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Germany Needs More Coal-Plant Shutdowns as RWE Accelerates Halts

Utilities in Germany need to shut 7 gigawatts of coal-fed power plants by 2016 in addition to closings already announced to rebalance supply and demand, according to researcher Pira Energy Group.

RWE AG said Aug. 12 it will halt an extra 1,005 megawatts of coal and lignite capacity by the first quarter of 2017, taking the total planned capacity cuts to 8,940 megawatts. Old lignite plants are candidates for closing, according to New York-based Pira, whose clients include oil companies, utilities and governments. A thousand megawatts is enough to power 2 million European homes.

“There will be eventually more announcements, as power generators are looking to cut on fixed costs,” Bruno Brunetti, a senior director of electricity at Pira, said by e-mail. “A number of uncertainties may be slowing down the process, and the key one is still some lack of clarity on whether Germany will go ahead with a capacity market.”

Germany, Europe’s biggest power market, is debating how to adapt its energy policy to accommodate renewables as it phases out nuclear reactors by 2022. While the government has supported cleaner forms of energy, it also needs to ensure utilities such as RWE and EON SE make enough money to maintain fossil-fuel plants that will work at night or when the wind doesn’t blow.

Grid Connections

Countries from the U.K. to Belgium are introducing capacity mechanisms that pay utilities to keep coal and gas plants connected to grids, in case they’re needed at times of high demand. RWE and EON, Germany’s two biggest utilities, say they would like to see the nation take the same path.

“Far more secured capacity will probably be taken off the market than will be added through investments,” RWE Chief Executive Officer Peter Terium said today in a statement as the company reported a second-quarter loss. “This does not bode well for security of supply, to which wind turbines and solar panels cannot make a large contribution.”

EON plans to shut 7,741 megawatts of capacity from 2013 through next year, including its 1,275-megawatt Grafenrheinfeld nuclear plant, according to the company’s latest figures.

“Britain offers a good example of how to redesign the power market to address the deficiencies of the energy-only markets in combination with the high and growing share of intermittent renewables,” Chief Executive Officer Johannes Teyssen said yesterday on a conference call with analysts. “Germany is still running far behind.”

Utilities need approval from German grid regulator Bundesnetzagentur before they can close plants in case the facilities are deemed essential to the nation’s security of supply. Power prices will not recover from near record lows unless plants are allowed to shut, RWE’s Terium said.

“We can only shut plants if we can prove that they are not economically viable,” he said today on a conference call with journalists. “Price signals are not received by the market, as people presume the regulator will always maintain grid stability, and this is not good for power prices in future.”

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