Germany’s Expensive Experiment

Germany is building more coal-fired power plants than at any time in the past 20 years for one very practical reason: They cost less to operate than the other options. As Germany prepares to end nuclear power by 2022, new coal plants rated at 5,300 MW total capacity will start up this year alone, replacing about 1,000 MW of less-efficient coal-fired capacity that will be shuttered. Obviously, these coal-fired plants weren’t planned and constructed in the less than two years since Chancellor Angela Merkel announced closure of Germany’s reactors in response to the Fukushima disaster in Japan. The new coal plants were part of Germany’s race to renewables.

The downside for Germany is that carbon emissions rose 1.6% last year as more coal was burned. German Environment Minister Peter Altmaier tried to put a happy face on the results by noting, in early March, “The growth in renewables and the decline in power consumption have already fully bridged the gap opened by the shutdowns of the eight nuclear reactors in 2011.” The decline in power consumption is the result of Germany’s rapid shrinking economy, caused in part by large industrial users migrating overseas. (See “Germany’s Energy Transition Experiment” in the May 2013 issue of POWER for more details, available online May 1 at www.powermag.com.)

Germany’s transition to renewables is just getting traction. Instead of spreading the pain across all users, the rapidly rising cost of renewables has been heaped almost completely on consumer retail rates, now over 30¢/kWh. In fact, the renewable line item on the average consumer’s monthly electricity bill increased 47% in 2013 alone, but the worst is yet to come. Altmaier estimated in late March the shift to renewables could total another $1.3 trillion by 2030.

Natural Gas Falls from Favor

Germany’s renewables target is 35% by 2020, increasing to 85% by 2050. Nuclear power had represented one-fifth of the country’s energy supply The difference, about 65% of its generation, will remain conventional coal and gas through 2020 and 15% by 2050, assuming those lofty renewables goals are met. Germany is doubly doomed because, unlike in the U.S., a large portion its natural gas is imported and the country resists using fracking technology to increase domestic gas production. Today’s price of Russian natural gas purchases (pegged to the price of oil) in Germany for industrial use is about 12 euros/GJ or about $16/million Btu before the 19% VAT is added—more than four times the U.S. price of natural gas.

The lofty price of natural gas is disrupting Germany’s power infrastructure in unexpected ways, such as causing the shutdown of even the newest, most efficient, and most expensive plants. EON’s gas-fired Irsching 5, located in Bavaria, was completed only three years ago at a cost of $523 million but is likely to close because the utility is losing money on each megawatt-hour it produces. Dropping demand, required purchases of renewable energy, low-cost coal, low-cost carbon allowance prices, and rapidly rising natural gas prices have conspired to make even a combined cycle plant with a thermal efficiency approaching 60% uneconomic to operate.

Others within the European Union (EU) are experiencing the same phenomenon. France’s GDF Suez SA and Centrica Plc are also shuttering gas-fired plants. EON has turned down two gas plants, using them only for peak demand periods. RWE’s gas plants are operating at half capacity, and two will be shut down for six months this year. Gas plants are also closing in the Netherlands, Spain, and the Czech Republic, according to Bloomberg data. Electricity produced by French gas plants dropped 24%, according to grid manager RTE. Finally, GDF has announced plans to shut down close to 10,000 MW of gas plants across Europe. In response, cheaper coal-fired electricity production is up, supplying about 25% of the EU’s electricity this year.

The spark spread (a measure of the profitability of a gas-fired plant) reached a new low in the EU in late February, at minus $23.87/MWh. “Under these conditions it is not possible to operate gas-fired power plants however clean, efficient and good for the climate and the country they may be, neither old nor new,” EON Chief Executive Officer Johannes Teyssen said in January. “We are not willing to run loss-making plants where we don’t see any chance of a recovery.”

The problem across the EU, particularly in Germany, is the flexibility of the gas-fired combined cycle plant is paramount when the wind doesn’t blow or the sun doesn’t shine. Altmaier said in January that Germany “needs” these gas-fired plants, so the German Environment Minister is looking seriously at developing capacity mechanisms whereby users are paid to keep plants online even when it isn’t economic to do so, a move with which EON predictably agrees. Similar payments are scheduled to begin in 2018 in the U.K.

Coal Remains in the Mix

The building of new coal-fired plants using modern technology has long been in Germany’s resource plan in conjunction with its expansion of renewables. With nuclear plant closures and natural gas no longer an economic fuel for power generation (either because of price or refusing to develop indigenous sources), Germany’s only remaining choice is coal.

There is one useful lesson to be learned from Germany’s ruinous resource planning choices. Germany is building new ultrasupercritical coal plants designed to ramp up and down at 30 MW/minute and 500 MW within 15 minutes and shutting down older, less-efficient, and less-nimble plants. In other words, Germany’s new coal fleet is designed to operate in a symbiotic relationship with renewables. In the U.S., the choices are presented as renewables or coal. As in Germany, the better choice is renewables and coal.

—Dr. Robert Peltier, PE is COAL POWER’s editor-in-chief.