Wolfgang Pospischil - Environment energy conference Serbia


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Prezentacija Volfganga Pospisčila, generalnog direktora Poyry Managament Consulting Austria GmbH, sa Prvom međunarodnog simpozijuma "Životna sredina i energetika - Šta čeka Srbiju" koji je održan u organizaciji NALED-a, Srpskog udruženja za energiju vetra (SEWEA) I Evropskog udruženja za energiju vetra (EWEA) - 2. mart 2012. godine.

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Wolfgang Pospischil - Environment energy conference Serbia

  1. 1. "ENVIRONMENT AND ENERGY: WHAT LIES AHEAD FOR SERBIA” SERBIAN WIND ENERGY ASSOCIATION (SEWEA) CONFERENCE  Impact of EU Environmental Regulation on the Serbian Power Market  2 March 2012, Belgrade
  2. 2. PÖYRY – A WIDE RANGE OF DEEP EXPERTISE URBAN & MOBILITY  Sustainable land use WATER & ENVIRONMENT Urban planning  Flood management  Water supply and sanitation  Urban ecology Real estate development  Water resources management Transport planning  Geosciences Rail infrastructure  Environmental services Road infrastructure  Environmental consulting Construction management Building design  Eco-industrial zones  Desalination  Intelligent transport  Water efficiency in energy  Green buildings production  Recycling  Tidal power  Solar hydrogen INDUSTRY ENERGY Pulp and paper  Hydropower Chemicals  Renewable energy Biorefining  Thermal power Metals & mining  Biofuels  Oil and gas  Energy efficiency  Nuclear energy  Waste-to-Energy  Transmission & distribution  Biochemicals 2
  3. 3. A LOCAL OFFICE NETWORK IN ABOUT 50 COUNTRIESABOUT 7000 SPECIALISTS, OF WHICH 500 MGM CONSULTANTS Eastern European presence Finland* Albania Norway* Sweden* Bulgaria Czech Republic* Estonia Hungary Austria* France* St. Petersburg Lithuania Germany* Moscow Poland* Hungary Romania Vancouver Montreal Italy* Slovakia Oakville Poland* Turkey Portland Appleton Spain New York Switzerland* Ankara Beijing Jinan Seoul Atlanta United Kingdom* Tunis Tehran Shanghai Riyadh Dubai New Delhi Calcutta Taipei Mexico City Abu Dhabi Muscat Mumbai Hanoi Manila Bangkok Pasig Caracas City Panama City Bogota Kuala Lumpur Singapore Lima Jakarta Lusaka Poços de Caldas São Paulo Curitiba Auckland Buenos Aires Melbourne * several offices across country (c) grafikdienst.com 3
  4. 4. OVERVIEW PÖYRY MANAGEMENT CONSULTINGPöyry combines strategy consulting with fundamental market insights andtechnological competence on a global scaleLeading strategy and  Exclusively focussed on the international energy markets,management Produc- Whole Grid Retail expertise along the entire value chain tion saleconsultancy for the  We support our clients with strategic, conceptional andinternational energy Strategy, M&A, transformations, … organisational advicemarkets  Appr. 250 consultants with energy background  Close collaboration with the engineering business areas of the Urban & Water &Access to the Mobility Environmenttechnology Management Pöyry Groupcompetence within the  Access to technological competence of approximately 6,500 ConsultingPöyry group Industry Energy engineering consultantsProfound and  Wide spread reputation of Pöyry‘s fundamental market modelsfundamental market within the utility sector and amongst banks investing in andinsights based on lending to the sectorproprietary market  Profound understanding of the commodity markets (to 2035)models  Publishing the renowned ILEX Market ReportsCovering the global  Extensive consulting expertise in all relevant energy marketsmarkets with a wide  Offices in about 50 countriesspread of local offices  Approx. 17,000 projects each year in over 100 countries 4
  5. 5. PÖYRY MANAGEMENT CONSULTINGEurope’s leading specialist energy management consultancy  Offering expert advice from strategy to implementation on policy, regulation, business operations, financing and valuation and sustainability  Providing in-depth market intelligence across Europe  Over 250 energy market experts in 14 offices across Europe: – Düsseldorf – Oxford – Helsinki – Stockholm – London – Stavanger – Madrid – Paris – Milan – Vienna – Moscow – Villach Pöyry offices – Oslo – Zurich (c) grafikdienst.com Pöyry Management Consulting offices 5
