* Power, gas and coal prices down sharply
* Overcapacity weighs along with sluggish demand
* Improving economy not likely to give big boost
LONDON, June 6 (Reuters) - Europe's power, gas and coal markets are in their sharpest downturn since the financial crisis of 2008 and traders say subdued demand and increasing capacity hurt chances of a big rebound any time soon.
The power and coal futures markets are down by around 40 percent since peaking after Japan's Fukushima nuclear meltdown in March 2011 pushed up global energy prices.
Prospects for economic recovery and the closure of unprofitable capacity offer some hope, but analysts say overcapacity continues to weigh on Europe's power market along with weak demand.
"European economic growth should continue to recover in 2014, but the recovery will be uneven and overall electricity consumption growth - if any - looks to be modest," analysts at French Bank Societe Generale said in a research note.
Coal prices have fallen as new supply comes to market from exporters such as Australia, Indonesia, South Africa and Colombia, while demand growth has generally slowed in industrialised and emerging markets.
"Excess supply from producing countries exacerbated by weakened Asian demand have continued to affect current international coal trade price behaviour," Societe Generale said, although it expected prices to pick up next year helped by Chinese and Indian demand.
India's coal demand growth has slowed over the past year as utilities slashed new orders due to weaker industry output and a fall in the rupee currency which made dollar-traded imports more expensive.
Another important factor for power, gas and coal price trends is growing renewable energy supply which is being spurred subsidies aimed at making Europe's electricity sector cleaner.
"As renewable energy penetration has got to a more advanced level in the past couple of years, this is having a systematic downward impact on electricity prices, not just daily fluctuations," said Jacopo Moccia of the European Wind Energy Association (EWEA).
Some 23 gigawatts (GW) of wind power capacity was installed across the European Union in 2012/2013, according to the EWEA, which is equivalent to adding more than 20 standard European fossil fuel or nuclear power stations.
Solar power capacity is also expanding, as is coal, with at least half a dozen new coal-fired power stations set to connect to the grid in the next two years.
GAS IS DIFFERENT
Gas prices are also falling, though they held on for longer, buoyed by unrest in gas-rich North Africa and the Middle East Asian demand for liquefied natural gas (LNG) and, more recently, fears over a Russian supply cut to Ukraine, an important transit route for European Union imports.
This year the gas futures market has shed almost 15 percent of its value.
A mild winter and spring have helped dent heating demand.
"This price slump is more than a seasonal decline as winter turns to spring. It reflects a North West European gas market that is substantially oversupplied," said consultancy Timera Energy.
"Not only are we back to pre-2000 levels of demand, but we now see no chance of the 500 billion cubic metres (bcm) level being attained even in the case of an extremely cold winter," Societe Generale analysts said.
EU efforts to lower dependence on fossil fuels, especially imported ones, could lower European consumption further towards 2020, they added.
Europe's annual gas demand stands at around 480 bcm, down from a peak of almost 525 bcm in the early 2000s.
Adding to this weakness in the gas market is unusually high supply from Qatar, the world's biggest LNG exporter, which generally ships to Asia.
As in Europe, Asian LNG prices have dropped sharply this year.
"It is not in the Qataris' strategic interest to drive a slump in spot prices in their primary market. So surplus LNG is typically sold into Europe," said Timera Energy. (Additional reporting by Ben Garside; editing by Jason Neely)