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Increasing power system flexibility:
the utility perspective ESAP Workshop – New policies for ensuring electricity security
15th June 2018 Tokyo, Japan
Gregor Pett,
Executive Vice President Market Analytics / Market Solutions
Uniper at a glance
2
Gas fired
power plants
Nuclear plants
Coal fired
power plants
Gas storage Regasification
Service
Hydroelectric
plants
Gas infrastructure Energy sales to small and large
customers
Trading
Our operations
Power Generation
Commodity Trading
Energy Storage
Energy Sales
Energy Services
We operate in 40+ countries around the world
€1.7bn EBITDA in 2017
100 years Experience
~36 GW Generation capacity
Main activities
Our strengths
Our strengths are based on our experience, expertise and curiosity
We combine technical and commercial expertise and offer solutions for challenging
questions.
We build, optimize and operate large power plants.
We produce and trade large quantities of energy. In these processes, we act as efficient as
possible and minimize risks.
We maintain long-standing partnerships with commercial customers, public utility
companies, grid operators and our suppliers. All of these stakeholders gain mutual benefits
from one another.
Our strengths lie in three areas
3
We support the development of
electricity markets outside
Europe with our own production
activities and services for third
parties
Our trading activities create links
across international raw
materials markets
In Europe, we contribute to
supply security by moving
towards a low-carbon energy
future
Increasing power system flexibility ESAP Workshop – New policies for ensuring electricity security
4
European cooperation and integration of ancillary services
Overview of liberalization in Europe
Influence of regulatory frameworks on power markets
1
2
3
Utility strategies for new market environments 4
Companies need to adapt to new ways to capture value
Increased M&A activity
Liberalization process (generic description)
Similar patterns followed in US, UK and other European countries
1. Legal unbundling of competitive segments (production, distribution, supply), first
accounting, then ownership, creating separate companies
2. Measures preventing a large market share of any one single player
3. Full control of one authority over issues like non-discriminatory 3rd party access to
infrastructures (grid, pipelines, entry points, storage, distribution), network tariffs
and network investments
4. Freedom of choice for large customers to select their supplier
5. Creation of competition in generation/procurement
6. Competition and freedom of choice in the retail market
5
Example Germany: pre-liberalized system Large companies as integrated regional monopolists
6
Energy
source Generation Transmission Sales Customer
Vertically integrated regional monopolies
1
2
3
4
5
6
6
6
6
7 8
1 EnBW
2 Bayernwerk
3 BEW AG
4 HEW
5 PreussenElektra
6 RWE
7 VEAG
8 VEW
Regional power companies pre-1998
Monopoly Competition
Regional utilities existed until 1998
Vertically integrated utilities had a
legally recognized monopoly in their
service area
Bundeskartellamt (Regulator)
responsible for price controls and
enforcement of anti-trust laws
Liberalization changed playing field and actors Potential new winners and losers appeared
7
Fuels Customers
Unbundled generation, trading and sales
Generation Sales Optimization
& Trading Transmission
Regulated Competition
Unbundling of generation,
transmission and sales – and
development of trading
Development of liquid trading points
across Europe (i.e. EEX)
Market participants responsible for
managing multiple types of risk
Exchanges/OTC market enable
hedging against market price
movements
TSOs Exchanges Traders
Suppliers Generators
Heavily interconnected system
8 Source: ENTSOE
Market channels
Hourly day
ahead market
¼-Hourly day
ahead market
Continuous
intraday
market
Balancing
circle steering
OTC
9
Frequency
Containment
Reserve (FCR)
automatic
Frequency
Restoration
Reserve (aFRR)
manual
Frequency
Restoration
Reserve (aFRR)
National markets become European ones
Individual markets developed on a national scale
National system requirements and legal restraints led to national sets of market rules
10
The large variation of markets is harmonized step by step to create an
integrated European Power market.
