PowerGen EU shifts emphasis from fossil fuels to renewables

EUROPEAN SHOW SHIFTS EMPHASIS FROM FOSSIL FUELS TO RENEWABLES

Drew Robb

PowerGen EU has been a mainstay of the energy event circuit for decades. But a changing of the guard happened in Paris at the November 2019 show. The PowerGen brand was already partially submerged by being co-located with European Utility Week. Now both names have been replaced by a new event known as Enlit.

This appears to signal the show morphing into more of a renewable energy and transmission event. This may mirror current EU policy direction and the energy procurement realities on the ground. But it leaves a hole for the traditional generation supply chain.

Renewable emphasis

From the opening keynote, renewable energy policy was the primary message.

“Europe is at the forefront of renewable energy goals, with a target of 32% renewables by 2030,” said Francesco La Camera, Director General of the International Renewable Energy Agency (IRENA). “The business case for renewables continues to strengthen.”

Denmark, he added, has 50% of its power coming from renewables, and the UK, Germany, Portugal and Spain are all above 20%. He said that adding more renewables onto the grid is an important part of an overall trend: Electrification is becoming the central energy carrier.

Philippe Monloubou, CEO of French electricity distribution system operator (DSO) Enedis, laid out how his company is supporting this trend. It intends to complete the deployment of a smart grid, smart meters and end-to-end digitalization by 2022.

“The energy transition is an industrial reality,” said Monloubou.

Siemens, too, is very much on board with the message. Cedrik Neike, CEO Smart Infrastructure & a member of the board at Siemens, was another in a long line of speakers promoting electrification, digitalization and renewable energy. But Neike noted some of the problems inherent in this transformation.

Back in 1990, he said, Germany had 1,000 power plants. Today, there are two million separate power producers (including home owners). The grid is not designed to deal with this. He said that a billion Euros a year of European wind power is wasted. It is produced in the north and cannot be gotten to areas where it is needed such as Bavaria. Thus, further decentralization and digitalization are required.

He also advocated that electric grids and building power systems converge.

“38% of global power is consumed in buildings and half of that is wasted,” said Neike.

Siemens intends to be carbon neutral by 2030. Already, it has decentralized power production at its manufacturing plants and has put electric vehicles on the road as part of its fleet.

Livio Gallo, Head of Global Infrastructure & Networks at energy production & distribution company Enel, was bullish about the prospects for renewable power in Europe. He said the forecasts of the past have underestimated growth. “Renewable capacity is set to double again by 2030 driven by wind and solar,” he said.

Finding grid balance

A panel followed the keynotes. Jose Torres, CEO of EDP Distribuicao of Portugal, Philippe Monloubou, CEO of Enedis, Thierry Trouve, CEO of GRTgaz, Olivier Grabette, Vice CEO of RTE and Chris Peeters, CEO of Elia Group argued about the balance between traditional and renewable generation sources.

“It is a real challenge to establish the infrastructure needed to bring bulk renewables to markets; many don’t want that infrastructure nearby,” said Peeters. “It is also difficult to implement digitalization to provide grid flexibility.”

Trouve made it clear that balance was needed if power was to remain affordable. “Customers have to buy your power,” he said. “We need gas for flexibility, storage and price containment.”

But that doesn’t mean that gas turbine (GT) fuels will remain as they are today. Thomas Thiemann, President of EU Turbines (European Association of gas and steam turbine manufacturers) said the immediate benefits of GTs include decarbonization, flexibility, grid stability and sector coupling (the convergence of gas, electric and heat grids).

“Decarbonization is already happening via the coal-to-gas switch,” said Thiemann. “Now, we see our task as making turbines ready for renewable fuels.”

He outlined the role GTs will play in carbon-neutral systems: GTs can be used to generate power and heat from green hydrogen (using excess renewable capacity to produce hydrogen via electrolysis); the existing gas network can be used for seasonal energy storage; and existing assets can be adapted to provide dispatchable energy using renewable fuels.

“Dispatchable power is extremely high value,” said Thiemann. “Gas turbines ensure there is enough grid in real time.”

He believes hydrogen is too valuable to be burned in turbines, at least for the moment. However, all major European turbine manufacturers have agreed to deliver turbines that can burn 20% hydrogen by 2020 and 100% hydrogen by 2030.

“We are also building turbines that can be upgraded for green fuel,” said Thiemann.

