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Updated: E.ON rejects 'slave labour' for loss-making German Irsching electricity plant

13 Mar 2013 16:54:39 | edem

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German utility E.ON warned it will temporarily shut its 845MW combined heat and power gas plant, Irsching 5, by the end of March, unless it receives compensation for keeping the unprofitable plant online, CEO Johannes Teyssen said during the company's 2012 results conference on Wednesday.

However, it is unclear if the current law would allow E.ON to shut down the plant immediately, as the regulator could deem it crucial for the stability of the south German grid.

"Slave labour has been abolished," Teyssen said, pointing out that no law can force a public company to operate at a financial loss.

The plant is due to run until the end of March when E.ON, together with the co-owners - regional utilities Mainova, N-ERGIE and HEAG - will decide on a potential shutdown, Teyssen confirmed (see EDEM 10 December 2012).

"For us, a temporary shutdown is the only economically viable solution," Teyssen said. "If our assets are needed to ensure system stability and so far there's been no clear statement on this we expect fair compensation that doesn't make us any worse off or force [us] to accept further losses."

"When it comes to the transformation of Germany's energy system, we are not going to be a whipping boy," Teyssen said.

Irsching 5 ran less than half of the 4,000 to 5,000 hours, which it was expected to run in 2012. One-third of the running hours was attributed to measures taken to stabilise the grid, Teyssen said. The plant is located in Bavaria, south Germany, where the shutdown of several nuclear plants in 2011 caused the grid to come under severe strain.

But Teyssen clarified that the lack of profitability was not only because of reduced running hours, but also because "the margin it earns during these hours is much too narrow for assets like this to operate economically". ICIS assessed the German Day-ahead spark spread at -€13.95/MWh on Tuesday.

The law rules

In a statement on Tuesday, Bavaria's state energy minister Martin Zeil said: "Irsching remains definitely on the grid." Zeil pointed out that even if the operators want to idle the plant, the law allows the transmission system operators to keep the plant online for measures to keep the grid stable (see EDEM 14 December 2012).

Under current law, a plant operator needs to tell the grid operator 12 months in advance if it wants to shut down a plant. The grid operator and the energy regulator, the Federal Network Agency, then decide if the plant is system-relevant. Irsching 5 is likely to be judged so. If considered system-relevant, the plant would then receive compensation for a maximum of 24 months to stay online. A spokeswoman for Germany's energy watchdog referred a question about whether E.ON would receive compensation during the 12-month notice period to the economy ministry. The government department did not respond on Wednesday.

Operation

E.ON's CFO Marcus Schenk said during an analyst call on Wednesday that the utility's power hedging strategy has returned to a "more neutral" path after E.ON had accelerated its hedging activities in the past in anticipation of falling power prices. But he added that there was no reason why power prices should go up.

In an environment of declining power demand, particularly in southern Europe, E.ON is reviewing the profitability of European plants with a combined capacity of 11GW, of which 8GW are due to be shutdown by the end of 2015, mostly because of plant age or environmental restrictions.

Total electricity sales rose by 1% year on year to 740TWh in 2012, but owned generation from conventional plants declined by 5.9% to 161TWh. The decline was caused by a lower dispatch of German coal- and gas-fired plants and low demand in Italy, as well as lower availability at its Swedish Oskarshamn nuclear plant, E.ON said. Power trading volumes declined by 24% year on year to 1.4TWh.

E.ON returned a profit of €2.2bn in 2012, after posting a loss of €2.2bn in 2011. The return to profitability was assisted by several factors, including the successful renegotiation of gas-supply contracts from Russia and Norway; a lack of previous negative one-off effects, such as the forced shutdown of two of its nuclear plants in 2011; and Germany's decision to phase out nuclear power. Martin Degen

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