Germany’s Energy Chaos: Government May Have To Rescue Nuclear Power Plants
As Germany shifts towards green energy, even the operation of nuclear reactors is now becoming uneconomic. The operators of Germany’s nuclear power plants are considering to shut them down early. The federal government is facing an embarrassing situation.
The Federal Government wanted to phase out nuclear power by 2022 but it will probably happen much earlier. According to information from “Die Welt”, operators of German nuclear power plants are already considering an early closure of many plants because their operation is no longer profitable due to drastically fallen electricity prices.
The wholesale prices of electricity have been cut in half over the past four years. This is due to overcapacity in the electricity market. While demand for electricity significantly subsided because of the European economic crisis, large production capacity of renewable energy has been added with the help of subsidies as part of the green energy transition.
Because of the strong decline in the wholesale price the chief executives of E.ON and RWE declared this week that they intend to shut down a variety of gas and coal power plants. The conventional power generation is in crisis, said RWE CEO Peter Terium. “The operation of many power plants does no longer pay.”
Even nuclear power plants are hardly profitable
While E.ON and RWE want to shut off or mothball relatively expensive gas-and coal-fired power plants so far, the situation has now worsened. Now even the cheapest plant types – brown coal and nuclear power plants – got to the edge of their efficiency or even beyond. Vattenfall, the Swedish energy company which operates large lignite-fired power plants, apparently is already considering the withdrawal from Germany.
“We have carried out for each power plant an individual assessment of whether it is worthwhile to operate it further, mothball or decommission it,” said RWE’s chief financial officer Bernhard Günther in a conference call. For the first time, RWE put three lignite plants in the Cologne area on the list of systems with critical efficiency.
With the fallen wholesale prices for electricity, now even nuclear power plants come to their limits of cost-effectiveness, Guenther said. “At current wholesale prices we barely earn the full costs of nuclear power plants.” According to industry sources, nuclear power plants normally require a stock price of 25 to 30 Euros per megawatt hour to cover their full costs.
Fuel tax burdens profits
However, the introduction of the fuel tax burdened the plants with additional costs of 15 Euros per megawatt hour. Today, a stock price of at least 40 Euros per megawatt hour would be necessary for the economic operation of nuclear power plants – a level that has already been well undercut in the futures market.
Despite falling below the price limit, operators have so far continued to operate nuclear power plants because the electricity produced is usually sold as futures up to three years in advance. Thus, so far, the operators of the plants still benefit from the higher price level of the past.
But that will soon be over. The wholesale prices for electricity are likely to fall further for the foreseeable future according to estimates by market observers. It will now become critical for nuclear power plants, which have to make a complete replacement of their fuel on a rotational basis since at that time the fuel tax is due according to the law. Reportedly some operators are considering whether to shut down their plants before the next fuel switching. The decommissioning of a power plant must be announced to the Federal Network Agency a year in advance.
In the nuclear phase-out law of 2011, each of the nine remaining German nuclear power plants was assigned a fixed shut down date. Thus, the Bavarian nuclear plant Grafenrheinfeld should be shut off on 31 December 2015, Grundremmingen B in Baden-Württemberg in 2017, then, as the last nuclear power plants, Isar 2, Emsland and Neckarwestheim in December 2022.
Federal government would have to fight for preservation of nuclear power plants
An advanced decommissioning of nuclear power plants for economic reasons would mix up this schedule and also threaten the stability of the power system because especially the southern German nuclear reactors are indispensable for the security of the electricity supply in Bavaria and Baden-Württemberg for the time being. “The Federal Government would then be in the highly embarrassing situation of having to ban the decommissioning of nuclear power plants,” said Stephan Kohler, head of the semi-public German Energy Agency (Dena).
While the price of electricity on the wholesale market falls, electricity prices for private consumers continue to rise. The reason: The procurement price of electricity has a relatively small share of the electric bill of households. The cheaper purchase price will be more than compensated by a much greater increase in taxes and levies as the EEG surcharge, the offshore liability and the apportionment of network charges.
E.ON had recently put power plants in Europe with a total of 11,000 megawatts of power up for grabs. At the presentation of its half-year results, RWE announced on Wednesday to take power plants with at least 3,100 megawatts of power from the market. The net result of RWE slumped by 38 per cent to around one billion Euros. In electricity generation, the operating profit declined by almost two thirds.
Translation Phillip Mueller