(How) can the European power market be decarbonized to 2050, without CCS? Lasse Torgersen CenSES årskonferanse Oslo 7/

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1 (How) can the European power market be decarbonized to 25, without CCS? Lasse Torgersen CenSES årskonferanse Oslo 7/12 217

2 25 low-carbon economy Cost-efficient pathway to reach the 8% target by 25 Reduction targets Total EU (from 199) 2% 4% 6% 8% ETS sectors 21%* 43%* 9% Non-ETS 1%* 3%* 7% * Reduction from 25 Reductions from Total 4-44% 79-82% Sectors Power 54-68% 93-99% Industry 34-4% 83-87% Transport -9% 54-67% Residential/services 37-53% 88-91% Agriculture 36-37% 42-49% Other 72-73% 7-78% Share of total emmissions % 58% ETS Non-ETS 2

3 Flexible, clean and competitive power generation - The case against flexible nuclear power CAPEX intensive power plants, limiting flexibility and/or competitiveness The speed of technology development and proliferation for flexible reactors is currently low There are few recent demonstration examples of flexible nuclear power plants (e.g. SMR (Small Modular Reactors)) Focus is on R&D (and has been for many years) The three sustainability issues for nuclear are very relevant also for SMR (many smaller plants distributed geographically): What to do with the waste material? How to avoid nuclear accidents and terrorism? Does nuclear power promote development of nuclear weapons? Picture: The Karachi 1 nuclear power plant in Pakistan uses a 137 MW reactor (3)

4 Flexible, clean and competitive power generation - The case against fossil fuel power plants with CCS/CCU The speed of technology development and proliferation is currently low < 1 full scale plant commissioned per year A full scale facility is easily a 1 BUSD project, making it challenging to increase the pace of development Observed government money support internationally is fading The current carbon capture plants planned and demonstrated have the following characteristics: Very CAPEX intensive, requires base load operation (at high prices) for economical reasons Not flexible, requires base load operation for technical reasons Not emission free: For a typical plant, a reduction of carbon emissions of 8-9% (EPA 1) ) Picture: The Kemper County IGCC and CCS project (Southern Power, US) 1) (4)

5 Flexible, clean and competitive power generation - The case against power from biomass Thermal power plants based on biomass represents a mature technology Reliable technology from proven vendors Less scope for technological learning and improvements Generally considered as climate neutral Limited resources of biomass Sustainability issues: Not truly carbon neutral in a value chain perspective (vehicle fuel, long distance transport and so on) Carbon neutrality even challenged on a forest replacement basis (probably depending on the kind of forest and the kind of extraction) Biodiversity issues Competition with other kinds of desired land use, need of water Biomass fired power stations can also include CCS (see previous slide) to approach carbon negativity Picture: The 29 MUSD, 25 MW Polaniec biomass fired power station (5)

6 Zero CO2 power system 25 Flexible, clean and competitive power generation CO2 reduction System adequacy Power prices Cost efficiency value of flexibility Demand Batteries Grid Bio 6

7 On track to 25 zero carbon power mix but the toughest job starts in 24 Long Term 216 Long Term 24 CO2 Emissions (mill ton) Solar 3 % Wind 1 % Hydro 17 % Nuclear 3 % Bio 8 % Fossile thermal 32 % 2265 TWh Hydro 9 % 25 Bio 19 % Wind 29 % Solar 6 % Hydro 16 % Fossile thermal 2 % Bio 1 % Fossile thermal 2 % Nuclear 19 % 2428 TWh Mt Wind 43 % Solar 15 % Nuclear 12 % 2643 TWh Historic LT goals 7

8 Low carbon power market 25 Price structure Germany normal year Replacing fossil by sun and wind Optimal battery/bio capacities CO2 target obtained Price level too high 1 8 Optimisation of flexibility with normal profitability for technologies

9 The future power system need different types of flexibility to balance intermittent, provided by generation, load or storage typical weather year in 25, and Day Hour From model simulation with near zero CO2 emissions, large degree of demand response, batteries, solar PV and wind power, and moderate development of condensing bio-power 9