Gas boom

Conventional power did not completely disappear from the PowerGen EU/Enlit program. The Gas Track was kicked off by Domenico De Luca CEO of Axpo Solutions. He made it clear that the EU was going to be using natural gas for some time to come. LNG use in Europe is very much on the rise.

“Gas is needed to bridge the gap for many years to come,” he said.

He introduced Gergely Molnar, a gas analyst from the International Energy Agency (IEA).

“2018 was a golden year for natural gas, with global demand growing by 4.6% and U.S. demand growing by 10%,” he said.

Overall, natural gas was by far the fuel source that experienced the healthiest growth in 2018. According to the IEA, 45% of global demand growth was fulfilled by gas, followed by renewables at 24%, oil at 8% and coal at 7%.

Chinese demand for natural gas rose by 18% in 2018 to make it the biggest gas importer. This is being driven by a major shift from coal to gas to reduce smog and air pollution.

But overall demand may be slowing. Molnar said U.S. growth dropped to below 3% for the first half of 2019. IEA forecasts natural gas consumption to rise by 1.6% per year for the next several years. China will account for over 40% of the rise in global gas consumption through 2024.

Industry will account for more than 40% of global gas demand growth between now and 2024 mainly due to greater use of feedstock for petrochemicals, industrial processes and fertilizers. But the power sector is expected to experience an increase of around 20%.

The U.S. and China will be responsible for almost half of the additional production, with the U.S dominating natural gas exports.

It is a very different picture in Europe. “We see little growth in natural gas demand in Europe despite the phase out of coal and nuclear power,” said Molnar.

LNG expansion

Global LNG trade grew at an average of 10% per annum between 2016 and 2018 with Asia and Europe being the hottest areas. The U.S. is expected to be the largest LNG exporter through 2024 with China being the biggest buyer. Emerging Asia is also a major importer. Australian exports are expected to plateau while Qatar is preparing for a major expansion. Egypt, too, has begun exporting LNG.

“Europe absorbed 70% of additional LNG growth in 2019,” said Molnar. “Coal-to-gas switching in 2019 brought about 40 million tons of CO reduction.”

He noted that investment decisions about new LNG projects faltered after 2013 but they picked up again in 2018 and 2019. Contracts, too, are getting larger, longer and more flexible. More than half the big deals that have been green-lighted are in the U.S., with others in Mozambique and Pacific Russia.

One side benefit of an expanding, more flexible and more geographically diverse LNG market is that the traditional premium price for Asian LNG is disappearing.

“We could be entering an era where gas prices are converging instead of there being a big price rise for LNG to Asia,” said Molnar.

He concluded that natural gas demand will continue to grow in the medium-term, driven by emerging Asian economies and led by China. Although production increases are predicted in many regions, most of the additional exports will come from U.S. LNG and the Eurasian pipeline.

LNG trade remains the main driver of gas market globalization and a major source of incremental supply for Asia and Europe. This growth is supported by a rebound in investment, but additional capacity development will be necessary.

The LNG theme continued with Roxana Caliminte, Policy Advisor for Gas Infrastructure Europe. She made it clear that more LNG is coming to Europe. There are already 36 LNG terminals dotting the European coastline including floating terminals. Another six are under construction and 21 more are planned.

These LNG terminals help ensure the security of natural gas supply as Europe is no longer completely dependent on pipeline gas.

“Gas prices are going down, and more demand is coming so we need more LNG terminals,” said Caliminte. “With Asian demand going down, and the phasing out of coal, LNG is coming to Europe.”

The biggest importers are Spain, Turkey, France, Italy and UK in that order. The primary suppliers are Russia, Qatar, U.S., Algeria and Nigeria. European terminals have learned to be flexible to react quickly to world prices. From these terminals, LNG is trucked or transported by train throughout the continent. Tanker loads have risen from 40,000 in 2013 to almost 60,000 in 2018.

She commented that growing LNG is a complement to renewables in reducing emissions. Long term, she believes that the LNG infrastructure could be used to convert renewable energy in liquids, such as ammonia and hydrogen that could be stored in existing LNG terminals.

Renewable surge

Phillippe Vie, Head of the Global Utilities Sector at the Capgemini consultancy, provided highlights from the annual World Energy Markets Observatory. He stated that the hard costs of photovoltaic (PV) solar are half of what they were in 2000.

Onshore wind costs decreased by 13% compared to the year before, with offshore wind costs dropping 1%. Lithium-ion battery costs, meanwhile, have dropped 8% to 35% every year since 2010. However, green hydrogen, said Vie, is too expensive. Its development depends on political will.

