European energy markets observatory findings edition #15

European Energy
Markets Observatory
(EEMO)
2012 & Winter 2012/2013
15th edition

An overview of the European Energy Markets
 Energy consumption is stagnating but oil prices remain high
 Energy efficiency is a strategic key factor
 Unconventional gas production continues to develop
 Renewable energies development is slowed down by subsidies decreases linked to public deficits
 Energy transitions: German and French examples
 Chaotic electricity and gas markets are threatening security of supply

 Utilities‟ financial situation is still difficult
 Conclusions
European Energy Markets Observatory
Copyright © Capgemini 2012. All Rights Reserved

2

In Europe, the economic crisis worsened during 2012
impacting both electricity and gas consumptions

The hope for a strong recovery has vanished
and forecasts on global and European
economies are prudent

5,500

10

Gas consumption

8

5,000

6
-2.2%

4
2

0
GDP change

4,000

%

4,500

TWh

 In 2012, Europe witnessed a Gross Domestic Product
negative (GDP) growth of -0.4% and a forecasted zero
GDP growth for 2013
 While the US have started to recover (with a 2.2% GDP
growth in 2012 and a 2.4% growth in Q1 2013), the BRICS
growth, still significantly higher than in advanced
countries, has slowed down
 Economic slowdown and energy efficiency measures are
limiting the energy consumption. New electricity usages
are fueling electricity consumption (e.g. ITC needs that
account for ~10% of the global electricity consumption)
 Gas consumption is correlated to direct usages and to
gas-fired generation plants needs; the latter represents
27% of the total consumption. This share that had
increased in the past should start to decrease

Correlation between EU-27 electricity
and gas consumptions* and GDP

-2
-4

3,500

-6

Electricity consumption
-0.2%

3,000

-8
-10

Source: ENTSO-E, Eurogas, IMF – Capgemini analysis, EEMO15

*Non weather corrected


3

Oil prices remain high due to Arab countries (notably
Syria) instability and Iran‟s situation
Crude oil spot – Brent in US dollars and in Euros

 In November 2013, Iran agreed a deal to
curb some of its nuclear activities in
return for easing of international sanctions
against it
 In January 2014, protests in Libya halted
for two weeks
 China’s manufacturing index barely grew
in December 2013
 The US market is well supplied

160
140

USD
EUR

120
100

Oil price

 Summer 2013 saw missing supplies in
the Middle East and North Africa (up to 3
mb/d, i.e. about 3.5% of global demand)
 At the beginning of September 2013, oil
prices climbed again on the markets
due to concerns over military
retaliations in Syria by Western
countries
 And they are currently on a
decreasing trend for several reasons:

80
60
40
20
0

Source: BP

Analysts views on oil prices
mid-term evolution are not aligned


4

European gas prices are much higher than in the
US but below gas-hungry Asia
 Thanks to shale gas, gas prices
are low in the US
 In Japan, the Fukushima
accident resulted into increased
gas importations and high prices.
In December 2013, these
prices were more than four
times the US price
 European Utilities are supplied
mainly through long-term
contracts indexed on oil prices.
As the oil price has remained
high, the European gas prices
are about three times more
than in the US.
However, Utilities have
successfully obtained a share of
around 40%-50% of spot price
in the long-term contracts
indexation

Gas prices
Monthly average price
Europe US Japan

LT indexed + spot 46%
Germany import average price
NBP
Japan - monthly
Henry Hub

Source: Focus gaz

Spot price share in gas long-term contracts
indexation should continue to increase

5



 Conclusions

6

Energy efficiency measures are difficult to
implement

 Passive measures include: home
insulation, improved energy efficient
appliances, stand-by modes reduction and
eco-designed construction & equipments
 Some active measures aim to increase the
financial benefit of energy savings through
dynamic tariffs and higher energy prices.
Other active measures are designed to
increase customer awareness
(campaigns, more accurate information
through smart meters,…)

1,850

EU-27 Primary energy consumption
[Mtoe]

 A Capgemini Consulting’s* study shows
that peak shaving potential is
significant (12-14%) as customers are
ready to differ their electricity devices
usage from peak to non-peak hours while
electricity savings potential in absolute
terms, is more limited (2-3%)
 Successful energy efficiency programs
leverage passive and active actions:

