European energy markets are likely to have a difficult wake-up once the recession is over if essential infrastructure investments are delayed, consultancy firm Capgemini said Monday.
"The credit crunch should short-circuit the investment cycle, leading to a lack of generation capacities and infrastructures," it said in its tenth European Energy Markets Observatory report.
"It will very likely slow down renewable projects and some nuclear investments, consequently raising carbon dioxide emissions owing to increased output from fossil-fueled plants," it said.
Capgemini estimates that Europe needs to invest at least Eur1 trillion ($1.27 trillion) in power and gas infrastructure over the next 25 years. "Without a significant and vigorous investment program in electricity and gas infrastructures, Europe's security of energy supply would be threatened," it said.
To improve gas supply security, for example, the company recommends that Europe invests in more storage capacity, imports more liquefied natural gas and develops more liquid European gas markets.
Capgemini's global leader of energy, utilities and chemicals, Colette Lewiner, who led the research, said that the crisis could damage Europe's plans to cut carbon dioxide emissions. "To avoid this, utilities and
governments should maintain their investment plans in zero carbon generation investments," she said.
Capgemini's report noted that utilities have started investing again since a low point in 2005, but that most of the planned generation capacity is fossil-fueled and therefore utilities are not moving toward a low carbon
energy mix.
Capgemini said it expects the recession to "trigger an increased market consolidation," with buyers with solid balance sheets and cash benefiting, but cautioned that big acquisitions could be more difficult to finance.
If potential buyers target young companies and new entrants with weak balance sheets it would reduce market competition, said Capgemini.