That’s the conclusion of a new report published by IHS (IHS:NYSE), which stresses that while reforms to the European power market are becoming increasingly urgent, the continent is being hindered by “a patchwork of proposals from different governments”.
IHS estimates that about 130 GW of gas plants across Europe – around 60 per cent of the region’s total installed gas generation – are currently not recovering fixed costs and are at risk of closure in the next three years.
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’, said: “Reforms of the power market are becoming urgent to ensure the security of Europe’s electricity supply.”
He added that while reforms are under discussion across Europe, “there is a patchwork of proposals from different governments and what is needed is a co-ordinated approach.”
The report particularly 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.
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.