EU-27 primary energy consumption

1,800
1,750

1,700

-9%

1,650
1,600
1,550
1,500
1,450
1990

Historical evolution of primary energy consumption
Path to reach 2020 target
2020 target for EU-27
Projection with current measures in place
(as per the March 2011 EU Energy Efficiency Plan)
New objective defined in the October 2012 EU
Energy Efficiency Directive

1995

2000

-17%

-20%

2005

2010

2015

2020

Source: Eurostat, BP statistical report 2013 – Capgemini analysis, EEMO15

While energy efficiency is satisfactory in the
industrial sector, the problems lie in the
transportation and buildings sectors
*Demand Response study – Capgemini Consulting, VaasaETT and Enerdata, 2012


7

Customers information and education is a key
element for successful energy efficiency programs
 In Japan, after March 2011 tsunami, a target energy savings of 15% was set for summer 2011.
Large electricity users were ordered to restrict their consumption

Supply

Demand
Decommissioned sites
following the
earthquake

Decreased hydro capacity
following damage caused by
torrential rains

15.57 million
kW

Peak
In summer 2011
(9 /8/2011)

16.58
Million kW

Summer 2010
(result )

13.03

12.46

Million kW

Million kW

9/8/2011

5/8/2010

Peak
In summer 2010
(5 /8/2010)

9/8/2011

Summer 2011
(result)

Consumption restrictions for large
users (Art. 27 of Law on the
electricity sector): 550 hours
between July 1 and September 9.
Implementation of projects to
support energy conservation and
information meetings for small
users.
Help for the installation of new and
additional private power generation

Lower temperatures compared to the
previous year
Decline in demand following the
earthquake
Energy conservation efforts

Summer 2011
(result)

Demand decreased by more than 4 GW (from 16.58 GW in the summer
2010 to 12.46 GW in the summer 2011), thus avoiding blackout

8

Various devices should contribute to energy efficiency: smart
meters, demand side management, curtailment or remote controls
 Many Nordic countries, Spain and
the UK have started to deploy
smart meters

Smart meters deployment status in Europe (as of July 2013)
Finland
E 86% meters allowing hourly
reading deployed by end-2012.
To be finalized end-2013

Mass roll-out finalized
Mass roll-out by 2020 wellengaged

Norway

Netherlands DF

I

NO

E Deployment scheduled between 2013 and 2017

Sweden

EE

E 100% smart meters
rolled-out in 2009

LV

DK

IE

France

UK
Belgium

E Wallonia: Roll-out over 30
+ years preferred
G Flanders: pilot underway,
B-case re-evaluation by
end-2013

E Roll-out of the 35 m smart meters
decided in July 2013
G Roll-out of the 11 m smart meters
scheduled during the same period
as for electricity (2016-2022)

SK
Austria

PT
E No specific legislation nor B-case.
Pilots underway.

CZ
AT

Spain
E

Roll-out underway, to be finalized by 2018.
Regulation on data access and protection
underway. Pilots end-2012 and 2013 to test
demand response
G Roll-out not decided yet

Source: Various industry sources – Capgemini analysis, EEMO15

HU

Czech Republic

SI

E Legislation adopted in April 2012:
2015: 10% deployed
2017: 70% deployed
2019: 95% deployed

I

E Large scale pilots underway (~0.5 m meters by mid2012). Government decision expected in 2013
following B-case publication
G Several thousands meters deployed. Other pilots in
2013. Roll-out scheduled in 2014

LU

CH

E Pilots underway. Mass roll-out
+ and planning not decided yet
G

Germany

PL

DE

BE

FR

ES
Portugal

NL

DF

Lithuania
E B-case negative. Roll-out rejected

Poland
LT

DF

E 2008-2011: Studies and pilots
+ 2012-2014: Requirements
G definition
2014-2015: Build & tests
2015-2019: National roll-out

Dual fuel deployment

Estonia
SE

E Strategy defined in 2012.
52% smart meters or
alternative solutions deployed
by several DSOs by end-2012

E B-case re-examined end-2012.
+ Roll-out to start in Autumn 2015 until end-2020.
G 53 m electricity and gas smart meters to be
installed. Extensive government intervention.

DSO not in the lead of deployment

DF

FI
Denmark

DF

Ireland

Mass roll-out rejected
I

E Several pilots underway.
+ Legislation adopted in 2011.
G Voluntary installations. Roll-out from
2014 to 2020 (about 500,000 smart
meters installed by end-2013)

UK

Debate in progress

E Law adopted in July 2011: mandatory
roll-out of automated reading. To be
deployed by end-2016

RO

E CEZ‟s pilot ended in 2011. Rollout rejected.

