They say people don’t plan to fail… they just fail to plan. But making plans is not always straightforward, especially when the landscape is changing. Look at the European power sector. The number of companies that are failing or struggling in a market which could have once been described as predictable, is not down to a lack of planning or strategy. It is a perfect example of how tough it can be to manoeuvre in a market where the impact of rules which will govern future generating capacity and technology are unclear

The impact of deregulation, exacerbated by weak demand, has probably provided the greatest challenge. Generator margins have become slimmer and more unpredictable with a subsequent knock-on effect on margins for OEM equipment suppliers. In terms of generation mix, deregulation initially saw the building of gas fired plants because of their increased efficiency and ability to generate at competitive prices. In recent times, however, the soundness of this strategy has been called into question with the large price swings in gas prices.

In some countries, deregulation has seen a huge fall in wholesale prices which has put pressure on generators that own coal capacity. And for some of these same generators, there is the added pressure of environmental constraints. In many ways, the method in which countries meet their climate change targets are shaping the generation landscape as much as deregulation. In the UK, for example, low wholesale power prices are prompting a number of coal generators to look at biomass alternatives in order to take advantage of Renewable Obligation Certificates (ROCs) they could earn. Interest in co-firing has risen since the UK government’s introduction of the Renewable Obligations scheme which has a guaranteed market for ‘green power’.

AEP, owners of the Fiddler’s Ferry and Ferrybridge coal fired plants, has been burning olive residues at the two plants since September last year. AEP has set itself a target of producing five per cent of its output from the two plants, which have a combined capacity of 4000 MW, from biomass. Innogy, the UK generator bought by RWE, is also experimenting with biomass and has been test burning wood chips at its Tilbury B station.

Incentives like RO schemes have also given impetus to other technologies. Powergen, the UK unit of German utility E.ON plans to invest $180 million in renewable power projects this year. This is part of its goal to add 1000 MW of renewables to the UK grid by 2010. The investment will mainly go towards four projects – one biomass project; two hydro projects and an offshore wind farm.

Notably, wind could become a major player in the years to come. According to the European Wind Energy Association, over three quarters of the world’s wind power is generated in Europe. A total of 5871 MW – worth E5.8 billion ($6.2 billion) – was installed in Europe last year. This constituted a 33 per cent growth in Europe’s wind capacity to in excess of 23 GW.

Although governments are beginning to take renewables seriously, according to a recent report from Cap Gemini Ernst & Young, there is still a significant gap between the current position and the European Directive on Renewable Energy Sources targets. And when considering the wider issue of meeting Kyoto targets, a lot tougher decisions on generating strategy will have to be made. Clearly, implementing renewables will not be enough. This brings us to the nuclear issue.

Belgium’s lower house recently passed a bill to shut down the country’s nuclear reactors by 2025. This emulates similar moves in other European countries such as Germany and Sweden. The dilemma now facing Belgium is the same as that faced elsewhere: with what do you replace an energy source which provides a third of your energy needs? Renewables will not be enough and the use of more gas in for example, cogeneration plants, will result in an over reliance on gas.

Finland, is taking a pragmatic approach. The country’s increasing dependency on imports has led the Finnish Parliament to ratify a fifth nuclear power unit. Finland believes that nuclear is the best option in terms of cost-effectiveness, security of supply, and meeting environment and climate targets under the Kyoto Protocol. This project could provide a showcase for the latest nuclear technology – Framatome ANP has submitted a tender for two reactor types: the EPR, a pressurized water reactor and the SWR 1000, a boiling water reactor.

This brave move by Finland may persuade other countries to rethink their future generation mix and ultimately bring a different shade of green to the generation landscape of the future.

Junior Isles, Managing Editor & Associate Publisher