Shockwaves rock Europe’s energy agenda

Europe’s energy agenda is in disarray as the threat of a second recession and the fallout from Japan’s Fukushima disaster threaten to stall new investments and derail the EU’s low-carbon agenda. Paul Whitehead* writes.

The earthquake and tsunami that rocked Japan on March 11 may not have been felt in Europe, but it sent shockwaves through the European energy sector. A year ago the nuclear industry was optimistic that Europe was heading for a second nuclear age, with a new generation of reactors seen as the best bet for providing cheap, homegrown low-carbon electricity.

But the radioactive leaks and meltdown at several reactors at the Fukushima Daiichi nuclear plant north of Tokyo following the earthquake changed all that. In the wake of public outcry, nuclear power found itself out in the cold. The European Union vowed that “stress tests” needed to be carried out at each of the EU’s 143 nuclear reactors to see whether they could withstand an earthquake.

That was not enough to reassure the public in countries like Germany, Italy and Switzerland. On March 27, the German Greens notched up their biggest electoral success to date, having campaigned on an anti nuclear ticket to become the second largest party in the southern German state of Baden Wuerttemberg. The writing was on the wall for Germany’s nuclear generators who’d been cheered by the governing coalition’s plans to extend reactor lives.

Instead, Angela Merkel’s government announced that the country’s seven oldest reactors – which had been taken offline for safety checks after Fukushima – would not restart. And an eighth at Brunsbuettel that had been plagued by technical problems would also shut down permanently. The country’s remaining reactors would all be phased out by 2022.

The anti-nuclear mood caught on in other countries. Italy was seeking to overturn a 1987 referendum that had ruled out nuclear. But a referendum in June gave a resounding “no” when 90 per cent of the electorate voted against the Berlusconi government’s plans for new reactors. And in neighbouring Switzerland, the government decided in May to abandon plans to replace the country’s four existing reactors. These are all to close by 2034.

Belgium is the latest country poised to ditch the nuclear option. As marathon negotiations over a new coalition government draw to a close, it looks likely that the new government will commit to closing down the country’s seven reactors between 2015 and 2025.

And even in France, Europe’s biggest nuclear power producer with nuclear accounting for 76 per cent of all power in 2009, there is serious talk of drastically scaling back nuclear in favour of other technologies.

What is going to plug the gap left not just by existing nuclear plants, but those new ones that had been planned in countries like Italy?

Recession riles renewables

Germany is counting on increased renewable energy and serious investments in infrastructure to stabilize the power grid when renewables like wind power and solar deliver unpredictable loads.

But renewable energy is still dominated by developing technologies that need state support to reach maturity. And with Europe hovering on the brink of a second recession and cash-strapped governments from Athens to Lisbon and from Rome to Dublin all struggling to pay off their burgeoning public debts, funding for renewables has taken a hit. Portugal, Spain, Germany and the UK, to name a few, have all taken steps in recent months to cut funding for renewable energy.

On November 10, the European Commission warned in its autumn economic forecast for 2011-13 that economic recovery in the 27-member bloc was at a standstill and ongoing turmoil in the eurozone threatened the wider EU with a second recession.

Meanwhile lower industrial output during the downturn means lower carbon emissions and that has seen the price of EU emissions permits tumble – the market isn’t getting a signal to invest in low carbon technologies. And plans by the European Union to auction off additional EU carbon permits to raise money for innovative renewables and other low-carbon technologies will bring in less revenue than had been hoped – flooding the market with more carbon permits can only depress prices further.

Old King Coal

And just as hopes for a nuclear revival have been dashed, the prospects for coal look equally bleak. Coal-fired power generation is still the workhorse of the European energy sector, accounting for 26 per cent of European Union power generation in 2009, according to the latest figures from European coal industry association Euracoal – (see chart). In some countries, like Poland for example, the share is almost 90 per cent.

But Europe’s current fleet of coal-fired plants is ageing and many plants face closure as they do not meet tighter EU rules on emissions of pollutants like sulphur dioxide and nitrous oxide. Meanwhile the rising cost of coal imports – as Europe competes with increasingly coal-hungry China – plus the relatively higher costs of carbon emissions abatement, makes coal less competitive. And this is aggravated by the recent growth of unpredictable, intermittent renewables like wind power.

