New opportunities are predicted for flexible CHP installations in the mid- to longer term
New opportunities are predicted for flexible CHP installations in the mid- to longer term
Credit: MTU Benelux

The Netherlands is set for significant growth in sustainable power production which, if present goals are met, will change its power market dramatically. Stijn Schlatmann and Martin Horstink of consultancy Energy Matters ask whether there is a Dutch future for conventional power such as CHP – and, if so, how plant operators should deal with this changing environment

In 2013, 40 different Dutch market players, the government and several institutions and NGOs signed an agreement, called the SER Energy Agreement (SER Energieakkoord), to accelerate the transition towards sustainable energy and a low-carbon economy. Part of the agreement is a substantial increase of sustainable power production. The capacity of onshore wind power will have to increase from the present 2485 MWe to 6000 MWe in 2023, and offshore wind capacity will have to grow from 228 MWe to 4450 MWe in the same period.

Other agreements include support for rooftop solar panels and biomass co-firing in coal-fired power plants. The government promised support with a subsidy scheme and finances corresponding to the agreed targets.

At this moment it seems that all parties involved in the SER Energy Agreement have a strong drive to realise the targets. The provinces have allocated locations for wind farms, and many locations are already in the permitting phase. Locations for offshore wind parks are being designated. TenneT, the national TSO, is preparing connection points at sea for these wind parks. And the government is preparing the promised subsidy scheme to facilitate them.

Solar power, on the other hand, is partly an autonomous development. Many citizens have installed solar panels on their roofs as the cost of their electricity is competitive with electricity from the grid. In the summer of 2014, the installed capacity of solar power on residential homes passed 1000 MWe. In addition, in 2014 a subsidy scheme for sustainable energy projects (SDE+) resulted in a wave of submitted solar PV projects with a total capacity up to 1800 MWe.

With these developments we expect that the installed solar capacity will grow to 2000 MWe– 2500 MWe at the end of 2015. This growth will continue due to further cost reductions for solar panels, and we expect 4000 MWe–5000 MWe of installed PV capacity by 2020. Hereafter we expect that the market for solar panels will be saturated, or at least the growth will slow down.

The total expected capacity of wind and solar power in 2024 is shown in Table 1.

table 1

The enormous growth of sustainable power will have a huge impact on the electricity market. The present total electricity demand in the Netherlands is around 11000 MWe at night and around 17000 MWe during peak hours, including own consumption of decentralised power. In the last several years, electricity demand has decreased despite the economic recovery. This seems to be the effect of energy-saving measures such as LED lighting and energy-efficient applications, as well as the shutdown of a few large electrochemical manufacturing locations (Zalco, Aldel). The growth of electric vehicles and heat pumps is not expected to have a significant impact on electricity demand. Therefore, we expect it to be stable in the coming years.

The current Dutch electricity demand is covered mainly by conventional power plants running on, e.g., coal and gas. CHP has a relatively large share in the Dutch electricity production mix, with over 40% of electricity being produced in CHP installations. However, many operators of CHP units have difficulty operating their installations with a positive margin since the spark spread is at a historically low level. Must-run installations have very negative results during off-peak hours, while units that are more flexible operate with only a small margin during peak hours.

Even with its enormous savings potential, there is no support for CHP under the SER agreement and it is foreseen that the government will not be willing to set up a subsidy scheme. Without support, it is expected by Cogen Netherlands, the Dutch cogeneration association, that about 50% of the present CHP capacity will be phased out over the next decade. But is the present situation permanent or just a bad moment for CHP? In other words, is there a future for CHP when there is a lot of sustainable power production?

Forecasting the electricity market

To determine the effects of sustainable power on the electricity market we have developed the Energy Market Forecast (EMF) model. In this model the merit order, a way of ranking available sources of energy based on ascending order of price, is simulated on an hourly basis. The electricity demand is gained from hourly data from TenneT and corrected for electricity that is not seen by the TSO (behind-the-meter systems). The power production of (projected) wind and solar capacity can be simulated with the use of actual weather data. The ramp-up and ramp-down behaviour as well as the start-stop-start characteristics of power plants are also taken into account.

In Figure 1 the situation is simulated for week one in January 2014. The upper line shows the total demand over the week. The day/night pattern is clearly visible, while the difference between working days and the weekend can also be seen. From the upper line the sustainable power production is subtracted, resulting in the residual load for conventional power. On the bottom side the must-run producers are shown; these are CHP units for industrial sites and district heating as well as a category, ‘other must-run power’, containing one nuclear power plant and power from blast furnaces and waste combustion sites.

Figure 1. EMF simulation result for the Dutch electricity market for a winter week in 2014. Production capacities from 2014; electricity demand and weather data from 2012
Figure 1. EMF simulation result for the Dutch electricity market for a winter week in 2014. Production capacities from 2014; electricity demand and weather data from 2012

On top of must-run power, 4600 MWe of coal-fired power is projected. This is the power with the lowest marginal cost. Then a layer of net electricity import is shown, which is rather stable with 2000 MWe in 2014. Finally, the remaining demand between imported and renewable power is the area that can be delivered by natural gas-fired capacity. This power consists of natural gas-fired CHPs and the large gas-fired solo electricity combined cycles.

The figure clearly shows that natural gas-fired capacity only has production hours during the daytime on working days. At the weekend, only a very small part of the natural gas-fired capacity is productive. This corresponds to the actual operating pattern of gas-fired power plants as we see it in the market.

Of the total gas-fired capacity of 13000 MWe, only 3500 MWe of gas engines, some 1200 MWe of flexible industrial CHP and a few combined-cycle plants are running. A large number of the combined-cycle plants are out of operation and mothballed.

