Backing up the green transition

Europe has ambitious plans to become net zero by 2050. This will not only require a massive roll out of wind and solar energy, but also flexible capacity for those dark, cold, and windless winter days. Listen to a discussion on the need to speed up permitting, cannibalisation and why large nuclear and coal fired plants are not a good match for renewable energy. 

Host: Richard Sverrisson, Editor-in-Chief, Montel
Guest: Anja Frada, Chief Operating Officer, Wärtsilä Energy

Transcript

Richard Sverrisson, Editor-in-Chief, Montel: 0:07

Hello listeners and welcome to the Montel Weekly podcast, bring You Energy Matters in an informal setting. In today's pod, we discuss the energy transition and meeting Europe's net zero targets. Are we on track to hit those objectives? Is the current market design the correct framework to get us there and enable the integration of wind and solar into the grid? The key components of green in the continent's energy system is providing backup power when the wind doesn't blow or when the sun doesn't shine on a cold winter's night. Something. The Germans have an expression called Dunkelflaute. I'm Richard Sverrisson and helping me discuss these issues and much more is Anja Frada of Wärtsilä Energy. A warm welcome and I hope you're well. Anja

Anja Frada, Chief Operating Officer, Wärtsilä Energy: 0:50

thank you.

Richard Sverrisson, Editor-in-Chief, Montel: 0:50

Yeah. Where are you based, Anja?

Anja Frada, Chief Operating Officer, Wärtsilä Energy: 0:51

I'm based in Helsinki, Finland.

Richard Sverrisson, Editor-in-Chief, Montel: 0:53

Okay. There, you just had a new nuclear plant go online there after many years of delays. How does that feel?

Anja Frada, Chief Operating Officer, Wärtsilä Energy: 0:58

I think it's good to have it finally online. As you said it, we have been waiting for it for quite some time.

Richard Sverrisson, Editor-in-Chief, Montel: 1:04

Absolutely. It's been a few years delayed, shall we say, and certainly certainly many cost overruns as well. But we're not here to talk about nuclear or Finland, really. Anja we're talking about into the integration of renewables into the grid and meet meeting Europe's net zero targets. What, what in your view, is needed to further accelerate the integration of wind and solar in into Europe's energy systems?

Anja Frada, Chief Operating Officer, Wärtsilä Energy: 1:28

At the moment, I think we have ambitious decarbonization targets in in Europe, which is a good thing. I think the main issue, what we see is especially on the renewables deployment I think the bigger biggest bottleneck we have is actually on the permitting side. And I think this is now an issue also that is being acknowledged and also steps are being taken in the right direction. But just as an example we have about 18 gigawatts of renewables that are being stuck in permitting process at the moment. And so there is clearly a need to accelerate the permitting and also get the renewables deployed.

Richard Sverrisson, Editor-in-Chief, Montel: 2:08

That's obviously, this is often mentioned when I talk to people certainly in Southern Europe. But is this also a case? Is this a widespread phenomenon across Europe? Is it also the case in, in, in the Nordics for example, Anja?

Anja Frada, Chief Operating Officer, Wärtsilä Energy: 2:20

I think we are seeing a, a. Like we are seeing, of course, that renewables are being deployed at speed. So I think this is really being driven by the fact that renewables is the most economic way to produce electricity. So I think we are clearly going in the right direction, but I think the speed is not enough. So for example, last year we had about 16 gigawatt of new wind coming online. But actually on average we would need to have more than 30 gigawatts per year. So we are halfway. On where we actually should be in terms of speed.

Richard Sverrisson, Editor-in-Chief, Montel: 2:51

I think it's clear that permitting needs to be speeded up. But isn't that easier said than done? How do you go about doing that in in, in practice?

Anja Frada, Chief Operating Officer, Wärtsilä Energy: 3:01

I think now the EUS said has taken some actions. So there is a revised renewable directive that should also speed up the process and make it simpler. But I think okay, one of the really one, one of the sort of issues with the renewables has been for quite some time already that it's people don't want to have it in their own backyard. So I think that's still probably gonna be an issue. But on the other hand, I think we need to see the importance of having the renewables deployed and also driving it through in. On a local level, on and on country level as well as on eu.

Richard Sverrisson, Editor-in-Chief, Montel: 3:35

Dealing with the nimbyism, how do you go about that? It's do you, is it more through education, through public awareness? How do you, how can you combat that?

Anja Frada, Chief Operating Officer, Wärtsilä Energy: 3:44

I think of course we are all in the same boat we all need to make we all need to decarbonize and we need to achieve a net zero future. From that point of view, I think we can all play our own role in, in this one.

