European Pumped Storage Plants Are in Crisis

A number of baseload generators across Europe have decried the fall in average European wholesale power prices, which some peg to additions of subsidized low-marginal-cost renewable generation to an already oversupplied market, a decline in coal and gas prices, and a general dip in power demand. But coal, gas, and nuclear generators aren’t the only ones feeling a financial pinch.

In June, Vattenfall, a large European generator owned by the Swedish government, announced a comprehensive restructuring program aimed at returning its pumped storage hydropower fleet in Germany back to profitability. The measure comes just months after Swiss generator Axpo booked a sizable $558 million impairment on a 1,450-MW pumped storage facility launched in January 2016.

Vattenfall’s restructuring program, which is expected to be implemented by the end of 2019, would mean only 2,500 MW of its currently operational 2,800-MW hydro fleet in Germany would be kept online through plant operation optimization and putting single plants in so-called “transitional operation mode.” That essentially entails keeping the plant in an operable state, “though they may not always be ready for operation,” Vattenfall said. So far, the company’s 40-MW Niederwartha plant in Saxony is already in transitional operational mode, and it will soon be joined by the 120-MW Geesthacht plant in Schleswig-Holstein. Vattenfall also plans to reduce its pumped hydro workforce of 420 full-time employees by 60%.

Vattenfall, which said it has invested $67 million modernizing and upgrading its German pumped storage plants to ready them for Germany’s energy transition, noted that pumped storage plants are currently “the only large-scale generation facilities with storage capacity for excess electricity from renewable energy sources.” It said pumped storage is important because the plants “serve as a guarantee for the electricity network stability and are also one of few generation systems that are capable of a ‘black start.’ ”

However, the company said, price development on the German electricity market and the regulatory framework for existing storage facilities has put the country’s pumped storage facilities under “considerable economic pressure for years.” Torbjörn Wahlborg, head of business area generation at Vattenfall, said the restructuring program is the “only realistic chance to keep most of our German pumped storage plants in long-term operation.”

Vattenfall’s struggles came to light nearly six months after Axpo, which is owned by the Swiss government, reported steep losses for a second year in a row, owing to profitability worries at its Limmern pumped-storage plant (Figure 1)—expanded last year to add 1,000 MW to an existing 450-MW plant—which is hidden above the Swiss Alpine town of Linthal.

Figure 3-LL-Limmernsee
1. Tears of a mountain. Swiss utility Axpo’s 1,450-MW Limmern pumped storage plant, completed in January 2016, generates and stores power by shifting water between two mountain lakes: Lake Mutt, which sits at 8,100 feet above sea level, and Lake Limmern, 2,000 feet below it. The plant uses four GE pump-turbines using variable-speed motor generators. According to GE, to get to the plant, workers use a cable car to traverse the first 3,280 feet in elevation, at least, or ride an underground funicular, which is essentially a subway line several miles long, running from the bottom of the mountain to the power plant. Courtesy: Alpiq Burkhalter Technik AG

According to Axpo, profitability of the Limmern plant depends on the difference in prices for baseload power and peak power. “This margin is not enough to guarantee the profitable operation of the plant, and Axpo does not expect the situation to change in the medium term,” it said. “Even though this power plant is immensely important for the security of supply in Switzerland, it cannot be operated profitably in the coming years.”

One way that Limmern’s profitability could improve in the future is if more variable power is added to the grid, and Axpo is banking on it. “Balancing energy is the trump card of the new Limmern pumped-storage power plant with its state-of-the-art and flexible pump turbines,” it said.

Sonal Patel is a POWER associate editor