Europe divided on security of supply, such as renewable energies is growing

Germany, France and the U.K. are following nations from Spain to Greece in developing programs called capacity mechanisms to pay utilities to keep plants on standby from as early as 2016. The European Commission instead plans a single market by the end of the year. Supply and demand in 15 markets was for the first time linked today through a daily auction.

Europe’s power market relied on intermittent wind and solar output for a record 7.4 percent of generation in 2012, a share poised to reach 18 percent by 2020, according to Energy Brainpool GmbH & Co. KG., a Berlin-based consultant. The renewable energy boom cut profitable hours at coal and gas-fired plants and IHS Inc. estimates that as much as 60 percent of the region’s gas capacity isn’t covering costs and may be at risk of closure by 2016.

“Capacity mechanisms are popping up like mushrooms all over Europe,” David Viduna, head of long-term origination at Prague-based utility CEZ AS, said in an interview in Vienna on Jan. 29. “The point is that all those efforts need to be harmonized” because payments in one country affect the competitiveness of plants in neighboring countries, he said.

Preventing Blackouts

Nations are seeking to prevent blackouts as utilities plan the biggest-ever wave of shutdowns of unprofitable power plants. As much as 110 gigawatts of gas-fired capacity probably will shut in the next three years, according to IHS, a researcher based in Englewood, Colorado. One gigawatt is enough to power about 2 million European homes.

U.K. utilities from Centrica Plc to SSE Plc will be able to bid in an auction this year to offer backup power plants from 2018 at the lowest possible cost, according to the Department for Energy and Climate Change.

“We need more generation,” Michael Fallon, U.K.’s energy minister, said Jan. 21 in an interview. “We’re losing a fifth of our capacity over the next 10 years.”

Even with 58 nuclear reactors designed to operate 24 hours a day, France doesn’t have enough capacity to meet peak winter demand. Europe’s second-biggest power user may have to import almost 3,600 megawatts during cold snaps this winter, according to RTE, Electricite de France SA’s grid unit. There’s a “moderate risk of supply shortages,” the network manager said in a Nov. 7 report.

Guaranteeing Supply

“France is convinced of the need” to take action to prevent blackouts, Robert Durdilly, president of the Union Francaise de l’Electricite, which represents power producers and distributors, said Jan. 29 in an interview.

From 2016, suppliers without enough capacity to meet the highest peak in demand from their customers must purchase certificates from generators guaranteeing backup supply, according to Commission de Regulation de l’Energie, the Paris- based regulator.

Germany, Europe’s biggest market, is paying plants deemed essential for power supply stability, including EON SE’s Irsching gas-fired plant in Bavaria, on an individual basis. Details have not yet been agreed to for a longer-term measure, according to a text adopted at a meeting of Chancellor Angela Merkel’s cabinet in Meseberg that ended Jan. 23.

Gas-fired plants such as Irsching can’t operate for enough hours to cover their costs, Georg Oppermann, an EON spokesman in Dusseldorf, Germany, said by e-mail.

“This is why we believe that plants which are needed for the security of the power system should be rewarded adequately,” he said.

Increase Trading

Nations should instead ensure security of supply by building more cross-border connections and increase trading with neighbors, according to the commission.

One of the pillars of the European Union is a single market where people, goods, services and capital move freely between its 28 nations. The region’s plan for a joint energy market by the end of 2014 will save as much as 70 billion euros ($94 billion) a year by 2030, according to the commission. Coupling, a step on the way to achieving a single market, may save consumers as much as 4 billion euros a year.

Europe began linking day-ahead markets in November 2006 as France, Belgium and the Netherlands integrated allocation of transmission capacity on cables and power trading. Germany and Luxembourg joined in November 2010.

The link-up of next-day electricity trading from the U.K. to Finland is intended to make power flow more easily across borders to where it is most needed.

First Auction

Prices in the first next-day power auction held today by network operators and energy exchanges across countries that account for 75 percent of Europe’s electricity supply ranged from 35.98 euros a megawatt-hour in Germany to the equivalent of 53.88 euros in the U.K.

