• Combustion Industry News

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      Patrick Lavery

      Combustion Industry News Editor

European Commission sets 2030 carbon reduction and renewable energy goals

The European Commission has released its climate and energy blueprint for the period until 2030. Under it, EU member states will be required to reduce their greenhouse gas emissions by 40% compared to 1990 levels by 2030, a sizeable but expected extension of the goal of a 20% reduction by 2020. The renewable energy quota, which was 20% by 2020, will be 27% for 2030, but unlike the 2020 goal, it is not mandatory for this goal to be made law in individual member states. The blueprint does not outline specific ways to meet the two quotas, instead leaving the member states to decide on how to meet their obligations (further guidance on how countries will be encouraged to meet the renewable energy target will be released in the future). As the Financial Times points out, it also does not prohibit the development of the shale industry in the EU region, a significant move. Overall, the blueprint has been seen as acknowledging concerns that European industry was under threat of being made uncompetitive through energy policy; it includes a paper calling for a “European industrial renaissance”. The blueprint had a predictably mixed reception, with renewable energy and environmental groups generally saying it did not go far enough, and industry and some governments welcoming the recognition given to competitiveness. The Financial Times suggested that it could lead to a refocusing of business growth in renewables away from Europe and towards the developing world.

Lakshmi Mittal letter urged less stringent targets

A read of the pre-blueprint letter written by ArcelorMittal CEO Lakshmi Mittal to the Financial Times allows some insight into the balance of the blueprint. Outlining the challenges to the competitiveness of the European arm of ArcelorMittal, as well as to other heavy industry in Europe, as a result of the EC’s energy and climate policy, Mr Mittal urged the EC not to set stringent carbon reduction targets and to reform the EU Emissions Trading System. He called for benchmarks for carbon efficiency for the steel sector to be made realistic (i.e. reduced), so that steel manufacturers would not have to purchase so many carbon permits, and for manufacturing industries to pay less to subsidise the rollout of renewable energy power generation. As noted above, the blueprint did, in fact, set a stringent emissions reduction target, and only set out a general goal of reforming the ETS to remove surplus permits; however, it did include reference to cost-effectively reducing carbon emissions. Overall, it might be suggested the new blueprint finds a balance between environmental concerns and business concerns.

Europe moving towards ‘renationalisation’ of power generation

An interesting analysis piece by Reuters has pointed out how regulation throughout European countries is leading to something of a planned energy economy and a renationalisation, or ‘remunicipalisation’ of power generation capacity. Deregulation (with the intention of lowering power prices) has been the trend of the last decades, led by the UK, but moves to subsidise renewable power generation capacity, finance select low-carbon power generation plants, and cap energy prices has given a definite, government-decreed direction to the development of power generation across European countries. Some utilities find the combination of regulatory interventions a difficult squeeze on profitability; the interventions have led to a drying up of investment in traditional power generation. In Spain, utilities have been forced by the government to absorb the difference between power generation costs and electricity prices – hence the label of renationalisation, though the government believes that competition is good for consumers. In Hungary, the government is seeking to directly renationalise utilities, making them non-profit organisations, forcing foreign utilities to sell to state-owned utilities at less-than-market prices. RWE East chairman Martin Herrmann has described the moves as “expropriation”. In Germany, two recent referendums, one in Berlin and one in Hamburg, sought to ‘remunicipalise’ power generation, in which the respective cities would pay the market rate for the generation assets. The Hamburg referendum succeeded, while the Berlin one did not. E.ON CEO Johannes Teyssen believes that public ownership will face the same cost pressures as private ownership, and believes the current swing towards public ownership is part of a cycle of shifts towards and away from public ownership. It is certainly a fascinating time.

