March 29, 2011 / 4:06 PM / 9 years ago

SCENARIOS-German power sector after Green election success

FRANKFURT/LONDON, March 29 (Reuters) - The elections in the German state of Baden-Wuerttemberg last Sunday will likely lead to its first state government to be led by the anti-nuclear Green Party which scored votes on Japan’s nuclear crisis.

With an annual gross domestic product (GDP) of 344 billion euros ($483 billion) — comparable to that of Switzerland — Baden-Wuerttemberg is a major German economic centre.

It is home to energy-intensive industrial blue chips such as carmakers Daimler (DAIGn.DE) and Porsche, and engineering firms Heidelberger Druckmaschinen (HDDG.DE) and HeidelbergCement (HEIG.DE).

The government of the south-western state holds an over 90 percent stake in utility EnBW (EBKG.DE), which operates four nuclear power reactors.

Any decision a future Green-led government there reaches in the energy sector is likely to also impact national policy.

Newly reached parity in Berlin’s upper chamber of parliament (Bundesrat), which represents states, limits leeway for conservative (CDU) Chancellor Angela Merkel’s federal coalition government.

Under a new anti-nuclear mood across the country, pressure is rising on Merkel to review energy policy and, pressed to harness opposition, her cabinet is already trying to become opinion leader again in some of the areas.

Her junior coalition partner, the Liberals (FDP), on Tuesday suggested keeping the seven temporarily shut reactors permanently. [ID:nBAT006124]

RISKS

When Merkel imposed a moratorium on a ruling to extend the lifetime of Germany’s nuclear reactors earlier in March and ordered the seven oldest plants to be shut until June for extra safety checks, price levels in the wholesale power market reached levels not seen since late 2008.

But despite the loss of some 7,000 megawatt (MW) of nuclear capacity in the past weeks, the German power market has not been rocked to a degree of non-functioning, and analysts see no danger to the system as there is a lot of spare capacity and interconnectors with neighbouring markets are in good shape.

But a permanent capacity reduction of 7,000 MW or more in the medium term will likely bring higher electricity procurement prices for industry and tariffs charged to households.

Retail customers in Jan and Feb were already presented with average price increases by 7 percent to accommodate more renewable power, without the Japan effect. [ID:nLDE7291G3]

A rash introduction of renewable power as a result of the nuclear capacity losses could stress transmission grids and raise demand for balancing power, putting further pressure on power bills. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ For a graph of German power prices, click here: here ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

OPPORTUNITIES

German utilities have been plagued by low power generation revenue margins for the past two years, but rising wholesale power prices through reduced nuclear capacity could benefit those utilities that rely heavily on coal and/or gas power generation as well as renewable power. [ID:nLDE72R1DB] <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ For a graph on coal & gas power generation margins, click here: here ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

Analysts also say that a clear-cut rule on future nuclear policy would remove planning risks that have overshadowed the last 10 years of public debate, which would allow utilities better budgeting and a basis on which to lure fresh investments.

A move away from nuclear generation could also boost renewable investment.

Renewable stocks such as SolarWorld SWVG.DE and Nordex (NDXG.DE) have already risen on these prospects.

With more coal instead of nuclear likely to have to bridge the period up to a greener future, a stalled debate on carbon capture and storage technology (CCS) might be revived.

Hamstrung CCS projects featuring German engineering expertise could become attractive technology exports.

The European gas market depression could be lifted by more German gas-to-power station projects to replace nuclear and offset renewable power supply swings with back-up capacity. This would be good news for plant builders and importers.

The loss of nuclear power in Germany would likely lead to increased power imports from neighbouring markets, so French, Czech, Nordic or Alpine power exporters can expect to boost their market share in Germany.

Additionally, more efficient new generation capacity, which was put on ice due to the prospect that nuclear would be clogging up the grid for years to come, could receive more incentives to be built.

This will allow smaller operators at local utility level to participate and marginal operational costs may sink in the longer term, which may help bring prices down for consumers.

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