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electricity sector

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Long-term contracts, known as power purchase agreements, are transforming how companies buy and sell renewables-based electricity in Europe with profound implications for the sector.

Scope Ratings says the surging demand for PPAs represents a profound shift in risk-bearing in the sector: from operators of unregulated renewable energy power plants (utilities, independent power producers and financial investors), on the one hand, to so-called off-takers, on the other. Besides energy suppliers, owners of generation assets increasingly find direct buyers with energy-intensive corporates.

For the seller of electricity under a PPA, the PPA can be considered a tool of risk transformation,” says Sebastian Zank, analyst at Scope. “For the off-takers, the long-term visibility on energy procurement, potential for profit associated with PPAs and reputational benefits offset the extra risk they take on,” Zank says.

We believe the overall impact of PPAs for sellers and off-takers is credit-supportive,” he says. However, the overall impact depends on the specifications of used PPAs and the impact on a seller’s revenue and margin recognition or an off-taker’s raw material procurement strategy.

PPAs do, however, introduce significant counterparty and forecasting risk because the contracts are complex, non-standardised transactions between a buyer and a seller unlike hedging transactions for conventional sources of electricity which typically take place on power exchanges or through short-term contracts.

The primary catalysts for PPA take-up in Europe are the phasing out of subsidies for newly installed wind and solar assets across Europe and the achievement of “grid parity” in many countries whereby solar- and wind-powered electricity generation has become competitive on price with coal, gas and nuclear power.

Owners of unregulated renewable energy assets/projects – such as Encavis, Energparc, Energiekontor, Neoen, Akuo – renewables divisions of large European utilities or financial investors – such as Octopus Investments, Aquila Capital, Greencoat Capital, Luxcara – have a natural interest to hedge electricity sales over a longer time horizon. Such long-term hedges in the form of PPAs are already well established with off-takers such as energy traders or utility incumbents, for example: Engie, Vattenfall, Axpo, Alpiq, Uniper among others.

Extra demand for PPAs is increasingly coming from industrial and corporate consumers, particularly energy-intensive companies. Aluminium supplier Alcoa, steelmaker ArcelorMittal and state railway companies Deutsche Bahn and SNCF are among those with PPAs in Europe wanting to procure environmentally friendly power supplies which they can use to burnish their “green credentials,” hence recent PPAs with renewable-energy suppliers.

The global market for corporate PPAs with direct consumers of electricity is set for a new global high this year, with the 13 GW contracted in the first nine months of the year already at the level of mid-to-long-term PPAs signed for all of 2018 – itself a record year – with much of the growth in the Americas.

Europe is catching up: “We expect continued strong growth in Europe judging by recent corporate PPAs struck in Q3 2019,” says Zank.

PPAs in EMEA, primarily Europe, will likely cover a renewables capacity of around 3 GW of electricity this year, up 30% from 2018. And this volume comes on top of the PPA signed between sellers and energy suppliers which is estimated at a volume of between 7 and 10 GW per annum (Source: Pexapark).

Another shift related to the rise in use of PPAs is the growing competition that the trading/supply businesses of incumbent European utilities face from smaller competitors. Consumers can directly procure energy volumes directly from the generator without an intermediary and newcomers, such as the energy-supply arm of British Octopus Energy, or smaller energy suppliers, such as Audax Renovables or Factorenergia, can source electricity using PPAs struck with individual renewable-energy projects without necessarily having generating assets of their own.

In doing so, they can take on the trading and even retail operations of the incumbents,” says Zank.

Source: Scope Ratings

The European Automobile Manufacturers’ Association (ACEA), Eurelectric and Transport & Environment (T&E) are calling on the European institutions to facilitate a rapid roll-out of smart charging infrastructure for electric vehicles. This is a unique collaboration as it marks the first time that the EU auto industry, electricity sector and the green group have joined forces to push for a common goal.

E-mobility has a crucial role to play in decarbonising road transport and meeting Europe’s climate objective. As Brussels gears up for a new political term, the three associations are therefore urging policy makers to guarantee the ‘right to plug’ to all those who use an electric vehicle, so that everyone across Europe can get access to charging which should be as simple as refuelling today.

This will require a massive deployment of strategically located ‘smart charging’ infrastructure right across the EU. Smart infrastructure will enable drivers to charge without severely affecting, or overloading, Europe’s electricity grids. It provides clear benefits to customers, the power system, the automobile industry and society at large, the associations believe.

