RENEWABLE ENERGY SERIES

Wind Power and European Network Integration

Market prospects and a strategic market analysis
Reference Code: EN00037-064 Publication Date: March 2013

OVERVIEW Catalyst
The growth of wind turbine power generation across Europe is the driving force behind a radical change in the way European grid systems are both configured and operated.

Summary
With wind and other renewable energy sources located away from load centers, transmission systems need to be adapted to cope with massively different patterns of power flow. This is starting to create bottlenecks across the European system, which must be reduced by investing in new or expanded transmission capacity. Over the coming decade this will involve both strengthening and improving national grids and creating new interconnections between these national systems. The potential also exists to integrate the complete European network with a new supergrid, based on interconnected high voltage direct current technology. While system expansion will ease power flow, managing the newly configured system will also require large capacities of flexible generation. Some of this will be based on flexible mid-merit power plants, particularly natural gas-fired combined cycle power plants, while both coal and nuclear power plants may also be able to adapt to provide more flexible operation. Alongside these resources energy storage, particularly pumpedstorage hydropower, is due to undergo a renaissance and other storage technologies may also benefit. Smart grid tools will also play an important role, with scope for new entrants as the power delivery system adapts to the delivery of wind power and other renewables while maintaining security.

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Wind Power and European Network Integration

INTRODUCTION
Wind energy continued to show strong growth in Europe in 2012, in spite of the financial and economic problems within the region, and capacity is expected to exhibit solid growth throughout the remainder of the present decade as Europe strives to achieve its target for renewable generation by 2020. Continuing wind growth will add to the pressures already being felt in some parts of the European transmission network, as a consequence of the need to move wind power from the periphery to the main load centers. Meanwhile the drive to achieve a single European market for electricity will encourage the transmission of wind-generated electricity across national boundaries, as it seeks prime markets where electricity prices are high.

Network development is critical

Add to this the ambition of some countries to become net exporters of wind power and of others to provide wind arbitrage through hydropower-based storage plants, and it becomes clear that major structural revisions of the network will be necessary. At national levels this will primarily involve grid strengthening to enable wind power to move both to national load centers and to interconnections with other countries. Internationally there are likely to be a number of important new high voltage direct current (HVDC) interconnections. Both will offer a wide range of opportunities across both the transmission and the distribution network. Beyond this there is also the prospect of a European supergrid based on an interconnected HVDC system. Such a grid could be launched in the North Sea but there is also the possibility that new HVDC interconnections in Germany could be developed for integration into such a grid. In addition to the development of grids, nationally and internationally, the need for more tools to manage intermittent wind power will have their own ramifications. New and better weather forecasting tools and the expansion of a range of smart grid technologies such as dynamic line rating, turbine-to-control center communication and control systems, and advanced visualization techniques for operators all offer great potential for new products. Grids also require flexible generation facilities and one of the main beneficiaries could be energy storage technologies. A number of European utilities are either building or looking at the potential for additional pumped storage hydropower capacity. This is likely to be the main largescale storage technology to benefit but with new wind capacity often introduced at the distribution grid level, smaller energy storage systems based on batteries or even on compressed air energy storage plants could also benefit. Europe is the most advanced wind energy market in existence today and developments in the region also have the potential to be exported to other parts of the world alongside European wind technology. This should provide companies across the wind generation and integration spectrum with a strong incentive to exploit the burgeoning opportunities. However, competition is likely to be stiff from both the US and from China and India. It may not always be possible to compete on price but Europes strength has traditionally been the quality of its technology. Maintaining a technical advantage is likely to be the key to gaining a strong foothold in this global marketplace.

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Wind Power and European Network Integration

THE MAIN DRIVING FORCE: WIND CAPACITY GROWTH

Wind capacity within the EU was 105,696MW at the end of 2012 according to figures from the European Wind Energy Association (EWEA), an increase of 11,566MW during the year. This represented 26% of all new capacity across the EU in 2012 and was only exceeded by solar photovoltaic capacity additions which accounted for 38% of the total, a dominant performance for renewable technologies. The wind additions alone equated to a total investment of between 13bn and 17bn.

