German pumped-storage in crisis as solar crushes economics

Source: Heren

2014/09/03

Several pumped storage electricity generation projects are on hold in Germany because an increase in renewable energy production has led to a gradual deterioration in market conditions for the technology.

A spokesman for utility E.ON said a project to expand the company’s Waldeck II pumped storage facility by 300MW is on hold. “There is no investment decision planned,” he said. When E.ON first announced the project in 2010, it had expected the new capacity to be available in 2016.

“We are missing the peak load hours because of the feed in of other renewables,” said the spokesman, referring to the fact that the spread between peaks and baseload prices has narrowed.

This means lower margins for pumped storage plants, which use cheaper electricity available during off-peak hours to elevate water and release it later to produce power during times of system stress to cash in on high balancing market prices.

The difference has narrowed due to increased solar power capacity, which yields electricity during daytime and hence pushes down peaks prices.

The average ratio of German Day-ahead Peaks to Baseload prices has been 1.1 this year to date, whereas in 2009 it was 1.2, according to ICIS assessments. The absolute difference between peak and baseload prices has also decreased because of an overall decline in power prices. Accordingly, pumped storage power plants see less opportunity to make a profit.

In face of these shifting market dynamics, municipal utility Stadtwerke Mainz is not sure if its 500MW Heimbach pumped storage project can be realised. Previously, the company has said it expected the plant to come on line in 2019.

‘Not economical’

“Currently, such systems are not economical to operate, but we expect a realisation for our project in the next ten years, this means not before 2023-2024,” said a Stadtwerke Mainz spokesman.

He added the regional planning process for the project is still running and in the next two to four years the company may decide if the project can be realised or not.

German utility EnBW said the status of its pumped hydro projects is the same as in April. Back then, the company said it could not make a final investment decision for the 1.4GW Atdorf plant or the 227MW Forbach hydro storage extension because of difficult market conditions, but it would maintain the option to complete these projects in the future ( see EDEM 30 April 2014 ). EnBW had previously said the Atdorf plant would come on line in 2018.

On top of these schemes, the network of German regional utilities Trianel has postponed its 1GW Thuringia pumped storage project. “We expect to finalise it between 2022 and 2025,” said a Trianel spokesman. The company initially planned to complete the project in 2019.

Improvement?

According to the spokesman, Trianel decided to postpone the project after a change in the German electricity law. The change exempted pumped storage projects that come on line before 2025 from paying a grid free. Earlier, pumped storage plants had to come on line before 2020 to be eligible for the exemption.

Trianel’s spokesman admitted that market conditions are not good for pumped storage plants. However, the company thinks the situation may change in the mid-term.

“We will see pumped storage in a much better market situation soon,” the spokesman said. “Nuclear power will be phased out in Germany by 2022, carbon will get more expensive, lots of coal power plants will be shut down and Germany will rely more on renewables,” he explained, adding that Trianel expects Germany’s future electricity market design to be favourable for pumped storage projects.

The municipal utility Stadtwerke Trier, which has been planning the 390MW pumped storage plant Rio, declined to comment on the status of the project. Previously, the company said it expected the plant to come on line in 2018.

A trilateral study published on 18 August said that because of low electricity prices, the margins for new pumped storage projects in Germany, Austria and Switzerland have become insufficient to justify new investment in the technology.

According to the study, the revenue prospects of pumped storage plants will only improve over the long term – at least a decade – when the share of renewable energy in the power generation mix has expanded sufficiently ( see EDEM 19 August 2014 ). Laura Raus