Largest Biomass Incinerator in the World Shuts Down

Largest Biomass Incinerator in the World Shuts Down

- by Jan Hromadko, July 8, 2013. Source: Euro Investor 

RWE AG (RWE.XE) said Monday it has abandoned plans to extend the operating life of the world's largest biomass-fired power plant, citing poor energy demand, low power prices and a heavy debt load for forcing the German utility to cut back on spending.

The 750-megawatt power plant in Tilbury, located east of London on the river Thames, is now expected to be shut down at the end of October, the company said.

The former coal-fired Tilbury plant was converted into a 100% biomass-fueled facility in 2010 in anticipation that it could operate longer than presently allowed under European Union climate protection legislation, known as the Large Combustion Plant Directive, or LCPD.

A spokesman for RWE's pan-European power generation business said, however, that further considerable investment would have been required to ensure the plant can operate for longer. He added the decision to halt this investment was based on a "bundle of reasons," including muted energy demand in a poorly performing economy and depressed power prices. Both aren't expected to pick up in the short term, he said.

The comments come after the U.K.'s electricity regulator last month warned that action was needed to address "an unprecedented challenge to secure supplies to consumers."

The regulator, Ofgem, said electricity capacity margins could tighten to between 2% and 5% in 2015-2016, depending on demand, and that could increase the chance of a supply disruption, though this isn't an imminent or likely scenario provided the industry manages the situation effectively.

RWE is one of the country's six largest energy suppliers with over 6.5 million customers and producing around 10% of the electricity consumed in the U.K.

On top of a difficult U.K. power market, RWE is also suffering under a heavy debt load as a result of the 2009 acquisition of Dutch utility Essent for over 7 billion euros ($8.98 billion). Germany's 2011 decision to accelerate a planned nuclear exit also massively hit the balance sheets of nuclear plant operators in the country.

Like many of RWE's European peers, the company is facing an increasingly difficult power market environment with a poorly performing economy weighing on electricity demand and prices.

Many utilities sell their power production several years ahead of physical delivery to customers, which means they are now locking in power prices of under EUR40 a megawatt-hour, significantly below the EUR55/MWh to EUR60/MWh generally seen as adequate to run a fleet of power plants over the long term.

RWE also said last month it may announce further power plant closures with the publication of second-quarter results on Aug. 16, as much of the company's conventional power plants are struggling to earn money.