Read without ads and support Scribd by becoming a Scribd Premium Reader.
See Premium Plans
 
4
Renewable Generation and Securityof Supply
Boaz Moselle
A
key question this book seeks to address iswhat justification exists for the promotion of renewable generation over other forms of low-carbon generation—in other words, for policiesthat specifically promote renewable generationrather than a technology-neutral approach such asa carbon tax or cap-and-trade mechanism. Simpleeconomics suggests that the latter approach wouldbe more effective in achieving carbon reductionsat lowest cost, through competition between dif-ferent carbon abatement mechanisms and tech-nologies (e.g., renewable energy, nuclear, carboncapture and storage, reductions in non-generationsectors, energy efficiency).In the European Union (EU), one of the mostcommon responses is that renewable generationmerits specific support because it enhances secu-rity of supply by reducing dependence onimported fuels. Concerns about import depend-ence refer particularly (though not exclusively) todependence on natural gas imports from RussiaandAlgeria, which many observers view as poten-tially unreliable because of political instability and,in the case of Russia, a willingness to use energysupplies as a tool of geopolitics.
1
This concern hasbeen greatly enhanced by interruptions in recentwinters to the flow of gas from Russia into theEU via Ukraine, as a result of disputes betweenRussia and Ukraine.At the same time, a commonly voiced con-cern with renewable generation is that it willendanger security of supply by leading to exces-sive dependence on intermittent sources such aswind and solar power. To some commentators,this argues against the promotion of renewablegeneration.To others, it implies the need for sig-nificant changes in power market design to ensurethat sufficient backup capacity is available over various time frames.This chapter therefore focuses on these twoquestions, examining to what extent security of supply concerns related to import dependencewarrant additional support for renewable genera-tion relative to other forms of low-carbon tech-nology, and to what extent security of supplyconcerns related to intermittency undermine thecase for supporting renewables at all or necessitatemajor changes in market design.The focus is on the EU, where renewablesdeployment is most prominent on the policyagenda and is explicitly linked to security of sup-ply by policymakers. However, many of theconclusions—in particular, those relating tointermittency—can be applied to other jurisdic-tions as well.The chapter begins by examining the issue of import dependence. It assesses the extent of theproblem and analyzes whether there are market or 
 
other failures that warrant intervention, and if so,whether the promotion of renewable generationis the most efficient form of intervention toaddress the problem. It then focuses on the prob-lems posed by intermittency, again assessing theproblem and analyzing the case for policy inter-vention and the most appropriate form that inter-vention might take.
EU Dependence onImported Fuels
The need to reduce dependence on importedfuels is used to justify a range of EU policies,including not only the promotion of renewables,but also the promotion of energy efficiency andthe provision by some national governments of subsidies to domestic coal production. In the pastdecade, these themes have been developed innumerous policy documents and pieces of legisla-tion, including the European Commission’s 2000Green Paper on security of supply, the 2002Regulation on State Aid in the coal sector, the2008 Energy Security and Solidarity Plan, and the2009 Renewables Directive (European Commis-sion 2000; Regulation 1407/2002; EuropeanCommission 2008a; Directive 2009/28/EC).This section therefore presents evidence onthe extent of EU import dependence and the fac-tors that have most given rise to concern withrespect to power generation: the large and grow-ing dependence on Russian gas imports and theeffect of supply interruptions in recent winters. Italso assesses the extent to which import depend-ence is a problem for the main fuels used for power generation and whether the promotion of renewable generation is the most appropriatepolicy response to any such problem.
Current and Projected Levels of EUImport Dependence
As Table 4.1 illustrates, the EU imports a largeproportion of its primary energy sources, includ-ing the main fuels used for power generation. In2006, around 80% of electricity was generatedfrom coal (29%), gas (21%), and nuclear sources(30%) (European Commission 2008b).
2
Imports are very significant for natural gas,which, as explained below, is the main source of concern among policy makers.The EU holds just1.6% of the world’s gas reserves and currentlyimports 58% of its natural gas demand, mainlyfrom four countries: Russia, Norway,Algeria, andNigeria.
3
Gas supplies 24% of total energydemand and 21% of electricity generation (Euro-pean Commission 2008b). Gas import depend-ence is set to increase, as EU indigenous produc-tion is forecast to decline rapidly in the comingdecade, from 176 million tons of oil equivalent(Mtoe) in 2010 to 131 Mtoe in 2019 (IEA 2009).
4
European Commission analysis forecasts netimports of natural gas increasing from 257 Mtoein 2005 (58% of total consumption) to 390 Mtoein 2020 (77% of total consumption) under abusiness-as-usual scenario, without taking intoaccount the impact of the new energy policyadopted in 2009 (see European Commission2008b, Annex 2).
5
Table 4.1.
EU import dependence, 2005
EU primary energydemand (Mtoe)EU primaryproduction (Mtoe)Net imports(Mtoe)Import dependence(percentage)
Oil 666 133 533 80.0%Natural gas 445 188 257 57.8%Solid fuel 320 196 127 39.7%Renewables 123 122 1 0.8%Nuclear/ uranium257 8 249 97.0%
Sources
: European Commission 2008b,
65
; Euratom 2008
Note
: Mtoe = million tons of oil equivalent
52
Boaz Moselle 
 