  6. 6. EU ENVIRONMENTAL REGULATION SUMMARYEver stricter EU regulation is being enforced in order to comply withemission reduction targets outlined in the Kyoto Protocol Large Combustion Plant Directive (LCPD): • Limits NOx, SO2 and fine dust particle emissions (stricter regulation effective starting 2016) • Applies to plants with rated thermal input above 50 MW (mainly coal and oil fired plants) • Resulted in reduction of coal fired plants across EU (substituted with other types of plant) Industrial Emissions Directive (IED): • Permits must be obtained to show compliance with operators basic obligations and environmental quality standards (pollution reduction, energy efficiency maximisation, correct waste disposal, etc.) • Applies to all industries with major pollution potential (energy industries, production and processing of metals, mineral industry, chemical industry, waste management, rearing of animals, etc.) EU Emissions Trading Scheme (ETS): • Cap and trade total EU emissions to facilitate their reduction in accordance with Kyoto Protocol • Phase III will see allowances reduced on a linear basis from 2013 – 2020 to meet 2020 EU targets • The power sector in most new member states may originally receive allowances for free, but the number of free allowances will be reduced to zero by 2020 2020 EU renewable targets: • 20% reduction of greenhouse gas emissions (compared with 1990 levels) • 20% of total energy consumed to come from renewable sources • 20% increase in energy efficiency 6
  7. 7. EUROPEAN UNION Environmental regulation will potentially incentivise more renewables to be added to the Power generation capacity mix by 2035 GW1.400 152 1‘2301.200 30 10% Solar PV 373 -1 -55 2% Geothermal, CSP, Marine1.000 889 -154 127 -53 25% Wind 32 -150 13 43 -10 -58 50 -22 61 -42 800 3% Biomass 14% Hydro 600 10% Nuclear 400 24% Gas 200 2% Oil 9% Coal 0 Capacity retirements Capacity additions Source: Pöyry, IEA2011 7
  8. 8. PÖYRY’S ENERGY MARKET MODELS Pöyry offers fundamental modelling capabilities based on a proprietary platform of fundamental market models Pöyry‘s energy market models Description of market models  EurECa is used for projecting physical (generator output, fuel use, country flows) and economic behaviour (prices) $ Cronos Olympus $  Eureno analyses the impacts of the EU’s Oil model Coal model 2020 renewables targets on the 27 (€) Member States € € Pegasus Carbon Eureno  Cronos generates the future Gas model model Renewables development of oil prices based on fundamentals of supply/demand Gas Gas CO2 CO2  Pegasus looks at the development of the prices demand prices emissions European gas market and generates future gas prices under consideration of the USA and Asia EurECa  Olympus generates the future € development of hard coal prices based Electricity model on fundamentals of supply and demand  The carbon model captures the EU-ETS and computes carbon allowance pricesA unified approach of the different energy sectors allows based on abatement cost curves andPöyry to create internally consistent scenarios, where trading regimesgas, carbon and electricity reach a stable equilibrium 8
  9. 9. Modelling principles: recovery of fixed costsThe formation of our wholesale electricity price projections takes accountof the need to recover both variable and fixed cost components Fuel and  One way or another, the market will carbon costs recognise a value for both generating VOWC capacity and electrical energy  These values will be based on the MOP underlying economics of the generating Start-up and no load costs system at the time  For the value of energy, this will entail the SMP broad economic dispatch of the plants on Fixed + capital the system cost recovery  Efficient wholesale markets will deliver an Wholesale effective merit order priceMOP – Merit Order PriceSMP – System Marginal PriceVOWC – Variable Other Works Costs 9
