Energy Perspectives of the Baltic Sea Region 16 December 2008

Energy Perspectives ofthe Baltic Sea RegionInterim ReportBaltic Development Forum SummitPrepared byHelge Ørsted PedersenAlexandros Filippidis andAnders Kofoed-WiuffEa Energy Analyses, DenmarkEEaa EEnneerrggiya Ananlaylsyes e sEnergy Perspectives ofthe Baltic Sea RegionInterim report16 December 2008Energy perspectives of the Baltic Sea RegionEurope is facing a serious energy challenge: fuel supplies must be securedand greenhouse gas emissions reduced significantly, while maintaining a highlevel of economic growth.The Baltic Sea Region has a significant potential for developing regional pro-jects to benefit the region as a showcase for sustainable energy developmentand becoming frontrunners in innovative solutions through regional cooperationTogether with the Baltic Development Forum, Ea Energy Analyses is conduct-ing a study on ‘Enhanced regional energy cooperation in the Baltic Sea Re-gion1. This interim report gives a brief overview of the energy situation in theBaltic Sea Region and presents two general scenarios for the energy andtransport sectors, which are developed to comply with the strategic energy andclimate goals. In June 2009 a final report, together with a public modelling tooland data, will be presented.Initiatives for cooperationSince the early 1990’s, several initiatives have been taken to stimulate coop-eration between energy stakeholders in the countries surrounding the BalticSea. These include among others Baltic 21, Basrec, Baltrel and the Union ofthe Baltic Cities2.The region as a show- The Baltic Sea Region has a significant potential for further developing regionalcase projects, which could benefit both the region and the entire EU as a showcasefor comprehensive sustainable energy systems. The region holds key industrialcompetences for producing energy efficient end-use equipment as well ascomponents of energy production facilities and many cities. Several metropo-lises in the region also have experience with energy efficient building and sus-1 The study is multi-client study, financed by the Nordic Council of Minister, the Nordic Council, theBaltic Development Forum and Fabrikant Mads Clausens Fond, Danfoss. The study will be com-pleted by June 2009.2 Baltic 21 is a regional multi-stakeholder process for sustainable development initiated in 1996 bythe Prime Ministers from the eleven member states of the Council of the Baltic Sea States (CBSS).BASREC is the Baltic Sea Region Energy Co-operation. All governments in the region participatein BASREC as well the European Commission.BALTREL, the Baltic Ring Electricity Co-operation Committee, represents 15 electricity powersupply organizations with operations in 11 countries in the Baltic Sea Region.tainable heating systems, including district heating and combined heat andpower generation.Input to EU’s Baltic The key purpose of the present study is to facilitate closer regional cooperationstrategy and identify specific opportunities for projects and cooperation within the en-ergy and climate sector in the Baltic Sea Region. The study further aims toexamine the best use of the energy resources in the region, for example bio-mass. Specifically the study aims at providing input to the current strategy workat the EU level.Renewed focus on the regionThe stakeholders in the energy sector in the Baltic Sea Region have for a longtime cooperated through organisations such as Baltrel, Baltic Gas, Basrec,Baltic 21 and the Baltic Sea Parliamentary Committee3.EU strategy for the Baltic Recently the European Union has renewed its focus on the Baltic Sea Region.Sea Region In December 2007, the European Council invited the Commission to presentan EU strategy for the Baltic Sea Region by June 2009. The strategy will beone of the key objectives for theSwedish EU presidency in thesecond half of 2009. Accordingto the Swedish prime minister,the strategy should be a con-crete, action-oriented instru-ment which helps the EU andthe EU members in the BalticSea region to set joint priorities,for instance concerning invest-ments in infrastructure. The aimis to speed up joint implementa-tion of EU decisions, and tobetter harmonize national regu-lations so as to create a genuinely single and thus bigger regional market.Baltic Interconnection At the meeting of the European Council 15-16 October 2008, the council calledPlan for the establishment of a plan of action to speed up interconnections in theBaltic Sea region to enhance the security of supply for all countries in the re-gion and for "wider security of supply and solidarity in the EU” as expressed bythe EU Commission in its recent green paper ‘Towards a secure, sustainableand competitive European energy network’. The Baltic Interconnection Plan willbe developed by the Commission together with the Member States concernedas part of the Baltic Sea Regional Strategy. According to the Commission “theefficient