Polish-Spanish workshop CHALLENGES FOR THE COAL INDUSTRY IN THE EU

Transcription

1 Polish-Spanish workshop CHALLENGES FOR THE COAL INDUSTRY IN THE EU The future of coal industry in Europe in the context of climate and energy policies Eloy Álvarez Pelegry Member of the Real Academia de Ingeniería Katowice, Poland, 9 th May 2018

2 INDEX 1. The European context 2. Energy mix, environment and coal in the European Union (EU). Some key factors 3. Global strategic issues affecting coal in Europe 4. The case of Spain 5. Challenges for the coal industry of the future in Europe

3 1. The European context

4 1. The European context Some key milestones. Third energy package (2009). A policy framework for climate and energy (COM (2014) 15 final). January. European energy security strategy. COM (2014) 330 final. May. Energy Union Package (2015). Basic objectives. EU to

5 1. The European context Some key milestones: : Decision energy security 1996: First energy package 2002: End of ECSC Treaty 2003: Second energy package 2007: Lisbon Treaty 2009: Third Energy Package 2010: Council Decision 2010/787 on State aid to facilitate the closure of uncompetitive coal mines 2014: Climate and energy 2014: Energy security 2014: Guidelines on environmental and energy State aid 2015: Energy Union

6 1. The European context Third energy package (2009) The objective is completing the internal energy market and moving towards a competitive, secure and sustainable Energy Union Five areas: Unbundling, Strengthening the independence of regulators, Establishment of ACER, Enhance cross border cooperation, Operate competitive markets and consumer protection. Three Directives: Electricity Directive, Electricity Regulation, ACER Regulation.

7 1. The European context A policy framework for climate and energy (COM (2014) 15 final). January CCS appears in point 4: key complementary policies CCS may be the only option available to reduce direct emissions from industrial processes at the large scale needed in the long term. Greenhouse gas emissions target. Rewewable energy target. Energy efficiency. Reform of the EU-ETS. Promoting security of supply. Where indigenous sources are exploited, this should respect the framework of existing Union legislation and international commitments such as that adopted by the G20 for the phase out of fossil fuel subsidies.

8 1. The European context European energy security strategy. COM (2014) 330 final. May Eight key pillars underpinned by the principle of solidarity. Among others, moderating energy demand, well functioning and fully integrated IEM, increasing domestic energy production (hydrocarbons and clean coal ), energy technologies, diversifying external supplies and related infrastructure, one voice in external energy policy. Due to CO 2 emissions coal only has a long term future in the EU if using CCS. Bearing in mind the rather limited update of CCS to date (2014), further efforts in research, development and deployment should be made in order to fully benefit from this technology.

9 1. The European context Energy Union Package (2015) Goal of a resilient Energy Union (EU) with an ambitious climate policy at its core is to give EU consumers (households and business) secure, sustainable, competitive and affordable energy. Activating this goal will require a fundamental transformation of Europe s energy system. To reach our goal, we have to move from an economy driven by fossil fuels Five dimenssions: (1) energy security, solidarity and trust, (2) a fully integrated IEM, (3) energy efficiency, (4) decarbonising the economy and (5) R&D and competitiveness.

10 1. The European context Energy Union Package (2015) In security, emphasis in gas, global energy markets and fully integrated IEM. Domestic coal is not seen as in the past an element of security of supply (i.e. 15% of indigeneous community primary energy fuel sources 15% of primary energy to produce Electricity-Article 15 Directive 2009/72/EC concerning common rules for the internal market in electricity).

11 1. The European context Basic objectives. EU to FIGURE 1. Framework for clean energy and climate-agreed headline targets Source: COM(2017) 688 final

12 2. Energy mix, environment and coal in the European Union (EU). Some key factors

13 2. Energy mix, environment and coal in the European Union. Some key factors Energy mix: Member States decision. Industrial Emissions Directive. EU-Emissions Trading Scheme (EU-ETS). 550 gr CO 2 /kwh.

