Power-Profit Slide Threatens German Gas-Plant Closures
As much as 6,400 megawatts, or 25 percent of the nation’s gas-plant capacity, will shut in the five years through 2015, according to Deutsche Bank AG. Companies may close as much as 10,000 megawatts of gas and coal stations by 2014, UBS AG said on Feb. 20. Statkraft SF, Norway’s biggest utility, supplied the last power from its Emden gas plant in Germany during freezing weather Feb. 14, the Oslo-based generator said last month.
The rising cost of gas linked to oil prices and the specter of Europe’s second recession in three years have combined to wipe out the returns from burning the fuel just as Chancellor Angela Merkel encourages wind and solar units by giving them priority to the grid. Gas plants, which supplied about 14 percent of Germany’s power last year, are the fastest backup sources of electricity when weather-dependent output falls.
“With the spate of recent closures, it is probably the most challenging time for gas-fired generation ever,”Trevor Sikorski, director of European energy market research at Barclays Plc in London, said in a phone interview on March 1. “Most power markets in Europe have spreads that are signaling that plants should be closed.”
Running at Loss
Utilities in Germany lost 8.20 euros ($10.78) a megawatt- hour as of yesterday, based on so-called clean-dark spreads for next month that take account of gas, power and emissions prices, compared with a profit of 20.95 euros in October 2009, according to data compiled by Bloomberg. U.K. generators made 88 pence, from 7.02 pounds ($11.04) in October.
“Companies do not take the decision to close a plant lightly so they try to do whatever they can first,” Paolo Coghe, European power analyst at Societe Generale SA in Paris, said in a phone interview. “Spark spreads in the U.K. have been decreasing to the point where dispatching a gas-fired plant that is inefficient would mean running at a loss.”
The euro-region economy will shrink 0.3 percent this quarter and 0.65 percent in the three months through June, according to the median of 18 forecasts compiled by Bloomberg as of Feb. 22.
Most gas in Europe is sold through long-term contracts linked to the price of oil. Brent crude, trading today at $124.25 a barrel, has risen 9.9 percent in the last year, compared with a 2.4 percent drop in next-month gas in the U.K., Europe’s biggest market for the fuel.
‘Hurting Very Badly’
“In most of Europe, a lot of the gas-fired generators are taking gas at prices that are linked to oil prices and higher than the current market prices would suggest,” Mark Lewis, a commodities analyst at Deutsche Bank in Paris, said by e-mail on March 1. “There’s no question, these continental gas-fired generators are hurting very badly at the moment.”
U.S. natural gas futures settled at a 10-year low of $2.302 per million British thermal units on the New York Mercantile Exchange yesterday as the fourth-warmest U.S. winter on record crimped demand as soaring production boosted stockpiles.
European and North American gas markets aren’t linked by pipeline, and waterborne trade of liquefied gas between the continents is limited, giving little reason for the heating fuel’s value in Germany and the U.K. to track U.S. prices lower.
RWE AG (RWE), Germany’s second-biggest utility, hasn’t yet decided to close gas-fired stations in Germany, Chief Operating Officer Rolf Martin Schmitz said on March 6 in Essen, Germany. The company said buying gas in oil-linked contracts last year led to an 800 million-euro loss for its Supply & Trading unit. RWE’s total output of power from gas-fired plants fell 10 percent last year to 38.5 terawatt-hours, according to slides on its website.
“We’re also looking to see if there are seasons when a block could be taken out of operation for half a year or so,” he said. “It’s absolutely possible that old gas blocks are halted for half a year and won’t operate.”
EON AG, the nation’s largest utility, is “constantly monitoring the market” and currently doesn’t plan “adjustments to our power-plant portfolio,” Carsten Thomsen-Bendixen, a company spokesman, said March 5 by e-mail.
Germany Plant Closures
Germany will have to close plants to counter as much as 12,000 megawatts of new gas- and coal-fired stations that may come online in an already oversupplied market in the four years through 2014, Patrick Hummel, a UBS analyst in Zurich, said March 2. Germany’s reserve margin, the amount by which available generation capacity exceeds peak demand, will rise to 17 percent in 2013, from 10 percent last year, according to UBS. It’s as much as 32 percent in the U.K., according to Centrica Plc. (CNA)
Power producers in Britain have announced more closures than their peers in Germany because of sliding profit margins. Barking Power Ltd. is closing one of two units at its 1,000- megawatt station in east London, Peter Tottman, a company secretary, said March 1 in an e-mail. Spreads don’t warrant running the plant for the “next couple of years,” he said. Centrica, the country’s biggest utility, plans to shut the King’s Lynn and Barry plants with a capacity of 555 megawatts, the Windsor, England-based company said Feb. 23.
About 4,400 megawatts of new gas-fired capacity may start in Germany by 2015, leaving a net closure of 2,000 megawatts, according to Deutsche Bank’s Lewis.
German solar capacity soared to 24,662 megawatts last year, from 9,786 megawatts at the end of 2009, according to Bloomberg New Energy Finance. Merkel wants the country to be getting 35 percent of its power from renewable sources by 2020, from 20 percent last year.
The chancellor halted more than 25 percent of her nation’s nuclear capacity following the March 11 earthquake and tsunami that led to meltdowns at three reactors at the Fukushima Dai- Ichi plant. Germany plans to phase out nuclear power by 2022.
The boom in solar and wind capacity, coupled with gas costs, mean new plants aren’t economical to build, EON’s Thomsen-Bendixen said.
Advanced Power AG, an independent power plant developer in Zug, Switzerland, has postponed plans to build a gas-fired station in Germany. Construction on the 420-megawatt Bocholt unit may start in 2013, two years later than planned, to generate power from about 2017, said Peter Ramm, chief operating officer.
“Unless there’s a change in consumer behavior to only consume electricity when the sun is shining or the wind is blowing, there’s going to be a need for balancing capacity and flexible dispatchable generation,” Ramm said by telephone from London. “The current market isn’t valuing flexible backup capacity and that’s being seen in the current spark spreads.”
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