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Watching Germany’s Endangered Utilities

April 4, 2014

Earlier articles have described the effect that Energiewende is having on Germany, with its effort to have 80% of electricity from renewables by 2050, and how, at only 22%, the power generation and delivery system is already being stressed to the limits.

Energiewende has rewarded, with large subsidies, the building of wind and PV solar installations, while giving priority to renewables when dispatching electricity from all available sources.

My first article was last October, Germany as the Canary. The next was on January 7, Germany: Canary for Renewables.

This article will ask the question: Can utilities survive under Energiewende, in Germany … or any other country adopting similar policies?

And if utilities cannot survive, what other industries will be affected?

And how will that affect private investment in the stock market?

Brandenburg Gate, Berlin. Photo by D. Dears

Brandenburg Gate, Berlin. Photo by D. Dears

The first major crack in the German utility industry came last week when E.ON, the largest utility in Germany, announced it would shutter 13,000 MW of power generation capacity, which is more than 25% of its conventional power generation capacity.

The company announced a 14% reduction in earnings for 2013, compared with 2012, attributing the decline to “the market situation in fossil fueled-power generation.”

Johannes Teyssen, E.ON’s CEO, went on to say, “In particular, the ramifications of policy decisions in Germany and the related insufficient market prices for conventional energy continue to have an adverse impact on our generation portfolio, which has long been a mainstay of our business.”

Previously, in August of 2013, Germany’s second largest utility said it would shutter 3,100 MW of conventional generation across Europe on similar profit woes. RWE said that subsidized renewables were the reason for shuttering such a large portion of its power generation capacity.

Interestingly, little of this was reported in the media in the United States, which continued to lionize Obama’s war on climate change.

In Germany, it’s becoming increasingly clear that, unless Energiewende is stopped, there are only two possible outcomes for the utility industry, including the grid.

  • The government allows utilities to charge customers a capital fee as part of their rates, to cover the cost of power generation, transmission and distribution investments. This is unlikely to be greeted favorably by consumers, who already pay as much as five times more for their electricity than do Americans.
  • Private utilities go bankrupt, with all power generation, transmission and grid assets taken over by the German government, i.e., are nationalized.

The ramifications of either alternative are appalling, first because of their effect on the stock market, second because of all the other businesses that will be affected. For example, Siemens, Germany’s largest manufacturer of electrical equipment, has 20% of its sales in the sector.  For comparison, General Electric Company has 22% of its sales in power generation. There are literally hundreds of companies, and thousands of jobs, that depend on the power generation, transmission and distribution businesses.

It should be noted that policies in the United States supporting wind and solar, are having the same insidious effects as is Energiewende in Germany.

We are fortunate to be able to watch the effects that such policies are having on another country, providing we have the common sense to change our policies accordingly.

 

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© Power For USA, 2010 – 2014. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author, Donn Dears, LLC, is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Power For USA with appropriate and specific direction to the original content.

 

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16 Comments leave one →
  1. April 4, 2014 12:40 pm

    Donn,

    Thanks for the post! I am trying to figure out how your reference to “a capital fee as part of their rates, to cover the cost of power generation, transmission and distribution investments” relates to a recent post that had a link to how the Sunrise Powerlink Transmission project is going to “provide more than $100 million in annual energy savings..”

    The current post-

    http://www.renewableenergyworld.com/rea/news/article/2014/04/low-income-rooftop-solar-program-funded-by-sunrise-powerlink-powering-hundreds-of-california-families?cmpid=WNL-Friday-April4-2014

    notes some of the capital costs for the transmission project and who owns the transmission lines- “Citizens Sunrise Transmission LLC, a subsidiary of Citizens Energy, reached a development and coordination agreement (DCA) on a joint participation in the Sunrise Powerlink project. Under the agreement, Citizens would lease 50 percent of the capability of the Sunrise Powerlink from the Imperial Valley substation to the Imperial County/San Diego Country link (known as the Boarder-East Transmission line) for a term of 30 years.
    The deal was approved by the California Public Utilities Commission (CPUC). The California Independent System Operator Corporation (ISO) also approved for Citizens become an ISO participating transmission owner. Citizens prepaid a lease amount of $85 million to SDG&E to supply the capital to develop the transmission line.”

    For the life of me I can’t figure out how this transmission project can generate “annual energy cost savings”. This transmission line(s) was installed to allow a conduit to get the utility scale 33% RES projects energy to the grid. Those utility scale RE projects were developed with 20 to 30 PPA’s that had higher AVERAGE kWh costs to the utilities for generation then the AVERAGE retail costs for residential customers (PG&E customers example used) who qualify for the “low income” CARE rates. If you can help me figure out how to get to annual energy savings I’d appreciate it. I wonder if Bernie Madoff’s former accounting firm could weigh in on this………….

