A new nuclear deal – at a price

December 7, 2009 | 00:00

A new nuclear deal – at a price

The new German government will give nuclear power a second chance. That may seem like a good deal for the big German energy companies, Eon, RWE, ENBW and Vattenfall. But they don’t get it all their own way. Berlin has vowed to increase energy competition and to create an independent grid operator, measures which will undermine the dominant position of the “Big Four”.

On 27 September 2009, Germany’s voters helped revive nuclear power in the country. As soon as it surfaced that Chancellor Angela Merkel’s center-right Christian Democratic Union (CDU) could form a coalition with Guido Westerwelle’s pro-business Free Democrats (FDP), it was clear that nuclear would get a second lease on life. Both parties had campaigned in favour of reversing the planned phase-out of Germany’s nuclear power plants, which had been agreed in 2000 with the energy companies by the Red-Green coalition government of the Social Democrats and the Green Party.

Indeed, in their coalition agreement announced in late October, CDU and FDP announced they would enter into negotiations with the nuclear industry to delay the shutdown of Germany’s 17 reactors, which was scheduled to be completed by 2021. This decision seems like a sure winner for the big energy utilities. The nuclear power plants are among their biggest cash cows, and longer running times mean significant additional profits.

But there is more than one catch to the new government’s decision. To begin with, Berlin is well aware of the profits to be made, so it wants cash from the likes of Eon, RWE, Vattenfall and EnBW in return for extending the life of their plants. The coalition agreement foresees a ‘major share’ of companies’ additional profits to go to Berlin as a tax that would be used to fund a ‘future-oriented and sustainable energy supply and usage, for example the research of storage technologies for renewable energy sources, or greater energy efficiency.’ Observers say at least half of the additional profits could go to Berlin, a sum that will likely add up to several billion euros.

Secondly, the new government will decide on a case-by-case basis which reactors should be allowed to run longer, taking into account safety issues and the plants’ potential contribution to the economy, according to Joachim Pfeiffer, the CDU’s energy spokesman. Energy experts expect only the country’s safest plants to survive the negotiations.

RWE, for example, is especially keen to save its oldest nuclear power plant at Biblis. Its first reactor, Biblis A, started operations in 1975 and is scheduled to be decommissioned at the end of this year. The plant’s second reactor, Biblis B, will run until the end of 2010. The former government earlier this year denied a petition by RWE to keep Biblis A open longer. It will be interesting to see whether Biblis – a plant that has gotten bad press because of its poor safety record – will survive under the new coalition.

Also worth noting is that the new government will let the ban on building new nuclear power stations remain in place. Thus, a real nuclear revival is not to be expected in Germany.

Transparant pricing

And there are more snakes in the grass for the big utilities. Berlin has vowed to increase competition on the German energy market which critics say is still dominated by the “Big Four”. The new government plans to establish a “market transparency agency” that will have the power to ‘secure transparent pricing’ in Germany’s wholesale electricity market. It also wants to remove bottlenecks hampering cross-border power trading in the European Union. And it has said it wants to create an independent grid operator that would unite and take ownership control of the high-voltage grids – a demand put forward by the European Commission in its plan to deregulate the European energy market.

‘I must say I was surprised by this positive signal, because it’s not really in the interest of large corporations,’ says Claudia Kemfert, an energy expert at the Berlin-based DIW economic think tank. ‘The new government in this way tries to answer concerns that its policies strengthen the market power of large companies.’

Naturally, the big utilities are not too happy with this. ‘The high-voltage grid is part of our business model and it should stay that way,’ RWE ceo Jürgen Grossman told the Handelsblatt newspaper. An EnBW spokeswoman says her company shared that opinion. Both groups want to keep their grids because they represent a stable source of income.

The situation is somewhat different for Eon and Vattenfall. These companies, which own networks near the Baltic and North Sea coast, are legally bound to integrate the power produced by the newly planned offshore wind farms into their grids. This will require heavy investments to upgrade the grids. It is one reason why Eon recently sold its high-voltage networks to Dutch state-owned system operator Tennet.

Vattenfall is still in talks to sell its networks.

