Ten of Europe’s biggest utilities mothballed 21.3 gigawatts of gas-fed stations last year, or 12 percent of Europe’s generation fleet, as plants lost money for a second year, according to an Oxford University study.
Six of the utilities, including GDF Suez SA and RWE AG, reported impairment charges on their European generation assets in 2013 equivalent to 6 billion euros ($8 billion), the study shows. Gas-fired generation in Germany, Europe’s biggest power market, won’t be profitable before 2019, according to data compiled by Bloomberg. Negative clean-spark spreads, a measure of plant profitability, falling power demand and an increase in renewable energy contributed to the closures, the study said.
“Utilities have completely failed to anticipate changing carbon prices, coal prices, and the impact of renewables deployment and how these could affect the economics of gas investments,” Ben Caldecott, director at Oxford University’s Smith School of Enterprise and Environment, said by phone yesterday. “Energy markets have seen high-performing gas plants rendered stranded assets, while coal generation has gained market share.”
Gas-plant profitability has been in decline since 2009 and utilities have been losing money by burning the fuel for power since 2012, according to data compiled by Bloomberg. Governments are concerned that security of supply may be reduced as these plants shut and are contemplating so-called capacity mechanisms to pay utilities for making plants available during times of peak demand, according to the report.
The German next-year clean-spark spread dropped 62 percent in 2013, according to data compiled by Bloomberg. The measure was at minus 20.42 euros a megawatt-hour today and will remain negative as far as 2018, the data show.
European coal prices declined as increased U.S. shale gas production damped domestic demand from power stations, increasing supply and making coal more profitable than gas in Europe, Oxford University said in the report. Next-year coal prices slumped 28 percent since Jan. 1, 2011, according to broker data compiled by Bloomberg.
Coal plants emit about twice as much carbon dioxide as gas facilities. The European Union has a target to cut emissions by 20 percent from 1990 levels by 2020.
“We need markets that are going to strand the most polluting assets, not the least polluting ones,” Caldecott said.
About 8.8 gigawatts of the European gas plants that closed last year were either built or acquired within the last 10 years, according to the study. One gigawatt is enough to supply about 2 million European homes.
The 10 utilities in the study were EON SE, RWE, Statkraft AS, Vattenfall AB, GDF Suez, Centrica Plc, SSE Plc, Verbund AG, EnBW Energie Baden-Wuerttemberg AG and CEZ AS.