Table 1:

Wind power growth in Organisation for Economic Co-operation and Development Europe (MW), 2012

International Energy Agency New Policies Scenario (MW) 2011 2015f 2020f 2030f 94,328 150,169 211,319 288,333

GWEC moderate scenario (MW) 94,328 137,818 211,276 371,627

GWEC advanced wind scenario (MW) 94,328 161,600 262,797 396,728

Source: Global Wind Energy Association

DATAMONITOR

Figure 1:

Wind power growth in OECD Europe (MW)

GWEC moderate scenario IEA New Policies Scenario GWEC advanced wind scenario

Wind power growth in OECD Europe (MW)

400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 2011 2015 2020 2030
DATAMONITOR

Source: Global Wind Energy Association

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Wind Power and European Network Integration

The rate of wind capacity addition represented by these figures is slightly ahead of EWEA predictions for the decade, which would see capacity reach 213GW by 2020, but slightly behind EU predictions under which capacity would reach 230GW by that date. Table 1 shows the most recent growth predictions for Europe from the Global Wind Energy Association (GWEC). The table presents three scenarios with figures to 2030, each starting from the same 2011 baseline. The first is derived from the International Energy Agency: this would see capacity rise to 150GW by 2015, 211GW by 2020, and 288GW by 2030. The GWECs own moderate scenario foresees slower initial growth with only 138GW by 2015 , before matching the previous scenario with 211GW by 2020 and exceeding it with 372GW by 2030. Meanwhile a faster GWEC growth scenario that would see wind energy strongly promoted leads to a predicted 162GW by 2015, 263GW by 2020, and 398GW by 2030. The rate of wind capacity addition represented by these figures is slightly ahead of EWEA predictions for the decade, which would see capacity reach 213GW by 2020, but slightly behind EU predictions under which capacity would reach 230GW by that date. Table 1 shows the most recent growth predictions for Europe from the Global Wind Energy Association (GWEC). The table presents three scenarios with figures to 2030, each starting from the same 2011 baseline. The first is derived from the International Energy Agency: this would see capacity rise to 150GW by 2015, 211GW by 2020, and 288GW by 2030. The GWECs own moderate scenario foresees slower initial growth with only 138GW by 2015, before matching the previous scenario with 211GW by 2020 and exceeding it with 372GW by 2030. Meanwhile a faster GWEC growth scenario that would see wind energy strongly promoted leads to a predicted 162GW by 2015, 263GW by 2020, and 398GW by 2030.

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Wind Power and European Network Integration

Table 2:

European national wind capacities (MW) by 2015

Country Austria Belgium Bosnia and Herzogovina Bulgaria Croatia Czech Republic Denmark Finland France Germany Greece Hungary Ireland Italy Lithuania Luxembourg The Netherlands Norway Poland Portugal Romania Serbia and Montenegro Slovakia Slovenia Spain Sweden Switzerland UK Total

Wind capacity in 2015, best estimation (MW) 1,340 1,800 40 540 581 1,370 4,476 580 10,000 42,078 2,698 750 4,143 9,130 360 96 4,000 1,000 2,338 6,360 1,100 40 245 129 28,920 3,410 150 12,106 139,769

Wind capacity in 2015, optimal wind scenario (MW) 1,700 2,900 80 650 1,150 1,800 5,371 1,090 17,000 50,680 4,023 1,000 4,794 12,665 2,200 98 5,608 2,000 3,340 8,947 2,000 80 545 229 32,133 4,590 300 16,618 183,691

Source: EWIS (2010 estimates)

DATAMONITOR

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Figure 2:

Predicted European national wind capacities (MW) by 2015

Wind capacity in 2015, optimal wind scenario Serbia and Montenegro Bosnia and Herzogovina Luxembourg Slovenia Switzerland Slovakia Lithuania Bulgaria Finland Croatia Hungary Norway Romania Austria Czech Republic Belgium Poland Greece Sweden The Netherlands Ireland Denmark Portugal Italy France Great Britain Spain Germany 0
Source: EWIS (2010 estimates)

Wind capacity in 2015, best estimation

10,000

20,000

30,000

40,000

50,000

60,000

DATAMONITOR

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Wind Power and European Network Integration

The figures in Table 2 both emphasize the region-wide nature of wind growth within Europe and point to the hot spots in terms of wind input and potential grid problems. Germany and Spain remain the strongest wind markets with 42GW and 29GW of capacity in 2015 respectively, based on the best estimation scenario. The UK, France, Italy, and Portugal all perform strongly too, while the Netherlands and particularly Ireland are expected to reach unexpectedly high national capacities. In some eastern states of Europe, moreover, growth is much faster than EWIS predicted with Poland and Romania already outstripping the figures in Table 2. These figures can be used as a guide to market opportunities by identifying both strong existing markets and new centers of activity. Not all will be plain sailing, however, certainly over the short term. The president of the EWEA, Arthouros Zervos, has predicted a tough year for the wind industry in 2013. The European industry is suffering job losses and will suffer more difficulties in 2013, he said at the EWEAs annual wind event in Vienna. This was echoed by the Irish prime minister, Pat Rabbitte, who also highlighted current challenges. However, the latter also observed that the European policy environment offered a sound basis for investment.

Network bottlenecks and pressure points: the transmission system opportunities

The drivers for grid development over the coming decade are not solely due to wind integration but this will play a major part. There is a massive concentration of new wind capacity along the northwestern coastal region of the European mainland as well as across Germany, and a mixture of solar and wind in southern Europe, particularly the Iberian Peninsula, Italy, and Greece. At the same time the decommissioning of coal-fired plants in the UK and nuclear plants in both Germany and the UK will shift the generation mix further towards renewables, causing further shifts in power flows.

