European energy markets observatory findings edition #15
 

European energy markets observatory findings edition #15

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An overview of the European Energy Markets

An overview of the European Energy Markets

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European energy markets observatory findings edition #15 European energy markets observatory findings edition #15 Presentation Transcript

  • European Energy Markets Observatory (EEMO) 2012 & Winter 2012/2013 15th edition
  • An overview of the European Energy Markets  Energy consumption is stagnating but oil prices remain high  Energy efficiency is a strategic key factor  Unconventional gas production continues to develop  Renewable energies development is slowed down by subsidies decreases linked to public deficits  Energy transitions: German and French examples  Chaotic electricity and gas markets are threatening security of supply  Utilities‟ financial situation is still difficult  Conclusions European Energy Markets Observatory Copyright © Capgemini 2012. All Rights Reserved 2
  • In Europe, the economic crisis worsened during 2012 impacting both electricity and gas consumptions The hope for a strong recovery has vanished and forecasts on global and European economies are prudent 5,500 10 Gas consumption 8 5,000 6 -2.2% 4 2 0 GDP change 4,000 % 4,500 TWh  In 2012, Europe witnessed a Gross Domestic Product negative (GDP) growth of -0.4% and a forecasted zero GDP growth for 2013  While the US have started to recover (with a 2.2% GDP growth in 2012 and a 2.4% growth in Q1 2013), the BRICS growth, still significantly higher than in advanced countries, has slowed down  Economic slowdown and energy efficiency measures are limiting the energy consumption. New electricity usages are fueling electricity consumption (e.g. ITC needs that account for ~10% of the global electricity consumption)  Gas consumption is correlated to direct usages and to gas-fired generation plants needs; the latter represents 27% of the total consumption. This share that had increased in the past should start to decrease Correlation between EU-27 electricity and gas consumptions* and GDP -2 -4 3,500 -6 Electricity consumption -0.2% 3,000 -8 -10 Source: ENTSO-E, Eurogas, IMF – Capgemini analysis, EEMO15 *Non weather corrected European Energy Markets Observatory Copyright © Capgemini 2012. All Rights Reserved 3
  • Oil prices remain high due to Arab countries (notably Syria) instability and Iran‟s situation Crude oil spot – Brent in US dollars and in Euros  In November 2013, Iran agreed a deal to curb some of its nuclear activities in return for easing of international sanctions against it  In January 2014, protests in Libya halted for two weeks  China’s manufacturing index barely grew in December 2013  The US market is well supplied 160 140 USD EUR 120 100 Oil price  Summer 2013 saw missing supplies in the Middle East and North Africa (up to 3 mb/d, i.e. about 3.5% of global demand)  At the beginning of September 2013, oil prices climbed again on the markets due to concerns over military retaliations in Syria by Western countries  And they are currently on a decreasing trend for several reasons: 80 60 40 20 0 Source: BP Analysts views on oil prices mid-term evolution are not aligned European Energy Markets Observatory Copyright © Capgemini 2012. All Rights Reserved 4
  • European gas prices are much higher than in the US but below gas-hungry Asia  Thanks to shale gas, gas prices are low in the US  In Japan, the Fukushima accident resulted into increased gas importations and high prices. In December 2013, these prices were more than four times the US price  European Utilities are supplied mainly through long-term contracts indexed on oil prices. As the oil price has remained high, the European gas prices are about three times more than in the US. However, Utilities have successfully obtained a share of around 40%-50% of spot price in the long-term contracts indexation Gas prices Monthly average price Europe US Japan LT indexed + spot 46% Germany import average price NBP Japan - monthly Henry Hub Source: Focus gaz Spot price share in gas long-term contracts indexation should continue to increase European Energy Markets Observatory Copyright © Capgemini 2012. All Rights Reserved 5
  • An overview of the European Energy Markets  Energy consumption is stagnating but oil prices remain high  Energy efficiency is a strategic key factor  Unconventional gas production continues to develop  Renewable energies development is slowed down by subsidies decreases linked to public deficits  Energy transitions: German and French examples  Chaotic electricity and gas markets are threatening security of supply  Utilities‟ financial situation is still difficult  Conclusions European Energy Markets Observatory Copyright © Capgemini 2012. All Rights Reserved 6
