Impact of renewables on energy rivals uncertain

Updated 03 December 2012
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Impact of renewables on energy rivals uncertain

LONDON: Subsidized renewable energy cuts peak power prices, but is also unreliable, and in most countries the cost of balancing its intermittency is borne by dispatchable (available on demand) fossil fuel and nuclear power.
Dispatchable power providers are pressing claims for subsidies to provide this backup, which would not only keep the lights on but also stop power prices spiking out of control every time they have to step in when wind or solar fails, as can be the case.
Without support for these balancing services some forms of dispatchable power will become uneconomic and unsustainable, because renewables generate power at zero marginal cost.
In the short run, the most affected technologies will be those with higher generating costs, including flexible gas-fired power plants which grid operators presently use as a standing reserve.
But in the long run, high capital cost coal and nuclear will also suffer because lower average peak power prices will make it more difficult for them to raise finance to build new plants, according to a new study by the OECD’s Nuclear Energy Agency.
At present, there is little evidence that European policymakers have fully thought through the problem, for example about whether they subsidize balancing services, and if so, gas, nuclear or coal.
Grid operators already need reserve capacity to respond to variations in demand and unexpected tripping of conventional power plants.
There are two types of reserve: an operating reserve that must be available within 10 minutes or so, and a replacement reserve which takes over within an hour.
For operating reserve there are various options, including flexible offline capacity which can fire up from cold very quickly (called a standing reserve), or a spinning reserve of online plants which are already running at part-load and can ramp up by applying more torque.
Open cycle gas turbines (OCGT) have the fastest start-up times.
These simple power plants were introduced decades ago to supply peak-load service: air is compressed and used to fire natural gas in a combustion chamber which drives a gas-turbine and electricity generator on a single shaft.
They have rather low electrical efficiency because they fail to recycle hot exhaust gases.
But their simplicity gives them a quick start-up time of 10 to 20 minutes, according to the NEA’s “Nuclear Energy and Renewables: System Effects in Low-Carbon Electricity Systems,” published recently.
Since the early 1990s, combined-cycle gas turbines (CCGT) have become the technology of choice for new gas-fired power.
They use gas-turbine exhausts to generate steam that drives an additional steam-turbine generator to produce more power.
They have electrical efficiencies of 60 percent or more.
From cold, they have a slower start-up than OCGTs, at 30-60 minutes, according to the NEA, but still faster than coal, at 1 to 10 hours, and nuclear, at two hours to two days. (see Figure 1)
Intermittent wind and solar power now accounts for a significant and rapidly rising share of electricity generation in some European countries, notably Denmark, at 28 percent last year, as well as Spain (18 percent) and Germany (11 percent), according to BP data.
Markets in these countries where penetration of renewable energy is high have been up-ended, driving down average peak wholesale prices and hitting the profitability of traditional power providers.
OCGT is the most vulnerable to a mainstreaming of renewable power, given it has the highest generation costs.
The NEA report estimated that OCGT profitability would drop by more than 80 percent when wind power reached a third of installed capacity, while the profits of even least-impacted nuclear power would fall by more than half.
But if countries start paying for balancing services, such calculations will be again turned on their head.
Some gas engine suppliers sense an opportunity, such as Finnish power plant engine maker Wartsila, which is marketing a gas plant which can shut down the combined cycle of a CCGT, to ramp up faster.
The NEA says it sees a new role for nuclear power, as the least carbon-emitting dispatchable option.
Nuclear is usually operated as baseload, meaning power plants are run for more than 5,000 hours annually.
That is partly for economic reasons, to capitalize on low running costs and pay back the high, upfront capital costs, as well as safety ones, connected with control of core temperature and constraints imposed by the life-cycle of the fuel rods.
More frequent cycling of the power plant could also speed up materials fatigue, says the NEA.
After taking those constraints into account, online nuclear power plants can be ramped up and down about as quickly as a coal plant, the NEA said, adding that French nuclear power was already used to vary output according to demand.
However, the NEA’s own estimate of nuclear power start-up and ramp-up times suggests it may struggle to compete with gas.
Governments are struggling to keep up with the demands of a more variable grid.
European Union policy for example focuses on the adequacy (amount) of member states’ reserve capacity, rather than their responsiveness.
“Currently, the ENTSOE (European Network of Transmission System Operators for Electricity) generation adequacy assessment does not focus on the flexibility of the system, and its ability to cope with large swings in the feed in of variable wind and solar generation,” said a European Commission paper consulting on generation adequacy, published earlier this month.
And where the need for flexibility is recognized, supply options have a job competing with alternatives, including demand-side responses (cutting supply at peak times to consenting users) and smart grid options.
Britain’s Department of Energy and Climate Change in August published a report, “Electricity System: Assessment of Future Challenges,” which focused on these rather than using more flexible power plants.
And Germany recently passed legislation where grid operators could agree to pay industrial consumers to interrupt their supply and so provide flexibility at peak times.
— The author is a Reuters market analyst. The views expressed are his own.


