Developments in the energy market

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The energy markets in Europe are in transition, from centrally-controlled energy supply based on fossil fuels, to local, sustainable energy supply in which end-users generate their own electricity, storing it and exchanging it among each other.

Growing energy demand worldwide and shifting power relationships

Population growth and rising prosperity in the world is producing strong growth in the demand for food, water, consumer goods and energy. According to the International Energy Agency (IEA), the worldwide demand for energy will roughly have doubled by 2035 compared to 2011. The centre of gravity for this demand will shift to the emerging economies, particularly China, India and Southeast Asia. According to the IEA (World Energy Outlook, 2013) China is on the brink of becoming the world’s largest oil importer. Around 2020, India is expected to achieve a similar status with respect to coal. With the discoveries of, and drilling for, shale gas in the United States, that country will become self-sufficient in terms of its energy consumption. All this will cause the international power relationships to shift significantly.

Commerce, governments and citizens worldwide face the challenge of meeting the growing demand for energy in such a way that future generations will also continue to be provided with their essentials using what the earth and the atmosphere can produce and absorb. In the forecasts of the International Energy Agency, the production of energy from sustainable sources will grow significantly more strongly than from coal, gas, oil or nuclear energy. In 2035, around 25% of the total worldwide energy demand will be generated sustainably using wind, sun, water and biomass. The sustainable generation of energy occurs not just in the developed nations, but to a rapidly increasing degree in the developing economies as well. An example of this is IEA’s expectation that China will produce more sustainable energy by 2035 than Europe, the US and Japan combined.  

The worldwide developments are relevant to Eneco and its customers given Europe’s increasing dependence on the import of fossil fuels, and because of the impact of the energy needs on the geopolitical relationships with the exporting nations. The worldwide growth of sustainable energy generation also has a positive effect on the economies of scale in the production of goods such as solar panels and wind turbines, which is expected to result in a further drop in the cost of the production of sustainable energy.

European energy supply in transition to sustainable, decentralised, together

The situation in Europe is not so much characterised by a growth in demand, but rather by a fundamental transition in the energy supply. The energy market is evolving from centrally-controlled energy supply based on fossil fuels, to local sustainable energy supply where end-users generate their own power, store it and exchange it among themselves. The European energy and climate objectives for 2020 and 2030 constitute an important driving force behind this transition.

Phase 1 - Central

In the past – and still today – energy supply was characterised mainly by electricity production in large-scale power stations, based on coal and gas or nuclear power. From these huge plants the electricity was sent to the users in one direction, through the vertical transportation and distribution networks. The disadvantages of this system of energy supply are: considerable grid losses, limited re-use of residual heat, considerable carbon emissions and few choice possibilities for customers, except in terms of their supplier and the product (green or ‘grey’ energy).


Phase 2 - Transition

We find ourselves now in a transition phase where the share of sustainable energy is growing, in particular through large-scale sustainable generation in wind farms for instance (onshore or offshore) and from biomass. In this phase, large power stations function mainly as back-ups for the hours when wind velocity and solar intensity decline. Ideally, this back-up will be as flexible and sustainable as possible. In this phase, gas can play a crucial role as a transition fuel given its response time, the degree of up-regulation and down-regulation and the low CO2 emissions of gas-fired power stations.

Phase 3 – Sustainable Decentralised Together

We expect this transition to continue. The signs of this are already visible. Energy supply is evolving into a system where energy is generated by the end-users themselves. Electricity is no longer being transported over large distances, but is generated locally and used immediately or stored or exchanged locally: Sustainable Decentralised Together. To an increasing degree, end-users also obtain insight into and control over their energy consumption and decentralised production. Customers are becoming an active part of the energy system.

Investment in the energy transition involves not just sustainable generation and storage, but also the systems for measuring and distributing all energy flows. Grids are becoming more and more horizontally instead of vertically orientated. The many local energy flows are measured continuously and the information about them is accessible constantly and immediately. The importance of real-time metadata keeps growing, and new services and companies will arise which will turn this data into useful information. Smart meters and Eneco’s Toon thermostat, are just the beginning of this development.

Collaboration between market parties is essential to achieve the energy transition efficiently. In the final phase of Sustainable Decentrally Together (SDT), suppliers and grid operators will join with end-users to ensure that the energy demand and generation at the local level remain in balance, so that any surpluses or shortages can be either stored or exchanged locally as efficiently as possible. SDT projects already realised by Eneco include local generation of electrity from wind power for Fuji Film in Tilburg and the generation of sustainable energy by means of solar panels installed on the roof of the Audi factory in Brussels. Other examples include decentral load management for heat pumps in apartments in the Couperus building in The Hague and customer care services for the Lochem energy cooperative.

Noticeable transition

That this energy transition is in full swing was noticeable in the European energy markets in 2013. There was over-capacity in the conventional power stations, energy was being used to an increasing degree in the form of electricity, and the electricity was increasingly being generated locally.

