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drs. ing. Teus van Eck T.U. Berlin, 19 Jan. 2004, Fac. Economics and Management

The Dutch Electricity/Heat sector in the battle between Economy, Environment and Security of Supply in the liberalized European market. drs. ing. Teus van Eck T.U. Berlin, 19 Jan. 2004, Fac. Economics and Management. Contents. Market situation Economy Environment Security of supply

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drs. ing. Teus van Eck T.U. Berlin, 19 Jan. 2004, Fac. Economics and Management

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  1. The Dutch Electricity/Heat sector in the battle between Economy, Environment and Security of Supply in the liberalized European market drs. ing. Teus van Eck T.U. Berlin, 19 Jan. 2004, Fac. Economics and Management

  2. Contents • Market situation • Economy • Environment • Security of supply • Regulation • Behavior of stakeholders • Recommendations

  3. Market situation

  4. Generating Capacity Netherlands

  5. The Dutch High Voltage Grid

  6. The most important marketplayers • Essent: 25% production capacity+ 30% grids +Supplier • Nuon: 21% production capacity + 30% grids + Supplier • Electrabel: 21% production capacity + Supplier • Eon: 9% production capacity + Supplier. • Eneco: 1% production capacity + 25%grids + Supplier • TenneT: T.S.O. + owner of the 150(partly)/220/380 kV grids • Gasunion: Gassupplier and owner of the gastransportgrid. • APX: The Electricity Exchange, owned by TenneT

  7. Other market parties • Regulatory • Dte: The Dutch Regulator for gas and electricity. • The Ministry of Economic Affairs for the Energy Strategy • The Ministry of Environment for permits • E.U Directives. • NGO’s and interest groups as EnergieNed, VEMW, VNO/NCW, Cogen

  8. Fuel situation • Natural gas: Own resources + import from Norway and Russia and exporter/balancing supplier • Coal: 100% import world market coal., perfect logistic harbor facilities • Biomass: Partly imported by governmental incentive policy • 15% of electricity consumption is imported. • Nuclear is marginal

  9. Facts • Total electricity consumption is 110 TWh/yr. • ~15% is traded by the APX • Off Peak electricity price €15 - €20/MWh based on marginal cost op coal fired power plants • Peak electricity price the last 2 years rising from €40 - €60/MWh and strongly fluctuating. • Reserve capacity only a few % • Import/export capacity ~3500MW. • 100% unbundling of the grids • 01-07-2004 liberalisation completed

  10. Dutch and E.U. Energy Policy • Energy production and supply should be as clean as possible, as cheap as possible and with nearly 100% security of supply. • The implementation will be done by the free market • But we have no clear common objectives and operational strategy

  11. The actual situation DGO’s Producers GridOperators Traders Government Consumers Regulators CHP / DH

  12. The Balance Environment Security of supply “Economy” The long en short term values???

  13. Reality T.V. Low prices High earnings Low risks Market power The future of our children Politicians Freemarket Environment

  14. Dream: No coal and nuclear and efficient gas CHP in the transition period to 100% sustainability Dream versus Reality Reality:Growing demand, gas CHP nearly in bankruptcy and only 2% of total production is renewables Prosperity/Welfare?

  15. Economy

  16. 10500 10000 9500 9000 Hot W. 8500 Coal Stagg 8000 7500 7000 6500 0 100 200 300 400 500 600 Power Output [MWe] Heat Consumption Curves

  17. Use of fuel CO2 Costprice kJ/kWh g/kWh baseload €ct/kWh Renewables 0 0 2 - ….. COGEN (gas) 5000 280 3,5 - 5 CCGT 6700 375 3,5 Coal unit 9000 830 3,5

  18. Fuel Costs for different Power Units

  19. Consequences • Gas CHP too expensive in night and weekend. • Environment is not an item. • Bad investment climate for CHP. • Bad investment climate for coal and nuclear by uncertainty concerning future environmental regulation • Prices too low for renewables

  20. The Netherlands: structural importer or exporter of electricity? In a European level playing field the Netherlands should be an exporter because we have: • Strong position in sourcing and transport of natural gas • High experience in CHP and gas turbine technology • Sea harbor facilities for import of world market coal • Cooling water facilities • Strong connections with the European E-grid • Etc.

