Weak demand may force E.ON to mothball new power stations

Wed Mar 13, 2013 12:13pm EDT

Related Topics

* CEO sees poor power and gas demand in 2013

* To review plants with 11,000 MW including new Irsching 5

* E.ON to focus more on coal ad LNG trading

By Vera Eckert

DUESSELDORF, Germany, March 13 (Reuters) - German utility E.ON said it expected demand for electricity and gas in its core European region to be so weak in 2013 that it might have to mothball some of its most modern power stations.

Power demand in Germany, Europe's biggest economy and energy market, fell 1.4 percent in 2012 to 552.3 billion kilowatt hours (kWh), according to industry data.

As a result, German wholesale electricity prices have dropped over 30 percent in the past two years, while gas prices, linked to the oil market, have remained relatively high, undermining the profitability of gas-fired power stations.

Because of the margin pressure, E.ON has said it will review selected European power stations with a total capacity of 11,000 megawatts (MW) for their productivity, including its $500 million, highly modern Irsching 5 gas-fuelled plant in southern Germany, only opened three years ago.

By way of comparison, Germany's daily power demand is usually around 80,000 MW.

"If the profitability of this plant is not restored, we will have to close it," E.ON Chief Executive Johannes Teyssen said on Wednesday.

"We will take a decision at the end of this month," he added.

Teyssen said he expected another overall decline in European power and gas demand for 2013 as the region's economy slump curbs industrial activity.

"Power demand in northern Europe could be relatively stable and gas demand fall slightly. In southern Europe, demand (for both) should fall significantly."

RENEWABLES UNDERMINE PROFITS

In Germany, furthermore, E.ON said the government's decision to phase out nuclear energy and accelerate the expansion of green power had curbed profits.

Renewable power generation, such as wind or solar, receives priority grid access, and its generators are paid above-market subsidies, eroding profit margins for thermal power stations.

"It cannot be that year after year more money is spent on renewables while operators are left with the cost of system-relevant power stations and are forced to continue operating under uneconomic conditions," Teyssen said.

E.ON in 2012 sold a stable 181.4 billion kilowatt hours of power in Germany, its annual report showed, which was a quarter of its total group power sales. In other EU countries, its sales declined 7 percent year-on-year to 145.9 billion kWh.

Wholesale gas sales placed in the German market by the E.ON optimisation and trading subsidiary rose to 438 billion kWh last year, up 11 percent from 394.4 kWh a year earlier.

E.ON cited weather and new customer acquisitions for its relative success in Germany.

As a result of its power generation, E.ON said its carbon emissions in Europe last year totalled 89 million tonnes of CO2, up slightly from 2011.

Teyssen said that one of the new trade focus areas would be liquefied natural gas (LNG), where there were international arbitrage possibilities.

LNG prices in Asia, Europe and North America vary strongly, with Asia typically paying around $17 per million British thermal units (mmBtu), Europe slightly above $10 and North America only around $3.50 per mmBtu.

E.ON's gas subsidiary, Ruhrgas, is to merge with its trading division in spring.

E.ON also said that it would exploit its huge global coal trading activities. (Editing by Henning Gloystein and Jane Baird)

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