development of the market as well as the contribution of energy effi-3 Baltic Gas is an association for cooperation between the natural gas transmission companies inthe Baltic Sea Area.Baltic Sea Parliamentary Committee - forum for debate and information exchange between Parlia-ments and other organizations in the region both on international and interregional levels.2 Energy perspectives of the Baltic Sea Regionciency and renewables to increased security of supply will need to be dulytaken into account in developing the Plan”.European coordinators The Baltic Interconnection Plan should be seen in relation to the work by theEuropean coordinators that were appointed on the September 2007 by theCommission to monitor and to facilitate the implementation of the most criticalidentified priority infrastructure projects. Mr. Adamowitsch is responsible for theproject concerning "Connection to offshore wind power in Northern Europe(North Sea – Baltic Sea)" and Prof. Mielczarski for the “Poland-Lithuania linkincluding reinforcement of the Polish electricity network and the Poland-Germany profile”. Their first annual reports were published by the end of Sep-tember this year.Best practice at Mr. Adamowitsch recognises the dual function of an off-shore grid, namely toKriegers Flak connect the wind farms to the grid and to facilitate cross-border trading in theregion and between regions. Moreover Mr. Adamowitsch calls for increasedcooperation across the region stating that a fragmented national approach tooff-shore wind will be “very costly to consumers and governments and alsolead to an unnecessary burden on the environment”. The first action point inMr. Adamowitsch work-plan for the coming year will be to promote Krieger’sFlak4 in the Baltic Sea – shared by Denmark, Germany and Sweden – as 'bestpractice case' for the integration of off-shore wind farms for three countries.Energy consumptionEnergy consumption in the Baltic Sea Region has been fairly stable during thelast 15 years. Today, the most important sources of energy are oil, coal andnatural gas in the aforementioned order.Historic view Since 1990, the role of coal has declined whereas particularly natural gas andrenewables have come to play a greater role. In the new democracies in theregion, the reduction in coal consumption has mainly taken place in the indus-trial sectors.4 Kriegers Flak is located in the Baltic Sea and is divided between Germany, Denmark and Swe-den. The location has been identified as an optimal, shallow area for wind power production, andoffshore wind parks have been planned or discussed in the German, Swedish and Danish part ofthe marine area.Energy perspectives of the Baltic Sea Region 3Figure 1: Gross Energy Consumption in the Baltic Sea Region (Denmark, Estonia, Finland, NorthEast Germany, North West Russia, Latvia, Lithuania, Poland, Norway and Sweden). Source: Euro-pean Commission (DG Tren) and IEA5.Reduced energy The decrease in energy consumption since 1990 has taken place in spite ofintensity significant increase in GDP for the region (almost 40 per cent increase since1990). This reflects a reduction in the energy intensity of the economy, i.e. theamount of energy used per economy output. As indicated in Figure 2 this de-velopment is particularly noticeable in the new democracies, which have suc-ceeded in almost halving the energy intensity since the transition to market-based economies.This change is due to decreasing production from energy intensive industriesas well as to energy efficiency improvement in all parts of the economy.Decreasing CO -emissions from the energy and transport sectors have decreased by ap-2CO -emissions proximately 18 per cent from 840 Mt in 1990 to 690 Mt in 2005. This reflects2the shift in energy consumption towards natural gas and renewables – as indi-cated in Figure 1 – as well as slightly decreasing total energy consumption.5 Data for North East Germany and North West Russia are based on regional shares of nationalvalues.4 Energy perspectives of the Baltic Sea RegionTJ/M€ Energy intensity25201510501990 1995 2000 2005Old democracies New democraciesFigure 2: Energy intensity - measured as Final Energy Demand per GDP - in the Baltic Sea Region(Old democracies: Denmark, Norway, Finland, North East Germany and Sweden, New democra-cies: Estonia Latvia Lithuania, Poland and North West Russia). Source: European Commission(DG Tren), IEA and the World Bank.CO2 emissions per sectorMt CO290080070060050040030020010001990 1995 2000 2005Transport TertiaryResidential IndustryEnergy Branch Power generation/District heatingFigure 3: CO emissions in the Baltic Sea Region by sector (Denmark, Estonia, Finland, North East2Germany, North West Russia, Latvia, Lithuania, Poland, Norway and Sweden). Source: EuropeanCommission (DG Tren) and IEA.Energy resourcesThe countries surrounding the Baltic Sea are rich in resources for energy pro-duction – both fossil fuels and