Sin t

1
Workshop about Security of energy supply for
electricity generation IEANEA
Session 2 Security of Energy Supply Specific
Technologies
José Antonio de Tomás
Paris, 24 May 2005
2
CONTENTS

• UNION FENOSA Group overview
• Energy in Spain
• Generation facilities in Spain
• Limits and opportunities of technologies
• UNION FENOSAs Gas Project and CCGT Programme
• Action lines to improve security of supply

3
UNION FENOSA GROUP OVERVIEW
UNION FENOSA is Spains third-largest electric
utility, with a
vertically-integrated structure, 15.2 billion
euro in assets, 19,460
employees, and 9,811 MW of operating capacity
world-wide
UNION FENOSAs strategy is to be an integrated
energy company in the
Iberian Peninsula and an international
electricity operator
UNION FENOSA is Spains fourteenth-largest
company, with a
capitalisation of 7.2 billion Euro
2000-2004
Operating Capacity (MW)
Customers (Thousands)
Electricity Production (GWh)
40,770
9,811
8, 224
7,802
13,745
2,723
25,460
6,788
4,772
588
4,875
1,286
27,025
7,088
24,872
5,502
3,349
3,030
2000
2004
2000
2000
2004
2004
Domestic
International
4
ENERGY IN SPAIN

Energy dependence ()

• Very few energy sources and heavily dependent on
  foreign ones, much more than the rest of Europe
• Intense growth in economic activity and population

78.4
78.3
67.5
48.0

• Sharp increase in demand
• Rise in energy intensity
• Reduction in the spare capacity

2002
2030
Spain
EU-25
Sources EU Energy and transport in figures
Statistical pocketbook 2004 and European energy
and transport trends to 2030 (European
Commission)
5
ENERGY IN SPAIN FEW ENERGY SOURCES
Import Dependency () ()
Spain
EU25
Coal
66.3
33.2
Fuel-oil
101.2
76.8
Natural gas
101.0
51.3
All fuels
48.0
78.3
() Import dependencyNet Imports/BunkersInland
Consumption Source EU Energy and transport in
figures Statistical pocketbook 2004 (European
Commission). 2002 data
Energy dependency is greater in Southern Europe
6
ENERGY IN SPAIN INTENSE ECONOMIC AND POPULATION
GROWTH
Economic growth ()
Population (Mn)
8.6
Spain
Euro zone
Source Spanish National Statistics Institute
(INE) and Bank of Spain.
Source Spanish National Statistics Institute
(INE). Data from municipal census at 1 January.
7
ENERGY IN SPAIN SHARP INCREASE IN ELECRICITY
AND GAS DEMAND
Electricity demand (GWh)
Gas demand (GWh)
320,305
275,242
CCGT
243,354
211,990
211,741
20.5
Conventional demand
51.0
Source Red Eléctrica de España
Source Comisión Nacional de la Energía

• Increase in demand due to economic and
  population growth and to higher equipment and
  living standards
• Peak demand in the summer is now closer to that
  of winter and has outgrown average demand

• A very dynamic market that is gradually
  approaching European consumption levels
• Boost in new CCGTs

8
GENERATING FACILITIES IN SPAIN INSTALLED
CAPACITY
Demand coverage
Spanish system capacity (MW)
51,287
47,422
46,310
44,181
44,079
1,6
1,4
16.3
76.9
1,2
15,497
13,801
12,663
10,557
8,318
1
0,8
1996
1998
2000
2002
2004
2006
2008
2010
2011
2000
2001
2002
2003
2004
Minimum desirable index 1.1
Ordinary regime
Special regime
Source REE 2004-2011 UNION FENOSA
Source Red Eléctrica de España
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GENERATING FACILITIES IN SPAIN PRODUCTION
STRUCTURE

• Coal is still the largest single energy source
  for power generation in Spain
• Renewable energy is increasing its weighting in
  the energy balance, but it is still considerably
  below its share of installed capacity
• In just a few years, CCGTs have become essential
  to meeting strong demand
• Nuclear output has decreased its weighting but
  still accounts for 25 of total generation

Electricity generation by type of technology
(GWh)()
2000
2004
CCGT 12
Oil Gas 3
Coal 30
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GENERATING FACILITIES IN SPAIN CAPACITY
STRUCTURE

• According to Government planning, the development
  of Spanish generating capacity mostly relies on
  new CCGTs and renewable energy plants
• Nevertheless, in order to guarantee security of
  supply at affordable prices, all technologies
  should be part of the capacity mix