“A strong, interconnected electricity transmission grid is critical” to creating a Europe-wide energy market and ensuring security of supply, Ethel Horan, spokeswoman for Brussels-based grid group Entso-e, said by e-mail.

“If we allow national ways of fixing markets with capacity mechanisms, it undermines the internal market,” said Klaus- Dieter Borchardt, a director for internal market in the energy department of the regulator in Brussels.

Capacity mechanisms could have “unfavorable effects” on competition, French regulator CRE said in a report last year. If a plant in one country receives payments, it may be able to sell power at cheaper rates than generators in neighboring countries, CEZ’s Viduna said.

Spanish Plant

A typical idle 500-megawatt gas plant in Spain, where generators have been able to earn capacity payments since 2007, receives about 7.3 million euros a year, according to Endesa SA, the Madrid-based utility. The number isn’t based on an actual plant.

Tennet Holding BV, one of four German high-voltage grid managers, will pay a “middle double-digit million-euro sum” a year to the Irsching 4 and 5 power plants to prevent them closing, EON said in May.

Capacity mechanisms are designed to pay the most flexible plants to act as backup when renewable output drops. A gas-fed plant with the latest technology can produce power within minutes, while coal-fed stations can take as much as six hours to reach full capacity.

Germany’s five-fold increase in renewable energy in the decade through 2012 intensified the need for gas-fired plants. Wind and solar accounted for as much as 49 percent of Germany’s power on Dec. 23, falling to 4 percent two days later, data from the European Energy Exchange compiled by Bloomberg show.

Further Declines

Profit at gas plants plunged as German power prices slumped. The benchmark year-ahead contract in Europe’s largest economy fell 29 percent since 2010 and traded at 36.55 euros a megawatt-hour today, broker data show. Prices may slide as much as 10 euros with a capacity mechanism because of the reduced risk of supply disruption, according to Tom Tindall, a director at IHS in London.

Gas-fed plants have been losing money since 2012 and will remain unprofitable through 2018, according to data compiled by Bloomberg. Power plants in Germany lose 20.73 euros for every megawatt-hour of power they generate, a gauge known as the clean-spark spread, a calculation based on year-ahead power price, fuel and emissions costs, according to data on Bloomberg.

Capacity mechanisms may cost consumers as much as 20 percent of the value of wholesale power markets, according to the commission. That’s 13.2 billion euros a year across Germany, France and the U.K., the bloc’s three largest markets, based on average prices and 2012 consumption.

Household Bills

That would add to the 28 percent price increase in the six years through 2013, according to Eurostat data. German residential bills are more than twice the amount that utilities pay to deliver the power, according to Berlin-based lobby group BDEW, even as demand last year fell to the lowest in a decade.

Economic output in the 18-nation euro region probably rose 0.4 percent in the three months through December after sliding for seven quarters, according to the median of 30 economists in a Bloomberg survey.

Spain’s 14 million households paid more than 858 million euros last year in capacity payments, said Cesar Martinez Villar, a regulatory affairs expert at Endesa in Madrid.

There is a risk new investments will be discouraged by capacity payments, according to Ben Caldecott, the program director at Oxford University’s Smith School of Enterprise and Environment.

“Capacity mechanisms are a band aid for a deeper, more structural market reform that’s required,” he said. “Poorly designed mechanisms paying out more than is needed will cost consumers more.”

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Security risk in pipeline valve decision played down

