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Merkel Facing Power Dilemma As New Coal Plants Open

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Julia Mengewein, Bloomberg

Germany, Europe’s biggest power market, is poised to open its first new coal-fired plants in eight years, just as prices slump because of a glut of electricity.

GDF Suez SA, Trianel GmbH and Steag GmbH will bring three new plants online by December, enough to supply more than 4.4 million homes. The nation is already producing so much electricity that exports will surpass last year’s record in 2013, according to the Fraunhofer Institute for Solar Energy Systems in Muenster, Germany. Power prices may slide 12 percent by 2016, according to UBS AG in Zurich.

Coal-Fired Power Station in Germany

Even as the $757-billion energy shift boosts renewable power output to 35 percent of total supply by 2020, from 23 percent now, Merkel will be more reliant than ever on fossil fuels to drive Europe’s biggest economy on cloudy and still days. Photographer: Sepp Spiegl/Bloomberg

Chancellor Angela Merkel, who before the Sept. 22 election said revising the nation’s renewable energy law was her first priority, plans to shut Germany’s nine nuclear reactors within a decade, replacing the round-the-clock output with intermittent solar and wind plants. Even as the $757-billion energy shift boosts renewable power output to 35 percent of total supply by 2020, from 23 percent now, Merkel will be more reliant than ever on fossil fuels to drive Europe’s biggest economy on cloudy and still days.

“Merkel’s government has put itself in a dilemma,” said Danny Graefe, who has traded power and natural gas for four years at AVU AG fuer Versorgungs-Unternehmen in Gevelsberg, Germany. “On the one hand it is promoting green energy, on the other hand, we see all those hard coal plants coming online now. I don’t see anything bullish in the power market.”

Losing Streak

German power for next-year delivery is headed for a third annual decline, its longest losing streak since trading began on the Leipzig, Germany-based European Energy Exchange AG in 2002. Power fell 17 percent this year to 37.47 euros a megawatt-hour at 3 p.m. Berlin time, according to exchange data compiled by Bloomberg. The Standard & Poor’s GSCI gauge of 24 commodities fell 5.7 percent in the period and the MSCI All-Country World Index of equities advanced 17 percent.

Wholesale costs declined almost 60 percent since their peak in 2008 amid record renewable output and two years of weakening demand, according to AG Energiebilanzen e.V., an association of energy lobbies and research institutes. Europe’s biggest economy consumed 606 terawatt-hours last year, the least since 2009.

The three new plants mark the start of Germany’s (GRGDPPGQ) biggest new-build program since its power market was liberalized in 1998. The units will boost the nation’s hard-coal capacity by 8.5 percent, and the total generation ability by 1.2 percent, according to data compiled by Bloomberg.

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