seems very ambitious.
Electricity security of supply in Europe has improved, but the planned constructions will deteriorate Europe's CO2 emissions situation. In the 8th European Energy Markets Observatory, Capgemini warned that the security of supply of electricity was threatened and that €700bn needed to be invested in new power plants over the next 25 years.
The report's author, Colette Lewiner, is global leader of Energy, Utilities and Chemicals practice at Capgemini. She spoke to Engineering and Technology earlier this year.
E&T: In the report, 'investment' is a key phrase. How do you feel that European utilities have fared on the investment front?
CL: We said two years ago that generating companies should invest. Last year they were not investing enough, this year they are continuing to invest, but still not enough.
They are not investing at the pace you would like them to so that they will meet all the investments that are needed by 2030.
There are a lot of projects that are under construction or that have requested a construction permit: it varies from one country to another.
However, if you look at the types of projects, you find that 81 per cent are fossil fired plants. So this means more gas and coal, which are worse for CO2 emissions.
E&T: The uncertainty about how we are going to meet this 20 per cent obligation for renewables, and the long term political climate for nuclear energy seem to be the two things that are stopping major investments in some countries.
CL: Yes, that is right. So, they are currently investing in what is easiest and on a short term prospectus. They do not have a clear framework for the long term. They have the 20 per cent reduction of CO2 emission by 2020 obligation, which the EU has set, but this is not yet agreed country by country and is an overall objective at European level. Each country does not yet have its own objective.
Countries do, however, have one long term environment obligation - the Energy Training Permit Scheme (ETPS). It has been renewed for the second period of 2012, but this is a short timescale for building a plant.
E&T: Should long term objectives be a political, EU, or an individual country decision? Or should they be driven by the generators themselves?
CL: No, they need a framework. The framework could be European or by individual country, but they need a framework that gives an indication of how they should calculate their internal investments.
In the past, doing forecasts for electricity consumption was not very difficult.You did a forecast for the whole of France and you deduct a bit of generation that did not belong to EPS and that was it. Today, there is an uncertainty because of regulations that allow clients to change suppliers easily.
Secondly, they have prices that are policy prices, but of course this is only for a small portion of exchanges. They have limitations on weekday prices, sometimes tariffs. Then you tell them you have to take into account a new environment of climate change, which is still a little bit unclear. So they take a short-term decision.
One exception is Germany, where they have a lot of coal and they are investing in it.
One finding is a contradiction between security of supply on the one hand, and the climate change objective on the other.
E&T: On the security of supply issue concerning electricity, you talk about meeting increased demand, replacing ageing plants, peak load and carbon-free generation. But are they all equally important?
CL: Meeting increased demands is important, but you can also push your customers to demand and consume less. This really has to happen now, not only for electricity but for all energy. Utilities have to not only be energy providers but also energy advisors.
E&T: There is a big drive to convince consumers to reduce their use but, despite efforts, it so far doesn't seem to be happening.
CL: In the UK, as in France, documents (called White Certificates) certifying that a certain level of energy reduction has been attained are being awarded. It may seem like a simple step, and it is easy to criticise it because it is complex, but it is delivering some results.
These are good ideas, but they need to be simplified, and also made more stringent, compelling utilities to acquire even more White Certificates.
E&T: What impact have smart meters had on controlling the demand by educating consumers in the costs associated with their appliances?
CL: Using smart meters to show the peak is important. The meters are valued investments for peak generation, but also for a better relationship with the client, and better grid management.
If smart meters are the devices, then, as a possibility for the future, customers can become small generators as energy continues to develop.
Customers can help implement energy savings, including CO2 savings, and keep pushing towards the climate change objective.
E&T: So that is the security side of European energy, what about responding to demand?
CL: Last year in Europe, we did not see a peak yield because the winter was mild and so we had no exceptional climate demands.
In the two previous reports we saw exceptional climate demands and certain days were not far from blackouts in Europe.
The report looks at the real capacity margins, the real reserves on peak days. It shows countries that are below and countries that are above threshold, and countries that have improved since last year and countries that have deteriorated.
One country that was in the red zone was Belgium. The report was highly publicised in Belgium because not only was it below the threshold of 5 per cent, but the situation there has deteriorated because they have not built anything and they are not trying to master the consumption. Peak yield in Belgium is a big issue.
French operator RTE had concerns approaching January. If it had been a severely cold month, then France could have faced big problems. This is proof that there is a need to build generation for peak load.
E&T: What did the report say about carbon free generation?
CL: Nuclear is certainly the most viable option. That's not to suggest that renewables are not viable, but if you want to produce big quantities of electricity that is reliable - because when there is no wind, wind energy would be useless - nuclear seems the obvious solution.
This is even more attractive with ever rising carbon prices.
Nuclear is an economic, reliable, technically proven solution, although the high level waste is an issue.
In France, there is no problem with public opinion, but there are very complex administrative procedures to overcome. They joke in France that when the huge boiler arrives for a newly built nuclear reactor, it is already half full with administrative people! This has been getting progressively worse, with the time to build a plant increasing even though the technology has improved.
The Americans have put the two procedures together and now approve the design of the plant and the siting of the plant in one go. If you have approved a design it is only question of siting, and you don't want to have to go through the whole approval again. It is thought that the UK is considering a similar procedure for the future.
E&T: Could you explain the difference between theoretical margin and real margin?
CL: The theoretical margin is, simply put, the difference between the total generation capacity and the peak load as a percentage.
The real capacity margin is what has been observed during a peak day where not all capacity is available. This may be due to maintenance or a high voltage line being down meaning you are unable to take electricity from that facility.
But those calculations don't take into account the potential importations. This is why you can see negative figures, but of course on those days the countries are importing.
The problem with importing, of course, is that you can end up with a bottleneck on the line, particularly if you can have very cold weather all over Europe and every country needs its capacity.
E&T: On to gas, there does not seem to be much that we can do about our reliance on Russia for gas other than to reduce our reliance on gas.
CL: This would involve reducing gas consumption by individual domestic users.
The second option is to increase the storage. If you have storage, then you have a backup should anything catastrophic happen. We saw when the Ukraine was cut by Gazprom in January 2006, Ukraine tapped gas to the others and those who had no gas storage were in a bad situation.
A third option is to develop LPG, as this comes from different types of countries.
It's still a small proportion of the UK's supply at only seven per cent, but it has grown from the six per cent it was last year.
It requires a lot of investment from both the supplier countries and the receiving countries. But it is a way to diversify.
These seem to be the main ways of lessening our vulnerability to Russian gas. One other, more obvious, solution is to increase exchanges to ensure you have more solidarity between the countries.
E&T: What does the report say about renewable energy?
CL: The percentage is increasing slowly. The EU said all countries should be using 20 per cent renewables by 2020.
I think at present the EU is at seven per cent altogether, with big differences between countries because of hydro power in renewables. If you take a country like Sweden, for example, it has a high percentage of renewables.
The renewable energy that is developing fastest is wind. In Sweden and Germany they have invested most in wind, but Denmark still has the biggest proportion.
There are, however, a couple of problems with wind energy. Firstly, it is not competitive today; it is subsidised by the taxpayers and through tariffs; you have to purchase renewables at a certain price.
The second problem is that you can not count on wind, because when there is no wind there is, simply, no wind. This means you need a reserve energy.
If wind power is a small proportion of the total generation then you can use your existing reserve; all utilities of course have generation reserve. But if this is not the case and your proportion becomes bigger, then you need to have a reserve energy built for that and it is usually fossil fuel.