Illustration: © Lars-Erik Håkansson
Is natural gas a “bridge” to a sustainable energy system? That is what the gas industry has been saying for decades. But the bridge is not needed. Sustainable technology is here now.
From 1980 to 2010, natural gas use almost doubled in Europe. European coalmines were uneconomic, and were closed down one after the other.
The fuel shift was also, to some extent, policy-driven. Gas was seen as cleaner than coal, especially for power. Indeed it is.
The supply of gas from the North Sea was shrinking, but gas from Russia and Norway made up for that loss. More imports from other countries that have LNG was another option.
Gas was certainly nowhere near as divisive as nuclear power, so the road from coal to gas was taken for granted. Most European leaders thought renewables a very nice idea, and supported them with generous feed-in tariffs or by other means. Everybody also had a kind word for efficiency. But few thought that it or renewables would have any real significance in the foreseeable future.
Gas is the bridge. That was what most politicians thought, and that was what the power companies thought. Other bridges to the future were carbon capture and storage, and for some leaders also nuclear power, either conventional or more “advanced” concepts such as thorium reactors, fast breeder reactors, and fusion.
This time perspective – of CCS now, together with more nuclear and more gas, and followed by sustainability sometime in the future – has turned out to be 180 degrees wrong.
- The nuclear renaissance did not come. Nuclear production in the EU peaked in 2004, and has dropped 13 per cent since then. More reactors will be retired over the next few years. Only four reactors are under construction in the EU, two of them Soviet-era projects in Slovakia. “Advanced nuclear” is moving further and further into the future.
- CCS failed. Both the EU and member states have offered very large sums of money, but there are no takers. There is no coal power CCS anywhere in the world now or in the near future. The few CCS projects that are running or likely to be underway in the near term are of two kinds. One separates CO2 from natural gas, which is beside the point. The other uses CO2 for enhanced oil recovery, which means more CO2, not less. None of them are in the EU, anyway.
- Gas sales have dropped since 2010, and especially for power. Industry use and domestic use for heating do not change so fast, but power plants can be switched on and off at very short notice. If the gas price is high and the power price is low, they will run much fewer hours per year. Gas prices are falling, but not enough to stop the decline. The relative cleanliness of gas also raised more question marks after the US boom in fracking. European fracking efforts have damaged the image of gas, but produced no actual gas. And the security of supply issue resurfaced with the Ukraine crisis, if not before. The bridges have crumbled, but the distant shore has moved within wading distance.
- Efficiency improvements have cut electricity use by some five per cent between 2010 and 2014, i.e. not because of the 2008 recession, but after it. There may be a thousand reasons, from LEDs to better fridges, fans and pumps, much as a result of EU and US policy.
- Wind power became mainstream. In the year 2000, Europe got 21 TWh from wind, worth two or three standard nuclear reactors. Negligible. But in 2013, wind power produced 189 TWh, equivalent to 25 reactors. That is not negligible, and it is only the beginning. Denmark got 39 per cent of its electricity from the wind in 2014, Portugal 24 per cent. In France, Germany and Spain, wind produced more energy than gas during 2014.
- Wind power is now competitive with any other new power technology, and even threatens existing coal, nuclear and gas power by driving wholesale electricity prices down.
- This is also happening for solar. In 2014, Germany got 33 TWh from solar. This is not an awful lot, but solar production is already big enough to push peak power prices down in the daytime. That is when the big power stations used to earn most money. Solar is coming fast. The EU produced just 0.1 TWh in the year 2000, but 83 TWh in 2013. Italy got 23 TWh from solar in 2014. According to Deutsche Bank , 80 per cent of the world will have “grid parity” before 2017, meaning that homeowners will save money by putting solar panels on their roofs, irrespective of politics.
- Just a few years ago photovoltaic development was an almost exclusive European thing, very dependent on policy in Germany, Spain and Italy. Now the skyrocketing production is heading to China, Japan, India, the US and South America, and the cost keeps falling. No policy decision can stop this development, though active policy can, and will, accelerate it.
From the investor perspective, solar and wind are attractive for several reasons. Solar is predictable. Most projects are built on time and on budget, and the panels then deliver the energy that was calculated. There is no technology risk and no fuel cost risk.
Wind power is almost as safe.
Coal and nuclear power projects, on the other hand, have often disappointed investors. The few nuclear reactor projects in the EU are all far behind schedule and 2–3 times over budget. Coal power projects are much the same. Vattenfall’s giant Hamburg-Moorburg plant is not yet fully operational, but cost underestimates and power price overestimates have forced a write-down of 1 billion euro. Vattenfall also lost 5–6 billion euro on Dutch Nuon, with coal and gas assets.
Eon did bet high on gas, and lost. Its Irsching 4 and 5 power stations are among the most modern and efficient in the world, but are still not making any money. Power prices are too low, and natural gas is too expensive to compete with anything, for most of the year.
Eon actually threatened suicide, i.e. closing down the Irsching plants. They got some money from the grid authority to keep them for strategic reserve power.
In the rear-guard fight for big power, this suicide strategy became institutionalized. It is called “capacity market” and means that the government pays for fossil and nuclear power capacity whether it is used or not. In the UK, the compensation (for delivery winter 2018) is £19.4/kW according to an auction in December 2014. Most of the money goes to existing gas power and some to coal, so many NGOs see it as a fossil subsidy. Some also goes to nuclear, but very little for demand reduction.
In Germany, the government has had second thoughts and Sigmar Gabriel, Minister for Economic Affairs, told the press that he sees no rationale for a capacity market. Prices will fluctuate more, but those swings will spark new investments, he said.
He did not elaborate, but those investments are likely to be electric storage, more power lines, biopower and demand-side management. Not fossil gas power.
Germany is a densely populated country with modest renewable resources. Hydropower dams acts as a battery, but Germany does not have much of it. Most countries have a better match between solar supply and demand. So if Germany can keep adding renewables, phase out nuclear and fossil fuels, including natural gas, and still keep the grid stable, then the whole world can do so.
Fredrik Lundberg
