Between a rock and a hard place

The Stone Age did not end because of a lack of stones.” Gerald Doucet did not coin the phrase but still used it to great effect at this year’s Power-Gen Europe keynote address in Milan, Italy. Mr Doucet, Secretary General of the World Energy Council was speaking of the world’s over-dependence on oil [and gas] and the need for the power generation industry in particular, to move from the age of oil and gas to a hydrogen economy in the long term.

Doucet’s message: “don’t wait for oil to disappear before we start looking for alternativesࢀ¦” was pertinent with the event being held in Italy and the current price of oil hitting $60/barrel. Italy has among the highest power prices in Europe largely as a result of a lack of energy resources and a fairly high reliance on oil fired generation from inefficient plant.

Italy does have a long term strategy to change the situation although it does not follow quite the same line of thought as Doucet. With one of the highest electricity growth demand rates in EU-15, Marcello Capra, deputy general of the Ministry of Productive Activities, said that some 20 GW of new capacity was authorised in 2002. The Ministry expects 8000 MW of new capacity to come on line by 2007. Capra set out a reference scenario where he saw the possibility to replace almost all of the existing oil fired capacity with gas fired generation.

Accordingly, Italy plans to invest heavily in its energy infrastructure and will spend €10-15 billion between 2005 and 2008, some of which will cover the building of eight new LNG terminals. The move to gas would bring Italy’s share of gas in the power generation mix to 60 per cent, up from the current 43 per cent. But with security of supply issues facing future gas supply and volatile gas prices, the potential problems with this scenario are clear. It almost seems like a case of jumping from the frying pan into the fire.

Doucet stated that gas discoveries were beginning to mimic oil. He noted that already they were in decline in the US and would thus continue to be increasingly expensive. The solution according to Doucet is a move to coal. “The only fuel that can dislodge oil is coal.”

The statement contradicted the scenario outlined by Capra who said that coal would represent 15 per cent of Italy’s power generation mix in 2020. Turning to Mr Capra, Mr Doucet later responded: “Gas is a fuel of choice but it has its negatives. And on a full fuel cost basis, gas is only marginally better than coalࢀ¦ in 15-20 years from now, the role of coal will be higher than that predicted in your own data.”

But how will coal come back in a country like Italy? One way, is to invest in carbon capture and sequestration. Certainly there have been significant moves around the world in this direction.

However, where Doucet truly sees the future of coal is in the development of coal-to-liquids and the subsequent use of alternative synthetic fuels in, for example, IGCC power plants. “The synthetic fuels market leads us in an effective way, without huge infrastructure spending, to the potential of a hydrogen economy.”

While Doucet had a clear vision, the third keynote speaker, Giuseppe Zampini, Chief executive officer of Ansaldo Energia chose not to focus on forecasts and predictions. Amusingly, he referred to predictions that later turned out to be way off the mark. “In 1908 one engineer said the aeroplane will never replace the airship. More recently, power generators who followed the advice of financial analysts and diversified into other sectors were left licking their wounds,” he said.

So what was Zampini’s vision of the future fuel choices in Europe and in particular Italy? Although he conceded there might be a return for nuclear in other parts of Europe, he certainly did not see a return for nuclear in Italy. In fact he welcomed the decommissioning of nuclear plants in Italy to demonstrate that the whole nuclear cycle is under control.

“What we can say with certainty is that energy demand will increase steadily and that fossil fuels will have the dominant role. But there are contradictions between these scenarios and environmental policies.” In many ways this summed up the near term challenge for Italy and the rest of Europe. Gas is clean but prices are volatile and long term availability is suspect; there is the public mindset that coal is a dirty fuel. Meanwhile the generators are constrained by environmental policy.

Doucet is right for many reasons. Yes, don’t wait for oil and gas to run out before looking for alternatives. Yes, turning to coal-to-liquids should be part of the long term strategy. And yes, the Stone Age may not have disappeared because of a lack of stones but for countries like Italy it is difficult to move when you are caught between that stone and a hard place.

Junior Isles,
Publisher & Editorial Director

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