Euro utilities tell familiar tales of woe


March 17, 2014

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Utilities across Europe are continuing to tell their tales of woe.

The German firm RWE reported a net loss of €2.8bn earlier this month, which is its first loss in 60 years, because it had to write down the value of its traditional power stations.

Its German counterpart E.On has reported that it had to close 13GW of traditional power stations because it says it is impossible to operate them economically; and Italy’s Enel Group has said it has toshut down 8GW of traditional power stations. These announcements have all come out around the latest round of the utilities’ financial results.

These results have also come with a familiar sound. That is, European utility companies complaining about how renewable energy schemes are making the financial economics of energy, increasingly tough.

In recent years, power generators across Europe have been surprised by the surge in energy produced by renewable sources, mainly solar and wind. This has caused a fall in wholesale power prices and made many traditional power stations redundant.

The utilities have also been criticising EU legislation. They claim that renewable energy subsidies mean that traditional power stations can’t compete on a fair footing with projects such as solar PV and wind farms. They argue that countries like Germany must re-think the rules that give energy from renewable sources priority access to the grid.

So what does this mean for wind power? Should the EU rein in the sector because it is having a detrimental, short term effect on the financial future of the utilities and their fossil fuel power stations? Of course not.

The logic for moving towards energy from renewable sources still makes sense. There is a finite amount of fuel we can get from the ground, but the wind and the sun will carry on. It makes sense to give subsidies to encourage the growth in renewables.

This won’t stop the utilities from howling: “Won’t someone think of the energy security?!”

But, when you’re thinking about energy security, it makes sense to generate energy from a wider ranger of sources. It makes sense to promote renewables in order to bring down the costs of developing these schemes, which has been happening.

Subsidies cannot and should not carry on indefinitely, but the renewable power sector is still at a relatively early stage of its growth. The EU is aiming to generate 20% of its energy from renewable sources by 2020, and most countries are still falling short of this. Let’s not get caught up in the myth that big bad renewables are bullying the fossil fuel producers.

The reason these utilities are suffering is because in part, they haven’t adapted quickly enough to rapid change.

They haven’t coped with the challenges of falling electricity demand in Europe, and with the emergence of renewable energy companies threatening their traditional dominance. They have had the same opportunity as anyone, but they haven’t kept up. They’ve kept investing in traditional power stations when politics and public opinion are moving on.

It’s easy for them to argue that other people are the cause of their problems. They should look harder at their own decisions.

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