Europe power supplies 'at risk without market reform'

Paul Boughton

Europe could face power blackouts if utilities shut loss-making, gas-fired power plants and aging coal generators while they wait for governments and regulators to agree to power market reforms to cope with the growing impact of renewables, according to a new study from IHS.

The growth of wind and solar power and the slump in power demand as a result of the recession are having major impacts on Europe’s generators, reducing the running hours and profitability of coal and gas-fired power stations and raising the risk they will close plants to cut costs.

IHS estimates that about 130 gigawatts of gas plant across Europe – around 60 pr cent of the total installed gas fired generation in the region - are currently not recovering fixed costs and are at risk of closure in the next three years.

“Reforms of the power market are becoming urgent to ensure the security of Europe’s electricity supply,” says Fabien Roques, head of European power at IHS CERA, and co- author of the study 'Keeping Europe’s lights on: design and impacts of capacity mechanisms.

“While reforms are under discussion across Europe, there is a patchwork of proposals from different governments and what is needed is a coordinated approach”

The report looks at the role of capacity mechanisms, which pay generators for making power stations available on standby to ensure there is sufficient spare capacity on the system to avoid blackouts if renewable supplies drop.
The reform or introduction of capacity mechanisms, which is expected to take place in Europe’s main five power markets by 2018, would encourage utilities to keep loss-making plants open by offering an additional or improved source of revenue.

IHS research, based on international experience, suggests that up to 40% of revenues of a mid-merit plant could come from capacity mechanisms in future.
Future investment and operating strategies in the power sector will be driven by the design of these capacity mechanisms, energy prices and the extent of cross-border power flows, the study notes.

“The next few years will be decisive in reforming the European power system,” says Thomas Tindall, director with IHS CERA and the report’s co-author.

 “What’s striking,” he notes, “are the differences in approach being proposed by governments across Europe.”

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