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Germany: Decline of fossil fuel generation is irreversible

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German energy giant RWE has taken a massive loss of €2.8 billion – it’s first loss in 60 years – after admitting it got its strategy wrong, and should have focused more on renewable and distributed energy rather than conventional fossil fuels.

RWE, like other major German utilities, has spent much of the past decade fighting against the country’s “energiewende”, the energy transition that is seeing it dump nuclear energy and transform the electricity system of Europe’s biggest manufacturing economy to one dominated by renewables.

teriumLast night, Peter Terium, who has been CEO for less than two years, conceded that the company had got it wrong. He admitted that the change in electricity markets, which has seen earnings from conventional generation gutted by the impact of solar and wind energy, was “unstoppable”. It was now time to change strategy, and focus on what the electricity market will look like in the future.

“I grant that we have made mistakes,” Terium said in a prepared speech to a media conference accompanying his result. “We were late entering into the renewables market – possibly too late.”

Analysts have been pointing this out for years. Indeed, the big three German utilities have accounted for just 7 per cent of the renewable energy installations that now account for more than one quarter of the country’s generation, and which have transformed the market. Most renewable capacity has been installed by home and industrial consumers, and smaller and smarter energy companies.

Instead, RWE ploughed on with coal and gas. Now, Terium says, it is making  less and less money from its conventional power stations, and it is closing nearly 7GW of capacity. “This trend will continue in the next few years and it is irreversible,” he says.

Conventional power stations are being driven out by solar PV, particularly during peak load, and the huge expansion of renewables has pushed the market price of electricity to less than €37 per megawatt-hour, where it is virtually impossible to operate conventional power stations economically.

The question is what to do now. Terium says it is not all bad news, because much of the new plant that has been installed is highly flexible; designed to fit in and around a renewables-dominated grid. For instance, he said, the entire 10,000MW capacity of power stations in the Rhenish region can be reduced and increased again by about 5,000 megawatts within 30 minutes. (Interestingly, RWE cut is Co2 emissions from generation by 9% in the last year).

However, to secure its future, RWE – as was revealed in this insightful piece by Energy Post’s Karel Beckman – is going to focus more on future technologies: renewable energy, distributed generation and smart, enabling systems.

Terium says centralised generation is losing its primacy and the decentralised energy world needs an ‘integrated energy manager’.

“In other words, someone to coordinate the many activities of the individual market players: someone to look after networking the various individual initiatives involved in the transformation of the energy system at a technical and economic level – to bring them all together as a single, integrated unit.”

Terium intends to try to join the “little pieces to form the bigger picture.”

This includes products such as the RWE SmartHome, which can manage and adjust domestic energy use such as heater controls; a “smartcompany” product to do the same with commercial and industrial users; a web-based trading scheme to allow corporate customers, regional energy providers and municipal utilities to participate in energy trading.

And it is looking at “decentralised energy bundles” for small and medium-sized municipal utilities and sees electric vehicles as a core element of the energy system, because of their ability to serve as decentralised energy storage units.

It is rolling out heat pumps to consumers, and it is offering solar PV systems and wind turbines to allow local energy communities.

Terium is betting the house – well, actually he has no choice – on the assumption that it is only large utilities like his that can manage such a transformation.

“This is something that only major energy utilities can manage. They are the only ones that bring all the necessary skills together under one roof. We have some new public participation models in mind in this regard.”

The tribulations of RWE are a lesson for the Australian utilities, who have been following on the same path to centralised fossil fuel generation, and pushing back against renewables. They are now suffering the same consequences as their German counterparts – losing money and being forced to close capacity. And this is being distorted by the absence of a meaningful carbon price signal and the high cost of gas.

Possibly the only difference in Australia is that the Australian government does not have the same resolve as Germany’s. As CCA chairman Bernie Fraser suggested in 2012, it is more likely to be influenced by vested interests.

But the lesson is that even the Australian government can’t stand in the way of global technology trends and consumer choice.

Terium, meanwhile, is still pushing the German government for regulatory changes – particularly the introduction of “capacity” markets, to guarantee the future of the fossil fuel generation that will be required over at least the medium term.

But at least he has given up trying to stop the unstoppable. “Despite the difficulties that we face, our focus is on the future. We are, and will remain, the partner for the transformation of the energy system, and are orienting our operational business accordingly.”

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  • Diogenes60025

    Renewables mandates and subsidies are destroying the energy infrastructure that has served us well. There is no viable substitute for central-station thermal electric energy.

    Renewables mandates & subsidies are unbearable and must be withdrawn. Germany has had its experiment in utopia, and the results are clear–it doesn’t work. It’s dysfunctional.

