The last dash for gas?

Power generation in Europe is currently one of the top political, social and economic items on the agenda.

A number of important factors have influenced the rising interest in power generation: security of supply, environmental issues and spiralling energy costs. Despite significant progress in the development and supply of certain energy sources, for example wind, the reality is that for Europe, an increase in gas-fired power is the only way of preventing a shortfall in generation capacity within the next decade.

Despite many issues, we believe the lack of other economically viable and rapidly scaleable energy sources to power Europe’s growing needs have led to a new “dash for gas,” similar to the situation witnessed in the UK during the 1980s and 1990s. This time however, the drivers are different and we expect the outcomes to be different as well.

In this report we set out the context to a looming shortfall in Europe’s generation base driven partly by a boom-and-bust cyclicality in developments and the need
for large-scale existing generation capacity replacement. We also take a view on the limited impact to date of renewable generation capacity, despite progress in some areas.

An over-reliance on gas-fired production can be avoided in the medium-term if certain initiatives are implemented at a utility scale: low-emission generation – most likely nuclear – clean coal and offshore wind. However all of these pose a range of challenges for developers, investors and policy makers to overcome. Even with strong investment to develop these programmes across Europe, the requirement for building gas-fired generation will be sustained, but at a more moderate pace and hopefully without the cyclical excesses seen in the 1980s and 1990s. The make up of the future generation supply mix is unclear. However, it will change over time – and change creates investment opportunities.