Europe energy giants clear decks as they prepare shift to renewables | RenewEconomy

Europe energy giants clear decks as they prepare shift to renewables

European energy giants continue clear-out of fossil fuel assets as they prepare for a new energy future – one focused around distributed energy, smart grids and renewables. Coal generation is no longer profitable, and conventional generation is being jettisoned in favour of wind, solar and storage.

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The two biggest utilities in Europe, German power giants E.ON and RWE – have further cleared the decks as they prepare to catch up with the country’s energy transition and focus on renewables and distributed energy.

E.ON overnight revealed a net loss of €3.2 billion in 2014, as it wrote down the value of many of its fossil fuel plants. Rival RWE took a similar step last year, reporting a net loss of €2.8 billion as it wrote off the value of its coal-fired assets.

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Both companies have fought vigorously against the German government and its Energiewende – its transition to a renewables-based energy grid and its rapid phase out of nuclear power.

However, since the centre-right government of Germany has held firm on its policies, both on the deployment of renewables and the phasing out of nuclear – E.ON and RWE have now accepted that their future lies in new technology, large scale renewables, distributed generation, battery storage and micro-grids.

E.ON plans to jettison its entire portfolio of centralised generation – including coal, gas and its remaining nuclear assets, so it can focus on advanced distribution networks and smart energy solutions for its customers.

E.ON chief executive Johannes Teyssen said the energy market would be shaken up by digital and other technological innovation. “We see a lot of opportunities here for products and services that we’re developing for and in partnership with our customers,” he said.

RWE says it is also focusing on networks, new products such as smart meters, and renewable energy, although it is not yet splitting its assets. It says, however, that it is watching E.ON’s plans with interest. Analysts show signs of impatience, noting that the inability to generate cash from fossil fuel generation, and a balance sheet that has to cater for decades of outflows for nuclear decommissioning, the company lacks a clear answer about its long term positioning.

Teyssen said the split will be one of the biggest of any kind – both in the energy industry and in Europe. He compared the two companies to a “car and the road” – the new E.ON being the car, and the old one being the road.

“You can’t have one without the other,” he said. But E.ON, after the split, intends to have no shares in the “old” company. The long term future of centralised generation – nuclear in Germany and fossil fuels in general, simply doesn’t warrant it.

Teyssen says the energy market would be shaken up by digital and other technological innovation. “We see a lot of opportunities here for products and services that we’re developing for and in partnership with our customers,” The Guardian quoted him as saying.

RWE, despite writing off the value of most of its coal assets last year, says it is still struggling to make profits – because of the sharp slump in wholesale prices in Germany.

CEO Peter Terium says almost half of the company’s conventional power stations were not making money.

Operating profits from conventional power production tumbled 29 per cent in the last year, and the cash-flow from its conventional generators was barely break-even.

“The situation in conventional electricity generation in particular is deteriorating too fast and too severely for us to counteract,” Terium said. At current prices, “RWE Generation will have to post an operating loss in the not-too-distant future.”

This explains the move by the two German energy giants into renewables and distributed energy.

Analysts expect the shift in the EU’s energy policy will accelerate the establishment of a new market design, which will increasingly rely on distributed (i.e. decentralised) generation, lower consumption and smart technologies.

“We believe that – across the industry – value will keep moving away from large power plants towards networks and ‘client solutions’,” UBS analysts noted in a recent report.

The policy and energy landscape is changing across western Europe because governments are encouraging wind, solar and other renewables as part of a switch to a low carbon economy.

This is mainly motivated by growing fears about the impact of carbon emissions on climate change, but they are also driven by a determination to improve energy security, and lessen their reliance on Russian gas imports.

RWE said it may shut down more coal plants because of the downturn. After a brief spike following the closure of some nuclear plants immediately post Fukushima, emissions are now at their second lowest level since 1990, and black coal generation is also at its second lowest level since 1990.

Energy efficiency has meant that the nexus between economic growth and power consumption has been decoupled, wholesale prices are at record lows, and retail prices are also starting to fall.

Both RWE and E.ON are hoping that Germany will set up so-called capacity markets to subsidize conventional energy producers, which they say are needed for stabilising power supply given the intermittency of wind- and solar-generated electricity.

