New Global Energy Trends

Paris, 25 Mai 2011

New Global Energy TrendsColette Lewiner Energy& Utilities Global leader

Capgemini

| Energy, Utilities & Chemicals Global Sector

2

Agenda

� Recent Energy trends• Oil

• Nuclear

• Gas

• Renewables

� Energy Mix Evolution Consequences• Security of supply

• Prices

• CO2 emissions

• Consumers behaviours changes

• Smart grids

� Conclusions


Primary factors driving demand are economic growth and increased requirements in the Developing world.

Global demand for oil is increasing again


Reserve replacement and dominant control of resources by

the National Oil Companies are the two main issues

� Projected production capacity decline: projected new production capacity to address current decline rates alone will be 45 to 50 MBPD (million barrels /day) by 2030 • more than twice the current Middle East

production• ~ >half today’s global production will have to

be replaced� About 80% of the projected increase in oil

output to 2030 is to come from the National Oil Companies

� Middle East remains Critical

EUC Global Sector Kick-Off Meeting 2009 4

The Middle East and Africa account for about 2/3’s of Global Reserves

Saudi, Iran, Iraq, Libya, Yemen, Algeria, Sudan, Om an … political upheaval may place significant global reserves at r isk


Oil Supply New Frontiers have

their own challenges

� Deep water: Macondo BP accident … challenges to deepwater developments • US consumes < 25% of the world’s oil with 5% of the population, it

produces only about 20% of its requirements ~ 5MBPD

• 30% comes from the GOM alone and most of the new supply and the largest potential finds are to come from its deepwater field; slowed development could create a steep decline … 0.5 to 1MBPD in just a few years

� Canada oil sands• From a supply and geopolitical risk perspective the oil sands hold

tremendous potential with 178 billion barrels of proven oil reserves, slightly less than Saudi Arabia;

• While there is no chance of either a blowout or deepwater spill in oil sands, these developments have their own economic, operational and environmental challenges in addition to mounting political and social activist pressures.

5

Heightened Regulatory Challenges, social unrest in key regions and increasingly Environmental Concerns are key issues


Fukushima accident first safety lessons learned

Global warming could trigger more frequent exceptional events � Need to design plant infrastructures for

really exceptional earthquakes and tsunamis

� Simultaneous Natural Catastrophes have to be taken into account

� Spent fuel pools containment building� Spent fuel management policy to be

rethought� Emergency measures to be revisited� Cooling systems redundancy to be re-

assessed � Radiological permanent assessment on

the site and around� Crisis communication to be re-designed

6

Regulators have defined “nuclear safety tests” for ex isting plants.Will a global safety body be created?

� Exceptional circumstances: 9.0-magnitude undersea earthquake off the coast of Japan on March 11, 2011 triggering a tsunami that travelled up to 10 km inland.

� Fukushima nuclear plant: with 6 boiling water reactors (BWR) maintained by TEPCO has been hit by the earthquake and tsunami:� Reactors 4, 5 and 6 were shut down prior to the

earthquake for maintenance. � Remaining reactors shut down automatically after

the earthquake. Grid electricity supply for cooling purposes collapsed and then the tsunami flooded the plant , knocking out emergency generators.

� 20km radius evacuation around the plant from March 12

� Highest rating (level 7) on the International Nuclear Event Scale. Second level 7 rating in history, following Chernobyl

The accident First safety lesson learned


Existing plants: inspections and additional investments

� In Japan, nuclear operators have announced immediate measures being taken as protection against the possibility of their facilities being struck by a tsunami among which:• Ensuring emergency power sources (e.g.

using vehicle-mounted power generator).• Diversifying and securing cooling function• Build higher seawalls

� Restart of reactors stopped for maintenance are also postponed

� Germany announced the closure of its 7 oldest plants for 3 months. This temporary shutdown led to a spot wholesale electricity price increase

� Additional CAPEX and OPEX will push nuclear electricity costs up. By how much? However nuclear energy should remain competitive

7

52 3 2

4 52

63

64 4 3

64 5

96

4

101114

2124

2118

2219

7

131416

11

22

14

1012

57

1 1

3332

0

5

10

15

20

25

30

35

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43

Reactor Age (in years)

Num

ber

of U

nits

Distribution of reactors under operations by age

Older plants will be especially scrutinized.

According to Eurelectric, if all nuclear plants older than 30 years would be closed in Europe, the EU 27 would lose 14% of its generation capacity.


