LONDON: European governments need to move faster to reform their energy markets if they are to reverse the closure of power plants needed to complement the region's growing use of intermittent renewable energy, a consultancy report said. Analysts at IHS CERA estimate that around 110 gigawatts (GW) of gas-fired power plant capacity is at risk of closure in Europe, 25 GW of it by 2014.
Gas plants under threat account for about 12 percent of the installed power generation capacity across the 27 countries of the European Union which faces a shortfall of an estimated 60 GW in extra backup generation needed by 2035, the analysts said.
High gas prices have prompted utilities to cling to cheaper coal and shut down gas-fired power plants, some only a few years old, or cancel building new ones.
At the same time, around one quarter of the EU's power generation is expected to come from fluctuating wind and solar plants by the end of the next decade, bolstering the need for power from gas plants to fill supply gaps.
"Closure of these assets as a result of inadequate price signals or market design failure will increase future costs of system backup and reliability," the analysts said in a report made available to Reuters.
They estimate around 1.9 trillion euros ($2.4 trillion) is needed in power sector investment until 2035.
Yet utilities, the market's traditional investors, are facing debt pressure after having lost around 35 percent of their value since 2008.
To help, governments should reform their electricity markets to encourage flexible and reliable power production through so-called capacity mechanisms as well as harmonise policies across the EU, IHS CERA said.
The analysts also said it was important for the EU to set an emissions reduction target beyond 2020 to help create incentives to invest in low-carbon forms of energy.
Building new interconnection capacity and facilitating funding is also necessary to integrate renewable energy capacity and to reduce costs for consumers, the analysts said.
"The current market structure is unlikely to attract the necessary risk-bearing investment," said Fabien Roques, IHS CERA senior director for European power and co-author of the report.
"Unless the investment framework is fixed urgently, Europe will fail to deliver on its low-carbon agenda," Roques said.
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