Increasing power system flexibility ESAP Workshop – New policies for ensuring electricity security
11
European cooperation and integration of ancillary services
Overview of liberalization in Europe
Influence of regulatory frameworks on power markets
1
2
3
Utility strategies for new market environments 4
German Renewable Energy Sources Act
The German Renewable Energy Sources Act (EEG) is a series of laws which
first came it force on the 1st April 2000.
The EEG was preceded by the Electricity Feed-in Act (1991) which entered
into force on 1st January 1991 and initiated the first green electricity feed-in
tariff scheme in the world.
It regulates the prioritized feed-in of electricity from renewable sources and
originally guaranteed its producers fixed feed-in tariffs.
The EEG 2014 specified the transition to an auction system which was
introduced with the current version EEG 2017
The EEG is the foundation of the transformation of the German power
market.
12
Significant increase of renewable capacity The system changed significantly within a short period.
0
10000
20000
30000
40000
50000
60000
19
901
991
19
921
993
19
941
995
19
961
997
19
981
999
20
002
001
20
022
003
20
042
005
20
062
007
20
082
009
20
102
011
20
122
013
20
142
015
20
162
017
MW
Installed Wind Capacity
offshore onshore
0
10000
20000
30000
40000
50000
60000
19
901
991
19
921
993
19
941
995
19
961
997
19
981
999
20
002
001
20
022
003
20
042
005
20
062
007
20
082
009
20
102
011
20
122
013
20
142
015
20
162
017
MW
Installed Solar Capacity
Source: BmWi, Zeitreihen zur Entwicklung der Erneuerbaren Energien in Deutschland, Feb 2018
0%
5%
10%
15%
20%
25%
30%
35%
40%
0
50,000
100,000
150,000
200,000
250,000
1990 1994 1998 2002 2006 2010 2014
GW
h
gross renewable power generation and share on total generation
generation share
13
1/3rd (220 TWh) of the generation is
covered by renewables
112 GW of installed renewable
capacity
Wind (56 GW) and Solar (42 GW) are
the dominant technologies
Effects on wholesale markets
Hourly day
ahead market
¼-Hourly day
ahead market
Continuous
intraday
market
Balancing
circle steering
OTC
14
Frequency
Containment
Reserve (FCR)
automatic
Frequency
Restoration
Reserve (aFRR)
manual
Frequency
Restoration
Reserve (aFRR)
Exposure to weather increases need for flexibility Uncertainties in the dispatch optimization are rising.
0
5000
10000
15000
20000
25000
30000
22-05-2018 23-05-2018 24-05-2018 25-05-2018 26-05-2018 27-05-2018 28-05-2018 29-05-2018 30-05-2018 31-05-2018 01-06-2018
MW
h/h
Wind power production forecast
EC00Ens Seasonal Normal EC00Ens median EC00Ens Deterministic Actual
Source: data by Wattsight, 23.05.2018
A system with large installed capacity of renewables is exposed to the
volatility and uncertainty of weather forecasts.
Market channels are needed to cope with the uncertainty.
15
The merit order effect Renewables regime fundamentally changes power market economics
and plant operations
16
Nuclear
Lignite
Hard coal Renewable
energies CCGT Peaking
€/M
Wh
E
lectr
icity p
rice [
€/M
Wh]
Price w/o wind and PV
Price with wind und PV
Merit order
renewables
Less carbon emissions
RES expansion not market-driven
Increasing share of intermittent
generation
Decrease in wholesale power prices
Increasing share of conventional
power plants uneconomic and will be
closed
No investment appetite for
conventional power plants
Consequences of renewables
Example for power plant utilization in Germany Conventional generation has to follow volatile renewables.
17
Liquid short term markets Uncertainties increase the need of short term trading opportunities.
