|The inauguration of Ormonde marks a milestone in Vattenfall’s wind power development plans
Credit: Ben Barden
Swedish utility Vattenfall AB ranks as Europe’s fifth-largest electric power producer, with core markets in Sweden, Germany and the Netherlands. It generates half of Sweden’s electricity and meets 13 per cent of demand in Germany, where it is the third-largest electricity producer, a ranking it also holds in Holland. Vattenfall sells heat in its three core markets, plus gas in Holland. Outside its core markets, the firm has operations in Finland, Denmark, Norway and the UK. In 2011, Vattenfall’s electricity generation totalled 166.7 TWh.
In 2008, Vattenfall set out a long-term objective of environmentally sustainable energy production. Then, in 2010, as the global financial downturn took hold, it published a new ‘strategic direction’, which included cost cutting and rationalisation, followed by a reshaping of its generation portfolio towards low-carbon emissions.
On a recent trip to inaugurate Vattenfall’s 160 MW Ormonde offshore wind farm in the UK, Power Engineering International (PEi) had the opportunity to speak with its CEO Øystein Løseth, who confirmed the utility’s plans to reduce carbon dioxide (CO2) emissions to 65 million tonnes by 2020.
“With every new wind park and by fitting biomass into our coal plants, we are moving towards this target,” he said. “We have also sold off some of our assets in order to clean up the balance sheet and make sure that we are going in the right direction.”
Stepping onto the European stage
Over the last 25 years, the European electricity market has been transformed as state-owned generation and distribution monopolies have been replaced by utility companies operating under commercial imperatives. This was driven by the European Union’s (EU) desire to create an internal liberalised energy market. The EU’s First Electricity Directive came into force in February 1996, triggering market liberalisation. Further legislation has since shifted attention from liberalisation towards integration.
Liberalisation and unbundling have led to the development of competing international utilities operating across national markets. Some state monopolies have disappeared in takeovers while others have developed into major players in the European market. Vattenfall, a limited company owned by the Swedish government, is now one of Europe’s largest electricity producers, despite only starting to operate outside Sweden in 1996.
In 1996, a year after Sweden joined the EU, the Swedish electricity market was deregulated and grid operations were split from generation and sales. Then, after German deregulation in 1998 forced RWE and E.ON to divest some of their assets, Vattenfall acquired facilities in East Germany, which it has subsequently built upon to become active in Poland and Denmark, as well as Germany,
Political pressure led to changes
Vattenfall’s German and Polish acquisitions heralded a decade of expansion across eight European countries. But while revenues increased by 70 per cent between 2005 and 2010, return on equity fell from 19 per cent to 9.5 per cent, which pleased neither Vattenfall’s owners nor credit ratings agencies.
Although its domestic generation portfolio – from hydro and nuclear – is low in emissions, coal fired generation in Germany and Poland also brought political pressure within Sweden.
In 2008, Vattenfall went on a spending spree in the emerging UK wind power sector, acquiring 547 MW of consented wind power projects from AMEC Wind Energy for £126 million ($204 million); the rights to Ormonde from Eclipse Energy UK for £51.5 million; and the rights for the delayed 300 MW Thanet, the UK’s largest offshore wind farm, for a figure reported to be under £50 million. In 2009, the utility also paid €10.3 billion ($13.3 billion) for Dutch energy company Nuon Energy,.
But in 2010, political and financial pressures pushed Vattenfall to adopt a new strategy focused on core areas and clean electricity. After an extraordinary general meeting in the August of that year, the company announced that “Vattenfall’s assignment is to generate a market rate of return by operating a commercial energy business that enables the company to be among the leaders in developing environmentally sustainable energy production”. Divestments of non-core activities and high emitting facilities followed.
In 2010, Vattenfall sold its high-voltage transmission grid in Germany for a reported €810 million, and in 2011 sold its Polish assets to state-owned utilities PGNiG and Tauron for a total of $2.6 billion. Its Dutch North Sea gas exploration and production assets, Nuon Exploration & Production BV, were also sold to Tullow Oil for €300 million. Other divestments included parts of its Finnish operations and Belgian operations – Nuon Belgium NV, Nuon Wind Belgium BV and Nuon Power Generation Wallon BV. Also in 2011, Germany’s nuclear phase-out forced the Swedish utility to close its two German nuclear power plants.
Greening Vattenfall’s portfolio
During 2012–16, Vattenfall now aims to raise its investments in low-carbon emitting technologies (wind, hydro, nuclear and biomass) from 33 per cent of plant investments in 2012 to 66 per cent in 2016, with wind power accounting for the largest increase.
|Biomass co-firing, such as in the Amager power station, is a key part of Vattenfall’s strategy to cut its carbon emissions
Credit: J.W. Luftfoto
“In the relative long run we have a target of approximately 5000 MW of wind power across six countries,” says Løseth, “This would be 50 per cent onshore and 50 per cent offshore.” With the right “framework conditions”, he believes that Vattenfall can develop this by 2020. “At the moment all wind parks need subsidies, offshore more than onshore. Germany, the Nordic countries, the UK all have subsides [and] I think that is needed in the transition phase.” In the longer run he hopes that the CO2 price will increase to a level where wind power will be commercial without subsidy, but this is not looking likely at the moment.
In his view, offfshore wind needs a “relatively high” CO2 price: “€10 per tonne is not enough. It has to be higher.” Vattenfall also maintains that wind power will need support for the next two decades – even longer for offshore wind.
Vattenfall is the world’s second-largest operator of offshore wind power, with over 1500 MW of wind power capacity in Sweden, Denmark, Holland and the UK. Its large operational wind farms include Thanet and Ormonde in the UK, the Danish 160 MW Horns Rev offshore wind facility, as well as the 78 MW Stor-Rotliden in Västerbotten, Sweden, which is the company’s largest onshore wind farm.