10 The future power system need different types of flexibility to balance intermittent, provided by generation, load or storage Short term flexibility (single frequent spikes) Potential providers Li-ion Demand shifting (industry and households) Transmission Gas turbines Long term flexibility (blocking high pressure) Potential providers Pump storage, limited potential Hydrogen, expensive infrastructure Industry shedding, limited volume Market design and policies to ensure cost effectiveness and security of supply 1

11 More volatile power markets Typical price structure Germany 25 compared to Blocking high pressure in winter, long term shortage Solar and wind can not meet increased demand in winter weeks Short term volatility Long periods of very low prices during summer TWh Solar Solar and Wind Demand 11

12 Intermittent generation increase volatility German supply and demand curves in 216 German supply and demand curves in 25 1 Demand curve Variation in wind and solar generation TWh TWh Hydro Pumped storage Renewables Thermal Hydro Pumped storage Renewables Thermal

13 «Base case» findings 25 Hourly prices week 3, 4, 5, 12, 13, 14 Yearly price and income High value of long term flex High value of short term flex LCOE Price Income Off WIncome On W Income Solar Base Zero CO2 Base Zero CO2

14 Scenario 1: Doubling and tripling grid capacity High effect to a certain point, but cant solve longer tight periods Hourly prices in 25 - selected weeks 2 / 4 consumption 6 5 Yearly price and income Price Income Off W Income On W Income Solar Base Zero CO2 IC * 2 IC * 3 Base Zero CO2 IC * 2 IC * 3

15 Batteries not the solution as long term storage Above a certain point average yearly prices are not affected majorly by more batteries Installed battery capacity in the different scenarios GW Hourly prices 25 - selected weeks Comparing battery capacities with peak load and installed sun capacity 25 assumptions 12 GW «Base case» B1 B2 B3 B4 B5 B6 B7 B8 GW Peak load wind sun Installed sun+wind

16 Why batteries are not The Solution Weekly demand and renewable generation in six major European countries* 6 5 Hourly demand and generation in six major European countries * 4 35 Batteries filled up with 21 TWh is needed to fill the gap TWh 3 GW 2 TWh Solar Solar and Wind Demand * Germany, Belgium, Poland, Netherlands, France and UK. Scenario with little demand response and little bio condensing capacity Nuclear and RoR Other Wind and solar Demand Acc. deficit (rhs) 16

17 Why batteries are not The Solution Weekly demand and renewable generation in six major European countries* 6 Hourly demand and generation in six major European countries * TWh 3 GW Solar Solar and Wind Demand * Germany, Belgium, Poland, Netherlands, France and UK. Scenario with little demand response and little bio condensing capacity Original demand Demand response 17

18 Battery does not disturb wind and solar profitability Effect on average price Effect on gross margins Wind gross income 25 Solar gross income B2 B3 B4 B5 B6 B7 B8 Base BIO1 BIO2 BIO3 BIO4 BIO5 B2 B3 B4 B5 B6 B7 B8 Battery scenario Base BIO1 BIO2 BIO3 BIO4 BIO5 B2 B3 B4 B5 B6 B7 B8 Battery scenario Base BIO1 BIO2 BIO3 BIO4 BIO5 Possible income band needed to inverst without subsidy in 25 18

19 What does 2% demand response mean? Demand response in Norway winter 22/23 Higher share of demand response in PII than other sectors Tripling of Norwegian spot prices resulted in 7% reduction in demand Power intensive industry share of total power demand lower in Continental Europe Norway: 27% Germany: 23% Europe: 19% 24% 22% 2% 18% 16% PII share of total EU demand 5% % -5% -1% -15% -2% -25% -3% øre/kwh Statnett assumed 5.5 % load shedding in their Energy Only report* -35% Chemical Ferro Aluminium PII and boilers Other Total Spot price Power demand reduction Jul 21 to Jun 22 Dec 22 to Feb 23 * Statnett 215: «A Energy-Only Market in 23» 19

