German utilities split on government capacity payments

• 10 years ago (2014-02-16)
• Junior Isles

Europe 1089 Nuclear 659

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German utilities are divided over whether the government should pay generators ‘capacity payments’ to keep uneconomic plants running to ensure peak demand can be met.

Swedish state-owned Vattenfall AB, Germany’s third largest utility, has come out against the payments, stating that stability of power supply should not be a priority when the market is so oversupplied.

“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,” said Vattenfall’s head of asset optimisation and trading, Stefan Dohler. “The EU talks about an integrated market and this is the best option for consumers.”

Statkraft AS has taken an opposing view, claiming that Germany will need to build new plants by 2019 if action is not taken to keep existing facilities online.

“Gas power plants are essential to guarantee the security of supply,” said managing director at Statkraft Markets GmbH, Juergen Tzschoppe, at a recent conference. “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.”

Statkraft’s power output from German gas-fired plants fell 50 per cent in the last year, contributing to 21.3 GW of lossmaking gas-fired plants being mothballed by ten of Europe’s biggest utilities last year, 12 per cent of the total generation fleet, according to an Oxford University study.

France and the UK, amongst others, are preparing capacity payments to keep some gas plants in reserve, but the European Commission is confident that an integrated European power market is the key to resolving concerns over security of supply.

Germany is already paying limited capacity payments to plants deemed essential for power supply stability, such as E.On’s Irsching gas-fired plant in Bavaria but the need for longer-term, more widespread measures is currently up for debate.

Utilities have been losing money by burning gas for power since 2012, according to data compiled by Bloomberg, with a German gas plant expected to lose about €20 for every MWh it produces, according to the clean-spark spread for the coming year. Current estimates also show that German gas plants will continue to be unprofitable out to 2018.

New base load generation is set to come online in Germany over the next two years, with 11 new coal and gas-fired plants beginning generation by 2016, according to regulator Bundesnetzagentur.

Renewable energy capacity is expected to rise by 5.1 GW during 2014, according Berlin consultants Energy Brainpool GmbH, but this will be the beginning of the end for capacity improvements, heralding the closing of more unprofitable plants and Germany’s final nuclear exit by 2020, according to Statkraft’s Tzschoppe.