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German utilities attack green squeeze on profits, hint at leaving
August 6, 2013 / 11:02 AM / 4 years ago

German utilities attack green squeeze on profits, hint at leaving

* Green boom hurts conventional power plants

* E.ON considers moving mothballed plant in Slovakia

* Move seen as tactical ahead of September election

By Christoph Steitz and Vera Eckert

FRANKFURT, Aug 6 (Reuters) - Germany utilities are heaping pressure on the government before September polls to soften green policies that are hurting their profits, with one company hinting it could even move gas or coal plants to countries where it can still make money.

Germany’s 550 billion euro ($728 billion) plan to upgrade and diversify its energy system, following a decision to abandon nuclear power, has brought about a boom in wind and solar power.

It has also severely damaged the core business of utilities, by cutting the hours gas and coal-fired plants can run, as subsidised renewable energy always takes priority for feeding into the grid whenever the weather is suitable to produce it.

Having to act increasingly as a back-up for sunshine or wind to guarantee supply security is a role the utilities say they cannot afford to keep up on current terms.

While still profitable, Germany’s biggest utilities E.ON , RWE and EnBW have seen share prices plunge by up to 60 percent over the last three years. They face falling earnings and a combined debt pile of more than 73 billion euros.

“Within a short period of time the energy shift has thrown utilities into a deep crisis,” said Heinz Seiffert, head of OEW, a group of local communities that owns 46.75 percent in EnBW, Germany’s No.3 utility.

He is among those calling for swift reform of the EEG, Germany’s renewables act, that supports new renewable energy units by ensuring them fixed rates for up to two decades.

The utilities are demanding that, as the economics of renewable generation are increasingly coming into line with conventional power, subsidies should be reined in so the two can compete. Otherwise they say they may have to mothball plants.

But since regulators can keep needed plants from being mothballed, this threat has limited impact.

To underline the argument, Germany’s largest utility, E.ON, said it might dismantle its mothballed gas-fired plant in Malzenice, Slovakia, and relocate it, partly due to the impact of heavily subsidised growth of renewables in Europe.

Analysts saw the statement as a signal by companies increasingly desperate to shape policy after the polls.

“With this announcement, they want to test the public and the government. Utilities have been left with their back against the wall and they are currently using any means to keep profitability stable,” said NordLB analyst Heino Hammann.

IN THE RED

To illustrate the speed of growth, more than 22 gigawatts (GW) of solar power capacity was installed between 2010 and 2012 - more than 12 percent of Germany’s total installed capacity.

Germany’s installed capacity is 178 GW including 75 GW of renewables, data from industry group BDEW shows.

Most of the solar capacity was installed by households and investors seeking state-guaranteed subsidies, while the incumbent utilities failed to seize the opportunity.

The big companies have focused more on wind power, but expansion plans have partly been frozen due to uncertainty over future regulation.

Critics have said utilities were too slow in driving renewable energy in Germany. Germany’s top four utilities owned just 7 percent of the 71 gigawatts of renewable energy capacity installed at the end of 2011, environment ministry data shows.

“It is difficult for utilities to find a future strategy,” said Annemarie Schlueter, analyst at savings banks Haspa.

Since renewable power from wind and solar power is fed into the grid at the expense of gas and coal, conventional gas plants only run a faction of the time needed to make money with them.

In 2012, Irsching 5, a very modern gas-fired plant in Bavaria that is 50.2 percent owned by E.ON, ran less than half of the 4,000 hours needed to be profitable.

Peter Terium, chief executive of Germany’s No.2 utility RWE, said last month about 30-40 percent of its plants were “in the red” mid-term. Most of RWE’s generation capacity is in Germany.

Unprofitable plants have caused utilities to either mothball capacity in Germany or announce such plans.

Adding to the problems are falling power prices.

The wholesale contract for Calendar Year 2014 power now costs 36.08 euros a megawatt hour, the lowest level of a year-ahead contract since March 2005.

Power generators earn about 11 euros per MWh for benchmark 2014 power derived from hard coal, down 50 percent over the past three years, while using gas means making a loss of 16 euros per MWh.

Moving power plants to regions where they can run longer could therefore make sense, said Andreas Schneller, who co-manages the EIC Energy Utility Fund.

“But it does not solve the problem. Margins would rise a bit, but it would remain a one-off,” he said. ($1 = 0.7553 euros) (Reporting by Christoph Steitz, Vera Eckert and Tom Kaeckenhoff; Editing by Anthony Barker)

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