By Ed Crooks
Europe faces the growing threat of electricity shortages because growth in demand has outstripped investment in new power stations, a leading consultancy has warned.
Capgemini, the consultancy, said operating at such low margin levels raised the risk of power shortages, including interruption of supply to large industrial users, “brownouts” – reductions in supply voltage – and blackouts.
Colette Lewiner of Capgemini said the study should be a “wake-up call” for the energy industry, governments and regulators.
“We are in a dangerous zone now,” she said. “We could have power cuts.”
The average margin – the excess of available electricity supply over peak-load demand – dropped to just 4.8 per cent in the winter of 2005-06, down one percentage point from the previous year.
The UK, France, Belgium and Greece are among the countries with the lowest levels of spare capacity.
Capgemini argued that the more competitive and commercial environment for European energy had in part been responsible for the erosion of the capacity margin.
For decades European energy industries maintained high levels of excess capacity. But in the past five years generators in most European Union member states have been failing to invest enough to keep pace with the rise in demand.
Spain was the worst case last year, with supply capacity rising by just 8 per cent while peak load demand rose by 15 per cent, but in many other countries the margin has been squeezed. Only Ireland, where capacity rose by 36 per cent, has comfortably increased its margin.
European energy companies’ investment as a share of their sales has fallen from almost 18 per cent in 2000 to less than 10 per cent in 2004, although it picked up slightly last year.
Electricity generators across Europe have become more exposed to commercial pressures by the spread of liberalisation and private ownership.
In the past, the generators could have predicted their future demand with reasonable certainty. They were assured of being able to finance the investment needed to meet that demand with enough of a margin to guard against power shortages. Today they will typically need to justify those investments as commercial decisions.
Capgemini said investment in new power stations was also being hampered by ever more complex planning procedures and by governments’ persistent tinkering with the regulatory frameworks.
Ms Lewiner said: “How can companies plan for a 10 or 20-year return on investment when governments keep changing the rules of the game?”
“It should be for national governments and the European Commission to encourage power investment in the energy industry.”
The tight supply position is being exacerbated by hotter summer weather and the growing use of air conditioning, which have shifted the traditional seasonal pattern of electricity demand.
In Spain, for example, the peak in demand is now in the summer. In France, generators have been forced to rethink their practice of shutting down nuclear power plants in the summer for maintenance.
Many of Europe’s recent blackouts have also occurred during the summer.
(Financial Times, 11/10/06)