PowerGEN Europe: Conventional Power Still has Vital Role to Play

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Written by Martin Lynch, European News Editor for Industrial Info (Galway, Ireland)--Europe might be leading the renewable energy charge globally, but large-scale conventional power plants and utilities still have a vital role to play, according to Maria van der Hoeven, executive director of the International Energy Agency (IEA).

Speaking at this week's PowerGen Europe event in Amsterdam, van der Hoeven explained that the rise in renewables, combined with a drop in electricity demand across Europe, does not mean an end for large-scale conventional power.

"There are some who would say that large-scale utilities do not have a future in a world of variable renewables and distributed generation," she said. "This is an oversimplification made far too often: equating a low-carbon energy system with the collapse of large-scale utilities. But this does not turn out to be the case at all. In fact, in IEA's 450 scenario--a model that sees global average temperature rise limited to 2 degrees Celsius--utility-scale power generation continues to be absolutely essential to fulfilling Europe's energy demands.

"Yet, utilities will nevertheless have to evolve. Many are questioning if the century-old business model of electric utilities selling kilowatt-hours to consumers makes sense in the future."

Van der Hoeven admitted that conventional power is struggling as demand falls and utilities invest more in renewable power.

"According to our most recent estimates, electricity demand in Europe fell by 1.5% in 2014," she said. "The good news here, at least, is that such a trend raises the possibility of the decoupling of economic growth and electricity demand. As a result of these developments, European utilities find themselves squeezed. On one side, there is reduced demand. On the other, there is a rapid deployment of renewables. At the same time, profitability is low and sales are declining. Many are having to write off assets, in particular gas-fired power plants."

Gas-fired generation has suffered a marked decrease in Europe in recent years, thanks to high gas prices and a surge of cheap coal imports from the U.S. that led to coal-fired plants filling the gap. Leading European nations, including Germany and the U.K., have experienced a coal-fired power renaissance in recent years. As gas prices have fallen in the latter half of 2014, high emitting coal-fired plants are being shuttered again as more efficient gas-fired plants are brought back online.

Van de Hoeven said that all utilities must adapt for the future.

"This is a future that most likely will feature larger amounts of distributed generation, such as solar PV [photovoltaic] panels on residential roofs," she said. "It is also a future characterized by smart grids, where information technology helps to control household appliances and to optimize the use of electricity in commercial and public buildings, including office towers, supermarkets and hospitals. In this kind of future, the kilowatt-hour of electricity may not be the most valuable product. Rather, the company that will do well is one that uses innovative ideas to bring together power, technology, efficiency and other resources in a resilient and secure manner. It is a company that will take advantage of a market that places value on flexibility."

Van de Hoeven praised the major advances made by the European Union in electricity market integration, while highlighting the challenges ahead.

"On May 16, 2014, for a few short but historic hours, the wholesale price of electricity was the same across almost the entire continent, stretching from Portugal to Finland," she said. "This was a unique achievement. It was a clear and unambiguous example of how Europe is working to integrate its electricity markets--in direct contrast to regions such as North America, where we see a much more fragmented system. And then just last month, on May 20, 2015, price coupling was introduced in Western Europe in order to make even better use of existing transmission infrastructure. This is another significant achievement in the European electricity market, and it seems it will be extended to other regions soon."

She added: "Put simply, such integration enables electricity to be traded across borders. It enables countries that are generating excess power to move electricity to their neighbors. It ensures that power plants are not standing idle, but rather are being utilized to their potential. And in the context of the low-carbon energy transition, it better enables the integration of variable renewables--wind and solar PV. However there are--despite what we may hear from techno-optimists--significant technical and policy hurdles to regional electricity market integration and the integration of variable renewables."

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