EU Energy Outlook 2050 - How will Europe develop in the next 30 years?
- Jun 30, 2021 4:09 pm GMT
With the current “EU Energy Outlook 2050”, Energy Brainpool shows long-term trends in Europe. The European energy system will change dramatically in the coming decades. Climate change and aging power stations are forcing the European Union and many countries to change their energy policy. But there are also changes in the market: Rising CO 2 certificate prices lead to higher profitability of renewable energies, power purchase agreements (PPAs) are the keyword here. What do these developments mean for electricity prices, revenue potential and risks for photovoltaics and wind?
The electricity markets in Europe are subject to constant change, which makes current price scenarios indispensable. This is the only way to correctly evaluate, for example, market developments, assets and contracts, investment decisions, PPAs or business models.
The “EU Energy Outlook 2050” shows the development of the “EnergyBrainpool” scenario for the EU-27, UK, Norway and Switzerland. The actual processes in the individual countries can vary significantly. In order to be able to make well-founded decisions, detailed modeling of the individual national markets and the influencing factors there, including sensitivity analyzes, are essential.
What does the European power plant park of the future look like? *
Figure 1: Installed generation capacities in EU-27 (plus UK, NO and CH) by energy source, source: Energy Brainpool, "Energy, transport and GHG emissions trends to 2050 - Reference Scenario 2016" , "TYNDP 2020" [ 3]
The power plant park in Europe has developed over many decades and was particularly dominated by fossil generation capacities. Many of the power plants on the market have already reached a great age. They will have to be replaced by 2050, including all nuclear power plants (with the exception of those under construction).
The current climate debate is having an impact, meaning that a total of 10 EU countries have now decided to phase out coal in order to limit climate change. Well-known and proven technologies are available for the future: gas power plants, renewable energies and nuclear power plants.
Wind power and photovoltaics in particular continue to have great growth potential. These technologies are competitive today - thanks to the sharp drop in costs over the past ten years. This is also evident from the increasing number of PPA-based projects, especially for solar systems. Experts expect this development to continue. In the “EU Energy Outlook 2050”, the proportion of these fluctuating renewable energies (FEE) will increase to around 59 percent of the total supply output by 2050. Renewables make up 75 percent of the power plant fleet.
Gas-fired power plants in particular will be added to controllable, fossil-fuel generation capacities at the European level in the future. This is due to the lower emissions compared to coal-fired power plants. The latter continue to lose importance even with carbon capture storage (CCS).
The capacities of nuclear and coal-fired power plants will decrease by more than 57 percent by 2050. Germany, France, Great Britain, Spain, the Netherlands, Finland, Italy, Ireland, Portugal and Denmark have announced coal exits for the future. As a result, a sharp decline in the currently installed capacity to around 36 percent by 2030 can be observed, especially with hard coal.
Overall, the proportion of the generation capacity of controllable thermal power plants will decrease from currently around 50 percent to around 25 percent by the year 2050. This has a considerable influence on the structure of electricity prices, which are increasingly shaped by FeE.
Why will the demand for electricity increase until 2050?
Figure 2: Gross electricity generation and demand by energy sources EU-27 (plus UK, NO and CH), source: Energy Brainpool, "Energy, transport and GHG emissions trends to 2050 - Reference Scenario 2016", "TYNDP 2020" 
The demand for electricity will increase by around 28 percent by 2050. Above all, population growth and more electrification in households, as well as an increase in electromobility, are increasing the demand for electricity. According to the plans of the European Commission, most of the economic growth will take place in the tertiary service sector, which also needs more electricity. In the industrial sector, increased efficiency can prevent a significant increase in electricity consumption.
The amount of electricity produced by coal-fired power plants is falling sharply and will decrease by around 60 percent by 2030 and by around 95 percent by 2050. Production from gas-fired power plants will increase by around 25 percent by 2050. In 2050, wind and solar systems will generate around 45 percent of electricity. Around 36 percent of the electricity comes from controllable, fossil-fuel power plants. The remaining amounts of electricity are produced by controllable, renewable energies, such as biomass power plants or storage lakes. 79 percent of the electricity is generated emission-free. This would mean that the set climate targets would be missed.
The long-term development of raw material prices
Figure 3: Commodity prices, source: World Energy Outlook 2020 (“Sustainable Development”) and own calculations by Energy Brainpool
The development of the most important commodities until 2040 is based on the "Sustainable Development" scenario of the World Energy Outlook (WEO) 2020 of the IEA . Three goals are defined in this scenario: stabilization of climate change, clean air and universal access to modern energy.
