Europe’s third-largest power provider last week revealed it may be forced to shut down more conventional power plants compromising a total of 1 GW and terminate 470 MW in supply contracts if market conditions in Germany do not improve.
RWE has blamed “political intervention” for “making [its] business challenging”—and specifically, the subsidized expansion of renewables in Germany for causing the margins and utilization of conventional power plants to decline. “At the same time, wholesale prices for electricity have been in free-fall for some time, and are now at only around [€0.035/kWh, or $0.046/kWh],” the company said. Those prices have almost halved in the past three years.
RWE CEO Peter Terium told shareholders in an Aug. 13–released earnings report that the company “had to stomach substantial earnings shortfalls, to the tune of 40% by the half-year mark” of the 2014 financial year. The “crisis in conventional electricity generation” will continue to affect RWE in 2014 and beyond, he projected. The announced closures are part of the RWE 2015 program, an initiative to reduce costs and increase earnings.
RWE will remove from the grid the 110-MW Goldenbergwerk lignite power plant in Hürth in the third quarter of 2015. It will also shutter 285-MW Unit C of the Westfalen hard coal power plant in Hamm at the beginning of 2016. And, in addition to 470 MW in terminated supply contracts, “RWE Generation continues to keep its power plants and supply contracts under review and will close or mothball units, and terminate contracts, that are not profitable to retain,” it said.
That means, the company could be forced to close the 610-MW section of Unit K in the Gersteinwerk plant in Werne fueled by hard coal by 2017, “when an extensive overhaul is scheduled which would no longer be justifiable from an investment perspective under the current economic conditions,” said the company. The 110-MW block of gas turbines of that plant would continue to operate, however.
The capacity reductions would mean staff cuts of around 180 employees, said the company.
RWE’s announcement on Aug. 14 comes almost exactly a year after RWE said it would take offline 3.1 GW of natural gas and coal plants in Germany and the Netherlands, citing their declining profitability.
Since last summer, RWE says it has been forced to take offline either temporarily or permanently plants that are incapable of covering their operating costs. This includes 4.7 GW of gas capacity and 1.6 GW coal-fired capacity in Germany and the Netherlands. The company also did not not extend contracts for the use of German hard-coal units accounting for a total 2.7 GW. In the UK, stricter regulatory requirements forced the company to take 4 GW offline last year; it will decommission another 1 GW by the end of March 2015.
Other companies, like Germany’s E.ON and France’s GDF Suez, are implementing similar measures. The German Federal Network Agency estimates that 11 GW of capacity will be shuttered by the end of 2018.
“This trend on the continental European market shows how necessary it is to properly pay providers of supply security for that service,” RWE said in a statement on Aug. 14. “It is therefore a welcome development that the political discussion about a new market design is starting to gain traction. The market should be designed in such a way that security of supply can be guaranteed at affordable costs, in a market-oriented manner, with no restrictions on technology and no discrimination.”
Those requirements would be met by a decentralized capacity market proposed by Germany’s energy industry group, and it is the only way Germany’s power supply “as an industrial location” can remain affordable and reliable, the company said.
However, experts suggest that if Germany implements any capacity mechanisms at all, it won’t be before 2016.
Economy and Energy Minister Sigmar Gabriel has pushed to introduce a new capacity market later this year. But three studies published by that ministry in July generally conclude that the current system can function without a capacity market.
A capacity market designed to help keep unprofitable conventional power plants open to ensure a constant supply of power when renewable power is low would be unnecessary, especially if power imports and exports between Germany and other European Union countries could be increased, the studies say.
—Sonal Patel, associate editor (@POWERmagazine, @sonalcpatel)