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German Power Industry Facing Meltdown Because Of Subsidised Renewables

November 11, 2015
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By Paul Homewood  

   

h/t AC Osborn

 

 

From Pierre at No Tricks Zone

 

 

E.on, Germany’s largest electric power producer, announced that it lost over 7 billion euros in the 3rd quarter, reports Germany’s flagship news magazine Spiegel here.

The loss stems from the writing down the value of coal and gas power generation assets by billions of euros due to the steep drop in wholesale electricity prices. The write-off was necessary in light of the dismal future the fossil industry faces. Plainly said: Germany’s Energiewende, transition to renewable energies, which mandates power companies buy up solar, wind and other green energies at exorbitant prices, and even when they are not needed, continues to rapidly erode the German base-power production.

Tens of thousands of once high-paying industrial jobs are now in jeopardy.

“Squeezed out” by massively subsidized green energy

With mandated green energies, the European power market is seeing a huge oversupply of power on the market that has wholesale prices far too low to cover generation costs.

Spiegel writes:

The company’s gas and coal power plants are hardly earning money due to the plummeted power exchange prices. Through the [massively subsidized] green energies, the conventional power plants are being squeezed out of the market throughout the branch. The price at the Leipzig EEX power exchange has halved over the past 4 years.”

Aren’t government subsidies and market meddling wonderful?

The hemorrhaging is far from over. Spiegel also reports that “E.on had a record 3.2 billion Euro loss in 2014“. Germany’s No. 2 power producer, RWE, is also reeling. Bloomberg here writes:

Germany’s shift to renewable energy is hurting utilities from EON to RWE AG as margins get squeezed at traditional coal and gas-fired plants because green power gets priority access to the grid. EON, the third-worst performer in Germany’s DAX stock index this year, is responding by spinning off its fossil-fuel plants into a separate company. RWE in 2013 had its first annual loss since 1949.”

Poor, working class getting hit hard

The tragedy of this mandated oversupply is that low wholesale prices, which at times are even negative, are not getting passed along to the consumers. Rather next year German consumers will see new record-high electricity prices. Already poor households are reeling and electricity is becoming a luxury for the affluent only.

The media reports that the Düsseldorf-based power producer will be spinning off its “entire power plant business” in the form of a new company called Uniper at the end of the year. It is reported that E.on itself will focus on “renewable energies and sales”.

It’s a real pity. Germany’s power companies used to be solid, high tech companies that delivered the most stable and efficient power in the world. Now they are literally being gutted alive before our very eyes. The country is setting itself up for some terrible times, and doing so fast.

http://notrickszone.com/2015/11/11/bleeding-to-death-germanys-largest-power-company-e-on-loses-whopping-7-8-billion-collapse-accelerates/#sthash.vrltmqQR.eNgXGOjK.dpbs

 

Germany is of course in front of where we are in the UK.

However, we have very similar circumstances. Here we have the system of Contracts for Difference, which offers guaranteed prices for renewables. In simple terms, a wind farm can sell electricity at a penny per MWh, and still know it will receive its guarantee price of £155/MWh, or whatever it has signed up to.

So what are the proper power companies to do, which we rely on to be there when the wind stops blowing?

If Germany’s example is followed, they will hive off their fossil fuel assets, which can then be easily be shut down with little exposure to the rest of the group, and then carry on making money from the barrel loads of subsidies being thrown at renewables by consumers.

 

Amongst all of this, the poor consumer ends up paying much more.

It really is the road to the economic mad house.

19 Comments leave one →
  1. November 11, 2015 10:07 pm

    It may be necessary to let Germans suffer the error of their ways. There may be no other way to unwind this. Like a drunk, they may need to hit rock bottom first. Stand aside, let it happen.

    • November 12, 2015 12:42 am

      Great analogy. And it will happen. Sooner rather than later. Their residential electricity price has already doubled, and reliability is stable only because pushing the instability problems to Norway, Sweden, and Eastern Europe via Poland.

  2. November 11, 2015 10:07 pm

    Germany will have to introduce capacity auctions, and the most efficient of these thermal plants will eventually become very valuable, but Germany seems to be racing to be the first country to lose its govt due to power cuts.

  3. markl permalink
    November 11, 2015 10:22 pm

    “Germany is of course in front of where we are in the UK. ” And both countries are well in front of where we are in the US. Our only hope is we can learn from your mistakes. A bigger hope is the unraveling of your lifestyle causes people to question the whole AGW madness and put a stop to it.

  4. Green Sand permalink
    November 11, 2015 10:28 pm

    Anybody know how much of the UK reliable energy is generated/supplied by EON and RWE?

    Suppliers need to be making a profit, it leads to mutual progress and security.

    A loss making supplier is a major concern, especially if you are reliant upon their product.

    • November 11, 2015 10:33 pm

      Hence their attempts to load their generating losses onto consumer bills.

