Developments in the energy market
Eneco identifies different trends that support our vision on the development of the energy market. That vision is that, over time, the market is developing from centralised production of energy from fossil fuels via a combination with decentralised sustainable energy to fully decentralised sustainable energy production.
Changing the global balance of power
As a result of the rise of fast-growing economies, the role of the eight leading industrial countries, the G8, has, in fact, been taken over by the G20, comprising the 19 most powerful countries plus the European Union. The differences between the interests of the traditional countries and emerging economies are often substantial. This will continue to be the case in the coming years. Consequently, a global approach to the climate problem is becoming increasingly unlikely. If the current trend with regard to energy consumption and the increase of the CO2 content in the atmosphere continues, the world cannot avoid climate change as the average temperature will reach dangerous heights. This will result in an increase in natural disasters. Since this development is not acceptable for many people, climate policy will tend to be local rather than global in nature and the business community will play a larger role.
The growth rate of emerging economies is faster and more stable than the growth rate in the developed economies. The increasing demand in emerging markets for energy and resources, such as natural gas, directly affects the European energy market. The competition for resources is increasing. In addition, investors from emerging economies will show increasing interest in the activities in the field of gas storage or sustainable energy production of companies such as Eneco.
Increasing individualisation and new connectedness
A stronger need for autonomy among customers and declining confidence in traditional systems stimulate the growth of decentralised energy generation. We notice the emerging of cooperative arrangements between end users focussing on joint purchasing, energy efficiency and increasing the sustainability of energy. Supported by new means of communication, new social connections are developing, both locally and internationally. The influence of social media is omnipresent and growing. Customers share their opinions via Twitter and Facebook directly and with everyone and find endorsement or a reply almost instantaneously. Eneco responds to this development and is also using these channels to spread news and offer customers the possibility to contact the company, which results in a continuous dialogue. We support and have developed a directive for the use of social media by employees.
More uncertainty and greater risk awareness
The current price of CO2 emission rights is only a fraction of what it was expected to be a few years ago. Reasons for this include the economic crisis and flaws in the European emissions trading scheme. The current carbon pricing in combination with the high gas price results in lower returns on, for example, gas-fired energy plants. The level of investment in new sustainable production or cleaner gas plants is too low. This is due to the uncertainty with regard to the price of emission rights in the long term. In addition, the economic crisis has led to a growing awareness among risk capital providers who are now less willing to provide money and charge higher risk premiums. As a result, no investments are made. Moreover, there are the effects of climate change, which also leads to greater uncertainty, increased risk awareness, fluctuations in energy prices and in the demand for and supply of energy.
The ongoing economic crisis and the uncertainty in connection with the political solution for this crisis in Europe have led to economic instability in several European countries. Austerity measures that also affect the support for sustainable energy are taken in rapid succession; the current uncertainty about the future support mechanism in the Netherlands is an example of this.
Market integration North-West Europe with focus on national interests
The physical interconnection of the networks and the linking of trading markets result in the further integration of both the electricity and gas markets in North-West Europe. This will bring prices closer together. At the same time, national authorities try to safeguard the security of supply at a national level and to support the development of sustainable energy. This focus on national interests can disrupt surrounding markets, resulting in a growing need for European harmonisation.
The cost of solar panels continues to drop and the electricity price is becoming more volatile but, on average, the price of electricity is declining due to a larger share of sustainable capacity. Local initiatives are playing an increasingly important role and electric transport is growing rapidly. Compared to 2011, the number of all-electric cars in Netherlands almost doubled to approximately 2,000 vehicles (2011: 1,124 according to a publication of NL Agency, a division of the Dutch Ministry of Economic Affairs). In another publication, the Dutch government indicates that this number is expected to increase to 200,000 by 2020. Furthermore, energy saving is a serious agenda item since the adoption of the EU Energy Efficiency Directive in 2012. In combination with the Dutch standards for the energy efficiency of buildings (energy performance coefficient), this will make electricity increasingly important for the operation of heat pumps and pumps in solar water heaters used for the heating of existing homes and new housing developments. As a result, the demand for electricity and the number of connections will increase, while the demand for gas and the number of connections to the gas network will decrease.
Transition in phases
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The energy market is developing in three stages: from centralised energy production from fossil fuels to fully decentralised sustainable energy production.
- The current energy supply is characterized by large-scale fossil fuel (coal and gas) and nuclear power plants. From a single point and in one direction, electricity is sent over the network to the consumers.
The disadvantages are: substantial grid losses, limited re-use of residual heat and high CO2 emissions. Customers have few options other than the possibility to switch to another supplier. Eneco is convinced that, over time, this energy landscape will change drastically.
- In the next phase, there will be a transition in which (large-scale) renewable energy and gas will be playing an increasingly important role, in addition to the existing coal and nuclear power plants.
- Eventually, society will move to a smaller-scale sustainable energy landscape. We refer to this as "SDT": Sustainable, Decentralised, Together.
- Sustainable: wind turbines, solar panels, heating/cooling, geothermal energy, bio-fermentation and green gas.
- Decentralised: these installations are located close to customers and are owned by customers.
- Together: at and with the customer. From one-way to two-way traffic: smart grids and ICT solutions that link supply and demand and take advantage of price fluctuations. Partnerships between producers and suppliers will develop.