Winter Supply Interruptions
The heavy dependence of the EU on Russian gashas been brought home to the public andpolicymakers alike in recent years by interruptionsto the supply of Russian gas at the start of thecalendar year, arising from disputes between Rus-sia and Ukraine. A number of such disputes haveoccurred since the breakup of the Soviet Union asa result of continuing difficulties in agreeing onthe details of a new gas transit and supply regime,as well as deeper underlying differences.The mostserious of these interruptions occurred at thebeginning of 2006 and 2009. In January 2006, gassupplies to the EU were interrupted for one day;in January 2009, the interruption lasted 16 days(European Commission 2009a).
Ukraine’s Role as a Gas Consumer and Transit Country 
Ukraine is both a significant consumer of gas anda key transit country. Its daily consumption inwinter is about 300 million cubic meters per day(mcm/day), and another 300 to 350 mcm/day of gas passes through Ukraine to the EU (EuropeanCommission 2009a). Imports from Russia viaUkraine constitute around 80% of EU imports of gas from Russia and about 20% of total gasdemand in the EU (European Commission2009a).The Ukrainian gas sector features below-cost pricing for domestic and government cus-tomers, and chronic underinvestment in its oiland gas sector, including the gas pipeline infra-structure (Chow and Elkind 2009).Disputes between Ukraine and Russia over gas supplies, transit, and payment for gas havebeen a feature of this market since the early 1990s.Ukrainian inability to pay for the huge volumes of gas contracted (despite the very low prices Russiagave Ukraine) led to high levels of debt andunpaid bills on a continuous basis for many years(Stern 2005). The disputes remained unresolveddespite a series of agreements covering the gasvolumes and prices, the price of gas transit acrossUkraine, and the level of debt owed to Gazpromby the Ukrainian gas company Naftokhaz, whichwere characterized by low gas prices for Ukraineand low transit charges for delivery of Russian gasto Europe.
6
In March 2005, Russia claimed that Ukrainewas not paying for gas and was diverting gasintended for transit to the EU (BBC 2006). On January 1, 2006, Russia retaliated by cutting off gas supplies passing through Ukrainian territory.
7
Russia and Ukraine reached a preliminary agree-ment on January 4, and the supply was restored.The agreement provided for an increase in thenominal price of gas but did not provide anagreed pricing formula for future years or a tran-sition period to higher prices.The new agreementwas set to expire on December 31, 2008.The 2009 crisis began on January 1, whenGazprom cut off suppliers (again, it stopped sup-plying gas for Ukrainian consumption while thesupply of gas that was theoretically to be transitedthrough for European consumption continued).Initially disruption of supply to the EU was onlyminor, but by January 7, all supplies from Russiato the EU were cut, and supplies were notresumed until January 20.This was the most seri-ous gas supply crisis ever to hit the EU, deprivingit of 20% of its total gas supply (European Com-mission 2009a).Within days of the supply disrup-tion, 12 countries were affected.They respondedby drawing on storage, importing additional LNGsupplies, and fuel-switching by the use of fuel oiland coal. Increased supplies were sourced fromRussia via Belarus and Turkey, as well as fromNorway and Libya. Gazprom is estimated to havelost sales of $2 billion (European Commission2009a).
Is Import Dependence Really a Problem?
Reliance on imported fuels is not, per se, a causefor concern. For policy intervention to be justi-fied on security-of-supply grounds, a number of conditions must be satisfied, including that:
•
The reliance on imports creates a genuinesecurity-of-supply risk.This is unlikely to bethe case for a fuel that can be imported easilyfrom a number of different countries that arepolitically stable, friendly, and geographicallydiverse.
Renewable Generation and Security of Supply
53
Search
Search History:
Searching...
Result 00 of 00
00 results for result for
  • p.
    • Notes
    Load more