(The author is a Reuters market analyst. The views expressed
are his own.)
By Gerard Wynn
LONDON Nov 27 A shift towards renewable power
in Germany is seeing ownership of generating assets move to
households, farmers and small businesses, away from utilities
which are losing out on the advantages of wind and solar in a
European utilities are suffering from weak power demand and
falling wholesale prices.
In particular, a rising portion of subsidised renewable
power on the grid is creating over-capacity at a time of weak
demand and suppressing peak power prices because wind and solar
operate at zero marginal cost.
That is hurting utilities, traditionally operating big,
centralised steam fossil fuel (coal and gas) and nuclear power
Many have failed to diversify into renewables.
For example, the generating portfolio in Germany of the
country's number one utility E.ON is dominated by
fossil fuels (12 gigawatts) and nuclear (5.7 GW), followed by
1.6 GW of hydro and just 0.2 GW of wind, with no solar power at
all (see Chart 1).
The difficulty is by implication a problem for motivating
new baseload power needed to balance intermittent wind and
solar, which utilities traditionally build and operate.
The impact on utilities and baseload capacity shows that a
dramatic shift to renewables has not been fully thought through
Chart 1: goo.gl/blLZR
Chart 2: (page 45) goo.gl/TvjhP
Many utilities have missed out on the shift to German
renewables which earned government-guaranteed 5 to 10 percent
annual returns from subsidies worth 16.4 billion euros last
A draft study by the San Francisco-based Climate Policy
Initiative calculated renewable energy investment by stakeholder
groups in Germany in 2010.
It found that households were the biggest source of finance,
in its study "The Landscape of Climate Finance in Germany",
accounting for two fifths of the total 26.6 billion euros ($34.5
billion). German householders have rushed to snap up subsidies
for roof top solar.
They were followed by farmers, industry, energy utilities
(in fourth place and 14 percent of the total), banks and other
Germany's Trend Research last year documented cumulative
ownership of renewable energy assets by stakeholder group.
It found that private individuals owned nearly two fifths of
Germany's 53 gigawatts in 2010, by far the largest group. (See
They were followed by specialist project developers; banks
and fund managers; landowners; industry; and utilities in sixth
place with 6.5 percent.
As the London-based renewable energy corporate finance firm
Alexa Capital said recently in a discussion paper: "Utilities
did not see a viable business model in small-scale distributed
power generation, nor did they embrace renewable power.
"The expansion of renewable generation has been so rapid
that power utilities are losing control of their markets."
Renewable power accounted for nearly three quarters of new
electricity generating capacity in Germany in 2010.
Total electricity generation in Germany fell last year, but
consumption of both wind and solar rose, up a quarter and nearly
two thirds, according to BP data.
Germany is leading a wider shift towards green power across
the EU as countries strive to meet 2020 targets to get a fifth
of all energy from renewable resources compared with 12 percent
The EU added 28 gigawatts capacity in 2010, the latest year
where all energy technologies are available, led by wind and
solar power (16.9 GW), followed by thermal fossil fuel (8 GW),
according to the European electricity trade body Eurelectric.
Hydropower and nuclear capacity fell.
The shift to renewable power is a continuing trend.
The European Commission last year published its 2050 Energy
Roadmap which projected that about two thirds of all energy, not
just power generation, would come from renewable sources by the
middle of the century.
Solar is especially unsuited to utilities as developed in
Germany, in smaller, roof-mounted installations.
In 2010 in Germany some 81 percent of solar capacity was
under 1 megawatt (MW) and 85 percent were roof-top
installations, according to the Climate Policy Initiative study.
In his foreword to E.ON's latest interim financial report,
Chairman and Chief Executive Johannes Teyssen acknowledged the
threat posed by renewable power to the company's gas-fired
"In most European markets, the gross margin for gas-fired
units is approaching zero or is indeed already negative. One
factor is that the demand for electricity remains very low. But
another key factor is that renewable source electricity is being
fed into the grid during peak load periods.
"This is one of the reasons why our power generation
business faces increasingly significant challenges.
"At the nine-month mark (in 2012), I'm therefore unable
despite ... solid third quarter earnings to paint a completely
positive picture of E.ON's situation. Under these circumstances,
the E.ON Board of Management has decided to review our forecast
for 2013 and our guidance for 2015."
The power market is no longer effective and more regulation
The question for utilities is how far they can make new
regulation work in their favour, where governments are reluctant
to pay too much for grid balancing services - for idle, standby
fossil fuel power plants.
Other regulation could include forcing renewable power
plants to pay for battery storage, and so limit their
variability, or downgrade their priority grid access, neither of
which are presently discussed.
($1 = 0.7713 euros)
(Reporting by Gerard Wynn)