  21. Environment

  22. 43% electricity 4% E grid losses 9% useful heat by CHP 44% is waste heat = 13 billion m3 natural gas= 23,4Mton CO2 Availability of heat excluding industrial heat 100% fuel for electricityproduction

  23. Waste heat % of power plants • Lignite >60% • Coal fired > 55% • Conventional gas > 55% • Hot Windbox > 50% • CCGT > 45% • Incinerator > 70% • Nuclear > 60%

  24. Priorities? • Only promoting Renewables vs.the lowest level of fossil fuel consumption and emissions for the total energy demand? • Energy savings vs. the fossil fuel use/emission level per unit electricity/heat? • Clear physical CHP electricity definition vs. lowest level of fossil fuel consumption

  25. The environmental ranking on base of CO2 emissions Renewables Good gas CHP CCGT Bad gas CHP Hot Windbox Good coal CHP Modern coal units Bad coal CHP Quality Ranking on base of operational results and not on design efficiency

  26. Energy savings CHP Separate Production E + H Cogeneration H ref H = Reference Boiler Fuel CHP Part CO Fuel 2 CO Reference 2 CO E powerplant 2 Fuel E - Powerplant E - COGEN E = E CHP+E Grey CO or Fossil fuel free 2 electricity COGEN Methodology

  27. Investment Opportunities/Risks of CHP • Opportunities: Energy/emissions savings, proven technology, grid cost savings • Risks: Continuity of heat demand and or heat source, economy of scale, weak and uncertain position in electricity and fuel market, level playing field?, no structural financial valuation of environmental aspects

  28. District Heating in The Netherlands • Only 3% of the heat market • Big opportunities for energy savings but bad investment climate (very unclear regulation) • For producers the electricity market is the first priority • The heat market is not a free market

  29. It is never in balance Costs Income > 80% fixed costs >80% variable without influence Risks of District Heating

  30. Heat Distribution E E E E F CHP Storage H Alternative Consumer F H Grid Consumer F Back-up/peak E= Electricity F= Fuel H= Heat H Energy savings for the total chain between +90% and –40%

  31. Some figures • 100 km by car –15 kg CO2 • 1 Dutch family with DH saves 1500 kg CO2/yr • 1 Windmill of 1 MW saves 700 ton CO2/yr • 1 MWth CHP saves 700 ton CO2/yr

  32. Security of Supply

  33. CHP (Security of Supply)

  34. Security of supply • Technical, availability fuels, the environment • Separate electricity production results in 45-75% waste heat • Political risks • Distributed vs. centralized generation • Grid capacity and load flows

  35. Regulation

  36. Dutch Regulation • MEP for renewables. A price guarantee for 10 years for different types of renewables. • CO2 index for CHP • Energy tax exemption for District Heating • Different convenants between government and “industry” • Different Codes from the Dte • Consumers of green electricity have partly exemption of energy tax. Export of tax money.

  37. E.U and international Regulation • There is no level playing field in the E.U. • Every country has its own fuel position and own regulation • Big energy flows all over Europe are structural not economical. • Kyoto. The Netherlands have a bad starting position, but a lot of clean technology • The Netherlands is now in a bad position, their interest is a real level playing field and a consequent energy policy

  38. The unworkable Regulation for CHP Traders/producers E.U. directive CO2 trading Regulator E.U. directive CHP Consumer Organisations CHP / DH Fuel markets Local Governments DGO’s National support Convenants between government/market parties

  39. Behaviour of stakeholders • Nobody is responsible for security of supply • Short term behavior • A natural urge to monopoly • No money for research • The market is too risky for new entrance • Many legal conflicts • Loans become expensive • Nobody has the long term overview • Short term money is leading

  40. Recommandations • Formulate a clear long term energy policy in a formulate balance between economy, environment and security of supply on base of the available alternatives • Make that policy operational with a mix of the advantages of the utility and the free market. • We will present our proposals mid 2004.

  41. First impression of our Recommendations • We define a number of possible market structures from 100% utility to 100% free market • We define a number of possible scenario´s for the balance between economy, environment and security of supply • We present the consequences, opportunities and risks of the different possible combinations of market structures and scenario´s including regulation and behavior of market parties • The final choice is a political choice

  42. Recommendation Translate our smile in market power. Result: a structural, payable big smile. Smile for the environment Power of the market

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