Main findings of this year’s report
Electricity and gas markets in Europe are in a chaotic situation due to:
- Slow economy and decreasing consumption of gas and electricity
- The EU Energy-Climate Package: target of 20% renewable energies in the energy mix by 2020 has strong consequences
- The consequences of the very successful development of unconventional gas in the US
In this video, Capgemini’s Colette Lewiner, energy adviser to the Capgemini Group chairman, talks through the key findings of the report and the crisis facing the European energy markets, and what needs to be done to move forward – video is 4m08s:
What about the impact on the UK?
As International Business Times reported this morning, there is a very real threat of ‘Blackouts and soaring bills unless UK reforms energy markets‘. Indeed, earlier, in its coverage of the Observatory, Bloomberg reported a similarly dismal view for the whole of Europe: Cold European Winter Could Create Energy Crisis – “A cold winter may plunge Europe into an energy crisis because of the over-reliance on renewable energy and the shutting of natural gas-fired generators” it said.
I asked Richard Hepworth, Principal for Digital Utilities, Capgemini Consulting, specifically what the impact was for the UK, what both utility companies and UK consumers are facing, and what needs to happen in the UK to address this:
“The energy industry is in desperate need for investment to secure supplies for the future. In the UK, gas power stations are still turning to meet peak demand but this will be expensive to continue. With the retirement of the nuclear fleet and old coal fired plants, if no immediate investment is made, the lights will either go out or prices will rise to pay for the required investment.
This year’s European Energy Markets Observatory report shows that energy companies operating in the UK are facing the same challenges as those across Europe; the rising price of gas and heavy investment in infrastructure is hitting the bottom line of energy suppliers. However, there is a prevailing public opinion that consumers are being exploited and over charged by the major energy companies. UK energy suppliers are in a very difficult situation, they are being pilloried by regulators, consumer groups and government about being very profitable. This market context is making the political and regulatory environment very volatile, which in turn is making it difficult to make the essential investment decisions.
Ofgem’s Retail Market Review recommends further tariff transparency which will hopefully encourage smaller suppliers to enter the market place in order to stimulate competition. However, Ed Miliband’s talk of price freezes will only make new companies reticent to enter the marketplace. The energy sector has become a political football, which will lead to slow progress at a time when action needs to be taken. The likelihood of energy supply disruption is high with blackouts a genuine possibility in the near future, as highlighted by the National Grid.
Without a consistent and proactive energy policy, by 2017 the UK could be facing a real crisis. The UK is a long way from being able to switch to renewables, keep the lights on and keep prices down. There needs to be a balance between investment in power station infrastructure and renewable energy.”