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Credit crisis threatens Europe energy supply

24 November 2008 – European utilities must keep up investments in power and gas infrastructure throughout the credit crisis to ensure energy supplies when the economy recovers, consultants Capgemini said in a report.

European energy companies will need to spend at least €1trn ($1.252trn) over the next 25 years to replace ageing power plants and energy networks while reducing emissions of climate-warming gases such as carbon dioxide (CO2).

Investment in new electricity and gas assets has picked up in the last two years, after several years of underinvestment which are partly to blame for rising power prices in Europe.

But the credit crisis threatens to reverse the trend, leading to supply problems after the recession ends and demand for energy rebounds.

“Security of supply and CO2 emissions curbing issues will be exacerbated after the crisis,” Colette Lewiner, Global Leader of Energy, Utilities & Chemicals, Capgemini, said.

“To avoid this, utilities and governments should keep their investment plans in zero carbon generation investments”.

The report warns that falling demand for energy, as major industrial consumers cut production in response to lower demand for their goods, could tempt utilities to delay investments in new plants.

But Lewiner warned energy companies against putting off investment plans because they could not build them quickly enough to react to a rebound in demand when the economies of Europe recover from the current slump.

“We are in a long time lead type of industry, so you cannot change quickly so you should not stop,” Lewiner told Reuters.

“If you don’t do that after the crisis it will be tough.”

Capgemini also said the crisis would likely lead to more energy sector takeovers, with buyers with solid balance sheets and plenty of cash preying on smaller, weaker competitors and so damaging market competition.