Risks of Vattenfall’s German Lignite Mining and …...of a market stability reserve (MSR), 900...

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Risks of Vattenfall’s German Lignite Mining and Power Operations:

Legal, Economic, and Technical Considerations

Press Conference; Prague, 20th October, 2015

Dipl.-Ing. Pao-Yu Oei

Division Resources and Environment; Workgroup for Infrastructure Policy (WIP); TU Berlin

Division Energy, Transport and Environment; German Economic Research Institute (DIW Berlin)

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Agenda

1. Introduction and Background

2. Phasing-out of coal in the Western world

3. Sustainability goals of Sweden and Vattenfall

4. The energiewende in Germany

5. Economic, technical, and legal risks in Lusatia

6. Conclusions

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Source: ZDF/Frontal 21 9/9/2014

- 3 - 25. Juni 2014

Kohle und Klimaschutz 3

DIW Wochenbericht 14-26:

Kohle und Klimaschutz

Politikberatung kompakt 82:

Gesetzentwurf CO2-Emissionsstandards

Politikberatung kompakt 72 (2013):

Gutachten zur energiewirtschaftlichen Notwendigkeit

der Fortschreibung des Braunkohlenplans "Tagebau Nochten“


Gutachten zur energiepolitischen Notwendigkeit

der Inanspruchnahme des Tagebaus Welzow Süd TF II


„Die Zukunft der Braunkohle in Deutschland im Rahmen

der Energiewende“

Diverse Wochenberichte

Overview of studies:

http://www.diw.de/sixcms/detail.php?id=diw_01.c.429668.de

Publications by DIW Berlin on the Energiewende and Lignite



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Agenda

1. Introduction





6. Conclusions

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70-90% of coal, 30-60% of gas and 30-60% of oil reserves has to

stay under the ground, even if available

(*) http://www.nature.com/nature/journal/v458/n7242/full/nature08017.html

Potsdam Institute for Climate Impact Research (PIK): 2°C target corresponds to 890 Gt CO2 (*):

Source: IPCC SRREN(2011), fig. 1.7

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The CCS-Illusion: Pilot Plant in Jänschwalde cancelled on Dec.

5th 2011

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Development of the CCS Projects since 2011

?

? ?

?

?

? ? ?

cancelled.

delayed ?

? ?

Source: Own depiction based on GCI (2011, 2013) and MIT (2014).

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Phasing-out Coal is Economically „Efficient“: The social costs of lignite, including externalities, are way above the revenue!

0

2

4

6

8

10

12

Wholesale price (2014) FÖS (2012) AEE (2011) DIW Berlin & Fh-ISI (2010)

Co

sts

/ P

ric

e [

ct/

kW

h]

External costs of lignite according to different studies compared to the current electricity price in Germany

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Main Messages

1. There is a global trend to phase-out coal power plants in the Western

world, which is economically efficient

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Agenda

1. Introduction





6. Conclusions

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Vattenfall’s hybrid structure: Lignite dominates German business

0

10

20

30

40

50

60

70

80

90

SE FI DK DE NL UK

Pro

du

ced

Ele

ctri

city

in 2

01

3 [

TWh

]

Biomass

Wind

Oil

Hard Coal

Gas

Hydro Power

Nuclear

Lignite

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Vattenfall‘s CO2 reduction target

Source: Own depiction based on Vattenfall (2014), Thru.de (2014).

65

4,1 4,1 8,4 8,4

10,4 10,4

60,3

42,2

0

20

40

60

80

100

VattenfallEmissions

2012

Possiblesolution

2020

Target 2020

Em

iss

ion

s in

Me

gato

ns C

O2 p

er

ye

ar

GER lignite

GER non-lignite

NL

DK

Target

„A cornerstone of Vattenfall´s long-term strategy is to reduce negative exposure to rising CO2 prices

by reducing emissions from the Group´s portfolio […]”

(Vattenfall Annual and sustainability Report, 2013)

Jänschwalde 2012:

24.8 Mt CO2

Boxberg 2012:

15.9 Mt CO2

Lippendorf 2012:

5.3Mt CO2 (Share Vattenfall)

Schwarze Pumpe 2012:

12.8 Mt CO2

*

*) Total CO2 emissions 2013 have risen to 88.4 Megatons

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How to get rid of 15 Mt of CO2?

