Platts - Monday, September 19, 2005 http://www.platts.com ------------ German utilities must pay for nuke extension with auctions London (Platts)--19Sep2005 German energy industry players want the new coalition government to demand that nuclear power producers launch generating capacity auctions in return for an extension to the running time of their reactors, an industry expert told Platts Monday. The ruling "red-green" government under Chancellor Gerhard Schroder had agreed in 2001 with German industry to decommission all nuclear power plants in Germany by 2020. The so-called "atom consensus" has since been a bone of contention among generators who claimed the withdrawal threatened security of supply and Germany's environmental record on emissions. The source, who did not wish to be named, said the issue had already been raised privately with several political parties, following announcements by the Christian Democrats and the Free Democratic Party in their manifestos that they would extend the life of nuclear power plants. While the two parties did not achieve an outright majority in national elections held Sunday, the ruling Social Democrats and Green party were even less successful, according to the number of votes won. Political commentators said Monday there would be intense talks among the parties, including the SPD splinter group, the Left party, over the next few days to try and form a new governing coalition. Inspired by opinion polls that she would be elected as the country's new chancellor, the CDU's Angela Merkel announced last week that she would hold talks with the big four utilities to discuss ways to lower power prices and secure jobs. Analysts then debated what Merkel would want from the nuclear generators in return for her manifesto commitment to extend the lives of reactors by eight years to 40 years at least. They suggested three alternatives: a commitment by utilities to invest in R&D work into new technologies; a reduction in power prices to support the state?s reduction of subsidies on renewable energy; or by offering cheaper tariff agreements to energy-intensive users. The suggestion to hold capacity auctions is a fourth alternative, ironically proposed by the anti-nuclear Green party a few weeks ago, but not in relation to any deal with nuclear power producers. "The major question is how to get money out of the electricity producers," the source told Platts at the side of an energy conference in Berlin. "There could be a potential deal between the new government and the nuclear power producers whereby they will be asked to bring the extra power they will be able to produce over the next eight years to an auction in which all suppliers could participate. The auction would be similar to the Virtual Capacity Auctions held in France, Belgium, Greece and Ireland, he added. The price on the auction would be divided into a capacity price in euros per megawatt and an energy price in euros per megawatt hour. The former would go to the state and the latter to the utility. The advantages of the auction system would be that it would boost liquidity and would equate to a sharing of the nuclear generators' windfall profits across the industry, the source said. Shares in Germany's biggest nuclear generators, Eon and RWE, fell after the election result in Monday trading. For more information, take a trial to Platts Nucleonics Week at http://nucweek.platts.com. ------------ NRC taking comments on draft shipping cask report Washington (Platts)--16Sep2005 NRC is accepting comments and questions on a draft report that says spent fuel shipping casks would survive intact a rail accident similar to the one that triggered a tunnel fire in Baltimore, Md. in 2001, according to a notice in today's Federal Register. Neither spent fuel nor fission products would be released in such an accident, according to the report, which can be retrieved from the NRC Adams system, accession number ML052490242. Though crud might come loose from the fuel, any crud release would be small and would not be a major concern, according to NRC. Comments on the draft report are due by Oct. 31. ------------ ANALYSIS: German election promise on nuclear comes at a price London (Platts)--16Sep2005 Germany's utility chiefs can be certain of two things after the national elections on Sep 19, analysts say. The country will have a new government led by the conservative Christian Democratic Union. And nuclear power generators will be allowed to extend the life of their reactors for at least another eight years as promised in the party's manifesto. Less certain is what chancellor-in-waiting Angela Merkel will ask for in return for the surety of increased utility profits from reactor lifetime extensions, which Dusseldorf-based investment bank WestLB calculates could amount to Eur4.2-bil ($5.2-bil) for Eon and Eur2.8-bil for RWE. Analysts believe the bargaining chip could take several forms: utilities could offer energy-intensive industrial clients cheaper deals; they could commit to R&D work on new technologies; or they could contribute to cutting state subsidies on renewables by lowering their power prices. The problem is that an extension would not affect cash flows until after 2010 and utilities will want to know how changes to renewables support policy will hurt them, says Peter Wirtz, head of utilities at WestLB's equity research division. "They