The need for a multi-sector energy systemincl. gas adressed from different perspectives

Regulatory, scientific and practice-oriented reflection

Christian Lebelhuber

Multi-Energy Systems Workshop, ETH Zürich11.03.2019

My tour d‘horizon…

• regulatory perpective: personal reflections of the regulatory workrelated to these aspects on a national and European level

• scientific perspective: some relevant findings from my current doctoral research work in the field of energy policy & environmental economics

• practice orientation: insights into the coordinated approachproposed by the Austrian gas industry to position themselves as integral part of the future energy system

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Starting point: „Energy trilemma“

• This well-known set of objectives is the established basis for energy policy-making and regulation

• However, with substantially increasedsubstainability ambition in line with climate targets, icreased pressure on security of supply and affordability/ competitiveness emerges

• Major efforts are required to keep the trilemma in balance instead of turningit literally into a dilemma

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Sustainability

Affordability/competitiveness

Security of supply

Current situation: A multi-vector system

• Final energy needs are met with a diversified mix of energy sources

• While important interactions exist (transformation), they are all based on an individual supply chain

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0

2000

4000

6000

8000

10000

12000

14000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

TWh

EU28 final energy consumption differentiated for different sources

Solid fossil fuels Petroleum and oil products Gas Derived heat Renewable energies Electrical energy Others

Source: EUROSTAT, Simplified Energy Balances – annual data [nrg_100a]

However, supply needs to become renewable

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0%

5%

10%

15%

20%

25%

30%

35%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

EU 28 share of energy from renewable sources

in gross final energy consumption in electricity in heating and cooling in transport

Source: EUROSTAT, Share of energy from renewable sources [nrg_ind_335a]

• Natural gas recognized as bridge fuel. However, if climate targets shouldbe reached, the bridge will have to end at a certain point (notwithstandingCCS/CCU, where relevant)

• EU long-term vision to achieve a climate-neutral economy with net-zero GHGE by 2050; energy end-use accounts for 75% of total GHGE emissions major change towards climate-neutrality required

Crucial role of energy efficiency

• The most climate-friendly and cheapest energy is the one which is not used at all

• Consequently, the EU has set itself in 2012 a target of 20% energy savings by 2020• While Member States were well on track for some years, most recent

progress reporting shows that additional efforts will be required

• For the period until 2030, the EU has just recently set an even more ambitious target for energy savings of at least 32,5%• This requires Member States to save on average 4.4% of their annual energy

consumption between now and 2030

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Still diverging views…

• Beyond these basic features (see last slides), the concrete way forward is substantially less clear

• “All electric vision” was quite present in the last years• However, in the meanwhile a more balanced view can be recognized

among relevant parties:• Eurelectric: electrification to reach in the long-run not more than 60% of total

energy consumption (most progressive scenario)• European Commission’s Gas Regulatory Forum (“Madrid Forum”): expects a

dual energy system for the future, with a significant role of renewable gas alongside renewable electricity

• European Commission: long-term vision for climate-neutral economy portrays an energy system integrating the various energy vectors such as electricity and gas

• Council of European Energy Regulators (CEER): similar views; in the interest of EU energy consumers and of a cost-effective transition to a future energy system, the EU should make best use of the potentials of the gas sector 7

Regulatory perspective to this notion

• Looking at emission reduction targets in isolation when defining measures to reconceptualize the energy system is insufficient (“energy trilemma”)

• Transition to a sustainable future energy system must provide for a maximum of cost-effectiveness to ensure the affordability of energy for European consumers and the competitiveness of European businesses on the global market

• Consequently, existing assets and market structures should be used to the extent possible

• Ensuring a level playing field of technologies to facilitate marked-baseddecision making (to the extent possible)

• Close interaction between sectors (particularly gas and electricity) required

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Insights into my recent work

• Review of studies from energy industry and academia to discuss potential gas sector contributions from a holistic energy system design point of view

• Followed by a comprehensive discussion of technical potentials, micro-economic conditions and societal implications of renewable gas

• Findings enriched with the results of an empirical focus group process related to the Austrian case.

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Lebelhuber, C.; Steinmüller, H. How and to Which Extent Can the Gas Sector Contribute to a Climate-Neutral European Energy System? A Qualitative Approach. Preprints 2018, 2018100533.

This slide pack is based on the stated manuscript to a significant extent. For reasons of readability this slidepack contains no detailed references. For such information and

further details I refer the interested reader directly to the manuscript.Note

Arguments in favor of gas sector contributions

• Seasonal storage of renewable energy

• Renewable gas enables climate-neutral energy end use

• Reduced need for change on end-user side

• Gas networks can reduce the need for electricity network expansion

• Speeding up the transition to a future energy system

• Mitigation or at least reduction of public acceptance issues

• A multi-vector system fosters security of supply

• A gas sector contribution to a future energy system can improve cost effectiveness from a societal perspective

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Arguments against gas sector contributions

• Gas-based energy end use is for some cases less efficient than alternatives

• Methane leakage

• Previouus/potential sustainability issues related to biomethane production

• Frequently raised meta-arguments• “Too little potential…”

• “Too expensive…”

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Subject of our analysis

Current penetration of renewable gas

• At the moment renewable gases play indeed a minor role• 19 TWh biomethane injected to the gas grid by 540 plants in 15 European

countries this represents less than 1% of the total EU gas consumptions observed in previous years

• For power-to-gas, the current focus of the 128 installations in 16 European countries is clearly on research and their contribution to European gas supply is, for the time being, negligible

• Nonetheless, the technologies to produce renewable gas of both, biogenic and synthetic nature, are already in place

• However, beyond technology also a sufficient availability of feedstocks, etc. is mandatory

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Technical potential of biomethane

• Currently, the vast majority of biogas is not injected into the gas network but used for on-site electricity/heat production (widely as result of publicincentives)

• However, there are good arguments for upgrading and gas grid injection:• replacement of fossil fuels in applications where other renewable alternatives

are scarce • high flexibility value of biomethane due to its easy storage in gas storages and

distribution in the gas grid that enables various end-uses • substantially improved end use efficiency of biomethane as compared to an

on-site use electricity generation based on raw biogas

• However, for our review we only considered the potential being:• explicitly dedicated to biomethane (grid injection)• in line with sustainability standards

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Biomethane to substitute natural gas?