Oil rises on million barrels OPEC pledge

Updated 7 min 25 sec ago
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Oil rises on million barrels OPEC pledge

  • Oil prices rose almost 3 percent on Friday as OPEC agreed a modest increase in output to compensate for losses in production at a time of rising global demand.
  • The Organization of the Petroleum Exporting Countries agreed on Friday to boost output from July.

LONDON: Oil prices jumped yesterday afternoon as OPEC announced a more modest production increase than forecast.

The group said yesterday that it and its allies would from next month bring production back in line with levels originally agreed in late 2016, equivalent to an increase of around 1 million barrels.

But analysts have warned that the reaffirmed commitment — an effective production increase given that a number of producers have cut output more than agreed— would not be enough to lower prices, given further supply disruptions on the horizon.

OPEC Conference President and UAE Energy Minister Suhail Al-Mazrouei told reporters in Vienna that the target was a group-level commitment, and that individual production quotas for member states had not been set.

Adherence to the decision would be “challenging for those countries that are struggling with keeping their level of production,” he said, but he noted that other countries could pick up any shortfall.

“We will deal with it collectively,” he said, insisting that the group would not not exceed production agreements.

“It is difficult already to achieve that 100 percent,” he added. “No one intends to do anything beyond that.”

But Thomas Pugh, a commodities analyst with Capital Economics, said while OPEC currently had little spare capacity, production rebounds by key states might tempt members to over-produce.

“OPEC has found it difficult to police group quotas in the past so today’s decision runs the risk of production rising above its target,” he said.

“If production starts to rebound in Venezuela or Angola then the group may quickly exceed its quota.”

The lack of detail over individual commitments followed disagreements between Iran and Saudi Arabia about the level of increases ahead of the meeting, according to energy expert Cornelia Meyer.

“The ‘collective agreement’ to return to 100 percent compliance was in the end sufficiently fuzzy for them to get an agreement,” she told Arab News.

“But going forward the market is going to want to see more detail as to how it will be implemented — and by whom — before it impacts prices.”

Brent crude futures rose around 3 percent on the news, briefly exceeding $75 per barrel in early afternoon trading, with prices forecast to rise further in the short-term.

“The effective increase in output can easily be absorbed by the market and is not going to tip the oil balance into negative territory,” Harry Tchilinguirian, head of commodities strategy at BNP Paribas, told Reuters.

“I suspect the market will continue to grind higher, notably in view of oil inventories in the OECD being below the famous five-year average target and the ever present risk of supply outages in Venezuela and Libya.

The agreement is likely to do little to mollify those looking for higher output increases to ease pressure on prices, not least US President Donald Trump.

“Hope OPEC will increase output substantially. Need to keep prices down!” Trump tweeted yesterday, following the announcement of the agreement.

But Meyer noted that shifting macroeconomic trends — notably the prospect of growing trade wars between the US and trading partners like China and the EU — may see rising demand for oil slow or go into reverse.

“We’re out of the goldilocks scenario now,” she said.

“Both Saudi Arabia and Russia have talked up how much the market is short. From now on they may well have to talk it down in terms of that gap between supply and demand.”