New Global Energy Trends

New Global Energy Trends
Colette Lewiner Energy& Utilities Global leader
Capgemini
Paris, 25 Mai 2011

Agenda

Recent Energy trends
• Oil
• Nuclear
• Gas
• Renewables

Energy Mix Evolution Consequences
• Security of supply
• Prices
• CO2 emissions
• Consumers behaviours changes
• Smart grids

Conclusions

| Energy, Utilities & Chemicals Global Sector

2

Global demand for oil is increasing again

Primary factors driving demand are economic growth and increased
requirements in the Developing world.

Reserve replacement and dominant control of resources by
the National Oil Companies are the two main issues

The Middle East and Africa account for about 2/3’s
of Global Reserves Projected production capacity decline:
projected new production capacity to
address current decline rates alone will
be 45 to 50 MBPD (million barrels /day)
by 2030
• more than twice the current Middle East
production
• ~ >half today’s global production will have to
be replaced
About 80% of the projected increase in oil
output to 2030 is to come from the National
Oil Companies
Middle East remains Critical

Saudi, Iran, Iraq, Libya, Yemen, Algeria, Sudan, Oman … political
upheaval may place significant global reserves at risk

EUC Global Sector Kick-Off Meeting 2009 4

Oil Supply New Frontiers have
their own challenges

Deep water: Macondo BP accident … challenges to
deepwater developments
• US consumes < 25% of the world’s oil with 5% of the population, it
produces only about 20% of its requirements ~ 5MBPD
• 30% comes from the GOM alone and most of the new supply and
the largest potential finds are to come from its deepwater field;
slowed development could create a steep decline … 0.5 to
1MBPD in just a few years
Canada oil sands
• From a supply and geopolitical risk perspective the oil sands hold
tremendous potential with 178 billion barrels of proven oil
reserves, slightly less than Saudi Arabia;
• While there is no chance of either a blowout or deepwater spill in
oil sands, these developments have their own economic,
operational and environmental challenges in addition to mounting
political and social activist pressures.

Heightened Regulatory Challenges, social unrest in key regions and
increasingly Environmental Concerns are key issues
5

Fukushima accident first safety lessons learned

The accident First safety lesson learned
Exceptional circumstances: 9.0-magnitude Global warming could trigger more
undersea earthquake off the coast of Japan on frequent exceptional events
March 11, 2011 triggering a tsunami that Need to design plant infrastructures for
travelled up to 10 km inland. really exceptional earthquakes and
Fukushima nuclear plant: with 6 boiling water tsunamis
reactors (BWR) maintained by TEPCO has been
hit by the earthquake and tsunami: Simultaneous Natural Catastrophes
have to be taken into account
Reactors 4, 5 and 6 were shut down prior to the
earthquake for maintenance. Spent fuel pools containment building
Remaining reactors shut down automatically after Spent fuel management policy to be
the earthquake. Grid electricity supply for cooling rethought
purposes collapsed and then the tsunami Emergency measures to be revisited
flooded the plant, knocking out emergency
generators. Cooling systems redundancy to be re-
20km radius evacuation around the plant from assessed
March 12 Radiological permanent assessment on
Highest rating (level 7) on the International the site and around
Nuclear Event Scale. Second level 7 rating in Crisis communication to be re-designed
history, following Chernobyl

Regulators have defined “nuclear safety tests” for existing plants.
Will a global safety body be created?


6

Existing plants: inspections and additional investments

In Japan, nuclear operators have
announced immediate measures
Distribution of reactors under operations by age
being taken as protection against
the possibility of their facilities
being struck by a tsunami among 35 32 33
which: 30

Num ber of Units
24
• Ensuring emergency power sources (e.g. 25 21 21 22
19
22
18
using vehicle-mounted power generator). 20
14
16
15 13 14 14
12
• Diversifying and securing cooling function 9 1011 11 10
10 6 6 6 6 7 7
• Build higher seawalls 5 4 5 4 4 3 4 5 4 5
5 2 3 2 2 3
1 1
Restart of reactors stopped for 0
maintenance are also postponed 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43
Reactor Age (in years)
Germany announced the closure of
its 7 oldest plants for 3 months.
This temporary shutdown led to a Older plants will be especially
spot wholesale electricity price scrutinized.
increase According to Eurelectric, if all nuclear
Additional CAPEX and OPEX will plants older than 30 years would be
push nuclear electricity costs up. closed in Europe, the EU 27 would
By how much? However nuclear lose 14% of its generation capacity.
energy should remain
competitive