Richard Sverrisson, Editor-in-Chief, Montel: 3:57

I mean it's, we had the instance here in Norway, which was also quite illuminating, I think and was certainly frustrating for many on both sides of the fence. But when you had a wind park here in, in in mid Norway up near Trondheim the force and wind park being the controversy. Controversy around that and the saami reindeer herders. And they, and then you have Greta Tomberg flying into Oslo to join the protestors. It's it's it's an issue certainly, isn't it. In terms of rolling out the renewables.

Anja Frada, Chief Operating Officer, Wärtsilä Energy: 4:25

I think also we see an increasing amount of offshore wind. So of course that also should. Should help the issue in in, in, in a sense. But I said I think we need to look at this as we need to find solutions to, to come over the issue and so that we can all. Enjoy renewable renewable electricity.

Richard Sverrisson, Editor-in-Chief, Montel: 4:44

Absolutely. And you mentioned the So solutions and you also mentioned the renewable energy directive coming from the European Commission. Last month the European Commission published, its. Market design proposals. What was your reaction to, to that, to those Anja?

Anja Frada, Chief Operating Officer, Wärtsilä Energy: 4:58

I, we have of course also been heavily in involved in the work and followed up what is happening. Of course, renewable is clearly clearly a must. I think where we see still some room for improvement is on the flexibility side. So I think the EU electricity market reform has focused quite a lot on on demand side management and storage in terms of flexibility. But it overlooks the fact that we also need to have firm flexible capacity. So I think this is the flexibility will be really, will play a really key role in, in our future energy systems. So it's not enough to only have the renewables. We really need to ensure that we have the flexibility. And the flexibility both as a combination of short term flexibility, but also the longer duration one.

Richard Sverrisson, Editor-in-Chief, Montel: 5:47

So could you be more specific then? What type of flexibility is required here? This is the backup. This is the, when I said in the introduction for the cold winters day where there's very little wind what kind of. Flexibility would be optimum in those kind of situations.

Anja Frada, Chief Operating Officer, Wärtsilä Energy: 6:04

So as I said I think now the directive is more focusing on the short term flexibility, and that's mainly the energy storage. So I think energy storage is of course a really needed component in our energy system. But then when we look at longer periods of time then you also need to have the firm capacity. And for us, the firm capacity is really. Flexible engine based power plants that are able to quickly react to the market conditions. So they're able to ramp up and ramp down according to the renewable generation. So I think when we look at. Sort of firm assets. We usually talk about nuclear or we talk about coal, or we talk about about engine based power plants. And but the, what the issue usually is with the coal and the nuclear is that. They're not flexible. So in case there is a lot of renewables in the system, you cannot ramp them down, which means that you actually need to curtail the renewable energy, which is of course not something that we want to do. And that's why when we talk about the flexibility, it's really important that the capacity can adapt to the renewable generation so that we don't run them unless we have to. And there, I think our technology in terms of flexible engine power plants is really one of the leading ones.

Richard Sverrisson, Editor-in-Chief, Montel: 7:25

Yeah. What's the fuel there? Is that, is it gas right? Or what?

Anja Frada, Chief Operating Officer, Wärtsilä Energy: 7:28

Today we use mainly gas but I think it's really important to highlight that the gas gas can be then substituted by sustainable fuels in the future. When we will have availability of of hydrogen or other zero carbon or zero neutral carbon neutral fuels, then we can also convert these plants to using, for example, hydrogen or ammonia or methanol. So it's I think the future proofing of these assets are really important. So they are not they can run on other fuels than gas than when we have them available.

Richard Sverrisson, Editor-in-Chief, Montel: 8:03

Are market signals that currently you see in the short term and in the long term market, are they enough to incentivize the constructions of such backup capacity? Or do you need additional mechanisms such as a capacity market? What would you what's your view here, Anja?

Anja Frada, Chief Operating Officer, Wärtsilä Energy: 8:19

This is actually in the work we, we did for the for the market reform as well. When we have looked at the markets we see that there is not enough incentive today. What we really would need is a sort of a capability market. So similar to what you mentioned, the capacity market. But also looking at the characteristics of of the technology in terms of what services it can provide to the grid. So I mentioned a few already fast startup or ramp down of of the technology. Adapting to, to or like being able to basically adapt to the renewable generation I think are really key ones. It's a capacity market that really takes into consideration also how you can operate that technology. So it's not only there as a sort of backup in the case of emergency.

Richard Sverrisson, Editor-in-Chief, Montel: 9:10

Okay. That's interesting. Sweden is looking also to some form of backup capacity mechanism, isn't it? It's just announced, and I know maybe there are plans in Germany as well. Is this something. Thing you are seeing more and more in several member states in Europe, maybe globally as well.