Italy
IT

E 100% smart meters rolled-out
in 2009
BG
G 80% smart meters to be
installed in 2016.
Renegotiation of concessions
underway

GR

Hungary
E Pilots underway. Waiting for
B-case conclusions in 2013
G Multi-fluids pilots underway
(elec, gas, water) at RWE

Greece
E Roll-out underway for
60,000 B2C large clients
G Project to extend roll-out to
gas and water meters in
Athens



Finland should complete its 5.1
million smart meters deployment by
end-2013, becoming thus the 3rd
European country, after Italy and
Sweden, to finalize the mass roll-out

 In France, the decision to deploy
electrical smart meters (cost
estimated between €5 and 7 billion
for the 35 million meters) was
taken early July 2013 with a first
phase of 3 million meters to be
installed by 2016
 In August 2013, the French
government approved the 11
million gas smart meters
deployment to take place on the
2016-2022 period

Future capacity markets will include
a regulated reward of curtailment

9




 Conclusions

10

Unconventional oil and gas development is
changing the paradigm
Reserves (in years of consumption) when taking
into account unconventional resources

60200-250

100
100

Source: IFP EN, IEA

50 70

Major unconventional natural gas
resources

Source: IEA, Golden Rules for a Golden Age of Gas, May 2012

11

Shale gas development consequences in the US
 In 2012, shale gas accounted for 34% of total gas
production in the US vs. 25% in 2010.
This share should grow to 50% in 2040*
 Four exports terminals got authorizations
(out of the 26 applications) and others should follow:





Total gas production per type of source – in Tcf

Freeport in Texas
Cheniere Energy‟s Sabine Pass in Louisiana
Lake Charles Exports in Louisiana
Lusby in Maryland

 These unconventional gas development, that are
exploited at very competitive costs, favored the
repatriation in the US of energy-intensive industries
and created about industrial 600,000 jobs (in addition to
numerous direct jobs)
 The replacement of coal by gas in fossil-fueled
generation plants has decreased US greenhouse gas
emissions (-2.4% in 2011vs. 2010 and -1.6% in 2012
vs. 2011)

Source: EIA

The debate on US
unconventional gas
exportation is progressing

*EIA (Energy Information Administration) estimation

12

By 2030, thanks to unconventional gas exploitation, Europe‟s
dependency to gas imports could be reduced to 60% instead of the
projected 80%*
Shale gas development status in Europe (as of September 2013)
Germany
• Nov. 2011: moratorium on fracking in N. Rhine Westphalia
• June 2012: between 700 and 2,300 bcm of recoverable
reserves estimated by the German General Institute for
Geosciences and Natural Resources
• February 2013: draft law to forbid fracking in areas with
groundwater tables and to make impact assessments before
permits issuance more systematic – under discussion until
September 2013 legislative elections

Lithuania
NO
SE

EE

Source: IEA, EIA, various industry-specific newsletters – Capgemini analysis, EEMO15

• June 2012: 50 bcm of recoverable
reserves estimated by the Lithuanian
State Geological Service
• April 2013: Revision of the law to
toughen environmental constraints

LV

UK

DK

• December 2012: lifting of the moratorium on fracking
• June 2013: new shale gas study from the British Geological
Survey raises the potential volume of shale gas in the
Bowland Basin and beyond to 40,000 bcm
• July 2013: introduction of incentive fiscal measures (30% tax
rate on shale gas production vs. 62% for conventional oil and
gas production)

UK

LT

NL
BE

Poland
• June 2012: ExxonMobil abandons its
Polish exploration program due to weak
flow rates from its first well
• July 2012: Five state-controlled
companies launch a €408 million
exploration program
• January 2013: Law to regulate the
market under preparation
• August 2013: 8,000 m3/d of gas (2.9
mcm/y) extracted since end-July 2013

PL
DE
SK

Netherlands

HU

• H2 2012: publication of the results of a study launched in
July 2011 on the potential risks of shale gas exploration
• December 2012: suspension of drilling
• August 2013: government report concluding environmental
risks from fracking would be manageable
• August 2013: reserves estimated between 2,400 to 11,000
bcm by TNO (independent research)

FR

SI

BG

France

PT

Spain
• March 2013: 1,415 bcm of recoverable reserves
estimated by the Spanish Council of Mining Engineers
• April 2013: introduction of a moratorium on fracking in
Cantabria
• July 2013: government approves shale gas
exploration