7

Nuclear new build:
Some programs will be cancelled other delayed
Worldwide, 439 reactors are in operation, 62 under construction and 484 planned or proposed
(April 2011, World Nuclear Association)
Overview of existing nuclear plants and project capacities (as of February 2011)

The IEA cut by half their November 2010 projection of additional 360GW of
new nuclear generating capacity by 2035. Nuclear Association
Source: World


8

Life time extensions will be scrutinized
Overview of the nuclear plants lifetime extension in Europe before the accident
FI
SE: Life extension and uprating for Oskarshamn 3 to 60
years approved in 2010 and expected to be completed in
2013. Planned life extension to 60 years of Oscarshamn 2.
FI: Fortum: 20 year lifetime extension of original 30 years
decided in mid 2007 for 2 units at Loviisa. Operating since
BE: Agreement in Oct. 2009: 10 year life extension 1977 and 1981 they will run until 2027 and 2030, subject to
of the 3 oldest nuclear power reactors to 2025 to saf ety evaluations in 2015 and 2023.
guard against energy shortages. TVO: Lif tetime xtension to 60 years of the two Olkiluoto

Source: World Nuclear Association, Capgemini Research
NO
In 2008, government installed a nuclear producer tax reactors operating since 1979 and 1982; subject to safety
of 250M€ per year till end of lifetime. Additional NL: Only plant to be evaluations every 10 years. Closure in 2039 and 2042.
proposed taxes following life extension, have not shut in 2034 after a SE
passed as a law due to the political crisis in Belgium. conditional EE
DE: End 2010, government agreed to a two-tier lifetime
extension in 2006. extension of the German nuclear plants. 17 nuclear
LV
reactors to run 8-14 years longer than the 2020 deadline
UK: Last 4 operating Magnox reactors to beIE shut DK
set by a prior government: Lifetime extension of nuclear
down by end 2012, af ter life extension s of 9 LT
units built before 1980 by 8 years to 40 years and of newer
months to 2 years. units by 14 years to 46 years. Operators to pay a “fuel-
5 year lifetime extension of the Advanced Gas UK
element tax” totaling €2.3 bn/year f or 6 years and a “eco-
Reactors (AGR) Heysham 1 and Hartlepool until NL tax” of about €15bn.
2019. PL
Plant Lifetime Extension (PLEX) program could BE DE
CZ: CEZ started in 2009 its project to extend
enable extended lifetimes for all UK’s AGR LU Dukovany plant lifetime by10 years to 40 years.
plants by 5 years and Sizewell B by 20 years. CZ Further extension to 50 years under
SK consideration.
FR: In July 2009 the Nuclear Safety Authority FR
(ASN) approved EDF's safety case f or 40 year CH AT
HU SK: Upgrade program on Bohunice units 3 & 4,
operation of the 34 existing 900 MWe SI operating since 1984 & 1985 is under way with a
units. Each unit is subject to inspection during CR RO
40-year lifetime extension in view (to 2025).
their 30-year outage. The first, Tricastin-1, got
10-year extension to 2020. ES
PT IT SI/CR: Slovenia shares the NPP Krško 696 MW
BG
reactor with Croatia; connected to the network in
ES: Government granted a 4 year life extension for the HU: In 2005, 20 year lif etime
Santa Maria de Garona plant to 2013. Almarez 1&2 and extension for the 4 reactors of 1981 and designed to run f or 40 years. In 2009,
Vandellos 2 granted 10 year extension. In February 2011, Paks nuclear plant, operating NPP Krško submitted an application for lif etime
Spain’s Congress ratified a law allowing the 8 operating since 1982-87. Reactors to run GR extension of 20 years (to 2043).
nuclear units to run for longer than 40 years until 2032-2037.

Germany decided to suspend 2010 lifetime extension decision.