Anja Frada, Chief Operating Officer, Wärtsilä Energy: 9:24

Yeah, I think I think the, this is a hot topic at the moment I think it's recognized that that the investments in flexibility need to be there. And I think actually we see some of this also when we talk about the energy storage. In general, the flexible assets the sort of best market conditions where we incentivize more capacity is when you have a possibility for different revenue streams so you can maximize the revenue streams based on what service you can provide to the grid. I think markets I think there's a discussion, also active discussion going on in the uk, for example. Of course in the, in Europe. But but we are doing. We talking about the same topics also in the us

Richard Sverrisson, Editor-in-Chief, Montel: 10:09

So you're providing the full range of ancillary services with this kind of capacity. Yeah. In a sense. Yeah. But there, there's one issue as well, which is, which we've seen emerging quite a lot in current weeks, and. The outlook is for these kind of incidents to continue. And that's the problem of, it's cannibalization when you have too much capacity in one area, potentially also low demand. You see the instances of negative prices. Now we've seen that recently in the Netherlands. We've also seen, the opposite effect as well when intraday prices really hit the roof for certain periods. Are we likely to see more of this going forward? Without the kind of without the kind of solutions that I know that you've been talking about with the the flexibility options.

Anja Frada, Chief Operating Officer, Wärtsilä Energy: 10:54

Yeah, I think we will see more volatility in the market that's clear and of course the negative prices occur when you have too much generation at the same time. And here I would also like to note the, coming back to the flexibility point. When we have these days where there's like really optimal renewable generation conditions, it's super important that we have flexible capacity in the system because then they don't need to run. But if you have like big nuclear plants or big coal plants that you cannot shut down, you will curtail the renewable energy and that's that's really when we look at the whole power system, that's why it's so important that you design it properly. You can really take advantage of the renewables. But yes, I think clearly we will have more volatility in the prices. And I think here also the energy storage of course, will also play a key role. So when there is a lot of renewables if you have the energy storage, you can store the energy when the prices are low. Which can then be utilized again, when there is less less generation and then get a good price also for that electricity.

Richard Sverrisson, Editor-in-Chief, Montel: 12:02

So what in, in your view, would be the sort of perfect energy system than Anja?

Anja Frada, Chief Operating Officer, Wärtsilä Energy: 12:05

We have an in-house modeling team in va. So what we do is we model the optimal path and optimal power systems for a lot of different countries. We have more or less modeled every country in the world already. And it depends country by country. I would say that the path to achieve it is very similar. But I would say it depends. For example, some countries have a lot of hydropower other countries have have a big nuclear installed base. So this will of course impact also how the optimal system looks like. But in general, what we see is that the future of power systems will be based on. Renewables coupled with flexible capacity and that usually. Usually gives the least cost system. So in other words the cheapest electricity for consumers.

Richard Sverrisson, Editor-in-Chief, Montel: 12:55

Absolutely. If you had a wishlist to policy makers in Brussels what would be top of your list or top two items on your list that you would ask them to do to, to in, in terms of the market design discussion?

Anja Frada, Chief Operating Officer, Wärtsilä Energy: 13:06

In terms of the market design discussion, I would clearly emphasize the fact that that more flexible capacity is needed. And there needs to be proper incentives in the markets to, to invest, make the needed investment into flexibility. And then the other one I think is really to look at this from a technology agnostic point of view. Really think about which are the. Or like how do you design a market that will incentivize the best build out of the best power system for us? So really incentivizing the right technology to be built.

Richard Sverrisson, Editor-in-Chief, Montel: 13:42

Absolutely. That's they have a difficult job to do. There's poly policy makers in Brussels to design the right framework, but they're certainly working very hard at it, but I think. Is there a danger here that we, and certainly some countries and some companies even are locking themselves into a sort of fossil fuel future in the medium term. We've had, we've seen after the war and the war started in the Ukraine companies scrambling to source and procure LNG, which is then, we've seen. A spate of LNG terminals. Okay. They're floating, but they're, is there a danger here that companies are, investing in, in, in gas, particularly when they should be more focusing on renewables?

Anja Frada, Chief Operating Officer, Wärtsilä Energy: 14:24

I think usually when we work together, for example, with utilities they usually look at their portfolio of assets which can be a mix. And I think what we are advocating for is of course, to ensure. Investments in, in renewables, but then couple them with flexibility, which is then, either energy storage or gas based plants. But one thing I really would like to highlight again, is the fact that a plant that runs on gas today can be converted to use other fuels and sustainable fuels in the future. When there is enough availability of those. And that I think is really one of the key advantages of the our technology. So engine based power plants is that that these engines later on can be converted to use other fuels which are then. Zero carbon.

Richard Sverrisson, Editor-in-Chief, Montel: 15:15

Is enough being done to develop those fuels, those alternative fuels? Biogas for example, and also, green hydrogen potentially is being talked about.

