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UTILITY Week 16 05 14

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28 | 16Th - 22nd MaY 2014 | UTILITY WEEK Markets & Trading Analysis A ngela Merkel took a bold policy deci- sion in the aermath of the tsunami that hit Fukushima's Daiichi nuclear plant: that Germany should phase out all its nuclear power stations by 2022. It has le an indelible mark on the country's utility com- panies, which are now at a crossroads in how they generate their electricity. In 2011 when the decision was made, eight of the country's nuclear reactors, including seven of the oldest ones, were taken offline. Figures from the German Fed- eral Statistics Office highlight a transition in how energy is produced that has seen the influence of nuclear power diminish, while fossil fuels have become more prevalent in Germany's energy base. Ten years ago nuclear power accounted for 167.1 billion kilowatt-hours of electricity produced, by 2011 this had shrivelled to 108.1 billion. This trend continued and last year only a relatively small 97.3 billion kilowatt- hours was created by nuclear power. There is a comparative role reversal with carbon-emitting fossil fuels such as lignite and hard coal. In the case of lignite, in 2009 it produced 145.6 billion kilowatt-hours of power. This has increased since 2011 and hit 162 billion kilowatt-hours last year. Hard coal has a similar pattern, as levels of usage reached a nadir in the late 2000s with 107.9 billion kilowatt-hours produced, but then escalating to 124 billion kilowatt- hours for 2013, just under 20 per cent of all electricity produced. As nuclear is passed over, the plan from successive German governments has been to increase renewable generation, up to a colos- sal 80 per cent of electricity. The target is to achieve this by 2050 at the latest. Renewable sources generated just under 24 per cent of the electricity used in Germany last year, with wind and solar the fastest growing in that sector. Recent reports have suggested that these figures mirror how utili- ties are increasing their use of environmen- tally unfriendly power, such as lignite. One of Germany's largest utilities, RWE, is unhappy that nuclear power has been rejected. A spokesperson said: "German nuclear power plants are among the saf- est and most highly regulated in the world. They are recognised worldwide for their high safety standards. We believe nuclear power can be the ideal partner for growing renew- able energy technologies. "We are therefore disappointed that there is a lifetime limitation for nuclear power stations in Germany meaning stations must shut by 2022." To take up the slack resulting from the reduction in nuclear power, RWE is investing in renewables, operated by its sister com- pany RWE Innogy. Around £100 billion has already been invested in solar panels and wind turbines in Germany, driven by generous state subsidies. However, the onward march of renewables has le conventional generation such as coal providing the back-up when the sun does not shine and the wind does not blow. "RWE believes it is vital that Germany, and other European markets, implement capacity mechanisms as soon as possible to ensure that reliable power is online when it is needed," said the spokesman. "We still think coal will go on being essential for reli- able and affordable power generation, which is why it is important to operate state-of-the- art power plants that use fuel efficiently." Eon, Germany's largest utility, has accepted the nuclear phase-out without much protest and has committed itself to developing its own green energy resources, with €9 billion allocated to solar and wind, both offshore and onshore. Like its competitors, Eon believes all European countries should be put in place capacity markets, otherwise they will be forced to close down essential plant because it is not economic to keep it running. The spokesperson explained: "Eon is not only a generator. The contribution towards our bottom line of running nuclear, coal or gas-fired power stations is less than 20 per cent. Currently we are strengthening renewa- bles, on-site generation, energy efficiency and special customer solutions." How subsidies are distributed is a hot political topic in Germany, as consumers feel the pain of providing the financial support. The country's Renewable Energy Act has provoked intense debate, especially because it increased the levy on electricity from 5.3 eurocents per kilowatt-hour to 6.2 eurocents. According to a study from the German Development Institute (GDI), both Eon and RWE have demanded price guarantees as the price of keeping their fossil fuel power sta- tion capacities available. However, the report concluded that if traditional forms of energy were rendered artificially cheap through subsidies, it would make the economic underpinning of renewa- bles all the more shaky. In 2011, the paper said, European Union member states between them spent €35 bil- lion on nuclear energy, €26 billion on fossil fuels, and €30 billion on renewables. Matthias Ruchse, head of communica- tions at the GDI, said: "Using more coal and lignite is a fact but I would not call it a logi- cal economic reality." "There are two reasons for this. The first is that electricity prices at the European Energy Exchange have fallen because of the increase in electricity production from renewables. The second is that the European Union Emissions Trading System does not work well, because of the over-allocation of [Renewables Obligation] certificates in the past. Thus, it is cheaper to buy certificates and run coal and lignite plants than it is to produce electricity from the more environ- mentally friendly natural gas power plants." The latest negotiations over the Renew- able Energy Act have moved away from an absolute cap in subsidies for renewable energy towards a flexible cap, and the cur- rent trend in the growth of generation types looks set to continue for now – but carbon dioxide emissions in Germany are rising. Getting rid of nuclear power plants was a political necessity in Germany, but given that the country was already committed to such a huge contribution from renewables, it has le the country with a quandary in deciding what technology should provide the back- up, and how it should be paid for. Peter Taberner is a freelance journalist Germany fills nuclear void Germany is well advanced towards closing all its nuclear plants, but their absence is leaving a gap to fill in terms of baseload power and back-up for renewables. Peter Taberner reports.

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