  • Energy efficiency measures are difficult to implement  Passive measures include: home insulation, improved energy efficient appliances, stand-by modes reduction and eco-designed construction & equipments  Some active measures aim to increase the financial benefit of energy savings through dynamic tariffs and higher energy prices. Other active measures are designed to increase customer awareness (campaigns, more accurate information through smart meters,…) 1,850 EU-27 Primary energy consumption [Mtoe]  A Capgemini Consulting’s* study shows that peak shaving potential is significant (12-14%) as customers are ready to differ their electricity devices usage from peak to non-peak hours while electricity savings potential in absolute terms, is more limited (2-3%)  Successful energy efficiency programs leverage passive and active actions: EU-27 primary energy consumption 1,800 1,750 1,700 -9% 1,650 1,600 1,550 1,500 1,450 1990 Historical evolution of primary energy consumption Path to reach 2020 target 2020 target for EU-27 Projection with current measures in place (as per the March 2011 EU Energy Efficiency Plan) New objective defined in the October 2012 EU Energy Efficiency Directive 1995 2000 -17% -20% 2005 2010 2015 2020 Source: Eurostat, BP statistical report 2013 – Capgemini analysis, EEMO15 While energy efficiency is satisfactory in the industrial sector, the problems lie in the transportation and buildings sectors *Demand Response study – Capgemini Consulting, VaasaETT and Enerdata, 2012 European Energy Markets Observatory Copyright © Capgemini 2012. All Rights Reserved 7
  • Customers information and education is a key element for successful energy efficiency programs  In Japan, after March 2011 tsunami, a target energy savings of 15% was set for summer 2011. Large electricity users were ordered to restrict their consumption Supply Demand Decommissioned sites following the earthquake Decreased hydro capacity following damage caused by torrential rains 15.57 million kW Peak In summer 2011 (9 /8/2011) 16.58 Million kW Summer 2010 (result ) 13.03 12.46 Million kW Million kW 9/8/2011 5/8/2010 Peak In summer 2010 (5 /8/2010) 9/8/2011 Summer 2011 (result) Consumption restrictions for large users (Art. 27 of Law on the electricity sector): 550 hours between July 1 and September 9. Implementation of projects to support energy conservation and information meetings for small users. Help for the installation of new and additional private power generation Lower temperatures compared to the previous year Decline in demand following the earthquake Energy conservation efforts Summer 2011 (result) Demand decreased by more than 4 GW (from 16.58 GW in the summer 2010 to 12.46 GW in the summer 2011), thus avoiding blackout European Energy Markets Observatory Copyright © Capgemini 2012. All Rights Reserved 8
  • Various devices should contribute to energy efficiency: smart meters, demand side management, curtailment or remote controls  Many Nordic countries, Spain and the UK have started to deploy smart meters Smart meters deployment status in Europe (as of July 2013) Finland E 86% meters allowing hourly reading deployed by end-2012. To be finalized end-2013 Mass roll-out finalized Mass roll-out by 2020 wellengaged Norway Netherlands DF I NO E Deployment scheduled between 2013 and 2017 Sweden EE E 100% smart meters rolled-out in 2009 LV DK IE France UK Belgium E Wallonia: Roll-out over 30 + years preferred G Flanders: pilot underway, B-case re-evaluation by end-2013 E Roll-out of the 35 m smart meters decided in July 2013 G Roll-out of the 11 m smart meters scheduled during the same period as for electricity (2016-2022) SK Austria PT E No specific legislation nor B-case. Pilots underway. CZ AT Spain E Roll-out underway, to be finalized by 2018. Regulation on data access and protection underway. Pilots end-2012 and 2013 to test demand response G Roll-out not decided yet Source: Various industry sources – Capgemini analysis, EEMO15 HU Czech Republic SI E Legislation adopted in April 2012: 2015: 10% deployed 2017: 70% deployed 2019: 95% deployed I E Large scale pilots underway (~0.5 m meters by mid2012). Government decision expected in 2013 following B-case publication G Several thousands meters deployed. Other pilots in 2013. Roll-out scheduled in 2014 LU CH E Pilots underway. Mass roll-out + and planning not decided yet G Germany PL DE BE FR ES Portugal NL DF Lithuania E B-case negative. Roll-out rejected Poland LT DF E 2008-2011: Studies and pilots + 2012-2014: Requirements G definition 2014-2015: Build & tests 2015-2019: National roll-out Dual fuel deployment Estonia SE E Strategy defined in 2012. 52% smart meters or alternative solutions deployed by several DSOs by end-2012 E B-case re-examined end-2012. + Roll-out to start in Autumn 2015 until end-2020. G 53 m electricity and gas smart meters to be installed. Extensive government intervention. DSO not in the lead of deployment DF FI Denmark DF Ireland Mass roll-out rejected I E Several pilots underway. + Legislation adopted in 2011. G Voluntary installations. Roll-out from 2014 to 2020 (about 500,000 smart meters installed by end-2013) UK Debate in progress E Law adopted in July 2011: mandatory roll-out of automated reading. To be deployed by end-2016 RO E CEZ‟s pilot ended in 2011. Rollout rejected. Italy IT E 100% smart meters rolled-out in 2009 BG G 80% smart meters to be installed in 2016. Renegotiation of concessions underway GR Hungary E Pilots underway. Waiting for B-case conclusions in 2013 G Multi-fluids pilots underway (elec, gas, water) at RWE Greece E Roll-out underway for 60,000 B2C large clients G Project to extend roll-out to gas and water meters in Athens  Finland should complete its 5.1 million smart meters deployment by end-2013, becoming thus the 3rd European country, after Italy and Sweden, to finalize the mass roll-out  In France, the decision to deploy electrical smart meters (cost estimated between €5 and 7 billion for the 35 million meters) was taken early July 2013 with a first phase of 3 million meters to be installed by 2016  In August 2013, the French government approved the 11 million gas smart meters deployment to take place on the 2016-2022 period Future capacity markets will include a regulated reward of curtailment European Energy Markets Observatory Copyright © Capgemini 2012. All Rights Reserved 9
  • An overview of the European Energy Markets  Energy consumption is stagnating but oil prices remain high  Energy efficiency is a strategic key factor  Unconventional gas production continues to develop  Renewable energies development is slowed down by subsidies decreases linked to public deficits  Energy transitions: German and French examples  Chaotic electricity and gas markets are threatening security of supply  Utilities‟ financial situation is still difficult  Conclusions European Energy Markets Observatory Copyright © Capgemini 2012. All Rights Reserved 10
  • Unconventional oil and gas development is changing the paradigm Reserves (in years of consumption) when taking into account unconventional resources 60200-250 100 100 Source: IFP EN, IEA 50 70 Major unconventional natural gas resources Source: IEA, Golden Rules for a Golden Age of Gas, May 2012 European Energy Markets Observatory Copyright © Capgemini 2012. All Rights Reserved 11
  • Shale gas development consequences in the US  In 2012, shale gas accounted for 34% of total gas production in the US vs. 25% in 2010. This share should grow to 50% in 2040*  Four exports terminals got authorizations (out of the 26 applications) and others should follow:     Total gas production per type of source – in Tcf Freeport in Texas Cheniere Energy‟s Sabine Pass in Louisiana Lake Charles Exports in Louisiana Lusby in Maryland  These unconventional gas development, that are exploited at very competitive costs, favored the repatriation in the US of energy-intensive industries and created about industrial 600,000 jobs (in addition to numerous direct jobs)  The replacement of coal by gas in fossil-fueled generation plants has decreased US greenhouse gas emissions (-2.4% in 2011vs. 2010 and -1.6% in 2012 vs. 2011) Source: EIA The debate on US unconventional gas exportation is progressing *EIA (Energy Information Administration) estimation European Energy Markets Observatory Copyright © Capgemini 2012. All Rights Reserved 12
  • By 2030, thanks to unconventional gas exploitation, Europe‟s dependency to gas imports could be reduced to 60% instead of the projected 80%* Shale gas development status in Europe (as of September 2013) Germany • Nov. 2011: moratorium on fracking in N. Rhine Westphalia • June 2012: between 700 and 2,300 bcm of recoverable reserves estimated by the German General Institute for Geosciences and Natural Resources • February 2013: draft law to forbid fracking in areas with groundwater tables and to make impact assessments before permits issuance more systematic – under discussion until September 2013 legislative elections Lithuania NO SE EE Source: IEA, EIA, various industry-specific newsletters – Capgemini analysis, EEMO15 • June 2012: 50 bcm of recoverable reserves estimated by the Lithuanian State Geological Service • April 2013: Revision of the law to toughen environmental constraints LV UK DK • December 2012: lifting of the moratorium on fracking • June 2013: new shale gas study from the British Geological Survey raises the potential volume of shale gas in the Bowland Basin and beyond to 40,000 bcm • July 2013: introduction of incentive fiscal measures (30% tax rate on shale gas production vs. 62% for conventional oil and gas production) UK LT NL BE Poland • June 2012: ExxonMobil abandons its Polish exploration program due to weak flow rates from its first well • July 2012: Five state-controlled companies launch a €408 million exploration program • January 2013: Law to regulate the market under preparation • August 2013: 8,000 m3/d of gas (2.9 mcm/y) extracted since end-July 2013 PL DE SK Netherlands HU • H2 2012: publication of the results of a study launched in July 2011 on the potential risks of shale gas exploration • December 2012: suspension of drilling • August 2013: government report concluding environmental risks from fracking would be manageable • August 2013: reserves estimated between 2,400 to 11,000 bcm by TNO (independent research) FR SI BG France PT Spain • March 2013: 1,415 bcm of recoverable reserves estimated by the Spanish Council of Mining Engineers • April 2013: introduction of a moratorium on fracking in Cantabria • July 2013: government approves shale gas exploration Fracking ban *Report from the European Commission RO ES • June 2011: introduction of a moratorium on fracking • October 2011: all exploration permits removed • September 2012: government confirms its opposition to fracking and engages a revision of the mining code • June 2013: parliamentary report recommends to ease the fracking ban to assess reserves Romania • May 2012: government imposes a moratorium on fracking • April 2013: Lifting of the moratorium but public pressure to maintain it Bulgaria • January 2012: government revokes Chevron‟s exploration permit and parliament introduces a moratorium on fracking • June 2012: parliament eases certain restrictions but fracking remains forbidden Fracking ban in one region or under discussion France is increasingly isolated in Europe on its decision to ban fracking European Energy Markets Observatory Copyright © Capgemini 2012. All Rights Reserved 13