Nuclear new build:

Some programs will be cancelled other delayed

8

� Worldwide, 439 reactors are in operation , 62 under construction and 484 planned or proposed(April 2011, World Nuclear Association)

Source: World Nuclear Association

The IEA cut by half their November 2010 projection of additional 360GW of new nuclear generating capacity by 2035.

Overview of existing nuclear plants and project cap acities (as of February 2011)


IE

CH

SE

DK

NO

FI

EE

LT

LV

PL

SK

ROSI

UK

PTES

IT

GR

FR

BE

HU

DE

AT

BG

CZLU

NL

BE: Agreement in Oct. 2009: 10 year life extension of the 3 oldest nuclear power reactors to 2025 to guard against energy shortages. In 2008, government installed a nuclear producer tax of 250M€ per year till end of lifetime. Additional proposed taxes following life extension, have not passed as a law due to the political crisis in Belgium.

CZ: CEZ started in 2009 its project to extendDukovany plant lifetime by10 years to 40 years. Further extension to 50 years under consideration.

FI: Fortum: 20 year lifetime extension of original 30 years decided in mid 2007 for 2 units at Loviisa. Operating since 1977 and 1981 they will run until 2027 and 2030, subject to safety evaluations in 2015 and 2023.TVO: Lif tetime xtension to 60 years of the two Olkiluotoreactors operating since 1979 and 1982; subject to safety evaluations every 10 years. Closure in 2039 and 2042.

FR: In July 2009 the Nuclear Safety Authority (ASN) approved EDF's safety case for 40 year operation of the 34 existing 900 MWeunits. Each unit is subject to inspection during their 30-year outage. The first, Tricastin-1, got 10-year extension to 2020.

HU: In 2005, 20 year lifetime extension for the 4 reactors of Paks nuclear plant, operating since 1982-87. Reactors to run until 2032-2037.

NL: Only plant to be shut in 2034 after a conditional extension in 2006.

SK: Upgrade program on Bohunice units 3 & 4, operating since 1984 & 1985 is under way with a 40-year lifetime extension in view (to 2025).

ES: Government granted a 4 year life extension for the Santa Maria de Garona plant to 2013. Almarez 1&2 and Vandellos 2 granted 10 year extension. In February 2011, Spain’s Congress ratified a law allowing the 8 operating nuclear units to run for longer than 40 years

SE: Life extension and uprating for Oskarshamn 3 to 60 years approved in 2010 and expected to be completed in 2013. Planned life extension to 60 years of Oscarshamn 2.

CR

SI/CR: Slovenia shares the NPP Krško 696 MW reactor with Croatia; connected to the network in 1981 and designed to run for 40 years. In 2009, NPP Krško submitted an application for lifetime extension of 20 years (to 2043).

UK: Last 4 operating Magnox reactors to be shut down by end 2012, af ter life extension s of 9 months to 2 years.5 year lifetime extension of the Advanced Gas Reactors (AGR) Heysham 1 and Hartlepool until 2019. Plant Lifetime Extension (PLEX) program could enable extended lifetimes for all UK’s AGR plants by 5 years and Sizewell B by 20 years.

DE: End 2010, government agreed to a two-tier lifetime extension of the German nuclear plants. 17 nuclear reactors to run 8-14 years longer than the 2020 deadline set by a prior government: Lifetime extension of nuclear units built before 1980 by 8 years to 40 years and of newer units by 14 years to 46 years. Operators to pay a “fuel-element tax” totaling €2.3 bn/year for 6 years and a “eco-tax” of about €15bn.

Life time extensions will be scrutinized

9

Overview of the nuclear plants lifetime extension i n Europe before the accident

So

urc

e: W

orl

d N

ucl

ear A

sso

ciat

ion

, Cap

gem

ini R

esea

rch

Germany decided to suspend 2010 lifetime extension decision.


Political declarations

Emerging nuclear countries that have the most advanced programs:

South America:� Chile� UruguayAfrica & Middle East:� Egypt� Jordan� Kuwait� Morocco� Nigeria� Saudi Arabia� Tunisia� Turkey� United Arab

EmiratesEurope:� Belarus� Italy� PolandAsia� Bangladesh� Indonesia� Thailand� Vietnam

China: 27

Number of reactors under construction

Russia: 10

India: 5

South Korea: 5

Slovakia: 2

Taiwan: 2

Canada: 2

Japan: 2

Iran: 1

Argentina: 1

Brazil: 1

Pakistan: 1

Finland: 1

France: 1

USA: 1

10

Plant provisional closure:

Germany (7 oldest reactors)

New projects delayed or stopped:China (assessment);Taiwan assessment, Italy (stopped); Japan (review plans for new projects); Switzerland (moratorium); UK (delayed)

Safety inspections of existing plants:

All countries

Image S

ource: Le Figaro; IA

EA


Fukushima is triggering a debate on present and future

Energy Mix� Media and some anti-nuclear groups are asking for a

nuclear phase out. Before asking ourselves if it is feasible, one needs to ask if it is desirable . An immediate nuclear phase out is not possible while keeping the lights on.

