SEPTEMBER 2016 MANAGEMENT CONSULTING Pöyry PostENERGY 10/2016 REPORT SURVIVAL OF THE FITTEST INTERVIEWS FRANCESCO STARACE (ENEL) HANDO SUTTER (EESTI ENERGIA) SIMON-ERIK OLLUS (FORTUM) PÖYRY POST GLOBAL EDITION 2 CONTENTS SHORTCUTS Current energy news IMPRINT PUBLISHER Pöyry Management Consulting Matthew Brown [email protected] Phil Hare [email protected] MANAGEMENT CONSULTING CARBON REDUCTION RACE Roland Lorenz Who gets the gold in this Olympic-sized competition? [email protected] Jussi Ojanen [email protected] www.poyry.com EDITORIAL TEAM Rebecca Bleasdale, Matt Brown, Phil Hare, Roland Lorenz, Jussi Ojanen AUTHORS MANAGEMENT CONSULTING Simon Bradbury, James Cox, SURVIVAL OF THE FITTEST Antonio de Juan Fernandez, What will it take for energy companies to survive and thrive? Andrew Morris, Antonio Nodari, Oliver Pearce, Petri Vasara, Peter Williams, Stephen Woodhouse EDITORIAL STAFF Filip & Grimm Dean Jackson, Laura Kenny, Raquel Lopez-Ogando, Tim Pohlmann, Regina Schier, Carsten Frederic Schmidt LEADING THE WAY Nordic energy market design for the future Virgil Grymonprez (Creative Director) CONCEPT AND REALISATION Filip & Grimm www.fi lip-grimm.com THANKS TO Eesti Energia, Enel, Fortum SOURCES Photography: Eesti Energia, Enel, Adobe Stock, Fotolia, POINT OF VIEW Getty Images, iStock Still a strong case for small scale LNG 3 EDITORIAL DEAR READERS, In all our work, we clearly focus on the needs of our customers. To be constantly in a dialogue is our goal. We think that with the unprecedented challenges the energy sector faces, smart management and intelligent solutions have never paid off as much as they do today. That is why we came up with Pöyry Post Energy, our new global client magazine to offer you new perspectives and insights for your business. So, Let’s talk is clearly one thread that holds these pages together. The fi rst interview partner in this inaugural issue is Francesco Staraze, Group Chief Executive of Enel, who spoke with our colleague Antonio Nodari. This conversation focuses on his views on the energy transition, the current challenges of the sector, and the consequences he expects as well as the actions he takes – an impressive FEATURE and convincing statement. THE MEXICAN EVOLUTION 2016: A big year for Mexico’s energy reform A Dutch saying tells us that those who made it outside the door have the hardest part of their journey already behind them. Our colleague Stephen Woodhouse can maybe give you a bit of a nudge in this direction. In our cover story he examines (p. 11) some of the key characteristics necessary for a successful future energy company against the backdrop of substantially changing demands from customers, policymakers and new competitors. There are many hurdles a European energy company needs to clear during a turnaround and time always seems to be your enemy, as by nature in a turnaround you are behind. However, we encourage you to keep moving, look for new opportunities. Opportunities exist, they might just happen to be elsewhere. Our colleague Antonio de Juan Fernandez reports from Mexico where the energy world is booming and offering plenty of opportunities for investors. As a matter of fact, taking advantage of interesting opportunities is not necessarily a fi nancial ques- tion. As Eestia Energia CEO Hando Sutter tells us in an interview. “Sometimes if you have less resources then you do things smarter.” By the end of this year, all custom- ers will have hourly data about their power consumption as Eestia Energia will have switched to 100% smart metering. We will continue to offer you new perspectives and insights into your business and a road map to a better business future. So especially now, we are looking forward to INSIGHTS HYDROPOWER your feedback on this inaugural issue (email address in the imprint), its look and its DERINER DAM topics. We hope you enjoy this edition of our fi rstPöyry Post Global Edition. Success story WANT MORE? 14 BUILDING OUR ENERGY FUTURE Jussi Ojanen Matt Brown Dr. Phil Hare Roland Lorenz Head of Nordics Head of Western Europe Head of Energy Markets Head of Central and Interview Hando Sutter (CEO Eesti Energia) and Middle East South Europe 17 RETHINKING CARBON Point of view: Recarbonisation revolution 20 STRATEGY FOR THE FUTURE Interview Simon-Erik Ollus (Head of Trade Fortum) 24 MARKET DESIGN NEEDS TO EVOLVE Interview Francesco Starace (Enel Group CEO) 34 MORE THAN JUST WIRES? The future role and products of the DSO’s PÖYRY POST GLOBAL EDITION 4 2.6 % As of 2016 Mexico can import gas from anywhere in the world and in 2018, following 80 years of government set prices, the fuel will be sold at market price. Mexico Economic Outlook report is forecasting 2.2% growth this year and 2.6% in 2017. Mexico has set an ambitious goal of switching to clean energy by 2024. Sources like wind and solar are expected to make up more than one-third of the country’s electricity. Mexico’s largest solar energy farm (260,000 high performance photo panels) located in northern Durango State is only one of numerous solar energy projects that are also under development. 