The prices for gas, oil and hard coal are falling from today's level. Since the last update of the World Energy Outlook, gas prices in particular have fallen significantly, which is mainly due to the European hydrogen strategy. You can read more information about the changes in the World Energy Outlook 2020 in our blog post. The development from 2040 to 2050 is extrapolated.
Development of average electricity prices
Figure 4: Average annual baseload prices and fluctuation range of national individual markets in selected countries in Europe, source: Energy Brainpool
Primary energy and CO 2 prices are particularly relevant for the development of the average, unweighted electricity prices between 2022 and 2050 . A stagnation of electricity prices is observed despite rising CO 2 prices . The reason: high feed-ins from wind and photovoltaic power plants, which can only be partially offset by the increasingly flexible demand for electricity, are increasingly leading to low and more often negative electricity prices.
The actual developments in the individual countries sometimes differ very significantly from one another. This is shown by the fluctuation ranges shown. In particular, countries with little expansion of renewable energies are recording a steady rise in electricity prices (due to the development of commodity prices). Compared to the last edition of the EU Energy Outlook, electricity prices have decreased by an average of 13 percent. The reason for this is the lowering of the assumed gas prices based on the WEO.
Figure 5: Average monthly baseload prices in selected EU countries, source: Energy Brainpool
If we look at the electricity prices on a monthly basis, the seasonality and volatility of the electricity market can be seen. For the winter, the analyzes show rising prices, due to the temperature sensitivity of the electricity demand.
In contrast, electricity prices are usually significantly lower in summer. This effect is reinforced by the increasing share of solar power generation, which has a price-lowering effect.
What revenues can wind turbines generate?
Figure 6: Average marketing values and quantities for wind in selected EU countries, source: Energy Brainpool
The marketing value is the average volume-weighted electricity price that wind power plants can achieve on the spot market. Only generation hours with positive electricity prices are taken into account (including 0 EUR / MWh). The marketing value of wind energy will increase from 2030 and then stagnate from 2045 - due to the continued increase in capacities.
The parallel generation reduces the electricity prices during these hours (merit order effect). The sales volumes (share of the volumes generated at electricity prices> = 0 EUR / MWh) decline only slightly on average in the EU, and in some countries even very significantly. The marketing revenues result from the product of the marketing values and marketing quantities.
The many hours in which, despite the high proportion of renewable energies, controllable, fossil-fuel power plants set the price, enable increasing positive revenue streams. The fluctuation range of the markets shows how different the country-specific average revenue opportunities from wind turbines are.
In the white paper " Assessment of the electricity market revenues of plants with fluctuating renewable energies ", Energy Brainpool defines, among other things, the indices of marketing value and quantities. These indices enable a realistic determination of the revenue potential of fluctuating, renewable energies on the electricity market.
What revenues can photovoltaic systems (solar) achieve?
Figure 7: Average marketing values and quantities for solar in selected EU countries, source: Energy Brainpool
The development of the marketing values of solar energy is similar to the trend of the marketing values for wind energy, but at a lower level. The reason for this is the pronounced simultaneity effect of solar energy: the majority of electricity is generated during the daytime hours in summer. In hours in which a lot of solar power is generated, the price of electricity and thus the proceeds fall.
The sales volumes for solar energy are also only falling slightly on average in the EU, but are falling very significantly in individual countries. The wide range of fluctuations in the solar marketing values in the individual states shows how much the revenue opportunities vary. However, it should be noted here that in a sunny country, high revenues are possible even with low marketing values. The reason for this is that the facilities are better utilized.
Solar thermal systems for power generation are a marginal technology in the scenario and will not be expanded on a large scale.
Increase in price volatility in detail
Figure 8: Development of demand-weighted baseload prices and quantiles of hourly prices in selected EU countries, source: Energy Brainpool
In the scenario, many factors lead to a significant increase in price volatility. On the one hand, the generation costs of controllable fossil power plants are rising due to the development of rising commodity prices and prices for emission certificates. On the other hand, the expansion of fluctuating, renewable energies has a price-reducing effect. As a result, from today's perspective, extreme prices occur much more frequently and are becoming a normal component of the electricity price structure of the day-ahead market. The high extreme prices rise continuously over time, while the low extreme prices remain at a nearly constant level after 2030. The reason for this are the flexibility options such as B. electrolysers, heat pumps and electromobility,
Service-specific revenues from fluctuating renewable energies
Figure 9: Power-specific income from onshore wind in 2030 in EUR 2019 / kW for selected EU countries, source: Energy Brainpool
Figure 10: Performance-specific solar revenues in 2030 in EUR 2019 / kWp for selected EU countries, source: Energy Brainpool
In which locations and countries or in which technology should investments be made? For this purpose, on the one hand, the average revenues from fluctuating renewable energies must be considered by means of the marketing value in EUR / MWh and, on the other hand, the annual energy quantities of the respective technology and the location must be taken into account.