20 Limited Biomass potential 1.5 mb/day fuel for aviation in 213, corresponds to 233 mt biomass Biomass for energy about 25 mt in mt biomass neded in 25 to balance the market Biomass equvivalenst Estimated 6 mt sustainable European biomass could almost be enough to cover demand in 25 Mt 3 2 Perhaps new technology could bring more biomass to the market? Perhaps marine biomass? 1 Sustainable biomass 23 Aviation 213 Biomass for energy 213 Pulp and paper 215 Power market 25 2

21 Large impact of condensing, flexible Bio Yearly average price and peak prices down to reasonable levels 2 5 Hourly prices in 25 - selected weeks 9 Capacity Bio - scenarios 2 Peak prices other weeks of the year safeguard income GW BIO1 BIO2 BIO3 BIO4 BIO5 Base Zero CO2 BIO3 BIO4 21

22 Optimal mix of Bio and Batteries; «BIO4» and «B4» Effect on average price Effect on gross margins Bio gross income 12 Battery gross income /MW B2 B3 B4 B5 B6 B7 B8 Battery scenario Base BIO1 BIO2 BIO3 BIO4 BIO5 B2 B3 B4 B5 B6 B7 B8 Battery scenario Base BIO1 BIO2 BIO3 BIO4 BIO5 B2 B3 B4 B5 B6 B7 B8 Battery scenario Base BIO1 BIO2 BIO3 BIO4 BIO5 Possible income band needed to inverst without subsidy in 25 22

23 Decreasing need for subsidising solar and wind due to continued cost reductions Profitability of Wind 216 vs 25, Germany Profitability of Solar 216 vs 25, Germany Power price increase Cost decrease Power price increase Cost decrease Power price Wind income Needed subsidy Cost of wind Power price Wind income Needed subsidy Cost of wind Power price Solar income Needed subsidy Cost of solar Power price Solar income Needed subsidy Cost of solar *Cost figures partly from previous auctions and BNEF assumptions for 25. Modelled power prices and solar/wind income with the BID model 23

24 High investment costs to reach 25 targets.. but lower fuel cost New capacity invested BID Countries* Unit cost** Investment cost 6 3, , GW/year 4 3 Mill /MW 2,5 2, 1,5 Mrd /year , 6 1, Solar Pump & battery Wind Biomass, Solar Pump & battery Wind Biomass Solar Pump & battery Wind Biomass * Nordic, Baltic, Benelux, Germany, Austria, Switzerland, Poland, UK, France ** Total capital costs incl. financial costs, no grid investments included 24

25 Fuel cost to 25 Lower consumption of coal and gas, but higher prices Lower total fuel cost towards Fuel cost BID countries* Mrd /year Fuel Capex** Sum Mrd Nuclear Coal Gas Bio * Nordic, Baltic, Benelux, Germany, Austria, Switzerland, Poland, UK, France ** Total capital costs incl. financial costs, no grid investments included 25

26 Potential for electrification in Europe Fossil fuel consumption in Europe was 725 MTOE (84 TWh) in 213 Fossil fuel consumption pr sector MTOE 116 European electricity demand and possible potential for electrification pr sector 3 25 Power consumption was 277 TWh the same year % electrification for petroleum in transport, and 5% for the rest will contribute to more than doubling of power consumption TWh Petroleum Transport Gas Industry Petroleum Households Other Gas Households Gas Service Coal Industry Electricity 213 Potential electrification 25 Industry Transport Households Services Source: Eurostat 26

27 6 TWh electrification implicitly included in Long Term Forecast Assumed 1% yearly efficiency in power consumption Radical electrification may increase the power demand to 45 TWh in the BID countries TWh 25 Energy efficiency Electrification Demand historic GDP elasticity Hydro forecast Energy efficiency Radical electrification 27

28 Scenario map The project explained Collecting weather years Reference Base scenario Chose a representative collection of ten years Gradually increasing capacity Max. IC capacity Maximised IC capacity subject to cost constraint 12, MW added in Norway Hydropower expansion Nordic wind expansion 1 TWh added in Norway/Sweden IC capacity increase Profitable capacity added NOR-SWE Constraint Wind reduction Bio reduction Reduced capacity in Poland and Germany 28