Times, they are a-changing
Electricity Abroad The fourth in a new series focusing on international electricity markets. Nick Reimer examines the changes facing conventional energy producers in Germany.
"Rock'n roll will always be Rock'n Roll. But Bewag will be Vattenfall..." You cannot escape billboards bearing this slogan in Berlin this winter, as the German capital's main utility, BEWAG, changes hands to become part of Sweden's Vattenfall.
The deal marked the end of restructuring in the biggest utility market in Europe. Germany has seen mainly mergers of big regional utilities such as VEBA and VIAG trading now as E.ON. Energie Baden-Wurttemberg AG grew by swallowing rivals in the south of the country. And in Germany's most populated state, North Rhine Westpahlia, RWE incorporated former archrival VEW to become Europe's biggest energy producer. But the entire east of Germany plus the northern city of Hamburg have been taken over by Vattenfall, the state-run Swedish utility.
For Germany's monopolies and mergers authority, the arrival of Vattenfall makes sense: they wanted to introduce a fourth major player to the German energy market. However, insiders say there is a risk with the big three just waiting for the privatisation of state-run Vattenfall. E.on is widely thought to be the most likely suitor. "The trend towards privatisation in Sweden is rife," agrees Vattenfall CEO Lars G. Josefsson.
All of Germany's conventional utilities-great or small-face the challenge of renewable energies. Fostered by the outgoing red-green coalition government, they now account for 10 per cent of Germany's electricity and employ 130,000 people. Half of the energy is produced by wind farms, which currently number more than 17,500 turbines. Year on year, renewable energy is taking one per cent off the market share of conventional energy producers in Germany.
With the imminent change of government, the debate about renewable energy gathers momentum-albeit in the opposite direction. Renewable energy is not directly subsidised, but paid for by a general surcharge on all consumers who pay it on top of their electricity bills. German households pay on average 17 cent per kilowatt-hour, 0.5 cent of that going towards wind energy producers.
Even without that surcharge, Germany comes top in the European electricity bills league. According to the Cologne-based think tank Institut der deutschen Wirtschaft, a German household pays on average 13.34 cents per kilowatt-hour before tax. In neighbouring Denmark, it is only 9.27 cents.
The end of nuclear energy production is also being hotly contested. The so-called atomic consensus bill, agreed between utilities and the red-green coalition, sees all German reactors phased out by 2020. Until now, two nuclear power plants-Stade near Hamburg and Obrigheim-have closed down in November 2003 and May 2005 respectively.
Not only has all energy production lost by this switchoff, but German utilities also face an enormous drive for modernisation or replacement. Fifty per cent of German power plants are well past their prime and need major refurbishment over the coming years. Industry analysts put the price tag anywhere between €30 and 50 million.
The Big Four have already announced who will have to front that bill in the longrun- the German consumers, of course. Electricity prices are thus set to rise even higher. EM
