Mid-Term Generation Adequacy in Belgium
The Belgian energy landscape is going through a critical transition. As a consequence of the ever increasing share of renewables, conventional gas-fired power plants are becoming increasingly unprofitable. The announced closure of many CCGTs in combination with uncertainty about Doel 3 and Tihange 2 and the approaching nuclear phase-out endangers security of supply. Indeed, over the next years it becomes increasingly questionable whether sufficient generation capacity will be available to cover electricity demand. This Sia Partners' study details the decline in generation capacity over the coming years and forecasts the impact on security of supply over the period 2014-2016 under the assumption that Doel 3 and Tihange 2 won't start again.
Belgian trends in power generation
Unfavorable market conditions for CCGTs
The future of combined cycle gas turbine plants looks increasingly difficult. With renewables having priority in the merit order, the increasing share of renewables is reducing the operating hours of CCGTs when wind and solar generation is available. Furthermore, it pushes down wholesale prices and makes operating profiles less predictable. Sia Partners estimates that CCGTs are brought into the market when wholesale prices are at least 58 €/MWh; being the required price to cover the gas price and CO2 emission costs for producing 1 MWh. Comparing the costs with revenues, one can easily understand the severity of the situation. Indeed, on average 2013 day-ahead prices were slightly below 50 €/MWh. The market conditions for the year 2013 are shown graphically in figure 1. Wholesale price outlooks for Belgium and Europe as a whole will provide little good news for generators. Producers may hope for gas prices to decrease in order to improve margins; however this is unlikely to arrive.
Figure 1 :Gas and CO2 emission costs versus the wholesale price of 1 MWh of power in 2013
Sources: Sia Partners calculation with TTF, Belpex and EUAPH2PH3 data
Unprofitable market conditions lead to closures
The unfavourable market conditions have translated into the announced closure of roughly 2400 MW of gas-fired power plants by three of the largest Belgian producers (Electrabel, EDF Luminus and EON) over the years 2013-2015.
Uncertainty about Doel 3 and Tihange 2
At the end of March 2014, power generation from Doel 3 and Tihange 2 was halted due to due unconformities during tests of the mechanical toughness of the vessel material. As a precaution measure, both reactors won't be restarted until they are thoroughly tested and safety is ensured. More test results are expected by autumn 2014. A scenario in which both reactors will never produce again becomes more likely and will have severe consequences for security of supply. Indeed, the 2000 MW capacity of both reactors represents a loss of roughly 15% of the current available reliable capacity. When both reactors were down during winter 2012/2013 blackouts were narrowly avoided.
Belgian nuclear phase-out
In 2003, the Belgian parliament approved a gradual nuclear phase out between 2015 and 2025. According to this law, no new nuclear capacity could be built on Belgian territory and generation by existing nuclear plants should stop. Doel 1 & Doel 2, representing a total capacity of 866 MW, will be closed in 2015. At the end of March 2014, power generation from Doel 3 and Tihange 2 was halted due to due unconformities during tests of the mechanical toughness of the vessel material. As a precaution measure, both reactors won't be restarted until they are thoroughly tested and safety is ensured. More test results are expected by autumn 2014. A scenario in which both reactors will never produce again becomes more likely and will have severe consequences for security of supply. Indeed, the 2000 MW capacity of both reactors represents a loss of roughly 15% of the current available reliable capacity. When both reactors were down during winter 2012/2013 blackouts were narrowly avoided.
Impact on installed capacity
Figure 2 illustrates the loss of installed capacity over the years 2013-2015 due to the safety issues with Doel 3 and TIhange 2, the approaching nuclear phase-out and the unfavourable market conditions for gas-fired power plants.
Figure 2 : Evolution of nuclear and gas-fired installed capacity 2013-2015.
Source: public communications of producers
How power plant closures impact security of supply
With the amount of reliable generation facilities closed or set to close over the coming years it becomes uncertain whether sufficient production capacity will be available to guarantee security of supply. The rest of this study focuses on the adequacy situation from winter 2013-2014 till winter 2015-2016. For this purpose, a deterministic approach was used. Security of supply will be estimated comparing the monthly available reliable capacity of the active production park with the possible monthly electricity demand at peak hour (under severe conditions).
For the purpose of this study, the monthly peak load of the year 2010 was chosen as a reference. Furthermore, we assumed an annual increase in peak demand of 0,5%. The data was obtained from ENTSO-E.
Available reliable production capacity
Based on the announced plant closures, Sia Partners calculated the available reliable production capacity (incorporating maintenance and other interventions). For this part of the study no renewable generation is taken into account. Indeed, during the most critical months of the year no solar generation is available anyway during peak hour given that peak consumption takes place after sunset. Additionally, the hypothesis of no wind generation makes sense as it relevant to assume the worst possible circumstances to analyse security of supply. Combining the assumptions highlighted above, one can determine the available reliable capacity over the period winter 13/14 - winter 15/16 (depicted in figure 3).
Figure 3 : Available reliable capacity forecast till winter 2015/2016
Source: public communications of producers
Assessing security of supply
Setting out the monthly forecasted peak electricity demand against the forecasted available reliable capacity allows us to calculate the remaining capacity. A positive 'remaining capacity' implies that sufficient production capacity is available to cover peak demand. Similarly, a 'remaining capacity' below zero implies that not enough production capacity is available to cover peak demand; Belgium has to rely on import.
