European utilities will have to invest around €1 trillion (£0.86tr) by the end of the decade in new infrastructure to ensure the region has a good supply of energy.
That’s according to analysts at IHS, which claims the investment climate has deteriorated significantly in the last year and threatens the region’s green agenda.
‘The Energy Investment Imperative: Toward a Competitive and Consistent Policy Framework’ report suggests Europe’s energy sector faces “a large and pressing investment challenge” and highlights the need for the right investment framework as soon as possible as ageing power stations close and gas imports rise.
Michael Stoppard, Chief Researcher at IHS and co-author of the report said: “Europe’s energy sector faces a large and pressing investment challenge. Today the required investment is lacking. However, because of the long lead time to develop energy assets, it is imperative that the right investment framework be put in place as soon as possible to ensure long-term stability of Europe’s energy system.”
Analysts at the global information company suggest around €750 billion (£645.7bn) would be needed in power generation through 2020, €90 billion (£77.5bn) in transmission lines and around €150 billion (£129bn) for the expansion of gas supply and building new pipelines to cope with rising imports as Europe’s domestic output declines.
Europe is believed to have a number of ageing power plants which needs replacing and a quarter of its fossil fuel power generation capacity is due for retirement by 2023. This is to meet tighter environmental rules while the renewables sector needs back-up supply and better grid interconnection, the report notes. It also suggests investor confidence is vital and regulators will need to take major steps to reduce uncertainty for investors.
Fabien Roques, Head of European Power Research and another co-author of the report said: “The current market structure is unlikely to attract the necessary risk-bearing investment. Premiums to cover significant regulatory and market risks threaten to drive up the costs of capital in an already capital-intensive industry.
“National reforms to implement capacity mechanisms risk undermining progress so far with market integration at the European level. Unless the investment framework is fixed urgently, Europe will fail to deliver on its low carbon agenda.”