Maintaining the Power Balance in Europe

Maintaining the Power Balance in Europe

By Nigel Blackaby

The challenge of finding a balance between affordable, clean and reliable electricity is becoming ever more acute for the European power sector. Change is sweeping the European power industry as the integration of renewables gains pace. How Europe navigates through these dramatic changes will fascinate power decision makers globally. During the transition, it is essential for industry professionals to put their heads together on a regular basis.

(c) Troy Holden

The debate over the role of renewables in future power generation infrastructure has moved on considerably: the question is no longer ‘if’ the transition will take place, but ‘how’ an industry traditionally comprised of large units of coal, gas or nuclear power generation running 24/7 as base load is going to adapt to accommodate it.

Renewables and low carbon technologies are only going to increase as a proportion of the installed base, yet genuine integration of these onto European grids has been relatively slow and the practical implications of this transformation are becoming increasingly evident. Many European nations are actually burning more coal now than in recent years, due largely to the drop in coal prices relative to gas prices (the shale boom in the US leading to a flood of cheap coal on world markets) and because the collapse of the EU’s emissions trading scheme has enabled nations to rely more heavily on older, less clean and efficient coal plants still in operation. As such, Europe is struggling on the delivery of its clean energy goal and the provision of affordable power.

The lights may not have gone out yet, but experts predict that within the next two years, some European countries will see power cuts, brownouts or rolling blackouts as aging infrastructure fails to cover the intermittency of renewable power

The lights may not have gone out yet, but experts predict that within the next two years, some European countries will see power cuts, brownouts or rolling blackouts as aging infrastructure fails to cover the intermittency of renewable power. The fact is that the European power industry has so far failed to put in place the necessary framework to support renewed investment in its aging infrastructure. Add in the situation that modern gas fired power plants across Europe are being mothballed or closed down because they don’t fit the current market model and it becomes clear that the industry urgently needs renewed focus.

German microcosm

Nowhere has the scale and complexity of the challenge been more apparent than Germany, where the politically driven ‘Energiewende’ (Energy Transition) has placed the balancing act that Europe’s power industry must perform at the heart of business and political discussion. On the one hand, consumers want clean and affordable energy, politicians want reliable supply, greater interconnection and a single market for electricity; on the other, the rise in renewables is placing the margins of established utilities under immense pressure, whilst replacing conventional power with intermittent sources that ultimately are less reliable and more costly for the electricity system as a whole.

Germany’s mandated phase-out of nuclear power and boom in renewable energy has cut dependency on major utilities to the extent that some have seen the value of their balance sheet drop by half since 2008. This has had a significant impact on the ability of these companies to invest in the infrastructure required to support for example, the transmission of electricity to heavy load areas in South Germany from the offshore wind turbines in the North.

To address this, RWE plans to adopt a new ‘capital-light’ approach under which it will partner with third parties to fund more expensive renewable projects. It is also looking to expand in the retail market, in areas such as energy services and management. Meanwhile, the role of Germany’s municipal utilities (‘Stadtwerke’) has grown in prominence as dependence on larger players declines.

Municipal utilities are majority state-owned, have more flexibility in that they offer combined heat and power, and in some cases water and steam, and their success is cited by those pushing for a renationalising of the power industry. Another model being explored by municipals in partnership with technology providers is the creation of ‘virtual power plants’, in which a number of small-scale, distributed energy sources are pooled and operated as a single installation.

Interconnection and decentralisation

It will be vital for utilities to exploit this invaluable expertise and to position themselves more as enablers of the system, rather than centralised producers of power

Certainly, utilities across Europe will need to reconfigure their business models moving forward. Their core expertise lies in constructing and operating plants, but they own assets across the value chain – i.e. power generation, transmission grid, and renewables. It will be vital for utilities to exploit this invaluable expertise and to position themselves more as enablers of the system, rather than centralised producers of power.

Decentralisation of the system is already apparent in Germany and other regions such as Scandinavia and Eastern Europe where municipal models are already established, but outside these markets, other solutions will be needed. One option is greater cross-border interconnectivity, but this too can be a mixed blessing. Poland’s interconnection with Germany for example, has seen the influx of surplus German wind power place its domestic power plants under extreme pressure.

In ideal generating conditions renewables can lead to oversupply, but since their delivery is intermittent, conventional power plants must back them up in order to guarantee supply and balance of the grid. Traditional power plants are large scale, operating at extremely high pressures and temperatures, and cannot simply be fired up and down on demand. Like a car, they cannot be taken on frequent short journeys without requiring shorter gaps between servicing. This type of maintenance can take large plants off-grid, which has serious implications for both cost and security of supply.

Keeping the lights on

The economic slowdown has meant the political focus has been on financial markets, with energy pushed to the sidelines. But as the economy recovers and the banks become stronger, the power industry needs to ensure it doesn’t become the next industry in crisis. At a time when the market is in transition, and with ongoing conflict between European energy policies and those of individual member states, it is all the more important for industry professionals to put their heads together.

 

Nigel Blackaby is Conference Director of POWER-GEN Europe2014. “Navigating the transition to a low carbon future for the power industry provides the pressing theme for energy professionals gathering at POWER-GEN Europe 2014. Combining POWER-GEN Europe and Renewables Energy World, POWER-GEN Europe 2014 conference and exhibition will address strategic and operational questions in relation to the European power business across conventional, nuclear and renewable generation, and will feature the latest developments in storage and integration technologies such as Smart Grid.” POWER GEN Europe 2014 will be held on 3-5 June 2014.