Coping with energy transition

EOn continues to struggle under German energy policy, with gas generation made "barely profitable" by pro-renewable market arrangements and nuclear generation slashed and taxed by government decree. Investors have been warned of revisions in targets for 2013 and 2015.

EOn continues to struggle under German energy policy, with gas generation made "barely profitable" by pro-renewable market arrangements and nuclear generation slashed and taxed by government decree.

The utility has summarised its performance from January to the end of September, explaining to shareholders that it would honour dividend predictions for 2012, but would revise ambitions for 2013 and 2015. Despite a worsening outlook, the company still recorded pre-tax earnings of €8.8 billion ($11.2 billion) with 'underlying net income' of about €4 billion ($5.0 billion) for the first nine months of 2012.

One problem is that renewable generation is given priority access to the grid when it is available. This sometimes prevents gas-fired generation from operating during peak hours and has altered the economics of gas to such an extent that it is now "barely profitable to operate," said CEO Johannes Teyssen. "In most European markets, the gross margin for gas-fired units is approaching zero or is indeed already negative."

"Paradoxically, this benefits carbon-intensive lignite-fired assets which are more harmful to the earth's climate, whereas flexible, climate-friendlier assets are barely profitable," said Teyssen.

Moreover, the company does not benefit from good enough renewable performance to balance this negative effect of the energy transition. Despite the issue outlined above, oil, gas and coal produced 61% of EOn's power generation and brought in €1.2 billion (69%) of pre-tax earnings from generation. Renewables produced 11% of power, but reported an operating loss of €67 million that actually reduced pre-tax earnings by 3%.

EOn's reduced nuclear fleet gave the most income per unit of generation, making up 21% of power generation and bringing €599 million (34%) of the pre-tax earnings. This figure, however, will be slashed by Germany's extraordinary tax on nuclear fuel that EOn continues to contest. The company said only that "conclusive court rulings" would be handed down "in future" on that matter.

The Isar nuclear power plant. Unit 1 (left) was closed down by the government in 2011, unit 2 continues to operate (Image: EOn)

 
Germany's post-Fukushima reaction against nuclear energy also saw the government order EOn's Unterweser and Isar 1 reactor units to shut down, as well as six others in the country owned by other firms. All of these, EOn said, had their safety confirmed by the European Commission's stress test program and demonstrated safety margins that "considerably exceed" regulatory and legal standards.

The company summarised its position on the matter: "EOn is implementing the political majority's decision on an earlier phaseout of nuclear energy. At the same time, however, EOn believes that the nuclear phaseout, under current legislation, is irreconcilable with our constitutionally protected right to property and right to operate a business. In any case, such an intervention is unconstitutional unless compensation is granted for the rights so deprived. Consequently we expect appropriate compensation for the billions of euros in stranded assets created by this deprivation."

Researched and written
by World Nuclear News