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  • June 14th, 2013

UK Power Price to Double German on Wind, Solar Energy

Electricity in the UK is poised to cost almost twice as much as in Germany within two years as Britain lags behind in building solar and wind plants.

UK power will be 85 percent more expensive than in Europe’s biggest energy market in May 2015, according to data compiled by Bloomberg. That compares with an average premium of 17 percent over the past five years and 80 percent today, data shows.

While Germany is seeking to consolidate its status as Europe’s biggest producer of wind and solar power by boosting its share of renewables-sourced energy to 35 percent in 2015 from 22 percent last year, the UK is targeting 15 percent from 11 percent over the same period. Statkraft AS is closing money-losing gas-fed plants in Germany, while Macquarie Group Ltd. (MQG) and Vitol SA are buying British power stations, betting on gains of as much as 19 percent in UK prices by 2016, according to Societe Generale SA.

“The UK has built significantly less renewables to date,” Ilesh Patel, a partner at Baringa Partners LLP, a consulting firm that counts EON SE and Electricite de France SA (EDF) among its clients, said in a phone interview from London. “Germany has been on a fast-track wind and solar plan.”

UK power will cost 53.16 pounds ($83.12) a megawatt-hour in May 2015, compared with 33.21 euros ($44.21) in Germany, according to fair value calculations in London. The British premium has averaged 8.51 euros over the past five years, 21.49 in 2013 and was at 24.48 euros today, Marex Spectron data show.

Consumers Pay

The gap may widen in coming years, according to Societe Generale. German next-year power will cost 39.70 euros a megawatt-hour in 2015, 6 percent less than the average during the first three months of 2013, as UK prices rise 11 percent to 59.40 pounds, Paolo Coghe, an analyst for the bank in Paris, said.

“High generation levels from zero variable-cost technologies, such as solar photovoltaic and wind, are damping German power prices and hurting plant revenues by reducing the amount of time a plant might otherwise be called upon to operate,” Coghe said.

The lower German prices are no comfort for the 40 million households in Europe’s biggest economy. Retail prices have risen 17 percent since the end of 2009, according to Eurostat data compiled by Bloomberg Industries. The nation has the highest residential costs in Europe after Denmark as utilities pass on the costs of solar and wind generation.

‘Warning Signal’

German Chancellor Angela Merkel’s government should take steps to contain the cost of the switch to renewables as households have so far borne the brunt through power bills inflated by renewable-power subsidies while industrial users have been shielded from the increased costs, the International Energy Agency said last month.

“The fact that German electricity prices are among the highest in Europe, despite relatively low wholesale prices, must serve as a warning signal,” Maria van der Hoeven, the Paris-based adviser’s executive director, said May 24.

UK rates have risen more steeply than Germany’s since 2011, according to Eurostat. The cost of meeting renewables targets has contributed to rising bills, Centrica Plc (CNA), Britain’s biggest residential energy supplier, said in its full-year results on Feb. 27. The company has more than doubled prices since 2004.

Plant Closures

Environmental policies such as feed-in tariffs and renewables-obligation certificates accounted for 9.4 percent of Centrica’s UK consumer rates last year. The Windsor, England-based utility said in October the policies would add an extra 40 pounds in 2013 after it raised average household prices by 6 percent, or 80 pounds a year.

UK electricity margins, the amount of spare generation capacity available at times of peak demand, may fall to 4 percent in 2015 from 14 percent, the U.K.’s Office for Gas and Electricity Markets, said in October. Coal-fed generation, including EON’s Kingsnorth plant and RWE AG (RWE)’s Didcot-A unit have closed earlier than the 2015 deadline under the EU’s Large Combustion Plant Directive.

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