European Utility Shareholders Lost Half A Trillion Euro In Five Years

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EU Parliament building

Says this article (without byline) at the Economist. I found it because if this Retweet by Danny Kennedy.

As the article explains, the 20 biggest power companies in Europe had a collective value of $1 trillion at their peak in 2008, and they are worth “only” $500 billion now. And Germany’s biggest utility E-On has managed to beat that trend by declining a full three quarters in value.

The article blames this development partly on renewable energy. They are right, of course. With much more renewable energy in the mix, the days of guaranteed profit from fossil fuel and nuclear are gone.

E-On could have saved themselves a lot of this trouble if they had invested aggressively in renewable energy in Germany themselves. That investment came (and still comes) with a guaranteed profit for twenty years. That would have accelerated their problems with their existing fossil fuel and nuclear capacity. But the transition to renewable will happen anyway. Delaying it will always be a negative strategy helping only for a short-time period (which is a couple of decades, when discussing energy).

The most interesting part of this article was:

Some utilities have got into the renewables business themselves. Drax, which used to be Britain’s largest coal-fired power station, is being converted to run on wood pellets. Other utilities are big investors in offshore wind power.

That’s interesting because it shows the way ahead with existing fossil fuel plants. There is nothing wrong with running a coal plant, if you run it either on wood pellets (the first time I heard someone doing that), or on synthetic coal made from modern biomass, as Suncoal wants to do. There’s nothing wrong with running a gas plant if you fire hydrogen that has been produced from excessive solar or wind energy.

Under the present German Law on the Priority for Renewable Energy, it is not possible to run most of the coal power plants because under Article 27 of the law, feed-in tariffs are paid only for very small capacity plants. That should change. These existing coal plants need to move to biomass eventually anyway. Why not have it happen faster?

Image Credit: European Union Parliament building image via Shutterstock

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Dr. Karl-Friedrich Lenz

is a professor of German and European Law at Aoyama Gakuin University in Tokyo, blogging since 2003 at Lenz Blog. A free PDF file of his global warming science fiction novel "Great News" is available here.

Dr. Karl-Friedrich Lenz has 67 posts and counting. See all posts by Dr. Karl-Friedrich Lenz

14 thoughts on “European Utility Shareholders Lost Half A Trillion Euro In Five Years

  • this is the main problem for the big energy companies.
    stock going down. comes a time soon there will be no investing capacity.
    high dept. no profits. it is not a story of decades, more likely few years.
    its is happening now.

    • It’s shakeup time in the utility business. It’s happening amazingly fast with only a relatively small amount of renewable energy installed.

      Solar must be killing the peak demand hour profits that coal and nuclear depended on to make them profitable.

      • yes, this should be the evidence that market system as such has failed. The baseload electricity producers depended on high peak demand prices, but this market share is no longer available due to renewables. Therefore the whole electricity markets do require restructuring.

        With renewables we should aim into frequent overproduction of electricity. It goes without saying that if the electricity prices approaches to zero during overproduction, then all producers of electricity will lose money. The new market system should provide tools for planning the electricity production and yet to provide economic viability of electricity production.

        Markets are too slow to react, because the market situation changes too rapidly. It makes no sense to make 40 year investments on cheap baseload capacity, if markets are completely different after 10 years.

        • It seems likely that if the cost of electricity is consistently allowed to fall to zero at some parts of the day, industries will emerge to take advantage of that. Perhaps aluminum producers will learn how to ramp up their furnaces when electricity becomes free, or farms will run some energy-hungry process that turns their effluent into usable water + fertilizer.

          • Although market price is zero, it does not mean that renewable electricity as such is free. SOMEONE pays the electricity although it is not the one who uses it.

          • In the short term, the cost will be borne by fossil and nuclear utility shareholders who bet wrongly that they could sell dirty energy at a profit.
            As time goes on, and we overbuild solar and wind to ensure that we’ll always have enough to meet baseload demand, the excess energy we collect will be as free as sunlight and wind.

            Note that nothing stimulates demand like a low price, so there’ll eventually be lots of large industries that can ramp up demand as the price falls below given thresholds, so it’ll become rare for the price to reach zero. Large scale cheap energy storage will reduce the amount of overbuilding necessary.

          • Straight-up. If the market is allowed to work, there are *billions* on the table for new power storage and that includes any and all forms of time-shifting. I’m looking at you, electric vehicle, I’m looking at negaWatts, I’m looking at anything that can be slightly time shifted like smelting or desalination.

  • Gee, they’ve had us by the balls for a century, I’m so sad for them!

  • The Economist never has bylines. Don’t ask me why. Perhaps they would weaken the illusion of omniscience.

  • There is a recent study commissioned by Greenpeace that comes to the conclusion that German baseload power plants are really earning big bucks because of renewables. The mechanism is as follows: powerplants often sell their power years in advance. If the market prices at the day of delivery are low (for example because it is a sunny day), they buy the power on the spot market instead of producing it themselves, thus earning money without having to pay for fuel. My own conclusion from this is that a separate capacity market is not really necessary.

    Unfortunately there is only a German version of the study:

    (the link at the bottom of the page leads to the report itself)

  • By the way, I would not use the word “utility” in this context . In Europe the classic utilities have been split up in power producers, grid operators and power distributors/power sales. If you write “utility” in this context I personally would think you mean distributors, not the producers.

  • Utility storage is not a solution but a form of corruption by big fossil companies.

    EG, power to gas, as is mentioned in “hydrogen that has been produced from excessive solar or wind energy”
    This way of “storage” hs an efficiency of about 20 tot 30%
    It is much better to stop turbines for a moment, when fossil power plants produice too much, and claim the lost power at them, because they did nog give renewable electricity preference over their own fossil variant. This is preference for renewable is required by EU law.

    • How many utility companies are owned by big oil and coal companies?

      Without storage wind will sometime have to be curtailed. It takes too long to shut down and turn back on fossil fuel plants in order to use 15 or 30 minutes of wind output.

      • According to EU regulations, renewable electricity has preference over fossil generated electricity.
        So fossil power plants have to throttle down when wind or solar is available.
        And they do. because the output of wind farms and solar panels is predicted very well (and relatively easy).
        Only, the fossil power plants produce just too much, at times when there is much wind or sun, so they manipulate the price in this way, for these times of wind and sun.

        Furthermore, when fossil power plants need more speed in their power control, storage is done by better fossil power control.
        These power plants are not that foolish

        to burn fuel, (efficiency 50%)
        convert the electricity to hydrogen gas (efficiency 80 to 90%)
        Burn the hydrogen later anf generate electricity again, (efficiency 50%)
        Overall efficiency 0f 20%.

        That is why utility storage of renewable electricity in Europe is fossil corruption.
        Of course is may be developed for less developed countries, but even there, not burning fuel is better storage.

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