14 2. Energy mix, environment and coal in the European Union. Some key factors Energy mix: Member States decision Article 176 A of the Treaty on the Functioning of the European Union does not affect the right of the Member States to take the necessary measures to ensure their energy supply under the conditions provided. Such measures shall not affect a Member State's right to determine the conditions for exploiting its energy resources, its choice between different energy sources and the general structure of its energy supply, without prejudice to Article 192(2)(c). EU decisions should not affect neither the choice of Member States among different energy sources nor their general structure of energy supply. So the Electricity mix is in the hands of Member States.

15 2. Energy mix, environment and coal in the European Union. Some key factors Industrial emissions Directive FIGURE 2. Share of coal in EU countries power generation (2016), capacity and BREF votes Source: IEA (2017). EU Industrial Emissions Directive sets new limits under the Best Available Technologies Reference Document (BREF) to be met by BAT and associated emissions limits (BAT-AELs).

16 2. Energy mix, environment and coal in the European Union. Some key factors Industrial emissions Directive Apply to PS > 50 MW, with the exception of plants run less than 1,500 hours per year. Affect a significant portion of coal fired generation fleet in the European Union. 1/3 to 1/2 EU fleet to be retrofitted or shut down.

17 2. Energy mix, environment and coal in the European Union. Some key factors EU-Emissions Trading Scheme (EU-ETS) Revision of Directive 2003/87/EC will imply higher prices. Higher CO 2 prices will affect negatively coal and more to coal than to gas. Assignment of rights to CCS projects.

18 2. Energy mix, environment and coal in the European Union. Some key factors 550 gr CO 2 /kwh. Draft: COM (2016) 861 final. Proposal of article 23 Article 23: Design principles for capacity mechanisms Generation capacity for which a final investment decision has been made shall only be elegible to participate in the capacity if its emissions are below 550 grco 2 /kwh. Generation capacity emitting 550 gco 2 /kwh or more should not be committed in capacity mechanisms five years after, the entry in force of this regulation. Will affect the economics (profitability) of coal fired power stations (CFPS), of existing and new CFPS. For future CFPS in Europe should imply Carbon Capture Use and Storage (CCUS).

19 3. Global strategic issues affecting coal in Europe

20 3. Global strategic issues affecting coal in Europe EU objectives. Towards decarbonisation. Energy transitions. International energy prices and CO 2 price. Lack of political support and social acceptance (global and general vs. regional). Competition of other primary energies (not only renewable but gas and nuclear).

21 3. Global strategic issues affecting coal in Europe EU objectives. Towards decarbonisation Decarbonization The EU ETS objectives to 2020 and 2030 Energy and climate package framework 2050 roadmap % GHG (baseline Spain + 30%) 21% GHG in ETS sectors (45% GHG in the EU). 10% GHG in no ETS sectors. +20% RES in 2020 in the EU (10% transport). +20% improvement of energy efficiency (tendency, Business As Usual [BAU]) Energy and climate framework % GHG (baseline 1990) +27% RES +27%/30% Energy efficiency, BAU) 2050 ROADMAP 80 95% GHG in 2050 (trend 1990) Changes in the primary energy mix

22 3. Global strategic issues affecting coal in Europe EU objectives. Towards decarbonization In accordance with the European Commission decarbonization is possible with: a) Greater capital costs (and less of fuel s). b) Greater share of electricity in final energy (20% in 2005, 36 38% by 2050). c) Greater electricity prices till d) With higher energy expense by domestic consumers. e) Better energy efficiency. f) With more renewable energies in final energy, 55% in 2050 (from 10% in ). g) With CCS. h) With an importat contribution of nuclear energy. i) With energy combinations of centralized and decentralized energy.

23 3. Global strategic issues affecting coal in Europe Energy transitions FIGURE 3. Progress of primary energy transitions Change in the mix or in the primary energy supply (Smil 2010). Change in economic activities in the long term, on a basis of a change from some energy sources to others (Nordensvärd et al. 2015). Source: Smil, V. (2010) Note: f/(1-f), Fisher-Pry. f formula represents the percentage of primary energy.