Projections for generating facilities in Spain
2001
2002
2003
2004
2007E
CAGR 04-07
...
Special reg. - MW
10,557
12,663
13,801
15,497
20,720
10.2
Special reg. - mix
19.3
21.5
22.5
23.2
27.6
CCGT - MW
------
2,794
4,394
8,259
14,800
21.5
CCGT - mix
0.0
4.7
7.2
12.4
19.7
CCGT - Ord. reg
0.0
6.0
9.3
16.1
27.2
2001
2004
2007
CCGT 12
Coal 15
CCGT 20
Oil Gas 10
Coal 17
Oil Gas 5
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LIMITS AND OPPORTUNITIES OF TECHNOLOGIES
RENEWABLE ENERGIES (I)

• Over 20 of electricity in Spain was generated
  with renewable sources in 2004
• Spain has invested heavily in renewables and is
  gradually approaching its 2010 target
• However, renewable sources are limited and the
  technology needs to mature

• HYDROELECTRIC Depleted energy
• Low/medium and irregular rainfall
• Large number of reservoirs
• WIND POWER Expensive energy that does not ensure
  security of supply and poses difficulties for the
  system operator
• SOLAR Scant development
• Special non-renewable energy COGENERATION
• Limited potential
• Dependent on gas

TECHNOLOGIES
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LIMITS AND OPPORTUNITIES OF TECHNOLOGIES
RENEWABLE ENERGIES (II)

• Unlimited renewable sources
• Clean energy that does not emit pollutants
• Less dependency on fossil fuels
• Opportunity for the economic development of
  certain regions

Renewable energy as a of electricity demand
measured at power plant bars
OPPORTUNITIES
250,000
50
44.9
45
200,000
40
35
150,000
30
20.3
25
100,000
20

• Depends on the weather
• Limited security of supply (needs back-up energy)
• Sizeable specific investments and requires
  premiums
• Sometimes, considerable environmental impact (big
  hydro)
• Scheduling of production and integration into the
  grid

15
50,000
10
5
0
0
1990
1992
1994
1996
1998
2000
2002
2004
LIMITS
RENEWABLES SPECIAL REGIME

HYDROELECTRIC ORDINARY REGIME
DEMAND (plant bars)
Total RENEWABLES (Includes special regime
renewable energy and conventional
hydroelectric) / DEMAND (plant bars)
RENEWABLES/SPECIAL REGIME
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LIMITS AND OPPORTUNITIES OF TECHNOLOGIES COAL

• Provides considerable flexibility to the
  generating portfolio
• Enables biomass to be used as fuel
• Possibility of technology improvements to limit
  environmental effects
• Spanish coal is uncompetitive but it is an
  autochthonous source
• Investments have already been made, some have
  already been completely depreciated
• Low OM costs

OPPORTUNITES
Coal prices (US/t) ()
80
71.90
70
60
42.52
39.29
50
35.98

• Sharp increase in prices
• Application of Large Combustion Plant Directive
• Impact of Kyoto commitments and the emission
  rights market
• Spanish coal is not competitive (sulphur content,
  heating value, humidity,etc.)
• Uncertainties about the Coal Mining Plan
  (reduction in activity and premiums)

31.65
40
30
2000
2001
2002
2003
2004
20
LIMITS
MCIS index US/t
Average import price UFG
Average MCIS index US/t
() McCloskey index (MCIS index used as
reference for coal prices in Europe.
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LIMITS AND OPPORTUNITIES OF TECHNOLOGIES CCGTs
CCGTs vs. Coal-fired plants

• Proven technology
• Short construction period
• Lower investment per MW
• Higher energy yield
• High operating flexibility
• Lower specific emissions
• Lower OM costs

CCGTs
Coal
Yield
55-58
38-40
Specific investment
440 /kW
1,200 /kW
OPPORTUNITIES
CO2 emissions
0.37 kg/kWh
0.82 kg/kWh
Construction period
2 years
4 years
Useful life (economic)
25 years
30 years
Working hours
5,000-7,000
6,000-7,000
Breakdown of CCGT costs

• High weighting of fuel costs
• Increases the average generation cost in the
  system
• Indexed to crude prices and higher volatility.
  Pass-through is the key factor
• Rigid gas supply contracts (deadlines,
  take-or-pay, destination, etc.)
• Dependent on capacity and availability of gas
  infrastructure

As a of price per kWh
28-17
13-9
LIMITS
58-74
Gas
OM
Return on Investment
Note Crude price scenario at US20-38/bbl and
4,000-6,500 equivalent hours
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UNION FENOSAs GAS PROJECT

• Under these circumstances, UNION FENOSA took up a
  distinctive position in the gas chain, aiming at
  leveraging the advantages of becoming an
  integrated energy company

Sharp growth in gas demand

• Development of an integrated approach
• Position established in 2000, when oil prices
  were much lower than at present
• Presence throughout the gas chain hedges against
  fluctuations in oil prices, and generates a
  competitive advantage
• Distinctive position in the sector
• Ensures UFs CCGT plants have a competitive and
  flexible gas supply
• Provides access to international gas markets

