Changing energy markets Key challenges and opportunities

IEA EBC meeting, March 16th 2017

Adeline Duterque, Strategy Department, ENGIE

Confidentiel Restreint Libre Interne

2

17/03/2017

The beginnings of energy transition : What can we observe today ?

1. Markets over

supplied

- Gas : sluggish demand : the gas market has entered a period of oversupply

- Power : decreasing RES costs ; the share of renewable sources in global power

generation continued to progress in 2016. No overall optimization of RES

capacity under FIT, higher investment premiums

- Gas : HH below $3/Mmbtu in 2016, European gas prices reached their lowest

level since 2012 in May 2016

- Power : low wholesale market price in Europe (but increasing retail price)

- Oil prices have been decreasing and could experience strong volatility : a

new boom and bust cycle or the beginning of a new paradigm ?

$ 2. Economics

3. Environmental

targets

- CO2 emissions stable in 2016

- In Europe, gas fired units reclaimed market shares but recent gas-fired

power plants decommissionned while old coal power plants keep running

3

17/03/2017

Adaptation of the market design requested in the short term

3

$ Ensure proper remuneration for

existing assets

Remove distorsions due to forced RES subsidized growth not in adequacy

with demand growth, level-playing field amongst participants (possibility to

rebill imbalances),

Strengthen the CO2 signal Introduce floor and roof cap prices

Ensure proper remuneration for new

RES investments

Long-term contracts through competitive auctions

Solutions

Description

Ensure system operability and

safeguard system adequacy

Faster markets: shorter trading products, reduced gate closure times.

Increase the spatial price resolution: Locational pricing, or nodal pricing

encourage dynamic retail pricing

But will it be sufficient in the long run ?

Competitive solar and wind bringing energy costs (and prices) closer to zero

4

Wind and solar now far cheaper than conventional energy sources

30 USD/MWh

31 USD/MWh

31 USD/MWh

26 USD/MWh

New technologies bring the promise of nearly infinite, quasi-free energy

Price of MWh of recent wind and solar

tenders

wind solar

Battery storage technologies in a solar-like cost and volume race

18-19 octobre 2016 5

Perspectives of the Lithium-Ion battery market

10 12

22

37

49

78

2020 2017 2015 2012 2010 2009

80

60

40

20

0

(Unit: $billion)

Energy storage

Electric vehicles

Mobile IT

Source: International Information Technology

Battery costs and energy density

Electric and digital mobility in an exponential drive

6

Cumulative sales of cars and light utility vehicles achieved the unit milestone in December 2016, 2 M.

China Will Replace All 67,000 Fossil-Fueled Taxis In Beijing With Electric Cars

The internet of things and big data turning homes and buildings into active participants in the energy system

7

2004 2006 2008 2010 2012 2014E 2016E 2018E

2 000 000

0

4 000 000

6 000 000

8 000 000

10 000 000

12 000 000

14 000 000

16 000 000

18 000 000

20 000 000 The Internet Of

Everything

In thousand

Internet of Things

Smartphones

Tablets Connected automobiles

Connected TVs

Portable technologies

Number of connected objects

in the world

Computers

Source: BI Intelligence Estimates

New hydrogen technologies and the incoming substitution of fossil fuels

8

5 technology disruptions

1 Energy sources (energy sources)

2 Generation (electrolysis technologies)

3 Storage (pressurized and in saline cavities)

4 Conversion into power (fuel cells)

5 Applications

There is a Path Towards 100% RES in 2050 Gas will keep a significant share in the energy mix, whatever the environmental constraints

9

Significant investment is made in new CCGT’s between 2025

and 2040 to ensure transition, chasing out coal.

They remain available in 2050; this inherited capacity favors a

higher biogas penetration, at the 2050 horizon, than in the

vision “ex nihilo”.

100% RES scenario 2050 Summary Presentation, February 15th, 2017

In the long term, the penetration of green gases will be highly

dependent on environmental constraints In a 100% RES scenario in the electricity sector, green gases become competitive and can reach a significant share of the energy mix

Yearly production by category of assets

New challenges arising from high RES scenarios : some questions to be addressed

10

In a 100% RES scenario, the development of CCGT capacity needed for seasonal backup will

be conditioned to the definition of a new market design.

The current market design, based on variable cost, will need to be adapted

Decentralization: How to cope adequately with distributed generation and local energy

communities (local markets?)

Networks pricing structure : need to evolve from a demand-driven structure towards

prosumer-driven, bi-directional flows

Impact of EV batteries on short term storage devices and long term flexibility devices

Oil : new paradigm or traditional boom and bust cycle ?

High CO2 price requires ; CO2 price probably no longer sustainable as a unique incentive for

decarbonation ?

Steering Committee Meeting December 16th 2016