Fossil fuel giants relegated to role of also-rans | RenewEconomy

Fossil fuel giants relegated to role of also-rans

Print Friendly, PDF & Email

The lights are rapidly going out on a large slab of fossil fuel generation in Germany and elsewhere in Europe. This has implications for Australia too, where capacity is being mothballed and NSW is trying to sell the country’s biggest coal fired power station.

Print Friendly, PDF & Email

(Update: See also our Graph of the Day: How wind displaced coal in Spain)

The lights are rapidly going out on a large slab of fossil fuel generation in Germany and elsewhere in Europe – with three of the biggest power producers in the EU announcing massive closures and mothballing of plants.

In the past two weeks, companies such as RWE. E.ON, and EnBW have canvassed the closure of tens of thousands of megawatts of fossil fuel capacity as coal and fired plants get squeezed out of the market by renewable energy sources such as wind and solar.

RWE, Germany’s second biggest utility, said it would take around 3,100MW of power plant capacity offline in Germany ad Netherlands, and officials told Reuters that “thousands” of megawatts of further capacity could also be shut down or idled.

CEO Peter Terium blamed the “continuing, subsidy-driven solar boom for the closures, which are being brought about because wholesale prices have fallen by around a fifth, and the growth of renewables means that the hours that fossil fuel plant operate are being dramatically reduced.

“In view of the latest price developments on power exchanges and the continuing, subsidy-driven solar boom, the situation is far from being remedied,” Chief Executive Peter Terium said in a letter to shareholders.

E.ON, the largest power producer, said earlier in the week that it had shut down or idled 6,500MW of capacity and may close of mothball another 11,000MW. These included a gas plant in Slovakia that it had opened just two years ago, but which had been operating way below capacity.

RWE said it would take offline 3,100 megawatts (MW) of power plant capacity in Germany and the Netherlands, about 6 percent of its European total 52,000 MW, and added it was assessing similar steps for further plants.

Another German utility EnBW says it is to close four power plants – two coal, one gas and one co-generation – which have a combined output of 668 MW. The company blamed the “rapid structural change in the energy sector”, in particular the growth of renewables which had reduced fossil fuels to the role of “marginal power plants”. This caused a drastic fall in revenue.

Not all of these shut-downs have been welcomed by either the government or the grid operator. The collapse of the carbon price in Europe’s emissions trade scheme means that cleaner gas-fired generation is being priced out of the market (much of it is imported from Russia and eastern Europe and is expensive).

Navigant Research recently estimated that the combined impact of market forces and tighter emission control would force 137 coal-fired plant closures in North America and 144 in Europe by 2020. This would amount to 53GW (53,000MW) and 49GW, respectively.

The Merkel government is currently reviewing the structure of the electricity market to see if adjustments can be made that can provide a price signal to keep gas plants in particular on line so that they can provide back-up to renewables.

Such is the impact on the market from renewables that some analysts, such as Thomas Deser, a portfolio manager from Union Investment, said even the country’s remaining nuclear reactors could be closed earlier than planned (2022). “This is only the prelude for the industry’s capacity adjustment,” he told Reuters.

Australia is facing a similar scenario. Already, some 3,000MW of capacity has been idled at least temporarily at various times in the National Electricity Market. That number may increase given recent forecasts by the market operator and leading players. AGL Energy managing director Michael Fraser says there is about 9,00MW of excess baseload capacity in the market because demand is well short of forecasts made when some of that capacity was built.

The Australian Energy market Operator said the growing use of rooftop solar, more efficient appliances, and some reduced industrial demand meant that there was no need for any new baseload, or even peaking plant capacity, for at least another decade.

In the meantime, market analysts say the installation of large-scale renewables under the Renewable Energy Target, and the continuing growth of rooftop solar (even without feed in tariffs), would continue to eat into the profit margins and revenues of baseload generators.

Amid all this, the NSW government is trying to organize the sale of Macquarie Generation, which includes the Bayswater and Liddell coal fired generators, together accounting for 4,640MW. MacGen says this is equivalent to 40 per cent of the electricity needs of NSW, and 13 per cent of the National Electricity Market.

The power stations are valued at around $2.1billion in the Macquarie accounts, following a $1 billion write down after the introduction of the carbon tax. Despite the likely reduction, and possible removal, of the carbon price over the next 12 months,  there is doubt over whether it could even attract its book value. Thailand’s Ratchaburi said last week it would be a bidder, but estimated the value at around$1 billion.

State Treasurer Mike Baird was challenged by Greens MLC John Kaye during a budget estimates hearing this week about the sale, conceding that it was being offered in a soft market.

“I am aware that demand is soft, yes,” Mr Baird told budget estimates on Thursday. “But if you think about an investment in capital, you don’t just make a decision over the next two or three years, you take it for the long life.”

However, given the AEMO forecasts and the likely growth of solar PV – which some analysts say could treble by 2020 – the long-term implications of the markets will be sure to weigh on the minds of potential investors. The 2,000MW Liddell power station is already 42 years old. (The 2640MW Bayswater is 27 years old).

Interestingly, the NSW government announced new energy efficiency laws on Friday which they said would result in reduced demand of 16,000GWh a year by 2020 – which is equivalent to the annual output of the Bayswater plant, which is the equal largest in Australia.

The NSW Government hopes to conclude the sale of MacGen in the current financial year. Yet it is not clear that there will be any certainty about the future of the carbon price, the renewable energy target, and about policies for the orderly (or otherwise) closure of excess capacity, and on the further growth of rooftop solar, within that time.

“Aren’t you concerned now that we are trying to sell off an asset when there is huge uncertainty created by all those factors about the long-term future of that asset?” Kaye asked during the hearings.

To which Baird said: “Obviously, the industry has to grapple with that. … But the market is very clear that there is a long-term requirement and will be a long-term requirement for base load generation. I assure you that if we do not get fair value, I will have no problem coming back here or going publicly and saying, “Listen, we did not get fair value for these assets in terms of the process we ran. We are not proceeding with it’. “


Print Friendly, PDF & Email

  1. Coaltopia 7 years ago

    Fair value for a coal-fired power station? They’re worse than worthless: a liability for everyone.

    • Bob_Wallace 7 years ago

      Fair value for a coal-fired power station?

      How much is scrape metal going for these days?

      Oh, and there’s the value of the real estate as a solar farm. Transmission is already in place.

      • Ronald Brakels 7 years ago

        First you’d have to pay people in an asbestos proof suits to remove the metal to sell it for scrap for power plants such as Hazelwood, so plants like that are worth negative amounts of money. A fact that is no doubt contributing to the shrill squealing reminiscent of a pair of pigs on a honeymoon emanating from certain boardrooms.

  2. wideEyedPupil 7 years ago

    ” is a long-term requirement and will be a long-term requirement for base load generation” — if you say it ten times and tap your heels it becomes true to the tune of $1B.

  3. M.G.Adams 7 years ago

    Old King Coal was a merry old soul,
    then the Sun came out,
    & was he in a hole!

Comments are closed.

Get up to 3 quotes from pre-vetted solar (and battery) installers.