    After the mandates and subsidies are withdrawn, The excellent system presently in place will still be functional. Otherwise, get ready to freeze-in-the-dark.

    • Michel Syna Rahme

      Um… Sound like we have another armchair bandit bored in retirement…. Good news for you is that you won’t be around when the world freezes over in the dark!

      • Diogenes60025

        We’ll see. You, on the other hand, probably won’t make it out of your mom’s basement.

        • Michel Syna Rahme

          Haha good one!
          My advice is actually read the articles here in reneweconomy – then you might come to the realisation that not only is the overhaul – the revolution and evolution – of our electricity system possible, but that it is inevitable and essential to the future security of us, and that includes you and your A/C and heater…. Because we don’t want to see you freeze in the dark gramps….. Much prefer to see you pass happy and content your offspring will inherit a better world than you did way back when!

          • Diogenes60025

            Yes, at EU 50/kwh cost, you’ll be making handicrafts to sell to China in order to eat some gruel.

          • Michel Syna Rahme

            Let me say one last thing in all seriousness – one that denies externalities exist and should not be accounted for, is not only totally delusional but deeply ignorant …..

            The positive negative is that when things get really really messy, probably beyond our lifetimes, the future generations will have a running record of those responsible for the misrepresentation of facts and denial of action …. You and your offspring will be on that list along with Abbott’s, and if the situation gets as messy as its potential and choices need to be made between who gets to live and who doesn’t… The mob will be coming for the likes of you, not me!

          • Diogenes60025

            The net external costs of carbon dioxide emissions are negative–that is to say, favorable. Proposed CO2 control actions have an estimated cost of EU50 trillion, and no clear benefits. Since the cumulative savings of mankind is only EU120 trillion, that seems like a high price to pay to mitigate a net benefit.

            All the carbon dioxide sequesters itself naturally as carbonate rock. No egghead professors, no computer models, no street theater, and no compulsion is necessary.

          • Michel Syna Rahme

            Now you are truly just making a fool of yourself.

            With respect, you are obviously not a scientist nor expert, so please reference where you have obtained information to make this statement “The net external costs of carbon dioxide emissions are negative–that is to say favourable”

            Do you use a PC or iPad? Are the good scientists, professors, and engineers that created your computer device – the outlet for your sunset years – all eggheads as well? Or is it all an illusion?

          • Marcus Hicks

            Apparently Diogenes (clearly not his *real* name-typical Right Wing keyboard warrior) is unaware of the massive subsidies the German Coal Industry has enjoyed for the better part of 30 years-much like the nuclear industry. Apparently the renewable sector is the only one which must be forced to make do without any outside assistance.

          • Diogenes60025

            The kohlpfennig was a welfare program for crony capitalists and labor unions. It has nothing to do with the viability of competitive coal sources for power.generation. Now Germany is going from a bad welfare program to a worse one. Freeze in the dark while making handicrafts for Chinese people.

          • Marcus Hicks

            Oh dear, there really is not much point arguing with a Far Right troll who has clearly spent his life supping on the Fossil Fuel Industry Kool-aid. I suspect you get all your “information” from places like Faux News.

          • Chris Fraser

            It isn’t correct, the 70% transition model makes up only 4% the of current tariff to 2030, which is nowhere near that amount. Only the centralist polluting conspirators plan on charging more. Though you also draw a funny and scary picture.

          • Diogenes60025

            Regulatory economics are too arcane for me, and don’t matter for choosing sources of power. They are the creatures of timid, pencil-necked people and only count for distributing costs and burdens after-the-fact.

            Coal steam-electric power is reliable, affordable, scalable and clean. A modern power plant emits few air emissions except water vapor and carbon dioxide. Carbon dioxide and fossil fuels use do not affect climate. CO2 is in perfect equilibrium in the earths ecosystem, with most of it ending up as carbonate rock.

            The hypothesis of anthropogenic global warming is an ignorant superstition that will soon be disproven, after ambient carbon declines in response to lower temperatures, while CO2 emissions continue to rise.

          • Marcus Hicks

            Wrong on all counts. Coal is not clean (take a look at the millions of tonnes of ash that needs burying every year, & all the toxins that get emitted into the air), it isn’t scalable (thermal efficiency drops off quickly the smaller the power station is), & the thermal efficiency is horrendous (only 35%, even with the best & most modern coal-fired power stations). Along with your idiotic viewpoints regarding global warming (a theory, not a hypothesis, you ignorant moron), it is clear that you are nothing but an ignorant troll who believes that Rush Limbaugh & Faux News are the height of information. I hope Koch Brothers are paying you well for this ignorant clap-trap.

