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Price rises and power cuts by 2016? Thank the EU's energy policy

60% of gas-fired generators gone inside three years, warn beancounters CapGemini

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The closure of nearly two thirds of Europe's gas-fired power generation facilities by 2016 will lead to regional price hikes and make outages inevitable, Cap Gemini has warned.

UK households are already feeling the squeeze of soaring energy bills but a particularly cold winter this year could mean that 1970s style blackouts start to become a more regular occurrence again.

The consultancy's annual European Monitoring Centre for Energy Markets briefing encapsulates much of the crisis in European energy policy - one almost entirely of its own making.

So why is Europe turning off its gas, just when it needs it more than ever?

A gas plant needs to be operating at 57 per cent capacity to be economically viable, but EU regulations introduced to reduce CO2 emissions relegate them to standby duties, in favour of much more inefficient and costly renewable energy plants. This means keeping a gas plant open is uneconomical for the operator. Research outfit IEA, cited by CapGemini, reckons 60 per cent of gas-fired power stations will close by 2016 because they cannot cover their operating costs.

"These plants... that are indispensable to ensure security of supply during peak hours... are being replaced by volatile and non-schedulable renewable energy installations that are heavily subsidized,” the report points out.

And the risk to supplies this winter has increased. CapGem sees "a real threat to the security of energy supply in Europe" noting that the volume of stored gas now is lower than it has been in years.

The EU introduced a renewables obligation that the region produces 20 per cent of its electricity from renewable sources by 2020. This includes solar, wind, hydroelectric and “biofuels” - the latter leading to an increase in fossil fuel consumption with wood being burned for electricity.

CapGem sees two consequences of Europe's renewables push – power cuts and increased CO2 emissions as "dirty" coal is employed to plug the gaps.

The Department of Energy & Climate Change and the National Grid have a cunning plan for when UK power demand exceeds supply, and our interconnections with the French and Dutch grids are maxed out or out of order. The bureaucrats want a Dad's Army-esque Home Guard of small diesel generators to be cranked up feeding electricity into Blighty's own grid.

The National Grid's STOR (or Short Term Operating Reserve) provides 2GW of power, with diesel contributing just under 500MW of this. Which is very handy to have – but is also dirty and expensive.

Shale gas now accounts for a third of gas production in the USA, with wholesale prices falling by two thirds. The USA has also benefited from an industrial revival as a consequence: manufacturing jobs that had been lost to low wage countries are now returning home. Although US labour costs remain higher than, say, China, cheaper energy has cancelled out much of this this advantage.

Only Europe, where its elites are enraptured by the perils of global warming, bucks this trend. The EU introduced aggressive renewables targets to demonstrate that it is "leading" the world in reducing CO2 emissions. But, given what Europe will soon look like, it's hard to imagine any sane political leader elsewhere on Earth wanting to "follow".

Cheap gas in the USA has had a related consequence in Europe, the report notes.

"With this low price, gas has replaced coal as fuel in fossil fuels creating a surplus of coal in the U.S. market. This surplus was exported to Europe resulting in lowering coal prices by 30 per cent between January 2012 and June 2013. This decline has promoted the competitiveness of plants coal in Europe which has resulted in a much better utilization than gas-fired plants".

The high cost of rigging the energy market in favour of highly inefficient and expensive renewables has been covered here many, many times – for example, back in 2009. What's new is that if operators behave as CapGem predicts, the power cuts will be with us sooner than anyone expected. ®

Related Links

Cap Gemini briefing: in French - pdf and Translated.

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