� A long term phase out is possible but needs to be assessed against the following criteria:

• Sustained development: global warming and greenhouse gas emissions decrease

• Security of supply• Electricity generation costs

11

World electricity generation by type (New Policies Scenario)

Source: IEA: World Energy Outlook 2010

Results of nuclear opinion survey in France (March 2011)

Source: L’express, SIA, Opinion Way, Published April 2011


12

Unconventional gas has had a spectacular development in the US

• Unconventional gas accounts for 4% of the world total of proven gas reserves and for 12% of global production (2008).

• The US account for 3/4 of global unconventional output , increasing production 4 fold since 1990 (300 bcm in 2008).

• 12% of global production (2008).• The US account for 3/4 of global unconventional out put, increasing production 4 fold since 1990

(300 bcm in 2008).

• Unconventional gas accounts for 4% of the world total of proven gas reserves and for 12% of global production (2008).

• The US account for 3/4 of global unconventional output , increasing production 4 fold since 1990 (300 bcm in 2008).

• 12% of global production (2008).• The US account for 3/4 of global unconventional out put, increasing production 4 fold since 1990

(300 bcm in 2008). Global unconventional natural gas resources in plac e (tcm)

IEA World Energy Outlook 2009

Gas long term perspective has changed as IEA estima tes now the total gas reserves to 250 years.

• The latest IEA report increases significantly the European

unconventional gases reserves, •In France, reserves are estimated at

5 000 Gm (around 100 years of consumption). They are equally situated in two basins (North and

South-East)• German reserves would amount to 20

times less and British reserves to 9 times less

•Only Poland would have equivalent reserves to France.

•It would be regrettable if French opposition to shale gas prevents its

exploitation


Gas will increase its market share

� Success in unconventional gas production at cheap cost has allowed the US to become nearly self sufficient

� New gas liquefaction trains have been commissioned in 2009 and 2010

� These factors combined with the economic crisis, have created a gas bubble and lowered gas prices

� The EU gas market is oversupplied and has an overhang between 10-30 billion cubic meters (bcm) to make up over the next few years

� However• Fukushima accident will deprive Japan of at

least 9.7 GW of nuclear capacity• This capacity should be replaced by gas fired

plants. Gas would be imported by pipelines from Russia notably but also be provided through LNG

• The range of additional LNG consumption from Japan is 5.4 bcm/y to 11.7 bcm/y.

• This new Japanese demand added to the consequences of the 7 German nuclear plants closure should accelerate the EU market re-balance

13

40% nuclear generation decrease leads to around 5% gas demand

increase.Gas should increase its market share

on the short and long term.

Incremental Global Gas Demand in 2020 from Lower Nuclear Power Generation


14

Will renewables increase their long term market share?

� The RES growth is still behind what is needed to reach the 20% target in 2020

� Due to governments’ austerity plans, subsidies to renewable energies are being cut

� The 2020 EU target will be difficult to meet� China is the biggest investor; in 2010 it spent

30% more than in 2009

EU Renewable energy objective

Source: Eurostat, EEA, BP statistical report of world energy 2009, European Commission – Capgemini estimation, EEMO12

Will governments be able to reverse the trend and increase again their

subsidies to renewables?

Investors ranking in 2009 (in $bn)


15

Agenda


• Nuclear

• Gas

• Renewables


• Prices

• CO2 emissions


• Smart grids

� Conclusions


Security of supply could deteriorate

It is risky to rely too much on imported Oil and Gas:

� Arab spring: limiting oil exportations

� Russia gas dependency: in 2030, Russian gas should provide 50% of EU gas demand

16

Gas imports through pipelines and pipelines projects (2009)

UK12 bcm

(i.e. 131 TWh)

NO96 bcm

(i.e. 1,034 TWh)

DK

LIBYA9 bcm (i.e. 99 TWh)

FR

PTES

GR

IT

RO

BG

PL

SK

CZ

AT HU

SI

DE

LU

CH

FI

EE

LT

LVIE

BENL

50 bcm(i.e. 536 TWh)

RUSSIA115 bcm

(i.e. 1,245 TWh)

