German Power Industry Facing Meltdown Because Of Subsidised Renewables
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.
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.
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.