Fracking ban

*Report from the European Commission

RO

ES

• June 2011: introduction of a moratorium on fracking
• October 2011: all exploration permits removed
• September 2012: government confirms its
opposition to fracking and engages a revision of the
mining code
• June 2013: parliamentary report recommends to
ease the fracking ban to assess reserves

Romania
• May 2012: government imposes a
moratorium on fracking
• April 2013: Lifting of the moratorium but
public pressure to maintain it

Bulgaria
• January 2012: government revokes Chevron‟s exploration
permit and parliament introduces a moratorium on fracking
• June 2012: parliament eases certain restrictions but
fracking remains forbidden

Fracking ban in one region or under discussion

France is increasingly isolated in Europe on its decision to ban fracking

13

US unconventional gas development consequences
in Europe
 Unconventional gas development in
Europe would endanger Gazprom and
other exporters position (Algeria, Qatar)
 Russia has significant gas reserves and if
infrastructures were available, it could flood
Europe with gas, triggering a price war
 But Russia has increasing domestic energy
needs to satisfy
 It is also probable that US unconventional
gas producers will obtain more
authorizations to export
 In both cases, a low gas price would have a
positive impact on industrial development

US gas exportations scenarios – projected
price impact from 2016 to 2030
($/MMBtu, real 2012 $)

If some nuclear plants were given the
authorization to restart in Japan, the
impact of US unconventional gas
exportations would be more
important for Europe


14




 Conclusions

15

The quick development of renewable energies has created power
overcapacities and further complicates grid management
Growth rate of renewable energy sources

Growth rate [%]

 Installed capacity of renewable
energies is continuing to grow
 However, the numerous
regulatory changes have led to a
decrease in investments end2012 (-29% year-on-year in
Europe, reaching $79.9 billion)
 Despite solar and wind energy
growth and due to subsidies
decrease, the European
objective will probably not be
met
Geothermal
 European solar panels
manufacturing companies
are suffering from China
competition
 It is forecasted that in the
short term at least half
of them could be taken over or
go bankrupted*
IT

-

FR

Top 3 countries ranked by:
Installed capacity1

Growth2 (absolute)

DE

2010

2005

IT

IT

90%

DE

UK

100%

FR

1 In MW net for wind, solar PV, small hydro and
geothermal and in TWh for biogas, urban
waste and biomass
2 Relative growth additionally displayed for solar
PV and wind

80%
2011

70%
Solar PV
Capacity

60%
2007

DE
UK
IT

DE

30%

Wind

BE

IT

GR

CZ

NL

FR

BG

FR

IT

2006

Urban
40% waste

DK

IT

ES

DE

DE

IT

Biogas

50%

Growth (abs.) Growth (%)

DE

2009

DE

2012

Capacity

Small hydro

Grow th (abs.) Grow th (%)

IT

2011

-

DE

DE

RO

RO

ES

UK

PL

ES

20%

IT

FR

-

PT

2008

110%

BG

UK

IT

EE

2005

2006
2007
2008

10%

2010

Biomass

2011

2011

2011

2011

DE

0%
0

2009

10

20

30

40

50

60

70

80

90

FI

100
SE

2012

2011

PL
UK

110

DE

120

130

140

150

160

170

180

190

200

210

Electricity production [TWh]

Renewable energies (wind and solar) have grown fast over the
last years with a stronger (and poorly planned) increase of
solar energy

* Ernst & Young et BNEF, Mai 2012

16

Source: Eur‟Observer barometers – Capgemini analysis, EEMO15

120%

In Germany, all scenarios for solar energy development were
underestimated, increasing power generation overcapacities
Thermal capacity additions in Germany (GW)

Successive forecasts of installed
solar capacities in Germany (MW)

Renewables installed capacity
projection in Germany (GW)

Source: RWE

The current electrical overcapacity situation is
likely to continue
Source: Statkraft

17

In Germany, renewables extra costs account for 18% in residential
customers electricity prices while it is only 10% in France
Evolution of a typical residential bill in
France (8.5 MWh/year – electric heating)
1,400

+30%

800
600

199

523

(9%)

430

361

585

530

437

200
800
150
600

400
100

252.3

186.6

0.41
1.69
(4%)

194.6

0.58
1.64
(5%)

206.4

0.68

1.12

(5%)

3.53

216.5
1.13

2.05

3.53

3.592

0.88
1.31

1.02

258.9

236.9

1.02

1,000

(15%)

