Moody’s Spots Trouble Ahead For Thermal Sector In Europe

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We’ve been casting an envious eye on the growth of renewable energy in Europe, especially Germany, and here comes Moody’s Investors Service with a warning that the trend has been so strong that it’s threatening the credit quality of thermal generation companies. That’s all well and good in terms of renewables crowding out fossil fuels, but the down side of Moody’s renewable energy report is that at least some conventional power plants will still be needed in the foreseeable future to keep up with peak demand. Energy planners are going to have to come up with some new incentives to keep them running, and that could spell trouble for ratepayers.

Moody's renewable energy report for Europe
Power plant by irgendwo
via flickr.

Moody’s Renewable Energy Report for Europe

Specifically, Moody’s looks at the impact of solar and wind power generation on conventional steam turbine power plants, aka thermal generators (technically speaking, renewables such as solar thermal and biomass can also be used to power a steam turbine, but for Moody’s purposes the breakdown is wind and solar vs. thermal generators).

The title of Moody’s new report pretty much says it all: “European Utilities: Wind and Solar Power Will Continue to Erode Thermal Generators’ Credit Quality.” Here is the money quote, from Assistant VP-Analyst with Moody’s Infrastructure Finance Group:

“Large increases in renewables have had a profound negative impact on power prices and the competitiveness of thermal generation companies in Europe. What were once considered stable companies have seen their business models severely disrupted and we expect steadily rising levels of renewable energy output to further affect European utilities’ creditworthiness.”

For a hint at how fast the trend is developing, just take a look at Germany’s electricity surplus, which has quadrupled in two years in tandem with an increase in renewable energy generation.

Keeping The Lights On When Power Plants Go Off

What it boils down to is that more conventional power plants are going to be closing up shop while less capital is available to build new ones, and Moody’s sees the trend continuing in the near and medium term.

That leaves energy planners scrambling to fill peak power demands until the renewable energy sector gets up to speed. Energy storage is one solution, but mass-scale storage technology is still in its early stages.

For the time being, Moody’s notes that the solutions could include capacity payments to thermal generating companies and an increased focus on interconnection throughout the European Union, though both in effect involve ratepayer subsidies and will be politically sensitive.

Meanwhile, EV Energy Storage

Moody’s take on energy storage is focused on utility-scale solutions, but meanwhile another approach has been simmering under the surface, and that is the use of electric vehicle batteries to smooth out demand spikes.

Navigant Research, for one, foresees that about 200,000 EVs with vehicle-to-building capability will be sold globally between 2012 and 2020.

We think that outlook might be a little pessimistic, given the various public and private initiatives for EV-to-building (or V2B, as Navigant puts it) that are revving up here in the U.S.

Ford has leaped into the lead with a marketing strategy for its growing stable of electric vehicles that essentially treats the EV as a mobile, major home appliance that doubles as a home energy storage device, which can be seamlessly integrated into overall household energy use in order to take advantage of off-peak rates.

To give you an idea of how big this could get, consider that Ford’s partners in the project, called MyEnergi Lifestyle, are the corporate powerhouses Eaton, SunPower, Whirlpool, Infineon, and Nest Labs.

The corporate angle really ramps up when you take a look at the interest in the Obama Administration’s EV Everywhere initiative, an important feature of which is a program to boost the availability of workplace charging. In tandem with that trend, more companies are beginning to look at an EV fleet as a rolling storage device for setting aside low cost off-peak electricity.

Now add a healthy dose of interest from the U.S. Department of Defense, which has been diving into vehicle-to-grid technologies, and Bob’s your uncle.

That’s not to say that micro-scale storage technologies will completely replace the need for at least some utility-scale storage systems (such as a new wind storage project under way in Texas), but if you consider V2B in the context of other conventional user-end solutions like weatherization, energy efficient appliances and the strategic off-peak use of electricity, that approach has already become an important feature in the U.S. energy landscape.

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Tina Casey

Tina specializes in advanced energy technology, military sustainability, emerging materials, biofuels, ESG and related policy and political matters. Views expressed are her own. Follow her on LinkedIn, Threads, or Bluesky.

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