Power generation in the EU is at a crossroads. Up to half of current generation capacity will be decommissioned over the next 20 years, and policy pressures on climate change and energy security are changing investment frameworks.
However, investment climates remain very uncertain, as a result of price, regulatory and delivery risks as well as factors resulting from the global economic downturn.
To inform thinking on policy change and energy market reform, E3G has produced a background paper to review current evidence on investment momentum in the EU power sector, focusing primarily on power generation. It also looks at plausible scenarios of future investment needs based on current policy frameworks, and compares these to alternative low carbon scenarios. As well as an EU overview, five country case studies are presented: UK, Germany, France, Spain and Poland.
The review finds that a significant increase in investment volumes will be needed in all future scenarios for new generation capacity across Europe, to replace decommissioned plants and meet demand. Total investment volumes increase under all scenarios. The amount of investment needed to meet decarbonisation goals is higher than under “business as usual” scenarios, but is of a broadly similar magnitude. When fuel costs are taken into account, the overall additional costs of low carbon generation may be negligible. However, although there has been a recent growth in investment in renewables and low carbon technologies, ‘business as usual’ investment patterns and new fossil fuel generation capacity in the planning pipeline risk ‘locking in’ high carbon generation and making future carbon reduction targets impossible to meet.