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Power supply for next winter in Belgium

By Benedict De Meulemeester

By Benedict De Meulemeester on 8/10/2012

Written by Bart Verest, Kobe Cannaerts & Benedict De Meulemeester

For many weeks now, a heavy debate is raging in Belgium over the possibility of power outages next winter. It looks like the culminating point of an ongoing debate over security of supply. With the rapid growth of renewable energy production, experts worry over the availability of flexible power supply to make up for the intermittency of renewables. Add to this the fact that in Belgium investment in new large-scale power stations has been very limited in the past decade, and you understand the worries over Belgium’s power supply situation. When earlier this year, the energy minister Wathelet put plans on the table to shut down Belgium’s two oldest nuclear power stations, the security of supply debate rekindled. And as two other nuclear plants were shut down during the summer over safety issues, the discussion found its route into the mainstream media. Everybody, from ministers and experts to our barber, is worrying that there will be outages next winter.

Ministers Wathelet and Vande Lanotte hurried to appease the population. “No problem”, was their devise. With heavily contested local elections on the 14th of October, they don’t want to be held responsible for a power supply fiasco. They are right of course in blaming the media for unnecessarily spreading panic by using the “blackout” word. Worst case, we will see a coordinated shutdown of power in some (countryside) areas of Belgium. But the lights will not go out in the whole country. We are confident that our power grid operators are capable of organizing a well-managed local shutdown. However, crying that there is no problem when more than 10% of the country’s tight power production capacity is shut down, cannot be taken very seriously. Fortunately, it is also clear that Mr. Wathelet is working on contingency plans behind the screens. This highlights how deeply political the “no problem” statements are.

Regulator Creg has been quite vocal in voicing worries over the power outages, which caused the Minister to launch a violent counter-attack. This discussion should be viewed in an ongoing conflict between regulator and their political paymasters over technical versus political management of an energy market regulator. The discussion is also due to a difference in analysis methodology applied by both parties. On the one hand, the Creg has adopted a theoretical approach. They have added up the available production capacities and compare these to the real production at the moment of the demand year-peak. On the other hand, the minister is referring to a study by grid operator Elia adopting a statistical approach. They have modeled the conditions determining supply and demand. They launch a Monte Carlo analysis with this model and calculate the probability of a shortage. Between the lines, you can read that the Minister estimates this probability to be low enough to call “no problem”. But it is unclear about which probability we are speaking. It definitely was high enough to start up the development of a contingency plan.

Our analyst Bart studied the data and soon came to a startling first conclusion. There are issues with the data regarding energy supply and demand that Elia publishes on its website. To begin with, normally the total available production should equal the sum of the available production of the different types. Well, it doesn’t fit. Elia told us it is researching what went wrong with their published data.  Moreover, for every 15 minutes, the total demand should at least equal production + imports – exports. That was not the case for certain moments. This would suggest that in the past shortages should have occurred already, which isn’t the case. No satisfying explanation was given. My question is: have Elia and/or Creg based their analyses on wrong data? Or are they using some secret data file that is not made available to the public?

We have made a simple calculation, using the historic available capacity data and then deducting the 2.014 MW of the nuclear power stations that have been shut down.  We compared these to the historical production data at the peak demand moment. The conclusion is very clear. With the nuclear outages, we are seeing several moments during the winter months when the available production would not be able to supply the load demanded. The available capacity margin just wasn’t 2.000 MW during several moments in the past year. Even if renewable energy production continues to expand, it doesn’t look like we will have a lot of extra production capacities available any time soon. Rather to the contrary, if we consider the announcements of shutdowns of power plants in Ruien, Tessenderlo and Vilvoorde. On top of that, we have to consider the possibility that a peak in demand occurs at a moment of limited availability of wind and/or solar power. Minister Wathelet is planning measures to create a reserve capacity of old power stations, but will this be sufficient and will they be available soon enough?

Fortunately, the Belgian power grid system is well embedded in the larger North-West-European market, with cross-border connections with the Netherlands and France. This brings us to an interesting dilemma. As we worry over a shortage of production capacity in our own country, the problem in the North-West-European market seems rather to be that there is too much capacity. There has been a spectacular expansion of renewable energy production in Germany, and Belgium and France are following. Moreover, there was a lot of investment in gas-fired power production in the Netherlands, a market that is now clearly over-supplied. European power production giants E-On and RWE have announced that they will stop investment in large-scale power production in the North-West-European market because it is over-supplied. The spark spread and the peakload – baseload spread are both trading at historical lows, which is a clear sign of over-supply. Therefore, at first sight it looks like the Belgians are worrying over a non-problem. If they have a supply gap next winter, cross-border power, and more specifically gas-fired power from the Netherlands will solve the problem.

