Problem Plant Resurrecting a Ruin

E.ON spin-off Uniper has been plagued with problems, but now the company hopes a once failed power plant project will get it back on track. Things might not be that easy, though.
The Datteln 4 power plant continues to plague E.ON spin-off Uniper.

One of Germany's most embarrassing construction sites will soon finally be complete. After years of bitter struggle between environmental activists and energy companies, the Datteln 4 coal-fired power plant in the central western state of North Rhine-Westphalia is set to go online in March 2018, according to project leader Andreas Willeke.

The project will bring much-needed revenue to its owner, Uniper, the new company created when energy giant E.ON split off its conventional fossil fuels business in early 2016. Right from the start, Uniper fought losses and debts, and the problems with Datteln 4 threatened to make the project a total loss.

But now it's become a surprise ray of hope in the portfolio. Uniper is counting on lucrative delivery contracts that could create profits in the high double-digit millions.

That is, if other looming conflicts don't derail things again. RWE, both a rival and one of the project's largest customers, is contesting the validity of the contracts. And environmental activists haven't given up yet, either.

Still, project leader Mr. Willeke is happy that things are moving along at all. The power plant is bustling with digging, hammering, grinding and welding by some 600 workers employed there. “Only a few months ago, this was the quietest construction site in Germany,” he told Handelsblatt. “Now something's finally going on.”

On March 4, Uniper received provisional authorization to fully resume construction work at the site. It had been halted since September 2009 after the Münster administrative court made a surprise ruling in favor of a lawsuit by a neighboring farmer who – supported by BUND (Friends of the Earth Germany) – disputed not only the construction authorization but the entire building plan. One of the complaints was that the power plant, which is separated from the industrial district of the Meckinghoven only by the Dortmund-Ems Canal, is too close to a residential area.

When the plant goes online, it will be profitable. Andreas Willeke, Datteln 4 plant project leader

This was a catastrophe for E.ON. The facility, already more than halfway completed, was scheduled to go online in March 2011. A billion euros had been invested. After an appeal failed, workers had to put their work on hold.

Since then, the owner has been fighting on two fronts. In the political arena, the firm used all its lobbying power to achieve a new legal framework. The Ruhr regional association adapted the regional planning, the city council passed a new land-development plan, and the company submitted a new permit application. It is slated for approval in the autumn at the latest; a temporary permit has already been issued.

Meanwhile, employees fought against rust and decay at the building site. Unfortunately, the 2009/2010 winter was too harsh for important foundations to be laid before the verdict went into effect. Thus, silos for fly ash remained uncovered and began to rust. Employees had to inject nitrogen into an auxiliary boiler to prevent corrosion. And the planned administration building is now just a skeleton filled with puddles of water.

“It still looks like a building in Spain after the real-estate crisis,” Mr. Willeke said.

The 57-year-old declined to offer a figure as to how much the delay has cost. And said it is not yet clear how extensive the damage is.

But why go to all this trouble? When E.ON began construction in 2006, coal-fired power plants were still highly profitable. Back then, the wholesale price of electricity was €50 per megawatt-hour. But in the meantime, conventional power plants are being thrust out of the market by wind and solar energy. At the moment, a megawatt-hour costs less than €27. Coal-fired facilities can barely cover their operating costs, let alone pay back an investment.

Nonetheless, “when the plant goes online, it will be profitable,” says Mr. Willeke.

There are three reasons for this, he says. First, Datteln 4 will be one of the country's most efficient coal-fired power plants, with 45 percent of the fuel burned turned into electricity, compared to 30 percent at older facilities. Second, in addition to electricity, the facility is also supposed to provide long-distance heating to 100,000 households in the Ruhr area. Third, and most importantly, the company is sitting on sensationally favorable contracts.

“A large part of the electricity has been marketed over the long term – for decades,” Mr. Willeke said, though he declined to provide details.

According to information obtained by Handelsblatt from industrial circles, the previous owner E.ON negotiated lucrative terms with two large customers in 2005 before deciding to make the investment: Deutsche Bahn and RWE.

The contracts provide Uniper with multi-million arguments for vigorously seeing the plant through to completion. They mean that the company can ignore a fall in prices and the profit margin is guaranteed. Mr. Willeke doesn't hide the fact that the long-term contracts were one of the reasons to resume construction.

For the customers, on the other hand, the development is fatal. When the project began, everyone reckoned with constantly rising prices, and the contracts were designed to cover that risk. But now customers can purchase electricity at much cheaper wholesale prices.

But are the contracts still valid when it has taken so long to commence operations? Deutsche Bahn, which wants to take a share of 400 megawatts, was one of the first customers to raise the issue. It even negotiated with another provider, Steag. The conflict seems to have been resolved in the meantime, but Uniper had to offer concessions. According to insiders, there was a compromise “at the highest level.”

And now a second large customer is balking as well. The word is that back when the project began, competing energy company RWE also guaranteed itself a share of 400 megawatts to service some 700,000 households. But why would RWE pay for expensive electricity from Datteln, particulary if it would require shutting down some of its own power plants?

An RWE spokesman confirms that in 2005/06, “contracts for providing electricity were signed in an entirely different market environment.” He declined to give details, but hinted that, just as with Deutsche Bahn, there is a need to clarify the terms in light of the changed situation. "Especially against the background of the protracted delay, we are likewise engaged in discussions with Uniper.”

One manager was even more forthcoming, saying: “We won't accept the terms as they are.”

For his part, project leader Mr.Willeke takes a combative stance: “We can't talk about specific contents of the contract, but we see no reason why the contracts should be called into question. We're sure that they are still valid after the delay.”

And the rivalry with RWE has added another complication. At the end of the year, when the energy company launches its new subsidiary Innogy, current RWE chief executive Peter Terium will switch over to lead it and leave his position to his deputy Rolf Martin Schmitz. Mr. Schmitz was formerly the head of E.ON Kraftwerke GmbH – and thus was responsible for the very contracts that he are now causing him headaches.

07 p22 E.On and Uniper after the Split-01



To get its way, RWE's lawyers may cite a verdict from last autumn, when the Munich District Court ordered an electricity producer to make adjustments to a supply contract from 2005, because the conditions had changed so radically.

But the problem may be resolved another way. “Let's wait to see whether Datteln in fact really commences operations,” says an RWE manager familiar with the situation.

He is pinning his hopes on the environmental activists, who are doing everything in their power to put a stop to Datteln. BUND and the affected farmers have submitted complaints regarding the new land-development plan. And they also don't plan to simply accept the new permit.

Datteln 4's project leader Mr. Willeke has no illusions, saying that he “certainly” expects the activists to file lawsuits against the new permit. Still, he seems confident of the project's success.

“An enormous effort has been undertaken to see that this time, everything has a secure legal underpinning," he says.

But the lawyers were also confident back in September 2009.


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]