          • Diogenes60025

            Tut-tut! Please mind your manners. I neither like nor watch Limbaugh or Fox. I just like the truth.

            In modern science, the term “theory” refers to scientific theory, a well-confirmed type of explanation of nature, made in a way consistent with scientific method, and fulfilling the criteria required by modern science. Such theories are described in such a way that any scientist in the field is in a position to understand and either provide empirical support (“verify”) or empirically contradict (“falsify”) it. Scientific theories are the most reliable, rigorous, and comprehensive form of scientific knowledge. So, NO, AGW is NOT a theory.

            A hypothesis is a proposed explanation for a phenomenon. For a hypothesis to be a scientific hypothesis, the scientific method requires that one can test it. So maybe AGW isn’t even a hypotheses, either, because it can’t be tested. AGW may (barely) be a hypothesis. Otherwise its fable.

            Coal is old swamp material-a form of biomass. There is nothing in the coal, or the ash, that wasn’t in the swamp (and in the ground) to begin with. Coal plants are scalable upward–need more power, build another unit. Maybe modular is a better word. Only a dolt would presume to consider small coal power plants–the bigger the better.

            A coal-fired two-stage supercritical steam plant can exceed 50% efficiency. CCGTs only achieve 60% efficiency in rare cases. Further, the life span of CCGTs is yet to be demonstrated, and results have been mixed. But it really doesn’t matter, because gas is so much more expensive than coal that coal remains much more cost-effective.

          • Marcus Hicks

            As a Scientist, I can tell you that your attempt to call Global Warming an Hypothesis, & not a theory, is nothing more than Grade-A bunkum. The theory has more than a century of scientific analysis to back it up. What does lack PROOF, of any kind, is all the crazy ideas concocted by you & your fellow Dunning-Kruger sufferers. Oh, & it’s pretty clear that you are a reader-& watcher-of tabloid bullcrap from the Murdoch stables…in spite of your pathetic attempts to claim otherwise. Seriously, I’m not sure if the stuff dribbling out of your mouth is words, or cow dung. I suspect it would be difficult to tell the difference. Now back to Menzies House you go, you ignorant little troll.

          • Diogenes60025

            No, I’m calling it NOT a theory, likely a non-hypothesis– maybe a wet dream? I don’t intend to write any papers, because I have better things to do, and don’t need to gain tenure or get a girl friend.

            I am fully qualified in these areas. I don’t putter around in a lab or zone out in front of a computer model, like some egghead poseurs. People rely on my scientific work on a daily basis for their safety & livelihoods.

            With regard to the matter at hand, even you must realize that many problems can be solved by simpler and more elegant scientific paradigms than computer models and florid rhetoric.

            I have a great deal of experience with computer models, and while they can be helpful in some respects, they are most often wrong in their essential conclusions, if weak acolytes are dumb enough to rely on them for that.

            Just see for yourself. Take a half-day and construct a simple mass-balance for carbon dioxide. It balances! CO2 is in equilibrium. The CO2 carrying capacity of the atmosphere is so slight that the concentration of ambient CO2 can be (and is) increased or decreased by minor forces. These could include any number of factors, but my hunch is it is some indirect solar influence leading to the Maunder cycles.

            Conversely, the atmosphere simply cannot hold enough CO2 to materially affect climate, barring a major natural event. All the fossil fuels on the planet, if burned in the next century or two, cannot affect the climate.

            Cut the cord with your hysterical co-dependent pals in academia, and read this paper: http://www.geocraft.com/WVFossils/Reference_Docs/Carbon_cycle_update_Segalstad.pdf It is one of many. Then go have a beer and consider what you’ll do for a living five years from now.

          • Marcus Hicks

            btw, you wouldn’t know the TRUTH if it came along & bit you on that thing you clearly speak out of. By all means, if you think there is another cause of the last half a century of warming, feel free to get your ideas published in a reputable scientific journal. Until you do, though, then I will continue to dismiss your rants as grade-A bullonium uttered by a typical Dunning-Kruger syndrome sufferer. Though I suspect that, in your case, it’s more of a “Cash for Comment” kind of thing. Do you get paid per post, per reply or per like?

          • patb2009

            Your comment is only valid for single variable controlled experiments. Much of science is observational without controls. Much of Geology and Astronomy is purely observational

          • Marcus Hicks

            LOL. You Denial Cultists have been telling us-for the last 20 years-that global warming will soon be “disproved” (it’s not disproven. Clearly your spelling is on par with the rest of your dodgy education), yet all that has been disproved, time & again, is all the fear-mongering from the Far Right about all the “damage” that a transition to a low carbon economy would produce. The sun has been quiescent for the better part of a decade, yet there has still been an upward trend in global temperatures over that same period. When are you morons going to give up on your idiotic campaign? Oh, & please change your name. Diogenes was a name that belonged to some of the most learned people in history, & I consider it an insult that an ignorant troll like yourself has hijacked the name, in order to give your posts more gravitas than they deserve.

