The German election in Baden-Wuerttemberg is likely to lead to an early closure of nuclear reactors, and the resulting increase in power prices could hurt users while utilities stand to gain, analysts said. Following elections in the German state of Baden-Wuerttemberg on Sunday, the anti-nuclear Green Party is likely to head its first-ever state government, ending 58 years of rule by the conservative CDU.
Power users may suffer higher production prices
Utilities gain from improved revenues
Japan disaster turned sentiment
The Green Party's success underlined concerns that widespread anti-nuclear sentiment may permanently shut Germany's oldest reactors, and that the resulting cut in Germany's generation capacity would lead to increased power prices for industrial companies and retail end users.
"If we shut down nuclear with no master plan for how to fill the arising gap in an effective way, that means higher power prices, and it would threaten other industries and the entire economy," said Ingo Becker, head of utilities sector research at Kepler Capital Markets. The German metals association and the German industrial association declined to comment on the matter.
With a population of over 10 million and an annual gross domestic product of 344 billion euros ($483 billion), Baden-Wuerttemberg is home to key industrial companies, such as car maker Daimler, car supplier and household equipment company Bosch Group GmbH, or mechanical engineering company Heidelberger Druckmaschinen. Political and economic events there impact national developments.
Following the election results, the German baseload electricity contract for 2012 rose to 59 euros per megawatt-hours (MWh) on Monday, its highest since before the global financial crisis slashed power prices in late 2008 and early 2009. "The power market is taking the view that certain plants are not coming back. If there is a hard, fast decision (on keeping reactors offline) prices would go in an upwards trend," said Martin Young, executive director for equities research at investment bank Nomura.
The surge in prices comes after Japan's nuclear disaster prompted Chancellor Angela Merkel to impose a three-month moratorium on her coalition government's decision to extend the lifetime of Germany's nuclear reactors, which helped steer the anti-nuclear Greens to control of Baden-Wuerttemberg at the weekend elections.
Seven nuclear reactors shut down following the moratorium which is in place until at least June, but German power traders believe the loss in political support for nuclear power in Baden-Wuerttemberg will lead to the permanent shutdown of the two oldest reactors there - Philippsburg I and Neckarwestheim I - and to other shutdowns.
The Green Party's success is likely to have been aided by anti-nuclear sentiment that has spread since Japan's nuclear accident following the earthquake two weeks ago.
Before the Japan disaster, polls suggested a slight lead for the incumbent coalition between the conservative CDU under the state's prime minister Stefan Mappus and its junior partner, the liberal FDP.
Mappus is a vocal supporter of nuclear power, and his government holds over 90 percent of German utility EnBW after buying a 45.1 percent stake in it from French state utility EDF last year. EnBW operates four nuclear reactors, two each at Philippsburg and Neckarwestheim.
Share prices in German utilities rose on the back of gains in power prices and the prospect that rising power prices will bring utilities higher returns from coal and gas plants to substitute the loss in nuclear capacity. The political backlash against nuclear power in Germany means that power generation will rely more on coal-fired plants, Europe's Energy Commissioner, Guenther Oettinger, said on Monday.
Shares in coal-heavy utility RWE fell but rebounded later to rise 0.10 percent above Friday's close to 44.75 euro at 1430 GMT on Monday, while shares in E.ON were down 0.65 percent at 21.27. Renewable energy shares in Germany continued their strong gains and the OekoDAX, one of the country's biggest renewable indices was up 8 percent on Monday, while the S&P Global Clean Energy Index was up 2.98 percent. Renewable stocks have soared since Japan's March 11 earthquake and tsunami which damaged nuclear power reactors.