The latest version of Capgeminis European Energy Markets Observatory reports that the average margin between electricity supply and demand fell to its lowest ever figure of 4.8 per cent in 2005 and early 2006, a full percentage point lower than the 5.8 per cent margin of 2004.
The fall in margin was driven by an increase in consumption that was not matched by sufficient new operating plants, as well as more extreme weather conditions. These included record-breaking high temperatures in the summer of 2005 - which led to a much greater demand for air conditioning systems across Europe - severe cold spells and low rainfall in Spain and France.
This low power margin is a wake-up call to the energy industry, governments and regulators that security of supply in Europe is now under severe pressure, despite the steps that they have taken to address the problem, such as investing in generation and transmission infrastructure and attempting to introduce a common European energy policy.
The electricity capacity margin was most under pressure in Spain, where real capacity margins decreased to -4 per cent, despite an increase in generation capacity of +8 per cent or 5,500 megawatts. Other countries have addressed the margin issue through greater investment in generation capacity. They include the UK, which increased its generation capacity by 13 per cent, achieving a margin increase of +1 per cent and Ireland, which increased capacity by 36 per cent and achieved an increase in margin of +21 per cent.
Colette Lewiner, energy, utilities and chemicals global sector leader at Capgemini, said: “As our report shows, investment in generation is not growing fast enough and even the surge in electricity and gas prices did not give a strong enough signal to boost these investments at the right level. Spot electricity wholesale prices surged by 70 per cent compared to the previous year with peak prices up to 270 Euros/MWh. This followed large increases in oil prices (a 53 per cent increase in 2005 prices compared with 2004) and gas prices (a 38 per cent rise), high prices for carbon dioxide emission rights and tight supply and demand conditions.
Despite the implementation of the European Greenhouse Gas Emission Trading Scheme in 2005, it is highly unlikely that the EU will be able to meet its Kyoto protocol obligations. The EU-15 countries were 300 million tons of CO2 away from their target even though almost all countries were long compared to their National Allocation Plans.
The regulators have also taken note of the supply issue, but progress is slow, says Lewiner. “The EU’s March 2006 Green Paper stated that energy efficiency must improve and could result in a 20 per cent reduction in demand by 2020. This would have a very beneficial impact on security of supply and CO2 emissions reduction. These ambitious objectives should translate into national plans and hopefully we should see these plans being launched in 2007”
Other key findings from the report include the following:
Lewiner concludes: “We have stressed the importance of the security of supply issue for the past five years and it is now becoming critical. Looking forward, the regulators and the industry must redouble their efforts to revisit their energy mix, invest in infrastructure, encourage energy saving initiatives and reduce CO2 emissions. We predict interesting times ahead as the EU continues with its strong desire to create an open pan-European market, implement unbundling of the value chain and decrease the influence of large incumbents - contrasting with the large utilities’ oligopolistic views and desire to spend their ‘war chests’ on European acquisitions, while new and ambitious players such as Gazprom set their sights on the lucrative European retail gas market.”
[There are some important findings in this report, and those responsible for business continuity should sit up and take notice. In fact, you should pull the plug on your mains supply to make sure your electricity back-up solution functions as intended. We have seen so many real life 'funny' stories about how back-up power supplies fail. Let me mention two, both from the USA:
In one large installation the starter motors for the back-up generator diesels were powered from the mains, not from a battery. So, once the UPS batteries ran out the IT died a swift and uncontrolled death.
In a different large US organisation they did everything right - they regularly tested their emergency generators, etc. Unfortunately, because of the extensive testing the generators ran out of diesel when they were needed for real.
So, as usual the devil is in the details, and good engineering required. This is why limited or simulated tests are not enough in this area - you need to actually pull the plug and see what happens. Of course this type of tests needs to be planned to cause minimum disruption in case something fails to function as expected, in itself not always a trivial task.
So, gambling on being supplied thought the mains in case of crisis, is unrealistic, especially in regions with almost no spare capacity.
With regard to the wider energy supply politics, because of the environmental issues, which are far more serious than anybody is letting on, energy generation should not be expanded. Decentralised energy generation, especially if based on burning anthracite, is seriously damaging and outdated technology with huge carbon emissions per generated kWh and an efficiency of perhaps 30 percent. Instead energy generation should be decentralised so that the heat released in the process can also be used, e.g. for heating or in industrial processes. Energy planning must have a much stronger influence on regional planning processes.
The lack of energy must also be used as a political driver towards the severe reductions in energy consumption that are required, e.g. in the private housing mass. In buildings build to standards from before circa 1985 it is quite easy, and economical, to reduce heat losses by up to 90 per cent using modern passive-house technology.
For private households and small companies it is also comparatively easy to become completely or almost completely, independent of the large energy producers by installing pocket power plants, i.e. small engines in insulated boxes, driving generators and producing heat for warm water and building heating. The engines can be run almost emission-free on natural gas or bio-gas.
--Ed].
Related links: (Open in a new window.)
www.capgemini.com/energy
Taken from Information Security Bulletin.