  10. 10. IMPACTS ON SERBIA (1)Status quo sees the country having environment regulation less stringent thanEU legislation, however, the country is on a harmonisation path with the EU Current environmental legislation in Serbia is less stringent than EU legislation, but there are a significant number of directives influencing both the operation of power plants within the industry and their effect on the environment, such as: • Directive on reduction of the SO2 content of liquid fuels • Directive on the limitation of emissions of certain pollutants into the air from large combustion plants • Directive on the conservation of wild birds However, as part of the Energy Community, Serbia is expected to harmonise its legislation with that of the EU • The Athens treaty entered into force on 1 July 2006, its purpose being the harmonisation of the energy markets of the energy community with those of the EU • The Athens treaty aims to, amongst other things, improve the environmental situation in relation to Network Energy and related energy efficiency, foster the use of renewable energy, and set out the conditions for energy trade in the single regulatory space 10
  11. 11. IMPACTS ON SERBIA (2) – HIGH FOSSIL FUEL GENERATIONGeneration Profile to 2035 (a potentially feasible conservative scenario)Gas-fired electricity generation might replace some of the retiring lignite-fired power production units,however, the latter‘s contribution to the generation mix could remain strong, despite more renewablesbeing added to the power system 11
  12. 12. IMPACTS ON SERBIA (3) – STRONG RENEWABLES CONTRIBUTIONGeneration Profile to 2035 (a potentially feasible scenario)Gas-fired electricity generation might replace a larger part of further retiring lignite-fired powerproduction units, with the former‘s contribution to the generation mix relatively high, while strongerrenewable generation growth is seen in the power system 12
  13. 13. SUPPLY CURVESThe Serbian power system will see an evolving merit order of power plants by 2030 Winter business day - 2015 Winter business day - 2030 200 Hydro 200 Hydro Renewables Renewables 175 175 CHP CHP Embedded Embedded 150 150 Nuclear Nuclear €/MWh (real 2010 money) €/MWh (real 2010 money) 125 Lignite 125 Lignite €/MWh €/MWh Coal Coal 100 100 CCGT CCGT Steam gas Steam gas 75 75 OCGT OCGT 50 Oil 50 Oil 25 Max Net demand 25 Max Net demand Max National demand Max National demand 0 0 0 1 2 3 4 5 6 7 8 9 10 0 1 2 3 4 5 6 7 8 9 10 11 12 Capacity (GW) Capacity (GW) Summer business day - 2015 Summer business day - 2030 200 200 Hydro Hydro Renewables Renewables 175 175 CHP CHP Embedded Embedded 150 150 Nuclear Nuclear €/MWh (real 2010 money)€/MWh (real 2010 money) 125 Lignite 125 Lignite €/MWh €/MWh Coal Coal 100 100 CCGT CCGT Steam gas Steam gas 75 75 OCGT OCGT Oil 50 Oil 50 25 25 Max Net demand Max Net demand Max National demand Max National demand 0 0 0 1 2 3 4 5 6 7 8 9 10 0 1 2 3 4 5 6 7 8 9 10 11 12 Capacity (GW) Capacity (GW) 13
  14. 14. CARBON PRICE AND CARBON PASS-THROUGH The carbon price (and potential carbon pass-through) will have to be factored into the wholesale electricity price in Serbia once the country joins the EU Wholesale Electricity Price, €/MWh 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 Electricity Price without carbon Electricity Price with carbon (strong renewables contribution) Electricity Price with carbon (high fossil fuel generation)NB: Assumed hypothetical small nominal increases in electricity and carbon prices, Serbian EU-accession later this decade and a gradual carbonpass-through rising to 100% over a 10-year period – exemplifying the influence of factoring the carbon price into the wholesale electricity price. 14
  15. 15. PÖYRY MANAGEMENT CONSULTING INVESTIGATES THE EFFECTS INMORE DETAILZephyr integrates historical weather patterns with hydro and thermal generationinto a market model to provide detailed long term market projections Countries Demand Intermittent New build of Prices module module generation Value of Availability Capacity module Load factors moduleExternal border module BID (Hydro module) Zephyr Interconnection Commodity prices Plant data Plant revenue • 8760 hours per year • 7 historical years Zonal data • Plant dynamics • Zonal analysis • Hydro modelling ConstraintsReserve data CEE / SEE countries (and other markets) as relevant and applicable 15
