Vattenfall to restructure German pumped storage power plant business

Vattenfall plans to reduce the operating hours of its German pumped storage hydropower plants and could sell some of the assets to restore the profitability of its hydro division, the company said late on Friday.

Pumped storage hydro plants pump water uphill to store electricity at times of low power prices and release it to generate power when prices are much higher.

But investment in new pumped storage plants has for several years failed to pay off because solar power growth and weak gas prices have reduced the ratio of peak to offpeak power prices while at the same time renewables expansion has reduced the overall wholesale price.

Vattenfall’s announcement indicates that existing German pumped storage plants, as well as the prospects for new ones, have also fallen on difficult times.

The Swedish state-owned company has 2.8GW of pumped storage capacity in Germany. It aims to keep 2.5GW of this operational despite having also making large cost reductions.

The remaining 300MW will be kept in an operable state, but will not always be ready to call upon. Instead it could become operational within a few hours if needed, a Vattenfall spokesman said.

The 40MW Niederwartha plant is already in such a state, which Vattenfall calls “transitional operation mode”. Plants in such a mode are not classified as mothballed by the German regulator, according to Vattenfall’s spokesman.

Vattenfall aims to complete its German hydro division restructuring programme by the end of 2019. The programme entails reducing the 420 full-time staff employed in the segment by up to 60%.

“It could happen that individual power plants will be put on sale and others could also be put in this transitional mode, but that is not clear [yet],” the spokesman said.

Vattenfall’s investment plans for the segment will be downsized dramatically and only absolutely essential expenses will be met, the spokesman said.

This is the only way Vattenfall sees it will be able to keep most of its German pumped storage plants operational in the long term.

Flexibility options

The company hopes the market situation will improve over time. But short-term prospects look bleak as the peak-offpeak price ratio will remain under pressure.

Germany’s solar power capacity growth, which has been below the 2.5GW annual expansion target for the past few years, has picked up recently. As an additional subsidy scheme, the government recently proposed to annually support up to 500MW of solar panels on houses occupied by tenants.

Moreover, flexibility options are in place on the power system that are cheaper than new pumped storage plants, experts have said ( click here for EDEM 29 July 2015 ).

Only last week, Vattenfall announced investment in another type of flexible generation, a power-to-heat plant that it said would be Germany’s largest, with heat storage capacity of 120MW. The company said it would enable it to operate its 282MW Reuter West coal-fired combined heat and power (CHP) unit more flexibly from 2019.

Power-to-heat plants could enable flexibility on the power market by, for example, enabling the transfer of excess electricity into heat at times of very low, or even negative, power prices, rather than this excess supply being fed into the grid.

Pumped storage might have better prospects in the longer term because renewables expansion should make spot prices more volatile and increase the need for flexible generation.

A paper published last week by the German economy ministry after a consultation on the government’s long-term energy policy said pumped storage plants can offer flexibility at a lower cost than biomass plants.

Meanwhile, it expects the need for non-renewable CHP plants to diminish from 2030. laura.raus@icis.com