Projects of Common Interest and gas producers pricing strategy

Transcription

1 Navigating the Roadmap for Clean, Secure and Efficient Energy Innovation Projects of Common Interest and gas producers pricing strategy CEPS, Brussels 28th September 2017 Peter Kotek, REKK Borbála Takácsné Tóth, REKK Pedro Crespo del Granado, NTNU Ruud Egging, NTNU

2 W HAT IS THE ISSUE? Is the gas market and infrastructure in its current state able to deliver the 2030 renewable targets of the EU? If not, what infrastructure are needed? How is the European market affected by global gas market changes?

3 M ODELS APPLIED FOR ANALYSIS EGMM Short term market outcomes Welfare analysis Investment evaluation RAMONA Long term with a focus on production Endogeneous investment Project complementarity GGM Long term focus on global gas market flows Endogeneous investment

4 M ODEL DEVELOPMENTS PERFORMED FOR THIS STUDY EGMM / WGMM EGMM extended with Turkey, investment in LNG terminals included WGMM global representation, LNG market endogenised RAMONA Investments in LNG terminals included New operational capacity constraints included and demand points based on EGMM results Major update to its database: cross-border connections GGM Major update of cross-border database Investments in LNG terminals included

5 G EOGRAPHICAL COVERAGE IS THE SAME FOR ALL MODELS RAMONA geographical coverage

6 M ODELS C OMMON FEATURES Social NPV considered for decision making Timeframe of analysis to 2050 Same discount factor applied (4%) Same lifetime (25 years) Same investment cost (based on ACER benchmarking report) Same demand and oil price assumptions (based on Primes) Same production assumptions (based on Primes) Same pipeline and LNG regasification infrastructure assumption (ENTSOG Low infrastructure = existing + FID projects are included in the reference)

7 M ODELS D IFFERENT FEATURES AND CAPABILITIES Granularity differs in all three models (monthly / two seasons / yearly) > annual granularity = no storage, predicts more investment Different views on market equilibrium (perfect competition / perfect competition with LTC / perfect competition and Cournot) > perfect competition underestimates prices and does not take into account market power (LTC and Cournot) PINT vs all projects at the same time investment

8 S UPPLY STRUCTURE IN THE REFERENCE Annual consumption EU-28 TWh/year Production Russia Norway TAP North Africa LNG

9 P RE-SELECTION OF PROJECTS FOR ANALYSIS The objective of the case study is to compare models recommendations and provide methodological support for policy and PCI selection For this reason, a shortlist of key PCI projects was created, Based on the second PCI list, we narrowed down the projects: PCI should have cross-border effect Storages are not analysed One project is selected from competing infrastructure Project connects a market with no gas consumption to the grid Stage 2 investments are not included. Stand-alone reverse flow projects are not evaluated

10 PCIS CONSIDERED IN THE ANALYSIS Major new infrastructure: Nord Stream 2 TAP and TANAP Additional infrastructure included: IBS IGB DE-CH, AT-IT, IT-CH, AT-DE LNG terminal in Greece

11 M ETHODOLOGY 347/2013 EU Regulation Market integration price convergence Security of supply SOS scenarios, 5% probability Sustainability CO 2 Measured in M, price convergence is monetised as social welfare gain Cost Benefit Analysis (CBA): NPV calculation for 25 year lifetime, 4% discount rate, costs estimated based on ACER benchmarking report Models Differences EGMM yearly modelling, RAMONA 5 years EGMM modelled SOS EGMM PINT, RAMONA considers all the projects at the same time

12 D E TA I L E D R A M O N A R E S U LT S LNG capacity expansion Pipeline capacity expansion Investments in the Baltic cluster but not in EE LNG Russia-Ukraine gas constraints GALSI a potential important supplier Also expansions for IT-SI and SI-HU Existing cross border infrastructure LNG expansion: Ireland and Croatia Results on cross-border connections: Bulgaria: BG-TR Baltic countries (cluster) Poland corridor: LI-PL & PL-SK Hungary-Romania Other investments: Small expansion in ES-FR In short, total new investments: Ireland LNG capacity Less UK gas in RAMONA modest investment of 40 GWh/d capacity Croatia relies in extra LNG capacity and supplies HU GALSI project shows a high Utilization. New Cross border capacity: 975 GWh/day New LNG Capacity: 154 GWh/day Total Investments: 5.5 to 6 billion euros