Need for flexible, competitive gas supply to CCGTs
Strong growth ininternational LNG market
Liberalisation of the Spanish gas market
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UNION FENOSAs GAS PROJECT

• A cheap, flexible gas supply is decisive in order
  to be competitive in current conditions,
  particularly under high oil price scenarios
• Our integrated approach is a source of value
  creation

Electricity
CCGTs
Regasification
Transport
Liquefaction
Gas purchase contracts
Upstream
Gas supply
International trading
Liquefaction
Transportation
Procurement

• Supplies UF gas demand
• High processing capacity
• Competitive supply due to low unit costs

• Offers adaptable logistics
• Allows flexible supply of gas to the
  international market
• High transportation capacity
• Spirit Galicia 138,000m3
• Cadiz Knutsen 140,500m3

• Diversified supply
• Flexible contracts (205 years)
• Competitive prices
• Mitigation of high oil prices
• Access to US and Korean/ Japanese markets

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UNION FENOSAs GAS PROJECT

• A cheap, flexible gas supply is decisive in order
  to be competitive in current conditions,
  particularly under high oil price scenarios
• Our integrated approach is a source of value
  creation

Electricity
CCGTs
Regasification
Transport
Liquefaction
Gas purchase contracts
Upstream
Gas supply
International trading
Regasification
Supply
CCGTs

• Holdings ensure control of an essential part of
  the gas supply chain
• Regulated returns
• Good locations (Sagunto and Reganosa)

• Flexible supply
• Ensures a competitive source of electricity
• 3,600 MW projected in 2007

• Greater competitiveness in supply in Spain
• International markets offer profitable flexibility

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UNION FENOSAs CCGT PROGRAMME

• Our position in gas provides competitiveness,
  flexibility and stability to our CCGTs gas
  procurement
• The design and location of our CCGT plants
  increase their competitiveness

Entry into operation of UF CCGT plants
Location of UFs CCGT plants in Spain
MW
Sabón-Reganosa pole 400MW
Sagunto pole 1,200 MW
1,600
Aceca 400MW
3,600
400
400
1,200
Palos-Huelva pole 1,200 MW
2004
2005E
2006E
2007E
Total 04-07E
NGS 800 MW

• Economies of scale due to establishment of energy
  poles
• Optimisation of investment and OM due to plant
  design
• Location in areas of high power usage

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LIMITS AND OPPORTUNITIES OF TECHNOLOGIES
NUCLEAR POWER

• Security of supply
• Large amount of energy with small amount of fuel
• No emissions of CO2 or particles
• Low variable costs
• Nuclear fusion (ITER project)

Nuclear power plants in Spain
OPPORTUNITIES
Garoña
Ascó
Trillo
Vandellós
Almaraz

• Installation security (probability of small
  accidents/serious consequences)
• Treatment and storage of radioactive waste
• Social rejection
• High capital costs

J.Cabrera
Cofrentes
NUCLEAR (7,878 MW) Trillo (1,066 MW) J.Cabrera
(150 MW) Almaraz (1,957 MW) Ascó I and II (1,033
and 1,027 MW) Vandellós (1,087 MW) Cofrentes
(1,092 MW) Garoña (466 MW)
LIMITS
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ACTION LINES TO IMPROVE SECURITY OF SUPPLY
Increase security of supply (in a situation of
higher energy prices and inevitable dependency)
via

• A balanced generation mix
• Maintain coal-fired plants in operation
• Support renewable energies as an autochthonous
  source
• Reopen the nuclear debate and recover this
  technology
• CCGT competitiveness
• Interconnections and international grids (take
  advantage of the strategic geographical situation
  of the South European countries)
• Diversification of gas procurement sources
• Energy saving and efficiency
• Highly developed in terms of optimisation of
  operations and availability at generating
  plants
• But there is still considerable scope for
  improving demand management
• New technologies and investment in RDI (applying
  the spirit of Lisbon to the energy market)

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ACTION LINES TO IMPROVE SECURITY OF SUPPLY
From a regulatory standpoint

• Long-term planning
• Capacity payment
• Balance between gas and electricity regulations
• Remuneration for transmission/transportation and
  distribution
• Attend to all segments of the supply chain

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ACTION LINES TO IMPROVE SECURITY OF SUPPLY
Remember

• Power is supplied via an entire chain
• Every single link must work
• This is more important with gas-electricity
  integration
• All the players in the chain are important
  (quality and security of supply do not depend
  only on distributors and suppliers)
• Pass-through pass on all supply costs to end
  customers
• Give price signals to consumers when energy
  prices are high

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THANK YOU FOR YOUR ATTENTION