Climate protection is the second-largest challenge facing the market after competition. Can this challenge be met without losing security of supply? Siân Green reports.
We need to have an environmental policy that remains as efficient as possible and consistent over the long term and focuses above all on achieving climate conservation goals,” said Harry Roels, Executive Board Chairman of German multi-utility RWE in his keynote address at the Power-Gen Europe conference last month (May). “We must have this on a European level,” he stressed. “After competition, protecting our climate is the largest challenge facing policymakers and the market.”
Roels’s message was that the European power industry must strive to strike the difficult balance between competition and environmental protection. As Europe heads for open competition in all EU markets by 2007, so environmental policies must also be unified across the region. “Links must be established between competition and the conservation of our climate,” he said.
The European Commission’s planned introduction of a greenhouse gas emissions trading scheme in 2005 is a step in the right direction, according to Roels. “The prospect of such a market-oriented system has some appeal,” said Roels, noting that the scheme would allow further emissions reductions required from the EU by the Kyoto Protocol to “be realised in a cost-efficient manner … Emissions trading can thus help to ensure that the costs incurred by economies to achieve climate protection goals in Europe are [low].”
An emissions trading scheme would also further the European Commission’s goal of a single European market, and would boost the integration of the region’s electricity and gas markets, said Roels. However, he admitted that the trading scheme would present challenges for energy companies, and that it would have an impact on the power market. RWE, he said, was already in the process of making “serious preparations” for the trading scheme by collecting current and historic emissions data for all of its European plants, including those in the Czech Republic, Germany, Hungary and the UK.
Many other energy companies across Europe are following suit, but uncertainty over the final form of the trading scheme and the emissions allowances is fuelling debate over its impact on the power industry, especially in terms of where near-term investments will be made. During a plenary panel session at the conference, a number of delegates and speakers expressed the view that the emissions trading scheme would encourage a switch to natural gas and a decline in coal and nuclear generation.
According to Maria Argiri, senior energy analyst at the International Energy Agency (IEA) in Paris, natural gas is projected to account for 40 per cent of electricity generation by 2030 under a ‘business as usual’ scenario. This would leave Europe over-dependent on imports as well as susceptible to the price volatility associated with gas. While the availability of gas is unlikely to be a problem over the next 30 years, its price will remain linked to oil prices, said Argiri, and there will be increased competition for resources from countries such as China.
The issue of security of supply brought nuclear power into the debate. In his keynote address, Roels pointed out that the decision of some nations to phase out nuclear power will be an obstacle to further efforts to reduce CO2 emissions. This view was echoed by most panellists in the plenary session, including Argiri; Hans Haider, chiarman and CEO of the managing board of Austrian utility, Verbund and current president of Eurelectric; and Bernhard Fischer, senior vice president of Energy Business Optimization, E.ON Energie. “You can phase out nuclear power, and you can meet Kyoto targets, said Fischer, “but you cannot do both together.” Klaus Voges, President of Siemens Power Generation said that he believed that nuclear power would play an important role in Europe’s future, and that Germany may soon reconsider its decision to close its nuclear plants.
The role of coal in Europe’s power market is also set to decline as old plants are closed and cheap gas-fired generation increases, according to Argiri. New investment in coal will only occur when gas prices rise, and clean coal technology will become more prevalent, she said.
Future increases in generation will mostly come from gas and renewables.
Climate protection activity such as the proposed trading scheme will mean that distributed generation, combined heat and power, and renewable energy will rise in importance, said Roels. However, subsidies and financial assistance for such technologies should be made more efficient than at present. Permanent subsidies should not be used, but instead a system of declining subsidies that encourages competition among technology developers could be created to help bring the technologies to market quickly.
In spite of the ratification of the EU’s renewable energy directive, the target of doubling the amount of renewable energy in Europe by 2010 will not be met, according to Argiri. Other panellists echoed this view; Voges noted that generators presently have no real or economically viable alternative sources, and that more investment was needed to develop renewables as well as distributed generation technologies such as fuel cells.
According to Voges, fuel cells will be competitive “under certain conditions” by 2008, a statement disputed by some of his co-panellists. Argiri’s analysis of the European power industry showed that some 600 GW of new generating capacity would be needed in the next 30 years, and Fischer pointed out that this could not be met through technologies such as renewables, fuel cells and distributed generation.
But the panellists did agree on one thing: environmental targets will be the next major challenge for the power industry, and while CO2 trading will help meet this challenge, a way should also be found to make sure that all technology options remain in the picture.