EnBW Can’t Shut Four German Power Units, Regulator Says

Jan 06, 2014 12:13 pm ET

(Updates with power price forecast in 11th paragraph.)

Jan. 6 (Bloomberg) -- Germany’s grid regulator is forcing EnBW Energie Baden-Wuerttemberg AG, the country’s third-largest electricity generator, to keep unprofitable power plants open to prevent supply disruptions in Europe’s biggest energy market.

EnBW needs to keep four coal, oil and gas-burning units with a total capacity of 668 megawatts in the south of the country online for at least two years, starting from when it filed for permission to close the plants in July, Bundesnetzagentur said in an e-mail today.

“Based on our experience, we can say that power plants in the south are needed for the power system,” Anette Froehlich, a spokeswoman for the regulator, said in an e-mail from Berlin. “In total, German utilities have asked permission to shut 41 generating units with 11 gigawatts in total.”

Utilities are struggling to make profits from some power plants as falling demand and a rise in renewable energy production led to an oversupply. German 2015 power, a European benchmark, has lost 21 percent in the past 12 months, according to broker data compiled by Bloomberg. The contract traded at 36.05 euros a megawatt-hour as of 5:24 p.m. Berlin time.

According to the year-ahead clean-spark spread, a measure of profitability that includes the price of power, natural gas and carbon compiled by Bloomberg, German gas-fired plants lose 20 euros for every megawatt-hour of electricity they produce.

Hardly Used

Under Germany’s green energy law, power from wind and sun has priority access to the grid, meaning conventional power generators have also suffered reduced running hours.

The blocks in Walheim, which are running on hard coal and started operating in the 1960s, and Marbach, which can burn oil or gas and were commissioned in the 1970s, were hardly used recently, Ulrich Schroeder, a spokesman for EnBW said by phone from Karlsruhe.

“We are now in talks with the grid regulator about the compensation for keeping the plants available,” he added. Under German law, generators get compensation from the grid operator when they retain unprofitable plants to secure the stability of the power network.

The Bonn-based regulator hasn’t made a decision on any other of the 41 units operators have asked for permission to close, Froehlich said.

Falling Consumption

German power consumption last year dropped to the lowest since 2009, according to AG Energiebilanzen e.V., an association of energy lobbies and economic research institutes. The share of green power in energy consumption rose to 23 percent in 2013 from 17 percent in 2010, the data show.

The benchmark year-ahead electricity contract will average about 6 percent less in 2014 than in 2013, according to the median of nine analyst and trader estimates compiled by Bloomberg News last month. The contract will average 36.60 euros a megawatt-hour this year, compared with 39.06 euros in 2013, the survey showed.

EON SE, RWE AG and Stockholm-based Vattenfall AB plan to shutter more than 16 gigawatts of unprofitable generating capacity in central-west Europe in the four years through 2015, company filings show.

“Closures as a strategy to raise price levels are not a solution anymore,” Paolo Coghe, Paris-based analyst at Societe Generale SE said today. “In fact, such closures would have had to happen on a very large-scale basis from the main utilities to have an impact on prices.”

Germany’s regulator expects 826 megawatts of generation capacity to close this year, according to a filing on its website dated Oct. 16. At the same time, 9,400 gigawatts of new capacity will go online by the end of this year, according to estimates from Berlin-based Energy Brainpool GmbH & Co. KG.

--Editors: James Herron, John Deane