9

Political declarations

Plant provisional New projects delayed or stopped:
Safety inspections closure:
of existing plants: China (assessment);Taiwan assessment, Italy
All countries Germany (7 (stopped); Japan (review plans for new projects);
Emerging nuclear oldest reactors) Switzerland (moratorium); UK (delayed)
countries that
have the most
advanced
programs:

South America:
Chile
Uruguay Finland: 1
Africa & Middle Russia: 10
East:
Egypt Canada: 2

Image Source: Le Figaro; IAEA
Jordan
Kuwait
Morocco
Nigeria France: 1
Slovakia: 2
Saudi Arabia Japan: 2
USA: 1
Tunisia
Turkey Iran: 1 China: 27 South
United Arab Korea: 5
Emirates Pakistan: 1
India: Taiwan: 2
Europe:
Belarus 5
Italy
Poland
Asia
Bangladesh
Indonesia Brazil: 1
Thailand
Vietnam

Number of
reactors under Argentina: 1
construction


10

Fukushima is triggering a debate on present and future
Energy Mix
Media and some anti-nuclear groups are asking for a
nuclear phase out. Before asking ourselves if it is
feasible, one needs to ask if it is desirable. An Results of nuclear opinion survey in
France (March 2011)
immediate nuclear phase out is not possible while keeping
the lights on.
A long term phase out is possible but needs to be
assessed against the following criteria:
• Sustained development: global warming and greenhouse
gas emissions decrease
• Electricity generation costs
World electricity generation by type (New Policies Scenario)

Source: IEA: World Energy Outlook 2010 Source: L’express, SIA, Opinion Way, Published April 2011


11

Unconventional gas has had a spectacular development in
the US
• Unconventional gas accounts for 4% of the world total of proven gas reserves and for 12% of global
production (2008).
• The US account for 3/4 of global unconventional output, increasing production 4 fold since 1990
(300 bcm in 2008).
• 12% of global production (2008).
• The US account for 3/4 of global unconventional output, increasing production 4 fold since 1990
Global unconventional natural gas resources(300 bcm in 2008).
in place (tcm)
• The latest IEA report increases
significantly the European
unconventional gases reserves,
•In France, reserves are estimated at
5 000 Gm (around 100 years of
consumption). They are equally
situated in two basins (North and
South-East)
• German reserves would amount to 20
times less and British reserves to 9
times less
•Only Poland would have equivalent
reserves to France.
•It would be regrettable if French
opposition to shale gas prevents its
exploitation
IEA World Energy Outlook 2009

Gas long term perspective has changed as IEA estimates now the total gas reserves to 250 years.

12

Gas will increase its market share

Success in unconventional gas production at
cheap cost has allowed the US to become nearly Incremental Global Gas Demand in 2020 from Lower
self sufficient Nuclear Power Generation
New gas liquefaction trains have been
commissioned in 2009 and 2010
These factors combined with the economic
crisis, have created a gas bubble and lowered
gas prices
The EU gas market is oversupplied and has an
overhang between 10-30 billion cubic meters
(bcm) to make up over the next few years
However
• Fukushima accident will deprive Japan of at
least 9.7 GW of nuclear capacity
• This capacity should be replaced by gas fired
plants. Gas would be imported by pipelines
from Russia notably but also be provided
through LNG 40% nuclear generation decrease
• The range of additional LNG consumption from leads to around 5% gas demand
Japan is 5.4 bcm/y to 11.7 bcm/y. increase.
• This new Japanese demand added to the Gas should increase its market share
consequences of the 7 German nuclear plants
closure should accelerate the EU market re- on the short and long term.
balance

13

Will renewables increase their long term market share?

EU Renewable energy objective
The RES growth is still behind what is needed
to reach the 20% target in 2020
Due to governments’ austerity plans,
subsidies to renewable energies are being cut
The 2020 EU target will be difficult to meet
China is the biggest investor; in 2010 it spent
30% more than in 2009

Investors ranking in 2009 (in $bn)

Source: Eurostat, EEA, BP statistical report of world energy 2009, European
Commission – Capgemini estimation, EEMO12

Will governments be able to reverse
the trend and increase again their
subsidies to renewables?

14

Agenda

• Oil
• Nuclear
• Gas
• Renewables

• Prices
• CO2 emissions
• Smart grids

Conclusions


15

Security of supply could deteriorate
Gas imports through pipelines and pipelines projects (2009)
Projects of pipelines Main countries of
Main exporting countries capacity increase destination for new
It is risky to rely too much on imported Total amount of gas Projects of new pipelines
pipelines
99 TWh exported (planned or under
Oil and Gas: Major gas flows
construction) GALSI
Interconnection projects
financially supported by
the European Energy
Built segments of Recovery Plan (EERP)
Arab spring: limiting oil exportations Projects of pipelines
capacity increase
pipelines under
construction

Russia gas dependency: in 2030,
NO FI
Russian gas should provide 50% of 96 bcm SE
(i.e. 1,034 TWh)
EU gas demand

m
RUSSIA

strea
Skanled EE 115 bcm
(i.e. 1,245 TWh)

