November 27, 2012 / 1:20 PM / in 7 years

COLUMN-German power generation moving against utilities: Wynn

(The author is a Reuters market analyst. The views expressed are his own.)

By Gerard Wynn

LONDON, Nov 27 (Reuters) - 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 continuing trend.

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 plants.

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 by policymakers.


Chart 1:

Chart 2: (page 45)


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 year.

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 financial investors.

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 Chart 2)

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 now.

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 assets.

“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 unavoidable.

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

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