Over-capacity of conventional power stations due to increase in availability of sustainable energy

There was a relatively low demand for power in Northwest Europe in 2013. This reduced demand and the growth of sustainable energy caused an excess of conventional production capacity. The consequence was that gas-fired power plants reached a historically low level in terms of the hours during which they had to operate. Not only was this trend noticeable in the Netherlands – the situation was even more acute in Germany, because the government there has been implementing a strong stimulatory policy for sustainable energy for some time. Partly because of the over-capacity in conventional electricity production, a number of major European energy utilities announced restructuring plans and new strategic directions in 2013.

Increasing volumes of electricity rather than gas and other energy carriers

Energy is increasingly being used in the form of electricity. The number of electric vehicles on Dutch roads has risen from 7,500 at the end of 2012 to around 19,000 by 1 January 2014 (source: Stichting E-laad). Furthermore, more and more heat pumps are being installed to heat residential homes, rather than gas-fired central-heating units, so that gas is being replaced by electricity for the heat pump or a solar boiler. This trend of decentralised electrification will continue over the next decades. This will result in a further increase in the demand for electricity, at the expense of demand for other energy types such as gas.

More locally-generated energy

The local generation of electricity, for example by means of solar panels, has become significantly more attractive for small users over recent years. The purchase price for solar panels has declined to such an extent that, for end-users, generating their own electricity is equally expensive as buying it (including tax) from the grid. The declining cost of electricity from solar panels is expected to continue in the years ahead. Over time, Eneco expects that the cost price for electricity from solar panels, together with the costs of storing electricity in batteries, will become just as attractive for households as buying electricity from the grid. This will enable households to utilise electricity day and night, without any further support or back-up from the electricity grid.

Growing involvement of end-users in the Netherlands and Belgium

A sustainable national Energy Agreement

The European climate objectives for 2020 include 20% energy savings, a 20% share of sustainable energy and a 20% reduction in carbon emissions. Within this framework, the Netherlands has committed itself to the target that 14 per cent of final energy consumption in 2020 will have originated from sustainable sources. Final energy consumption comprises the demand for energy for transportation, heating and electricity.  

A new and important chapter about enhancing the sustainability of the energy system in the Netherlands was opened in 2013. The government, market parties and interests organisations signed the national Energy Agreement in September 2013. The agreement aims for a target of 14 per cent of sustainable energy in 2020’s final energy consumption. The most significant targets in the Energy Agreement are:

  • Growth in the share of renewable energy from the current 4% to 14% in 2020, with a view to the following years translating into a target of 16% in 2023;
  • Stimulation of energy savings up to 100 PetaJoules (PJ) in 2020, equating to an average of 1.5% annually;
  • Stimulating the objectives for sustainable generation to 6000 MW in onshore wind and 4150 MW in offshore wind;
  • Shutting down the ‘old’ coal-fired power stations and setting a ceiling on the co-firing of biomass in coal-fuelled power plants;
  • Increasing job opportunities by 15,000 full-time jobs in the initial years.

Netherlands’ electricity production development (based on the national Energy Agreement)

2012

2020

average annual growth

Onshore wind

2,208 MW

6,000 MW/ 54 PJ

9.5%

Offshore wind

230 MW

4,150 MW/ 60-65 PJ

30.1%

Biomass co-firing

11.2 PJ

25 PJ

7.8%

Other sustainable (incl. waste incineration, other incineration)

~55 PJ

to 186 PJ (2023)

11.7%

Eneco has contributed actively to the negotiations surrounding the national Energy Agreement. It believes that, with this agreement, broad support has been created for the roadmap towards a much more sustainable energy supply.  

The Energy Agreement is also directly relevant to end-users, for example because of the financing of energy-saving measures for private home-owners and housing corporations. But also because of the new rule where cooperatives are offered a reduction in energy taxes for local production of solar power, for example. This will let local cooperatives experience further development. Eneco applauds these initiatives and helps in their development with a variety of services and concrete step-by-step plans.

Energy no longer a low-interest product; demand for sustainable energy is growing

Consumers are switching energy suppliers to an increasing degree. Last year some 13 percent switched in the Netherlands. This is an increase over the 11 per cent or so the year before (ACM trend report November 2013). The expectation is that this trend will continue. Price remains the most significant reason for customers to switch.  

At the same time, growing numbers of customers are consciously choosing sustainable energy. Eneco only delivers green electricity to households. More and more customers are also choosing for specific forms of sustainable energy such as Eneco HollandseWind: 7 percent of Eneco’s customers opted for this product in 2013. Increasingly, customers are also purchasing products that provide them with more insight into energy their use and which make it possible to save energy, such as Eneco’s smart Toon thermostat.  

Customers also experienced greater difficulty paying their energy bills in 2013 than in preceding years. The economic recession certainly plays a role. In 2013, the effect of the ongoing negative economic climate was further strengthened by an extremely cold winter at the start of the year, making energy bills higher. We notice that consumers are more and more concerned about their energy consumption and increasingly take actions to reduce their energy use.

In addition to applying competitive pricing, Eneco continues to propagate its sustainability vision and to make customers aware of the possibilities for saving energy and for generating it sustainably themselves.