Unfortunately, there is a complicating factor here. The available capacity at the Dutch-Belgian border is constant at 1401 MW, at the Belgian-French border it ranges between 2500 and 3200 MW. This means that in case of a shortage or just a high price in France, all of the electricity that is coming in from the Netherlands could be exported to France. This is exactly what happened in most of February 2012, when the Belgian power demand peaked at a yearly high. During the Belgian demand peak of February 7th, Belgium was importing at the Northern border almost at full capacity and exporting at the Southern border at full throttle. So the use of the import capacity is very conditional. Production in Belgium was just 4% short of its available capacity. When Creg pointed out this problem, Minister Vande Lanotte reacted by saying: “we’ll shut down the French border then”. We hope that by now he is realizing the complete absurdity of that suggestion. From a legal point of view, keeping electricity that was sold by a Dutch party to a French party in Belgium is “theft”. And as Belgium is now more than ever depending on free cross-border trade of electricity, will we be the first ones to fire the protectionism shots? There is a more simple solution, mister Vande Lanotte: in case of a shortage, the power will stay in Belgium, if the Belgians are prepared to pay more than the French. Dutchmen are Dutchmen, they’ll sell at the highest bidder.

There is high probability that a peak in Belgian winter demand will coincide with a peak in French demand. This peak is related to the climate, electrical heating for industrial and residential heating purposes increases as the weather gets cold. The strain on North-West-European winter power demand is aggravated by the fact that so many French houses have electric heating systems. Due to the geographic proximity, it is very likely that cold weather will cause demand to spike in both Belgium and France. Even if  the 2.014 MW of the Belgian nuclear power stations is just 2% of the overall production capacity in North-West-Europe, the fact that it is higher than the capacities on both borders points out, that its outage is a serious issue in the balance of getting that market supplied.

There is something which the government can do in the short term to reduce the strain on the system. There are some signals that the total capacity on the Dutch border that is available for exports is higher than the limitation of 1401 MW. The Belgian government should push all it can to increase this availability. The Dutch might be quite willing to do this, as their power producers are hungry to get rid of their excess gas-fired power capacities. On top of that, we should also increase the incentives for industrial consumers to scale down their capacity off-take at peak moments. And we need to train the procedures for making sure that in case of a shortage, those areas are put in the dark where the outages have the lowest economic impact. (We have warned the people in our office that live in the countryside to buy extra candles.)

In the mid to long-term, the government faces an important dilemma, due to the combination of a lack of supply in Belgium with excess capacities in the broader North-West-European markets. The most rational thing that we can do is a massive financial and political investment in the further development of a pan-European power market. Building an extra cross-border connection is simply a much cheaper option than building a new (presumably gas-fired) power station. And we are talking about a connection to the Dutch gas-fired power stations, of course. Also, shouldn’t we finally build that connection with Germany that we should have built years ago? We know that Germany has problems of its own, but we think that building a connection between Belgium and Germany can even help to alleviate those internal German problems. The problem in Germany is not a lack of production capacity, it is a lack of capacity to bring the renewable power produced in the North to the consumers in the South. Another bypass through the excellent transportation grids of Belgium and France can help to solve that issue and at the same time it would reduce another stress factor in the North-West-European power market.

However, we are not very hopeful that our policymakers will choose this most rational option. With all the media attention for the “black-out” issue, politicians might be hungry to show some activism on power supply. And stimulating the construction of new production capacity in Belgium will be more appealing to the public at large than constructing an extra cable. Keeping in mind what Minister Wathelet has written in his latest energy plan, this will probably mean some sort of subsidy for capacity payments for gas-fired power stations. Unless there is a radical rupture with past practice, these subsidies will be passed through in end-consumers’ power bills. Moreover, these new power stations will increase the problem of over-capacity in the North-West-European market. On that majority of hours during which no shortages occur, their subsidized presence in the market will further depress spark spreads. Which is a problem for industrial consumers or greenhouse farmers that have invested in cogeneration units. Most analysts seem to lack the capability of viewing power supply and demand issues on a European scale and stay inside their national borders. The policies that ministers base on this analysis are equally myopic. This tendency is further reinforced by the general mistaken perception that power demand is rapidly increasing and that renewable energy is causing severe balancing problems.

The Belgian power market is having a supply capacity problem. This has been wrongly identified as a problem of market failure. The extra capacities have been built, but outside Belgium. Inside Belgium it was as good as impossible to get permits for building large-scale new power stations. The list of rejected projects is very long. This has brought us in this uncomfortable position of having a power production capacity shortage in a North-West-European market that is over-supplied. Which, we repeat, leaves us only one option: fully embrace European power market integration.

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