These Power Plants Survived WWII Bombs But Maybe Not MerkelBy and
Rush of renewables flatten prices, hurt hydro storage plants
Vattenfall mulls closing units, Alpiq seeking buyers
After surviving wartime bombing and Soviet-era seizures, some power plants in central Europe are facing extinction because of flat prices, newer technologies and red tape in Berlin.
The facilities at risk used to make money buying cheap power at night to pump water up mountains, then releasing it downhill to turn generators during the day, when prices were higher. While they were cash cows before the era of wind and solar, market conditions are now so bad for pumped-hydro plants that Sweden’s Vattenfall AB and Norway’s Statkraft AS say they might close plants in Germany, while Alpiq Holding AG wants to unload some units in Switzerland.
It’s yet another example of how Chancellor Angela Merkel’s unprecedented Energiewende has gone awry. Designed to start within seconds, pumped storage is ideal for smoothing fluctuations in power supplies exacerbated by the expansion of intermittent renewables. While solar and wind get 20 billion euros ($21 billion) in subsidies per year from Berlin, the pumped-hydro plants get nothing but more regulation and rising bills for grid access.
“I’d be pretty perplexed if all these plants would shut down,” Andreas Gandolfo, an analyst at Bloomberg New Energy Finance, said by phone from London. “You created a reservoir, dug the mountain, you laid the concrete. Why replace a technology that is already there?”
The jump in solar generation has eroded the traditional premium for daytime peak over nightly rates to just 25 percent. It was more than four times that in 2008. Even income from providing near-instant power to the grid at times of high demand has dwindled, dropping as much as 95 percent over the past six years.
On top of that, operators of hydro storage plants more than 20 years old must pay for using the grid when drawing electricity for pumping because they count as consumers by the regulator. This eats up almost all their profit, according to the German Association of Energy and Water Industries, or BDEW.
“We’re fighting for existing plants to remain in the system,” said Maren Petersen, head of generation and system integration at BDEW in Berlin. “We say the best support is to take the shackles off and create the same conditions for competition.”
Pumped storage is necessary as Germany adapts to the growth of renewables, and producers already get some perks, according to Beate Baron, a spokeswoman for the nation’s Economy Ministry. For example, new facilities such as a proposed conversion of an old German coal mine, aren’t charged grid fees in their first 20 years of operation.
Germany has seven gigawatts of pumped storage assets, a capacity equal to the nation’s five biggest nuclear reactors. The units range from Vattenfall’s one-gigawatt Goldisthal unit opened in 2003 to RWE AG’s Koepchenwerk, where the original facility survived bombing raids in World War II. German dams were among strategic industrial targets of Allied
The flood of green German power is also plaguing its neighbors. Swiss utility Alpiq Holding AG has been trying for a year without success to sell a minority stake in its hydro plants, which include pumped storage. Its peer Axpo Holding AG has already had to write down the value of its 2.1 billion-Swiss franc ($2.1 billion) station that’s due to start this summer. In Austria, new projects won’t commence before 2020, with most not seen starting until 2025 if at all.
Upgrading and maintaining older plants costs millions, which is why Statkraft is considering closing its German facility when new investment is needed. Vattenfall decided last year to stop running its Niederwartha plant except to fulfill contracts to supply the grid and feed fresh water to maintain a recreation area in its lower reservoir. The last time the 87-year-old facility had to halt for an extended period was when the Soviet Union seized its equipment for war compensation. RWE says its plants are “under pressure” but declined to comment on their profitability.
It’s not all gloom for the pumped-hydro industry. Earlier this month, Britain approved construction of a 100-megawatt facility in Wales, the first to be built in more than 30 years.
Germany has the potential to increase installed hydropower capacity twenty-fold. Planned projects of 3 gigawatts aren’t expected before 2025 -- after the nation has closed all its nuclear reactors, according to BDEW. Trianel GmbH is one of the utilities that wants to keep its options to build two projects in open.
“We’re advancing the projects at a slower pace,” Elmar Thyen, spokesman and head of hydro projects at Trianel said by phone from its headquarters in Aachen, Germany. “There is no business case for storage until the start of the 2020s and that is entirely based on wholesale power or balancing prices. We also don’t see a turnaround of the market yet.”
Another headwind is competition from utility-scale batteries, which are getting bigger, cheaper and able to hold their charges for longer. Both Vattenfall and Statkraft have already complemented its capacity in Germany with battery storage, still that challenge may be far off as it is a mere fraction of its existing capacity of pumped hydro.
“The absolutely most powerful battery one can imagine is our pumped-hydro plants, which can handle large volumes and are already installed,” said Magnus Hall, Vattenfall’s chief executive officer, the biggest pumped storage operator in Germany . “But today, the net fees we pay together with a lower difference between high and low prices makes it unprofitable.”
— With assistance by Brian Parkin