  16. 16. CURRENTLY, THE SYSTEM REQUIRES LESS FLEXIBILITY AND HAS LOWER PRICE VOLATILITYExample for GB for January 2010 (based on weather of Jan 2000) 50 Intermittent generation Generation (GW) 40 30 20 10 Wind 0 70 Nuclear Biomass Coal CHP CCGT Other renewables Demand Peaking plants Imports 60 Generation (GW) 50 CCGT 40 30 20 Coal 10 0 Nuclear 70 01-Jan 04-JanBiomass Coal CHP CCGT16-Jan renewables Demand Peaking plants 31-Jan Nuclear 07-Jan 10-Jan 13-Jan Other 19-Jan 22-Jan 25-Jan 28-Jan Imports 500 Electricity price (£/MWh) 60 Electricity Price Generation (GW) 400 50 40 300 30 200 20 100 10 0 01-Jan 04-Jan 07-Jan 10-Jan 13-Jan 16-Jan 19-Jan 22-Jan 25-Jan 28-Jan 31-Jan 16
  17. 17. BY 2030, THE ENTIRE SYSTEM WILL HAVE TO RESPOND TO WEATHER PATTERNSIn GB, prices may become much more volatile, with prices below zero due to windsubsidies, and high spikes driven by the need to recover investment Wind 50 Intermittent generation generation is very variable, Generation (GW) 40 leading to 30 periods of very high 20 generation, 10 and periods of very low 0 generation 70 Nuclear Biomass CCSCoal Coal CHP CCGT Other renewables Demand Peaking plants Imports Thermal plant 60 Generation (GW) will have to 50 operate in a 40 different 30 manner, with 20 lower load factors and 10 higher risk 0 70 01-Jan 04-JanBiomass Coal CHP CCGT16-Jan renewables Demand Peaking plants31-Jan Nuclear 07-Jan 10-Jan 13-Jan Other 19-Jan 22-Jan 25-Jan 28-Jan Imports Prices may 500 Electricity price (£/MWh) 60 ElectricityPrice become highly Generation (GW) Prices spike at £7700/MWh 400 50 SCHEMATIC EXAMPLE volatile, and 300 40 FOR DISPLAY ONLY driven 200 30 increasingly by wind 100 20 generation 0 10 0 -100 01-Jan 04-Jan 07-Jan 10-Jan 13-Jan 16-Jan 19-Jan 22-Jan 25-Jan 28-Jan 31-Jan 17
  18. 18. RENEWABLES TRENDS IN CEE/SEE MARKETSIntermittency impact will increase dramatically in all CEE/SEE countries inthe coming years as more renewables generation capacities are added  RES and climate change targets, driven by EU and national RES and climate policy, change the future dynamics in the energy markets change targets  renewable energy sector still presents many opportunities in CEE and SEE Need to understand  Replacement of aging/inefficient generation assets in CEE and, particularly, SEE intermittencySupply will evolve  Both “green” and “grey” power plants to be added to the power system, but this process has to be planned well in advance trends and  Growing economies in many CEE / SEE countries will see a their impact sustained growth in energy demand Demand growth on the  Growing power demand has to be met within the wider policy framework, including RES CEE/SEE  Growth in RES will present new opportunities but also risks for marketsOpportunities and market players in CEE/SEErisks in CEE / SEE  Different market features from the supply-demand balance to the market design will have to adapt 18
  19. 19. CEE / SEE INTERMITTENCY STUDY SUMMARYThe study should be undertaken in 2012 – with a kick-off in early April 2012 – giventhe urgency created by nuclear retirals, LCPD impact and lead time for new build The impact of renewables has turned out to be much more complicated than a simple “Can the market deal with this?” Investors will face major challenges in developing appropriate investment strategies in a market where the uncertainties are so great Equally, the challenge for policy makers and regulators is to create suitable market designs without relying on ‘golden bullets’ The study will draw on a deep understanding of the economic character of individual markets, and will take realistic views on the outlook for current and future investments and developments The study will look at a range of important issues, which could be developed and modelled through different scenarios that consider the impact of reaching renewables targets, the effects of increasing interconnection, capacity auctions, lower renewables, etc. 19
  20. 20. Pöyry Management Consulting 20 20
  21. 21. Dr. Wolfgang PospischilManaging DirectorPöyry Management Consulting Austria GmbHMail: wolfgang.pospischil@poyry.comPhone: +43 664 828 5001 21