      I recently transferred to GB Energy from B Gas and have saved 30% . Is it any wonder why?

      • BLACK PEARL permalink
        November 12, 2015 12:49 am

        Will have a look at that myself Paul

  5. dukeofurl permalink
    November 11, 2015 10:48 pm

    A writedown isnt a cash loss, its just adjusting asset values and in fact will increase ‘profits’ as depreciation costs will fall.

    • Green Sand permalink
      November 11, 2015 11:03 pm

      The writedown is necessitated by the loss of profitability. If base load generation was profitable there would be no need for the asset value adjustment.

  6. Bitter&twisted permalink
    November 11, 2015 11:39 pm

    Green energy = crass stupidity – unless you are a “renewable” energy company, suckers firmly latched to the tax-funded teat.

  7. Graeme No.3 permalink
    November 12, 2015 1:07 am

    It is a race between Germany and South Australia. Both suffer from excess renewable energy cutting the output of conventional power stations, but in S.A. there is only one coal fired station and the owners have announced it will shut down in March.
    A previous attempt to run without the station over the peak demand period (summer) led to it being hastily started up. Now it is definitely shutting for good and the government doesn’t seem to know what to do. The inter-connectors to the Victorian brown coal plants lack the necessary capacity to meet a heat wave, so blackouts are certain.
    Coincidentally the State has just “tightened up” the regulations making it very, very difficult to install a generator. Such forethought.

    • Sceptical Sam permalink
      November 12, 2015 3:08 am

      Yep.

      And still they vote Labor.

      Is there a word for that?

    • November 12, 2015 10:12 am

      The UK should watch what happens in South Australia, as it has a very similar capacity mix, and is a year or two further down the road of closing or mothballing proper power stations.

      In both UK and SA meeting days near maximum demand requires all 3 contributions (thermal, interconnectors and wind) to be working close to their “best reasonably expected outputs”. It only takes one contribution to be low to give a high risk of blackouts.

  8. John F. Hultquist permalink
    November 12, 2015 6:11 am

    From Washington State, USA: I live in an area within the State where power is from the Columbia River – right now a storm is entering the catchment area with rain and snow. Our house is 100% electric (wood backup). That sounds good.
    The democrats that run the State want to force out the power that comes from coal in the State of Montana. How? Support WA companies to buy the rest of the plant they do not already own – then shut it down. Montana is not happy. Should the WA plan go through, I suspect all citizens in WA will pay the price even though, in our case, we don’t use that electricity – nor will we use whatever replaces it. What that might be no one knows.
    At the moment our electricity cost is quite low: Facilities charge of $19.00 per month plus a rate of $.0897 / kWh (after a 3% increase). I could find comparative rates for other countries only for 2011 so I won’t bother mentioning them.

    • sexton16 permalink
      November 12, 2015 8:53 am

      Here in Sweden our final cost for 425 kwh per month works out at $.19/kwh, the electricity itself including transmission is about $.07 the rest is standing charges and taxes.

  9. November 12, 2015 8:14 am

    The obvious solution for the proper power companies is to shut down their unprofitable plants one after the other (temporarily) until they trigger the first blackout and wait and see what the Government response is.

  10. November 12, 2015 8:40 am

    Phillip Bradbury sort of steals my point, but:
    ” carry on making money from the barrel loads of subsidies being thrown at renewables”.

    You cannot make money if the system goes dark. Just 1 significant outage, just 1 major blackout and you will have people on the streets of Germany (during the daytime anyway, who want to be out at night with no lighting and 1million terrified newcomers milling around).

    I saw somewhere that in 1 place it took 5 days to get power back up and running after a serious black-out.

    5 days with no heating or lighting, no phone, no TV, radio, information.

    Nothing but a frightened populace.

    • John F. Hultquist permalink
      November 12, 2015 4:48 pm

      Everyone should be prepared to take care of the family needs for at least 3 or 4 days.
      For some info on the time to re-power a grid, try these links:

      Chiefio ~ E. M. Smith

      Joanne Nova

      We have a chest-type freezer. I keep plastic jugs of water-ice therein and the remainder of the space is full of food. The power would have to be off for about 4 days before thawing would be a problem. Ice cream would soften first. I can deal with that. The ice is from very clean (multi-filtered) water, so when thawed it is drinkable. That would be in addition to other water that is stored, but not frozen.
      Beyond that, we have boxed and canned food that will get us through 2 weeks or so. We do not do as much of this food storage thing as do those called survivalists (or preppers). The members of the Church of Jesus Christ of Latter-day Saints, called Mormons or LDS, will have food and water stored that will last for many weeks (a few months in some cases).

  11. November 12, 2015 10:04 am

    ‘Germany is of course in front of where we are in the UK’

    But electric prices for industry are still barely half what we pay in the UK. Little wonder we’ve almost no heavy industry left, and even average users of power like the company I work for find it just about impossible to compete with German producers, let alone Asian ones. What will it be like when we catch up?

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