argue that the government's decision in 2001 for the withdrawal from nuclear power by 2020 has already destroyed the value of their nuclear assets and that they have suffered additional costs," Wirtz says. He expects utilities to agree to cut prices to large users, but that this will be achieved via unpublicized lower grid fees in contract renewals. "It will be a game between those companies and their suppliers with the government acting as a go-between." Any trade-off will not be between utilities and the CDU alone, however, as opinion polls show the party is unlikely to get the clear 50% majority it needs to govern the country. With politicians from the anti-nuclear Green party probably clearing their desks already, the CDU's coalition partner would be the liberal Free Democratic Party, or current chancellor Gerhard Schroder's Social Democrats, or both. It is understood that Merkel will waste no time on the matter and plans to invite the big four utilities-RWE, Eon, Vattenfall Europe and ENBW-for an energy summit with the aim of finding ways to keep power prices low and jobs secure. This intention has revealed differences in the CDU's approach to the energy sector with the FDP, which argues that prices should not be subject to political interference. Instead the liberals would want to use the profits made from longer nuclear lives to modernize coal power stations. They would also push for a longer extension to nuclear power plants from the 40 years the CDU and SPD could probably agree on, to as many as 60 years. Another option for utilities that analysts see is a commitment to research into the latest developments in generation, including renewables and clean-coal technology. "It has been a trend among utilities over the past five years to focus on their core business because they know that only very few venture capital businesses succeed," said Christofer Dittmar, managing director of Accera Venture Partners in Mannheim, adding that R&D work accounted for less than 1% of costs in the German energy sector. Together with his managing director partner Matthias Helfrich, Dittmar helped plan the IPO six years ago of Germany's fifth biggest utility MVV Energie, which is still the country's only listed municipal utility. Accera Venture Partners recently took over the management of MVV Energie's corporate venture capital fund, which the utility had established in 2001 to gain access to new products of interest to its multi-utility business. "In the past MVV Energie had a broad program that included wind, biomass and photovoltaic energy. Now it's just biomass, and this is essentially a technology that they have had in their waste-to-energy plant for 30 years already," said Dittmar. While building new nuclear plants is a political hot potato, Germany needs to replace around half of its 100GW of power generating capacity over the next 15 years. The extension to nuclear, the country's wealth of coal-fired plants and high gas prices and gas import dependence on Russia all mean, Dittmar says, that the current fuel mix of 50% coal, 30% nuclear and the remainder gas and renewables will be unchanged for years to come. Any preference for gas-fired generation will depend on competition in the gas market, which is dominated by Eon-Ruhrgas and Wintershall. "The anti-trust authority is getting tough on Ruhrgas and their long-term contracts with municipal utilities. I expect this trend to continue and that even the CDU and FDP will continue doing that and somehow not let gas suppliers claim to be part of a free market while at the same time making obscene profits," Dittmar said. Over the next 10-20 years, the mix may therefore change towards gas and renewables. "It is the distributed generation model that we are ultimately heading for. And before the tens of thousands of megawatts in needed new capacity can be built, we will also need to see how the European unification process will develop. If there is not only a unified market but a political integration which mitigates fears like security of energy supply, the question for nuclear will be, if you can't build in Germany, then perhaps you can build elsewhere." For more information, take a trial to Platts European Power Daily at http://europeanpowerdaily.platts.com. ------------ British Energy announces life extension for Dungeness B London (Platts)--15Sep2005 British Energy (BE) announced a 10-year life extension for Dungeness B, enabling the station to run to 2018. BE's CEO Bill Coley said the decision will aid in the security of the U.K.'s energy supply and help keep carbon dioxide emissions down. Dungeness B, the oldest and worst performing advanced gas-cooled reactor in the U.K., finally started to prove its output could match that of its six sister stations in fiscal 2001-02 when it became cash positive. Examination of the graphite core components in its twin reactors has shown they are in "excellent condition," a senior engineer told Platts when life extension was first broached. The shrinkage and loss of strength and elasticity of graphite components is directly correlated to the hours of neutron bombardment, so Dungeness B's history of poor output has now put the reactor in good stead, he said. It says it plans to spend an extra 25-million pounds/year (U.S.$45.5-million) for three years beginning FY 2007-08 to enable Dungeness B to operate the full 10 years. ------------