Nord
LV
IE DK Baltic
pipe LT
UK
12 bcm
BBL
(i.e. 131 TWh)
NL NL
PL
50 bcm BE DE
(i.e. 536 TWh) LU
CZ
FR SK
CH AT HU
SI RO W hite
stream
am
PT s t re
BG uth
ES
IT So
TAP
cco
GALSI GR Nabu
Medgaz TGI

am
ed
nsm

nstre
Tra

Gree
ALGERIA
30 bcm
(i.e. 324 TWh) LIBYA
9 bcm (i.e. 99 TWh)

Source: The West.com.au Source: Eurogas, BP statistical review of world energy 2010 , companies web sites, GIE gte – Capgemini analysis, EEMO12

16

Electricity generation costs

Estimated costs of electricity in France: Regional ranges of levelised costs of electricity for
nuclear, coal, gas and onshore wind power plants
• Nuclear: 45 €/MWh
• Gas fired plants: 50 to 60 €/MWh (with
today relatively low gas prices)
• Hydropower: >50 €/MWh but highly
5% Discount
dependent on sites and construction Rate
conditions
• On-shore wind: 80 to 90 €/MWh
• Off-shore wind 150 to 200 €/MWh
(including grid connection)
• Biomass: 130€/MWh but very variable
according to production conditions.
• Photovoltaic solar electricity from 300
€/MWh (farms) to 600 €/MWh (home
roofs)

Nuclear cost should increase after
Fukushima accident as safety
inspections will result in more
Source: IEA: Projected Costs of Generating Electricity, 2010 Edition
investments and in plants • Assumption: carbon price of USD 30/tCO2
availability decrease • Cost of CC(S) is still in the development stage (IEA study does not consider
costs of transporting and storing the sequestered carbon in final deposits)


17

Consumption and CO2 emission evolutions

Source: Eurostat, EEA, BP statistical report of world energy 2009, European Commission – Capgemini estimation, EEMO12
Primary Energy Consumption
EU Energy efficiency objective
In 2009, during the crisis, energy consumption and
GHG emissions dropped
In 2010 ETS sectors emissions projected to
increase by 3,6% compared to 2009 (Deutsche Bank).
Despite this increase the objective could be met.
• However ETS markets are not predictable enough to
stimulate long term CO2 free generation investments. This is
why UK decided to set a carbon price floor. Starting in 2013
at £16 per ton, the tax-inclusive carbon price in 2030 will be at
£70 per ton
Energy savings objective will be difficult to meet. This
is why EU Commission adopted the Energy
Efficiency Plan 2011:
• Focused on instruments to trigger renovation in buildings, to
improve energy performance of the appliances and to foster EU Greenhouse gases emissions objective
energy efficiency
• For now only a strategy paper. Legislative proposals with
concrete binding measures to follow.
• Germany’s ETS emissions to strongly increase if
their reactors are shutdown according to the
Deutsche Bank:
• If 7 oldest reactors permanently shut down while 10 others
continue; Germany’s ETS emissions over 2011-20 would
increase by 250Mt relative to the current forecasts.
• If 7 oldest shut down and other 10 closed in line with the 2002
legislation, ETS emissions to increase by 370Mt.

Phasing out nuclear would have a dramatic
effect on CO2 emissions increase

18

Safer Nuclear Energy development is still important to meet
the future sustainability challenges

Worldwide challenges:
Tight global energy demand and supply balance
Long term global energy security of supply
Climate Change issues calling for carbon free energy sources
World energy-related CO2 emissions abatement

Source: IEA, World Energy Outlook 2009

Safer nuclear with hydropower are the only carbon-free schedulable energy
source able to produce large volume of electricity


19

Renewable Energies impact on the Grid

Wind farms: dealing with variability is tough
Existing systems cannot predict what the output of wind power will be 24 to 48 h in advance.
New systems have to be installed to support this kind of forecasting
Forecasting this output is critical, as it determines when to trigger dams or fossil plants to support days
The grid operator has to be ready to react to changes in power output on a very short timeline
To date there are no good answers for massive storage

Growth rate of renewable energy sources
(2008 for Waste, hydro and Biomass and 2009 for Wind and Solar PV)

These
problems are
the root cause
of the 2007
blackout in
Germany and
North of France

Source: Eur’Observer barometers – Capgemini analysis, EEMO12

20

Wind Power: the Spanish Example
August 27, 2009 November 8, 2009

Source: Enagas, Outlook for LNG

More flexible consumption patterns (i.e. demand response) would
allow customers to take advantage of low costs generated by wind
power sudden increase

