German Power Generators Split Over State Payments to Plants – Bloomberg

Utilities operating in Germany are
divided over whether the government should pay generators to
keep uneconomic power plants open to ensure supply can meet peak

Vattenfall AB, the third-biggest utility operating in
Germany, says that stability of power supply is not an issue and
the market is so oversupplied that so-called capacity payments
aren’t necessary. Statkraft AS, whose power output from German
gas-fed plants fell 50 percent last year, said the nation will
need to build new plants by 2019 if action isn’t taken to keep
existing facilities online.

Ten of Europe’s biggest utilities mothballed 21.3 gigawatts
of gas-fed power stations last year, or 12 percent of the
generation fleet, as plants lost money for a second year,
according to an Oxford University study. Some countries,
including France and the U.K., are preparing measures to pay
utilities to keep some of these plants in reserve, while the
European Commission says an integrated European power market can
resolve concerns over security of supply.

“There is the risk that if we jump to the conclusion of a
capacity mechanism, rather than trying to integrate renewables,
it will be the nail in the coffin for the market,” Stefan Dohler, head of asset optimization and trading at Vattenfall,
which is owned by the Swedish state, said in an interview in
Essen, Germany yesterday. “The EU talks about an integrated
market and this is the best option for consumers.”

Unprofitable Plants

Utilities have been losing money by burning gas for power
since 2012, according to data compiled by Bloomberg. Next-year
power in Germany, a regional benchmark, fell to 35.80 euros
($48) on Jan. 7, the lowest since 2005, according to data from
European Energy Exchange AG. The contract was at 36.55 euros a
megawatt-hour at 1 p.m. Berlin time, the data show.

A German gas plant loses about 20 euros for every megawatt-hour of power it produces according to the clean-spark spread, a
measure of profitability based on the year-ahead power price and
the cost of fuel and carbon permits compiled by Bloomberg. Such
plants will continue to lose money as far ahead as 2018, the
data show.

“Gas power plants are essential to guarantee the security
of supply,” Juergen Tzschoppe, managing director at Statkraft
Markets GmbH, told reporters at a conference in Essen on Feb.
11. Statkraft keeps its gas plants “ready to operate and we
supply to the system when needed. However, we are far from even
covering pure operational costs.”

Paying Double

Germany’s five-fold increase in intermittent renewable
energy in the decade through 2012 intensified the need for back
up plants. Wind and solar accounted for as much as 49 percent of
Germany’s power on Dec. 23, falling to 4 percent two days later,
data from the European Energy Exchange compiled by Bloomberg

Implementing capacity payments to keep plants available now
means Germany would avoid “having to pay double to turn the
market around in 2020 as gas capacity has already exited,”
Tzschoppe said in an interview. Germany needs to implement
capacity payments this year, Johannes Teyssen, chief executive
officer of Germany’s largest utility EON SE, said in November.

Germany is already paying plants deemed essential for power
supply stability, including EON’s Irsching gas-fired station in
Bavaria, on an individual basis. Details have not yet been
agreed by the government for a longer-term measure.

Renewable Expansion

“There is still downside potential for power prices
because renewables are dominating in Germany,” Tzschoppe said.
“We are not isolated, the rest of Europe is moving towards this

While current market conditions will probably persist for
some time, Germany’s power system still has enough flexibility,
Dohler of Vattenfall said. Backup power options like pumped
reservoir storage are not being fully used at the moment, he

Electricity supply in Germany is set to increase as 11 new
coal and gas-fired power plants will start generating by 2016,
according to regulator Bundesnetzagentur and plant operators.
Renewable energy capacity will rise by 5.1 gigawatts this year,
according to Berlin-based consultant, Energy Brainpool GmbH.
After that capacity will decline as no new capacity will be
built, closing of unprofitable stations continues and Germany
exits nuclear power by 2020, Tzschoppe said.

Power consumption in Germany last year was the lowest since
2009, according to AG Energiebilanzen e.V., an association of
energy lobby groups and research institutes.

To contact the reporter on this story:
Rachel Morison in London at

To contact the editor responsible for this story:
Lars Paulsson at


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