875
77

287.3

232.1

165

400

200

1,200
250

(15%)

€/MWh

Current euros – tax excluded

+15%

1,125

Other taxes
EEG-Umlage
Supply and grid charges

300
1,400

1,307

1,200
1,000

350

Evolution of the residential electricity price in Germany
(3.5 MWh/year – typical household comprising 3 people)

1.16

2.05

(6%)

(9%)

(14%)

5.277

i.e. 19%
increase

(5%)

200

2011
Supply

2016
Network charges

129.9

138.9

138

141.7

143.2

117.2

121.9

141.2

112.2

2005

50
0

0

6.24

(18%)

(14%)

2006

2007

2008

2009

2010

2011

2012

2013

2020
CSPE

Source: CRE

CSPE: Contribution au Service Public de l‟Electricité

0

2014

Source: BDEW

In Germany, the renewables tax is supported by customers (€23.6 billion in 2014)
while in France, the full level of tax is not passed on to customers (~€5 billion
cumulated supported by EDF, to be repaid by the State)

18

Smart grid pilots are developing rapidly but industrial
deployment is late
 Smart grid pilots development is accelerating (so far €18
billion investments worldwide)

3X20
Decrease in
greenhouse
gas emissions

 The smart grid industrial deployment is not as rapid as
one expected, mainly due to the volume of investments
required and the “not-yet-fit-for-purpose” regulatory and
market frameworks (especially in Europe)
3X20
 Furthermore, there is no one-size-fits-all technical
solution slowing down the speed of learning from
existing pilots

Storage, real time data management and load balancing are
among the killer applications to answer two major energy
issues: peak demand curtailment and overall energy losses



Sustainable Demand Side Management could only be
reached by a holistic approach targeting customer
behaviors, relying on tariffs and incentives and facilitated by
technologies and automation



Renewable
energy
integration

Secure and safe
operation of
grids

Energy
efficiency

Smart grid
benefits

 Despite the particularities of each network and customer
bases, return of experience from pilots is useful:


3X20

Norms, standards, regulatory frameworks and market
mechanisms need to be enhanced, clarified and implemented
rapidly with a long term vision

Improvement
of the energy
market
operations

Improvement
in the quality of
customer
services

Decrease in
operating
costs of the
network


19

The market should blossom: a huge worldwide smart grid
market is expected in the 10 to 20 next years
Overview of smart grid investments estimates (€ billion)
Update T&D grids
(incl. traditional
investments)

USA

Include T&D network
modernization and
expansion, new generation
sources to meet the objectives of
some nuclear phase out policies

Europe

China

Development
of nationwide
transmission
network

498

250

677

smart grid
investment

110
Smart grid investments
(incl. Smart
meters, transmission
system
upgrades, DA, SA, EV
mgmt systems…)

358

56

JRC

Japan
15

Innov. CC est.
Obs.

74
Innov.
Obs.
E&Y

254

Brazil
45

76

Innov. Zpryme
Obs.

India

14

27
JRC

Edison

Innov.
Obs.

5

Innov.
Obs.

Implementation of fully
functional smart grid (excl.
investments needed to
maintain existing system &
meet load growth)

Innov. ISGF
Obs.

WAM, DLR, A
MI, microgrids,
trainings, etc.

JRC
Innov. Obs.

Edison
CC est.
E&Y
ISGF
Zpryme

2010-2020 for Europe
2011-2030 for the US (high and low scenarios)
2010-2030 Intelligent smart grid infrastructure (grid
automation, comm. Infra, IT systems and hard, syst.
Integration, HAN equipment, smart meters)
2008-2030
Capgemini Consulting estimation incl. all investments
required for the modernization of T&D network
2010-2020
2012-2017
2010-2020

Sources: Edison, E&Y, GTM, Innovation Observatory, ISGF, JRC, Zpryme

20




 Conclusions

21

Despite the Fukushima accident, new nuclear is still
developing, mainly in Asia
 Among the 71 nuclear reactors under construction around the world, 50 are being
built in Asia:


China (29)



India (6)



Russia (10)



South Korea (5)

 New projects are also emerging in Middle East (Emirates, Saudi Arabia), Turkey and
South Africa.
 No existing nuclear plants were stopped except in Germany (for political
reasons) and in Japan
 In December 2013 in Japan, applications have been submitted to the country‟s
Nuclear Regulation Authority for the restart of 16 nuclear power reactors
 As a consequence of the very long new nuclear reactors construction freeze in
Europe, human competencies are missing including the ability to master very large
projects
 In the UK, the nuclear rebuild program has started to materialize (however the
deal is currently under scrutiny by the EC):