Source: Vattenfall Annual and Sustainability Report 2013

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Main Messages



2. Vattenfall‘s German lignite operations are not consistent with neither its

own sustanability goals nor the energy and climate policy of Sweden

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Agenda

1. Introduction





6. Conclusions

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Reduction of nuclear

energy

Share of Renewable Energy

Reduction GHG-

Emissions

Reduction of Energy Demand

Gross final energy

Electricity Productio

n

Primary Energy

Domestic Heat

Final Energy

Transport

Electricity Demand

2015 2017 2019

-47% -56% -60%

2020 18% 35% -40% -20% -20% -10% -10%

2021 2022 2025

-80% -100%

40-45%

2030 2035

30% 50% 55-60%

-55%

2040 45% 65% -70%

2050 60% 80% -80% bis

95% -50% -80% -40% -25%

Basis 2010 - - 1990 2008 2008 2005 2008

Source: Own Depiction based on BReg (2010, 2011, 2013)

„Energy Transformation“ in Germany (Energiewende)

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**) CCGT: Combined Cycle Gas Turbine

OCGT: Open Cycle Gas Turbine

Lignite power plants are not flexible enough for an electricity

system with a high share of renewable sources

Lignite CCGT** OCGT**

Change of load [%Pmax

p. minute] 1 / 2,5 / 4 2 / 4 / 8 8 / 12 / 15

Hot start-up

(<8h) [h] 6 / 4 / 2 1,5 / 1 / 0,5 < 0,1

Cold start-up (>48h)

[h] 10 / 8 / 6 4 / 3 / 2 < 0,1

Source: Agora Energiewende (2014).

Source: VDE (2012)*

*) Read data as follows : „current power plants / state of the art / optimization potential“

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3 Security of supply can be guaranteed in extreme scenarios for

2023, using active re-dispatch

Redispatch measures

increase

decrease

Congestion

No Wind No Problem Maximum Wind Redispatch needed

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Source: Oei, et al.(2014).

Germany‘s national GHG reduction target implies further measures…

0

200

400

600

800

1.000

1.200

1.400

GH

G E

mis

sio

ns

in

Me

ga

ton

s C

O2 e

qu

iv.

Non-ETS-Sector

EU-ETS

Coal_Non_ETS

Coal_ETS

Lignite_Non_ETS

Lignite_ETS

2050 target*:

- 80-95%

2020 Ziel*:

- 40%

2030 target*:

- 55%

*) Base line: 1990

Trend of the last years:

emissions going up!

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… including a coal phase-out probably until 2040

Germany risks missing the -40% GHG reduction target until 2020 (base: 1990).

This is why additional national instruments, employed alongside the EU ETS, come into play

and are currently discussed by all relevant actors.

Official projections by the Federal Network Agency / Bundesnetzagentur (BNetzA) include a

reduction of lignite capacities from 21,2 GW in 2013 to 12,6 GW in 2025.

Resulting emission targets for the electricity sector are 187 Mt CO2 (2025) and 134 Mt CO2

(2035) compared to 317 Mt CO2 in 2014.

This implies a decarbonization of the electricity sector and a coal phase-out. Barbara

Hendricks (Federal Minister for the Environment) and the German Advisory Council on the

Environment (SRU) target the year 2040.

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Proposal of the German Government (October 2015)

The current proposal includes moving 2,7 GW of lignite capacity into a “climate reserve”

• three times 0,9 GW in 2017, 2018 and 2019

• each block is shut down completely after four years in the reserve

The reserve of 2,7 GW include

• 1 GW of lignite capacity in Lusatia (probably 2 blocks of Jänschwalde) by Vattenfall and the

• power plant Buschhaus (350 MW) in Central Germany which was recently bought by Mibrag

(owned by EPH)

It is unclear if the operators are compensated for the reserve due to European restrictions on

state aid rules.

