Europe’s big energy companies have stopped complaining so much aboutrenewable energysubsidies, notes a recent Financial Times article, reminding that not that long ago barely a month passed without someone from France’sGDF Suez or Germany’s Eon grumbling that unaffordable support for green energy was eating into the profits of their fossil fuel plants – or increasing the risk of the lights going out.
It was easy to see why, notes the FT. Those subsidies helped to nearly triple
the amount of EU wind and solar generating capacity being installed in the
space of six years. Renewables accounted for a quarter of Germany’s electricity
production last year, up from 7 per cent in 2000 – an extraordinary shift in
one of the world’s largest and most advanced industrialised economies. Even theUK
got 15 per cent of its power from renewableslast year, up from 11 per
cent in 2012.
This new power supply was not supposed to displace
conventional electricity immediately. It was thought that demand would keep
growing enough for renewables simply to take a share of a wider expanding
market. But that was before the eurozone crisis. Demand fell and wind and solar
plants, which have low marginal costs, were able to displace traditional gas
and coal generators – and drive down wholesale power prices.
For Europe’s gas power plants the problem was
exacerbated by theUS shale boom. Gas became so cheap in the US that a
flood of surplus American coal arrived in Europe, which has driven EU coal
import prices down nearly a third since 2011.
At the same time economic weakness in the eurozone
contributed to a collapse in carbon prices, from nearly €30 a tonne in 2008 to
less than €5 at the start of this year. Burning coal in Europe has become
sufficiently cheap that gas plants have been shut at a rapid clip.
Utility companies have announced plans to mothball or
close more than 20 gigawatts of gas generating capacity since 2012. They
incurred nearly €6bn of writedowns on gas-fired power investments in 2013
alone, according to analysts at Oxford university’s Smith School of Enterprise
and the Environment.
All of this is bad news on several fronts. It threatens security of supply, gives rise to more carbon emissions, and makes it tricky to operate a grid using lots of intermittent renewable energy sources. Unlike most coal plants, gas power stations can be turned on and off relatively quickly, making them ideal for filling in supply gaps on cloudy or windless days when renewables falter.
In other words the rise of renewables has madegas powermore necessary, at precisely the time gas plants are struggling – partly because of renewables.
Some argue that Europe’s traditional energy companies
might not have got themselves into so much bother if they had made bigger
renewables investments themselves. Others suggest that better power
interconnection between EU countries could have eased the situation.
However, the companies themselves have been far less vocal in their complaints of late – which may reflect their successful lobbying for cuts to renewables subsidies. Several countries have implemented cuts and, in January, Brussels went one better by abandoning legally binding renewable energy targets for individual countries, in favour of a looser EU-wide goal.
More help is on the way for the traditional generators, as at least five EU countries – including Germany, France and the UK, the three largest economies – have drawn up plans to support conventional generators in order to secure electricity supplies.
These plans, which differ from country to country, are collectively referred to as "capacity mechanisms” because they are broadly designed to pay companies for having the capacity to generate power when needed – not for amounts produced. In several cases the aim is to incentivise investment in new gas plants. Some countries have adopted similar measures for other reasons, but they were always the exception not the rule. This year that may change.
According to the FT, until last month it was not clear whether the latest capacity mechanism proposals would meet European Commission state aid guidelines. But two weeks ago Brussels approved the first one, in the UK. According to a report on this trend by Linklaters, the law firm, more are likely – even though a patchwork of distortive national measures may make hopes for a unified EU energy market even more distant. One thing is immediately clear, though: as with renewables, energy consumers will be left to pick up the tab.
