LONDON • Europe faces the prospect of higher electricity bills and a supply crunch, as utilities struggle to finance new gas-fired power plants unless they meet tougher emission criteria imposed by banks pressured to stop financing fossil-fuel projects.
The region's utilities already anticipate power supply problems as they phase out coal and nuclear generation and ageing infrastructure.
International producers have for well over a decade said gas was a necessary transition fuel on the journey to decarbonisation.
But increased urgency to halt climate change and the scaling up of renewable technology have left investors and policymakers hesitating over plans for large new gas plants in the region.
The falling cost of renewable energy and the potential of emerging technologies, such as hydrogen, are at the front of policymakers' minds, pushing gas out of favour as they legislate even more ambitious climate targets.
Natural gas produces roughly half the carbon dioxide emissions of coal when burned in a power plant.
A way to get rid of the remaining emissions is to use carbon capture and storage (CCS) technology to trap carbon dioxide, but that is expensive.
It also does not address mounting concerns that leaks of planet-warming methane from gas infrastructure may cancel out the benefits of switching from coal to gas.
The European Commission's executive vice-president Frans Timmermans told an industry event in March that there will be only a "marginal role for fossil gas" on the path to net zero emissions by 2050.
Last year, the International Energy Agency (IEA) said gas demand in the European Union will be 8 per cent lower in 2030 than in 2019.
"In some mature markets in Europe, North America and parts of Asia, natural gas is facing existential questions, particularly following announcements of net-zero targets," the authors of the IEA's World Energy Outlook said in an e-mail.
Some developers and utilities have diverted funds from gas.
In Europe's five largest power markets - Britain, France, Germany, Italy and Spain - developers have announced more than 60 gigawatts (GW) of new gas plant projects, S&P Global Market Intelligence figures show, although they are not all likely to be built.
A report by US-based think-tank Global Energy Monitor last month said building all the gas infrastructure planned or under way in the EU would create €87 billion (S$140 billion) of stranded asset risk.
Gas projects worth some €30 billion were cancelled, delayed or indefinitely postponed last year as they struggled to find funding.
If CCS is required by regulators, that would add on several euro cents a kilowatt hour, analysts say, as CCS requires additional infrastructure and means more fuel is needed overall to produce the same amount of electricity.
As utilities shy away from committing to it, several European governments are looking at importing more power and liquefied natural gas, as well as paying operators to keep gas plants available at short notice as standby capacity. That could also inflate consumer energy bills.
Elsewhere, though, gas plants might not have the same struggle.
The Oxford Institute for Energy Studies said China could add 40 to 50 GW of new gas-fired power capacity by 2025 to 140 to 150 GW, up 50 per cent from current levels, as the government tries to limit coal consumption.
But in Europe, where coal is already hard to finance, lending institutions and governments have moved on to tightening requirements for funding gas projects.
The European Investment Bank, Europe's largest public lender, has revamped its lending policy to largely exclude new gas infrastructure from the end of this year.
REUTERS
