A UBS Analysts Project reported that almost 30% Of Europe’s Fossil Fuel Power Capacity To Close By 2017
Following up on a Credit Suisse report stating that ~85% of US energy demand growth would
come from renewables by 2025, we thought it would be good to take a
look at the energy trends in Europe as well. Actually, one of our readers
pitched this idea prior to the publishing of that article, and did most
of the research for this piece. I then had the pleasure of putting it together
to create the primarily positive (with one notable hiccup) non-fiction story
below. Enjoy!
Let’s start with the broad overview. UBS analysts in 2013 reported
that utilities in Europe need to shut down
30% of their gas, coal, and oil-fed power capacity by 2017 — not
necessarily to fight global warming, cut pollution, or cut fuel imports, but
because the renewable energy revolution is pushing fossil fuels off the grid.
In other words, increasingly cheap and fast-growing renewables are
killing fossil fuels in Europe.
“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,” according to Rachel Morison of Bloomberg.
“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.”
It’s true that coal power production
increased in Germany in 2012, but you have to put that into some context to
understand why. What many people don’t know is that many coal power plants were
previously planned for Germany. The renewable energy revolution hasn’t
increased the need for coal power plants, as many misinformers would have you
believe, but has resulted in the majority being dropped. Closing of nuclear
power plants, combined with high natural gas prices in Europe, however, did
result in a slight rise in coal power production.
Natural gas is clearly the fossil fuel getting hit hardest in
Europe at the moment. As Tino Andresen and Tara Patel of Bloomberg
wrote in March 2013, “Three years ago, Germany’s largest utility spent 400
million euros ($523 million) building a natural gas-fired power station. Later
this month, the company may close the plant because it’s losing so much money.”
EON’s Irsching-5, the power plant in discussion, only operated 25% of the
time in 2012! The factors for the quick death of such an expensive plant were
varied, though: “As Europe’s weak economy holds back electricity demand,
cheaper coal, requirements to buy renewable energy and the collapsing cost of
carbon permits are undercutting gas-fired plants.”
But it’s not only happening in Germany. “Gas-fired plants are
stopped three days out of four,” Gerard Mestrallet, chief executive officer of
GDF Suez, France’s former gas monopoly, said at a briefing on Feb. 28. “The
thermal industry is in crisis. There is overcapacity.” The story is
essentially the same in the Netherlands, Spain, the Czech Republic, and
other European countries.
In the end, the story is actually rather simple: as more renewable
energy comes on line, something has to go off line. Aside from nuclear power
plants that are being shuttered due to old age and citizen demand, the big
loser at the moment is natural gas. However, coal is on its way out too, just a
bit more slowly. Of course, if there was a higher price on carbon, or other
fossil fuel market dynamics changed, we could see those two switch places on
their way out the door. “The most important driver has undoubtedly been the remarkable
increase of renewable capacity, and in particular solar, mainly in Germany,” Lekander
said.
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