IEA Executive Director Praises Energy Price Coupling in Western Europe

At the annual Power-Gen Europe Conference held in Amsterdam, in the Netherlands, International Energy Agency (IEA) Executive Director Maria van der Hoeven called for greater leadership as Europe tackles de-carbonization, distributed energy, and market integration.

She began her presentation by highlighting one of the biggest changes to Europe’s power markets: The May 20 decision to begin price coupling throughout Western Europe to “make even better use of existing transmission infrastructure.”

By allowing electricity to be traded across borders more fluidly going forward, countries that are generating excess power will be better able to dispatch electricity to their neighbors. Instead of standing idle, other power plants will be “utilized to their potential,” said van der Hoeven. At the heart of this scheme is the continued transition towards greater integration and balance of both renewable generation and changing electricity markets.

Van der Hoeven and the IEA’s role in this transition was further bolstered in May when the Group of Seven (G-7) nations requested the IEA to “evaluate the most effective options to ensure electricity security, including increasing system flexibility in order to integrate variable generation,” she said. The regional trading scheme currently being implemented in Europe is similar to the goals of the current Regional Greenhouse Gas Initiative (RGGI) system in the U.S. and what may be coming down the pike as a result of both the Obama administration’s Clean Power Plant rules and stakeholder pressures.

As in the U.S., renewables throughout Europe have not been evenly deployed. Though Germany, Denmark, Spain, and Italy have constructed a high degree of wind and solar power, these countries are using interconnections with many of their more carbon-intense neighbors essentially as battery storage, “exporting when the wind blows and the sun shines, and importing [energy] when the weather is poor,” said van der Hoeven.

Maximizing flexibility and variance within European Union (EU) member states “is one of the central objectives of market integration,” she continued. This necessity is growing as European power providers and regulators work to achieve their 2030 objective of powering the continent with a share of nearly 50% renewables. “How can this be achieved in tandem with addressing the technical and policy challenges of cross-border flows?” she asked.

Utilities Are Financially Squeezed

However, according to the IEA’s most recent estimates, electricity demand in Europe actually fell by 1.5% in 2014. This raises the possibility of the decoupling of economic growth with electricity demand. But it also highlights how European utilities find themselves financially 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,” she said.

In this predicament, van der Hoeven suggests that to survive, utilities will need to broaden their business models and rethink their reliance on “selling kilowatt-hours to consumers in the future.” Of course, this future will likely require more amounts of distributed generation, smart grids, and more advanced information and communications technology (ICT) “that helps to control household appliances and optimizes the use of electricity in commercial and public buildings, including office towers, supermarkets and hospitals,” she said.

That said, she assured “that grids will remain the backbone of a system that ties all of these resources together.” In this pricing environment, “retail electricity tariffs must ensure that all consumers contribute fairly, for quite simply, the grid is vital.”

European Generators Face Uncertainty

Given the uncertainty of the future of the EU, with both Greece and the UK threatening to exit, power generators are rightly concerned about which investment paths to take. The IEA and other stakeholders predict that carbon prices will continue to head upwards as the viable future of the continent’s existing baseload generation capacity is being called into question.

Currently, half of Europe’s nuclear plants, many of which are over 40 years old, are scheduled to be retired by 2040. Though innovative new coal fired power plants are coming online (somewhat ironically in Germany), EU rules are requiring the phase-out of older coal-fired power plants. In this scenario, natural gas is only becoming more vital.

But Europe knows there is a huge need to diversify their gas supply away from Russia and the East while increasing storage. “Yet,” complained van der Hoeven, “LNG terminals sit idle in Spain as there is a lack of interconnections to take advantage of this capacity. However, as the IEA’s most recent Medium-Term Gas Market Report has shown, “there is no scenario under which Europe can expect to reduce its dependence on Russian gas,” she said.

A United Front?

While EU officials in Belgium, France, and Germany continue to press for greater unity, the annual joint plenary discussion only served to highlight the actual disunity that’s occurring “on the ground”. The five industry stakeholder participants and the moderator illustrated and served to represent a broad spectrum of the differing opinions and strategies rippling across the industry. The debate addressed the challenges of integrating renewables, demand and supply side electrical management, the struggle to bring along carbon capture and storage technologies, and the question of what role, if any, fossil and nuclear baseload will play going forward.

But perhaps most on display were the starkly differing views held broadly within the UK versus in both Brussels and throughout core EU nations like Germany.

Panelists included Stephan Singer, director of global energy policy at the World Wildlife Foundation in Belgium; Koen Noyens, an advisor for the environment and sustainable development policy unit at industry group EURELECTRIC in Belgium; Mark Garnett, vice president, Doosan Power Systems in the UK; Damian Wagner, coordinator of smart cities, Fraunhofer IAO in Germany; and Martin Giesen, CEO, Advanced Power in the UK. Stephen Sackur, the host of the BBC’s award winning Hardtalk, moderated the packed and quite riveting session.

Illustrating the necessity of building a better bridge between renewables and fossil fuels, awards were given to some of the most technologically advanced new power plants in the region. This feat was one of the reasons cited by U.S.-based Peabody Energy as they presented their “clean coal achievement for best emissions performance award” to Trianel Kohlekraftwerk Lünen GMBH & Co KG for its 750-MW power plant in Lünen, Germany.

Built under a consortium arrangement between Siemens and IHI Corp., the hard-coal plant—a 2014 POWER Top Plant—is sited along the Datteln-Hamm Canal, a major inland waterway in northwest Germany. The plant features a Siemens SST5-6000 steam turbine, a SGen5-3000W generator, and the SPPA-T3000 instrumentation and control system. The facility is designed to be retrofitted with carbon capture and storage technology—if that technology comes ever online.

Perhaps one of the reasons why Peabody was also quick to praise the plant is that it relies completely on coal imports, about half of which come from the U.S. In total, five German “cleaner” coal plants have been built since 2008, and others are coming along. While older coal fired units are being phased out, the new fleet is actually larger since they also serve to replace some of the nuclear power that Germany is looking to shut down in the aftermath of the Fukushima disaster.

The result: in 2013, Germany’s carbon emissions grew by 1.2%. But illustrative of Germany’s unique path, Lünen’s Unit 3 is designed to ramp up and down quickly, making it ideally suited to balance intermittent wind and solar generation too.

All in all, Europe’s contributions were nicely summarized by a conference attendee from Asia. Sarah Fairhurst, a partner in the Hong Kong-based Lantau Group, thanked the Europeans for two things: constructing and deploying renewables in large enough volumes as to bring down the costs for everyone else, and making virtually every mistake in the book along the way.

“They’ve given us both pathways forward and lots of examples of what not to do in the process,” she said.

Lee M. Buchsbaum is a European-based freelance photojournalist and commercial photographer with decades of experience covering the mining and power sectors for dozens of publications and institutions. He can be reached through his company,

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