ACEA, Eurelectric and T&E signed this joint call to action today at ACEA’s ‘Leading the mobility transformation’ Summit in Brussels. On this occasion, the auto and electricity industries confirmed their commitment to making more focused investments in both vehicle technology and smart charging solutions.

Whether it is urban or motorway public charging, all barriers to infrastructure deployment and e-mobility growth must be removed. In order to make charging at home, work and on motorways easy and accessible for all drivers, policy makers should reform and strengthen key legislation, such as the soon to be revised EU alternative fuels law (AFID) and the EU buildings directive (EPBD). Existing EU funding instruments must also be better leveraged to speed up the roll-out of infrastructure, and other financial instruments should be targeted to unlock new solutions to improve coverage across all member states.

“The EU auto industry wants to work with all stakeholders to make zero-emission mobility a reality,” stated ACEA Secretary General, Erik Jonnaert. “To convince more customers to make the switch to electric vehicles, we have to remove the stress associated with recharging. This means that everyone must have the option to recharge their vehicle easily, no matter where they live or where they want to travel to.”

“The race to the future is on. We must remove all barriers and make the shift to electric mobility as easy and convenient as possible. Every consumer should have a ‘right-to-plug’ – and the roll-out of public charging points must accelerate. By 2025, we need 1.2 million public charging points in Europe,” said Kristian Ruby, Secretary General of Eurelectric.

Julia Poliscanova, Clean Vehicles Director at T&E said: “A rapid shift to electric cars powered by clean electricity is essential if we want to halt dangerous global warming. Now that carmakers are preparing a wave of new and affordable electric models, we need to ensure the fast and easy deployment of charging points at home, at work and on the road so that charging an electric car becomes a completely hassle free experience for citizens across the EU.”

Source: ACEA

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    RENEWABLE ENERGIES

    IZHARIA INGENIERIA is an Engineering and Consultancy company specialising in the electricity sector. The high quality standards of the company’s products has resulted in their registration with Repro, ISO 9001 and ISO 14001. A leader in Renewable Energy, Izharia has undertaken the largest PV plant in Spain with 500 MW. It provides service to both the renewable energy sector and to the conventional power generation, transmission and electricity distribution sectors. Izharia collaborates with the leading Spanish utilities, performing engineering works for gas and electricity networks as well as for wind farms. Its offices in Spain and Panama support the company’s activities on all continents. Among others, it has undertaken projects in Australia, Jordan, Panama and Uruguay, among others.

    www.izharia.com

    Fuentes: Elaborado por AleaSoft con datos de REE y del Ministerio para la Transición Ecológica / Source: Prepared by AleaSoft using data from REE and the Ministry for the Ecological Transition

    AleaSoft analyses the content of the Integrated National Energy and Climate Plan and its proposals for the electricity sector, where the role that the consultancy foresees for hydrogen technologies is lacking.

    The Integrated National Energy and Climate Plan (NECP) is a broad and cross-cutting document that addresses the goal of reducing greenhouse gas (GHG) emission from many angles, from transportation and electricity generation, to employment and R&D. The objective of the Plan is to achieve a 20% reduction in emissions in 2030 compared to the levels recorded in 1990. This means reducing the current emission levels by more than 30%. The draft lays the foundations to advance in the energy transition and achieve the ultimate goal of totally decarbonising the economy and converting Spain into a carbon neutral country by 2050.

    In the energy transition and the reduction of polluting gas emissions, electricity generation will have a central role. The electricity generation sector is one of the most responsible for the emission of CO2 and other greenhouse gases, but it is also one of the sectors with the greatest power to reduce emissions thanks to the production of electricity from renewable energy sources.

    The objective of the Plan is to achieve, in the year 2030, a penetration of renewable energy sources in the final energy consumption of at least 35%. Specifically for the electricity system, the objective is the generation of at least 70% of the electricity from renewable sources by 2030 and with the final goal of 100% by 2050. To do this, the NECP proposes to install 69 GW of renewable capacity before 2030, and reduce conventional generation by 15 GW.

    The star technology in this renewable revolution will be the solar energy with new 37 GW, of which 32 GW will be of photovoltaic technology and 5 GW of solar thermal. This new capacity to be installed represents an increase of 530% compared to the current power. The second potential technology to be installed before 2030 is the wind energy with new 27 GW and a capacity growth of 114%. And behind the solar and the wind energy, with much less new capacity are the rest of renewable technologies that will add another 5 GW.