Smart grid features

A grid with more intelligence has to be designed in order to be able to
• Manage a larger proportion of renewable unpredictable energies
• Evolutions of customers behaviors (demand response, local generation)
• Electricity consumption increase (in certain cases)
• Aging infrastructures while it is very difficult to build new ones.
• Deliver better electricity quality (less harmonics, less micro-cuts..)
The future grid should be able to produce faster fault location and power restoration,
hence lesser outage time and manage many small power generation sources.
The system network architecture will need to change to incorporate multi-way power
flows, and will be much more intelligent than a series of radial lines that just open
and close.
The future data volumes will require large data communications bandwidth and
communication network technology

The key is to build a vision and architecture that allows Utilities to leverage
today’s investment while maintaining flexibility as technology advances.

22

Europe: 80% of the population should benefit from smart
metering by 2020
Electricity
Gas
Uncertainty created by the
value chain unbundling
lead to an uncertain ROI.
This explains the slow
adoption in Europe.
Country by country
situation:
• Italy and Sweden are
leading the adoption of
smart meters in Europe
with full installation in
2009.
• Large experiment in
France (300,000 meters)
launched in 2008. After
return of experience,
compulsory deployment of
smart meters for 95% of
citizens by 2016.
• New legislation is expected
in Netherlands, Ireland
and Norway
• The UK government
decided to introduce
similar requirements, but
financing is unclear
presently
Source: ESMA, GEODE - Capgemini analysis, EEMO12

Total expenditure on smart metering will reach €2.8 billion by 2014.

5/27/2011 23

Smart Grid Investments

Smart grid investments Communication
• Worldwide: from 2008-2015: Technologies

200bn$ (53bn$ in the US). Network Device and
Events Ops Management
(Pike Research source).
• US stimulus grants: 3.4bn$
• Europe: 1bn€ EU funds Back Office Applications

ICT (Information and
Communication Technologies)
Renewables
systems: Cisco sees15-20 bn$
investment opportunities to link Advanced
Metering
smart grids with ICT systems
over the next 7 years Enhanced Power Grid
Digital Communications and Control
Plug-In
John Chamber, Cisco CEO, Hybrids
Smart Meters &
says that it might be bigger Control Building Automation
than internet. Interface

However it’s not going to happen overnight. A lot of regulatory and
standardisation issues have to be worked out
24

Key success factors (1)

• Smart grids implementation will necessitate new investments:
• The transmission and distribution tariffs will have to increase and by
consequence the electricity prices.
• Regulators, governments and customers will have to accept these prices
increases.
• Industrial R&D is needed to develop new equipments (as large competitive
storage) or improve existing ones (as HVDC connections).
• Communication standards are crucial:
• US is mobilized at the government (Department of Energy) and equipment
manufactures levels
• Europe is catching up
• Equipments conceived with the internationally adopted standards will have a
clear advantage

25

Key success factors (2)

• Efforts on simulation and modelling are needed:
• For the transmission grid there is a need to build a new European
High Voltage grid management model.
• On the distribution side, the retail market has to evolve and
modelling is needed. Interesting experiences initiated by regulators
and involving all stakeholders (Utilities, equipment manufacturers, IT
service companies, local authorities..) have been launched in Victoria
(Australia), Texas (USA) and France.
• Next steps for Utilities:
• Establish their vision on the technical, economical and management
future models as smart grid implementation will change drastically their
management mode.
• Launch prototypes with part of the financing coming from the EU or
Member States.

26

Agenda

• Oil
• Nuclear
• Gas
• Renewables

• Prices
• CO2 emissions
• Smart grids

Conclusions


27

Conclusion

This last year’ events are putting once more Energy
questions in the spot light Energy Orb » (PG&E) gives visual indications
to clients involved in energy demand
• Energy consumption growth after the economic and management programs
financial 2009 crisis
• BP accident in Gulf of Mexico highlighting the deepwater
production difficulties and strengthening regulations
• Nuclear Fukushima plant accident stalling the nuclear
« renaissance »
• Middle East and Arab countries political instability
They will probably lead to:
• Higher oil costs (and prices)
• Decreased security of supply
• Higher electricity prices as Utilities will have to invest in
nuclear existing plants, use more costly energies (notably
renewables) and invest in their grids
• More Green Houses Gases emissions

• Customers should change their behavior and increase their energy
savings focus


28

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