Anja Frada, Chief Operating Officer, Wärtsilä Energy: 15:23

Yeah, I think there's a lot of discussion ongoing about the green hydrogen. Of course, the green hydrogen is the ingredient for all the other fuels as well. So that's really where we start from. I think both in the EU and also in the us I think there, there is a lot of discussion regarding the hydrogen and how to incentivize that. So in a way, I think the topic has clearly been been highlighted that, and and I think actions are already being taken. But of course the. It all starts from the renewables. So of course to produce the green hydrogen, you need the renewable and you need the sort of excess renewable to, to to be there in order to have cheap. Cheap and or affordable hydrogen.

Richard Sverrisson, Editor-in-Chief, Montel: 16:05

Absolutely. I can see the discussion here about, certainly for storage when you have a surplus of renewable energy you fill up the energy storage systems. But to me, I, I've looked at this in, in, in some depth and from all different angles, but burning hydrogen for me to generate power doesn't seem to make any economic sense. I dunno what your view is here on you.

Anja Frada, Chief Operating Officer, Wärtsilä Energy: 16:24

I think the, of course, the first step is the electrification. So from a, from like an efficiency point of view, the electrification is of course the smartest way if that's possible. But I think the in some of the really hard to abate sectors, that's not an option. So their hydrogen will be used in order to decarbonize different industries, like for example, steel. But I think again, maybe going back to the big picture, when we look at the when we look at the whole power system you will of course deploy a lot of energy storage, but energy storage also has a limit in terms of duration. And that's really where the gas based or sustainable fuel based. Plants come in. You cannot overbuild the system to be able to cope with the longer time periods when when, for example, there is no renewable generation. And that's why you need to have. Another solution for that. And at the moment, for a long duration the, let's say gas based or sustainable based plants are the most viable option.

Richard Sverrisson, Editor-in-Chief, Montel: 17:29

And also for, in terms of seasonal storage here.

Anja Frada, Chief Operating Officer, Wärtsilä Energy: 17:32

Yep. Absolutely. Absolutely.

Richard Sverrisson, Editor-in-Chief, Montel: 17:34

Yeah. I, a final sort of round of questions now, Anja and I'm looking, do you think there's a risk of stranded assets for, in, in some country in Europe in terms of, companies or countries locking themselves into, similar to the, what I asked before, but about this time in about stranded assets that there's a risk of locking into inflexible assets?

Anja Frada, Chief Operating Officer, Wärtsilä Energy: 17:53

Yeah, I think that's really the key thing, right? You need to. If you invest in technology today, you need to ensure that it's as flexible as possible. Because the inflexibility is that will not work optimally in a renewable based system. So the more flexible the asset the better it is. And I, at least my personal opinion is that. That's not a risk, especially when you have the o opportunity and possibility to use other other fuels in the future.

Richard Sverrisson, Editor-in-Chief, Montel: 18:22

But I think, like the country where you are based France the uk they have massive plans to build out or roll out nuclear. Plants and nuclear capacity. But if I understand you correctly, you're saying these are actually not very flexible at all and may not be able to fit perfectly with the renewable system. Is that, would that be correct, Anja?

Anja Frada, Chief Operating Officer, Wärtsilä Energy: 18:39

Yes, that's correct. Nuclear is the, I would say the more least flexible of all. You're not really able to ramp up or ramp down a nuclear plant. So it runs on base load. And there is of course plans. But I think when we look at this again from like power system modeling point of view, we see that actually the nuclear is always the most expensive option because it's so expensive to build. And that's. A big bottleneck, I would say for the new care technology as such it takes a long time to get the assets deployed and they cost a fortune.

Richard Sverrisson, Editor-in-Chief, Montel: 19:17

But they can't what's it load run or they can't be flexible in terms of balancing the renewables yet. We are seeing, huge plans in, in, in several European countries to, to expand their capacities in with that technology.

Anja Frada, Chief Operating Officer, Wärtsilä Energy: 19:30

Yeah. And basically what happens then, as I mentioned already, is that if you have this inflexible capacity that you cannot ramp down, what happens is that you need to curtail the renewables. And of course that's, I think an that's something we don't want to do.

Richard Sverrisson, Editor-in-Chief, Montel: 19:45

Yeah, exactly. And if you're curtailing new renewables and prices and negatives, you may be also giving signals to investors that maybe it's not such a good idea to invest there, wouldn't that be also a way of looking at it? Yeah. But it's certainly a very complex arena and thank you very much for shedding some lights on, on, on how we can get to, to, to net zero and meet the challenges of the energy transition. So thank you very much for being a guest on the Montel Weekly podcast. So listeners, you can now follow the podcast on our own Twitter account, aply named the Montel Weekly podcast. Please direct message any suggestions. Questions or, let us know if you think you have a good idea for a guest on the show, you can also send us an email to podcast@montelnews.com. Lastly, remember to keep up to date with all that's happening in energy markets on Montel News. You can subscribe on Apple Podcasts and Spotify, or wherever you get your podcasts from. Thank you and goodbye.