Sustainable power, coal and gas

Figure 2 shows the situation in 2024 for the same week as in Figure 1, but in the scenario that all agreed plans for wind power are realized and that 5000 MWe of solar power is installed. The must-run capacity has decreased, while the import is diminished to practically zero. The total production of wind power in this relatively windy week is at such a level that, during nighttime, all other power production units, such as coal and gas, have to shut down. However, during the day the deficit between demand and sustainable power is large, and fast-starting power has to come into operation to balance the system. This causes an important problem for coal-fired power, since it has a limited ramp-up rate during startup, while it needs a standstill period of approximately 12 hours after a shutdown before it can start up again.

Figure 2. Simulation result of the Dutch electricity market for the 'same' winter week in 2024. Production capacities from 2024; electricity demand and weather data from 2012
Figure 2. Simulation result of the Dutch electricity market for the ‘same’ winter week in 2024. Production capacities from 2024; electricity demand and weather data from 2012

Gas-fired power, on the other hand, and especially small-scale CHP units, are much more capable of a quick startup, without restrictions after a shutdown. This creates new opportunities for flexible CHP units during shorter periods of operation.

The possibility of wind curtailing is not included in this scenario. Curtailing of wind power in order to keep large power plants in operation is an option, but it has a high price as well. Very soon the option of wind curtailing becomes too expensive because the wind farm operator loses the subsidies connected to production. And to keep large coal-fired plants in operation at low load, with low efficiencies and poor revenues, is not a very favourable option.

Figure 3 shows the result in 2024 for a summer week in June. Production by solar power is clear, while during the first half of the week wind power production is at a very low level but becomes substantial in the second half of the week. The operator of the coal-fired plant sees the wind power prediction for Friday and the weekend, and has to make a decision whether or not to shut down the installation at the end of Thursday and leave it out of operation until Monday morning. It is quite likely that it will be decided to shut down the coal-fired power plant. A peak at the weekend with low production of solar and wind can be seen, leaving room for flexible gas-fired production. Such situations create opportunities for gas-fired power in the future.

Figure 3. Simulation result for the Dutch electricity market for a summer week in 2024. Production capacities from 2024; electricity demand and weather data from 2012
Figure 3. Simulation result for the Dutch electricity market for a summer week in 2024. Production capacities from 2024; electricity demand and weather data from 2012

Increasing starts and stops

Analysis with the EMF model shows that, in 2024, in the scenario with the SER agreement, coal-fired plants will face 30 to 40 start-stop cycles while gas-fired power will face 300 to 400. Over some 200 to 600 hours the full demand can be supplied with sustainable production in combination with a small amount of must-run capacity that is still operational in 2024. The market price of electricity will show a large spread, varying between very low prices when sustainable power sets the price, average prices when coal-fired plants set the price, and high(er) prices when there is little sustainable production and natural gas-fired plants set the price. It is also expected that the large transient of sustainable power leads to high prices for balancing power. This creates a second source of income for quick-responding flexible power.

Gas engine-based CHP is widely used to provide energy for Dutch greenhouses. Combined with heat-buffering, these
Gas engine-based CHP is widely used to provide energy for Dutch greenhouses. Combined with heat-buffering, these CHPs provide high operational flexibility and are therefore future-proof Credit: Goldilocki/Wikimedia Commons

Why sustainable power won’t be imported

The import capacity between Germany and the Netherlands will be expanded from 3500 MWe to 6800 MWe in the period to 2018.

Imports make sense when variable peaking power such as wind can be pooled – when there is a lot of wind production in one country and low production in the other. However, Figure 4 shows that wind production has a high degree of simultaneity in northwest Europe. Thus, when there is a lot of wind production in Germany, it will be the same in the Netherlands and vice versa.

Figure 4. Wind output in Europe shows a high level of simultaneity, which makes importing and exporting wind power between countries impossible. Source: Power Supply Challenges by Jacob Klimstra, 2014
Figure 4. Wind output in Europe shows a high level of simultaneity, which makes importing and exporting wind power between countries impossible. Source: Power Supply Challenges by Jacob Klimstra, 2014

Besides the simultaneity, we conclude from our analysis of the German merit order in 2020 and onwards that, with the imposed shutdown of nuclear power plants (Atomaustieg) and with the amount of sustainable energy production in the Netherlands, the merit order in Germany and the Netherlands will have more or less the same production mix and shape. Therefore we expect that the price levels will be close to each other, while the driving price difference will be minimized or even gone. Thereby the net import of electricity will decrease, and this mechanism will create even more room for gas-fired plants in the Netherlands.

CHP can deliver needed flexibility

Analysis on the basis of the EMF simulation model, taking the Dutch energy transition as an example, shows that in a future with a huge amount of sustainable power production capacity there is only room for flexible power. Small-scale natural gas-fired CHP plants could especially benefit from this situation, since they have the capability to respond very quickly. Gas engines can start up to full power in a few minutes and can handle a quick restart after a shutdown. Smaller industrial gas turbines can also be operated in this flexible way when the total installation is designed for this behaviour, i.e., with bypass stack and fresh air operation or standby boiler. The model shows that, with this behaviour, the operation time for these CHP units will remain at 5000–6500 hours per year.

In addition to the production of electricity, the delivery of flexible power as balancing power is expected to be an extra source of income. During hours other than the aforementioned running hours, heat for space heating or industrial steam production shall be sourced with a natural gas-fired boiler or, at very low electricity prices, even with electric resistance heating.

For the Netherlands, the expectation is that after another two years of a poor market and a low spark spread, new opportunities and revenues will arise for flexible CHP units from 2017 onwards. Until then, Dutch CHPs will have to bite the bullet.

Stijn Schlatmann is director, and Martin Horstink is a consultant and energy modelling expert, at Energy Matters (www.energymatters.nl)