Vie cautioned the audience that levelized cost of electricity (LCOE) figures for renewables can be misleading as they do not consider transmission costs and intermittency.

“Today, a large grid composed of 100% renewables is unmanageable,” he said. “But cost declines will continue to put pressure on fossil-fuel generation.”

He covered the growth in EVs, with the number of car models available expected to double in Europe over the next two years. Norway already has EVs comprising 45% of new car sales. But a recharging bottleneck may impact expansion.

The oil market, meanwhile, is oversupplied. U.S. political pressure and sanctions on Venezuela and Iran are preventing oil from those regions from flowing onto the market. Without political tension, a price drop in oil is quite possible. Gas prices, too, are decreasing.

Despite the renewable push, coal extraction and coal-based electricity generation continue to rise. Asia Pacific accounted for 73% of coal production worldwide in 2018. Global consumption grew by 4% that year despite the steady phase-out of coal plants in Europe and North America.

“Europe and the U.S. are doing the best on CO2 emission reductions,” said Vie. “Asian Pacific and Indian emissions continue to grow.”

Like Molnar, he said gas use will increase in the short- and medium-term in almost all regions except Europe. While hydrogen, fusion, battery storage and other technologies are touted as being the next innovation to transform the energy sector, Capgemini does not expect a major energy breakthrough to mature in the next decade or two.

Instead, many elements will contribute to incremental improvements: energy efficiency, renewable energy growth, storage technology, increasing the hydrogen mix in natural gas, digitalization, and more.

The closing panel discussed the role of natural gas in Europe's future.[/caption]

Decarbonization limitations

PowerGen EU ended with a panel of contrasting views. Jorgo Chatzimarkakis, Secretary General of Hydrogen Europe, expressed strong support for decarbonization.

“The entire gas grid will be decarbonized or transitioned to renewable gas,” he said.

But he expressed concerns about physical limitations. Biogas and solar, for example, require a lot of land. And renewable transmission is curtailed by the design of the grid. His proposal is to use excess renewable energy to produce hydrogen and transmit it via pipelines.

“It is ten to twenty times cheaper to transport a molecule in the gas grid than an electron in the power grid,” said Chatzimarkakis.

Edouard Sauvage, CEO of French gas distribution firm GRDF, offered an alternate view. His expectation is that natural gas has a bright future in Europe. It will be used in vehicles and blended with some hydrogen, but it will be very much in use in Europe for many decades to come.

Similarly, Pier Lorenzo Dell’Orco Chief Commercial Officer of Italgas, played devil’s advocate with the vision that a transition away from natural gas will be completed over the next 10 years. He does not think it is possible in 30 years.

“Perhaps 60% electrification is possible by 2050, but there remains lots of space for natural gas,” he said. “It remains the backbone of the energy system with pipelines giving two months of natural gas storage for Europe.”

Dell’Orco outlined the value of increased natural gas usage in bringing about a drastic reduction in emissions by displacing coal and oil in many sectors, not just power. He called for more investment in natural gas infrastructure, both to support current supply and to be able deliver a mix of different fuels in the future.

Hans Kreisel, Chairman of European energy distribution advocacy Geode, emphasized the value of the gas infrastructure in a greener future. He said fuels needed to be flexible and high density. Green gas will not solve the entire problem. Sector coupling is needed to greatly lower emissions.

Daniela Gentile, Executive Vice President of Product and Technology at Ansaldo Energia, stressed flexible solutions that included renewables and natural gas.

“Natural gas helps stabilize the grid to enable the deployment of more renewables,” she said. “Fast-start GTs that can ramp up and down rapidly are required to compensate for intermittent generation sources.”

Balance, she said, was required in policy and in implementation. There is no silver bullet for energy generation and emissions reduction. There must be harmony between demand, production, storage and energy distribution.

Giuseppe Viscardi, Senior Vice President for Regulatory Affairs, Gas and Power at Eni, also voiced a positive outlook for gas globally.

“IEA figures show gas consumption continuing to increase, driven by higher energy demand and the coal-to-gas switch,” he said. “Long term, demand is going to rise almost everywhere except Europe and Japan.”

That equates to a huge increase in consumption by 2040 (although Europe will see a slight decline by 2030). He called this a golden age for gas. Natural gas can help achieve decarbonization goals by displacing coal.

“While we wait for a zero-carbon breakthrough, gas is already helping countries to decarbonize and has become the preferred choice when paired with renewables,” said Viscardi. “Gas remains in the future of Europe.”