  • US unconventional gas development consequences in Europe  Unconventional gas development in Europe would endanger Gazprom and other exporters position (Algeria, Qatar)  Russia has significant gas reserves and if infrastructures were available, it could flood Europe with gas, triggering a price war  But Russia has increasing domestic energy needs to satisfy  It is also probable that US unconventional gas producers will obtain more authorizations to export  In both cases, a low gas price would have a positive impact on industrial development US gas exportations scenarios – projected price impact from 2016 to 2030 ($/MMBtu, real 2012 $) If some nuclear plants were given the authorization to restart in Japan, the impact of US unconventional gas exportations would be more important for Europe European Energy Markets Observatory Copyright © Capgemini 2012. All Rights Reserved 14
  • An overview of the European Energy Markets  Energy consumption is stagnating but oil prices remain high  Energy efficiency is a strategic key factor  Unconventional gas production continues to develop  Renewable energies development is slowed down by subsidies decreases linked to public deficits  Energy transitions: German and French examples  Chaotic electricity and gas markets are threatening security of supply  Utilities‟ financial situation is still difficult  Conclusions European Energy Markets Observatory Copyright © Capgemini 2012. All Rights Reserved 15
  • The quick development of renewable energies has created power overcapacities and further complicates grid management Growth rate of renewable energy sources Growth rate [%]  Installed capacity of renewable energies is continuing to grow  However, the numerous regulatory changes have led to a decrease in investments end2012 (-29% year-on-year in Europe, reaching $79.9 billion)  Despite solar and wind energy growth and due to subsidies decrease, the European objective will probably not be met Geothermal  European solar panels manufacturing companies are suffering from China competition  It is forecasted that in the short term at least half of them could be taken over or go bankrupted* IT - FR Top 3 countries ranked by: Installed capacity1 Growth2 (absolute) DE 2010 2005 IT IT 90% DE UK 100% FR 1 In MW net for wind, solar PV, small hydro and geothermal and in TWh for biogas, urban waste and biomass 2 Relative growth additionally displayed for solar PV and wind 80% 2011 70% Solar PV Capacity 60% 2007 DE UK IT DE 30% Wind BE IT GR CZ NL FR BG FR IT 2006 Urban 40% waste DK IT ES DE DE IT Biogas 50% Growth (abs.) Growth (%) DE 2009 DE 2012 Capacity Small hydro Grow th (abs.) Grow th (%) IT 2011 - DE DE RO RO ES UK PL ES 20% IT FR - PT 2008 110% BG UK IT EE 2005 2006 2007 2008 10% 2010 Biomass 2011 2011 2011 2011 DE 0% 0 2009 10 20 30 40 50 60 70 80 90 FI 100 SE 2012 2011 PL UK 110 DE 120 130 140 150 160 170 180 190 200 210 Electricity production [TWh] Renewable energies (wind and solar) have grown fast over the last years with a stronger (and poorly planned) increase of solar energy * Ernst & Young et BNEF, Mai 2012 European Energy Markets Observatory Copyright © Capgemini 2012. All Rights Reserved 16 Source: Eur‟Observer barometers – Capgemini analysis, EEMO15 120%
  • In Germany, all scenarios for solar energy development were underestimated, increasing power generation overcapacities Thermal capacity additions in Germany (GW) Successive forecasts of installed solar capacities in Germany (MW) Renewables installed capacity projection in Germany (GW) Source: RWE The current electrical overcapacity situation is likely to continue Source: Statkraft European Energy Markets Observatory Copyright © Capgemini 2012. All Rights Reserved 17
  • In Germany, renewables extra costs account for 18% in residential customers electricity prices while it is only 10% in France Evolution of a typical residential bill in France (8.5 MWh/year – electric heating) 1,400 +30% 800 600 199 523 (9%) 430 361 585 530 437 200 800 150 600 400 100 252.3 186.6 0.41 1.69 (4%) 194.6 0.58 1.64 (5%) 206.4 0.68 1.12 (5%) 3.53 216.5 1.13 2.05 3.53 3.592 0.88 1.31 1.02 258.9 236.9 1.02 1,000 (15%) 875 77 287.3 232.1 165 400 200 1,200 250 (15%) €/MWh Current euros – tax excluded +15% 1,125 Other taxes EEG-Umlage Supply and grid charges 300 1,400 1,307 1,200 1,000 350 Evolution of the residential electricity price in Germany (3.5 MWh/year – typical household comprising 3 people) 1.16 2.05 (6%) (9%) (14%) 5.277 i.e. 19% increase (5%) 200 2011 Supply 2016 Network charges 129.9 138.9 138 141.7 143.2 117.2 121.9 141.2 112.2 2005 50 0 0 6.24 (18%) (14%) 2006 2007 2008 2009 2010 2011 2012 2013 2020 CSPE Source: CRE CSPE: Contribution au Service Public de l‟Electricité 0 2014 Source: BDEW In Germany, the renewables tax is supported by customers (€23.6 billion in 2014) while in France, the full level of tax is not passed on to customers (~€5 billion cumulated supported by EDF, to be repaid by the State) European Energy Markets Observatory Copyright © Capgemini 2012. All Rights Reserved 18
