By Jan Hromadko
FRANKFURT--Austria's Verbund AG Wednesday became the latest
European utility to close electricity generators that burn clean
natural gas because turbines powered by subsidized renewable
energies and dirtier coal are less expensive to run.
Verbund said Wednesday it would mothball three state-of-the-art
generation units in Austria and France, with a combined output
capacity of more than 1.2 gigawatts. The state-owned company blamed
"massive distortions in the European electricity market" that have
gutted profits at traditional power plants across Europe,
particularly ones using gas.
The planned closure follows similar recent moves by giants
including Germany's RWE AG and E.ON SE, U.K.-based Centrica PLC and
France's GDF Suez SA.
In Germany, Belgium, Netherlands and Luxembourg, for example,
utilities have announced plans to close generators with combined
capacity of more than 11 gigawatts between last year and 2018,
according to research from Morgan Stanley. That is equivalent to
more than 10 large nuclear reactors. Another 20 gigawatts of
nuclear, coal and other generating capacity is also being taken
offline during the period.
European utilities' retreat from natural gas is an unexpected
result of governments' promotion of renewable ecological energy
sources, such as wind and solar power. Most European countries
heavily subsidize these new energies to protect the environment.
The rich subsidies have resulted in a capacity glut, which has
eroded wholesale power prices.
Compounding the rise of European renewables is a flood of
inexpensive but dirty coal from the U.S., where it is superfluous
due to abundant new natural gas supplies.
As a result, benchmark power contracts for delivery in 2015 now
trade at around EUR44 per megawatt-hour, according to German energy
exchange EEX. That is down roughly 36% from March 2011, just before
the nuclear disaster at Japan's Fukushima Daiichi power station
prompted an acceleration of Germany's "green" push.
Verbund's plan "is symptomatic of the situation on the
power-generation market," said Stephan Wulf, an analyst at Warburg
Research in Hamburg. "Gas-fired power plants don't earn any money
because of the relatively high fuel cost and the fact renewables
are displacing them."
The situation looks even worse for plants now in construction.
Germany's main energy-industry lobbying group, BDEW, said last
month that four coal-fired plants and three gas- power plants will
come online this year. The cutting-edge units, which were planned
several years ago under better market conditions, will probably be
uneconomical for their operators, said BDEW Managing Director
Hildegard Müller.
A spokeswoman for Germany's Economic and Energy Ministry said
Tuesday that plant shutdowns show the market is working by
eliminating overcapacity. She didn't address the emission levels of
mothballed plants compared with those remaining open.
The ministry said that regulators have stopped utilities from
closing generators that are vital. For example, the government last
year was forced to financially support a new, highly efficient gas
plant when its operator, E.ON, threatened to close the unprofitable
unit and cut power supplies to the booming Munich area.
The German government has said it may need to subsidize
construction of new power plants, although current supply is more
than sufficient. Some European countries, like France and the U.K.,
have already taken steps to support plant construction.
E.ON, which reported a 65% decline in first-quarter net profit
Tuesday, urged the German government to "provide appropriate
compensation for conventional generation capacity".
Write to Jan Hromadko at jan.hromadko@wsj.com
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