    • April 4, 2014 12:51 pm

      Great question. I wasn’t aware of the arrangement you are describing, and can see why you are questioning how it can achieve annual energy savings.
      Not sure I can answer the question, but will try to look into it.

  2. Neil Jones permalink
    April 4, 2014 3:01 pm

    Germany’s contortions is another good piece. Bought a copy of “The Sun Kings”. An informative read. Thanks for recommending it.

  3. April 4, 2014 3:46 pm

    Thanks for your comment.
    Another good read is The Frackers by Zuckerman.
    It puts a face on the people who developed the process, as well as the contortions they went through.

  4. April 4, 2014 5:59 pm

    Donn, this is an excellent article.

    According to my calculations more than USD2 trillion has been squandered on wind and solar power worldwide. This is probably sufficient to have bailed out all the countries and banks during the financial crisis. It brought no benefit in terms of power cost and a tiny greenhouse gas reduction. Even the IPCC recognises that these two renewable energy sources are very expensive and that nuclear power and coal to gas conversions are cheaper and better. It dismisses nuclear power in a single sentence because, it says, it is dangerous. Yet the statistics show that it is, by far, the safest and most environmentally friendly of all major forms of power generation.

    As a direct result of these policies, we now have many people in a state of “energy poverty” because, for the first time, they are unable to afford artificially expensive energy. As a result of this many people will have died of cold in the winter and some will have died of heat stroke in the summer. The people who have dreamed up the policies that brought this situation about could be considered to be mass murderers.

    • April 4, 2014 6:16 pm

      Bryan:
      Thanks for your comments.
      These policies have hurt everyone, and I am hopeful people will start to realize the folly of wind and solar, while neglecting nuclear and modern, ultra-supercritical, highly efficient, coal-fired power plants.

  5. Mary Hartman permalink
    April 5, 2014 1:16 am

    Hi Donn, 

    Just a thought…..I heard Al Gore talk about moving from fiat currency to “carbon currency” some time ago.  I’ve read about it a couple of times but didn’t give it much thought.  Then, a woman with whom I work met with Senator Al Franken’s Chief of Staff a couple of years ago and he talked about moving to a system of “carbon allocation” so people would use their carbon currency to pay for what they needed and would be allocated carbon credits based on their “value” to society.  Very surreal and weird stuff.  

    When you consider what is happening in Germany, it makes me wonder if nationalization of grids is the goal because that would allow the system of allocating carbon credits/currency to begin.  

    Mary

    • April 5, 2014 4:43 pm

      In my book, Carbon Gauntlet (at Kindle), I reported on a scheme that was proposed in the UK under a Climate Change Bill: It would have given everyone in the UK a plastic card with that persons carbon allowance. It didn’t pass, but the idea wasn’t some idle conjecture, and I’m not surprised Al Franken also proposed it.

  6. April 5, 2014 1:22 am

    Why would anyone want to have a system for carbon credits? We can now be sure that man-made carbon dioxide does not cause dangerous global warming – because there has been no warming for 17 years.

    What we do know is that the agricultural benefits of the higher level of carbon dioxide in the atmosphere bring benefits in the form of increased production of food and trees.

    Carbon dioxide is seriously good stuff.

  7. Simon permalink
    April 5, 2014 1:41 am

    You guys seem to want it both ways. You use rising carbon emissions in Germany to deride renewables and then criticize renewables for putting coal plants out of business.

    • April 5, 2014 4:46 pm

      I’m not certain who “you guys” are, but I have been very consistent in my objections to renewables, especially wind and PV solar, and also how the EPA has, essentially, outlawed coal-fired power plants. I see Germany as a real world test case for what is likely to happen to utilities with uneconomic PV solar and other distributed generation schemes.

  8. alt permalink
    April 6, 2014 7:40 pm

    Reblogged this on Head Wind Ontario.

  9. April 10, 2014 12:20 pm

    Donn,

    The post below discusses how the costs to build a few of the new transmission lines will be allocated. Some specifics on the SunRise Transmission line are discussed in the comments section of the post.

    http://www.renewableenergyworld.com/rea/news/article/2014/03/ferc-order-1000-has-its-day-in-court

    How CA is going to deal with all the costs to meet the RES are becoming a bit of a concern out here in sunny CA-

    http://www.cpuc.ca.gov/NR/rdonlyres/66CCE840-F464-42F5-8B6A-D9F0FC649F67/0/Integrated_ResidentialRateReform.pdf

    I am sure the salesman at Solar City are explaining the risks of the rate schedules changing when the pitch their leased PV systems………………..

    M

    • April 10, 2014 4:18 pm

      Thanks for the additional information. There’s a lot to read and digest, but I see what you mean about the Solar City pitch: i.e., essentially lower rates being paid to high usage PV Solar users, though it’s not clear to me how net metering charges are determined on Time of Use pricing.Do you know?
      Obviously, I haven’t had time to carefully read the material.

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