So Germany’s government backed down. The bid to ban nuclear fuel reprocessing has ended in a disorganised retreat, heaping humiliation on Red/Green politicians. Remember, they looked flaky but determined and pretty much unstoppable when they took control of the political levers from Helmut Kohl last autumn. Now it seems they can’t even count – PreussenElektra hinted in January it might be impossible to assemble enough container trains to take the industry’s waste back from France and Britain by the proposed 1 January 2000 reprocessing ban deadline.
There were easy subtexts in PreussenElektra’s mundane concerns. Dozens of shipments simply aren’t on the agenda every day in Germany, much to the delight of the police, who book serious overtime when the German nuke trains do move. Was the government ready for unrest across the land as a years’ worth of the nasty stuff was trundled home as fast as possible? No? Didn’t really think that one through? Ah.
A government in need of trainspotters and riot squads will also need accountants, to manage the mountains of Deutschemarks in contract penalties and other financial costs a reprocessing ban requires. PreussenElektra estimated the bill at DM5-7 billion for the whole industry. At first, the government insisted ‘force majeure’ applied, and no money was due to furious reprocessors. Force majeure did apply, but the other way round, in the shape of cold numbers, valid contracts, and some heavy-duty ‘diplomacy’ from Paris and London which compelled the German side to back down. Schadenfreude all round, please.
Green haters can rejoice that foreign reprocessing has not been the only policy setback. Days after the reprocessing ban idea was dropped, it emerged the government will not even tackle early changes to the country’s nuclear legislation it had promised to make within 100 days of taking office. Instead it will review the issues with the industry in ‘consensus talks’. One adjustment the government hoped to impose would have required Germany’s nukes to keep their waste on site. This seemed a Green fantasy – utilities wallowing in their own radioactive filth – but the industry pointed out the policy amounted to a de facto early closure order for some plants, before any talks. Again, the government backed down.
Panic is not restricted to the government. Germany in 1999 is, to seasoned observers, an unfamiliar place. Banished to a back room, or sacked, is the lovable gold-plater and notorious over-charger we all grew up with. On the make is the grim price cutter, squeezing costs and living in fear of the next supply contract negotiations with his important industrial customers.
Price pressure is real: even lower tier customers are securing discounts. Based on data from industrial consumer association VEA, it plots average utility price changes between January and July 1998 for fifteen classes of western industrial customers using up to 25.2 GWh/year, and compares the utilities’ July 1998 prices to the western average. Only one of fifty utilities surveyed dared to raise prices over the period, and seven cut prices by 4 per cent or more. Cutters included utilities already offering below average prices, raising pressure on laggards.
That pressure will increase. At the high end of the market, cuts have reportedly been deeper than at VEA customer levels, and utility desperation extends to building on-site plants for industry, as in reformed Europe. Regional differentials remain to be exploited by aggressive utilities – or new entrants with German project ideas, such as Vattenfall’s VASA Energy. And Germany is still a loser in European price rankings: cuts in other countries mean it must run to stand still, and sprint to start to close a gap German industry never fails to bewail. This is not simply a politico-academic comparison; supplies from Switzerland, the Netherlands and the Nordic region look increasingly attractive and feasible from the Ruhr, and utilities can lose business to foreigners, even if the contract volumes that have changed hands so far are minimal.
There is an easy answer to the pressures: gas-fired capacity growth. Prognos expects German gas-fired capacity to hit 50 100 MWe by 2020, up an eye-popping 29 600 MWe on 1995 levels. That could be much bigger if nuclear plants are shut down early. Prognos assumed only gradual nuclear capacity falls, leaving the country with a 13 900 MWe nuclear base in 2020, compared to 24 000 MWe in 1995.
There is much to do, whatever happens with the nukes. Germany’s utility system could boast only 3800 MWe in the most efficient form of gas capacity – combined cycle plants – in 1997, or only 3.8 per cent of the total, according to utility association VDEW. Meanwhile, swathes of hard coal and oil-fired plants are directly in the line of fire of environmentalists and the markets. They simply cannot compete with a new CCGT, as the industry itself admits through numbers put together by its own consultants.
And what about wind? Capacity growth is expected to be stupendous, and the sector has an increasingly good case, but the reality is that too many German wind projects are an expensive pain in the business neck, not a market solution. Ask PreussenElektra, which serves the windswept northern coastal areas, and gets saddled with buying lots of politically correct power at premium prices. Market discipline should – and may yet – be imposed on the wind ‘business’.
So, Greens in retreat, utilities under pressure – is your German arm flogging those gas-fired projects as hard as it should? The time to crack the whip to instil a sharp sense of panic is right now.