  • Smart grid pilots are developing rapidly but industrial deployment is late  Smart grid pilots development is accelerating (so far €18 billion investments worldwide) 3X20 Decrease in greenhouse gas emissions  The smart grid industrial deployment is not as rapid as one expected, mainly due to the volume of investments required and the “not-yet-fit-for-purpose” regulatory and market frameworks (especially in Europe) 3X20  Furthermore, there is no one-size-fits-all technical solution slowing down the speed of learning from existing pilots Storage, real time data management and load balancing are among the killer applications to answer two major energy issues: peak demand curtailment and overall energy losses  Sustainable Demand Side Management could only be reached by a holistic approach targeting customer behaviors, relying on tariffs and incentives and facilitated by technologies and automation  Renewable energy integration Secure and safe operation of grids Energy efficiency Smart grid benefits  Despite the particularities of each network and customer bases, return of experience from pilots is useful:  3X20 Norms, standards, regulatory frameworks and market mechanisms need to be enhanced, clarified and implemented rapidly with a long term vision Improvement of the energy market operations Improvement in the quality of customer services Decrease in operating costs of the network European Energy Markets Observatory Copyright © Capgemini 2012. All Rights Reserved 19
  • The market should blossom: a huge worldwide smart grid market is expected in the 10 to 20 next years Overview of smart grid investments estimates (€ billion) Update T&D grids (incl. traditional investments) USA Include T&D network modernization and expansion, new generation sources to meet the objectives of some nuclear phase out policies Europe China Development of nationwide transmission network 498 250 677 smart grid investment 110 Smart grid investments (incl. Smart meters, transmission system upgrades, DA, SA, EV mgmt systems…) 358 56 JRC Japan 15 Innov. CC est. Obs. 74 Innov. Obs. E&Y 254 Brazil 45 76 Innov. Zpryme Obs. India 14 27 JRC Edison Innov. Obs. 5 Innov. Obs. Implementation of fully functional smart grid (excl. investments needed to maintain existing system & meet load growth) Innov. ISGF Obs. WAM, DLR, A MI, microgrids, trainings, etc. JRC Innov. Obs. Edison CC est. E&Y ISGF Zpryme 2010-2020 for Europe 2011-2030 for the US (high and low scenarios) 2010-2030 Intelligent smart grid infrastructure (grid automation, comm. Infra, IT systems and hard, syst. Integration, HAN equipment, smart meters) 2008-2030 Capgemini Consulting estimation incl. all investments required for the modernization of T&D network 2010-2020 2012-2017 2010-2020 Sources: Edison, E&Y, GTM, Innovation Observatory, ISGF, JRC, Zpryme European Energy Markets Observatory Copyright © Capgemini 2012. All Rights Reserved 20
  • An overview of the European Energy Markets  Energy consumption is stagnating but oil prices remain high  Energy efficiency is a strategic key factor  Unconventional gas production continues to develop  Renewable energies development is slowed down by subsidies decreases linked to public deficits  Energy transitions: German and French examples  Chaotic electricity and gas markets are threatening security of supply  Utilities‟ financial situation is still difficult  Conclusions European Energy Markets Observatory Copyright © Capgemini 2012. All Rights Reserved 21
  • Despite the Fukushima accident, new nuclear is still developing, mainly in Asia  Among the 71 nuclear reactors under construction around the world, 50 are being built in Asia:  China (29)  India (6)  Russia (10)  South Korea (5)  New projects are also emerging in Middle East (Emirates, Saudi Arabia), Turkey and South Africa.  No existing nuclear plants were stopped except in Germany (for political reasons) and in Japan  In December 2013 in Japan, applications have been submitted to the country‟s Nuclear Regulation Authority for the restart of 16 nuclear power reactors  As a consequence of the very long new nuclear reactors construction freeze in Europe, human competencies are missing including the ability to master very large projects  In the UK, the nuclear rebuild program has started to materialize (however the deal is currently under scrutiny by the EC):  Two EPR reactors (3.2 GW) at Hinkley Point C  Investors: EDF Energy (45-50%), CGNPC and CNNC (30-40%), Areva (10%) and other investors for up to 15%  Additional safety CAPEX and OPEX are pushing nuclear electricity costs up but existing nuclear energy remains competitive. However, there is a real need to master new nuclear plants construction delay and costs Strike price set at £92.5/MWh in a 35-year “Contract for Difference” (estimated to provide around 10% rate of return)  Other European countries, especially in Eastern Europe, are building new plants European Energy Markets Observatory Copyright © Capgemini 2012. All Rights Reserved 22