Two EPR reactors (3.2 GW) at Hinkley Point C



Investors: EDF Energy (45-50%), CGNPC and CNNC (30-40%), Areva (10%) and other investors
for up to 15%



Additional safety CAPEX
and OPEX are pushing
nuclear electricity costs
up but existing nuclear
energy remains
competitive.
However, there is a real
need to master new
nuclear plants
construction delay and
costs

Strike price set at £92.5/MWh in a 35-year “Contract for Difference” (estimated to provide around
10% rate of return)

 Other European countries, especially in Eastern Europe, are building new plants

22

Energy transitions will lead to increased electricity
costs
100%

90%

80%

70%
70%
 Stability of gas (at the best) 70% 70%
 More coal (in certain countries) 60%
60%
60%
60%
 More renewables: the renewables
50%
50%
50%
share (excluding hydro) should 50%
increase from 22% in 2013 to 36%
40%
40%
40%
40%
in 2030
30%
30%
30%
30%
 Less nuclear: the nuclear share in
the European electricity mix is
20%
20%
20%
20%
projected to decrease from 13% in
2013 to 10% in 2030
10%

10%

10%

0%

0%

Solar + Biomass

Hydro

Other f ossil

50%

Gas
Lignite + Coal

40%

Nuclear

30%

2013 mix: lef thand side bar

20%

2020 mix 1:
middle bar

10%

0%

Two cases inBG
point: Germany and
BE
CH
CZ
DE
ES
BE
BE
BG
France

Wind

60%

10%

0%

70%

2030 mix 2: righthand side bar

0%
FI
BE
BG
CH

FR
BG
CH
BE
CZ

UK
CH
CZ
BG
DE

HU
CZ
DE
CH
ES

IT
DE
ES
CZ
FI

LT
ES
FI
DE
FR

NL
FI
FR
ES
UK

PL
FR
UK
FI
HU

RO
UK
HU
FR
IT

SE
HU
IT
UK
LT

SI
IT
LT
HU
NL

SK
LT
NL
IT
PL

EU 27
NL
PL
LT
RO

PL
RO
NL
SE

RO
SE
PL
SI

SE
SI
RO
SK

SK
EUS
2

Notes: 1: 2020 projection based on a „best estimate‟ scenario, 2: 2030 projection based on a „slow progress‟ scenario towards 2050
decarbonisation goals

*ENTSO-E

Source: ENTSO-E – Capgemini analysis, EEMO15

 Following the Fukushima accident
100%
100%
100%
100%
and the shale gas
90%
90%
90%
expansion, European electricity 90%
mix (installed capacity) 80% 80% 80%
should
80%
evolve towards*:

2013, 2020 and 2030 electricity mix – installed capacity
(as of June 2013)

23

In Germany, the energy transition ("Energiewende")
implementation faces grid issues
 German energy transition objectives require to redesign the
whole grid and build more generation capacity:

Network projects development status
(as of August 2012)

 Total nuclear phase-out by 2022
 Greenhouse gas emissions reduction by 80-95% before 2050
 80% electricity production from renewables before 2050

 In 2013, there are significant deviations to this plan:
 Mothballed coal and lignite plants were re-opened to face
electricity demand. leading to a 2% CO2 emissions increase in
2012
 New grid constructions are late (local public opinion opposition.)

 Former minister Peter Altmaier admitted that the energy
transition would cost around €1,300 billion from now to 2040.
 Large customers prices could increase by as much as 70%
by 2025** threatening their competitiveness. Residential
electricity prices will increase also
The new coalition government has expressed worries
on electricity prices increases and should adjust the
renewable expansion objectives

Procedure not opened
Regional planning procedure
Authorization procedure
Authorized / being built
Construction completed
Delayed project
Project on schedule

Source: Bundesnetzagentur

*High Voltage Direct Current
**Study on the German energy transition, CAS


24

In France, energy transition (50% nuclear energy in the mix
by 2025) costs are estimated at €592 billion
Investments in the electrical system

2030

Investments in
generation

Increase of electricity costs per MWh

Grenelle
2030

Energy
Spread Fr/Ger
transition 2030
2011

Source: UFE

 Energy efficiency investments are estimated at €170 billion
 €422 billion have to be invested in the electrical system (these infrastructures – wind
mills, high voltage lines construction – require social acceptance; it currently takes at least 10
years to put a new line in service, including 9 years of procedures):


