Uniper and Engie have made further write-downs on their still very new Dutch coal power plants, writes independent consultant Gerard Wynn, confirming the bleak prospects for coal power production in Europe. Yet Uniper is pressing on with plans to build another new coal plant in Germany. Courtesy IEEFA.
In “The Dutch Coal Mistake” report we published late last year we warned of further write-downs to come from the extraordinary commissioning of three brand-new coal power plants in the Netherlands in 2015.
That report spoke directly to the Dutch gaffe but raised broader questions about investing in new coal-powered generation anywhere in Europe.
The policy backdrop here: A recent Dutch court ruling that the Netherlands will have to increase the ambition of its 2020 emissions target. The energy market backdrop: Falling electricity demand and power prices, and a massive rise in renewable energy capacity in neighboring Germany.
Our report went into the scale of investment risk clouding new coal power plants in Western Europe and showed how, by mid-2016, three major European utilities—Engie, RWE, and Uniper—had already written down up to half the value of the new plants in the Netherlands. The takeaway was clear: the utilities had no chance of meeting their target investment returns on those plants.
Indeed they had written down the value of the coal plants to as little as €1 million per megawatt (MW), compared with a construction cost and implied book value of about €1.9 million per MW. The discounted cash flow model we detailed in our report found that, under generous assumptions of load factor and power price, those plants may be worth around half that again.