Nabucco

Southstream

Nor

dstr

eam

Whitestream

MedgazGALSI

Baltic pipe

Skanled

SE

TAP

Gr e

enst

ream

TGI

Transmed

BBL

ALGERIA30 bcm

(i.e. 324 TWh)

NL

Source: Eurogas, BP statistical review of world energy 2010 , companies web sites, GIE gte – Capgemini analysis, EEMO12

Main exporting countries

Total amount of gas exported

Major gas flows

Projects of pipelines capacity increase

99 TWh

Projects of pipelines capacity increase

Projects of new pipelines (planned or under construction)

Built segments of pipelines under construction

Main countries of destination for new pipelines

Interconnection projects financially supported by the European Energy Recovery Plan (EERP)

GALSI

Source: The West.com.au


Electricity generation costs

Estimated costs of electricity in France:• Nuclear: 45 €/MWh

• Gas fired plants: 50 to 60 €/MWh (with today relatively low gas prices)

• Hydropower: >50 €/MWh but highly dependent on sites and construction conditions

• On-shore wind: 80 to 90 €/MWh

• Off-shore wind 150 to 200 €/MWh (including grid connection)

• Biomass: 130€/MWh but very variable according to production conditions.

• Photovoltaic solar electricity from 300 €/MWh (farms) to 600 €/MWh (home roofs)

17

Regional ranges of levelised costs of electricity f or nuclear, coal, gas and onshore wind power plants

• Assumption: carbon price of USD 30/tCO2• Cost of CC(S) is still in the development stage (IEA study does not consider

costs of transporting and storing the sequestered carbon in final deposits)

5% Discount Rate

Source: IEA: Projected Costs of Generating Electricity, 2010 Edition

Nuclear cost should increase after Fukushima accident as safety inspections will result in more

investments and in plants availability decrease


Consumption and CO2 emission evolutions

� In 2009, during the crisis, energy consumption and GHG emissions dropped

� In 2010 ETS sectors emissions projected to increase by 3,6% compared to 2009 (Deutsche Bank). Despite this increase the objective could be met.• However ETS markets are not predictable enough to

stimulate long term CO2 free generation investments. This is why UK decided to set a carbon price floor . Starting in 2013 at £16 per ton, the tax-inclusive carbon price in 2030 will be at £70 per ton

� Energy savings objective will be difficult to meet. This is why EU Commission adopted the EnergyEfficiency Plan 2011 : • Focused on instruments to trigger renovation in buildings, to

improve energy performance of the appliances and to foster energy efficiency

• For now only a strategy paper. Legislative proposals with concrete binding measures to follow.

• Germany’s ETS emissions to strongly increase if their reactors are shutdown according to the Deutsche Bank: • If 7 oldest reactors permanently shut down while 10 others

continue; Germany’s ETS emissions over 2011-20 would increase by 250Mt relative to the current forecasts.

• If 7 oldest shut down and other 10 closed in line with the 2002 legislation, ETS emissions to increase by 370Mt.

18

Primary Energy Consumption

EU Greenhouse gases emissions objective

Sou

rce:

Eur

osta

t, E

EA

, B

P s

tatis

tical

rep

ort o

f w

orld

ene

rgy

2009

, E

urop

ean

Com

mis

sion

–C

apge

min

i es

timat

ion,

EE

MO

12

EU Energy efficiency objective

Phasing out nuclear would have a dramatic effect on CO2 emissions increase


Safer Nuclear Energy development is still important to meet

the future sustainability challenges

Worldwide challenges:� Tight global energy demand and supply balance� Long term global energy security of supply� Climate Change issues calling for carbon free energy sources

19

Safer nuclear with hydropower are the only carbon-f ree schedulable energy source able to produce large volume of electricity

World energy-related CO2 emissions abatement

Source: IEA, World Energy Outlook 2009


20

Renewable Energies impact on the Grid

Wind farms: dealing with variability is tough� Existing systems cannot predict what the output of wind power will be 24 to 48 h in advance.

� New systems have to be installed to support this kind of forecasting� Forecasting this output is critical, as it determines when to trigger dams or fossil plants to support days

� The grid operator has to be ready to react to changes in power output on a very short timelineTo date there are no good answers for massive stora ge

These problems are

the root cause of the 2007 blackout in

Germany and North of France

Source: Eur’Observer barometers – Capgemini analysis, EEMO12

Growth rate of renewable energy sources (2008 for Waste, hydro and Biomass and 2009 for Wind and Solar PV)


Wind Power: the Spanish Example

August 27, 2009 November 8, 2009

Source: Enagas, Outlook for LNG

More flexible consumption patterns (i.e. demand res ponse) would allow customers to take advantage of low costs gene rated by wind

power sudden increase


22

Smart grid features

� A grid with more intelligence has to be designed in order to be able to• Manage a larger proportion of renewable unpredictable energies

• Evolutions of customers behaviors (demand response, local generation)

• Electricity consumption increase (in certain cases)

• Aging infrastructures while it is very difficult to build new ones.