    On the side of the reduction of conventional generation, the technology that is intended to be eliminated more quickly is coal. In 2030, it is expected to have removed at least 8.7 GW from the current 10 GW, but with the possibility of closing 100% of the power plants if security of supply allows it. The Plan estimates that coal thermal power stations will no longer be competitive by 2030 if the price of CO2 emission rights reaches 35 €/t. Right now, the price of emissions is around 23 €/t after it tripled in 2018.

    The other conventional technology condemned to disappear according to the draft is the nuclear. By 2030 it is expected to halve the installed capacity by closing 4 GW. On a smaller scale, the other technologies to be reduced are cogeneration, generation with waste and fuel-gas.

    The willingness of the Plan to withdraw up to 2 GW of cogeneration is somehow surprising. The employers of the sector have already shown their disagreement. Cogeneration is one of the most efficient ways to produce heat for the industry. Producing all that thermal energy directly using electricity would be a disproportionate expense for those industries. According to AleaSoft, the best strategy to reduce emissions in industries that require heat is cogeneration with renewable gas or even with hydrogen, which, according to the consultancy, is the fuel of the future and, in addition, does not produce emissions.

    As highlighted by AleaSoft, the renewable transition proposal of the Plan shows very explicitly the need that renewable energies continue to have a backup technology due to its intermittent nature: to remove 15 GW of conventional capacity it is necessary to install 69 GW of renewable capacity . The draft is committed to maintaining gas as a backup technology, maintaining the installed capacity of this technology at least until 2030. But the support for intermittent renewable production is also addressed from two other angles: storage and interconnections.

    In terms of energy storage, the Plan will promote the pumped storage hydropower plants with new 3.5 GW that allow the management of renewable production and, additionally, can support the regulation of watersheds in conditions of extreme phenomena. The installation of up to 2.5 GW of batteries is also contemplated gradually as the technology matures.

    In AleaSoft the mention of hydrogen is lacking as a tool for storing large amounts of energy over long periods of time, being able to counteract the seasonality of a large part of the renewable production. In the Plan, hydrogen is only mentioned as an alternative fuel for transportation.

    On the interconnection side, the Plan contemplates the already planned projects to increase interconnections with France up to 8000 MW and with Portugal up to 3000 MW. Even with these increases in exchange capacity, Spain will not achieve a 10% interconnection with respect to its total installed capacity and will continue far from the minimum target of 15% of the European Union.

    The draft Plan also takes into account the increase in energy efficiency as an essential tool for the energy transition.

    Other important aspects that the draft also takes into account are self-consumption and, in general, a more active role for the consumer. With the approval of the Plan, the demand aggregator will be created as the new subject of the electricity sector to boost the participation of demand in the ancillary services. It is promoted that the aggregation of demand allows a greater participation of distributed generation and self-consumption in the imbalance and ancillary markets.

    Source: AleaSoft Energy Forecasting

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    The European Investment Bank (EIB) is financing the innovation and development strategy that Velatia will drive forward in the electrical energy sector. EIB Vice-President Emma Navarro and Velatia’s CEO, Javier Ormazabal, today signed a EUR 32.5 million finance agreement that will enable the firm to incorporate new digital technologies into the products that it develops for electricity networks. The EU bank is providing this loan under the Investment Plan for Europe, known as the Juncker Plan.

    Velatia is an industrial group that operates in two main areas: electricity distribution networks, via the firm Ormazabal, and telecommunications, headed by Ikusi. The EIB loan will enable the company, which is headquartered in Bilbao and has a presence in 19 countries, to improve its competitiveness in the face of the changes taking place in the energy sector. Ormazabal will drive forward projects in the areas of the automisation and digitisation of power grids, as well as the development of patents and products that enable it to enter new markets and gain new customers.

    This EIB support for Ormazabal’s RDI programme will also have environmental benefits, helping to achieve the EU’s goal of decarbonising the energy system. Specifically, the project will make it possible to adapt the electricity distribution networks to a renewable and well-distributed energy mix and the electrification of transport. These aims will be achieved by developing technologies incorporating new electromechanical equipment and electronic hardware, communications systems provided with new cyber-security solutions and innovative power grid management software.

    This agreement will help to safeguard quality employment and create new jobs in the firm’s RDI division. The loan is backed by the Investment Plan for Europe, which enables the EIB to finance projects that have particular value added and a higher risk profile owing to their structure or nature.

    This loan makes clear the EIB’s firm commitment to supporting innovation by firms operating in highly competitive sectors that consequently need heavy investment to secure their future” said EIB Vice-President Emma Navarro at the signing ceremony. “We are therefore delighted to be signing an agreement that will benefit both the Spanish and the European economy by facilitating the development of new power sector products that will boost competitiveness and contribute to climate action”.