renewables. Significant gas reserves are avail-able in Norway and Russia; Germany and particularly Poland have substantialcoal resources; Norway has large oil reserves.Energy perspectives of the Baltic Sea Region 5As for renewable energy, hydropower and biomass cover the largest part of theeconomic potential. In the Baltic Sea Region bioenergy will be able to coverabout 30 per cent of the gross energy demand of the region as opposed to 16percent for the EU27. Moreover, wind power already plays an important role inDenmark and Germany, and could play a much greater role in the region in theyears to come. In the longer term, solar power, wave power and heating andgeothermal energy may also provide notable contributions to the overall energysupply.Energy scenarios for the futureTo shed light on different pathways towards achieving the long term strategicgoals of the region two essentially different developments have been exploredthrough a so-called Small-tech scenario and a Big-tech scenario. Both scenar-ios aim at achieving two concrete goals for 2030: reducing CO2 emissions by50 per cent compared to the 1990 level and reducing oil consumption by 50 percent compared to the present level. Similar terminologies and goals have beenapplied in a similar scenario study for the EU27 carried out for the EuropeanParliament6.Small-tech scenario The Small-tech scenario focuses on distributed energy generation, energysavings and efficient utilisation of energy through combined heat and powergeneration. This scenario assumes a high level of interconnection of the elec-tricity grids in the regions to allow for the integration of a high share of non-dispatchable wind power. So-called smart grid technology and improved com-munication between the different parts in the energy system are key to provid-ing optimal dispatch and efficient utilization of the energy infrastructure.Big-tech scenario The Big-tech scenario explores the opportunities of more centralised solutions.In the Big-tech scenario, almost all new coal and natural gas power plants es-tablished from 2020 and onwards are equipped with carbon capture technolo-gies (CCS) - and the nuclear power capacity is increased by 35 per cent com-pared to today. New nuclear generation capacity is presumed to be built inFinland, Lithuania and Poland, as well as no phase-outs in Germany, Swedenand North West Russia. In addition, it is assumed that most new large coalpower plants commissioned in the period 2010-2020 are prepared for CCS andretrofitted in the subsequent decade.Transport In both scenarios the transport sector undergoes fundamental changes in orderto comply with the target on 50 per cent oil reduction. In both the Small techand the Big-tech scenarios it is a critical assumption that the technical poten-tials for improving the fuel economy of conventional vehicles are partly real-ised. Moreover, in the Small-tech scenario, electric vehicles and plug-in hybridsdisplace oil consumption, and information and communication technologies areput in place to decrease the demand for “physical” transportation. In the Big-6 More info on the European project can be found on the website of the Danish Board of Technol-ogy: http://www.tekno.dk/subpage.php3?article=1442&survey=15&language=uk6 Energy perspectives of the Baltic Sea Regiontech scenario, 2nd generation biofuels and natural gas are important means, inaddition to the electrification of the transport sector.Figure 4 - Key decision makers in the two scenariosHowever, the requirements for transformation differ significantly in the two sce-narios.In the Big-tech scenario, the existing structure of the energy supply systemremains essentially unchanged, and the large suppliers of electricity becomethe main actors. Hence, the implementation of the Big-tech scenario dependson relatively few decision-makers. Partnerships for the demonstration of theCCS technology provide an obvious opportunity for regional cooperation in theBig-tech scenario.In the Small-tech scenario, citizens play an important role as active consumersof energy, changing energy behaviour according to price signals and investingin energy-efficient appliances and buildings; grid owners must develop theirsystems and the suppliers of energy will have to change sources graduallyfrom large power plants to renewables and to distributed units located closer tothe consumers. In the Small-tech scenario the integration of fluctuating energysources calls for a high level of cooperation on energy markets and new infra-structure projects, particularly concerning off-shore wind. Local authorities andcities are crucial for the facilitation of district heating grids and sustainabletransport systems – and the need for more efficient supply and demand tech-nologies provides business opportunities in many industry branches.Results To illustrate the consequences of the two scenarios, the key indicators – thedevelopment in gross energy consumption and the emission of CO2 – arecompared with historic data as well as with a reference for 2030 resembling themost recent projection from the European Commission7 [Ref. 5].7 For North-West Russia the reference has been made based on data from the International En-ergy Agency.Energy perspectives of the Baltic Sea Region 7The scenarios show that resources and technologies are available to achievethe targets set out.In the Small-tech scenario, it is foreseen that the gross energy consumption isreduced by approx. 