Back in March it was first reported by the major German TV network ARD (Tagesschau.de) that German utility E.ON was contemplating mothballing one of the most efficient power plants in Europe, a gas-fired high-efficiency combined-cycle gas turbine (CCGT) power plant called ‘Irsching 4 and 5’ in the southern state of Bavaria – which only went online in 2010. Then, generally citing adverse market conditions – increased power supply from subsidized renewables (feed-in tariffs), comparatively high European natural gas pricing and overall low wholesale power prices – E.On said it would be impossible to “supply power at market conditions profitably” and cover the plants’ operating costs beyond 2016.

E.ON and its partners announced that they had submitted an application to the Federal Network Agency (Bundesnetzagentur) for the plant to be taken offline effective April 1, 2016. The German Energy Blog explains the reasoning behind the 2016 date and why the German regulator needed to be notified: “[T]he plants are operated under a contract brokered by BNetzA in 2013 [see The German Energy Blog here], which “classifies costs according to whether the units operate to supply merchant power or whether they are dispatched by the network operator [TenneT]”. In 2014 Irsching 4 and 5 did not supply merchant power at all and were only dispatched when they were needed to stabilize the network in southern Germany in response to temporary fluctuations (of renewable input). (…) When the contract with the network operator expires, the two CCGTs would have to cover all their costs by supplying merchant power.”

So, where exactly the German Federal Network Agency eventually comes down with its decision regarding the shutdown of the ‘Irsching’ gas power plant will be a crucial test case with respect to the future path of the ‘Energiewende’. The regulator can interdict the shutdown under certain conditions. We are in for an interesting showdown given that the utilities have already threatened legal action in that case. Dr. Matthias Lang and Annette Lang of the German Energy Blog outline the relevant legal provisions (in English, here) and explain that a “plant is deemed ‘system-relevant’ if it is sufficiently likely that a permanent closure would lead to a substantial danger for or an interference with the safety or reliability of the electricity supply system and cannot be overcome by other suitable measures.”

Note, the plant is located near Ingolstadt – known for the German carmaker ‘Audi’ – in Bavaria. Generally, this northern region of Bavaria, which extends further north to the industrial city of Schweinfurt, is known for its heavy industry. The crucial point here is that the main nuclear power plant in the region, AKW Grafenrheinfeld, operated by E.ON is scheduled to go offline at the end of May 2015. Thus, neither the German government nor this industrialized region – granted, if common sense is still in play – can afford to lose two critical conventional power sources within a year – especially when the necessary grid expansion from the north (wind power generation offshore in the North Sea) to the south (Grafenrheinfeld) is mired in (political) controversy about the environmental impact, route, and costs as well as is only slowly progressing if at all.

“In essence, it can be seen that the major north-south transmission lines in particular, which are already provided for in the Federal Requirements Plan Act, are still necessary and urgently needed to meet energy supply requirements. This need has been clearly evidenced repeatedly in the Bundesnetzagentur’s assessment findings,” Jochen Homann, the president of the Federal Network Agency said. Even though the grid expansion would be a “suitable measure” pursuant to the above provision, the realization of this project is still a long way off and the question of who is going to bear the costs in the end has not been sufficiently answered.

All this also comes at a critical time as the German government is in the process of drafting legislation for a new power market structure and ahead of COP21 in Paris at the end of the year. After turning its back on nuclear power in the wake of Fukushima and deciding to phase out nuclear power by 2022, the German government is also pondering the abandonment of lignite coal – still Germany’s top energy source as well as top polluter. Interestingly, as has been reported by Reuters, the German government envisions a power market ring-fenced by a “capacity reserve”. According to Reuters, “Germany wants to cover power shortfalls with around eight new power stations and without the generous payouts that utilities hoped for.” “Under the plan, the utilities offering the capacity, would remain the owners of the plants but could only operate them to cope with emergencies, not to supply the market normally [and] would be rewarded by a standby fee, charged to consumers,” the Reuters report adds. Obviously, this power market structure seems to fall short of a ‘capacity market’, which would ensure that modern gas-fired power plants – the ‘bridge’ in climate change terms – operate profitably even if the share of renewables continues to rise.

The following charts illustrate why it is likely that the new German power market structure will eventually include a ‘capacity market’ funded by the public/electricity consumers in order to compensate for stand-by reserve modern coal- and gas-fired power generation capacity domestically and on an integrated power market at the European level. Here, the ‘merit-order-effect’ has to be smoothed out. The ‘merit-order-effect’ constitutes “the downward pressure on prices exercised by RE sources when they feed electricity into the grid.”

‘Merit-Order-Effect’ on Power Prices in Times of High and Low Input from Renewable Energy Sources

Source: Clean Energy Wire

A future German power market without nuclear power and significantly reduced coal-fired power capacity – both according to government plans – and topped with the shutdown of modern gas-fired power plants – an unintended consequence of increased renewable energy integration – may eventually lead to something resembling the “Morgenthau Plan. Except in this scenario Germany’s destruction would be implemented by the German government itself via German energy sector. Therefore, beware of your next steps…