Hourly and ¼ hourly auction
Annual trade volume increased to 240
TWh in Germany
Price coupling of regions connects
European exchanges and countries
Integrated electricity market in beneficial
due to increased liquidity, transparency,
efficiency and social welfare
0
50000
100000
150000
200000
250000
300000
2000 2002 2004 2006 2008 2010 2012 2014 2016
GW
h
traded volume on EPEX spot in Germany
hourly 1/4h
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
2010 2011 2012 2013 2014 2015 2016 2017
GW
h
traded volume on EPEX continous intraday in Germany
hourly continous
Source: EEX market data
Day Ahead Auctions
Annual trade volume reached 40 TWh in
2017
Primary market channel to optimize and
balance a portfolio close to real time
XBID project establishes one single
European intraday power market
Continuous Intraday Market
18
Gas Europe – summer/winter spread
0.5
1.0
1.5
2.0
Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17
NCG summer/winter spread
UK – CDS, CSS 2018
Germany – CDS, CSS 2018 Germany – Baseload power 2018
Sweden – Baseload power 2018
Open markets lead to connectivity between
commodities and result in volatility
19
FX
€/MWh €/MWh
Rebased to 100
$/ton €/MWh
£/MWh €/MWh
Source: Bloomberg – market quotes
Note: Quotes include January 2015 until end of July 2017
-20
-10
0
10
Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17
Dark spread Spark spread
15
20
25
30
35
Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17
Baseload
-5
0
5
10
Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17
Dark spread Spark spread
70
85
100
115
130
Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17
RUB/EUR SEK/EUR GBP/EUR
30
45
60
75
15
20
25
30
35
Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17
Baseload (LHS) Coal (API2)
Increasing power system flexibility ESAP Workshop – New policies for ensuring electricity security
20
European cooperation and integration of ancillary services
Overview of liberalization in Europe
Influence of regulatory frameworks on power markets
1
2
3
Utility strategies for new market environments 4
Ancillary services
Hourly day
ahead market
¼-Hourly day
ahead market
Continuous
intraday
market
Balancing
circle steering
OTC
21
Frequency
Containment
Reserve (FCR)
automatic
Frequency
Restoration
Reserve (aFRR)
manual
Frequency
Restoration
Reserve (aFRR)
Different kinds of balancing products do exist to
support grid stability
22
-0.5
-0.3
-0.1
0.1
0.3
0.5
0.7
0.9
-0.5
-0.3
-0.1
0.1
0.3
0.5
0.7
0.9
Exemplary balancing energy activation
frequency
FCR RR / market automatic
FRR
frequency containment reserves (FCR) automatic & manual frequency restoration
reserves (aFRR & mFRR)
replacement reserves or intraday market
(RR)
stabilization regulate FRCE to zero release used FRR
manual
Network Codes foster European harmonization Ancillary services markets evolve from protected schemes to conjoint
European products.
Ancillary services are affected by two Network Codes.
System Operation Guideline
Members approved the guideline on the 4th of May 2016
Composition of the former network codes on Operational Planning and Scheduling,
Operational Security and Load Frequency Control and Reserve
Affects the market design and requirements of the FCR market
Balancing Guideline
Members approved the guideline on the 16th of March 2017
Affects the market design and requirements of the FRR and RR market
23
Network Codes Five keys to a European Market for Ancillary Services
24
Integrated
balancing markets
Standardized
products
Harmonization
of national
markets
Cross border
balancing capacity
Cross border
balancing energy
Source: ACER, Mathieu Fransen, Final steps to the European guideline on electricity balancing
Frequency Containment Reserve in Germany Less market barriers lead to more efficient markets yet new challenges
for utilities.
25
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
0
1000
2000
3000
4000
5000
6000
7000
01 11 21 31 41 51 09 19 29 39 49 06 16 26 36 46 04 14 24 34 44 02
€/M
W a
nd
wee
k
0
1000
2000
3000
4000
5000
6000
7000
20
19
20
23
20
27
20
31
20
35
20
39
*Based on IHS multi client study Steady at 50
Base case scenario (no new technology and reduced thermal capacity)
Strong penetration of renewable and battery capacity
Source: regelleistung.net
Capacity prices of frequency containment reserve show a declining trend
Changing market design reduced market barriers and fosters the integration of
new disruptive technologies
Battery penetration will be one important price driver
2017 2016 2015 2014 future*
Increasing power system flexibility ESAP Workshop – New policies for ensuring electricity security
26
European cooperation and integration of ancillary services
Overview of liberalization in Europe
Influence of regulatory frameworks on power markets
1
2
3
Utility strategies for new market environments 4
Optimization of market channels
Hourly day
ahead market
¼-Hourly day
ahead market
Continuous
intraday
market
Balancing
circle steering
OTC
27
Frequency
Containment
Reserve (FCR)
automatic
Frequency
Restoration
Reserve (aFRR)
manual
Frequency
Restoration
Reserve (aFRR)
Short term market channels in Germany Complexity is rising significantly with short term markets.