    Our commitment to RDI is part of Velatia and of course Ormazabal’s DNA. We are facing different challenges that at the same time represent opportunities, and this is why we are committed to digitisation and sustainability as marks of our identity. The working areas in which Ormazabal is engaged are therefore energy efficiency and the development of technologies that enable achievement of the decarbonisation objectives set for Europe”, said Javier Ormazabal, Velatia’s CEO.

    RDI financing

    Innovation and skills development are fundamental ingredients for ensuring sustainable growth and quality job creation. Both play a key role in achieving long-term competitiveness. Financing innovation is therefore one of the EIB’s top priorities. In 2017, the EU bank provided EUR 13.8 billion for financing different RDI projects.

    In Spain alone, last year the EIB supported the innovation projects of Spanish businesses with loans worth EUR 1.446 billion. This figure represents a 67% increase on its lending in this sector the previous year. Overall, the EIB Group dedicated 13% of its financing in Spain to promoting corporate RDI.

    Source: European Investment Bank (EIB)

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    Photo: IEA, Getty Images)

    The electricity sector attracted the largest share of energy investments in 2017, sustained by robust spending on grids, exceeding the oil and gas industry for the second year in row, as the energy sector moves toward greater electrification, according to the International Energy Agency’s latest review of global energy spending. Global energy investment totalled USD 1.8 trillion in 2017, a 2% decline in real terms from the previous year, according to the World Energy Investment 2018 report. More than USD 750 billion went to the electricity sector while USD 715 billion was spent on oil and gas supply globally.

    State-backed investments are accounting for a rising share of global energy investment, as state-owned enterprises have remained more resilient in oil and gas and thermal power compared with private actors. The share of global energy investment driven by state-owned enterprises increased over the past five years to over 40% in 2017.

    Meanwhile, government policies are playing a growing role in driving private spending. Across all power sector investments, more than 95% of investment is now based on regulation or contracts for remuneration, with a dwindling role for new projects based solely on revenues from variable pricing in competitive wholesale markets. Investment in energy efficiency is particularly linked to government policy, often through energy performance standards.

    The report also finds that after several years of growth, combined global investment in renewables and energy efficiency declined by 3% in 2017 and there is a risk that it will slow further this year. For instance, investment in renewable power, which accounted for two-thirds of power generation spending, dropped 7% in 2017. Recent policy changes in China linked to support for the deployment of solar PV raise the risk of a slowdown in investment this year. As China accounts for more than 40% of global investment in solar PV, its policy changes have global implications.

    While energy efficiency showed some of the strongest expansion in 2017, it was not enough to offset the decline in renewables. Moreover, efficiency investment growth has weakened in the past year as policy activity showed signs of slowing down.

    The share of fossil fuels in energy supply investment rose last year for the first time since 2014, as spending in oil and gas increased modestly. Meanwhile, retirements of nuclear power plants exceeded new construction starts as investment in the sector declined to its lowest level in five years in 2017. The share of national oil companies in total oil and gas upstream investment remained near record highs, a trend expected to persist in 2018.

    Though still a small part of the market, electric vehicles now account for much of the growth in global passenger vehicle sales, spurred by government purchase incentives. Nearly one quarter of the global value of EV sales in 2017 came from the budgets of governments, who are allocating more capital to support the sector each year.

    Final investment decisions for coal power plants to be built in the coming years declined for a second straight year, reaching a third of their 2010 level. However, despite declining global capacity additions, and an elevated level of retirements of existing plants, the global coal fleet continued to expand in 2017, mostly due to markets in Asia. And while there was a shift towards more efficient plants, 60% of currently operating capacity uses inefficient subcritical technology.

    The report finds that the prospects of the US shale industry are improving. Between 2010 and 2014, companies spent up to USD 1.8 for each dollar of revenue. However, the industry has almost halved its breakeven price, providing a more sustainable basis for future expansion. This underpins a record increase in US light tight oil production of 1.3 million barrels a day in 2018.

    The improved prospects for the US shale sector contrast with the rest of the upstream oil and gas industry. Investment in conventional oil projects, which are responsible for the bulk of global supply, remains subdued. Investment in new conventional capacity is set to plunge in 2018 to about one-third of the total, a multi-year low raising concerns about the long-term adequacy of supply.

