Jill Duggan, Policy Director, Doosan Power Systems
Answer: Shale gas
It is impossible to underestimate the influence that US shale gas has had on the power sector globally in 2012, and will continue to have in 2013.
The influence is not merely the direct influence that shale gas has on the North American energy sector, with low prices, reduced carbon emissions and energy independence, but the direct and indirect implications this has across the rest of the world. These influences can be split into three:
- Economic – Abundant shale gas reserves not only skew America and other economies towards gas, but they encourage, in the short term at least, an increase in the burning of coal and oil as demand and prices drop. This does not, at least in the developed world, lead to investment in new coal and oil but it does, alongside the low-carbon prices where they exist, encourage fuel switching in the short term, with the consequent environmental impacts. Lower energy prices globally do not encourage a frugal use of these resources.
- Environmental – In North America the switch to shale gas has undoubtedly achieved a welcome reduction in greenhouse gas emissions – which have been about double the per capita emissions of Europe and four times those of China. But the impact on the environment – through the use of toxic chemicals in fracking – is not benign and in more densely populated areas of the world will need to be strictly and expensively controlled. Shale gas is still a carbon intensive fuel and cannot, without other technologies such as carbon capture and storage, be part of a global low-carbon power sector.
- But the most invidious impact is political. Political envy and emulation – hoping that shale gas discoveries will herald a glorious new age of gas elsewhere – has had a damaging impact on policies. Even in countries where the development of shale gas is likely to be expensive and environmentally damaging, politicians in an economic bind are tempted to shape their policies to replicate the shale gas boom of North America. This is likely to mean a detrimental ditching of emissions targets and other, more appropriate, technology developments in the hope that shale gas will create a spur in growth and jobs. In most cases, and in particular in most of Europe, this is plain wrong. And investment in other low-carbon energy has been stymied at a great cost to both the economy and the climate. So North American shale gas will continue to be the most influential driver on the power market in 2013 and we will need politicians with clear vision and strong leadership to ensure that it becomes part of a solution to 21st century energy needs and not a new problem.
Loic Douillet, Marketing Vice-President, Alstom
Answer: Global economic outlook
In terms of demand for new capacity, what will most influence the 2013 power market is likely to be the global economic outlook.
From experience, GDP growth remains the overall number one driver of the new-build market, with a kind of ‘double effect’: not only does it shape the level of investors’ confidence in the future, but additionally it is ‘physically’ driving electricity demand growth.
This correlation is usually strong for emerging economies. In China, 1 per cent of GDP growth is driving approximately 1 per cent more electricity consumption growth and essentially 10 GW of additional capacity usually ordered. In industrialised countries, the correlation of electricity consumption to GDP is less intensive, and retirement and renewable incentive schemes are influencing investment levels to a greater extent.
All in all, in 2013 the demand for new build will remain strong for all plant types in emerging countries thanks to expected resilient GDP growth. In industrialised countries, with many facing a weak GDP outlook and overcapacity, we will see limited investment in thermal power generation but a better renewables market as long as incentives are maintained.
Dr Jon Moore, Director of Commuications, Intelligent Energy
Answer: Energy infrastructure
The global energy infrastructure is ageing and under extreme pressure from increasing demand. The short-term cost of updating or replacing the current infrastructure is prohibitive, which necessitates the need for a smart approach to maximise existing and new infrastructure, although a smart approach will have to be combined with a pragmatic vision of future energy needs, infrastructure capabilities and the energy mix.
The ambitious EU carbon reduction and energy targets for 2020 require a modernisation and expansion of Europe’s energy infrastructure to simply meet its core energy policy objectives of competitiveness, sustainability and security of supply.
- A greater share of renewables in the energy mix requires increased storage of electricity to provide more intelligent and flexible infrastructure;
- Reduction of energy consumption targets will require smarter control of the grid infrastructure and the ability of consumers to adopt smart consumption habits;
- Improvement of supply security will be driven by infrastructure and network expansion – smart electricity transmission systems, storage systems, pipeline network.
These targets and objectives can only be achieved with regional alignment on policy and investment. Europe requires an estimated investment of €200 billion within the next ten years for the construction of gas pipelines and electricity grids.