          • patb2009

            Not before your organs are sold.

    • JonathanMaddox

      The RWE spokesman has not complained that RWE’s central power stations have been “destroyed.” RWE has closed its older and least-profitable plant, is all. Businesses do that all the damn time.

      • Diogenes60025

        Tell that to the people who are freezing in the dark.

        • Marcus Hicks

          Do you have any other line aside from your false-hood about “people who are freezing in the dark”? You’re not just a troll, you’re a really *boring* troll too.

          • Diogenes60025

            Just wait & see–burn coal or freeze in the dark. That’s how simple it is. Folks will be coming after warmists and former warmists with torches & pitchforks.

            As far as to your ad hominem fallacies, at least I’m not a hick (or a hayseed). Or even a hickey. Or a hickleberry. Or a hickey puck.

        • Marcus Hicks

          Wow, Diogenes, your ad hominem attacks are worse than pathetic. You claim to be this uber-great scientist, yet you apparently haven’t spent a day of your life in an actual lab, & your knowledge of the scientific method seems like it was copy/pasted from Wikipedia. Also, for someone supposedly doing “great things” in the world of science, you seem pretty keen to keep your real name a secret. That is why I call “bullshit” on all your claims to date. You’re nothing but a troll, paid for by one of the many Far-Right, pro-fossil fuel groups. That you consider this a worthwhile way to earn a living merely exposes what a pathetic excuse for a human being you actually are.

  • JonathanMaddox

    The best alternative to a “capacity” market is the diametric opposite : abandon long-term and fixed-price contracts and permit negative prices, a much higher cap on the spot price of electricity, and immediate transfer of short-term price fluctuations to the consumer. Firm, dispatchable supply would command a huge premium in an environment otherwise dominated by intermittent supply and variable demand; and passing on such variation to consumers permits them also to play that market, timing their use of equipment (and crucially of its warm-up and idle periods) to match the price of power. Power station and wind-farm operators can pay for the privilege of running both intermittent and baseload equipment when nobody actually wants the power. Operators of flexible generators, solar panels, dispatchable loads and storage equipment can profit enormously with arbitrage between high and negative price periods.

    • Diogenes60025

      An apt proposal from someone who spends all his time playing “Dungeons & Dragons”. Don’t you know better than to write such long sentences?

      Temper, temper, don’t go postal in the faculty lounge.

      • Marcus Hicks

        Ah yes, this coming from a person who hides his real identity, yet claims to be this uber-great scientist whose work allegedly is of such great value to society. You’re a complete & total phony, “Diogenes”. I suspect you sit in your mum’s basement all day, online “degree” in hand, trolling a variety of different renewable energy/Greens pages-thinking that in some way you make a valid contribution to society. Well, guess what? You DON’T. You’re nothing but a filthy little troll who, when confronted with concepts that your tiny little mind can’t grasp, resorts to some of the weakest & most piss-poor ad hominem attacks I have ever seen. Seriously, moron, get a REAL LIFE.

      • Marcus Hicks

        Gee, Diogenes, took you over 12 hours to think up this piss-poor ad hominem attack. You can always pick the Librorts Party supporters/Daily Telegraph readers. Their brains operate so incredibly slowly!

        • Diogenes60025

          Ittook me 30 seconds. I was busy doing REAL stuff the other 11 hours, 59 minutes, and 30 seconds.

      • Marcus Hicks

        Yeah right, “Diogenes”, sitting at your computer, in your mum’s basement, watching porn does not constitute doing “real” stuff. Though I guess you have to do something to break up your otherwise monotonous existence of trolling sites for money. Seriously, your knowledge of physics & chemistry would make a year 10 High School student laugh out loud. Go back to Menzies House, troll!

  • Joe Taranto

    As I see it renewable energy is the future for our energy needs, its free and its clean, it does not poison the air that we breathe, it does not poison the farm land that we grow Our food, “I say bravo france for banning coal seam hydraulic gas fracking”.

  • Craig Thomas

    Let’s summarise everything our coin-debasing-beggar friend “diogenes” seems to not understand: Physics. Economics. Commerce.
    What does that leave? Empty, ideological drivel.
    He seems to not even understand the basic physical nature of the CO2 molecule. And claims to be a “scientist”.
    Maybe splashing chemicals into his bucket prior to mopping the floor at Burger King is “science” in his fantasy-world?