  • Energy transitions will lead to increased electricity costs 100% 90% 80% 70% 70%  Stability of gas (at the best) 70% 70%  More coal (in certain countries) 60% 60% 60% 60%  More renewables: the renewables 50% 50% 50% share (excluding hydro) should 50% increase from 22% in 2013 to 36% 40% 40% 40% 40% in 2030 30% 30% 30% 30%  Less nuclear: the nuclear share in the European electricity mix is 20% 20% 20% 20% projected to decrease from 13% in 2013 to 10% in 2030 10% 10% 10% 0% 0% Solar + Biomass Hydro Other f ossil 50% Gas Lignite + Coal 40% Nuclear 30% 2013 mix: lef thand side bar 20% 2020 mix 1: middle bar 10% 0% Two cases inBG point: Germany and BE CH CZ DE ES BE BE BG France Wind 60% 10% 0% 70% 2030 mix 2: righthand side bar 0% FI BE BG CH FR BG CH BE CZ UK CH CZ BG DE HU CZ DE CH ES IT DE ES CZ FI LT ES FI DE FR NL FI FR ES UK PL FR UK FI HU RO UK HU FR IT SE HU IT UK LT SI IT LT HU NL SK LT NL IT PL EU 27 NL PL LT RO PL RO NL SE RO SE PL SI SE SI RO SK SK EUS 2 Notes: 1: 2020 projection based on a „best estimate‟ scenario, 2: 2030 projection based on a „slow progress‟ scenario towards 2050 decarbonisation goals *ENTSO-E European Energy Markets Observatory Copyright © Capgemini 2012. All Rights Reserved Source: ENTSO-E – Capgemini analysis, EEMO15  Following the Fukushima accident 100% 100% 100% 100% and the shale gas 90% 90% 90% expansion, European electricity 90% mix (installed capacity) 80% 80% 80% should 80% evolve towards*: 2013, 2020 and 2030 electricity mix – installed capacity (as of June 2013) 23
  • In Germany, the energy transition ("Energiewende") implementation faces grid issues  German energy transition objectives require to redesign the whole grid and build more generation capacity: Network projects development status (as of August 2012)  Total nuclear phase-out by 2022  Greenhouse gas emissions reduction by 80-95% before 2050  80% electricity production from renewables before 2050  In 2013, there are significant deviations to this plan:  Mothballed coal and lignite plants were re-opened to face electricity demand. leading to a 2% CO2 emissions increase in 2012  New grid constructions are late (local public opinion opposition.)  Former minister Peter Altmaier admitted that the energy transition would cost around €1,300 billion from now to 2040.  Large customers prices could increase by as much as 70% by 2025** threatening their competitiveness. Residential electricity prices will increase also The new coalition government has expressed worries on electricity prices increases and should adjust the renewable expansion objectives Procedure not opened Regional planning procedure Authorization procedure Authorized / being built Construction completed Delayed project Project on schedule Source: Bundesnetzagentur *High Voltage Direct Current **Study on the German energy transition, CAS European Energy Markets Observatory Copyright © Capgemini 2012. All Rights Reserved 24
  • In France, energy transition (50% nuclear energy in the mix by 2025) costs are estimated at €592 billion Investments in the electrical system 2030 Investments in generation Increase of electricity costs per MWh Grenelle 2030 Energy Spread Fr/Ger transition 2030 2011 Source: UFE  Energy efficiency investments are estimated at €170 billion  €422 billion have to be invested in the electrical system (these infrastructures – wind mills, high voltage lines construction – require social acceptance; it currently takes at least 10 years to put a new line in service, including 9 years of procedures):  €262 billion in generation (mainly in renewables)  €50 billion in the transmission grid  Energy transition will increase electricity costs and thus will impact negatively companies competitiveness €110 billion in the distribution grid  The electricity cost would increase by €30-40/MWh in addition to a similar increase linked to Grenelle‟s commitments  In 2013, many official instances called the government to delay its planned phase-out of nuclear energy and to decrease the renewables growth pace European Energy Markets Observatory Copyright © Capgemini 2012. All Rights Reserved 25
  • An overview of the European Energy Markets  Energy consumption is stagnating but oil prices remain high  Energy efficiency is a strategic key factor  Unconventional gas production continues to develop  Renewable energies development is slowed down by subsidies decreases linked to public deficits  Energy transitions: German and French examples  Chaotic electricity and gas markets are threatening security of supply  Utilities‟ financial situation is still difficult  Conclusions European Energy Markets Observatory Copyright © Capgemini 2012. All Rights Reserved 26