This is made possible by the capacity-specific revenue. It shows the respective average revenues per installed kW. A PV system in Spain generates less revenue on average in EUR / MWh than a PV system in the UK, which is put into perspective by the high utilization and thus full load hours in Spain, so that the system ultimately generates more revenue per kW than in the UK. Such a parameter can of course also be determined for the exact location.
The results show that wind turbines are more likely to generate higher revenues in the northern European countries, while solar systems tend to have a profit advantage in the southern European countries.
Fluctuations due to weather risks when determining the marketing values of fluctuating producers
In Germany and other European markets, due to the promotion of wind and solar, until now, when thinking about the weather risks of fluctuating renewable energies, the focus was only on the influence on the amount of generation produced. All price risks played no role due to the guaranteed feed-in tariff or market premium. For wind turbines, for example, it was the case that high wind volumes generate high revenues and little wind leads to low revenues. In order to estimate revenues, an expected amount (e.g. P50 amount) was consequently multiplied by the fixed subsidy.
However, this situation changes in the case of plants marketed on the market that generate their revenues based on fluctuating electricity prices. Since electricity prices also fluctuate with the weather, the influence of the weather must be taken into account twice. Furthermore, we show that, from the plant operator's point of view, there is a revenue-stabilizing anti-correlation of the two weather effects, and that weather risks can thus be systematically overestimated.
The effect of the anti-correlation becomes clear on the basis of the modeling results of a scenario calculation for the year 2021 using the weather years 2005 to 2016. Figure 11 shows the percentage fluctuations in generation volumes and marketing revenues around the respective mean. If you multiply the generation volume (in MWh) by the sales revenue (in EUR / MWh), you get the annual revenue of the plant (in EUR / MW / a). These are also given as a percentage and also in EUR / MWh, and relate to fluctuations in the revenue of the long-term average of the amount of electricity that can be generated (P50 amount).
A look at the figures shows a pattern: Windy years show high volumes with low sales revenues, years with little wind show low volumes with higher marketing revenues. This is generally due to the cannibalization effect of renewable energies and can stabilize annual revenues.
Figure 11: Comparison of the influence of different weather years on the amount and value of electricity in 2021 by means of percentage deviations from the mean value of all weather years, source: Energy Brainpool
For example, the generation volumes in the 2007 weather year are more than 16 percent above the P50 value, but the marketing revenue in EUR / MWh is 8 percent lower. The annual revenue of the plant therefore only fluctuates by + 7.5 percent. Converted this is + 3.12 EUR / MWh deviation from the revenues that were planned with the P50 quantity as a long-term average.
In contrast, the generation volumes in the 2010 weather year are 10 percent lower. This roughly corresponds to the amount of P90. However, the lower volumes are more than compensated for by the 11 percent higher marketing revenues, and annual revenues remain stable (plus 0.7 percent). However, if one calculates the expected revenues of a system by multiplying the P90 quantity (for the weather year 2010) only with the average marketing revenues, one systematically overestimates the weather risk and ignores this anti-correlation, which stabilizes the revenues.
When comparing the weather years 2010 and 2016, however, it also becomes clear that this anti-correlation is not the same in every weather year. It can be overridden by simultaneous solar feed-in. For example, compared to 2010, wind feed-in was more strongly distributed over hours with simultaneously high solar feed-in compared to 2010, so that marketing revenues hardly increased.
Overall, there are fluctuations in revenue specific to the weather year, which reflect both weather-related volume and value risks. If the generation volumes from P90 (e.g. 2010) or P50 weather years (e.g. 2009) are used to estimate weather risks, it is advisable to consider these in combination with the expected price effects. Otherwise, weather risks can be overestimated.
The values shown will change significantly in the future due to changing power plant parks and the resulting cannibalization of renewable energies.
Read more in our white papers “ Power Purchase Agreements I & II ”.
Figure 12: Comparison of the weather risks in different markets in 2020 based on the weather years 2005-2016
Fluctuations due to different scenario assumptions
Figure 13: Trends in the different scenarios of selected EU countries, source: Energy Brainpool
Energy Brainpool offers a variety of different closed scenarios. Figure 13 shows the different trends of the scenarios. The fluctuations relate to the assumptions on the development of commodity prices as well as the power plant fleet and e-mobility and other flexibility options (progressivity).
Figure 14 shows the associated results of the electricity prices for the respective scenarios.
Figure 14: Development of electricity prices in EUR 2019 / MWh for the respective scenarios in selected EU countries, source: Energy Brainpool
* EU-27 including UK, Norway and Switzerland, depending on the evaluation, only the most significant countries were selected to determine the mean.
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