By JAN HROMADKO
FRANKFURT -- The ripples of the North American shale boom
continue to spread, as a growing number of European utilities
are forced to mothball modern gas-fired power plants that can't
compete with growing imports of cheap coal dislodged from the
Norwegian state energy company Statkraft said Wednesday it
has idled a gas-fired power station in Germany, which couldn't
compete with its coal-fired rivals, while German utility E.ON
SE said it is seriously considering mothballing more
gas-fuelled plants, including a state-of-the-art facility in
Other European utilities have taken similar action, presenting
policy makers with a dilemma -- cheaper coal-fired power could
provide some relief for the region's struggling economies, but
industry experts warn that it is incompatible with long-term
goals for carbon emissions and renewable energy.
The closures across Europe are another example of the
far-reaching effects of the North American energy supply boom.
Surging supplies of natural
gas, unlocked from shale rock by a new combination of technology known as hydraulic
fracturing, have prompted many US power generators to switch
away from coal, pushing increasing amounts of the fuel into
Europe as cheap imports.
In 2012, US exports of coal to Europe rose 23% to 66.4
million short tons, according to data from the US Energy
Much of this coal is displacing natural
gas as a fuel for electricity generation. In the UK, for
example, the proportion of electricity generated from coal rose
to its highest level in 17 years in 2012, while gas fell to a
"The economic situation of our legacy business in Europe,
particularly in conventional power generation, remains
difficult," said E.ON CEO Johannes Teyssen. E.ON reported
Wednesday a 94% decline in first-quarter operating profit from
plants that use highly-efficient combined-cycle gas turbine technology.
"Companies are struggling to operate gas-fired power plants
economically, even in case of modern, state-of-the-art facilities," because cheap coal has
eroded their competitive edge, said IHS Energy analyst Kash
Coal prices for year-ahead delivery on the European Energy
Exchange have fallen nearly 19% over the past 12 months. The
bulk of natural
gas on mainland Europe is priced relative to oil and in the
first quarter of 2013 the average price of crude benchmark
Brent fell by just 5% on the year, according to BP data.
That has changed the dynamics of the power market. Czech
utility CEZ AS said last week it could keep a new gas-fired
power plant due to start in summer closed for much of the time
because it will be loss-making from day one. UK utility SSE PLC
said in March it would close one gas-fired plant, reduce
capacity at a second and won't build any new ones for several
years because of the poor economics.
E.ON's power plant closures could have gone further had it
not struck a deal with Germany's grid regulator and a power
grid operator to keep two modern but unprofitable gas-fired
power plants in operation. E.ON and its partners in the plants
had considered mothballing them, but the grid regulator
considered them crucial for security of supply in southern
According to Eurelectric, the association of the electricity
industry in Europe, in 2010 -- the most recent figures
available -- the 27 members of the EU generated 24% of their
electricity from coal and 23% from gas, with the remainder a
mix of nuclear renewables.
Cheap coal isn't bad news for every company. RWE AG,
Germany's largest electricity producer by capacity, which gets
over 62% of its electricity from coal, said earlier this year
that it increased production from coal and lignite power plants
by over 16% in 2012.
RWE expects flat operating earnings in 2013, while E.ON has
projected a decline of up to 15% on
There could also be wider benefit. "At the moment the
broader economy is benefiting from cheaper power production,"
said Marcus Schenck, E.ON's chief financial officer, in a
conference call with reporters. But that only holds if, "one
believes that environmental protection isn't a political
The European Union has committed to cutting its carbon
dioxide emissions by 20% from 1990 levels and getting 20% of
its energy from renewable sources by 2020. A spokesman for
Europe's energy commissioner, Gunther Oettinger, on Wednesday
declined to comment on the latest plant closures.
Mr. Oettinger said in an interview last month that the bloc
should broaden the focus of its energy policy beyond purely
reducing greenhouse-gas emissions to ensuring that energy will
Industry experts also warn that closure of a broad swath of
gas-fired power plants could weaken the continent's energy
security as intermittent renewable energy such as wind becomes
"In practice, intermittent capacity requires some form of
backup," IHS Energy's Mr. Burchett said. A looming lack of
gas-fired power plants, which are ideal to help mitigate
imbalances that can be caused by unpredictable shifts in supply
from renewable energy like wind power, could aggravate the
problem, he said.
France is rolling out a new market model that could offer
financial incentives to utilities to retain backup gas-fired
power, said Mr. Burchett.
Mr. Teyssen renewed his demand for a new market design in
Germany to give similar incentives, although the coming general
election in September has slowed progress on market
In Italy, which does offer financial incentives to maintain
backup power plants, a spokesman for utility Enel SpA said it
has no plans to mothball its plants.
Dow Jones Newswires