Germany's energy giants - Don't mention the atom

In the meantime, thousands of subsidised wind farms and solar arrays are hobbling the earning-power of conventional power stations. The midday peak, when the giants used to command premium electricity prices, is undercut by solar power. Winter winds whip away the margins that big, inflexible plants used to enjoy.

Taking the utility (and utility investor) point of view, this is a bad thing, but taking the consumer's point of view, is it a bad thing that "wind whips away the margins" of the utilities?

To add insult to injury, consumers and power-hungry industries still expect the power utilities to take up the slack when sun and wind are idle. Last February, with all the active nuclear plants working at full capacity, Germany's energy producers were only just able to keep the lights on.

Well, that's the thing about periods of peak demand (cold snaps in Europe) - most capacity is needed at this time. The Economist neglects to say that wind and solar actually provided a good contribution at that time (even allowing exports to France, which was similarly stretched at the time)

The firms need to build new capacity, but what kind of replacements should they invest in as nuclear plants and ageing conventional power stations go off stream? Offshore wind farms are expensive and their income unpredictable. Low gas prices make the returns on gas-fired plants too uncertain. New coal-fired stations may look attractive now, but could falter if, as seems likely, charges for carbon emissions go higher. As a result, it is almost impossible to calculate the future returns on a new power station over the next 20 or 30 years.

The notion that the income of offshore wind farms in unpredictable in Germany is a rather strange argument - with fixed prices, and variation of revenues linked only to the actual wind levels (which vary within a few percent points every year) and operational performance (something in the hands of the utilities or their suppliers the turbine manufacturers).

Gas-fired power plants do not look unattractive because of low gas prices, but because high wind penetration means that gas power plants are more profitable as mid-merit or peaking plants than as base load plants, which means different business plans for new plants and wrenching changes for existing plants.

Coal-fired plants face the same unattractive economics (physical difficulty to be base load) given renewable penetration, and uncertain economics for mid-merit, not to mention the rather more difficult permitting process and public acceptance (or lack thereof) for new plants.

In reality, gas-fired plants ARE being built, but not coal-fired plants. And wind plants are being built, because ether offer predictable revenues and a sound business case, barring the current teething problems linked to the need to construct massive new grid capacity in a short time period.

Wind power