The closure of natural gas-fired and coal-fired power plants in response to falling energy demand and environmental policy is putting Europe’s power supplies at risk.

According to energy market analysts IHS Cera, the growth of renewable energy and the slump in energy demand are having a major impact on power generators in Europe and the region runs the risk of power blackouts if generating capacity that is currently deemed uneconomic is closed.

Governments and regulators need to coordinate and implement market reforms across Europe to prevent the lights from going out, says IHS Cera.

IHS estimates that about 130 GW of gas plant across Europe – around 60 per cent of the total installed gas fired generation in the region – are currently not recovering fixed costs and are at risk of closure in the next three years.

"Reforms of the power market are becoming urgent to ensure the security of Europe’s electricity supply," says Fabien Roques, head of European power at IHS CERA. "While reforms are under discussion across Europe, there is a patchwork of proposals from different governments and what is needed is a coordinated approach."

IHS Cera has carried out a market study examining the role of capacity mechanisms, which pay generators for making power stations available on standby to ensure there is sufficient spare capacity on the system to avoid blackouts if renewable supplies drop.

The reform or introduction of capacity mechanisms, which is expected to take place in Europe’s main five power markets by 2018, would encourage utilities to keep loss-making plants open by offering an additional or improved source of revenue.

IHS research, based on international experience, suggests that up to 40 per cent of revenues of a mid-merit plant could come from capacity mechanisms in future.

Future investment and operating strategies in the power sector will be driven by the design of these capacity mechanisms, energy prices and the extent of cross-border power flows, the study notes.

"The next few years will be decisive in reforming the European power system," says Thomas Tindall, director with IHS CERA and the report’s co-author. "What’s striking," he notes, "are the differences in approach being proposed by governments across Europe."