But the German government is resisting. It argues that such subsidies are not needed, and that energy storage could provide an answer. Even so, a new study shows that long term, or seasonal storage, may not be needed in Germany for many years.

RWE and E.ON are also waging battles with the government over the nuclear fuel tax, and the level of provisions for decommissioning nuclear plants, which will need to occur in the next 10 years.

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11 Comments
  1. JonathanMaddox 6 years ago

    “Even so, a new study shows that long term, or seasonal storage, may not be needed in Germany for many years.” — Of course not, so long as burning fossil fuels remains an option. There are vast supplies of fossil fuels already “stored” and a significant overcapacity of fossil-burning capacity. Storage isn’t required for system stability, it is required to permit clean generation to continue to displace fossil fuels even when the wind isn’t blowing and the sun isn’t shining — and even that won’t be possible, until there are large excesses of clean energy in excess of instantaneous demand, worth storing away.

      • JonathanMaddox 6 years ago

        I’m sorry, what is the worn-out canard you are trying to dismiss?

        Are you saying that fossil fuels are not stored energy?

        Are you saying that there is not currently more dispatchable fossil-burning electricity generation capacity in Germany than the sum of demand variation and the variation in intermittent generation in that country?

        I didn’t mention it above, but are you saying that building additional storage might be more attractive than continuing to exploit the ability to quickly switch between export and import of power, leaning on neighbouring countries’ existing low-cost dispatchable capacity?

        I didn’t mention this above either, but are you saying that building new storage within or near German borders is more attractive than further expansions inter-regional and international transmission capacity so as to more fully exploit existing clean energy storage such as Alpine or Nordic hydroelectricity, and/or to continue to displace additional fossil-fuel burning generation when (immediately) and where (anywhere with fossil-burning generation which can ramp down) it is most convenient and cost-effective to do so?

        All I’m saying is that any additional storage is an optional extra *unless* very strong incentives, financial or regulatory, encourage storage whilst continuing to penalise fossil-fuel burning and encourage ever-greater penetration of intermittent renewables. Is that the canard you’re referring to?

        I most certainly wasn’t trying to quantify anything. Rather I was saying there are too many choices to make a clear quantitative call on requirements, without a crystallisation in regulation and incentives.

        Any investment in either new storage or new dispatchable generation capacity in or near Germany right now is quite a risky business.

        • Hermit_Thrush 6 years ago

          You’re pushing for premature over-investment in storage as if a one-to-one ratio of storage to additional renewables introduction into the grid were an imperative. Otherwise, the grid would either crash or reliance on FF would have to grow concomitantly as *intermittent* renewables make their inroads. Essentially, a self-defeating proposition that’s already been debunked, as can be seen from the links above.

          If it were so, then it’d be easier to state a case for nuclear directly. After all, it’s also got plenty of stored, CO2-free energy and far fewer cross-border integration issues to worry about, coeteris paribus.

          • JonathanMaddox 6 years ago

            Dear Hermit, please refrain from putting words in my mouth. I have most certainly *not* advocated any of the canards you mention and I cannot understand why you think I have.

            I am not “pushing for premature over-investment in storage”. I am merely pointing out that storage is barely viable and barely *necessary* in competition with dispatchable fossil fuel generation, demand management, export to other predominantly fossil-fuelled regions, anti-correlated and overbuilt intermittent generation, curtailment, etc. Storage only becomes required for emissions reduction purposes when clean generation can no longer displace fossil fuel burning

            “One-to-one” is by no means a sensible ratio for storage to renewable generation; supposing a power system *entirely* composed of intermittent generation and storage charged by excess intermittent generation (which I most certainly am not advocating), demand management and curtailment would *still* be viable and cheaper alternatives to storage. As, in fact, the links you have provided demonstrate.

            I have read each of the articles to which you link, long ago, generally agree with their premises, and in fact have posted a couple of them myself as links in similar discussions.

            It’s really hard for me to see where you’re coming from, actually.

            If you wish to state a case for nuclear, please do so. Just like storage, new-build nuclear power also doesn’t compete with fossil fuelled generation without incentives and emissions penalties. “He is a gentleman, I am a gentleman’s daughter; so far, we are equals.”