• Deliver better electricity quality (less harmonics, less micro-cuts..)

� The future grid should be able to produce faster fault location and power restoration, hence lesser outage time and manage many small power generation sources.

� The system network architecture will need to change to incorporate multi-way power flows, and will be much more intelligent than a series of radial lines that just open and close.

� The future data volumes will require large data communications bandwidth and communication network technology

The key is to build a vision and architecture that allows Utilities to leverage today’s investment while maintaining flexibility as technology advances.


5/27/2011 23

Uncertainty created by the value chain unbundling lead to an uncertain ROI. This explains the slow adoption in Europe.Country by country situation:• Italy and Sweden are

leading the adoption of smart meters in Europe with full installation in 2009.

• Large experiment in France (300,000 meters) launched in 2008. After return of experience, compulsory deployment of smart meters for 95% of citizens by 2016.

• New legislation is expected in Netherlands, Ireland and Norway

• The UK government decided to introduce similar requirements, but financing is unclear presently

Total expenditure on smart metering will reach €2.8 billion by 2014.

Europe: 80% of the population should benefit from smart

metering by 2020

Source: ESMA, GEODE - Capgemini analysis, EEMO12

Electricity

Gas


Smart Grid Investments

24

Network Device andEvents Ops Management

Back Office Applications

Enhanced Power GridDigital Communications and Control

Smart Meters &Building AutomationControl

Interface

CommunicationTechnologies

Renewables

Advanced Metering

Plug-InHybrids

Smart grid investments• Worldwide : from 2008-2015:

200bn$ (53bn$ in the US). (Pike Research source).

• US stimulus grants: 3.4bn$

• Europe : 1bn€ EU funds

ICT (Information and Communication Technologies) systems : Cisco sees15-20 bn$ investment opportunities to link smart grids with ICT systems over the next 7 years

John Chamber, Cisco CEO, says that it might be bigger than internet.

However it’s not going to happen overnight. A lot o f regulatory and standardisation issues have to be worked out


25

Key success factors (1)

• Smart grids implementation will necessitate new investments: • The transmission and distribution tariffs will have to increase and by

consequence the electricity prices. • Regulators, governments and customers will have to accept these prices

increases.

• Industrial R&D is needed to develop new equipments (as large competitive storage) or improve existing ones (as HVDC connections).

• Communication standards are crucial:• US is mobilized at the government (Department of Energy) and equipment

manufactures levels• Europe is catching up• Equipments conceived with the internationally adopted standards will have a

clear advantage


Key success factors (2)

• Efforts on simulation and modelling are needed: • For the transmission grid there is a need to build a new European

High Voltage grid management model.

• On the distribution side , the retail market has to evolve and modelling is needed. Interesting experiences initiated by regulators and involving all stakeholders (Utilities, equipment manufacturers, IT service companies, local authorities..) have been launched in Victoria (Australia), Texas (USA) and France.

• Next steps for Utilities: • Establish their vision on the technical, economical and management

future models as smart grid implementation will change drastically their management mode.

• Launch prototypes with part of the financing coming from the EU or Member States.

26


27

Agenda


• Nuclear

• Gas

• Renewables


• Prices

• CO2 emissions


• Smart grids

� Conclusions


Conclusion

� This last year’ events are putting once more Energy questions in the spot light

• Energy consumption growth after the economic and financial 2009 crisis

• BP accident in Gulf of Mexico highlighting the deepwater production difficulties and strengthening regulations

• Nuclear Fukushima plant accident stalling the nuclear « renaissance »

• Middle East and Arab countries political instability

� They will probably lead to :• Higher oil costs (and prices)

• Decreased security of supply

• Higher electricity prices as Utilities will have to invest in nuclear existing plants, use more costly energies (notably renewables) and invest in their grids

• More Green Houses Gases emissions

28

• Customers should change their behavior and increase their energy savings focus

Energy Orb » (PG&E) gives visual indications to clients involved in energy demand

management programs

New Global Energy Trends

Business

chemicals

germanys ets

unconventional

national oil

global unconventional

proven gas

world nuclear

key success