Navigating the Roadmap for Clean, Secure

and Efficient Energy Innovation

CEPS, Brussels

28th September 2017

Peter Kotek, REKK

Borbála Takácsné Tóth, REKK

Pedro Crespo del Granado, NTNU

Ruud Egging, NTNU

Projects of Common Interest and gas producers pricing strategy

• Is the gas market and infrastructure in its current state able to deliver the 2030 renewable targets of the EU?

• If not, what infrastructure are needed?

• How is the European market affected by global gas market changes?

WHAT IS THE ISSUE?

MODELS APPLIED FOR ANALYSIS

EGMM

• Short term market outcomes

• Welfare analysis

• Investment evaluation

RAMONA

• Long term with a focus on production

• Endogeneous investment

• Project complementarity

GGM

• Long term focus on global gas market flows

• Endogeneous investment

MODEL DEVELOPMENTS

PERFORMED FOR THIS STUDY

EGMM / WGMM

• EGMM – extended with Turkey, investment in LNG terminals included

• WGMM – global representation, LNG market endogenised

RAMONA

• Investments in LNG terminals included

• New operational capacity constraints included and demand points based on EGMM results

• Major update to its database: cross-border connections

GGM

• Major update of cross-border database

• Investments in LNG terminals included

GEOGRAPHICAL COVERAGE IS THE

SAME FOR ALL MODELS

RAMONA geographical coverage

• Social NPV considered for decision making

• Timeframe of analysis to 2050

• Same discount factor applied (4%)

• Same lifetime (25 years)

• Same investment cost (based on ACER benchmarking report)

• Same demand and oil price assumptions (based on Primes)

• Same production assumptions (based on Primes)

• Same pipeline and LNG regasification infrastructure assumption (ENTSOG Low infrastructure = existing + FID projects are included in the reference)

MODELS COMMON FEATURES

• Granularity differs in all three models (monthly / two seasons / yearly) > annual granularity = no storage, predicts more investment

• Different views on market equilibrium (perfect competition / perfect competition with LTC / perfect competition and Cournot) > perfect competition underestimates prices and does not take into account market power (LTC and Cournot)

• PINT vs all projects at the same time investment

MODELS D IFFERENT FEATURES

AND CAPABILITIES

SUPPLY STRUCTURE IN THE

REFERENCE

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

An

nu

al c

on

sum

pti

on

EU

-28

TW

h/y

ea

r

Production Russia Norway TAP North Africa LNG

The objective of the case study is to compare models recommendations and provide methodological support for policy and PCI selection

For this reason, a shortlist of key PCI projects was created,

Based on the second PCI list, we narrowed down the projects:

• PCI should have cross-border effect

• Storages are not analysed

• One project is selected from competing infrastructure

• Project connects a market with no gas consumption to the grid

• Stage 2 investments are not included.

• Stand-alone reverse flow projects are not evaluated

PRE-SELECTION OF PROJECTS

FOR ANALYSIS

PCIS CONSIDERED IN THE

ANALYSIS

Major new infrastructure:

• Nord Stream 2

• TAP and TANAP

Additional infrastructure included:

• IBS

• IGB

• DE-CH, AT-IT, IT-CH, AT-DE

• LNG terminal in Greece

347/2013 EU Regulation

• Market integration – price convergence

• Security of supply – SOS scenarios, 5% probability

• Sustainability – CO2

Measured in M€, price convergence is monetised as social welfare gain

Cost Benefit Analysis (CBA): NPV calculation for 25 year lifetime, 4% discount rate, costs estimated based on ACER benchmarking report

Models Differences

EGMM yearly modelling, RAMONA 5 years

EGMM modelled SOS

EGMM PINT, RAMONA considers all the projects at the same time

METHODOLOGY

DETAILED RAMONA RESULTS

� Russia-Ukraine gas constraints

� GALSI a potential important supplier� Also expansions for IT-SI and SI-HU

� LNG expansion: Ireland and Croatia

� Results on cross-border connections:

� Bulgaria: BG-TR

� Baltic countries (cluster)

� Poland corridor: LI-PL & PL-SK

� Hungary-Romania

� Other investments:

� Small expansion in ES-FR

� In short, total new investments:� New Cross border capacity: 975 GWh/day

� New LNG Capacity: 154 GWh/day

� Total Investments: 5.5 to 6 billion euros

LNG capacity expansion

Pipeline capacity expansion

Existing cross border infrastructure

Ireland LNG

capacity -

Less UK gas in

RAMONA modest

investment of 40

GWh/d capacity

GALSI project shows

a high Utilization.

Croatia relies in

extra LNG capacity

and supplies HU

Investments in the

Baltic cluster but

not in EE LNG

Name From-toRAMONA GGM

EGMM &

WGMMNote

Shannon LNG LNG-IE � � � GGM with 17-20% capacity

KRK LNG LNG-HR � � �

GIPL PL-LT � � - EGMM/WGMM: close to 0 NPV

ITB BG-TR � � �

HU-SI � � � GGM invests 134%

Baltic cluster

EE-FI � � �

LT-LV � - �

LV-EE � - �

LNG-EE - � � GGM with 17-20% capacity

MIDCAT FR-ES � - -Low utilisation

(16-17%)

BRUARO-BG - - - EGMM would invest in low demand

scenarioRO-HU � � -

GALSI DZ-IT � - -

PL-SK � � -GGM would invest 3 times larger

extension. RAMONA 2 times larger.

