Electricity in Europe: exiting fossil fuels?

Electricity in Europe: exiting fossil fuels?

Abstract: There are many options for generating electricity with low carbon emissions, and the electrification of heat and transport can decarbonize energy use across the economy. This places the power sector at the forefront of any move away from fossil fuels, even though fossil-fuelled generators are more dependable and flexible than nuclear reactors or intermittent renewables, and vital for the second-by-second balancing of supply and demand. Renewables tend to supplement, rather than replace, fossil capacity, although output from fossil-fuelled stations will fall and some will have to retire to avoid depressing wholesale power prices. At times of low demand and high renewable output prices can turn negative, but electricity storage, long-distance interconnection, and flexible demand may develop to absorb any excess generation. Simulations for Great Britain show that while coal may be eliminated from the mix within a decade, natural gas has a long-term role in stations with or without carbon capture and storage, depending on its cost and the price of carbon.

One. Introduction

Europe hosts around four hundred fifty gigawatts of fossil-fuelled power stations, two hundred gigawatts each of coal and gas, and fifty gigawatts of oil. These plants, pictured in Figure one, have a 'like for like' replacement cost in the order of five hundred billion pounds. They provide forty percent of Europe's electricity but are responsible for around one point four gigatonnes of carbon dioxide emissions per year, thirty percent of Europe's total. Most of the scenarios for climate stabilization considered by the IPCC require a rapid increase in the worldwide share of low-carbon electricity, with renewables, nuclear, and stations with carbon capture and storage needing to rise from around thirty percent today to eighty percent or more by two thousand fifty. To meet the two thousand nine Copenhagen Accord commitment to limit temperature rises to two degrees, leaders of the

G seven industrial nations have called for the decarbonization of the world economy over the course of this century, and organizations such as the Global Apollo Programme aim to render fossil fuels obsolete by developing renewable base-load generation that is cheaper than coal by the two thousands through a global R and D effort.

The obvious corollary is that existing fossil-fuelled stations may become obsolete before the end of their decades-long technical lifetimes. Around two hundred ten gigawatts of Europe's fossil capacity is under the age of forty, and one hundred fifteen gigawatts under the age of twenty-five. Around thirty percent of this young capacity, thirty-five gigawatts, is located in Germany, fifteen percent in Poland, and eight percent in the U K. Three utilities stand out: R W E, Vattenfall, and E dot O N each own ten to fifteen gigawatts that is under forty years old; with thirteen gigawatts of Vattenfall's fossil assets being under twenty-five years old. Closing power stations before they are fully depreciated creates large financial losses, and European utilities wrote down their fossil-fuelled stations by almost seven billion euros in two thousand thirteen. They also closed or mothballed twenty-one gigawatts of gas-fired plant in two thousand twelve to thirteen; eleven gigawatts of this was less than ten years old.

This was not meant to happen: gas is often seen as the 'bridging fuel' with lower emissions than the coal it should replace during the transition to a truly low-emission power system. The decision to close gas instead of coal stations can be explained by their relative profitability: coal and carbon emissions permits are relatively cheap at present. However, it shows that conventional wisdom may be misleading when applied to a system as complex as the electricity industry. The aim of this paper is a deeper examination of the future role of fossil fuels within the European power sector.

We start by showing why electricity is well-suited for early decarbonization, and how it can then play an important role in reducing other energy-related emissions. Section two also shows that several routes have been proposed for decarbonizing electricity, with different mixes of the main low-carbon technologies: renewables, nuclear power, and carbon capture and storage. Section three outlines the many technical challenges in generating and delivering electricity, and the advantages of fossil fuels in keeping the system stable. The following section shows how power markets have developed to meet the challenge of trading electricity and discusses the policies used in Europe to promote decarbonization. It also shows how the growth of renewable power creates new challenges for fossil-fuel generators: depressing wholesale prices and even sending them negative. Section five uses simulations of the British market to focus on the factors that will affect the role of fossil generators over the coming decades. In section six, we conclude that technical complexities and economic realities mean it will be very hard to completely exit from fossil fuels, but this still allows significant decarbonization, which will be deepened if carbon capture and storage is deployed on a large scale.