€262 billion in generation (mainly in renewables)



€50 billion in the transmission grid



Energy
transition will
increase
electricity costs
and thus will
impact
negatively
companies
competitiveness

€110 billion in the distribution grid

 The electricity cost would increase by €30-40/MWh in addition to a similar increase linked to
Grenelle‟s commitments

 In 2013, many official instances called the government to delay its planned phase-out of nuclear
energy and to decrease the renewables growth pace

25



 Conclusions

26

Questions on the present European energy markets models
and functioning
 The European Commission seems to ignore its single market policy results
 However on January 22, 2014, the EU proposed new energy and climate objectives to be met by
2030 (in order to cut its greenhouse gas emissions by 80-95% by 2050):
 One compulsory objective: 40% greenhouse gas emissions reduction (compared to 1990 levels)
 At least 27% of renewable energy consumption (non compulsory)
 Improving energy efficiency (no specific target at this point)

 The European energy market design faces several problems
 The electric systems are deeply disturbed by the development of renewables
 Prices are meaningless on the European carbon market and this reduces the EU CO2 policy effects
 The present markets functioning does not promote the needed huge investments and has limited benefits for
consumers and climate policy

 The European Utilities alarm over the sustainability of their business in Europe and the absence
of positive long-term signals
 Twelve European energy Utilities CEOs are ringing the alarm bells: they insist on the lack of positive signals
for investors, especially in peak power plants, they warn on the consequences of blind subsidies to
renewables, and they lament the low prices of carbon, that lead them to close or mothball efficient gas power
plants.
The Energy-Climate package impact on a deregulating market in an economic crisis environment
has resulted in chaotic markets

27

Renewable energies development has heavily modified the
power plants merit order

€/MWh

Merit order (German case 2009 – without renewables)

Merit order (German case 2012 –
with renewables)

While renewable energies are heavily
subsidized, their operational costs are
almost zero. Therefore they are used as
base load.
Gas plants utilization rates are
dramatically decreasing, leading to their
partial closure.

€/MWh

Source: RWE

Source: RWE


28

The low level of CO2 certificates prices and low coal prices, have
made coal-fired plants more competitive than gas-fired plants
hours

Italy
Belgium

Source: CERA

Spain
Germany

CO2 certificates prices evolution

35
30

CO2 spot EUA 2nd period 2008-2012 (€/t)

25

CO2 spot EUA 3rd period 2013-2020 (€/t)

20
15
10

01/07/2013

01/04/2013

01/01/2013

01/10/2012

01/07/2012

01/04/2012

01/10/2011

01/01/2012

01/07/2011

01/04/2011

01/01/2011

01/10/2010

01/07/2010

01/04/2010

01/01/2010

01/10/2009

01/07/2009

01/04/2009

01/01/2009

01/10/2008

01/07/2008

0

01/04/2008

*Estimation IHS CERA

5

01/01/2008

Around 60% of the European total installed gas-fired
generation (130 GW) are currently not recovering their fixed
costs and are at a risk of closure by 2016*

Source: EEX – Capgemini analysis, EEMO15

 Renewable energy development reduces the gas
plants utilization, jeopardizing their profitability
 The IEA believes that gas plants require a utilization rate
of 57% (i.e. around 5,000 hours/year) to be profitable
 Thanks to shale gas, the low gas spot price in the US
created coal oversupplies. European coal prices dropped
by 30% between January 2012 and June 2013
 Coal plants utilization rate is higher than gas plants’: in
Germany, coal-fired plants utilization rate was in the 4371% range in 2012 while gas-fired plants was utilized less
than 21% in average
 Very low CO2 certificates prices are also favoring coalfired plants
 Gas plants are closing in Europe

Utilization rate of CCGTs in Europe


29

The price difference between “peak hours” and “off
peak hours” has considerably flattened
Number of hours with price spikes

 With growing renewable production and
relatively low consumption, there is presently
an overcapacity situation
 Renewables massive development has led to a
decrease of the peak/off-peak price ratio
 Positive price spikes (in winter for example)
have nearly disappeared and new type of
negative prices spikes have appeared during
some hours interval (in 2012 there were more
than 70 hours during which wholesale European
prices were negative)
 There are not enough incentives to invest in
peak power capacities nor hydraulic storage
 In the present market conditions, very high
consumption on cold, dry and dark days with no
wind could lead to supply disruptions