Current investment levels are not enough to achieve this level of energy infrastructure modernisation. Policy measures must also enable speedy permits for critical infrastructure construction projects.
In 2013, European leaders will vote on the much needed regulation to enable the trans-European energy infrastructure. This will be a huge step towards energy supply stability across the region – one that will also create positive ripples for the European economy and jobs market.
Consumers and energy suppliers will also benefit from lower costs driven by greater competition. The foundations of a smarter connected energy infrastructure will make a start.
Matti Rautkivi, General Manager, Liaison Office, Wärtsilä Power Plants
Answer: Gas policies
According to the Environmental Investigation Agency and the International Energy Agency, the role of gas generation will increase in 2013 and beyond. I fully agree with them. Efficient and flexible gas generation is needed for variable renewables generation integration, especially in Europe, and affordable gas – with shale gas possibilities – makes investments in gas generation attractive also outside the US.
Even though the opportunities for gas generation seem to be obvious, there lies great political uncertainty around gas generation investments. Therefore, I would say that policies around gas will be the single driver most influencing the power market in 2013.
In the EU, high gas prices, low spark spreads, and subsidised renewable generation have made the position of gas generation challenging. This has raised discussion on plant closures leading to potential reliability risks. The EU and several EU Member States have understood the need to secure competitiveness of gas generation, since flexible gas generation is needed to back-up increasing renewable generation. Consequently, political decisions on capacity mechanisms, flexibility markets and internal energy markets will shape the EU market in 2013.
Contrary to Europe, gas is cheap in the US. Current low domestic gas prices keep attracting new investments in gas generation, but simultaneously investments in gas infrastructure are postponed while awaiting information on the gas export policy, which will have a major impact on long-term domestic gas price levels.
Political decisions on gas exports in the US, and shale gas development outside the US, will affect gas prices and gas generation development globally.
Increasing gas availability and lower gas prices will shift energy policies from coal towards gas in economies like China and India, which are still witnessing 8-10 per cent annual growth in power consumption in 2013.
An affordable, reliable and sustainable power system will remain an objective in 2013 and beyond. As politicians in different markets have now understood the potential of gas to meet these objectives, we will witness several political decisions to boost investments in gas generation in 2013.
Dr Roland Fischer, Chief Executive, Fossil Power Generation Division, Siemens
Answer: Regional developments
After a few years of a robust power market, 2013 will be a tough year for the power industry, but in the mid and long term we expect the market to show a strong growth. Over the next 20 years, today’s fossil power generation capacity will be doubled.
Power plants with a total capacity of close to 6000 GW were installed throughout the world by 2011.
Siemens estimates that new power plants with a total capacity of 7000 GW will be built until 2030. More than 70 per cent of this to-be-added capacity will be located in six key regions of the world: the US, Europe, China, India, Russia and the Middle East.
Energy systems in all continents are currently being transformed and the power market is undergoing major changes – and at an ever-faster pace. Furthermore, the markets are very diversified and are driven by different regional needs, for example strong demand growth in countries like China and India, replacement of ageing equipment in the US, availability and cost of fuel, and last but not least environmental issues.
Germany’s energy transition is just one example of how quickly the energy system is having to adapt to new challenges. Consequently, all these aspects are leading to requirements for different technical and commercial solutions.
It is essential to be present in these markets, to be close to the customers, as well as to know and understand their specific needs.
Richard Postance, Power & Utilities Partner, Ernst & Young
Answer: Sustainability vs affordability
The balance between affordability, sustainability and security evolves as ever around the globe. In Europe, the weak growth prospects and the scarcity of new ideas are increasing the pressure to move from sustainability to affordability in the short term.
Looking beyond Europe, shale gas seems to offer “lower carbon” than coal, lower cost and improved security with diverse global sources.
However, the risks of narrow portfolios are clear to all – particularly when viewed over the lifetime of power assets.
The strike price achieved in the UK by the government for the first of the proposed nuclear fleet in the first quarter of this year will provide a critical data point for the future of this balance in the UK, in Europe as a whole and the broader international markets.