• According to our review biomethane may cover between 11% and 55% of the projected total gas consumption in 2050.

• However, it is worthwhile to consider the structural configuration of the gas network:• the transmission network is operated at high pressure and enables large

volume transit, cross-border interconnection and the supply of distribution networks

• only the largest end-users (if any) such as gas-fired power plants and heavy industry are directly connected to this network level

• the majority of gas end-users such as households and SMEs is connected to the distribution level

• also the injection of biomethane will be predominantly made into the distribution network

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Biomethane might cover residential gas demand

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• By 2050, between 24% and 100% of the forecasted residentialconsumption could be directly covered with biomethane

• Notwithstanding seasonal balancing needs, this could significantlydecouple the distribution level from gas imports

• Caveat: analysis done for EU, national differences do exist

Technical potential of synthetic methane

• The potential of hydrogen and syn. methane follows a different logic:• no feedstock required; wind/solar theoretically inexhaustible

• limitations rather provided by land use restrictions, availability of electrolysers, carbon dixide supply, etc.

• the effective technical potential will rather be the result of the overall energy system design (share of volatile generation, degree of electricity network expansion, curtailment rules, etc.)

• The effective technical potential is case-specific but can be massive.

• In addition, option to import synthetic gaseous fuels from low-cost production regions outside the EU

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Micro-economics of renewable gas production

• We derived values from a broad range of existing literature

• While the relative comparability as well as general overall validity of thesevalues is limited, it allowed us to estimate the degree of overall competitiveness of renewable gases as compared to natural gas

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Production costs

Biomethane 46-94 €/MWh

Hydrogen 52-75 €/MWh

SyntheticMethane

100-150 €/MWh

Natural gas price

Recently observed averageEU wholesale price

20 €/MWh

Required support level

Biomethane 26-74 €/MWh

Hydrogen 32-55 €/MWh

SyntheticMethane

80-130 €/MWh

Overall comparison of renewables support

18Note: This only focuses on direct financial support through feed-in tariffs, feed-in premiums, etc.

Integrated view on support needs

• While the scale-up of renewable gas production requires public support, this is (mostly) also the case for renewable electricity• for renewable electricity across the EU in total to 58 billion € in 2017

• From a societal perspective, renewables expansion should be considered in combination with resulting additional costs along the entire energy supply chain

• In this context, supply of renewable gases can be widely based on:• the use of existing gas network and storage infrastructure in the public domain

• existing appliances and end-use technologies on end-user side

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Substantial support of production required

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• „What-if“ analysis: assuming total support of renewable electricity in 2017 for renewable gas and lowest production costs, would enable a renewable gas penetration of 70%

• Assuming average production costs would still result in a 25% penetration(in total approx 700 TWh. renewable gas as compared to 600 TWh electricity in 2017)

Affordability of end-users must be kept in check

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• Massive challenges for affordability/competitiveness – thus for publicacceptance of energy transition in general

• Considering potential saving related to supplier swichting (not realizedby vast majorty of end-users) a 50% penetration at lowest productioncosts could be acceptable without compensation in other areas

Underlying assumption: support costs levied equally to all end-users (predominantlyapplied also in renewable electricity support schemes)

Specific ambition of the Austrian gas sector

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Consumption of residential sector [Nm3/a]

Total potential renewable gas

Biomethane Synthetic methane

Source: Energy Institute, Johannes Kepler University Linz

Proposed support scheme for the Austrian case

23Objectiv/Requirement: Establish level playing field between different forms of

renewable energy (in particular between electricity and gas)

Wrap-up• Multi-energy systems make sense for various reasons; particulartly the gas

sector can make important contributions to a redesigned energy system

• Substituting natural gas with renewable gas, however, crucially requires a supportive policy framework

• Policymakers need to aim for an optimized interplay of various energy vectors and its infrastructure along the entire supply chain

• If this is the case, renewable gas could complement renewable electricity basedon comparable support levels

• Allocation of support costs to end-users needs to be made with caution and with an eye on consequences related to the development of total system costs

• Level playing field of different renewable energy vectors across the different policy areas is required

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Christian LebelhuberSenior Expert, E-Control Austria

Doctoral Researcher, Johannes Kepler University Linz, Austria

Mobil: +43 664 268 40 92

E-Mail: christian.Lebelhuber@e-control.at

E-Mail: christian.lebelhuber@jku.at

Web: about.me/ChristianLebelhuber

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Characterizing the gas sector

• High-pressure network of 240,000 km

• Operational storage capacity of >1100 TWh (as compared to 40 TWh existing pumped-hydro storage capacity and its reported theoretical potential of 123 TWh within EU)

• Meshed distribution network that connects 118 million end-users*

• A liberalized, competitive and increasingly harmonized European market with dozens of actors in different functions

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Comparing these 118 million end users connected to the European gas grid with 260 million end users [1] connected to the electricity network (which we consider a necessity for any household or business) shows that across Europe approx. 45% of all European end users are connected to the gas grid.