Energy markets | What to expect in 2022 Should we be worried? Perhaps a little, suggests Jean-Paul Harreman, director of EnAppSys BV
The last twelve months have seen great change and volatility in global energy markets. Soaring gas prices, due mainly to reduced supplies and recovery in demand, regularly put electricity systems under pressure – with the wholesale price of gas in December 2021 around five times the price in December 2020. Power generation from renewable sources took on greater importance as countries looked to meet their net zero requirements, coal and lignite plants were phased out, and many countries relied on gas- fired generation as a transitional resource when the wind didn’t blow or the sun didn’t shine.
Declining capacity margins The phasing out of coal, lignite and nuclear plants led to an inevitable decline in power generation capacity margins across Europe in 2021. Portugal recently shut down its last coal asset, Spain also drove forward plans to close its coal stations, and the Netherlands announced
plans to close a large coal plant. Meanwhile, Britain is well on the way to achieving its goal of ending its reliance on coal by 2024, having closed many of its coal stations on a provisional basis (they have been available only in case of emergency). Germany has significantly reduced its coal and nuclear capacity – the largest decrease in Europe in terms of volume (GW) – while the problem in France is mainly one of availability, with nuclear capacity severely limited due to various outages and closures. At the back end of last year, the Chooz plant, which had been providing around 2800 MW of baseload power to an already tight French system, was ordered to shut down for essential maintenance checks. This increased the country’s reliance on imports from other markets. Nuclear availability has not been as low as it is today in more than five years (see graph below).
Are these trends likely to continue in 2022? The answer is: highly likely, for two reasons. First, a long-term transition to a green economy is the goal of most countries and there is heavy political pressure to achieve this, despite the watered-down pledges emanating from COP26. This has resulted, in most countries, in a gradual shift to policies that disincentivise fossil fuel production and encourage generation from renewable sources. Policies such as carbon pricing and the European Union’s Emission
Trading Scheme (ETS) have already made it less financially attractive for fossil fuel generators to produce power, meaning that many will inevitably shut down their assets.
Plant closures speeding up The new German government looks eager to speed up the closure of its coal plants, bringing the deadline forward from 2038 to 2030. Meanwhile, the Belgian government plans to close a significant proportion of the country’s nuclear plants in the next three years; if this is achieved, it will represent the biggest capacity decrease in Europe in percentage terms, with 7 GW of nuclear being shelved relative to a maximum demand of 13 GW.
The lower utilisation of remaining conventional capacity when renewable generation is high will also compound the problem. As renewables continue to take a greater share of Europe’s overall power mix, we are likely to see tight spinning reserves during periods of high renewables and low demand. During these lower priced periods, conventional assets will not run at all or, if they do, they will run at minimum stable generation, providing little additional flexibility.
So, what effect have declining generation capacity margins had on power prices and grid reliability, and what effect will it have in
Left: The twin-reactor Chooz power plant site in France. At the end of 2021, the plant, which had been providing around 2800 MW of baseload power to an already tight French system, was ordered to shut down for essential “preventive maintenance checks”, increasing France’s reliance on imports from other markets. (Photo: EDF)
Above: Weekly average availability of French nuclear power plants, for 2016, 2017, 2018, 2019, 2020, 2021 and early 2022 (source EnAppSys) 10 | January/February 2022|
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