The new government plans similar measures for the German wholesale gas market, which is also dominated by companies linked to the big utilities. ‘We will draw up new legislation for this and facilitate access of newcomers to unused gas transport and storage capacities,’ the coalition agreement says. The number of gas market zones (local gas grids that form a common gas market) will be reduced from six to two to inrease competition.

Renewables dominant

The renewable energy industry and environmental groups have been very critical of the new government’s nuclear plans. They point to the dangers of accidents and the problems linked to nuclear waste and proliferation. They have also warned that the new policy will hamper the growth of green energy sources. The Green Party’s energy expert, Hans-Josef Fell, says the policies laid down in the coalition agreement are inspired ‘by the interests of the big energy companies.’ The pro-nuclear policy makes Berlin’s pledge to boost renewables and energy efficiency sound hollow, he adds.

But Kemfert disagrees. ‘Germany’s renewable energy industry will continue to grow. The EEG (Germany’s renewable energy funding law) ensures that. The EEG is not in danger.’ She thinks that environmental groups should welcome the new nuclear policy. ‘Extending the running times of nuclear plants means that several coal-fired power plants that were in the planning are not going to be built, and that’s good news for climate protection in Germany.’

And German renewable energy companies have other reasons to be satisfied. The coalition agreement contains a strong pledge to make renewables the dominant source in the German energy mix. The new government will probably reduce the feed-in-tariffs stipulated by the EEG, but not until 2012. Observers

 

Energy experts expect only the country’s safest plans to survive the negotiations

had expected solar power subsidies to be cut drastically starting as early as next year, but that will not happen. The agreement even contains a pledge to examine how to provide greater support for the construction of solar power plants in certain areas that are sealed off to the public (for instance, former Soviet military training sites that cannot be sold or used for other purposes). ‘This is a positive surprise,’ Daniel Kluge, spokesman for the German Renewable Energy Federation (BEE) lobby group told news agency Bloomberg. ‘After all the tough talk, this is a sensible way to proceed.’

German utilities must pay up to 43 cents per kWh for power produced by solar panels – around five times the price paid for nuclear power. The EEG foresees this feed-in-tariff to drop by 10% next year and 9% in 2011 for plants generating less than 100 kW. Officials from FDP and CDU had called for reductions by up to 30%, which would have greatly damaged the German solar industry, experts say.

The coalition agreement further supports research into carbon capture and storage (CCS) and the construction of new energy-efficient coal-fired power plants. It says the government will “monitor” large international energy projects such as the pipelines Nabucco and Nordstream as well as the North African concentrated solar power project Desertec.

Energy ministry

What is lacking in the coalition agreement, however, are any timelines or a concrete outlook for the future German energy mix. This leaves German energy policy in a continued state of uncertainty. Unlike his predecessor Sigmar Gabriel, who was known as a staunch anti-nuclear activist, the new German Environment Minister, Norbert Röttgen of the CDU, before his nomination had been an unknown quantity on energy issues.  ‘My assessment is that Röttgen was nominated exactly because he does not have a strong energy profile,’ Kemfert says. ‘Merkel likely is looking for an unbiased energy policy.’

Yet Röttgen in the weeks before Copenhagen has tried to sharpen his profile by announcing ambitious climate protection goals. In early December, he said he wants Germany to meet nearly 100 percent of its energy demand from renewables in 2050 – only the Green Party has previously voiced such an

ambitious target.

Nevertheless, in spite of the intentions the government has announced on the energy front, it does not mean Germany’s energy future is clear now. On the contrary. Berlin is still lacking a comprehensive energy plan. The government has vowed to draft a strategy over the next months that would spell out guidelines ‘for a clean, reliable and affordable energy supply.’ Observers say it should contain a clear assessment of the current and future energy mix, spell out climate protection strategies and define the relationship with Germany’s energy partner Russia.

Kemfert says she hopes for the strategy to include the creation of an energy ministry where unified strategic energy decisions are taken. At this moment, energy decisions are made at four different ministries – Environment, Economic Affairs, Transport and Science. Kemfert: ‘If the new energy concept doesn’t include the creation of an energy ministry, then German energy prospects look bleak.’

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