          • JonathanMaddox 6 years ago

            Another thing I didn’t mention is dispatchable primary renewable generation: bioenergy and hydroelectricity. I know these are viable technologies, but there’s reason to believe that Germany’s current pursuit of bioenergy is not ecologically sustainable, so I hesitate to advocate it.

            http://www.monbiot.com/2014/03/14/the-biogas-disaster/

            Much the same applies to new dam-building at any large scale — I’m not strongly opposed except perhaps in specific cases such as the displacement of indigenous people at Belo Monte, but I’m also hesitant to advocate because who knows what else each new big dam will drown; there are always losers. There were justified protests against the Three Gorges Dam, for instance, but the original motivation for its construction was not power (despite its new status as the world’s largest single power station) but flood control. People have frequently drowned by the thousand at that spot and downstream in seasonal extreme weather conditions, with comparable destruction of infrastructure and crops; while building the dam has displaced residents permanently and rendered inaccessible some valuable farmland and historical sites, I would hardly say that flood safety and vast amounts of clean and dispatchable electrical power is not a material improvement.

            Small-scale, run-of-river hydro has many modest opportunities, but this is not really dispatchable (as there’s no storage to speak of without new dam-building), rather it is either constant-rate or seasonal depending on water availability. Smallish pumped-hydro schemes may be significantly less destructive than damming significant rivers, but they’re also not necessarily cost-competitive with potentially much cheaper and less impactful storage technologies such as reversible heat pump storage and power-to-gas which are in R&D now.

            I also didn’t mention wave and free-flow tidal energy. There are enormous amounts of power in these forms which might one day profitably be harnessed, and which is much less intermittent than wind or solar power, but it’s early days yet for those technologies. Tidal barrages are well-established technology but again, I refrain from advocating them in general on the grounds that I don’t know how destructive they might be.

            I’d expect storage in various innovative forms to be available and commercially competitive in very large quantities, some time before large-scale wave and/or tidal power is really available, and at lower costs than even small-scale pumped hydro. Just not yet; so invest in the technology at modest demonstration scale, and deploy it as costs come down.

          • Hermit_Thrush 6 years ago

            You’re cunning with your use of words. But to me, you still seem to imply that doing renewables and the various forms of managing them in a modern power grid isn’t worthwhile after all b/c it’s either too cumbersome, expensive, and in the end, non-ecological or all of them bunched together. I guess you’re following in David Mackay’s footsteps.

          • JonathanMaddox 6 years ago

            I’m absolutely flattered to be compared with David MacKay if you’re talking about the physicist and computer scientist, but otherwise you have me all wrong.

            I’m 100% in favour of building as much low-cost intermittent renewable generation infrastructure as possible. The whole point of everything I’ve said above is that it doesn’t have to wait for extra storage!

          • JonathanMaddox 6 years ago

            Allow me to say,

            Jim Hickey is actually correct on the basic point that MacKay’s book seems weighted in favour of nuclear energy, but gosh he’s rude about it: “merest lip-service”, “anti-democratic, poisoned by bias”, “any premise of evenhandedness is false”, excessively sardonic scare quotes around words like ‘objectivity’ and ‘facts’, and an awful lot of unenlightening meta-waffle about whether objectivity and facts can even exist. This, however, takes the cake:

            “And, to be honest, I cannot prove that the author of (SE/WHA) has for decades found himself favoring nuclear energy. However, I can show many things that incline me to believe that this is the case.”

            — this without supplying *any* supporting evidence at all! This is pure insinuation, your honour! I would suggest the prosecution put up or shut up.

            Please don’t confuse my opinions with MacKay’s any more. Yes, he has wound up pretty strongly pro-nuclear, on reasonable grounds by his own lights, but perhaps not with complete information (eg. it does indeed seem like he has used an exaggerated figure for the UK’s gross energy demand, and he has probably underestimated the total renewable energy potential as well).

            I personally have not at any stage wound up pro-nuclear, as should be clear from any interactions you might observe on this site or others between me and our most vocal nuclear-advocating fellow commenters.

          • JonathanMaddox 6 years ago

            If anything I’m pushing for any heavy (as opposed to pilot-scale, which is already going strong) investment in new storage to be *deferred* until such time as it’s commercially viable, but for increasing amounts of clean generation to continue to displace fossil fuels wherever possible.

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