WASHINGTON officials for the company, the California in a deadly pipeline explosion in September last year acknowledged Tuesday, four years before the accident you install valves rejected, which could have automatically switched or remote-controlled the flow of Erdgas.Pacific gas and electric co. employees were surveyed in a National Transportation Safety Board hearing on a 2006 memo, which said that the valves install "to ensure little or no effect on human safety or properties."Gas engineer Chih-hung Lee, author of the memo, said that he as only industry studies, not Government to reach its conclusions. Industry studies, he said that that most of the damage to gas-accidents pipeline occurs in the first 30 seconds.But if ruptured the pipeline Sept. 9 under a San Francisco suburb suburb, still gas feed a pillar of fire for an hour and a half, before flow could manually close workers. Eight people were killed, many injured, and dozens of houses destroyed."Investigators pointed to a study from 1999, Transport Department, which was previously warned that it be given a significant security risk, as long as gas on the fracture site and operators it not possible, manual valves rapidly close."All fire would have greater intensity and would have more potential for surrounding infrastructure damage, if it is constantly replenished with gas, "said the Government study." "The degree of the disruption in heavily populated and commercial areas would fire in direct proportion to the duration."Coroner's reports indicate that at least five people killed in San Bruno tried have to flee, when they died.Keith Slibasager, PG & E's Manager of gas system operations, said that it took control room staff about 15 minutes after the explosion, find out what happened and would have taken over an another 15 minutes to the gas with automatic or remote of controlled valves shut down. This is an hour consumes less than it took in San Bruno.Instead, about 12 minutes after the explosion, PG & E's dispatch center sent an off-duty employee which was explosion reported to investigate, but he not qualified to the manual valves necessary, feeding a huge fire, Switch off gas houses operate the Safety Board investigator, Ravi Chhatre, said.It took a team, the able to isolate the pipeline and 90 minutes for you, the valves 30 minutes after the break for the company crank dispatch, all stop gas, he said.PG & E officials acknowledged that after Lee's memo no effort made to check the valves. They said that since the disaster, the company to study a dozen of the valves in this year and their effectiveness has begun a pilot project for the installation.But Slibasager said there are potential safety drawbacks for the valves. If closed, he said you in the region widely used gas could cause failures that would put in homes and other buildings, from pilot light.The risk that when gas is again turned on, it could build in buildings in the pilot light is not immediately relit are saying.

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Lawsuit says official security BP resigned

A former official with BP drilling in the Gulf of Mexico was just spill a few months before last year's oil spill due to disagreements with the oil giant about his commitment to security, according to a federal class action relating to the.  This week filed documents in Houston claim Kevin Lacy, BP's former senior Vice President, drilling for the Gulf of Mexico, a mutual agreement reached with the company in December 2009 resign because he believed that the company improperly protocols in offshore drilling operations at the level of industry of peers was committed to improve security. The deepwater horizon rig explosion occurred on 20 April 2010, killing 11 workers and causing the worst in U.S. history oil spill.  The claims come in a modified version, originally filed last year the lawsuit, stock says BP inflated by hiding information and false and misleading statements about its security practices before the Gulf of Mexico oil spill. BP stock value declined about half after oil rig explosion and spill.  BP spokesman Daren Beaudo rejected an opinion on the complaint. The lead plaintiff in the suit, individual investors and the pension system of Oklahoma police are public pension funds in New York and Ohio. Similar actions by the various plaintiffs were originally were stored in New Orleans, but consolidated and moved to Houston Federal Court. The amended complaint asserts that a corporate reorganization which started in 2007, led security budgets in many layoffs and cuts "much safe to drill would have the ability of the company in the Gulf of Mexico."  "Lacy's departure from the Gulf of Mexico drilling unit in December 2009 was drilling unit BP Gulf of Mexico other additional and comprehensive reorganization of personnel." "so that by the time of the incident deepwater horizon, four out of five of BP's senior drilling officials for the Gulf of Mexico your posts for a few months, according to the complaint have been".  The action calls to cuts and layoffs in safety programs and budgets witness of confidential information. The suit, said Lacy, to improve join BP in 2007 and to standardize its drilling had been recruited an experienced drilling engineer, had implemented a rigorous security drill program at Chevron, policies and protocols. Lacy was unavailable for comment.  The amended complaint listed several accidents and security issues BP had prior to the oil spill have happened earlier in other complaints and investigations of the oil giants. The oil rig blast have led to more than 200 million gallons of oil from BP's well spewing a mile below the Gulf of Mexico, according to Government estimates.  Has the Department of Justice is conducting ongoing criminal investigations and some by the parties sued. A presidential Commission has examined the spill last month that rig, owner Transocean Ltd. and contractor Halliburton co. led management failures at BP, to the blowout and explosion. BP own investigation said the fault under itself, Transocean and Halliburton.

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