In the latest in our series of guest blogs, Peter Ramm, COO at Advanced Power Europe and member of the POWER-GEN Europe advisory board, examines the reasons behind the lack of investor confidence in Europe’s power sector, and argues that increased investment in thermal plants, a low carbon transmission system, and greater harmonisation across member states is what’s needed to restore certainty and economic growth
In light of ENEL president Fulvio Conti’s recent comments that Europe’s power sector is currently ‘uninvestable’, I have to agree as far as new thermal assets are concerned.
The key issue is that, if you are going to put a long-term asset into construction and operation, you need to have a reasonable level of regulatory and market certainty such that making an investment is going to have a rate of return over that 30+ year lifetime. What we have today however, is a large number of policy and regulatory changes that are making the energy market uncertain.
We also need to return to demand growth, as with growth there will be a need for additional thermal or dispatchable power plants that produce power whenever this is required to meet demand. Current investments in renewables largely provide energy and are either intermittent or un-dispatched in nature. Therefore, these plants are displacing the energy provided by existing thermal plant but not their dispatchable capacity. With increasing demand the existing plant would be unable to cope, leading to the need for additional generation.
You could argue that Europe is taking a bet on future fossil fuel costs being high as they are investing heavily in subsidised generation to reduce the dependence on fossil fuels. However, if the global price of fossil fuels goes down, Europe will have invested in, and will be paying for, expensive equipment and thereby become less competitive in a global market.
There’s also a pressing need to rebalance the transmission system. The current model is basically set for large power stations in certain locations and the transmission of power from those power stations to the demand centres of the large cities and industrial areas. With the low carbon objective however, the new power stations will be offshore wind, distributed solar or distributed thermal plants. The topology of the transmission system therefore needs to reflect that change.
While there has been some progress, as with all major projects, gaining permits to build transmission lines and associated substations takes time.
Need for joined-up approach
The reduction of carbon to the EU’s 2050 target will mean significant investments and there is a need for joined-up thinking to ensure that this is done in the most economically efficient manner. As all the costs will ultimately be passed on to the consumer and any excessive investment increases the risk that Europe becomes less competitive in a global market.
Each EU country tends to approach the electricity market in a different way and when looking at renewables subsidies as an example, renewable power plants are being built in some countries and not in others. This leads to inefficiencies as the plants are built where the subsidies are highest rather than in the most economic location. There is a need to remove these dislocations happening at national boundaries. I believe that current mechanisms are inappropriate and that subsidies should be the same irrespective of which country you are in. Investors would then be looking at constructing plants at locations where they make most economic sense.
Ultimately, there is a need to harmonise across all member states such that there is one set of rules for power systems across the continent.