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(This blog was first published by IEEFA, here)
Uniper last year halved its valuation of a brand new coal plant in the Netherlands, its year-end report indicates, taking a €100 million impairment in the fourth quarter alone, piling new doubts on the wisdom of planned new coal power plants by utilities in Poland, the Western Balkans and Germany.
Uniper’s 2016 annual report last month revealed a “recoverable amount” (ie book value) of €700 million at the end of 2016, for its Maasvlakte 3 power plant. That is less than half the book value of the same power plant of €1.5 billion just 12 months earlier, and compares with a construction cost of about €1.7 billion, for a power plant commissioned just two years ago.
Uniper did not mention its Maasvlakte 3 power plant explicitly by name, but some basic detective work seems conclusive. We know at the end of 2015, Uniper had written down the value of “one conventional power plant in the Netherlands”, to €1.5 billion. Maasvlakte 3 is the only Uniper power plant with a value nearing this in the Netherlands. Uniper then stated last month that in 2016 it further impaired a “conventional power plant outside Germany”, by €0.8 billion, to a recoverable value of €0.7 billion. Since it also stated that the Netherlands was a major target of its 2016 impairments, alongside Germany and France, we can conclude that this power plant was also Maasvlakte 3.
A report by the Institute for Energy Economics and Financial Analysis (IEEFA) last year analysed the extraordinary commissioning of three brand new coal power plants in the Netherlands in a single year, in 2015. Our aim was to investigate stranded asset risk from investing in new coal in Europe.
The policy backdrop was a recent Dutch court ruling, which found that the Netherlands would have to increase the ambition of its 2020 emissions target. The energy market backdrop was falling electricity demand and power prices, and a massive rise in renewable energy capacity in neighbouring Germany.
IEEFA’s “Dutch Coal Mistake” report revealed the scale of investment risk clouding new coal power plants in Western Europe. We showed that, by mid-2016, these three utilities had already impaired up to half the value of these brand new power plants. The message was clear: the utilities concerned, RWE, Uniper and Engie, had no chance of meeting their target investment returns. IEEFA’s own discounted cash flow analysis concluded that the power plants were still over-valued.
We therefore anticipated further impairments which have now materialised. In addition to Uniper’s further write-down in the fourth quarter, Engie last month noted in its 2016 year-end results a €168 million impairment on its thermal power plants in the Netherlands, by the end of the year. Given that its new coal power plant is the company’s only substantial asset not yet largely or fully depreciated, we can assume that much of this impairment applies to this Rotterdam plant.
Uniper is now pressing on with plans to complete the construction of a new coal plant in Germany, Datteln 4. This power plant may be particularly efficient, by supplying district heating as well as power. Nevertheless, Uniper may still be gambling either on a capacity market in Germany, which pays for flexible back-up to variable renewables, or else a big up-tick in power prices as a nuclear phase-out continues. It may find that it is caught out, as it was in the Netherlands, by rapidly evolving trends, including the falling cost of renewables and lower than expected demand.