24 3. Global strategic issues affecting coal in Europe Energy transitions FIGURE 4. European experiences in energy transitions Source: Smil, V. (2010) Considerable differences among countries Energy transitions take time. The unit of measurement is the decade

25 3. Global strategic issues affecting coal in Europe Energy transitions Germany FIGURE 13. Estimation of variable costs of Electricity production with lignite, coal and natural gas in 2010 and 2016 ( /MWh) Price differentials coal vs. gas, affect the competitiveness and influence the operating hours of coal and gas fired power stations. Source: Álvarez Pelegry y Álvaro Hermana (2017).

26 3. Global strategic issues affecting coal in Europe Energy transitions Germany TABLE 1. Hours equivalent of full load (he) by technology Technology 2002 (he) 2016 (he) Variation (he) Variation Lignite % Coal % Natural gas % Subtotal coal and gas Hydrocarbons % Nuclear % Subotal fossil fuels +nuclear % Wind Onshore % Wind Offshore PV % Biomass % Hydro % Subtotal renewables % Total % Source: Álvarez Pelegry y Álvaro Hermana (2017).

27 3. Global strategic issues affecting coal in Europe Energy transitions Germany FIGURE 5. Evolution forecast of electricity generation in Germany ( ) Source: Álvarez Pelegry y Álvaro Hermana (2017). Hydrogen Geothermal Solar Wind Biomass and waste Hydro (no pumping) Nuclear Hydrocarbons Natural gas Coal Objective no renewable Demad Demand objective In 2050 coal may keep some share in electricity generation.

28 3. Global strategic issues affecting coal in Europe International energy prices and CO 2 price EUAs and RCEs prices FIGURE 6. EUAs prices ( /CO 2 ton) 35,00 30,00 25,00 20,00 15,00 10,00 EUA RCE Reform of the EU- ETS. Objective: increase CO 2 price. CO 2 price floor in the UK. 5,00 0,00 ago. 05 ene. 06 jun. 06 nov. 06 abr. 07 sep. 07 feb. 08 jul. 08 dic. 08 may. 09 oct. 09 mar. 10 ago. 10 ene. 11 jun. 11 nov. 11 abr. 12 sep. 12 feb. 13 jul. 13 dic. 13 may. 14 oct. 14 mar. 15 ago. 15 ene. 16 jun. 16 nov. 16 abr. 17 sep. 17 Source: Larrea Basterra, M. (2018)

29 3. Global strategic issues affecting coal in Europe International energy prices and CO 2 price Gas prices FIGURE 7. Gas prices US$/million Btu Volatility and great differences in gas prices Japón cif (GNL) Alemania (AGIP) Reino Unido (Heren NBP Index) US Henry Hub Canadá (Alberta) España (GNL) Crudo en países OCDE cif Source: Larrea Basterra, M. (2018)

30 3. Global strategic issues affecting coal in Europe International energy prices and CO 2 price Coal prices FIGURE 8. Coal prices US$/ton oct-97 oct-98 oct-99 oct-00 oct-01 oct-02 oct-03 oct-04 oct-05 oct-06 oct-07 oct-08 oct-09 oct-10 oct-11 oct-12 oct-13 oct-14 oct-15 oct-16 oct-17 Source: Indexmundi Steam coal. Australia. FOB Carbón térmico. Australia Carbón Steam Coal. térmico. South Sudáfrica Africa. FOB International coal prices are also subject to considerable volatility.

31 3. Global strategic issues affecting coal in Europe International energy prices and CO 2 price Coal prices FIGURE 9. Market prices for different types of coal, Source: IHS en (IEA, 2018). International coal prices are also subject to considerable volatility.

32 3. Global strategic issues affecting coal in Europe International energy prices and CO 2 price Coal prices FIGURE 10. Thermal coal price markets in Europe, Asutralia, South Africa, China and Colombia, Note: CFR=Cost and freight. Source: IHS en (IEA, 2018).

33 3. Global strategic issues affecting coal in Europe International energy prices and CO 2 price Electricity prices FIGURE 11. Spot and futures electricity prices in the EEX ( /MWh) Source: Álvarez Pelegry, E.; Álvaro Hermana, R. (2017) from BMWi. Low Electricity prices (i.e. Germany and Spain).

