UPDATE 1-Germany legislates to help prevent power blackouts

Thu Nov 29, 2012 9:42am EST

Related Topics

(Recasts with passing of law in parliament, adds utility input, writes through)

* Industry paid if agrees to go without power in emergencies

* Plant operators must signal intended plant closures

* Local utilities say power bills will run away

* Offshore wind liabilities curbed, may unlock investment

By Vera Eckert

FRANKFURT, Nov 29 (Reuters) - Germany passed legislation designed in part to help prevent blackouts as the country moves towards relying on renewable energy and out of nuclear power.

Following the Fukushima disaster in Japan, Germany embarked on a costly retreat from nuclear and an expansion of green power sources such as solar and wind, but this is placing strains on the grid because such renewable sources are intermittent.

To encourage generator and grid operators to adapt to this unpredictable new energy mix, the government is therefore creating a complex system of rules and incentives designed to keep power flowing regardless of the weather.

The policy response has global significance since policymakers and utility investors worldwide are watching how Germany masters the task of integrating green power.

Yet the new system has also brought criticism since the costs are being passed on to consumers. T axes and feed-in tariffs already double the cost of producing and transmitting power in final bills.

Local utility association VKU warned the cost to consumers was getting out of hand. "Without honest communication, citizens will not know how many costs are coming their way," said VKU director Hans-Joachim Reck.

"They have a right to know the amount of money thy have to pay for supporting renewables and the urgently necessary network expansion," he added.

Yet the new law is needed given pressure on the grid.

A report this week warned the number of tight network situations on power networks trebled last winter and was rising this year, increasing the risk of leaving industry and households out of power.

The legislation passed on Thursday specifies a system under which grid operators should agree supply terms with big industrial consumers.

ADDITIONAL CAPACITY

Those consumers, who agree to be ready to curb their consumption if power supply is disrupted in emergencies, will be paid fees.

The additional capacity secured by this measure totals 3,000 megawatts (MW) - equivalent to three big coal-fired plants.

Companies such as aluminium smelters will get 20,000 euros ($25,820) a year per MW to agree to a potential switch-off and between 100 and 500 euros per megawatt hour (MWh) they forego if the crisis situation actually materialises.

In a second measure, operators of power plants must from 2013 notify authorities a year in advance if they plan to shut installations. Should the energy regulator declare such plants as "system relevant" it can demand they be kept open another five years.

Operators would only be paid for covering running costs but would be able to sell their power in the day-ahead market.

A third element of Thursday's package concerns the financial liabilities that grid operators will have to pay if links to offshore wind power parks, fa voured by the government, are delayed. Again, costs will be passed on to consumers.

These liabilities were capped, a measure aimed at unlocking stalled offshore wind projects after uncertainties over the issue discouraged private investment and stopped utilities such as EnBW, RWE and Denmark's Dong from raising sufficient funds.

The legislation is also designed to deal with the key issue that thermal power stations are still needed to plug gaps left by renewables, yet revenues from such plants, especially older gas-fired plants, have been hit by big renewable volumes making an increasing contribution to supply.

This reduces the amount of time a relatively inefficient plant might be operated, since green power is treated preferentially and must be marketed whenever it is produced.

Utility E.ON has responded by abandoning thermal plant projects and idling capacity.

Earlier this month, E.ON said it would shelve 1,000 MW of capacity at Irsching 3 and Staudinger 4 and only run the two blocks as reserves.

($1 = 0.7746 euros) (Editing by David Holmes)

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