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European Wholesale Power Prices May Be 10 Percent Higher
if Current Oil Prices Persist
LONDON, UK, November 21, 2000 - In addition to being
hit by a steep rise in petrol prices over the last year, companies
and individuals across Europe are likely to be faced with
higher electricity bills as a result of high oil prices. ICF
Consulting estimates that if current high oil prices persist,
European wholesale power prices will be approximately 3 Euros
per MWh higher by 2002 than if the levels of a year ago prevailed.
In the long run, wholesale power prices will be as much as
5 Euros per MWh higher.
Some countries are particularly threatened; ICF Consulting
estimates the increase in the marginal generation cost ranges
from around one Euro per MWh in France and Germany to 8-10
Euros per MWh in Spain, Italy and Portugal. The increase in
the United Kingdom and the Netherlands is about 3 Euros per
MWh in the short term, rising to 5 Euros by 2010 as the cost
of new gas-fired generation begins to affect the market. The
rises in the marginal generation cost are likely to be reflected
in wholesale power prices, although some of the increase will
be absorbed by generators for political reasons. For some
countries this implies wholesale power prices up to 10 percent
higher than they would have been if oil prices had remained
at their levels of 12 months ago.
ICF Consulting has analyzed the impact of higher oil and gas
prices using their Integrated
Power Model (IPM), a detailed computer simulation of the
European power industry. The model chooses the least expensive
sources of generation to meet electricity demand, including
the possible build of new generation capacity if this is viable.
IPM Europe is powered by the same methodology as the ICF Consulting
model of the North American power markets and is widely used
by both government agencies and private industry to provide
comprehensive market analysis.
The oil price affects electricity prices in two ways, the
most obvious is the cost of power from oil burning power plants;
however, a potentially more significant factor in Europe is
the link between gas prices and oil prices. Most gas supplied
to European markets is covered by long-term supply contracts,
the price in these contracts is generally related to a benchmark
oil price. As oil prices rise, the gas price goes up and the
cost of generation from gas-fired power stations increases.
Gas is the least expensive option for new power generation
in Europe at the moment, and any rise in the cost of new generation
will feed into wholesale power prices as the requirement for
new capacity grows.
Even countries with little oil or gas-fired generation and
surplus generating capacity are affected because of the knock-on
effect of price rises in other regions. The increasing integration
of the European markets means that an increase in generation
costs in one market will tend to draw in additional imports
from neighbouring systems. This will put upward pressure on
prices.
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ICF International (Nasdaq: ICFI) partners with government and commercial clients to deliver consulting services and technology solutions in the energy, environment, transportation, social programs, defense, and homeland security markets. The firm combines passion for its work with industry expertise and innovative analytics to produce compelling results throughout the entire program life cycle, from analysis and design through implementation and improvement. Since 1969, ICF has been serving government at all levels, major corporations, and multilateral institutions. More than 1,800 employees serve these clients worldwide. ICF’s Web site is http://www.icfi.com.
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For Immediate Release
United Kingdom Contact: Kim Keats Martinez
Tel: 44 (0) 20.7092.3006
United States Contact: Douglas
Beck
Tel: 1.703.934.3820
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