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The Phasing-Out of Coal is Politically Unanymous:

Different additional instruments are under discussion Instrument Effect Possible advantages Possible shortcomings Proposed by

ETS reform

Price signal through the introduction

of a market stability reserve (MSR),

900 million backloading allowances

directly in MSR, start of MSR in 2017

instead of 2021

EU-wide instrument; thus, no

cross-border effects

Structural reforms uncertain from today's

perspective; the extent of the impact is

unpredictable

German government

(2014)

Min. CO2 price

(“floor”)

CO2 certificates would become more

expensive

Investment security for

investors

Feasible prices probably too low to result

in a switch from coal towards natural gas

Bündnis 90/the Green

Party (2014)

Minimum efficiency

level Closure of inefficient power plants

More efficient utilization of raw

materials

Open cycle gas turbines (OCGT) would

also be affected; complex test and

measurement processes

Bündnis 90/the Green

Party (2009)

Flexibility

requirements

Closure or singling out of inflexible

power plants

Better integration of

fluctuating renewable energy

sources

Combined cycle gas turbines (CCGT)

might also be affected

Öko-

Institut/LBD/Raue

(2012)

Coal phase-out law Maximum production or emissions

allowances

Fixed coal phase-out plan &

schedule Auctioning difficult to predict

Greenpeace (2012),

DIE LINKE (2014)

Emissions

performance

standard (specifically

for new plants and

retrofits)

Restrictions for new plants and

retrofits (without CO2 capture)

Prevention of CO2- intensive

investments Minor short-term reduction in emissions IASS (2014)

Emissions

performance

standard (cap for

existing plants)

Reduce load factor for older coal-

fired power plants that have been

written off

Maintenance of generation

capacities, e.g., by shifting into

a strategic reserve

Negative impact on economic efficiency

of power plants; effect on energy

efficiency unclear

IASS (2014)

Capacity instruments Incentives to develop lower-carbon

conventional capacities

Support to natural gas plants,

move coal plants into strategic

reserve

Danger of micro-management, difficulties

to identify concrete technical parameters

to ensure lower-carbon output

Öko-

Institut/LBD/Raue

(2012)

Sourc

e: V

attenfa

ll risky b

usin

ess r

eoprt

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Main Messages





3. The renewables-based energy sector reform in Germany, commonly

called energiewende, implies the end of lignite and coal electrification

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Agenda

1. Introduction





6. Conclusions

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Lusatia: Expropriations and Displacements

Projected fields:

Welzow Süd II (~210 Mio. t CO2 / 800 inhabitants)

Nochten II (~300 Mio. t CO2 / 1,700 inhabitants)

Jänschwalde Nord (~270 Mio. t CO2 / 900 inhabitants)

(Vision: Bagenz-Ost and Spremberg-Ost)

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Lignite business: business as usual contains risks

The company faces risks of different type:

o Economic

o Technical

o Legal

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Economic Risk: No Cash-Cow Anymore

Significantly reduced profitability for old and newer plants

Current Phelix Futures:

2016: EUR 28,90

2017: EUR 28,08

2018: EUR 28,05

2019: EUR 28,45

Development of Phelix Future (Phelix: physical electricity German wholesale power price)

Source: EEX, 10/14/2015

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Technical and Environmental Risks:

Iron Ocre: Threat for aquatic life and tourism in the Spreewald

Source: RBB

Source: www.reiseland-brandenburg.de

Source: dapd

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Exproprietation (relocalisation of inhabitants):

o Public interest needed for legality of new fields

o Energiewende: neither public interest nor necessity

o Possibility to sell electricity from lignite is not a reason

o to justify expropritations

Legal Risks:

Constitutional conformity of new lignite mining fields contested

Source: Own depiction. ©H.-G. Oed ©dpa

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Main Messages







4. In Lusatia, too, there are major economic, technical and legal risks for

Vattenfall

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Agenda

1. Introduction





6. Conclusions and Outlook

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Main Messages







4. In Lusatia, too, there are major economic, technical and legal risks for

Vattenfall

5. It sems to us that a consistent strategy is possible, which includes the

closure of older pants, the use of existing mines to supply younger

plants, the diversification of the technology mix, and investments into

lucrative renewables

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Risks of Vattenfall’s German Lignite Mining and Power Operations:

Legal, Economic, and Technical Considerations

Prague, 20th October, 2015.

Dipl.-Ing. Pao-Yu Oei

Division Resources and Environment; Workgroup for Infrastructure Policy (WIP); TU Berlin

Division Energy, Transport and Environment; German Economic Research Institute (DIW Berlin)

Risks of Vattenfall’s German Lignite Mining and …...of a market stability reserve (MSR), 900...

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