A journey of discovery

With the introduction of the German Federal Energy Law in April 1998, decades of firmly cemented supply monopolies were swept away. Power utilities set off on what Heinz Klinger, head of electricity trade association Vereinigung Deutscher Elektrizitätswerke (VDEW), calls both a journey of discovery and a struggle for survival. The industry has been transformed in the last 20 months, with fierce price competition triggering major new alliances. Dozens of independent power traders have also entered the market.

Renewable power has profited from this new market environment. A recent survey for VDEW revealed power from sun, wind and water was the preferred energy source for 80% of German consumers. Renewables are already a dynamic and fast expanding niche market within the industry, covering over 5% of power sales in 1998. The Federal Environment Ministry wants to see this figure doubled by 2010, a target VDEW believes can be reached.

How far hydro power will share in this growth is open to question. Last year the number of plants supplying renewable power grew almost 20% to 21,700, while capacity climbed 10% to 8270MW, around 7% of total capacity. Hydro power was again the most important renewable, generating 3.6% of German supplies (3.4% in 1997).

Above average rainfall helped boost hydro power supplies within the public network by over 9% to 15.6B kWh, while the number of hydro power plants of all sizes rose by 250 to 5700. Although hydro still covers almost two-thirds of renewable energy, the real boom is in wind power and photovoltaics. The flat plains of north and east Germany provide plenty of wind but little potential for hydro power. The country’s eco-awareness can also limit the use of major rivers for hydro power. A Rhine Action Plan, in force since 1995, gives priority to environmental improvements and shipping, limiting hydro exploitation of this mighty river in states such as Baden-Wårttemberg.

The green grip on much local and state power in Germany also works against large scale projects. ‘A significant part of planning for new hydro plants involves finding a consensus between environ-mental protection and financing,’ says Professor Franz Nestmann, head of the Institute of Water Management in Karlsruhe. ‘Any major expansion of hydro power in Germany will only succeed if new technologies help to bring environmentalists and investors around the same table.’ Retrofitting old plants to new environmental standards, and the development of stations that only operate to cover peak loads, are two such options for the industry.

Bavaria

The southern state of Bavaria enjoys both a river and mountain landscape fertile to hydro power, and a state government committed for decades to its expansion. The results are impressive. In Bavaria over 80% of current usable hydro potential is exploited, to produce over 10,000GWh/year. Almost one-fifth of the state’s power is generated from water.

Bayernwerk Wasserkraft (BWK), an independent subsidiary of leading power utility Bayernwerk, operates 106 plants on the rivers Isar, Inn, Donau, Lech and Main. These include the famous Walchensee plant, the backbone of power generation in inter-war Bavaria, for which the lake situated high in the Bavarian Alps serves as a natural reservoir. Ironically even this great industrial land-mark (celebrating its 75th anniversary this year) suffered a 60M kWh/year cut in output in 1990, following a citizens’ initiative to restore water levels in the Isar river.

BWK is also developing new plants. The latest will come on stream next year at Bad Abbach, providing power for the German railway network.

As part of Bayernwerk (the power arm of Munich conglomerate Viag), BWK is also now part of a hydro alliance with Veba power holding, PreussenElektra, that stretches potentially from the Baltic coast to Bavaria. The new alliance creates Germany’s biggest power utility and the third largest in Europe.

The Viag/Veba tie-up promises new markets for BWK. Austrian hydro specialist Verbund is already picking up significant sales in northern Germany. However, eventually this may cause conflict with PreussenElektra’s long term investment in wind power.

In the battle for market share among renewable suppliers companies have raised the stakes. The liberalised market has seen electricity packaged, promoted and branded with names such as Yello and Avanza. It has been sold by Germany’s biggest mail order company and offered in supply contracts that include a free television set.

Dozens of independent power brokers and suppliers already offer varieties of green power. In many cases customers pay a voluntary surcharge for their electricity, with the guarantee that the extra revenue will be reinvested in new regenerative plants.

Bayernwerk, the country’s leading hydro generator and supplier, has a package known as Aquapower which is targeted at those customers using 3500-4000kWh/year. It also includes independent certification that supplies are indeed from hydro power — a response to growing cynicism among many consumers that eco-power is little more than a marketing ploy by the major utilities.

Egon Muhlberger, head of marketing, claims Aquapower is the best deal on offer for this group — some 13% of the Munich company’s 2.2M customers. For hydro supplies of up to 4000kWh consumers will pay US$495 per year, including VAT and eco taxes, which is cheaper than Avanza’s package.

BWK’s annual output of over 8B kWh could supply 2M consumers at this average consumption. In reality, Muhlberger concedes he would be ‘very satisfied’ if the new tariff boosted customer numbers by 2-5%. Several recent surveys confirm around three-quarters of consumers are not ready to change suppliers.

Further price cuts have not been ruled out in Munich. Tariffs for industrial users have almost halved over the last 18 months, and charges to the commercial sector are down one-third. Bills for tariff customers are only down 20%.

This new trend towards green pricing is a further challenge to Germany’s controversial Electricity Feed-In Law. Since 1991 utilities have paid fixed rates for feeding hydro power from plants of up to 5MW capacity, and other renewable energy, into the public grid. VDEW figures suggest this effective subsidy rose from US$263M in 1997 to almost US$353M in 1998.

According to chairman Heinz Klinger current tumbling price levels will drive this subsidy yet higher in future. He also points to anomalies in the law, whereby a firm operating a hydro power plant for decades gets subsidised payments for its power, but is not required to use this extra revenue to install new capacity. The Electricity Feed-In Law sits uneasily with the liberalised market.

For Klinger, packages such as Aquapower offer a more market-orientated and sensible way to promote hydro power.

Future energy strategy

The wider question of Germany’s future energy strategy is unlikely to offer dramatic gains in market share for hydro. A recent working document from four German ministries, leaked to the news magazine Der Spiegel, suggests nuclear power stations could be shut down after a lifetime of 25 years without the state being made liable for damages. But the one certainty over Germany’s long search for an energy consensus is that dramatic changes are always blocked, and even the most modest adjustments take many years to force through. In any event the German power sector already suffers from over-capacity of 10,000MW, or 10% of installed capacity, which will take many years to run down.

The Dortmund firm Harpen, one of Europe’s leading operators of small hydro plants, is looking beyond the German market for future growth. In 1998 it acquired 18 hydro power plants from France’s Compagnie Generale des Eaux. The US$49M deal made Harpen the largest private sector operator of small hydroelectric facilities in France.

A US$150M investment programme also includes the Bragado plant in northern Portugal, and a pilot project at Val Maira in the Piedmontese Alps.

Harpen has invested US$12M at Val Maira, with Italian supplier Enel buying the power at fixed prices in an eight-year contract. ‘By then our start-up costs will be sufficiently covered so that we can compete in this market,’ says Oliver Heil, head of the firm’s Italian operation. Two further plants are licensed in this region. Harpen is also building two hydroelectric stations near Milan, where the turbines will be powered from a 700-year-old canal system.

Research and development

Manfred Volk, head of turbine specialist wasserkraft-volk (WKV), is downbeat about domestic demand. ‘There is barely a market for hydro in Germany anymore,’ he says. But Volk urges the need for continued research and development to produce good long term export perspectives.

WKV’s own modernised factory in Simonswald will soon be self-sufficient in hydro power.

Looking beyond the domestic scene, combined venture voith-siemens Hydro is seeking success on the international market (see IWP&DC October 1999, pp13-14). With regulatory approval expected in January 2000 the company is following the global trend towards providing complete plant equipment.
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