The Phoney War in Europe

From the equipment supply point of view, other big European markets are in even worse shape. As reported here last month, power policy in Italy appears to be more focused on legacy distortions and how to maintain them than on creating a level playing field, fast, and getting out of the way. Even if liberal promises are in place, they must be respected and be seen to be respected before cautious new entrants will spend hundreds of millions of euros on gas turbines. That could take years.

In Germany, power market competition has taken off. This is great news for German industry, and a huge boost for the liberal cause. But new entrants may only have more doubts. The German price premium they are targeting is shrinking rapidly, and the incumbents may become much nastier and more effective rivals than expected. Meanwhile grid access is, again, a headache. Today’s cumbersome patchwork system should be revised by September. But there is much to fix, and there is no guarantee that Germany will ever rival the Nordic region in pro-market grid system excellence.

Although only time will tell, it seems today that France is a write-off. Foreign followers of the electricity reform debate there must wonder if they are living in the same world as French officials. They certainly won’t see a reason to forecast a near-term dash for gas (although the change is happening even in France – see panel below). The same conclusions should probably also apply in Portugal and Austria. These anti-liberals have been joined, in fact if not in name, by the UK, which is still maintaining its so-called ‘gas moratorium’, despite the anti-competitive effect that policy is having.

In the Benelux, there is probably some room for growth, but the region is already an enthusiastic promoter of gas-fired cogeneration. There is a limited and broadly stagnant supply of refineries, chemical complexes and steel mills worth using as an anchor for a major CCGT plant. The Nordic region, meanwhile, is a web of complexity. Finland and Denmark are not hostile to gas-fired power, but Sweden and Norway are. In any case, building a CCGT to sell gas-fired output at current Nord Pool power exchange prices would be suicidal. Unless prices pick up and green consciousness fades, little may happen.

Yet the chilling thought is that phoney war is no excuse for inaction. The pace of change in the European power business, if not the equipment segment, really is worth some ugly hype, self-promotion, ordering about, arguing, and crazy trading rocket science (with live and armed rockets). If the forces at work do finally order in the heavy artillery, the factories providing it will probably never have been busier. What a way to run a war.