Ukraine eyes coal gasification and pumped storage projects

Ukraine has been in the headlines for political reasons in the last months, but in mid-January the government found the time to brief the public about its strategy to develop the country’s energy sector. Energy and Coal Industry Minister Eduard Stavytsky announced that the country will begin construction of coal gasification plant in the eastern Donetsk region, as well as the Kaniv Pumped Storage Plant in the country’s central area, designed to store energy in elevated stored water for release during times of peak electricity demand. The Kaniv project was begun in 1984 by the government of the then USSR, but was suspended in 1992, and is now being revived. According to Bankwatch, an organisation that monitors the environmental and social credentials of Eastern European projects funded by international banks, it includes the construction of 1000 MW of power generation capacity across four units. While the political unrest in the Ukraine is connected to Russia’s influence in Ukraine, the energy strategy appears to be directed towards energy independence for the country.

Indonesia massively increases domestic biofuel consumption target

The Indonesian government has announced plans for 2014 of its own, with one objective being a drastically increased use of biofuel, from last year’s target of 1.07 gigalitres to 4.0 gigalitres this year. Last year’s actual consumption was 0.67 gigalitres, meaning consumption would have to increase almost six times this year to meet the new target. To do it, the government sees the transportation sector consuming 1.67 gigalitres, and the state power firm, PLN, consuming the remaining 2.33 gigalitres through a biodiesel content of up to 26% in its diesel-fired power plants. With the biofuel being produced domestically, the government says meeting the target would save the country something in the region of $US 5 billion (€3.65 billion) in foreign exchange spending.

European Parliament passes non-binding plan for developing CCS in EU

Another significant piece of European news in January has been the European Parliament passing a non-binding plan to step up the development of carbon capture and storage in Europe. The plan calls for more funding for flagship CCS project development and associated technologies through the actions of member states, as well as a greater focus on determining storage sites and transport routes. It also includes suggestions of a certification scheme to verify CO2 has been stored. Overall, the plan seeks to redress the relatively weak development of CCS within the EU, acknowledging the central role the technology (and governments) will need to play over the coming decades to reduce carbon emissions worldwide.

Mitsubishi Heavy Industries and Southern Company Services complete initial CCS demonstration test

The European Parliament may have been looking ‘across the pond’ at the CCS demonstration tests in Alabama, USA, the initial phase of which were recently completed by Mitsubishi Heavy Industries and Southern Company Services. The tests, aimed at separating around 500 tonnes/day of CO2 from the flue gas of an SCS’s coal-fired power plant, and then sequestering the gas, began in 2011. The CO2 capture demonstration plant included a flue-gas scrubber, a flue-gas CO2 capture/re-generation system, and CO2 compression machinery, with the recovery efficiency being 90%. MHI and SCS are now discussing further demonstration work at the plant; MHI sees itself as becoming a leading player in the development and commercial deployment of CCS worldwide.

New Shell CEO focuses on increasing return on investment to shareholders; sells Australian gas stakes

Two weeks after taking control of the company, the new CEO of Shell, Ben van Beurden, has signalled an increased focus on return on investment by making the decision to divest its stakes in the Wheatstone and Iago gas fields off the coast of Western Australia, as well as the Wheatstone LNG plant, which are currently under development. Kuwait Foreign Petroleum Exploration Company, which was already an investor in the projects, is to buy Shell’s holdings for approximately $US 1.14 billion (€841 million). Mr van Beurden stated “We are refocusing our investment to where we can add the most value with Shell’s capital and technology.” The decision comes after Shell issued a “significant” profit warning for the 4th quarter of the financial year, and amid reports the company is looking to divest up to $US 15 billion (€11 billion) of assets this year. The Wheatstone projects are being led by Chevron, and the LNG plant is around 25% complete.

PGE secures finance for Opole plant expansion in Poland’s south

One European project having no trouble securing finance (in contrast to the story about a drying up of investment in conventional power generation) has been PGE’s coal-fired Opole power plant expansion in Poland’s south. The 1.8 GW of additional generation capacity, which is due to begin construction next month after some delays, this month secured finance of $US 1 billion (€733 million) from PKO BP, a Polish bank. The Polish government last year put pressure on PGE to build the plant in the interests of national energy security.