1. The price of energy security in depressed electricity markets; the case of Belgium Prof.Dr. Johan Albrecht Faculteit Economie & Bedrijfskunde Second Summer School Economics of Electricity Markets 28/08/2014

2. Structure The Belgian context ‘Security of supply’ has two dimensions: follow peak demand & avoid excessive overproduction (intermittent RES) ‘No Policy’ scenario; not sustainable ‘Security of supply’ scenarios ; new assets, old thermal assets, DSM & combinations Surplus risk assessment Conclusions

3. The Belgian Context Firm capacity of 15 700 MW (13 000 MW today) Nuclear phase-out: 5 900 MW

4. Changing Load Factors (LF)

5. RES Gas

6. Wholesale prices in CWE

7. Peak Load; decreasing?

8. Plan Wathelet Extension Tihange 1, 800 MW CCGT, 400 MW DSM

9. Reserve Margin (RM) 2012/2013

10. RM in ‘No Policy’ scenario

11. Supply scenarios for Belgium Policy options; incentives for flexible generation (new and old termal), DSM, CFD for RES (with/without Market Participation (MP)) Investment and system cost of policy options? (with 8% discount rate, LCOE-approach) Assumptions on context; peak demand + 0,5%/yr, carbon price up to € 40 per ton CO 2 in 2030, endogenous price model (more RES -> lower wholesale prices), network costs increase with RES share

12. LCOE assumptions

13. Endogenous price model

14. Prices in NEA for DE

15. Network costs as f(RES)

16. Security of supply; RM > 5% at all times IF (‘No Policy’ RM < 5%) THEN model triggers CCGT, OCGT & Biomass investments Context: old thermal, DSM, BAU RES and High RES

17. New capacity; split up

18. Incentive schemes Capacity payments for CCGT (€ 900/kW), OCGT (€ 700/kW) and Biomass (€ 1050/kW) RES support per MWh (incl. Biomass) ; CFD = LCOE minus price CFD-MP includes curtailment (max 5% PV, max 14% wind) CFD-MP; lower LF, higher LCOE, higher CFD

19. Old Thermal & DSM end of 1 300 MW OT scheduled for 2014-2024; in reserve capacity, 5% LF @ € 95/MWh (€ 50 to 60 mill) DSM clearing prices of € 150/MW/day (based on UBS)

20. Firm capacity in 2030; 18 GW / RM 9% Peak demand of 14,7 GW in 2030 Gas dominates / old thermal; end of life in 2024 Biomass; 3 000 – 3 500 MW in BAU RES / 4 000 – 4 500 MW in High RES

21. Total capacity in 2030; 25 – 30 GW

22. Electricity production in 2030 CFD-MP; Biomass used in flexible way -> higher LF for CCGT Share of RES in 2030: from 28% in BAU RES CFD-MP to 60% in High RES CFD

23. Generation portfolio LF

24. WP Bureau Fédéral du Plan, 2013

25. Annual subsidy cost: cap pay + CFD All results: additional to subsidy cost of 2014 One-off capacity payments in year of investment

26. Cumulative cost up to 2030; € 21 and € 41 bill -> MP of RES matters!

27. Optimal frameworks and RES share? Trade-off between RES share and costs is not linear

28. LCOE generation mix, 2012-2030

29. Total annual system costs (gen+netw)

30. Total costs and RES share

31. Cumulative System Costs 2014-2030

32. Cumulative System Costs & RES-share (2030)

33. Cumulative Subsidy Costs & Cumulative System Costs (2014-2030)

34. Surplus risks? Only with ‘New Capacity’ scenarios Random PV & wind generation in Matlab (10 000 patterns), based on Elia ‘Must-run’; biomass (MP), CHP & nuclear Compared to demand variation in 15 min intervals Demand (15 min) (RES + Must Run) Export capacity of 3 500 MW; surplus of 3 000 is problematic DSM (to increase demand); here not included

35. Illustration of PV+wind output for 29 days

36. 2014 Surplus Risk

37. 2017 Surplus Risk

38. 2023 Surplus Risk

39. 2027 Surplus Risk

40. Overview Surplus Analysis

41. Nuclear prolongation; 3 GW NUC in 2030

42. Conclusions 1

43. Conclusions 2 To secure 5% RM, cumulative subsidy costs up to 2030 vary between € 21 and € 41 billion Smart policy choices will lower costs for society, even at relatively high RES shares Market participation by RES is essential to facilitate further expansion of RES DSM lowers costs / Old thermal; limited relevance limitations of this analysis; capacity payments as institutional challenge (end of EOM?), recovery of demand, delocalisation energy-intensive industries, evolution of interconnection, arrival of smart grid, share of electric vehicles by 2030, EC climate policies,…

44. Thank you for your attention Johan.albrecht@ugent.be Second Summer School ‘Economics of Electricity Markets’ @ Ghent University, August 25-29, 2014 http://www.ceem.ugent.be/SummerSchools/2014/in dex.htm http://www.ceem.ugent.be/SummerSchools/2014/in dex.htm