ANNUAL REPORT 2011 - DONG Energy

MaRket CONDITIONS
Energy markets are affected by the economic climate, political priorities
and natural phenomena
2011 started on an optimistic note, with signs of improvements
in the European economies following the financial
and economic crises that struck Europe from mid-2008.
Over the summer and autumn, the optimism was replaced
by economic uncertainty in the shape of the debt
crisis in Europe, large government budget deficits, the
weakening of the euro against the US dollar, limited economic
growth and the resulting lower demand for energy.
At the same time, the challenges in relation to global
warming remain high on the political agenda. However,
this has not had any visible effect on the pricing of CO2 emissions allowances, as efforts to achieve global endorsement
of targets for reducing CO emissions have yet
2
to succeed. Since summer 2011, it has become more likely
that there will be an oversupply of CO emissions allow-
2
ances in Europe, and the prices of allowances were at the
lowest level to date at the end of 2011.
In Europe, there is still the will to support green investments.
In both the UK and Germany, initiatives were undertaken
in 2011 to strengthen renewable energy.
The European energy sector faces large investments in
renewable energy and infrastructure. However, access to
capital has become more difficult as a consequence of the
debt crisis and the beleaguered financial sector. As an alter-
Biomass must be sustainable
Coal is on the way out of DONG Energy’s power stations.
The plan is for wood pellets, in particular, to replace coal.
Wood pellets can be produced in several different ways.
If they are produced sustainably, they reduce CO 2 emissions
without harming biodiversity. To ensure a sustainable
production of wood pellets, DONG Energy will make
further requirements of wood pellet producers.
There are currently no general standards for sustainability
in relation to solid biomass. Therefore, DONG Energy has
worked with other European energy companies to draw up
sustainability criteria for the production of wood pellets.
The criteria are designed to ensure that the wood pellets
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manaGEmEnt’s rEviEw – DONG ENERGY GROUP ANNUAL ANNUAL REPORT REPORT 2011 2011
native, other sources are therefore increasingly being used,
such as pension funds and other institutional investors.
The prices of oil and gas fell sharply in 2008-09 in the
wake of the financial and economic crises. There was no
corresponding trend in 2011, when oil and gas prices remained
at a higher level (USD 111/bbl on average in 2011
against USD 62/bbl in 2009 for oil and EUR 23/MWh
against EUR 12/MWh for gas). The wider spread between
oil and gas prices, with relatively higher oil prices (decoupling),
which arose in spring 2009, continues to prevail.
The accident at the Fukushima nuclear power station in
connection with the earthquake in Japan in March 2011 led
to a change in the approach to nuclear power in several
countries. In Germany, several older nuclear power stations
were immediately shut down and a decision was
taken to phase out the remaining stations faster than
originally planned.
Despite this, there is still surplus capacity for the
generation of electricity in Europe, and demand is lower
than before the financial crisis. The surplus capacity is not
expected to be reduced until a number of the most polluting
coal-fired power stations in Europe are phased out in
the coming 3-8 years.
that DONG Energy uses continue to reduce CO 2 emissions
and preserve biodiversity.
“With wood pellets, Danish power stations can deliver
green electricity and heat to supplement the more variable
wind energy. I hope that the European authorities will be
inspired by the criteria that DONG Energy and our partners
have established and will develop pan-European standards
for sustainability for biomass. That would enable us to talk
to the producers of wood pellets with even greater conviction
so we can ensure that the wood pellets we use in Europe
continue to be sustainable,” says Thomas Dalsgaard,
Executive Vice President of Thermal Power.