Owners to shut down German gas-fired power plants

An ownership consortium consisting of E.On, HSE, Mainova, and N-ERGIE has notified the German Federal Network Agency and network operator TenneT of its plans to shut down Irsching 5, a high-efficiency combined-cycle gas turbine.

Their plan is to take Irsching 5 offline effective April 1, 2016. E.On, the sole owner of Irsching 4, likewise notified the Federal Network Agency of its plan to shut down this power plant effective the same date.

The decisions were made because the two gas plants have no prospect of operating profitably when the current contract with the network operator expires in March 2016.

Irsching 5 has a nameplate capacity of 846 MW and entered service in 2010. Its fuel-efficiency of 59.7 percent makes it one of Europe’s most efficient gas-fired generating units. Irsching 4, which has a capacity of 550 MW and began operating one year later, is 60.4 percent fuel-efficient, ranking it among the most efficient in the world.

Irsching 4 and 5 have operated during the past two years under a contract between the owners and the network operator. The contract, which was negotiated by the Federal Network Agency, classifies costs according to whether the units operate to supply merchant power or whether they are dispatched by the network operator. Due to the increase in subsidized renewables feed-in and low wholesale power prices, the units can no longer supply merchant power profitably.

Irsching 4 and 5 supplied no merchant power at all in 2014 and were only dispatched when they were needed to stabilize the network in southern Germany in response to temporary fluctuations. Their owners receive contractually stipulated remuneration for the instances when the network operator dispatches the units. This remuneration, which is just enough to cover the cost of operation, is based on general regulatory practice.

When the contract expires, the two CCGTs would have to cover all their costs by supplying merchant power. Low wholesale prices and rising renewables feed-in, however, render this impossible. To avoid operating the CCGTs at a loss, their owners see no alternative but to notify the relevant parties of their plans to shut them down.

If the network operator prohibits the shutdowns by declaring the units to be system-relevant, Irsching 4 and 5 would be subject to the provisions of the German Ordinance on Reserve Power Plants. The ordinance was enacted to ensure that power plants that are crucial for ensuring a reliable power supply would remain in operation. At that time, however, lawmakers assumed that the ordinance would only apply to older power plants that were already fully amortized.

The ordinance does not recognize the costs faced by new plants, primarily depreciation charges and capital costs. In fact, the remuneration it stipulates is even lower than under the current contract. It would therefore be impossible to operate Irsching 4 and 5 profitably on the basis of this ordinance, and the owners would be forced to operate them at a loss. In the event of opposition to the shutdown, they have to consider legal action.

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