Utilities in Europe need to shut more than 30 percent of their total gas, coal and oil-fed power capacity by 2017 to counter a drop in prices caused by the boom in renewable energy sources, UBS AG analysts said.
Producers must close 49 gigawatts of capacity to stabilize profits at 2012 levels, analysts led by Paris-based Per Lekander wrote in an e-mailed report. That includes 24 gigawatts of “mainly cashflow positive capacity” on top of the 7 gigawatts that utilities already plan to shut and an additional 18 gigawatts of closures expected to be announced, he wrote.
Germany’s next-year electricity contract, a European benchmark, has fallen 21 percent in the past year as power produced from sources such as the sun and wind boost supply and push down wholesale prices. The European Union wants to meet 20 percent of electricity demand with renewable sources by 2020.
“The most important driver has undoubtedly been the remarkable increase of renewable capacity, and in particular solar, mainly in Germany,” Lekander said.
Baseload German 2014 power, for supplies delivered around the clock, was 41.35 euros ($53.61) a megawatt-hour at 3:50 p.m. Berlin time, broker data on Bloomberg show. The contract fell to as low as 40.25 euros on Feb. 1.
Mainly gas-fed power plants will be closed, while coal and lignite-fueled stations will be affected from 2015, UBS said.
In Germany, gas fired plants are making a record loss of 17.84 euros a megawatt-hour based on power, gas and emissions prices for next month, data compiled by Bloomberg show.
Widespread closures may face resistance from energy regulators concerned about the impact on supply security, Lekander said. Capacity that generates cash will also be difficult to shut from a regulatory and competitive perspective, he said.
Plants with a total 5 gigawatts of capacity are planned to shut between now and 2018 because they’re uneconomic to run, UBS said. Other closures also include 1.3 gigawatts from aging facilities and 1.2 gigawatts under EU environmental laws.
GDF Suez SA plans to halt its 627 megawatt Ruien gas and coal-fed plant and its 294 megawatt gas-fired Awirs-5 unit in Belgium in 2013. EON SE plans to close its Emile Huchet and Lucy coal-fed plants in France by 2015. EnBW Energie Baden-Wuerttemberg AG will close its Neckarwestheim nuclear power plant in Germany by 2017.