Prospects for the Central and Eastern European electricity market
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Mai 2011 |
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RAZVAN MIHAI - Executive Partner
KPMG ROMÂNIA S.R.L. |
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www.kpmg.md
www.kpmg.ro
KEY CHARACTERISTICS OF THE ELECTRICITY INDUSTRY IN CENTRAL AND EASTERN EUROPE
The electricity systems of the Central and Eastern European countries have undergone considerable development since the fall of communism in 1989–90. Nonetheless, huge challenges remain across the region. Almost all economic data, including electricity consumption, which on a per capita basis is only 57 percent that of Western Europe, indicate that the region still has some way to go before living standards catch-up with those in the developed world.
Increasing demand is a key factor driving change and expansion in the CEE electricity sectors, and naturally needs to be taken into account in any future modeling of systems, particularly of renewal and expansion of generation capacity.
Other challenges include investment into transmission and distribution systems and crossborder links. Meanwhile, planners have to take into account increasing concerns regarding security of supply, ever more stringent environmental regulations, political worries over the cost of electricity and last but not least, the problem of long term finance for projects in the current global economic environment.
Given the increasingly long lead-times and pay-back periods associated with new power projects – most especially large hydro, coal and nuclear facilities – the future planning of CEE electricity sectors requires focused and responsible governments at all levels.
Regionally, the requirements are substantial; the Union for the Co-ordination for the Transmission of Electricity (UCTE) estimates electricity consumption in the region will jump by an average of 25 percent in the next decade, with above average growth in Romania, Hungary and most states of the former Yugoslavia.
To meet this increased demand, the UCTE estimates that the region requires between 21 GW (Conservative Scenario) and 42 GW (Best Estimate Scenario) of new generation capacity by the end of the decade. In addition, based on KPMG estimates, 53 GW of obsolete capacity needs replacement or at least retrofitting over the same time period.
CEE ELECTRICITY GENERATION: UCTE FORECAST
Figures for future developments of the electricity sector are based on the System Adequacy Forecast 2009–2020 prepared by the Union for the Co-ordination of Transmission of Electricity (UCTE) and KPMG analysis regarding the Baltic countries and Albania and presents two scenarios: Conservative and Best Estimate.
The Conservative Scenario takes into account the commissioning of new power plants considered as certain and the expected shutdown of power plants during the given time period. The Best Estimate Scenario also contains future power plants where commissioning can be considered as reasonably credible according to the information available to the national Transmission System Operators (TSOs). Additional information regarding EU regulations and data pertaining to non-UCTE member states has also been examined in order to ensure a comprehensive review of the evolution ofthe regional generation mix.
According to the Best Estimate Scenario, the CEE generation capacity mix will develop significantly by 2020, with total regional capacity reaching 163.3 GW, and an average system load at 97.3 GW. Renewable energy together with nuclear sources and new gas-fired power plants will form the primary focus of sector development.
There is a significant difference between the Conservative and Best Estimate Scenarios. Based on the assumptions of the Best Estimate Scenario and KPMG analysis the installed capacity is estimated to be 34 GW higher than in the case of the Conservative Scenario. In the case of the Best Estimate Scenario the ratio of coal-fired capacities is expected to shrink to 38 percent of the total. The proportion of renewables will increase to 31 percent, with the continuing dominance of hydro representing above 22 percent of the total. The proportion of gas-fired plants, expected to account for 13–17 percent in 2020, is expected to largely replace defunct coalfired capacity.
COAL-FIRED CAPACITY EXPANSION
Many CEE countries boast coal deposits (albeit of differing quality), so it is no surprise that coal fired plant currently makes up about 50 percent of installed capacity across the region and accounts for up to 48 percent of electricity generated.
The readily-available supply of coal (or lignite) is excellent in terms of security of supply, but of course the high emissions, coupled with low efficiencies associated with older plant, make coal less attractive from an environmental viewpoint. While coal’s future in the region will epend partly on the development of CO2 trading and storage schemes, efforts to develop clean-burn technology are expected to keep coal well in contention in the race for new investment in the next decade.
After falling out of favor in recent years, coal-fired power plants are once again under construction (or at least being considered) in many countries, primarily due to the relative abundance of domestic reserves and despite public objections. The future, however, will depend, among other factors, on the new European Trading Scheme for CO2, the price of CO2 and permit processes. The carbon capture and storage (CCS) question would appear to be of crucial importance, and if successfully developed could well boost the opportunities for future coalfired plant.
Share of renewables in final consumption of energy
