green, interrupted Winter Sees the Return of Coal and Gas

Conventional power plants played a crucial role in meeting Germany’s energy requirements during dark and chilly January. Now suppliers are demanding market reforms.
RWE's power plant in Lingen ran at full blast on January 17. Photo: Bloomberg

At German utility company RWE’s site in Lingen in the norther state of Lower Saxony the staff had reason to celebrate on January 17. That day, they fed more energy into the grid than ever before. The output reached 3,300 megawatts, more electricity than all of the wind turbines in Germany can produce combined.

The local nuclear power plant, along with three gas-fired plants, ran at full blast. “We fed everything we could into the grid,” says Matthias Hartung, who oversees RWE’s power plant division. He happened to be on site that day.

Lingen was not the exception, either. Nuclear- and gas-fired power plants, as well as those using black- and brown coal were in constant use nationwide. Conventional energy sources peaked at 67,000 megawatts that day and supplied 90 percent of Germany’s energy, according to think tank Agora Energiewende. Renewables did not even reach 15,000 megawatts. Wind turbines operated at 12 percent of their capacities, solar plants at 14 percent – even at midday.

Germany’s transition to renewable energy seemed to pause on January 17. In the central and southern regions heavy clouds covered the sky, paired with fog on the ground. The sun barely reached the solar roofs. There was also very little wind that day.

“Gas- and coal-powered plants ensured the supply,” RWE manager Hartung concludes. This was the case on many days this winter, but especially in January. Between January 17 and 25 the contribution of solar- and wind energy remained almost constantly low. As a result, the sector is now debating the successes and failures of the country's plan to transition to renewables, commonly known as the Energiewende, and the role of conventional power plants in the energy supply.

09 p21 Power Plants at Full Blast-01

The contribution of traditional fossil fuels to the electricity market has been steadily shrinking. Renewables provided almost a third of electricity overall last year, supported by legislation securing their prioritized feeding into the grid. But on dark January days, however, when renewables produce almost no electricity at all due to the weather, conventional power plants certainly pull their weight.

“We can expect that a fossil backup will be necessary for several decades to come,” said Norbert Schwieters, who manages the energy division at consulting firm PWC. This is also due to rising demand as heating and transport rely increasingly on electricity to reach climate change goals.

But how can the supply be ensured in the long term? With the current wholesale electricity prices, coal- and gas power plants are barely profitable any more.

On January 17 operations at Lingen’s gas power plant were more than adequate for hours. The electricity price peaked at €143 per megawatt hour on the spot market. But this is not usually the case. On the futures market one megawatt hour currently costs less than €30 for the base load. Even for the peak load, the hours with especially high consumption, the price stands at €36 to €38. Those prices don't even cover the operating costs of a gas power plant.

In 2010, when Lingen’s bloc D was put into operation, electricity was priced at more than €60 for the peak load. The facility was well-geared to Germany’s transition to renewable energy. It has low CO2 emissions and an easy start-up procedure to meet the fluctuating demand caused by wind- and solar energy.

Still the €500 million-bloc is falling victim to the transition to renewables. That's because solar energy is increasingly able to meet the demand at peak times. Especially during the summer months, renewable sources produce so much electricity that gas-fired power plants don't stand a chance due to their high fuel costs.

In the past year bloc D didn't operate at all for 165 days, and on other days only for a few hours. In summer 2014, work at RWE’s gas power plants in Lingen came to a total standstill for several months.

“In the long run we cannot earn money this way,” said RWE manager Mr. Hartung. In his opinion, the current wholesale electricity prices are “barely enough to keep body and soul together.” The situation could get even worse, he added. “With an expansion of wind- and solar energy, coal- and gas-powered energy plants will be on the grid even less. Having those plants ready as a backup will therefore be more and more expensive.”

Mr. Hartung and his colleagues from other power plant operators see the situation in January as a wake-up call. “It shows that we will have to switch to a capacity market,” Mr. Hartung said. This means that power plant operators offer their plant in an auction as reserve capacity to compensate fluctuations in the energy market. In this model, they even get paid for being on standby.

The United Kingdom already has a capacity market. The German government decided against it, despite lobbying by RWE and others. Instead, a complex system of emergency reserves was introduced. Together with the larger network operators, the Federal Network Agency decides how many and which power plants are systematically relevant. Those have to be on standby, especially during the winter months. In some cases the agency can prevent the shut down of a power plant against the operator’s will.

RWE manager Mr. Hartung sees no reason to invest in the maintenance of existing facilities, let alone new ones. His opinion resonates with the sector. “We need conditions that allow us to run conventional power plants profitably again,” said Johannes Kempmann, president of the Federal Association of the Energy and Gas Industries (BDEW), when he spoke at the E-World fair in Essen: “We have enough power plants at the moment, but what will the situation be like in 2022, 2023 or 2024?” The nuclear phase-out will be completed by then.

North Rhine-Westphalia’s environment minister Johannes Remmel did not want to join the call for a capacity market, but he admitted that even modern power plants are not profitable at the moment. He said the conditions are not suitable for investment in new capacities.

“I bet the capacity market will be on the agenda again after the federal elections,” BDEW president Mr. Kempmann said.

 

Jürgen Flauger covers the energy market for Handelsblatt, including electricity and gas providers, international market developments and energy policy. To contact the author: [email protected]