Although winter 2013/2014 has passed, this period was taken into account as a reference to illustrate the aggravation of the situation over the years. One can clearly see the drop in capacity in April 2014 due to the halt of Doel3 and Tihange 2. Under the applied assumptions we could be reliant on imports during 8 months (dotted area on graph). Furthermore, the maximum capacity shortage was estimated at 1060 MW.
The situation aggravates significantly towards winter 2014/2015. Although the impact of the closure of Doel 1 is limited as it takes place after the worst part of the winter; not restarting Doel 3 and Tihange 2 in combination with the closure of numerous gas-fired power plants extends the period at risk. Indeed, under extreme circumstances Belgium may have to rely on imports during the entire year to cover peak load. The maximum capacity shortage rises to 3800 MW.
Figure 4 : Generation adequacy situation under severe condition.
During winter 2015/2016 the situation deteriorates further. Under the applied assumptions, the loss of almost 900 MW of nuclear capacity (Doel I & II) and 460 MW gas capacity causes Belgium to be even more reliant on imports to cover peak load during the entire year. The capacity shortage rises to almost 5200 MW, which is more than the entire interconnection capacity.
Figure 5 : Generation adequacy situation under severe condition.
One can clearly identify two trends towards winter 2015/2016: First, we can expect an extension of the period at risk. Indeed, between winter 2013/2014 and 2015/2016 the period at risk grows from 8 months a year to 12 months (the entire year). Second, the seriousness of the risk (capacity shortage) increases fivefold between winter 2013/2014 and winter 2015/2016; growing from 1060MW of shortage to 5200 MW of shortage respectively.
In order to place the capacity shortage in the right perspective, the interconnection capacity is set out in pale orange. The capacity with France and the Netherlands is set at a combined 3500MW during the winter period and 3000MW during summer. One can observe that the capacity shortage becomes larger than the interconnection capacity as from winter 2014/2015. Under these circumstances, even at full interconnection capacity Belgium will face (partial) blackouts.
Strategic reserves to the rescue?
The Belgian government, as it is responsible for guaranteeing security of supply, wants to ensure that Belgium does not face black-outs following a combination of low renewable generation, high electricity demand and low import possibilities due to similar conditions in neighbouring countries. With this in mind the Belgian government has decided to contract 800 MW of Strategic reserves for winter 2014/2015.
This measure will allow Elia (Belgian transmission system operator) to contract both strategic generation reserves and strategic demand reserves (load shedding from large users and aggregators). Elia will have the option to use any combination of the contracted reserves if it is deemed necessary to ensure security of supply. CREG, the Belgian regulator, will ensure that the system does not interfere with the normal functioning of the market.
Will this measure be sufficient to ensure security of supply?
One can easily argue that the situation as plotted in figure 3 till 5 is not realistic. Indeed, it makes sense to include considerable amounts of renewable production during peak hours from April till October. Taking into account the 2800 MW of PV capacity and the 1800 MW of wind capacity is likely that only limited (or none at all) import is required during this period.
Figure 6 : Generation adequacy situation under severe condition including strategic reserves. Winter 2014/2015.
However, this is not the case between November and March in which peak hour typically falls after sunset and periods without wind can occur. In Figure 6 and 7, Sia Partners assesses whether an amount of 800 MW of strategic reserves is sufficient to ensure security of supply for winter 14/15 and winter 15/16.
Figure 7 : Generation adequacy situation under severe condition including strategic reserves. Winter 2015/2016.
Looking at the graphs, a conclusion might be that the combination of 800MW of strategic reserves plus imports is enough to cover the capacity shortage for winter 14/15 but insufficient for winter 15/16. However, it should be stressed that although the Netherlands generally have a capacity surplus, this is not the case for France. Given that extreme cold could occur in Belgium and France at the same time it is not unrealistic to assume that imports over the French-Belgian border will be impossible as France has to rely on its production capacity to cover domestic consumption. In such case, all import has to come from the Dutch-Belgian border. However, with an interconnection capacity of approximately 1500MW this will be insufficient to cover the production shortages forecasted for both winter 2014/2015 and winter 2015/2016.However, this is not the case between November and March in which peak hour typically falls after sunset and periods without wind can occur. In Figure 6 and 7, Sia Partners assesses whether an amount of 800 MW of strategic reserves is sufficient to ensure security of supply for winter 14/15 and winter 15/16.
The Belgian nuclear phase-out and the uncertain future of Doel 3 and TIhange 2 due to safety issues in combination with unfavourable market condition for conventional gas-fired power plants is leading to a rapid decrease of the Belgian available reliable capacity. In situations with low renewable production, high electricity demand and low import possibilities due to similar condition in neighbouring countries, insufficient production capacity (including strategic reserves) could be available to ensure security of supply. In order to prevent such conditions leading to black-outs, the Belgian government could augment the amount of strategic reserves to foresee.
Jean Trzcinski - Sia Partners
Based on publically announced closures from operators. Currently producers are obliged to report closures 15 months in advance. It is possible that more closures will be announced for the second part of 2015 and further. These are not incorporated in the analysis.
This assumption is in line with those from the SPE/SPF Economie in their report from about security of supply 2012-2017.