8,500t After a 14-day journey covering the 4,700 km from Cádiz, Iberdrola’s Andalusia substation is now installed at the German Wikinger offshore wind farm in the Baltic Sea close to the island of Rügen. This electricity distribution infrastructure weighing about 8,500 tonnes will be the energetic core of the renewable facility, which has a capacity of 350 megawatts and for which the overall budget is €1.4 billion. The Andalusia substation will be in charge of collecting all of the electricity produced by the wind turbines on the open sea - enough to meet the needs of 350,000 German homes and avoid some 600,000 tonnes of CO2 emissions into the atmosphere each year - and preparing it for transmission to the mainland. By the way: At about 8,500 tonnes the substation is heavier than the Eiffel Tower and the Statue of Liberty put together. The wave energy plant in Mutriku (Spain) is a commercial 1.3GWh plant for the generation of electricity by harnessing the energy contained in waves (wave power). This demonstration plant Length: 1.100km has achieved a world record by producing 1.3GWh (1 300 000kWh) of electricity that have been directly fed into the general distribution grid for use, for example, in homes and industries. This marine production is modest in comparison to other mature power generation technologies (wind power, combined cycles) but, to date, it has not been achieved by any other wave power plant. Turkish Stream Lines: 4 5 Organizers of the 2020 Tokyo Olympics are hoping to source the gold, silver and bronze needed to make medals for the games by tapping the country’s “urban mine” – made up of millions of discarded smartphones and other small consumer electronics. For the 1,566 1,112 2012 London Olympics, 9.6kg of gold, 1,210kg of silver and kg tons 700kg of copper – the primary component of bronze – were 143 used to produce medals. In comparison, the amount of kg precious metals recovered from discarded small consumer electronics in Japan in 2014 included 143kg of gold, 1,566kg of silver and 1,112 tons of copper. €15.8bn EU utilities to spend 15.8bn to install 110 million meters: 30 European utilities are taking a cue from Italian state-controlled power provider Enel, the pioneer of digital electricity metering which has driven installation 90% levels to more than SMART 90 percent in Italian 100% households. An estimated SMART METERS METERS 15.8 billion euros will be invested to install 110 million smart meters in Europe by 2017, a potential boom for meter makers like Switzerland's Toshiba-owned Landis+Gyr - Europe's market leader - and Itron and Echelon of the United States. France plans to deploy 35 million by 2020, Spain 13 million by 2018, while the UK will kick-start efforts in 2015 to cover 30 million properties over fi ve years. For a deeper dive read the interviews with Francesco Starace(Enel) p. 24-27 and Hando Sutter (Eestia Energia) p. 14-16 £18bn Britain’s fi rst new nuclear plant in a generation is to be built at Hinkley Point C in Somerset. It will be the fi rst nuclear power plant since 1995 and eventually provide 7% of the country’s electricity. The project will be realized by French energy giant EDF and Chinese state nuclear fi rm CGN. Cost of investment: £18bn. Russia’s Gazprom expects Russia and Turkey to sign an agreement next month that will allow construction of the offshore section of the Turkish Stream gas pipeline to start in late 2017, Deputy CEO Alexander Medvedev said. Gazprom head Alexei Miller met EDF’s Électricité CEO Jean-Bernard Lévy for talks about Turkish Stream. “Miller’s meeting aimed at defi ning the Turkish Stream approach of our French and Italian friends to this project”, Medvedev said. Lines: 4 Delivery p.a.: 63 bn cubic metres m3 PÖYRY POST GLOBAL EDITION 6 James Cox Head of Market Analysis CARBON [email protected] REDUCTION WHO GETS THE GOLD IN THIS RACE OLYMPIC-SIZED COMPETITION? With our detailed model of the electricity market, called BID3, Pöyry is able to offer unique in- sights into how the electricity system will evolve in the future. In this article, we look at whether Europe is on track to reduce carbon emissions, and answer the key question: which country can cut carbon quickest? As part of our regular modelling work on THE OPENING CEREMONY IN GOLD MEDAL POSITION… European markets, Pöyry projects the likely Figure 1 above shows the rapid reductions in Figure 2 (p.