  • Questions on the present European energy markets models and functioning  The European Commission seems to ignore its single market policy results  However on January 22, 2014, the EU proposed new energy and climate objectives to be met by 2030 (in order to cut its greenhouse gas emissions by 80-95% by 2050):  One compulsory objective: 40% greenhouse gas emissions reduction (compared to 1990 levels)  At least 27% of renewable energy consumption (non compulsory)  Improving energy efficiency (no specific target at this point)  The European energy market design faces several problems  The electric systems are deeply disturbed by the development of renewables  Prices are meaningless on the European carbon market and this reduces the EU CO2 policy effects  The present markets functioning does not promote the needed huge investments and has limited benefits for consumers and climate policy  The European Utilities alarm over the sustainability of their business in Europe and the absence of positive long-term signals  Twelve European energy Utilities CEOs are ringing the alarm bells: they insist on the lack of positive signals for investors, especially in peak power plants, they warn on the consequences of blind subsidies to renewables, and they lament the low prices of carbon, that lead them to close or mothball efficient gas power plants. The Energy-Climate package impact on a deregulating market in an economic crisis environment has resulted in chaotic markets European Energy Markets Observatory Copyright © Capgemini 2012. All Rights Reserved 27
  • Renewable energies development has heavily modified the power plants merit order €/MWh Merit order (German case 2009 – without renewables) Merit order (German case 2012 – with renewables) While renewable energies are heavily subsidized, their operational costs are almost zero. Therefore they are used as base load. Gas plants utilization rates are dramatically decreasing, leading to their partial closure. €/MWh Source: RWE Source: RWE European Energy Markets Observatory Copyright © Capgemini 2012. All Rights Reserved 28
  • The low level of CO2 certificates prices and low coal prices, have made coal-fired plants more competitive than gas-fired plants hours Italy Belgium Source: CERA Spain Germany CO2 certificates prices evolution 35 30 CO2 spot EUA 2nd period 2008-2012 (€/t) 25 CO2 spot EUA 3rd period 2013-2020 (€/t) 20 15 10 01/07/2013 01/04/2013 01/01/2013 01/10/2012 01/07/2012 01/04/2012 01/10/2011 01/01/2012 01/07/2011 01/04/2011 01/01/2011 01/10/2010 01/07/2010 01/04/2010 01/01/2010 01/10/2009 01/07/2009 01/04/2009 01/01/2009 01/10/2008 01/07/2008 0 01/04/2008 *Estimation IHS CERA 5 01/01/2008 Around 60% of the European total installed gas-fired generation (130 GW) are currently not recovering their fixed costs and are at a risk of closure by 2016* Source: EEX – Capgemini analysis, EEMO15  Renewable energy development reduces the gas plants utilization, jeopardizing their profitability  The IEA believes that gas plants require a utilization rate of 57% (i.e. around 5,000 hours/year) to be profitable  Thanks to shale gas, the low gas spot price in the US created coal oversupplies. European coal prices dropped by 30% between January 2012 and June 2013  Coal plants utilization rate is higher than gas plants’: in Germany, coal-fired plants utilization rate was in the 4371% range in 2012 while gas-fired plants was utilized less than 21% in average  Very low CO2 certificates prices are also favoring coalfired plants  Gas plants are closing in Europe Utilization rate of CCGTs in Europe European Energy Markets Observatory Copyright © Capgemini 2012. All Rights Reserved 29
  • The price difference between “peak hours” and “off peak hours” has considerably flattened Number of hours with price spikes  With growing renewable production and relatively low consumption, there is presently an overcapacity situation  Renewables massive development has led to a decrease of the peak/off-peak price ratio  Positive price spikes (in winter for example) have nearly disappeared and new type of negative prices spikes have appeared during some hours interval (in 2012 there were more than 70 hours during which wholesale European prices were negative)  There are not enough incentives to invest in peak power capacities nor hydraulic storage  In the present market conditions, very high consumption on cold, dry and dark days with no wind could lead to supply disruptions Number of hours with negative prices European security of supply is threatened Source: APX, Belpex, EPEX, Statkraft European Energy Markets Observatory Copyright © Capgemini 2012. All Rights Reserved 30
  • An overview of the European Energy Markets  Energy consumption is stagnating but oil prices remain high  Energy efficiency is a strategic key factor  Unconventional gas production continues to develop  Renewable energies development is slowed down by subsidies decreases linked to public deficits  Energy transitions: German and French examples  Chaotic electricity and gas markets are threatening security of supply  Utilities’ financial situation is still difficult  Conclusions European Energy Markets Observatory Copyright © Capgemini 2012. All Rights Reserved 31
