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New 20 GW of gas and coal plant face post-cash crunch challenges

May 7th, 2013

More than 20 GW of gas and coal power stations are currently being built in Western Europe, a new report shows.

The study by Platts Powervision reveals that “despite stagnant demand and below-cost wholesale power prices”, 8.7 GW of gas-fired capacity and 11.9 GW of coal plant is under construction across the region.

An additional 15.4 GW of capacity comprising onshore wind, biomass, hydro and nuclear is also under way, as well as nearly 4 GW of offshore wind.

Platts editor Henry Edwardes-Evans said: “These power stations were planned, approved and financed pre-credit crunch in a world of rising prices and healthy demand. They are now reaching completion in the new reality of prices at €40 per megawatt hour, a demand slide of 4 per cent since 2008 and a market flooded with subsidised renewables.”

The report states that evidence of the post-credit crunch market conditions can be seen in the fact that some €8 billion of impairment charges were made last year by major 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,” it states, adding that meanwhile “existing power stations increasingly are being mothballed or ramped down in response to record levels of solar and wind power output”.

Edwardes-Evans noted that while “utilities and developers can live with market risk, price volatility, even technology risk, what they find much harder to quantify is regulatory and political risks, which have become dominant forces in the sector”.

He said this “is causing investment in thermal plant construction to slow down, if not dry up”.

The Platts Powervision data shows that from a medium-term perspective, Europe’s thermal plants are facing a vigorous schedule of closures. Platts indicates a 120 GW net decrease in installed nuclear, fuel oil and coal capacity across the European markets through to 2019, which it says 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.”

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