Europe’s Fossil Fuel Plants: Boom Or Doom?
By Jack Burke16 January 2017
By Roberta Prandi and Bo Svensson
Editor’s Note: With power generation by renewable sources on the rise, large fossil-fueled power plants in Europe are facing some important challenges. And while the share of power generated by those fossil-fueled plants is not expected to decrease significantly in the medium-term, these plants often have to reinvent themselves in order to maintain profitability.
To do so, those power plants are facing pressure to upgrade packages, find service solutions and other such tools to improve response and performances of the power plant assets. Indeed, the latest keywords for operators of large fossil-fueled power plants are: flexibility, dispatchability, reliability, efficiency and environmental compliance.
Diesel & Gas Turbine Worldwide investigated some aspects of the changing landscape with key players in the power generation sector: Jukka-Pekka Niemi, general manager, Marketing at Wärtsilä Energy Solutions;Tilman Tütken, vice president at MAN Diesel & Turbo and head of the company’s power plant sales activities for Europe; and Prof. Emmanouil Kakaras, who answered on behalf of the European Power Plant Suppliers Association (EPPSA), of which he is the current chairman. Kakaras is also professor at the National Technical University of Athens, Greece, and vice president and head of Research & Development at Mitsubishi Hitachi Power Systems Europe GmbH.
Diesel & Gas Turbine Worldwide: What are, in your opinion, the biggest challenges for power plant operators nowadays in Europe, and how has the market changed In comparison with the not-too-distant past?
Jukka-Pekka Niemi: Power demand is flat or slightly decreasing in Europe, electricity prices are reducing and operating hours for conventional power plants are reducing rapidly. Europe has a strong interconnected grid, but there is, however, still a challenge in this situation. That is to find the optimal solution for various sub-systems in Europe.
How to optimize the usage of power generation assets? The entry of renewables creates and has created a need to fast-acting balancing power. The fact that some areas of Europe have vast capacity in less flexible power generation makes this a challenge. Renewables entry requires fast-acting, flexible generation and if you as an operator don’t have that, you have a challenge. The increase in renewables in the coming years will emphasize the need for flexible power generation and this is something system operators need to face and act upon. Such a system requires an electricity market that incentivizes investments in flexibility.
The European electricity market is, despite good efforts from European Commission, still fragmented, and does not in every country provide the required signals to market participants to start looking at much needed investments in flexibility. Another challenge can be found in the use of natural gas as fuel. Gas-fired thermal power generation is efficient and clean, but do we (Europe) have the infrastructure to manage getting LNG to our power generation assets?
Tilman Tütken: Many European operators are in a difficult position these days as they are facing a fast-changing business environment, which is not something this industry is used to. We see them facing mainly three types of challenges, all of which are closely interconnected.
The first one is economic challenges: a constantly increasing amount of intermittent renewable electricity produced at almost zero margin costs puts pressure on spot market prices and overall increases volatility in the market. Also, the need for baseload energy decreases, which is a challenge for many plant operators of coal-fired plants. Gas-fired plants have suffered a lot but have been profiting from falling prices for natural gas lately. Also they are in a better position to handle the technological challenges that go along with this development.
The second one is technological challenges: there is a rising demand for flexibility in the market as fossil capacities have to either fill the gaps of or make room for renewable energies. Yet the majority of existing power plants in Europe was designed as baseload plants and is more and more forced to follow operational schemes the plants were never laid out for, e.g. part load or fast starts. This puts a heavy burden on the materials, shortens service cycles and increases operational costs.
The third one is legislative uncertainty: 27 EU countries equal 27 energy markets with different legislations and regulations. While the goal of carbon reduction and an increased share of renewables is the same for all countries, the strategies and subsidy schemes to achieve these objectives are not and they are constantly being adapted. Accordingly, it has become a lot harder to calculate a solid business case as energy investments are long term in nature and need secure planning.
Of course, all these challenges directly also affect us as a provider of generation solutions for the energy industry.
Prof. Emmanouil Kakaras: The main challenges faced today by power plant operators are the low electricity prices and the fact that the number of operating hours over the year decreases as the share of intermittent renewables increasingly meets the energy demand. This reduces plant operator’s revenues, which are needed to recover the initial plant investment costs, maintain the existing fleet and leave them with little to no money to invest in new/retrofitted state-of-the-art thermal generation capacity that is more flexible, efficient and environmentally performant than older plants. This situation directly impacts the business of European thermal power technology manufacturers.
The increasing penetration of variable renewables and resulting gradual shift from baseload to a more backup generation also poses technical challenges for existing thermal power plants (e.g. due to increased operating durations at partial loads or steeper ramp rates).
