The 15th European Energy Market Observatory report highlighted the toxic combination of the prolonged economic crisis, deregulation and sustainability targets, which it says have led to very disturbed markets.
“The present situation poses a clear threat to Europe’s security of supply,” said Colette Lewiner, Capgemini’s Energy and Utilities worldwide expert. “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. In addition, renewables growth and a CO2 Emissions Right price that is far too low, have pushed wholesale electricity prices down and utilities are under strong strain.”
The report called for the urgent and radical reform of energy markets, including: the reform of the Emissions Trading System (ETS) to respond to markets, or the introduction of a Europe-wide carbon floor price; the creation of a European capacity market; an overhauled retail market to enable the financing of smart grids; and a slowing of the pace of subsidised growth in capacity generated from renewable sources.
It warned that critical investment in infrastructure was under threat, and that utilities were “struggling financially”. It quoted RWE’s group chief executive Peter Terium as recently saying: “80% of company revenues will be gone in 2-3 years”.