Timing Market Market design Products
Week ahead FCR One-shot pay-as-bid
auction 1
Week ahead aFRR One-shot pay-as-bid
auction 4
Day ahead 10 am mFRR One-shot pay-as-bid
auction 12
Day ahead 12 am EPEX hourly
auction
One-shot uniform price
auction 24
Day ahead 3 pm EPEX quarter
hourly auction
One-shot uniform price
auction 96
Up to 5 min before
start of delivery Intraday market Continuous trading 132
Real-time Imbalance-
market
TSOs charge for open
positions 96
C
o
m
p
l
e
x
i
t
y
28
Portfolio effect – simplified Diversified portfolios have a competitive advantage.
Company A
Only nuclear asset
Company B
Only coal asset
29
Company C
Nuclear and coal asset
Market Prices
Base week 33 €/MWh
Base weekend 20 €/MWh
Base weekday 38.2 €/MWh
Generation Costs
Nuclear plant 8 €/MWh
Coal plant 35 €/MWh
38.2 − 35 €𝑀𝑊ℎ × 120 ℎ + 35 − 20 €
𝑀𝑊ℎ ×240
40𝑀𝑊 × 48 ℎ = 4704 € 𝑀𝑊
33 − 8 €𝑀𝑊ℎ × 168 ℎ = 4200 € 𝑀𝑊
38.2 − 35 €𝑀𝑊ℎ × 120 ℎ + 20 − 8 €
𝑀𝑊ℎ × 48 ℎ = 960 € 𝑀𝑊
Attention: Provision costs need to be calculated on a hourly basis
30
Portfolio usage in ancillary services Diversified portfolios have a competitive advantage due to lower
opportunity costs.
gas coal nuclear
Net capacity by country and fuel type (GW)1,2
Well-diversified portfolio supports optimization Different generation technologies and geographies
31
1. Net capacity for 2016 (accounting view); net generation capacity is reported for plants if plants were in operation at end of 2016
2. Excluding net generation capacities from Hydro LTCs in Austria and Switzerland of 820 MW in 2013, 629 MW in 2014, 629 MW in 2015
and 629 MW in 2016 as well as contracted generation capacities
3. Electricity production contains Pumped Storage production (2013: 0.8 TWh, 2014: 0.8 TWh, 2015: 1.0 TWh)
Note: Deviations may occur due to rounding
Electricity production by technology (TWh)1,3
27.4
GW
3.6 Hydro
1.9 Nuclear
9.1 Hard coal 10.7 Gas
2.2 Other
84.0
TWh
19.1 CCGT
11.0 Hydro
13.6 Nuclear
40.3 Steam
and Biomass
Net capacity by fuel type (GW)1,2
10.5
6.4
5.1
2.1 0.4
Germany
Hungary France
UK
Sweden
Hydro Hard Coal Other Gas Nuclear
2.9
Benelux
Advanced asset modelling & simulation Prequalified capacity of coal fired plant increased
32
• Development and deployment of a
dynamical simulator to improve SR
capability
• Dynamical simulator reduces
expensive and time consuming real
plant tests
• Simulator includes detailed models of
steam generator, turbine, boiler feed
water pre-heating system, pumps, air
system, flue gas system, mills and
existing control system.
• Prequalified capacity could be
increased.
• Further improvements are expected.
