The impact of energy policy continues to turn the screws on the European power industry with a vengeance.
The power industry is stuck in a terrible catch-22. It didn’t blindly walk into its troubles: it was led there by policy decisions made by politicians who thought they could predict the future. But the industry needs the current crop of politicians to help get them out of the mire by introducing policies to kick-start investment in an industry which is financially flat-lining.
“Confidence in markets, future price signals and asset valuations has collapsed,” said Martin Giesen, chairman of Advanced Power, at POWER-GEN Europe in Cologne this month (see feature on p14).
Matthias Hartung, chief executive of RWE Generation and RWE Power, delivered one of the event’s keynote speeches and warned: “What we are doing in this business is not sustainable… This will destroy the European energy system if we continue like this.”
And Jonas Rooze, lead analyst of European Power at Bloomberg New Energy Finance, said: “All this change: companies can’t keep up; governments can’t keep up. If companies can’t keep up they lose money. When governments don’t keep up, lots of companies lose money because governments do things like retroactive policy. Too much change has been going on. You can’t keep trying to fit everything in the system you have now.”
Meanwhile, on the exhibition floor, the manufacturers of the next generation of power equipment have the state-of-the-art technology to delivery what became the buzzword of the event: flexibility.
Vesa Riihimaki, president of power plants and executive vice-president for Wartsila Corp, told me at the show that Europe is on a “learning journey” and that “the toolbox is not there yet” for renewables integration.
He and his company – and many others like them – have the kit to build such a toolbox, but he says the problem is that “flexibility is a more difficult service to sell than energy”.
Helmut Moshammer of Doosan Lentjes also demanded flexibility: “You have to be flexible on market conditions, you have to be flexible on regional demands and we have to adapt our products.”
So the major players in the industry have the will and the know-how to deliver a power system for the 21st century. What they don’t have is the political backing.
Fast-forward a week from Cologne and I was in London for an energy conference examining Britain’s bid to build a low carbon energy mix, which is not going much better than many of its European counterparts.
Why? Dieter Helm, Professor of Energy Policy at the University of Oxford, says it all comes down to energy policies made a decade ago.
“Knowing the future is a very deadly way of constructing energy and climate policy,” he said. “All of the artefacts of European energy policy are based on assumptions made 10 years ago by the leading politicians in Europe.”
He said that in response to the current state of the European energy industry, you would hope that “there might be a rethink. Not a bit of it. Once a policy is committed and politicians have nailed themselves to the mast, the incentives to reinforce that policy are very powerful.”
He said both the European Commission and every single Member State were “struggling about what to do”.
In the UK, he said that “every single investment in the electricity sector going forward is being determined by the state, on state-backed contracts, and the state is picking the technologies.
“We have basically decided in the country that the market will not deliver the investment programme… so we’ve brought the state in.”
And he warned: “One shouldn’t kid oneself that this is a gradual intervention, a temporary one that will give way to a return to markets. The temporary has a horrible tendency to become the permanent.”
Does it have to be like this? Of course not, but governments need to get over the desire to pick winners and instead build an energy portfolio that, at the very least, reflects what can be delivered economically and securely.
Prof Helm says: “We may have spent £50bn-£100bn on offshore wind – yet just £1bn can’t be found for a CCS project.
“So we can save money by stopping digging the hole we’re in… and let the market rip.”
Manufacturers of the next generation of equipment can deliver what has become the industry buzzword: flexibility.
Kelvin Ross Editor www.PowerEngineeringInt.com
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