Coal-fired power generation is typically far less flexible than gas-fired generation, so coal-fired power plants can’t be turned off and on as easily. At times of high wind output in countries like Germany, coal-fired generators have faced the dilemma of costly shutdowns

or selling their power at a loss because market prices are low, and have on occasion gone negative – meaning that coal generators have to pay the grid to take their surplus power.

Coal-fired power had hoped for a new lease of life in a low-carbon era thanks to advances in carbon capture and storage (CCS).

A pilot CCS project has been running on a 30 MW unit at Vattenfall’s Schwarze Pumpe coal-fired power plant in Germany, and the European Commission awarded €1.05 billion ($1.56 billion) for seven CCS projects in Germany, Italy the Netherlands, Poland, Spain and the UK in 2009. But progress has been slow and two of the projects have already been shelved.

Enel’s plan to convert its Porto Tolle oilfired plant in northern Italy to coal with CCS was put on hold after the country’s highest administrative court, overturned government approval for the project in May following challenges from environmental and tourism groups including Greenpeace and WWF about its potential environmental impact.

Meanwhile in the UK, Iberdrola’s plans for CCS at Scottish Power’s Longannet power plant in Scotland were shelved in October when the UK energy ministry said it would not proceed with government funding. The funding is instead likely to go to another plant operated by rivals Scottish & Southern Energy at Peterhead in Scotland, but that plant uses gas not coal.

Stepping on the gas

Indeed gas looks likely to benefit most from the current uncertainties in Europe’s energy market. Gas-fired power plants are cleaner than coal, cheaper to build than nuclear and cheaper to operate than renewables plants at current prices – and they offer flexibility to back up wind. But this begs the question of where the gas to power them will come from as Europe becomes increasingly dependent on imported gas.

The EU is keen to open up new supply routes from Turkmenistan and Azerbaijan in central Asia – and the Azeris and Turks signed a deal in late October that would allow export of Azeri gas to Europe. But Russia’s Gazprom has already built new infrastructure allowing it to bypass transit countries like Ukraine and Belarus. The new Nord Stream pipeline taking gas straight from Russia across the Baltic Sea to Germany began commercial flows on November 7. And Gazprom plans a similar direct link across the Black Sea into southern Europe – South Stream.

And Europe may not need additional imports at all if some of the success seen in developing unconventional gas in the United States could be replicated on this side of the Atlantic. Shale gas has transformed the US energy market in just a few years, allowing the US to become self-sufficient in gas and to even think about exports. And the result has been falling gas prices.

Could Europe be on the verge of its own shale gas boom?

Certainly, Poland has some promise with estimated shale gas reserves of around 190 trillion cubic feet. And in northwest England, shale gas exploration company Cuadrilla Resources estimates there could be up to 200 trillion cubic feet in the Blackpool area.

But its plans to develop that resource are controversial after an independent report concluded in October that two earthquakes measuring 2.3 and 1.5 on the Richter scale were likely caused by hydraulic fracturing – the process used by Caudrilla and other shale gas producers to extract shale gas from rocks by pumping in water and chemicals.

Concerns over the potential environmental impact of so-called “fracking” have already prompted France to rule out shale gas exploration on its territory and are taking hold in other countries. The outlook for shale gas in Europe is also less promising than in the US because Europe does not boast the same land availability and access to water could be an issue.

But with European gas prices more than double the levels seen in the US, US shale producers are eager either to get in on the action in Europe or to lobby their government to allow them to export.

The gap left by Europe’s nuclear closures and retirement of ageing coal plants could eventually be filled by US shale gas, brought to Europe in the form of Liquefied Natural Gas. n

*Paul Whitehead is managing editor of the European policy team at leading energy news and pricing specialists Platts.

EU Power Generation Breakdown 2009

Nuclear – 28%

Coal – 26%

Gas – 23%

Renewables (Including Hydro) – 20%

Oil – 3%