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Figure 3:

Predicted grid development drivers up to 2022

Source: www.entsoe.eu

DATAMONITOR

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Wind Power and European Network Integration

This change will lead to a series of areas where the supply will be at risk without improved transmission capacity or new local generation. These are indicated by the orange dots in Figure 3. The figure also shows regions where new conventional generation is expected and, perhaps one of the most striking propositions, the regions where new pumped storage hydropower capacity is envisaged. Most of this is in the Alpine regions of Europe but the Iberian Peninsula, with its weak interconnections to the European mainland, is also expected to expand storage capacity in order to improve wind integration and stability. Translating this into network development terms leads to the identification of a series of major projects that will need to be carried out over the next decade. These include projects of pan-European significance in all the regions of Europe. Overall, ENTSO-E has identified 112 separate projects. These include a series of shorter-term projects that are expected to be carried out between 2012 and 2016, and longer-term projects to be completed between 2017 and 2022. The majority of the shorter-term projects involve national grid strengthening as well as some HVDC links such as between the UK and Ireland, Denmark and Germany, Sweden and Lithuania, and Italy and Montenegro. There is a concentration of local AC reinforcement projects in Spain and in Germany and AC interconnections between Balkan states. The Baltic states networks will be strengthened too and linked to the Polish system in order to bring the currently isolated Baltic region into the European transmission network.

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Figure 4:

Long-term pan-European network projects, 201722f

Source: www.entsoe.eu (2012 estimates)

DATAMONITOR

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Wind Power and European Network Integration

The longer-term projects envisaged to be completed between 2017 and 2022 are shown in Figure 4. This includes a large number of major interconnections, some of which are already planned and some where the final details are not yet certain. The regions of uncertainty are indicated by the colored areas. It is clear from the figure that these projects include some long HVDC interconnections such as between the UK and Norway, Norway and Northern Europe, Ireland and France, the UK and France, France and Spain, Italy and Corsica, Corsica and Sardinia, Sardinia and Algeria, and Sicily and Tunisia. On top of this there are potentially three HVDC links within Germany (with the possibility of a fourth) to carry power from the North Sea and northern Germany into southern Germany and Central Europe. There will obviously be significant opportunities here for equipment suppliers within the transmission system industry, for potential transmission system operators, and for investors seeking blue-chip investment opportunities. Potentially one of the most significant opportunities here will lie in the gradual evolution of a European supergrid based on an interconnected HVDC network. This is not specifically identified in Figure 4 but the configuration of the HVDC lines being proposed coincide with proposals for such a supergrid, beginning in the North Sea but with feeder lines into the heart of Central Europe. The first lines linking Europe and North Africa, meanwhile, could form part of an extension of the supergrid across the Mediterranean to bring solar and wind power north into Europe. The total value of the investment proposed to cover the cost of these projects is 104bn. Of the 112 projects identified, 40% have costs of less than 300bn while 23% will cost more than 1bn each. Of the total, around 23bn is earmarked for undersea cables. The biggest national investment will be in Germany, where ENTSO-E estimates that 30bn will be required by 2022. Others have put the estimated cost in Germany at between 20bn and 37bn. The UK will require 19bn of investment and large levels will be required by Italy (7.1bn), Norway (6.5bn), Spain (4.8bn), and Ireland (3.9bn).

The need for additional flexible generation

Probably the most important resource required to manage wind capacity on a grid is flexible generation and as wind capacity grows on the European grid, so will the need for such forms of generation. This capacity can take several forms. Open cycle gas turbines are the fastest acting conventional resources but they are also very expensive to run and there is evidence that their profitability is being eroded by wind and other intermittent renewables. The most likely sources of flexible power are therefore natural gas-fired combined cycle power plants and energy storage plants. Between them they hold the key to successful wind balancing. Combined cycle plants are not the fastest acting generation sources but they are becoming increasingly flexible. In fact few such plants today provide base-load power on major modern grids. Manufacturers such as ABB, Alstom, General Electric, and Siemens have been developing flexible plant configurations for much of the past five to 10 years, recognizing that their plants are now required to be able to ramp output up and down quickly and be able to stop and start much more frequently than was envisaged in the past. Other gas turbine companies are taking a different approach. Hitachi, for example, is developing an advanced humid air turbine (usually called AHAT) cycle plant that can potentially offer high efficiency and flexible performance without requiring the advanced operating conditions of many modern gas turbines. Meanwhile Wartsila is pioneering the use of multiple small gas turbines that can be operated in both simple cycle and combined cycle configurations to provide the additional flexibility to support wind generation. Flexible plants of this type cannot generally achieve the ultimate efficiency of the most advanced combined cycle plants at over 60% but they can come reasonably close to it. However, flexible operation imposes additional stresses on plants so

