From this quarter BMI’s Power
service will focus chiefly on thermal sources, hydropower and nuclear electricity,
while developments pertinent to the green segment will be discussed in depth by
our Renewables service. That said, we continue to provide a detailed overview
of the dynamics affecting the power sector. Despite a year having passed since
the German government’s U-turn on nuclear power, the country is still looking
for an appropriate strategy that will provide sufficient electricity. Such a strategy
must also allow the country to respect its carbon emissions commitments and
limit price rises. While natural gas appears likely to be the replacement fuel
from an environmental perspective, cheap coal remains the most profitable way
to produce electricity. On the greener side of the power spectrum, Germany has
retained its position as Europe’s bellwether for renewable energy, but not
without controversy – owing primarily to the high costs associated with the
deployment of these technologies.
Key trends and recent developments in the German
electricity market include:
- News that consumers, utilities and
members of the German government are beginning to voice concerns about the
associated costs of Germany’s energy U-turn reconfirms our view that the new
energy agenda presents a significant financial burden to the country. With the
nuclear phase-out already weakening German utilities, the enormous cost of
incorporating renewable energy into the electricity mix is unsustainable,
unless domestic electricity prices are increased substantially.
- We have revised our forecast to take into account larger-than-expected coal usage. While natural gas appears to be the most likely replacement fuel from an environmental perspective, cheap coal remains a more profitable way to produce electricity in the country. On June 28 2012, the Bundestag approved cuts to incentives for the solar power industry that were milder and more watered down than expected. Following an agreement reached with the help of a mediation committee, plans to introduce a 90% limit on incentives for larger solar power plants of over 10 kilowatts (KW) were dropped, and will instead be introduced in 2014.
- Delays in connecting wind farms to
the power grid – as well as grid outages after the plants have started operations
– are jeopardising Germany’s ambitious offshore wind target. Whilst the quick implementation
of new liability regulations could play a role in restoring economic viability
in the short-term, we remain of the opinion that a more comprehensive plan of investment
in the country’s grid will be key for the successful integration of offshore
wind power into the mix.
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Plans
to develop Iran’s nuclear capacity are central to the country’s power industry
and its ability to meet its energy requirements. Given huge international
resistance, there is no certainty of continuing nuclear availability, let alone
additional reactors. Efforts to halt the nuclear programme will persist and
sanctions will make it hard to maintain a high level of investment. Iran would
benefit from more rapid development of its renewables potential as a means of
reducing oil and gas dependency. Conventional thermal sources are expected to
remain the dominant fuel for electricity generation, with many of the power
projects that are currently under construction due to use gas. Expansion of
Iran’s nuclear capacity is planned, but external political resistance means it
is far from certain whether further reactors will be built. Talks continue with
the aim of ending the stalemate but, at the time of writing, no breakthrough
was imminent.
Key trends and recent developments
in the Iranian
electricity market include:
- Majid
Salehi, the managing director of Iran Power Development Company, has revealed that
around 23 new power plants will begin production by the end of the government’s
tenure in the next Iranian year, starting March 2013. Investment of
approximately IRR50trn will be required for the projects, which will be
developed as part of the energy ministry’s Mehr Mandegar programme. The 648MW
Kermanshah Power Plant will be the first to start production, while the
gas-fired units of the Zanjan, Semnan and Shahround power plants should become
operational in the coming months. The ministry has granted permits for the private
sector construction of renewable energy power plants, with a combined
production capacity of 12 gigawatts (GW), according to Iran Renewable Energy
Organisation’s Managing Director, Yousef Armodeli.
- In late
May 2012, Iran’s government terminated a contract that was awarded to China for
the construction of the Bakhtiari hydropower plant in the south west of the
country, according to Energy Minister Majid Namjou. China’s proposed US$2bn
financial package for the 1,500 megawatt (MW) plant was rejected by the Iranian
Central Bank, with the project now being awarded to the Iranian Revolutionary
Guard Corps’ engineering arm, Khatam al-Anbiya. The cancellation of the
contract could have an adverse impact on the economic
relationship between China and Iran.
relationship between China and Iran.
