German utilities must pay for nuke extension with auctions

London (Platts)--19Sep2005

German energy industry players want the new coalition government to
demand that nuclear power producers launch generating capacity auctions in
return for an extension to the running time of their reactors, an industry
expert told Platts Monday.
     The ruling "red-green" government under Chancellor Gerhard Schroder had
agreed in 2001 with German industry to decommission all nuclear power plants
in Germany by 2020. The so-called "atom consensus" has since been a bone of
contention among generators who claimed the withdrawal threatened security of
supply and Germany's environmental record on emissions.
     The source, who did not wish to be named, said the issue had already been
raised privately with several political parties, following announcements by
the Christian Democrats and the Free Democratic Party in their manifestos that
they would extend the life of nuclear power plants. While the two parties did
not achieve an outright majority in national elections held Sunday, the ruling
Social Democrats and Green party were even less successful, according to the
number of votes won. Political commentators said Monday there would be intense
talks among the parties, including the SPD splinter group, the Left party,
over the next few days to try and form a new governing coalition.
     Inspired by opinion polls that she would be elected as the country's new
chancellor, the CDU's Angela Merkel announced last week that she would hold
talks with the big four utilities to discuss ways to lower power prices and
secure jobs. Analysts then debated what Merkel would want from the nuclear
generators in return for her manifesto commitment to extend the lives of
reactors by eight years to 40 years at least. They suggested three
alternatives: a commitment by utilities to invest in R&D work into new
technologies; a reduction in power prices to support the state?s reduction of
subsidies on renewable energy; or by offering cheaper tariff agreements to
energy-intensive users.
     The suggestion to hold capacity auctions is a fourth alternative,
ironically proposed by the anti-nuclear Green party a few weeks ago, but not
in relation to any deal with nuclear power producers.
     "The major question is how to get money out of the electricity
producers," the source told Platts at the side of an energy conference in
Berlin. "There could be a potential deal between the new government and the
nuclear power producers whereby they will be asked to bring the extra power
they will be able to produce over the next eight years to an auction in which
all suppliers could participate. The auction would be similar to the Virtual
Capacity Auctions held in France, Belgium, Greece and Ireland, he added.
The price on the auction would be divided into a capacity price in euros per
megawatt and an energy price in euros per megawatt hour. The former would go
to the state and the latter to the utility.
      The advantages of the auction system would be that it would boost
liquidity and would equate to a sharing of the nuclear generators' windfall
profits across the industry, the source said. Shares in Germany's biggest
nuclear generators, Eon and RWE, fell after the election result in Monday
trading.

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