The 288 MW DanTysk offshore wind farm, a joint venture with Stadtwerke München in the German Bight, is under construction and further down the pipeline is the gigantic Round 3 East Anglia in the North Sea, a joint venture with ScottishPower Renewables, which could be as large as 7200 MW.
Vattenfall, together with Aberdeen Renewable Energy Group (AREG) and Technip, is also developing the European Offshore Wind Deployment Centre in Scotland, which will test new designs for large turbines.
In partnership with Scottish technology developer Pelamis Wave Power, Vattenfall has established Aegir Wave Power. The joint venture is developing a 10 MW wave farm off Shetland with 10–14 Pelamis ‘sea-snake’ wave machines. Generation to the grid should start in 2016. Also in Scotland, Vattenfall has partnered with Babcock and Abengoa on Nautimus Limited, a firm to meet engineering, procurement, integration and construction demands of wave power and tidal stream projects.
But Vattenfall’s swiftest route to lower emissions is probably co-firing biomass with coal.
Vattenfall is working to develop wood pellets through heat treatment for co-combustion with coal. In 2011, the firm held large-scale trials of co-firing hard coal with refined wood pellets at the Reuter West plant in Berlin. The trials involved testing logistics, storage, processing and the combustion of 4300 tonnes of refined wood pellets at different co-firing rates.
The process “works okay”, says Løseth. But investments in plants and upstream will be needed to increase the amount of biomass in the firm’s hard coal fired plants, he adds. “It will take time. Our target is to mix 50 per cent biomass in our hard coal plants by 2020; the potential is there.” The company aims to grow biomass and establish factories to produce wood chips for its power plants.
Vattenfall supplies a substantial amount of natural gas for heating households, industry and small and medium enterprises, mainly in the Netherlands, Belgium and Germany. But the share of natural gas in its electricity portfolio is relatively small and mainly comes from assets acquired in its purchase of Nuon.
Vattenfall currently has around 2 GW of new gas fired power and heat generation capacity under construction in the Netherlands. The 1311 MW Magnum combined-cycle gas power plant is due to be commissioned at the end of this year, and two combined-cycle cogeneration (435 MW electricity and 260 MW heat) plants in Diemen and Hemweg are also due to be commissioned this year to.
Løseth told PEi that Vattenfall is not planning to build any more new gas fired power generating capacity, but will replace gas capacity when necessary.
Vattenfall has operated nuclear power plants in Sweden since the mid-1970s, when the Ringhals reactors came into operation. It currently has seven nuclear power reactors in the country (four at Ringhals and three at Forsmark), and 1187 MW of installed nuclear capacity in Germany (Brunsbüttel and Krümmel). It also holds a minority share in the Brokdorf nuclear plant, making it German’s third-largest nuclear operator by sales, after E.ON and RWE.
|Vattenfall is currently exploring new-build nuclear opportunities, but only in Sweden
Credit: Annika Örnborg
Technical problems have kept Krümmel and Brunsbüttel reactors offline for more than four years, and under Germany’s phase-out plan they will never reopen. Vattenfall has started work on preparing the plants for dismantling and demolition, and is seeking damages for financial losses before an international arbitration committee.
On future nuclear projects, Vattenfall’s CEO says: “we are investigating possibilities and viability in Sweden, but only in Sweden.” Existing Swedish nuclear capacity is due to phase out in the second half of the 2020s.
Vattenfall owns and runs more than 100 hydropower plants, mainly in Sweden, which account for about 20 per cent of the utility’s electricity generation.
Interestingly, Vattenfall also wants to become a major player in large-scale hydro in France. It is working in partnership with ArcelorMittal, Rhodia and SNCF, under the name Force Hydro, to bid to operate the country’s hydropower plants, which have recently been opened to competitive tenders.
Although Vattenfall is clearly shifting its power portfolio towards lower carbon and more sustainable energy resources, its German portfolio includes substantial coal-fired power capacity and it is constructing new plants, notably a 675 MW lignite plant in Boxburg and a 1640 MW coal fired plant at Moorburg,
Vattenfall is also involved in three experimental carbon capture and storage (CCS) projects. But Løseth sees no political will to develop the technology. “The pilot plants are working well and we have shown that CCS can work. The 30 MW oxy fuel plant in Schwarze Pumpe [a 1600 MW lignite-fired plant in Germany] is working well, but at the moment the framework is not there so we have postponed all investment in CCS. There is not much interest in Germany, which is where we need the CCS. We are participating here in the UK but our main project is in Germany. We follow and wait.”
Through Nuon, Vattenfall has also built a pilot plant at the 253 MW Willem Alexander power plant in Buggenum, the Netherlands. The pilot has been in operation since February 2011. It is also involved in a third CCS project to test post-combustion technology at Ferrybridge power station in the UK, working with SSE and Doosan Babcock. Each day, 100 tonnes of CO2 is captured from a flue gas slipstream. A solvent scrubs the flue gas in a packed column, absorbing CO2. The results were due to be scaled up and applied in Vattenfall’s €1.5 billion Jänschwalde CCS demonstration project, intended to operate by 2016. However, at the end of last year it halted developments, citing lack of support for the project from Germany’s federal government.
Vattenfall is clearly streamlining its operations and gearing up for low-carbon power generation. The company’s future growth investments will focus on renewables, an area where much development is needed to reduce the cost of generation. But generating electricity is about much more than technology and engineering. Political decisions within the EU will continue to exert a strong influence on how the electricity market shapes up in the future – and when lower carbon technologies can be applied.