Number of hours with negative prices

European security of supply is threatened
Source: APX, Belpex, EPEX, Statkraft


30



 Utilities’ financial situation is still difficult
 Conclusions

31

Debt stable at a high level, and persisting pressure
on margins mainly due to rising overcapacity
30%

 EBITDA* margins under pressure


Rising overcapacity due to stagnating
consumption, growing renewables

•



20%

EBITDA margins declined from 19.4% to 18.7%

Negatively impacted by CO2 cost increase, and by
lower prices, as hedging rolls off
Deterioration in power generation margins more than
offsets improvement in gas midstream (E.ON) and
increasing focus on cost control program

 While debt remains a significant burden
 Consequences are:





25%

Further deterioration of power generation margins
•



EBITDA margin (% of revenue)

Tougher stance from credit rating agencies
CAPEX cut across the board
Operational excellence efforts accelerated
Dividends at risk

* Earnings Before Interest, Tax, Depreciation and Amortization

15%
10%
5%
0%

400,000
350,000
300,000
250,000
200,000
150,000
100,000
50,000
0

Persistent high debt (€ million)

Source: Exane BNP Paribas – Capgemini analysis, EEMO15

32




 Conclusions

33

The present chaotic situation on the electricity
markets is threatening security of supply
Main root causes of this
chaotic situation
• Slow economies leading to
electricity and gas
consumption stagnation
• Energy-Climate Package
implementation leading to
uncontrolled and
expensive renewable
energies growth
• Renewables development
threatening gas-fired
plants profitability
• US shale gas revolution
pushing coal prices down
and adding pressure on
gas plants utilization

Consequences
• Gas-fired plants are closing
• Subsidies to renewables are
reaching non sustained high
levels
• Too low CO2 emission rights
prices to trigger low carbon
investments
• Erratic prices are appearing on
the electricity markets
• Electricity or gas storage
investments are less competitive
• Utilities are loosing large shares
of their revenues
• Needed infrastructure
investments are not implemented
at the right pace

Security of supply concerns
• Short term:
o The gas-fired plants enabling to cover the
peak load needs are closing
o Buffers, as gas stored for the winter are
significantly lower than in the past years

• Long term:
o Need for new infrastructures to:
-

Cover the consumption increase,
Replace aging conventional plants,
Increase fluidity of energy exchanges,
Cover the grids overhaul triggered by
energy transition
- Diversify gas supply routes

o The lack of visibility on the markets
combined with the difficult Utilities
financial situation are leading to a deficit
of needed investments


34

Energy markets have to be rethought
 The ETS market has to be reformed and
allocation levels adapted to the economic situation
 Capacity markets should be created quickly in
a coordinated manner at the European level
 A new retail market design has to be rethought
and implemented to enable the smart grids
financing and deployment
 A more reasonable renewable energies
capacity growth pace has to be established in
order to curb the related subsidies growth
 Aggressive and efficient energy savings policy
has to be implemented

“In order to avoid wholesale markets
destabilization linked to growing
shares from subsidized
renewables, France has to reconcile
its renewables subsidies policy with
price markets fluctuations.”

From the State Auditor report on the
development strategy of renewable energy
sources, published on July 25, 2013

If the right reforms are not implemented timely, the physical electricity and
gas systems will deteriorate and when the economy and the consumption
grow again, energy security of supply will be under pressure


35

About Capgemini
With around 120,000 people in 40 countries, Capgemini is one of
the world's foremost providers of consulting, technology and
outsourcing services. The Group reported 2011 global revenues
of EUR 9.7 billion.
Together with its clients, Capgemini creates and delivers
business and technology solutions that fit their needs and drive
the results they want. A deeply multicultural
organization, Capgemini has developed its own way of
working, the Collaborative Business Experience™, and draws on
Rightshore®, its worldwide delivery model.
With EUR 670 million revenue in 2011 and 8,400 dedicated
consultants engaged in Utilities projects across Europe, North &
South America and Asia Pacific, Capgemini's Global Utilities
Sector serves the business consulting and information technology
needs of many of the world‟s largest players of this industry.

www.capgemini.com

More information is available at www.capgemini.com/energy.
The information contained in this presentation is proprietary.
Rightshore® is a trademark belonging to Capgemini.
© 2012 Capgemini. All rights reserved.

European energy markets observatory findings edition #15

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European energy markets observatory findings edition #15