Risky weather crucial after German nuclear move

Germany will be more reliant on the fickle weather for electricity in May and the fourth quarter as reduced nuclear supply cuts capacity and renewable energy may struggle to fill the gap. Analysts said they see upwards pressure on power prices as a result. After Japan's nuclear crisis in March, Germany closed half of its nuclear capacity temporarily and rowed back on longer life cycles for all nuclear plants.
If the closure of 7,000 megawatts (MW) of nuclear becomes permanent - which seems likely given current rhetoric - the market could see supply shortfalls at times of little wind and sunshine.
"If we assume that these reactors are not allowed to rejoin the grid in June, then I would think that October could become tight," said Konstantin Lenz of Lenz Energy in Berlin. "November and December could also become tight if the winter is cold and low in wind power supply, and the second half of May could be tight because there are no holidays," he added.
Cold winters generate high power demand for heating and lighting while religious holidays such as Ascension and Whitsun relieve demand in the months when they occurr. The German price for baseload (24 hours) power supply in 2012 rose more than 10 percent in the wake of the government's move and was at 58 euros a megawatt hour (MWh) on Tuesday.
Prices of third and fourth quarter 2011 supply since mid-March have also roughly risen by 10 to 15 percent, reflecting concern over more potential plant outages. Counting in idled capacity such as coal- and gas-fired plants, Germany can draw on 100,000 MW of thermal capacity and a maximum of 40,000 MW of renewables to meet top demand of 80,000 MW.
On the surface, these figures look comfortable. But the renewable capacity number total masks the fact that average usage hours are minimal compared with thermal capacity, which can virtually operate around the clock while wind and sunshine contributions can drop to zero with little warning.
Nine out of 17 nuclear reactors are offline because on top of the oldest units ordered shut in March, Vattenfall's Kruemmel has been in a long-term standstill, and Grafenrheinfeld, operated by E.ON, closed on March 26 for routine maintenance. At least three more nuclear units, Gundremmingen B, Emsland A, both operated by RWE, and E.ON's Grohnde must close for work in May unless operators delay or cancel. Traders also say the Philippsburg 2 unit operated by EnBW is coming up for fuel rod swaps, but EnBW declined comment.
The head of the federal grid agency, Matthias Kurth, last weekend said another nuclear reactor shutdown, that of E.ON's Brokdorf planned for June, should be reviewed, as it would coincide with huge capacity cuts due in May. May and June supply could also be tight because Alpine water reservoir supply to Switzerland's hydroelectric power plants seems capped by low amounts of snowfall last winter.
All these factors combine to leave more price room on the upside, traders said. Prices for German 2012 peakload delivery are currently around 71.00 euros per MWh. "In my view, peak prices on the forward curve are still about 10 euros/MWh too low," said Kris Vorspools of 70 Watt Capital, a Luxembourg-based consultancy.
While both baseload and peak 2012 power contracts rose after the Japanese quake, German 2012 base prices are now at high levels when compared with movements since late 2008, while the equivalent peak contract is still fairly low. "The current peak prices have absorbed the increase in gas, coal and CO2 prices, but not yet the spike and super spike premium," he added referring to possible winter supply glitches.