Market reforms needed to protect European power supplies

A new study from the IHS stresses the need for a coordinated approach to power market reforms in Europe. Without such an approach, Europe is set to face catastrophic consequences.

The study suggests Europe could face power blackouts if utilities shut loss-making, gas-fired power plants and ageing coal generators while they wait for governments and regulators to agree to power market reforms to cope with the growing impact of renewable energy sources.

The growth of wind and solar power, combined with the slump in power caused by the recession, has resulted in major impacts on Europe’s generators, reducing the running hours and profitability of coal and gas-fired power stations and raising the risk they will close plants to cut costs.

Coordinated approach

“Reforms of the power market are becoming urgent to ensure the security of Europe’s electricity supply,” says Fabien Roques, head of European power at IHS CERA.

“While reforms are under discussion across Europe, there is a patchwork of proposals from different governments and what is needed is a coordinated approach”.

The report 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.

IHS research suggests that a mid-merit power plant could source 40% of revenue from capacity mechanisms in future.

The next few years

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.

“The next few years will be decisive in reforming the European power system,” says Thomas Tindall, director with IHS CERA.

“What’s striking,” he notes, “are the differences in approach being proposed by governments across Europe.”

Adapted from press release by Samuel Dodson

Read the article online at: https://www.worldcoal.com/coal/22052013/european_power_supplies_require_market_reform_204/