Natural gas becalmed as wind blows ahead in European power
OREANDA-NEWS. Roll over Chicago, welcome to Europe: the Windy Continent.
In just 10 years’ time, wind is forecast to overtake natural gas as the biggest single power generation source by installed capacity in Europe.
Renewables as a whole, including solar, hydropower and biomass, would account for more than half of installed capacity by 2025.
Given Europe is one of the world’s largest integrated power markets with half a billion customers, this is a big event in itself. But it also has ramifications for European oil and natural gas demand in transport and heating.
The rise of renewables, with their low marginal costs that depress wholesale power prices, could create a new world of cheap, clean electricity. In this world, electric cars and heating become much more attractive, and oil and natural gas risk also losing market share in these sectors.
All Europe has to do is figure out how to keep the lights on during cloudy, calm days — which might not be cheap.
But first let’s look at the forecast more closely. It comes from the best estimate scenario in the latest annual outlook published by formal EU electricity transmission system operators’ body Entso-e this month.
The outlook covers the 41 Entso-e TSO members in 34 countries, plus countries synchronously connected to the continental grid, such as Albania and Ukraine-West. These are the people that have to build the infrastructure to carry the electricity, so they have a strong interest in figuring out where that electricity will come from.According to Entso-e’s scenario, wind on its own would reach 255 GW of installed capacity by 2025, which is 22% of the total 1,167 GW forecast and up 80% on the 142 GW forecast for 2016.
Solar is forecast to reach 139 GW in 2025, 12% of the total and up 60% on the 88 GW forecast for 2016.
Natural gas, meanwhile, is forecast to reach 229 GW by 2025, up just 11% on the 207 GW forecast for 2016.
The speed of wind
According to the scenario, installed wind capacity is forecast to grow more than seven times as fast as natural gas, and solar more than five times as fast.
Total installed capacity is forecast to grow 14%, slower than wind or solar, but faster than natural gas.
Given all this, natural gas is doing relatively well by maintaining its 20% share of the forecast total over the 10 years, but by 2025 is outstripped by wind with 22%.
The big losers are nuclear, hard coal and lignite, which are all forecast to have lower installed capacity and to lose market share.
Even if the specific figures prove wide of the mark eventually, the trend is clear. There will be far more renewables in the European power system in 2025 than now. This is no real surprise given that this an EU political goal — unless the surprise is in achieving it.
EU targets
The EU, which has 28 member countries, has a binding target to source 20% of its final energy demand from renewables by 2020. That equates to about a 35% renewables share in electricity, with the rest coming from heating and transport.
EU leaders have committed to source at least 27% of final energy demand from renewables by 2030, which equates to a nearly 50% renewables share of electricity, though this will not be binding at national level.
It’s not clear yet quite how that will work, as EU national governments don’t have a great track record in meeting non-binding targets, but the European Commission, which drafts EU legislation, is working on draft proposals for a governance system.
Meanwhile, the more pressing issue is how to make sure the European grid can safely integrate large amounts of the variable generation typical of wind and solar, which generate based on the weather rather than demand.
The European Commission is also working on this, and plans to publish a consultation paper on market design on July 15, followed by formal draft legislation next year.
Cross-border markets coming to the rescue?
Based on unofficial leaks, the consultation will ask how to develop the flexibility needed to cope with more variable generation over shorter periods, higher price volatility and potentially very high prices that reflect scarcity. For example, on a cloudy, calm day.
The European Commission is pinning its hopes on cross-border markets coming to the rescue — day-ahead, intraday and balancing, for example — to give the needed flexibility a clear price and stimulate products, services and investments promoting it.
What’s clear is that no one is waiting to see what the European Commission’s market design proposals will be, given that they would likely only apply from 2018 or later, given how long it takes to approve EU legislation.
National governments such as France and the UK have already developed capacity mechanisms to ensure long-term system stability, while TSOs and power exchanges have already developed a European cross-border day-ahead market and hope to launch an intraday one in mid-2017.
The role of the European Commission’s proposals then will be to get all 28 national governments talking to each other about market design, and seeing if they can align their different approaches, given their different national circumstances. This is particularly critical for Germany, given its influence on its neighbors’ power grids and markets.
The future of the EU’s internal electricity market — an initiative started more than 20 years ago — hangs in the balance.
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