- During the period 2012-2021, Iran’s overall power generation is expected to increase by an annual average of 2.47%, to 275.9 terawatt hours (TWh). Driving this growth is the build-up of output from the country’s first nuclear power facility, which was connected to the grid in 2012 and should be generating power on a commercial scale before the end of 2012. Nonhydro renewables are expected to deliver average annual supply growth of 4.43%.
- With
Iran’s 2012 real GDP expected to have decreased by 1.2%, BMI forecasts average annual
growth of 2.4% between 2012 and 2021. The population is expected to rise from
the current level of 75.6mn to 81.5mn during the period to 2021, and net power
consumption looks set to increase from 176.6TWh to 228.7TWh by 2021. During the
period 2012-2021, the average annual growth rate for electricity demand is
forecast at 2.60%.
- Thanks
partly to the projected rise in net generation, growth of which falls somewhat
short of the underlying demand trend, Iran’s power supply surplus is likely to
stagnate over the medium term, although the country is keen to develop its
power export capability. A decline in the percentage of transmission and
distribution (T&D) losses from an estimated 17.3% to 16.3% will help
balance the market. The estimated net export capability in 2021 is put at 3.2TWh.
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Kuwait is likely to
remain dependent almost exclusively on oil and gas for its energy needs for the
foreseeable future. Following the 2011 Fukushima tragedy in Japan, nuclear
energy has largely dropped out of usage, while renewable energy remains only a
very minor segment of the country’s energy mix. Much of the planned new
generating capacity is gas-fired, with oil often used as a back-up fuel. The aim
is to make more of the country’s oil available for export, even if this leads
to a growing reliance on imported gas. Hints at a major renewables programme
have yet to convince industry insiders. Low power costs mean that project
economics are unlikely to attract foreign investors, so Kuwait looks set to go
it alone in meeting growing power demand.
Conventional thermal sources are
likely to remain the dominant fuel for electricity generation in the coming
years. Following the Fukushima tragedy in 2011, Kuwait has ordered the National
Nuclear Energy Committee to be dissolved and has officially announced that it
will abandon the pursuit of civil nuclear power. However, the country is nevertheless
aiming to reduce its domestic oil consumption in an effort to free up
additional barrels for export, with many power projects that are planned or
under construction due to use gas. The electricity and water ministry wishes to
more than double generating and desalination capacity by 2017 and an estimated
US$2.5bn is expected to be invested over the medium term to cater for the
projected power demand until 2015. Renewables could become part of the
solution, particularly given the vast solar potential of the desert state,
though there has been minimal progress made thus far.
Key developments for Kuwait
electricity market:
- Kuwait is aiming to generate 10%
of its electricity from sustainable sources by 2020, according to Eyad Ali
al-Falah, assistant undersecretary for technical services at the Ministry of
Electricity and Water. To meet its clean energy target, which is among the most
ambitious in the region, Kuwait next must gather data on hours of sunshine and
wind speeds.
- Over the 2012-2021 period, Kuwait’s power generation is expected to increase by an annual average of 4.1%, reaching 74.6 terrawatt hours (TWh). Gains in gas and oil-fired electricity are set to drive this growth, with other sources of energy unlikely to feature heavily over the medium term.
- Following an estimated 5.7%
increase in 2011 real GDP, BMI forecasts average annual growth of 3.4% between
2012 and 2021. The population is expected to rise from 2.89mn in 2012 to 3.45mn
by 2021, with net power consumption to increase from 46.1TWh to 65.3TWh over
the same period.
- Thanks partly to the forecast rise
in net generation, the forecast growth of which slightly outpaces the
underlying demand trend, Kuwait could end up with a shrinking longer-term power
supply shortfall. A gradual decline in the percentage of transmission and
distribution (T&D) losses from an estimated 13.2% in 2011 to 12.5% in 2021
should help balance the market.
- The construction of new power
projects in Kuwait has been beset by persistent delays, largely owing to a
highly inefficient political process. In May 2010, for instance, the government
approved a 1.5GW (gigawatts) power project at al-Zour that would be the first
in Kuwait to involve private-sector investment. However, delays during the
tendering process – caused in the main by political gridlock in parliament –
have seen the project fall significantly behind schedule, and it is unclear
when construction will be completed.
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