Market incentives for gas-fired power plants to improve

Market incentives for gas-fired power plants to improve

Partially driven by low CO2 prices and the expansion of renewable energy sources in the electricity sector, gas-fired power plants have recently faced economic issues and, consequently, even very modern power plants have had to temporarily ceased operation – commonly termed “mothballing”.

Analysis by Frontier on behalf of the Dutch electricity transmission system operator TenneT finds that, after a period of low profitability, the market incentives for gas-fired power plants are now likely to improve.

In the Netherlands alone, over 4 GW of gas-fired power plants have been closed temporarily over the past 5 years, due to low expected running hours and profitability.

As part of its annual Security of Supply Monitoring Report, TenneT analysed the likelihood of mothballed plants returning to the market. 

Frontier was asked to assess whether the market incentives were sufficiently high and timely enough to trigger reactivation of the mothballed assets.

The analysis found that

  • Market incentives in the short-term are unlikely to trigger reactivation of mothballed plants.
  • After 2021, however, the economics of gas-fired assets should improve and de-conservation becomes more likely.
  • Apart from political uncertainty in the Netherlands and Europe, there are no imminent barriers that could hinder timely reactivation.

Our anlaysis concluded that the current market design is able to generate sufficient incentives to invest in the power sector, if political stability and certainty for investors is guaranteed.

Frontier regularly advises public and private sector organisations across Europe and globally on policy development, market design and security of supply issues in the energy sector.

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