  • Debt stable at a high level, and persisting pressure on margins mainly due to rising overcapacity 30%  EBITDA* margins under pressure  Rising overcapacity due to stagnating consumption, growing renewables •  20% EBITDA margins declined from 19.4% to 18.7% Negatively impacted by CO2 cost increase, and by lower prices, as hedging rolls off Deterioration in power generation margins more than offsets improvement in gas midstream (E.ON) and increasing focus on cost control program  While debt remains a significant burden  Consequences are:     25% Further deterioration of power generation margins •  EBITDA margin (% of revenue) Tougher stance from credit rating agencies CAPEX cut across the board Operational excellence efforts accelerated Dividends at risk * Earnings Before Interest, Tax, Depreciation and Amortization 15% 10% 5% 0% 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 Persistent high debt (€ million) Source: Exane BNP Paribas – Capgemini analysis, EEMO15 European Energy Markets Observatory Copyright © Capgemini 2012. All Rights Reserved 32
  • An overview of the European Energy Markets  Energy consumption is stagnating but oil prices remain high  Energy efficiency is a strategic key factor  Unconventional gas production continues to develop  Renewable energies development is slowed down by subsidies decreases linked to public deficits  Energy transitions: German and French examples  Chaotic electricity and gas markets are threatening security of supply  Utilities‟ financial situation is still difficult  Conclusions European Energy Markets Observatory Copyright © Capgemini 2012. All Rights Reserved 33
  • The present chaotic situation on the electricity markets is threatening security of supply Main root causes of this chaotic situation • Slow economies leading to electricity and gas consumption stagnation • Energy-Climate Package implementation leading to uncontrolled and expensive renewable energies growth • Renewables development threatening gas-fired plants profitability • US shale gas revolution pushing coal prices down and adding pressure on gas plants utilization Consequences • Gas-fired plants are closing • Subsidies to renewables are reaching non sustained high levels • Too low CO2 emission rights prices to trigger low carbon investments • Erratic prices are appearing on the electricity markets • Electricity or gas storage investments are less competitive • Utilities are loosing large shares of their revenues • Needed infrastructure investments are not implemented at the right pace Security of supply concerns • Short term: o The gas-fired plants enabling to cover the peak load needs are closing o Buffers, as gas stored for the winter are significantly lower than in the past years • Long term: o Need for new infrastructures to: - Cover the consumption increase, Replace aging conventional plants, Increase fluidity of energy exchanges, Cover the grids overhaul triggered by energy transition - Diversify gas supply routes o The lack of visibility on the markets combined with the difficult Utilities financial situation are leading to a deficit of needed investments European Energy Markets Observatory Copyright © Capgemini 2012. All Rights Reserved 34
  • Energy markets have to be rethought  The ETS market has to be reformed and allocation levels adapted to the economic situation  Capacity markets should be created quickly in a coordinated manner at the European level  A new retail market design has to be rethought and implemented to enable the smart grids financing and deployment  A more reasonable renewable energies capacity growth pace has to be established in order to curb the related subsidies growth  Aggressive and efficient energy savings policy has to be implemented “In order to avoid wholesale markets destabilization linked to growing shares from subsidized renewables, France has to reconcile its renewables subsidies policy with price markets fluctuations.” From the State Auditor report on the development strategy of renewable energy sources, published on July 25, 2013 If the right reforms are not implemented timely, the physical electricity and gas systems will deteriorate and when the economy and the consumption grow again, energy security of supply will be under pressure European Energy Markets Observatory Copyright © Capgemini 2012. All Rights Reserved 35
  • About Capgemini With around 120,000 people in 40 countries, Capgemini is one of the world's foremost providers of consulting, technology and outsourcing services. The Group reported 2011 global revenues of EUR 9.7 billion. Together with its clients, Capgemini creates and delivers business and technology solutions that fit their needs and drive the results they want. A deeply multicultural organization, Capgemini has developed its own way of working, the Collaborative Business Experience™, and draws on Rightshore®, its worldwide delivery model. With EUR 670 million revenue in 2011 and 8,400 dedicated consultants engaged in Utilities projects across Europe, North & South America and Asia Pacific, Capgemini's Global Utilities Sector serves the business consulting and information technology needs of many of the world‟s largest players of this industry. www.capgemini.com More information is available at www.capgemini.com/energy. The information contained in this presentation is proprietary. Rightshore® is a trademark belonging to Capgemini. © 2012 Capgemini. All rights reserved.