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that operational and maintenance costs are higher. Plant operators will therefore need to be able to recoup the additional costs or plant operation may easily become uneconomical, particularly at times when gas prices are high. The solution is likely to be found in tariffs for balancing services that will pay operators to maintain flexible plants of this type on-line, even if they are not delivering power, so that they are available at short notice. Such payments have yet to become common across Europe but they are going to be essential if grid stability is to be maintained. Another way of providing flexible generation is to harness the large number of backup power units such as diesel or gas generators owned by companies but which stand idle most of the time. In the UK a company called Flexibility Limited is offering other companies the possibility of exploiting this capacity in order to earn an income by providing reserve capacity of different types to the UK grid. At the same time, and at the other end of the scale, nuclear power plant and coal plant manufacturers and operators are examining how they can make their plants more flexible to cope with the new power generation landscape.

The future of energy storage

Flexible conventional generation is one way of providing wind balancing services; the other is to use energy storage plants. Such plants offer an energy arbitrage service, through the purchase of cheap surplus power to charge their systems which is then sold back to the grid at a higher price when demand peaks. In order to achieve this the energy storage plants must be fast-acting, which most are. However, they are generally expensive to build and many utilities have avoided them. Their cause has not been aided by recent reports in the German press suggesting that energy storage plants are no longer profitable to operate, although the arguments for this seem curious, at best. Vattenfall is also reported to be shutting down a facility in eastern Saxony but the company does not appear to have confirmed this. Meanwhile the Spanish utility Iberdrola has been investing in new pumped storage hydro capacity to help manage Spanish wind energy, and there are a number of pumped storage developments under way across Central Europe. One estimate suggests that 60 new pumped storage facilities will be built in Europe by 2020 with a combined capacity of around 27GW. Key markets for these projects are in southern Germany, Austria, and Switzerland. Typcial is the 1,000MW Linth-Limmern project in Switzerland, which is due to be completed in 2015. The plant is being built by Kraftwerke Linth-Limmern, a partnership between the utility Axpo and the Swiss canton (state) of Glarus. Alstom is providing four variable speed pump turbines for the project, while ABB is providing switchgear. Another project is the 480MW extension of the Limberg pumped storage facility in Austria built by Austrian utility Verbund and commissioned in 2011. There is also a proposal for a new facility in Scotland. Such an energy storage renaissance for pumped storage raises the prospect that other types of energy storage plant might also gain from the new demand for fast-acting storage. The other large storage technology is compressed air energy storage, which might also benefit, as could battery storage, particularly the more mature battery technologies such as lead acid batteries or high temperature sodium sulfur technology.

Weather forecasting and smart grid tools

In addition to the various grid hardware opportunities that wind integration is opening up, there is also the need for a range of sophisticated grid management tools such as weather forecasting analysis and data provision, congestion management tools, and smart grid technologies such as active supply and demand management and dynamic line rating. The potential market size here is much more difficult to quantify but it offers scope to inventive technology companies from virtually all spheres.

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Important areas to focus on are centralized weather forecasting, automated congestion management, system operator visualization tools, and smart grid devices for both wind turbine generation management and demand management. Dynamic line rating, which allows the capacity of a transmission line to be varied depending upon the temperature, is also emerging as an important additional aid to balancing and congestion management. Line rating increases as the temperature falls, which often happens when the wind is blowing strongly so that high wind output will often coincide with greater grid capacity. This is still an extremely fluid area with great scope for innovation. It is important to remember that while wind is the main renewable source to be integrated, solar plants are also providing increasing amounts of power, particularly in southern Europe. So, for example, there may be ways of managing wind and solar together that cannot be applied to each individually. It is also important to remember that the changes that are taking place across the European grid system today are generational in nature. A grid system dominated by renewable sources has been threatened for perhaps a decade or more, mainly by renewable advocates, while skeptics have questioned both the economics and the technical plausibility of such a system coming to pass. Today it is finally possible to see the shape of a new grid emerging on paper, if not quite yet on the ground. The form it looks likely to take may give some comfort to both camps but it is clear now in which direction the wind is blowing. Europe is leading the world in renewable integration and this gives European technology companies and utilities a commanding edge globally. This needs to be exploited while the region remains in the vanguard. There will be competition, particularly from US companies that are also developing wind integration technologies, as well as from China and India. The latter two will often be able to compete effectively on price but it is in the quality of its advanced technology that Europe excels. Companies in the region need to build on this while the opportunities exist.

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Appendix

APPENDIX Sources
ENTSO-E (2012) Ten-Year Network Development Plan 2012 EWIS (2010) European Wind Integration Study: Towards a Successful Integration of Large Scale Wind Power into European Electricity Grids

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