A key challenge today is how to ensure that investments in flexibility are made to meet the need for balancing and back-up capacity in the system. An appropriate EU regulatory framework can play a role, for example, by ensuring income while not running and ensuring that carbon-intensive non-flexible assets are made less competitive (e.g., via the EU Emission Trading System—ETS—or by excluding them from capacity mechanisms).
The decreasing public and political acceptance for fossil fuel power plants is another challenge faced by operators (and equipment manufacturers). There is a lack of awareness regarding the benefits of thermal power generation to ensure a dispatchable, reliable, secure and affordable energy supply in Europe. For example, thermal power generation technologies drastically improved their environmental performances over the last decades and are more and more using renewable bioenergy (as for example biomass whether in solid, liquid or gaseous format).
D>W: How has your company reacted to these changes?
Niemi: Wärtsilä Energy Solutions is well positioned to face these challenges. Our Smart Power Generation technology is a perfect match with renewables. Renewables provide emission-free and sustainable energy and our fast-acting, flexible Smart Power Generation technology balances the fluctuations that are inevitable when powering the world with intermittent renewable power sources. In addition we have chosen to enter the renewables business by offering solar photo voltaic (PV) and solar PV-engine hybrid power plants to our customers. We see that renewables will grow and we want to be part of the growth. We also realize that energy storage applications will play a role in the future energy system in Europe. We are reacting to this by following the industry very closely and defining how we can be part of this growing segment. In addition we work closely with our existing customers through our Services organization in Europe to make sure that our customer’s assets are working and that updates and refurbishments are done.
Tütken: MAN Diesel & Turbo has always been specialized in decentral energy generation solutions, which is why we are well equipped for the challenges ahead and can support our customers from the early planning stadium on all the way to the design, the construction and even operation of the plant. We can help them to identify the fitting generation solution and plant specifications and also offer the benefits of one of the industry’s most sophisticated service organizations which also specializes in retrofits and plant operation and maintenance.
D>W: What new products or services are you offering, that were not common in your company’s portfolio before?
Niemi: As mentioned, we have chosen to enter the renewables business by offering utility-scale solar PV and solar PV-engine hybrid power plants to our customers. Wärtsilä has also extended its portfolio by creating a new Business Line with its Energy Solutions division, focusing on LNG. With a portfolio ranging from small-scale LNG satellite solutions up to medium scale LNG storage solutions, we can provide the required infrastructure to bring LNG to the power market.
Tütken: As mentioned, we have always been involved in decentralized energy generation, which is where Europe is moving. So we are in a good spot.
We offer a wide range of technologies to increase plant efficiency and reduce greenhouse gases emissions. And we offer the broadest range of energy generation technologies available in the market. In the last years, we have been serving a growing number of renewable energy projects, e.g. steam turbines for Concentrated Solar Power (CSP) or biomass plants and we will continue to progress in this segment. Smart hybrid and storage solutions are in the center of our R&D efforts these days.
We also offer complete power plants, e.g. for CHP applications and introduced a new a modular design concept last year, which can be seamlessly scaled from 7 MW upwards. Finally, we specialize in consulting and help our customers to increase plant efficiency and reduce emissions. Together with our customer Endesa, we are currently retrofitting a plant on the island of Ibiza to become one of the most environmentally friendly dual-fuel plants in the world.
D>W: What is the role of digitalization—or big data—in the new approach to successfully manage power plants?
Niemi: Data plays a big role in optimizing power generation assets today and the role will keep on growing moving forward. Our Services offering has a wide variety of service products that are data based on data analytics. Some examples are predictive maintenance and data-driven maintenance schedules. Our idea is that data analysis should provide value to our customers. Data analysis is and will be a big part of system and grid level optimization.
Tütken: Digitalization—that is automation, machine-to-machine communications, big data analysis, etc.—will be one of the most relevant driving forces for this industry. It will continue to gain relevance for plant operators, as it can help them to tackle the technological and economic challenges outlined above.
Still an evolving field, digitalization opens up already today additional options to increase plant efficiency and availability and to enable the smart integration of different generation technologies, e.g. wind or solar, fossil backup and battery storage.
At MAN, we have already built hybrid power plants connecting wind energy with diesel power plants and we are currently developing new hybrid concepts which will allow an even more seamless integration of storage technologies, renewable energy and gas-fired back up plants.
Kakaras: As with all connected devices, power plants will not escape the digitalization trend. Digitalization will help develop adapted and new management tools to control and optimize power plant operations. This will lead to better reliability, availability and maintainability of plants. One can also expect improvements in the flexibility of power plants through better management of ramping up and down, optimization of part-load operations, dispatchability and scalability.
