RWE pulls 3.1GW due to renewables

Major German utility RWE will be taking 3.1GW out of operation due to the renewable energy merit-order effect depressing prices.

This article was originally published on Lenz Blog.

RWE has announced in their latest report on their first six months results (press release in German) that they plan to take 3.1 GW of fossil fuel generating capacity off the market.

The reason they give for that is that wholesale electricity prices are way down in Germany as a consequence of more renewable in the mix. They would be losing money if they needed to sell at these low prices. They don’t, since most of their business is fulfilling contracts from the past couple of years, which still have higher prices, but that effect will be gone soon.

Welt has an excellent article giving some background on this (in German).

They show an interesting graphic, which I hesitate to reproduce here for copyright reasons.

We learn from that: Prices have gone down from the mid term average of around EUR 55 a MWh to less than EUR 40. They estimate the minimum price necessary for gas generation as EUR 70, for coal as EUR 60, for lignite as EUR 45, and even for nuclear power after the plants have already paid back their investment as EUR 40, including a tax on nuclear fuel.

With prices below EUR 40 on the wholesale markets, operators like RWE may want to mothball their nuclear capacity even before they are required to do so by the 2011 law on the nuclear phase-out.

German Green Party Member of Parliament Hans-Josef Fell’s most recent mail newsletter has some very interesting comments on this development.

For one, he notes that this is great news. If RWE can’t even run fossil fuel power plants that have paid back their investment already at these low wholesale market prices, it follows that it doesn’t make any sense to start building new fossil fuel capacity now. Any new plant would need to earn back its capital cost, which is of course impossible.

He also notes how to deal with supply shortages. Under German law, the grid operators are legally liable to guarantee stability of supply. They will need to pay RWE or other owners of mothballed fossil fuel capacity for keeping their plants ready in case they are needed as backup on a windless November evening.

Dr. Karl-Friedrich Lenz

This article was originally published by CleanTechnica. Republished with permission.