Nations adding wind and solar power aren’t doing enough to ensure their electricity systems can meet demand when renewable-energy output falls short, according to a Bloomberg Industries analysis.
Countries must do more to establish so-called capacity markets, which reward utilities to run coal- and gas-fired plants as a backup when alternative energy is insufficient, Chris Rogers, an analyst in London, said in a report.
European countries including Germany and the U.K. are overhauling their energy industries to raise the share of renewables, helping to counter a power shortfall as fossil-fuel and nuclear plants are taken out of service. That expansion can’t do away with coal- and gas-fired generation altogether because wind and solar output varies according to the weather.
“Liberalized markets and many regulated systems have failed to address the issues of rising intermittency,” Rogers said. “Capacity markets are failing to deliver high enough prices to incentivize refurbishment of old plant, or building of new plant.”
Companies operating backup stations that can be switched on and off quickly must be rewarded to keep the facilities open, Rogers said. Gas-fired plants need a daily “capacity payment” of at least $230 a megawatt to make it worth their while, he said.
European utilities including EON AG and RWE AG (RWE) have held off building new gas-fired plants, citing concern that the investment won’t be profitable.
As well as Germany and Britain, France and the U.S. states of Texas and California also need to establish capacity markets, the report shows. Additional capacity can be created by building new power plants or by controlling consumption at peak times.
“The growing value of capacity is an opportunity for all generators,” Rogers said.