The digitalization trend is also expected to drive huge improvements and create new opportunities in decentralized thermal power generation. Beyond the optimization of plant operations, the digitalization trend will also for example allow for the creation of “virtual power plants,” to bundle distributed generation with consumers profile.
Ultimately, digitalization will help deliver more robust, flexible and efficient centralized and decentralized heat and electricity generation, which can make a key contribution to balance the intermittent nature of wind and solar power and to ensure the security of energy supply.
D>W: Do you see more competition for your company? New players in the market?
Niemi: The competitive scenario for thermal power generation is quite stable. We do, however, see strong competition in the area of solar PV.
Tütken: At MAN we love competition. It is what keeps us alert and up on our feet. The markets are changing constantly and with the rise of digitalization all the players need to develop new business models and competencies. Yet we do not expect new players so much, but the existing field of companies to expand their range of offerings.
Kakaras: The market is changing and will always change. The difference is the speed of change that we experience today compared to before.
European manufacturers of thermal plants provide the most advanced technologies in the world, meeting the highest environmental protection requirements. However, they do business globally and face increasing competition from manufacturers from Asia, which are supported by growing national markets for thermal power generation. This is a major difference with Europe, where markets for thermal power generation are shrinking. The EU regulatory framework has played a key role in this situation, with a decreasing political support towards thermal power generation and lower electricity prices. This impacts the business of European thermal plant manufacturers, challenges their ability to remain competitive and keep their technological edge in low-carbon state-of-the-art thermal power generation worldwide.
Technological development also brings changes on the market. The deployment of new energy storage technologies, considered as a game changer, the hybridisation of conventional thermal power plants, sector exports of excess electricity by combining hydrogen and CO2 into methanol or fuels and the creation of virtual power plants by pooling together decentralized assets are just a few examples that are affecting market dynamics and the overall energy system like never before.
These changing competition and market conditions will create winners and losers, with opportunities for new players to enter the market as well as for existing market players to supply innovative technologies and services to meet the need of tomorrow’s energy system.
D>W: How do you expect the market of power generation in Europe to change further? Where do you see your company positioning in it in the medium term?
Niemi: We think that Europe will see an increase in the share of renewables. As a result of the intermittency, large, traditional power generation assets will become more difficult to operate in an economically and environmentally sensible way. This will grow the market for flexible, fact-acting power generation such as Smart Power Generation technology.
Tütken: Digitization, Big Data and the decision to decarbonize energy generation challenge many existing business models within the energy industry and will continue to do so. Change always does. It’s what the economist Alois Schumpeter once called a process of ‘creative destruction,’ which for him was the base of economic development. Because out of the ruins rise new business opportunities and models and new technologies.
MAN is in a good position here and we are very actively expending our portfolio of solutions and offerings for a digitalized energy industry on its path to climate neutrality. Storage solutions will play a major role in future and we are working on a number of solutions in the field of Power-to-x and battery storage.
Kakaras: The energy system in Europe is undergoing a fundamental transformation. In the next foreseeable future, the market for power generation in Europe will foster flexible, reliable, dispatchable and efficient low-carbon power generation solutions. These are needed to balance variable renewable energy sources and ensure the security of energy supply.
Thermal power generation supplies today an important part of the energy (heat or electricity) in Europe and will continue to do so in the future. According to all decarbonization scenarios considered, thermal power sources will still provide from 34 to 44% of electricity in 2030 . While the energy mix will continue to evolve, thermal power generation will therefore remain a key part in this mix.
New technologies and renewables will in the next decades become an integrated part of the electricity system and manufacturer of thermal power generation will play a key role for their integration in the design of their equipment. As such, state-of-the-art, flexible and efficient thermal power generation is part of the solution and plays a key enabling role in the energy transition, allowing the integration of more variable renewable energy sources while ensuring the balancing of the system, supplying affordable energy, and contributing to the security of energy supply across Europe.
Manufacturers of thermal power technologies, like the rest of the actors in the energy system, face significant challenges in this transition period. The European Commission released an unprecedented set of legislative proposals to address these challenges and create the conditions to meet the Energy Union objectives for a clean, secure and affordable energy system. Establishing a proper enabling regulatory framework will be crucial to unleash the full potential of flexible and efficient state-of-the-art thermal power generation in a fully integrated European energy system, while maintaining the global technological leadership of our sector.
 See 2015 EPPSA‘s comparative study of various energy mix scenarios in 2030: Added Value for EU Energy Policy, at http://www.eppsa.eu/tl_files/eppsa-files/3.%20Publications/Technical%20Brochures/Thermal%20Power%20in%202030_LowRes.pdf.
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