Dynamical simulation of aFRR
Asset flexibility improvement minimum load of coal fired plant reduced by coal mill optimization
33
Reduction of Pmin by ~50%
Very stable operation at 15% of the
boiler load and thus about 10% of the
rated power of the plant
Results are used to follow-on
upgrades at French thermal plants
Emile Huchet 6 and Provence 5
Single coal mill mode
New technologies used to optimize portfolio Hybrid battery storage system in operation for grid services
34
49.700
49.800
49.900
50.000
50.100
50.200
50.300
-500
0
500
1.000
1.500
2.000
2.500
10:0
0
10:1
5
10:3
0
10:4
5
11:0
0
11:1
5
11:3
0
11:4
5
12:0
0
12:1
5
12:3
0
Fre
qu
en
cy
Po
we
r
Power in kW
Frequency in mHz
Unique hybrid battery storage combines
different battery technologies to evaluate
technology specific characteristics
Testing new applications
Generating synergies in the portfolio
Very suitable to provide grid services for
TSOs and DSOs due to immediate reaction
to charging and discharging requests
M5BAT
Digital transformation for competitive advantage Enhanced trading systems and capabilities
35
Required for increased performance
and data
Acceleration of end of day batch
processing and intra day calculations
Lower total cost of ownership
Provides the business with a security
stack and integration into the
downstream systems
Contributor to Uniper’s transformation
RPA benefits are beside cost savings,
improved quality and speed and better
compliance
Integrating digital workforce requires
fundamental changes and needs
employee acceptance
Robotic Process Automation
Cloud
36
To be able to react quickly, dispatch operations are
centralized and closely linked to trading
Liberalization and regulation have constantly changed the
environment for generation and trading in Europe
Flexibility and agility were and still are key to stay
competitive including new technologies and digitalization
1
2
3
Cooperation with power plant operations is very strong to
enhance and use all plant flexibilities 4
Increasing power system flexibility The utility perspective: Conclusions
This presentation may contain forward-looking statements based on current assumptions and forecasts made by Uniper SE management and
other information currently available to Uniper. Various known and unknown risks, uncertainties and other factors could lead to material
differences between the actual future results, financial situation, development or performance of the company and the estimates given here.
Uniper SE does not intend, and does not assume any liability whatsoever, to update these forward-looking statements or to conform them to
future events or developments.
Speaker Head of Singapore Office
[email protected] [email protected]
Getting in touch:
Uniper Global Commodities SE - Holzstraße 6 - 40221 Düsseldorf, Germany
37
Speaker’s Biography
38
Since 2017 Executive Vice President Market Analytics/Market Solutions: responsible for commodity market analytics and market solutions.
2014-17 Director Market Operations, Uniper (until Dec 2015 E.ON Global Commodities SE), responsible for wholesale market pricing and commodity market analysis. Corporate restructuring projects. 2017: Interim Director Power Trading and Optimization.
2008 - 2014 Senior Vice President, E.ON SE responsible for commodity risk management and steering of commercial operations across the group
1994 – 2008 various roles within the gas business of Ruhrgas/E.ON Ruhrgas: Technical planning, gas supply negotiations, gas portfolio planning, risk management and commercial gas portfolio optimization
Membership of various E.ON group supervisory boards including E.ON Global Commodities, E.ON France and E.ON Energie.
2009-2016 member/Chairman of the Energy Trading Steering Committee in German Energy Industry Association BDEW, Member of the BDEW Market Design and Gas Market Design Project Groups
Member of the Energy Business Council, International Energy Agency, Paris. Regular peer reviewer of IEA publications
Member 131. Baden-Badener Unternehmergespräche (since 2012)
Degree in Physics (1994)
Gregor Pett, Executive Vice President Market Analytics/Market Solutions, Uniper, Düsseldorf
More than 23 years energy industry experience (incl. more than 16 years in executive positions). Wide
range of in depth energy market expertise: trading, optimization, risk management, commodity market
analysis and market design, corporate restructuring and change management.
Uniper | Holzstraße 6 | 40221 Düsseldorf | phone: +49 (0) 211 73275 2124 | [email protected]