Fossil-Fuel Dependence and Vulnerability of Electricity Generation: Case of Selected European Countries

Abstract

This paper analyzes the diversity of fuel mix for electricity generation in selected European countries and investigates how the fuel bill has changed as a share of GDP between 1995 and 2005. The drivers of fuel dependence related vulnerability are determined using Laspeyres index decomposition. A "what-if" analysis is carried out to analyze the changes in the vulnerability index due to changes in the drivers and a scenario analysis is finally used to investigate the future vulnerability in the medium term.

The paper finds that the British and the Dutch electricity systems are less diversified compared to three other countries analyzed. The gas dependence of the Dutch and Italian systems made them vulnerable but the vulnerability increased in all countries in recent years. Gas price and the level of dependence on gas for power generation mainly influenced the gas vulnerability. The United Kingdom saw a substantial decline in its coal vulnerability due to a fall in coal price and coal dependence in electricity generation. The scenario analysis indicates that UK is likely to face greater gas vulnerability in the future due to increased gas dependence in electricity generation and higher import dependence.

Keywords: Diversity, vulnerability, fossil fuel dependence in power generation

JEL Classification: Q4