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More than 20 gigawatts (GW) of gas- and coal-fired power station capacity is presently under construction in West Europe, despite stagnant demand and below-cost wholesale power prices, the latest Platts power generation analysis shows.
Platts Powervision, a plant lifecycle and market environment tracking tool, shows 8.7 GW of gas-fired capacity and 11.9 GW of coal-fired plant capacity is being built across the region. An additional 15.4-GW capacity is underway in other technologies (onshore wind, biomass, hydro, nuclear) and nearly 4 GW of offshore wind capacity is being built.
“These power stations were planned, approved and financed pre-credit crunch in a world of rising prices and healthy demand,” said Platts editor Henry Edwardes-Evans. “They are now reaching completion in the new reality of prices at €40 per megawatt hour (/MWh), a demand slide of 4% since 2008, and a market flooded with subsidized renewables.”
Evidence of the changed market conditions is seen in the fact that some €8 billion of impairment charges* were made in 2012 by major generating utilities, largely relating to the declining value of gas-fired power stations. The near-term squeeze on thermal plant economics has caused new construction starts in West Europe to slow to a trickle in recent months. Meanwhile, existing power stations increasingly are being mothballed or ramped down in response to record levels of solar and wind power output.
“Utilities and developers can live with market risk, price volatility, even technology risk,” said Edwardes-Evans. “What they find much harder to quantify is regulatory and political risks, which have become dominant forces in the sector. This is causing investment in thermal plant construction to slow down, if not dry up.”
From a medium-term perspective, the Platts Powervision data shows Europe’s thermal plants are facing a vigorous schedule of closures. It indicates a 120-GW net decrease in installed nuclear, fuel oil and coal capacity across the European markets for the period 2007 through 2019. This is fueling uncertainty longer term.
“Currently, West Europe’s power system is underpinned by well-established thermal assets, many of which are fully amortized and running at well below cost in a supporting role to the ‘green’ renewables revolution,” Edwardes-Evans noted. “This may be great for wind farm owners and superb for householders wealthy enough to afford PV panels, but industry observers fear it is not sustainable.”
