Energiewende Hits German Utilities for Record Losses

Germany’s recent energy transition, or energiewende as it’s called, hasn’t just gouged electricity customers (though it has certainly done that), it’s also made life very difficult for the country’s utilities. The largest, Eon, recently posted its biggest ever annual net loss last year. The FT reports:

Eon, the German utility, recorded a net loss of €16bn for 2016 — the largest in its history — and unveiled ambitious measures to reduce debt by €7bn through asset sales and cutting 1,300 jobs…Eon’s results come less than a month after its rival RWE unveiled a €5.7bn loss for 2016 — the largest in its 119-year history — and said it was scrapping its dividend for the second year in a row. […]

Eon’s loss reflects the continuing crisis in Germany’s power sector, caused by its radical shift away from nuclear and fossil fuels towards renewables. Cheap solar and wind power have squeezed energy produced from gas and coal out of the market and suppressed electricity prices, making some conventional power stations uneconomic.

The utilities have also been hit hard by Germany’s decision in the wake of the Fukushima disaster to switch off all its nuclear reactors by 2022. Berlin announced last year that nuclear operators would have to pay €23.6bn into a new nuclear waste storage fund — much more than they had provisioned for.

Germany’s energiewende has relied on lavish subsidies called feed-in tariffs to incentivize solar and wind power in ways that simple market economics simply can’t manage, and as a result renewables are enjoying a bigger slice of the German energy mix than any country of its size can boast. At the same time, Berlin has phased out nuclear power, spooked by the 2011 Fukushima disaster. But these tectonic shifts have been as expensive as they’ve been significant, and German households, business, and utilities are all footing the bill.

For customers, these costs come in the form of green surcharges on monthly bills which make German electricity prices some of the highest in Europe. Utilities pay in different ways. First, there’s the grid upkeep and modernization that they’re necessarily forced to deal with, as old power grids designed to bring consistent supplies of electricity from discrete power plants struggle to do the same for more distributed and intermittent wind and solar sources. Utilities are also being forced to pay billions of dollars to dispose of nuclear waste from Germany’s shuttered nuclear plants, and the decommissioning of those plants isn’t cheap, either (as one can well imagine).

Maybe most costly for these utilities is the fact that they’re expected to keep fossil fuel plants online without any guarantees that they’ll be called upon. This, too, can be put down to the intermittency of Germany’s en vogue renewables: when the wind isn’t blowing and the sun isn’t shining, coal- or natural gas-fired plants spool up to make up that difference. That’s not cost-effective for the companies operating these power plants, and lacking efficient and scalable energy storage options, it’s a problem that’s going to get worse as renewables gain a greater share of the German power market.

Eon is putting on a brave face in the wake of these record losses, claiming that 2016 was a “transitional year” that will be the “last to reflect the burdens of the past,” but this has all the makings of a problem that is going to get worse before it gets better. Let’s remember, too, that this is a problem entirely of Germany’s making.

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