Nuclear Cuts Vindicate Merkel as RWE Profit Dips

Germany’s $710 billion green-energy drive is cutting production at nuclear reactors, the nation’s most profitable large-scale plants, as power prices slump to a six-year low.

The proportion of hours during which electricity traded at less than 30 euros ($39) a megawatt-hour, the level at which UBS AG says reactors start losing money, rose to 50 percent last month, the most since 2007 and 92 percent more than a year ago, data from the Epex Spot SE exchange show. RWE AG (RWE) cut output at its Gundremmingen plant near Munich 31 times in the first half as solar and wind output jumped, compared with 18 times in 2012, according to data compiled by Bloomberg.

The reductions, which typically last for hours at a time, underscore how Chancellor Angela Merkel’s plan to replace atomic power with renewable energy within a decade is gaining ground at the expense of profit at utilities from RWE to EON SE. The boom in green power, coupled with the lowest demand in 10 years, sent the average operating margin at 15 European utilities to the lowest since 2002, company data compiled by Bloomberg show.

“We will see more of those situations where renewable output is so high, that spot prices collapse below the level of the cash costs for nuclear plants,” Patrick Hummel, an analyst at UBS in Zurich, said July 2 by e-mail. “This really is a double-whammy for power producers. Fewer running hours means less power is sold and that happens at a lower price.”

Photographer: Christof Stache/AFP/Getty Images

Smoke rises from the cooling towers of the nuclear power plant in Gundremmingen, Germany. Close

Smoke rises from the cooling towers of the nuclear power plant in Gundremmingen, Germany.

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Photographer: Christof Stache/AFP/Getty Images

Smoke rises from the cooling towers of the nuclear power plant in Gundremmingen, Germany.

Daily Auction

Day-ahead power averaged 37.40 euros in the first half on Epex in Paris, the lowest since 2007. As many as 358 of June’s 720 hours settled below 30 euros, the most since August 2007, data from the exchange show. Day-ahead power sold at 26.24 euros at a daily auction today.

On June 16, a Sunday, wind and solar plants met more than 60 percent of Germany’s demand, a record, according to the International Economic Forum for Renewable Energies, a Muenster, Germany-based research institute, forcing RWE, EON and EnBW Energie Baden-Wuerttemberg AG (EBK), the nation’s nuclear operators, to cut output as prices slumped below zero. That’s the level at which utilities must pay consumers to take power off the grid.

“The currently low prices on exchanges have dramatic consequences for the operators of conventional power plants,” said Hildegard Mueller, head of the managing board of BDEW, the Berlin-based utility lobby group. “They wonder how to make money with their plants. The companies now face the question how to develop their business model in the future.”

Photographer: Timothy Fadek/Bloomberg

An employee inspects an escape hatch at a nuclear power plant in Grohnde, Germany. Close

An employee inspects an escape hatch at a nuclear power plant in Grohnde, Germany.

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Photographer: Timothy Fadek/Bloomberg

An employee inspects an escape hatch at a nuclear power plant in Grohnde, Germany.

Production Cuts

On June 16, Essen-based RWE cut output at Gundremmingen-C by 58 percent to about 550 megawatts and production at Gundremmingen-B by 54 percent to 600 megawatts for about two hours, data compiled by Bloomberg show.

EON cut output at its 1,360-megawatt nuclear reactor Grohnde to less than 1,200 megawatts during 15 hours that day and reduced production at the 1,400-megawatt Isar-2 for three hours, according to Louisville, Kentucky-based Genscape Inc., which tracks power output in 13 European countries. EON’s biggest reactor, the 1,410-megawatt Brokdorf, ran for four hours below 1,200 megawatts.

Capacity at EnBW’s 1,395-megawatt Neckarwestheim-2 facility dropped below 1,200 megawatts for 18 hours that day, according to Genscape.

Friederike Eggstein, a spokeswoman for EnBW in Karlsruhe, Germany, and Petra Uhlmann, a spokeswoman for Dusseldorf-based EON, didn’t respond to two phone calls and two e-mails from Bloomberg News seeking comment.

‘Cash Cows’

Total capacity utilization at Germany’s nine reactors dropped to 60 percent that day from 64 percent on June 15, according to Genscape. It rose to 65 percent a day later.

“Our nuclear plants are not the cash cows that some think they still are,” Bernhard Guenther, RWE’s chief financial officer, said on a May 15 call with reporters.

Renewable power is so prominent in Germany’s grid that natural gas-fired plants haven’t been profitable for 17 months, according to a Bloomberg calculator that takes power prices, fuel and emissions costs into account. Reactors are cheaper to operate than lignite-, coal- and gas-fired stations on a marginal cost basis, according to Chris Rogers, an analyst at Bloomberg Industries in London.

Solar output peaked at 23,203 megawatts on June 16, almost 13 times the average over the past 12 months, according to EEX data. Same-day prices fell to as low as minus 225 euros from 5 a.m. through 8 a.m. Berlin time, and changed hands at minus 100 euros from 2 p.m. through 4 p.m., Epex data show.

Fukushima Dai-Ichi

Merkel decided in 2011 to close eight German nuclear reactors and phase out the rest by 2022 following Japan’s Fukushima Dai-Ichi disaster. Public support for the 550 billion-euro plan to expand wind and solar power is rising, even as government subsidies for the “Energiewende,” or energy shift, increase electricity bills. Fifty-nine percent of respondents backed the nuclear phase-out in a Forsa poll for Stern magazine in April, up from 54 percent a year earlier.

Atomic energy accounted for 16 percent of the country’s power last year, down from 18 percent in 2011, BDEW data show.

The average operating margin at 15 European utilities was 12 percent last year, the lowest since 2002, data compiled by Bloomberg show. EON’s slid to 3.7 percent, compared with 23 percent 10 years ago, the data show. RWE’s margin declined to 7.3 percent, from 14 percent in 2003.

RWE’s full-year adjusted net income slid 27 percent in 2012 from 2008, while the measure at EON dropped 25 percent in the same period, according to annual company reports.

Intraday Trading

As Germany moves toward Merkel’s target of sourcing 35 percent of its power from renewables by 2020, from 22 percent today, intraday trading is soaring. Contracts covering a delivery period as short as 15 minutes in the future rose 9 percent last month to an unprecedented 260,668 megawatt-hours compared with May, according to Epex.

“We need to market our plants more and more on the day-ahead and intraday markets due to the boost of renewable energies,” said Joerg Stockhecke, who works in the plant optimization and market analysis unit at Stadtwerke Bielefeld GmbH and has been in the market for 19 years. “This has basically turned us into intraday traders,” said Stockhecke, who markets about 330 megawatts of production capacity.

His portfolio includes 227 megawatts of the German 1,360 megawatt nuclear plant Grohnde in the north of the country. The unit is majority owned by EON SE.

First-Half Slide

Germany added 344 megawatts of solar power in May, taking the total to 33,877 megawatts, or 19 percent of installed capacity, according to the nation’s grid regulator. Wind parks, mainly onshore, represent 17 percent.

Total solar and wind output dropped 6.4 percent in the first half to 22.4 terawatt-hours, data from the International Economic Forum for Renewable Energies show.

“When summer finally starts in Germany and solar generation can unfold its full power, solar energy will then come back after a subdued first half,” Paolo Coghe, an analyst at Societe Generale SA (GLE) in Paris, said July 2 by e-mail. “If this happens, then there is a good chance that prices are going to dive even more.”

To contact the reporter on this story: Julia Mengewein in Frankfurt at jmengewein@bloomberg.net

To contact the editor responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net

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