20 per cent in 2030 compared to 2005. In the Big-techscenario, gross energy consumption increases by 13 per cent compared totoday. This increase, which is slightly higher than in the 2030 reference projec-tion, is mainly due to increased utilisation of carbon capture and storage tech-nologies which are expected to require a considerable expenditure of energy,particularly for the capture and transportation of CO2. In the Big-tech scenario,compliance with the CO2 reduction target is secured by storing almost 150 Mtof CO underground in 2030.2To realise the scenarios, investments in the energy sector need to be in-creased considerably. The preliminary calculations show, that the need foradditional investments in the scenarios are offset by fuel cost savings andcosts of emitting CO . In the calculations, an oil price of 122 $/bbl (real term) is2applied for 2030 – in accordance with IEA’s World Energy Outlook – and a CO2price of 45 €/ton.The average annual economic growth rate is assumed to be just above twoand a half per cent in the period until 2030 in both reduction scenarios.Gross energy consumptionPJ16.00014.00012.00010.0008.000 NuclearRE6.000Natural gas4.000 CoalOil2.000 50% oil target-2005 Reference 2030 Small-Tech Big-TechFigure 5: Gross energy consumption in 2005 and projections for 2030 (excluding fuels for non-energy purposes).8 Energy perspectives of the Baltic Sea RegionMt CO2 / year CO2-emissions1.000Other energyElectricity and district heat800 TransportStored CO260050% CO2 target400200--200Figure 6: CO emissions from the energy and transport sectors in 1990, 2005 and projections for22030. “Other energy” includes oil, gas and coal used in households, industry and the trade/servicesector.Critical assumptions The actual implementation of the scenarios and associated benefits depend ona number of critical assumptions. Most important in the Small-tech scenario isthe assumption that it is possible to realise a substantial share of the hugetheoretical potential for energy savings, best practice policies at the local levelto facilitate district heating and sustainable transport systems.In the Big-tech scenario, the access to and availability of gas, coal and uraniumat reasonable prices is probably the most critical assumption. Moreover, thescenario is dependent on the commercialisation of the CCS technology.Next stepsThe long term scenarios presented above will be supplemented with more de-tailed analyses of the integrated electricity systems in the region. This part ofthe study will be completed in June 2009 and will be coordinated with activitiesin BASREC and the project Nordic Energy PerspectivesBased on these analyses it will be possible to identify and quantify the costsand benefits of new interconnectors and generation capacity as a valuableinput to the Baltic Interconnection Plan.The final report will also outline the possibilities for the industry to be frontrun-ners in the development of new energy technologies and come up with a priori-tized list of regional projects, to promote the region and regional co-operation.Energy perspectives of the Baltic Sea Region 9As mentioned the aim of the study is to facilitate closer regional cooperationand identify specific opportunities for projects and cooperation within the en-ergy and climate sector in the Baltic Sea Region.10 Energy perspectives of the Baltic Sea RegionAppendix: Scenario details2005 2030 2030Small‐tech Big‐techAnnual GDP growth ‐ 2.6%Total final energy demand 8,500 PJ 8,300 PJ 10,200 PJGross energy consumption8 12,600 PJ 10,100 PJ 14,200 PJSystem conversion losses9 37% 18% 22%Electricity demand 2,000 PJ 2,200 PJ 3,000 PJDistrict heating/cooling 14% 25% 18%(% of final energy demand10)Renewable energy 16% 45% 25%(% of gross energy consumption)Electricity supply Power plants with 0% 0% 20%(% of electricity produc‐ CCStion) Nuclear 30% 12% 25%(21 GW) (9 GW) (28 GW)Wind 1% 17% 5%Solar 0% 1% 0%Wave 0% 1% 0%Bioenergy11 4% 16% 8%Transport12 Fuel economy 160 g CO /km13 100 g CO /km2 2Electric vehicles <1% 15‐25%Biofuels <1% 5‐10% 15%Table 1: Scenario characteristics and key figures8 Excluding fuels for non-energy purposes.9 Not including losses in the transport sector10 Excluding final energy in the transport sector11 Including biomass, biogas and municipal waste12 The transport figures apply to passenger cars13 Average emissions or new cars in the EUEnergy perspectives of the Baltic Sea Region 11