13 R ESULTS (REFERENCE DEMAND) Name From-to RAMONA GGM EGMM & WGMM Shannon LNG LNG-IE GGM with 17-20% capacity KRK LNG LNG-HR GIPL PL-LT - EGMM/WGMM: close to 0 NPV ITB BG-TR HU-SI GGM invests 134% EE-FI Baltic cluster LT-LV - LV-EE - LNG-EE - GGM with 17-20% capacity MIDCAT FR-ES - - Low utilisation (16-17%) BRUA RO-BG EGMM would invest in low demand RO-HU - scenario GALSI DZ-IT - - PL-SK - GGM would invest 3 times larger extension. RAMONA 2 times larger. BACI AT-CZ % utilisation in GGM BALTIC PIPE PL-DK - - GGM invest 48% ES-PT STORK II CZ-PL Note

14 D ETAILED EGMM RESULTS Name From-to Avg util. (%) Benefit s hosting EU co. (M ) Benefit s EU28 (M ) Inv. cost (M ) Fin. NPV (M ) Social NPV hosting EU co. (M ) Social NPV EU28 (M ) CEF (M ) S. NPV hosting EU co. (with CEF) (M ) S. NPV EU28 (with CEF) (M ) A B C A-C B-C D A-C+D B-C+D Shannon LNG LNG-IE 58% ES-PT ES-PT 0% Midcat FR-ES 0% GALSI* DZ-IT 75% Stork II CZ-PL 17% PL-SK PL-SK 2% BACI AT-CZ 0% Krk Lng LNG-HR 32% HU-SI HU-SI 29% BRUA RO-BG 39% RO-HU 10% ITB BG-TR 70% Baltic EE-FI 59% EE LNG 53% Baltic pipe PL-DK 4% GIPL PL-LT 58% * Welfare effects in Algeria were not considered

15 D ETAILED RESULTS The Shannon LNG terminal in Ireland is financially viable and shall be implemented on a market basis. Nevertheless, at the EU-28 level it has adverse effects on welfare: by commissioning this LNG terminal, flows previously supplying Ireland transiting the UK are diminished. The Baltic cluster projects, Krk LNG and the ITB are financially and economically viable on EU level and shall be implemented. The Interconnector between Poland and Lithuania (GIPL), the Slovenian- Hungarian interconnector are financially not viable, but with CEF funding awarded, these projects may turn economically feasible. BRUA results are less straightforward: two models suggest that RO-HU section is viable others suggest that RO-BG is needed. Even with the CEF funding allocated to the Romanian section of the corridor fails to turn the NPV to positive due to very high investment costs. Results from the different models are in disagreement on the viability of the GALSI, Poland-Slovakia Interconnector, MIDCAT, Baltic pipe and BACI

16 R ESULTS (EUCO30 DEMAND) For the EUCO30 case demand drop changes the outcome of some projects, but others are not affected: Negatively: MIDCAT falls out (GGM) No investment in GALSI (RAMONA) HU-SI turns negative (EGMM) Positively: BRUA commissioned (EGMM)

17 H OW DOES IT HELP US? Dropping European production can be met by increased LNG supply and higher pipeline flows on existing infrastructure Results are robust on the few projects that are needed Shannon LNG and Krk LNG terminals GIPL (PL-LT) ITB (BG-TR) HU-SI Baltic-connector (cluster) LNG will play a bigger role on the long term in Europe but incumbent suppliers will keep and further strengthen their position Modelling results can be used for decision making, no additional soft indicators are required: market integration, security of supply, market concentration, CO 2 effects can be captured by modelling Decisive other qualitative factors out of the reach of modelling are political commitment of the promoters and maturity of the project

18 N EXT STEPS AND F UTURE WORK WGMM of REKK sensitivities of European LNG demand depending on other production and demand center s development EGMM TOOT (synergies) Demand sensitivity due to increased investment in gas-based power generation (support and collaboration with another SET-Nav case study) Study the gas-electricity nexus and its complementariness to large wind/solar deployment. Currently being analyzed by RAMONA Consider & analyze the evolution of certain geopolitical uncertainties Test scenario: US shale gas increases production affecting prices and gas intake from other LNG exporters Test scenario: Resolution of the Ukraine-Russia conflict in 2030 more options for Russian gas supply

19 Navigating the Roadmap for Clean, Secure and Efficient Energy Innovation Thank you! Project Coordinator Dr. Gustav Resch Vienna University of Technology Institute of Energy Systems and Electric Drives TU Wien, EEG - Energy Economics Group Website: resch@eeg.tuwien.ac.at Tel: Visit our Website us contact@set-nav.eu Follow #SET_Nav Group SET-Nav