A cursory look at the headline of Platts’ release on the latest analysis from its plant lifecycle and market environment tracking tool, Platts Powervision, and you could be forgiven for thinking “at last some good news”. According to the analysis, there is more than 20 GW of fossil fuel-fired (both gas and coal) currently under construction in West Europe. Sound wonderful, doesn’t it?

However, you are swiftly brought back to earth with a bump when you realise that all these power stations were planned, approved and most importantly financed before the credit crunch. This means of course that the operators will be bringing these plants on line in very different market conditions. The new reality, according to Platts, being “€40/MWh, a demand slide of 4 per cent since 2008 and a market flooded with subsidised renewables”.

Thus, it is unsurprising that Platts’ analysis also found that the “near-term” squeeze on the economics of thermal power plants has essentially caused new construction to stall in Western Europe. What is particularly worrying is this lack of investment is happening at a time when new capacity should be being built to replace the 130 GW of ageing capacity that is scheduled to go off line in Europe this decade.

According to a recent report by a sub-committee of the UK’s House of Lords, institutional investors are actively shunning energy companies in Europe because of policy inertia. And this was echoed, albeit on a more global scale, by Riccardo Puliti, head of the European Bank of Reconstruction and Development. He warned that the world cannot afford to be “idealogical” when it comes to energy policy, reinforcing that “security and supply” must also be taken into account.

Another long-running issue facing Europe’s power sector hit the headlines again, namely the European Union’s emission trading scheme. Last month, the European Parliament (EP) failed to back the European Commission’s plan to backload allowances; widely seen as essential in raising the carbon price. However, we were quickly reassured that the EP would get a chance to vote a second time on the proposal in early July. However, the debate is not really about whether the EC is successful in pushing through its plan. It’s about whether the allowance backloading will raise the carbon price, which resolutely sticks to well below €10/tonne.

After speaking with experts in this field, I am sad to report that the answer is probably ‘no’. Based on the number of allowances that are planned to be backloaded, it is not expected to have any effect on raising the price.

And in the mean time on 1 April, the UK government introduced a minimum carbon price floor, set at £16 (€19)/tonne, which is part of its ‘once in a generation’ reform of its electricity sector. The response from UK-based generators hasn’t been particularly positive, with Dr. Tony Cocker, CEO of E.ON UK, going as far as calling it an “electricity tax”.

The UK’s hotly-awaited Energy Bill also appears to be facing delays as its winds it way through the parliamentary process. It had been anticipated to be law by the end of this year, but that is looking highly unlikely, with early 2014 now the best estimate. The UK’s new-nuclear aspiration also seems to be in trouble, after what appears to be a recent cooling in relations between EDF and the government.

Another country facing continued energy woes is Germany as it transitions its power sector away from nuclear and towards renewables. Over recent month, two leading European power utiltiies, E.ON and Statkraft said they may be forced to close one of their German gas-fired power plants because they could not compete with wind and solar generation, which in Germany gets preferential access to the grid. To put it quite simply, the economics no longer worked. The E.ON plant in the firing line is the modern and efficient Irsching 5. Thankfully the tale has a happy ending, at least for E.ON, and Irsching 5 will not be closed – it will run as a subsidised backup plant. This undoubtedly sets a precedent in the European power sector, so it will be interesting to see how this develops.

I realise this month’s column has been rather sombre, so one piece of good news is that all this bad news in Europe means that there will be lots to discuss at next month’s POWER-GEN Europe in Vienna. I hope to see you there.

Power stations in Europe that were planned, approved and financed before the credit crunch will be coming on line in very different market conditions

Dr. Heather Johnstone   Dr. Heather Johnstone
Chief Editor
www.PowerEngineeringInt.com
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