    Source: IEA

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      In 2017 the wind energy industry invested €51.2bn in Europe. This included investments in new assets, refinancing transactions, mergers and acquisitions at project and corporate level, public market transactions and private equity raised. Wind energy represented the largest investment opportunity in the power sector, accounting for half of all investments in 2017. The technology is seen as a major driver for moving beyond fossil fuels and conventional power assets. Cost competitiveness and reduced risk perceptions have brought in domestic and international market players looking to diversify their portfolios and/or align with their sustainability targets.

      Europe invested a total of €51.2bn in wind energy in 2017, accounting for half of all power sector investments in that year. The total investment figure was up 9% on 2016. The development of new wind farms accounted for €22.3bn of this figure. These figures form part of WindEurope’s recently published ‘Financing and Investment Trends’ report. The €22bn invested in new wind farms was down on the €28bn invested in 2016, but it covered more capacity: 11.5 GW compared to 10.3 GW, reflecting the falling costs of wind energy.

      The rest of the investment went on the refinancing of existing wind farms, the acquisition of projects and companies involved in the wind sector and on public market fundraising.Read more…

      Article published in: FuturENERGY April 2018

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      The power sector will play a crucial role in attaining the European climate targets, which aim to cut greenhouse gases by at least 40% by 2030, compared to 1990. Tracking progress in the power sector is hence of utmost importance. For the fourth year in a row, the second year in a row with Agora Energiewende, Sanbag has presented the state of the energy transition in the European power sector, to update what happened in 2017, with the report The EU Power Sector Review 2017, launched at the end of January in Brussels. Key topics include renewables growth, conventional power generation, power consumption, and CO2 emissions.

      The report celebrates how the wind, sun and biomass overtook coal, in supplying electricity across Europe in 2017, but also highlights some of the failings of the current electricity transition, and gives a very mixed picture: EU renewables has been increasingly reliant on the success story of wind in Germany, UK and Denmark, which has been inspiring. But other countries need to do more. Solar deployment is surprisingly low, and needs to respond to the massive falls in costs. And with electricity consumption rising for the third year, countries need to reassess their efforts on energy efficiency.

      But to make the biggest difference to emissions, countries need to retire coal plants. The study forecasts Europe’s 258 operational coal plants in 2017 emitted 38% of all EU ETS emissions, or 15% of total EU greenhouse gases. In 2017, Netherlands, Italy and Portugal added their names to the list of countries to phase-out coal, which is great. We need a fast and complete coal phase-out in Europe: the thought of charging electric cars in the 2030’s with coal just doesn’t compute. A 35% renewables target would make a 2030 coal phaseout possible.

      Key findings include:

      • New renewables generation sharply increased in 2017, with wind, solar and biomass overtaking coal for the first time. Since Europe‘s hydro potential is largely tapped, the increase in renewables comes from wind, solar and biomass generation. They rose by 12% in 2017 to 679 Terawatt hours, putting wind, solar and biomass above coal generation for the first time. This is incredible progress, considering just five years ago, coal generation was more than twice that of wind, solar and biomass.

      • But renewables growth has become even more uneven. Germany and the UK alone contributed to 56% of the growth in renewables in the past three years. There is also a bias in favor of wind: a massive 19% increase in wind generation took place in 2017, due to good wind conditions and huge investment into wind plants. This is good news since the biomass boom is now over, but bad news in that solar was responsible for just 14% of the renewables growth in 2014 to 2017.

      • Electricity consumption rose by 0.7% in 2017, marking a third consecutive year of increases. With Europe‘s economy being on a growth path again, power demand is rising as well. This suggests Europe‘s efficiency efforts are not sufficient and hence the EU‘s efficiency policy needs further strengthening.

      • CO2 emissions in the power sector were unchanged in 2017, and rose economy-wide. Low hydro and nuclear generation coupled with increasing demand led to increasing fossil generation. So despite the large rise in wind generation, we estimate power sector CO2 emissions remained unchanged at 1019 million tonnes. However, overall stationary emissions in the EU emissions trading sectors rose slightly from 1750 to 1755 million tonnes because of stronger industrial production especially in rising steel production. Together with additional increases in non-ETS gas and oil demand, we estimate overall EU greenhouse gas emissions rose by around 1% in 2017.

      • Western Europe is phasing out coal, but Eastern Europe is sticking to it. Three more Member States announced coal phase-outs in 2017 – Netherlands, Italy and Portugal. They join France and the UK in committing to phase-out coal, while Eastern European countries are sticking to coal. The debate in Germany, Europe’s largest coal and lignite consumer, is ongoing and will only be decided in 2019.

      Source: Sandbag

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