Recession hampers utilities' renewable energy investment

The global recession has led to a 3.5 per cent drop in electricity consumption, forcing utilities to cancel much-needed investments in low-carbon infrastructure such as smart grids and increased renewable energy capacity, according to a major report from Capgemini released today.

The study found that utility companies' debt positions continued to deteriorate in 2008, with the combined debt of the 10 largest European utilities rising 11 per cent between 2006 and 2008 to reach €213bn (£190bn).

The report also warned that despite this weakening financial position, faster action is still needed to increase investment in grid infrastructure and renewables if the EU is to meet its 2020 objectives of producing 20 per cent of energy from renewable sources by 2020.

The dire state of firms' finances has led them to turn away from more costly renewables projects, according to Colette Lewiner, global leader of energy, utilities and chemicals at Capgemini.

"Utilities is a heavy industry with a need for long-term planning and construction," she said. "Continuing to address these needs during the crisis is essential; if not, the post-crisis 'wake up' will be difficult."

The report found that investment in sustainable energy during 2008 increased at a much slower pace than in previous years, with growth of about two per cent comparing unfavourably with the 50 per cent average growth rate recorded between 2002 and 2007.

This year is also expected to see the situation worsen, with figures for 2008 showing that investment in renewable energy fell 14 per cent during the second half of the year following the financial crisis.

Capgemini recommended that utilities increase the rate of renewables being installed and also increase investment in demand-side management such as smart meters and smart grids that will greatly improve efficiency and save costs in the long term.

The report points out that many stimulus plans contain incentives to support such investment, including €4bn of EU money that has been earmarked for energy infrastructure investment from next year.

However, The Union for the Co-ordination of Transmission of Electricity warned that many utilities would find it hard to justify such investments, predicting energy consumption will not return to pre-recession levels. The trade body recently permanently revised down its estimates of the additional electricity generation investment needed to maintain security of supply in Europe from 50,000MW to 20,000MW by 2020.