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RWE Shuts Fifth of German Gas Power Capacity as Profit Drops

RWE AG (RWE), Germany’s second-largest utility, closed almost a fifth of its natural gas-fired power capacity in Germany as low demand for electricity made the plants unprofitable.

A total of 954 megawatts of German gas-fed generation will be offline until at least the end of next year, the Essen-based company said in a filing on Aug. 9. That compares with gas-fired capacity of 5,228 megawatts in Germany at the end of 2011, according to a company presentation.

Increased generation from renewable sources such as wind and solar and a slump in German power prices has cut the income from gas-fired plants run by utilities including EON SE, the nation’s biggest utility. The so-called clean-spark spread, a measure of profitability for the next year based on electricity, emissions and gas prices, dropped to a record minus 19.61 euros a megawatt-hour on Aug. 6, compared with minus 8.05 euros a year earlier, according to data compiled by Bloomberg.

“The decision to idle gas capacity does not come as a surprise in an environment of negative spark spreads,” Patrick Hummel, an analyst at UBS AG in Zurich, said today in an e-mailed research note. “RWE will decide on plants mothballing and closures on a case-by-case basis, rather than announcing a massive capacity shutdown at once.”

RWE will idle two gas turbines with a generation capacity of 272 megawatts each at its Weisweiler power plant from today until the end of 2014, according to a filing on the company’s website.

“Gas power plants have low running hours, so we decided to put those two turbines in reserve mode,” Jan-Peter Cirkel, a spokesman for RWE, said by phone from Essen on Aug. 9.

10,000 Megawatts

The utility will also mothball its 410-megawatt Gersteinwerk-F gas plant for all of next year, according to the filing. The unit has not generated any power since at least March 2012, according to RWE production data on Bloomberg. Another 410-megawatt gas unit at the site, Gersteinwerk-G, will be offline from April 1, 2014, until the end of that year, the company document shows.

RWE has put a total of 10,000 megawatts of generation capacity in Europe under observation for potential closure, Chief Executive Officer Peter Terium said in July. The company is scheduled to release its second-quarter earnings on Aug. 14.

Norway’s Statkraft SE closed its 510-megawatt gas-plant in Landesbergen, Germany, on July 1 after shutting a 430-megawatt unit in Emden in February 2012.

EON, Germany biggest utility, said in July it would close its 430-megawatt gas-fired plant in Malzenice in Slovakia. In April, the company signed an agreement with German grid operator Tennet TSO GmbH to keep operating blocks 4 and 5 at its loss-making Irsching gas plant in the south of Germany to secure grid stability.

Carbon Plunge

The closures follow an 86 percent drop in benchmark carbon permit prices since they peaked at 31 euros ($41) a metric ton in April 2006, according to data from the ICE Futures Europe exchange in London. Natural gas emissions are about half those of plants that burn coal. December futures fell 3 cents today to 4.43 euros on ICE at 3:48 p.m. local time.

To encourage gas power generation, Europe may need to tighten its emissions-reduction target to more than 30 percent compared with 1990 levels from the current 20 percent, Geoff Sinclair, head of sales and trading for Standard Bank Plc in London, said today by e-mail.

The EU has an oversupply of carbon permits and credits because emissions dropped more rapidly than expected, Sinclair said. The surplus was 1.8 billion tons in the five years through 2012, 18 percent of total emissions, according to Bloomberg New Energy Finance.

“To encourage people to prefer gas over coal, either the oversupply needs to be taken away permanently or the target needs to be improved,” Sinclair said. “An improvement beyond a 30 percent reduction may be needed to make a significant difference.”

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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