BACI AT-CZ - � - 50% utilisation in GGM

BALTIC PIPE PL-DK - � - GGM invest 48%

ES-PT - - -

STORK II CZ-PL - - -

RESULTS (REFERENCE DEMAND)

Name From-toAvg

util. (%)

Benefit

s

hosting

EU co.

(M€)

Benefit

s EU28

(M€)

Inv.

cost

(M€)

Fin.

NPV

(M€)

Social

NPV

hosting

EU co.

(M€)

Social

NPV

EU28

(M€)

CEF

(M€)

S. NPV

hosting

EU co.

(with

CEF)

(M€)

S. NPV

EU28

(with

CEF)

(M€)

A B C A-C B-C D A-C+D B-C+D

Shannon LNG LNG-IE 58% 1071 780 551 31 520 229 0 520 229

ES-PT ES-PT 0% 0 0 219 -219 -219 -219 0 -219 -219

Midcat FR-ES 0% 0 0 333 -333 -333 -333 0 -333 -333

GALSI* DZ-IT 75% -2086 -826 1482 -1426 -3568 -2308 0 -3568 -2308

Stork II CZ-PL 17% 423 -267 764 -1047 -341 -1031 0 -341 -1031

PL-SK PL-SK 2% 63 -17 747 -786 -684 -764 108 -576 -656

BACI AT-CZ 0% 0 0 81 -81 -81 -81 0 -81 -81

Krk Lng LNG-HR 32% 624 858 376 159 248 482 101 349 583

HU-SI HU-SI 29% 330 113 104 -156 226 9 0 226 9

BRUARO-BG 39%

164 118 1144 -1121 -980 -1026 0 -980 -1026RO-HU 10%

ITB BG-TR 70% 850 870 92 1173 758 779 0 758 779

BalticEE-FI 59%

3354 3311 724 18 2630 2588 206 2836 2794EE LNG 53%

Baltic pipe PL-DK 4% 104 17 999 -1135 -895 -982 0 -895 -982

GIPL PL-LT 58% 519 100 476 -638 43 -377 353 396 -23

DETAILED EGMM RESULTS

* Welfare effects in Algeria were not considered

• The Shannon LNG terminal in Ireland is financially viable and shall be implemented on a market basis. Nevertheless, at the EU-28 level it has adverse effects on welfare: by commissioning this LNG terminal, flows previously supplying Ireland transiting the UK are diminished.

• The Baltic cluster projects, Krk LNG and the ITB are financially and economically viable on EU level and shall be implemented.

• The Interconnector between Poland and Lithuania (GIPL), the Slovenian-Hungarian interconnector are financially not viable, but with CEF funding awarded, these projects may turn economically feasible.

• BRUA results are less straightforward: two models suggest that RO-HU section is viable others suggest that RO-BG is needed. Even with the CEF funding allocated to the Romanian section of the corridor fails to turn the NPV to positive due to very high investment costs.

• Results from the different models are in disagreement on the viability of the GALSI, Poland-Slovakia Interconnector, MIDCAT, Baltic pipe and BACI

DETAILED RESULTS

For the EUCO30 case demand drop changes the outcome of some projects, but others are not affected:

Negatively:

• MIDCAT falls out (GGM)

• No investment in GALSI (RAMONA)

• HU-SI turns negative (EGMM)

Positively:

• BRUA commissioned (EGMM)

RESULTS (EUCO30 DEMAND)

• Dropping European production can be met by increased LNG supply and higher pipeline flows on existing infrastructure

• Results are robust on the few projects that are needed

• Shannon LNG and Krk LNG terminals

• GIPL (PL-LT)

• ITB (BG-TR)

• HU-SI

• Baltic-connector (cluster)

• LNG will play a bigger role on the long term in Europe but incumbent suppliers will keep and further strengthen their position

• Modelling results can be used for decision making, no additional soft indicators are required: market integration, security of supply, market concentration, CO2 effects can be captured by modelling

• Decisive other qualitative factors out of the reach of modelling are political commitment of the promoters and maturity of the project

HOW DOES IT HELP US?

• WGMM of REKK – sensitivities of European LNG demand depending on other production and demand center’s development

• EGMM TOOT (synergies)

• Demand sensitivity due to increased investment in gas-based power generation (support and collaboration with another SET-Nav case study)

• Study the gas-electricity nexus and its complementariness to large wind/solar

deployment. Currently being analyzed by RAMONA

• Consider & analyze the evolution of certain geopolitical uncertainties

• Test scenario: US shale gas increases production – affecting prices and gas intake from other LNG exporters

• Test scenario: Resolution of the Ukraine-Russia conflict in 2030 – more options for Russian gas supply

NEXT STEPS AND FUTURE WORK

Navigating the Roadmap for Clean, Secure

and Efficient Energy Innovation

Thank you!

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Project Coordinator

Dr. Gustav Resch

Vienna University of Technology Institute of Energy Systems and Electric DrivesTU Wien, EEG - Energy Economics Group

Website: www.eeg.tuwien.ac.atE-mail: resch@eeg.tuwien.ac.atTel: +43-1-58801-370354