Europe’s Security of Supply Threatened by Inefficient Energy Markets
Security of supply to Europe is at risk both in the short and long term, France's consultancy Capgemini said in its 15th European Energy Market Observatory (EEMO) report.
‘The study shows that the combination of a long economic crisis, deregulation in the gas and electricity markets and the EU’s Climate and Energy Package’s role in promoting rapid renewable energy expansion has led to very disturbed European gas and electricity markets. This unstable situation poses a potential threat to the future energy supply security of the region in both the short and long term,’ reads the note released on Thursday.
As a consequence, a cold winter could plunge Europe into an energy crisis. At the same time, one of the consequences of this ‘turbulent situation’ is the possibility of gas plant closures.
‘One of the biggest impacts of the disturbed gas and electricity markets is the rapid closure of numerous gas plants in the region. A recent study by IHS estimates that about 130,000 MW of gas plants across Europe (around 60% of the total installed gas fired generation in the Region) are currently not recovering their fixed costs and are at a risk of closure by 2016,’ read the press release.
According to the report, these plants are being replaced by heavily subsidized renewable energy installations. Capgemini claims that over-reliance on renewable energy poses a risk for security of supply, especially during peak hours.
“The present situation poses a clear threat to Europe’s security of supply. Gas plants – capable of dealing with peak loads – are closing quickly. Buffers, such as gas stored for the winter in underground reservoirs, are significantly lower than in previous years. In the short term these factors mean that a very cold winter could lead to serious supply and grid balancing problems,” commented Colette Lewiner, Capgemini’s Energy and Utilities worldwide expert.
According to the report, the main reasons for the “disturbed European gas and electricity markets” include the economic crisis, the EU Climate-Energy packages and the development of unconventional gas in the US. These factors are impacting customers and utilities, Capgemini claims.
“Renewables growth and CO2 Emissions Right price that is far too low, have pushed wholesale electricity prices down and Utilities are under strong strain,” Lewiner added.
OBSERVATORY RECOMMENDATIONS
The Observatory, made up by Capgemini in cooperation with Exane BNP Paribas, CMS Bureau Francis Lefebvre and VaasaEY Global Energy Think Tank, recommends a radical reform of the European energy markets.
‘These changes include reforming the ETS system to introduce some market related regulations or replicating the UK’s model for CO2 floor price. In addition, the creation of capacity markets coordinated at a European level is adamant,’ reads the note.
The report concludes also that implementing a new retail market design is necessary. The new design should enable the financing of smart grids.
Last but not least, Capgemini suggests that Europe has to limit the subsidies to renewable energies.
‘Establishing a more reasonable energies capacity growth pace and limiting the related increase in subsidies is crucial,’ claims the report.
The only way out seems to be infrastructure investments.
“Without longer-term economic incentives to invest in new and vital energy infrastructure and in the face of a declining utility margins and revenue, longer term security of energy supply could be in jeopardy,” Colette Lewiner said in the report.
Sergio Matalucci