34 3. Global strategic issues affecting coal in Europe International energy prices and CO 2 price Electricity prices FIGURE 12. Spot electricity prices in Spain and Portugal ( /MWh) /MWh Average price in Spain Average price in Portugal Source: Larrea Basterra, M. (2018). Low Electricity prices (i.e. Germany and Spain).

35 4. The case of Spain

36 4. The case of Spain Current situation of coal fired power plants Trends and projections

37 4. The case of Spain Current situation of coal fired power plants FIGURE 14. Evolution of installed capacity (MW) MW Hydro Nuclear Coal Oil+gas Combined cicle Hydrowind Rest of hydro Wind PV Solar thermal RES thermal Cogeneration and other Waste No significant variation in installed capacity in coal ( ). Source: REE (2018).

38 4. The case of Spain Current situation of coal fired power plants FIGURE 15. Evolution of Electricity production (GWh) GWh Decrease in Electricity demand. Variation and trend to decrease the share of coal, but with some variability. Hydro Nuclear Coal Oil+gas Combined cicle Hydrowind Rest of hydro Wind PV Solar thermal RES thermal Cogeneration and other Waste Renewable waste Source: REE (2018).

39 4. The case of Spain Current situation of coal fired power plants MAP 1. Coal Power facilities in Spain (MW) Facilities MW Compostilla 3,4, Aboño 1,2 922 Soto de Ribera La Robla 1,2 655 Narcea 2,3 530 Lada 3,4 358 Guardo 1,2 516 Anllares 365 Puente Nuevo Puertollano ENECO 0 Puentes 1,2,3, Meirama 580 Teruel 1,2, Escucha 0 Litoral de Almería 1, Los Barrios 589 Alcudia II-Carbón 510 Pasajes 0 TOTAL Source: REE (2018). Some of the coal fired power plants have already installed DSO x and DNO x systems (i.e. Aboño 2, Soto 3, Litoral, Puentes), and others will follow.

40 4. The case of Spain About the situation of coal fired power plants TABLE 2. Coal facilities in Spain in 2016 Facilities Power (MW) Environmental procedures carried out (MW) % Declared shut down no later tan Dic With pending investment to adapt to NO X emissions % Included in PNT With pending investment to adapt to SO 2 y NO X emissions % Total % Total % Note: PNT= Temporary National Plan Source: Fernández, Coal facilities that will undertake denitrification investments will probably operate in the future, in the horizon of

41 4. The case of Spain Trends and projections Cepsa projections FIGURE 16. Power evolution forecast by 2030 by source Source: Cepsa (2017) For CEPSA by 2030 around 20% of fossil fuels. 41

42 4. The case of Spain Trends and projections Deloitte projections FIGURE 17. Energy mix forecast by 2030 For Deloitte, in 2030 there will be no coal fired power stations (CFPS). Fuente: Amores, A. et al. (2016). 42

43 4. The case of Spain Trends and projections Endesa projections FIGURE 18. Scenarios of coverage index evolution The closing of CFPS will imply new investments for covering peak demand. Source: Barquin Gil, Moreda Díaz, Alba Ríos (2017).

44 4. The case of Spain Trends and projections An analysis FIGURE 20. Demand evolution and forecast for 2030 by source Great differences in electricity demand by 2030, decoupling is for sure. Fuente: Menéndez, J. (2017) en base a CNMC, Deloitte y Bluecap. 44

45 4. The case of Spain Trends and projections. The future of coal industry in Europe in the context of An analysis FIGURE 19. An approximation to the additional power needed associated with a nuclear operating life of 40 years so as not to increase CO 2eq emissions The phase out of nuclear power plants at 40 years of life, will imply strong investments in renewable energies for maintaining CO 2 emissions. This phase out would imply more pressure for coal. Source: Menéndez, J. (2017). Note 1: Composition 85% wind and 15% PV. Annual renewable growth of 2,000 MW in that proportion. Note 2: It does not include economic aspects related to costs. Not3 3:. With no conventional thermal of support.

46 4. The case of Spain Trends and projections. Experts` Comission Different scenarios of demand Two basic estimations for coal installed capacity: installed capacity 847 MW or 4,660 MW. (Estimations with DSO x and DNO x ). Other projections no MW of coal by Global CO 2 emissions reduction for 2030 objectives in Spain is difficult. Pressure on electricity mix and coal on coal to decrease emissions.

47 4. The case of Spain Trends and projections. The future of coal industry in Europe in the context of Experts` Comission TABLE 3. Reference values (average hydro) For the experts commission 292 TWh in 2030 in Spain Peninsula vs. 248 TWh in Distributed generation (DG) and sustainable transition (ST) (TYDP from ENTSOE) Source: Comisión de expertos de transición energética (2018).

48 4. The case of Spain Trends and projections. The future of coal industry in Europe in the context of TABLE 6. Scenario 2030 distributed generation. Coal power 4,660 MW and CO 2 Price 7.5 /t. Average year. Electricity demand 296 TWh Source: Comisión de expertos de transición energética (2018).

49 4. The case of Spain Trends and projections. FIGURE 21. GHG emissions evolution from 1990 to 2050 by sector Estimations of the Environmental Ministry, show difficulties in reducing total emissions. This implies more pressure for the electricity mix and for coal. Source: (Ministerio de Agricultura y Pesca, Alimentación y Medio Ambiente, 2017).

50 4. The case of Spain Trends and projections FIGURE 22. CO 2 emissions evolution in the energy sector (Mt) Source: Comisión de expertos de transición energética (2018). To achieve 2030 objectives very strong efforts in all sectors. As long as no ETS does not reduce emissions, more pressure on electricity mix and on coal.

51 5. Challenges for the coal industry of the future in Europe

52 5. Challenges for the coal industry of the future in Europe European policies, the Energy Union, and the security of supply stress decarbonization (based on renewable energy, energy efficiency and IEM). Future of coal in Europe is strongly related to the future of coal fired power stations (CFPS). It is useful to distinguish between horizons 2020, and after 2030 (2030+) : for CFPS there should be key investments in DSO x and DNO x.

53 5. Challenges for the coal industry of the future in Europe and regulation on capacity mechanisms should be relevant (550 g/kwh). After 2030 more pressure on coal depending on the reduction of CO 2 emissions of non-electricity sectors and depending on relative prices of CO 2, gas and coal. After 2030, less installed capacity, less operating hours for CFPS. CCS is considered by EC but with no binding objectives. After 2030 it should be key for coal. Redeployment of coal affected regions shall be put in place. Proper policies and funds are key.

54 THANK YOU! GRACIAS POR SU ATENCIÓN! DZIĘKUJĘ

55 ANNEX New part on energy An important policy in relation to energy is that a new part on energy is added to the TFEU with one article (Title XXI with article 194 in the consolidated TFEU, title XX with article 176A in the Lisbon Treaty). The article is relatively short, it reads: "1.In the context of the establishment and functioning of the internal market and with regard for the need to preserve and improve the environment, Union policy on energy shall aim, in a spirit of solidarity between Member States, to: (a) ensure the functioning of the energy market; (b) ensure security of energy supply in the Union; (c) promote energy efficiency and energy saving and the development of new and renewable forms of energy; and (d) promote the interconnection of energy networks. 2. Without prejudice to the application of other provisions of the Treaties, the European Parliament and the Council, acting in accordance with the ordinary legislative procedure, shall establish the measures necessary to achieve the objectives in paragraph 1. Such measures shall be adopted after consultation of the Economic and Social Committee and the Committee of the Regions. Such measures shall not affect a Member State's right to determine the conditions for exploiting its energy resources, its choice between different energy sources and the general structure of its energy supply, without prejudice to Article 192(2)(c). 3. By way of derogation from paragraph 2, the Council, acting in accordance with a special legislative procedure, shall unanimously and after consulting the European Parliament, establish the measures referred to therein when they are primarily of a fiscal nature.