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News Extra: Uncertain future of Swiss hydro-electric plant highlights changes in European energy market

01 October 2014

The large-scale Nant de Drance hydro-electric plant, being built above the town of Le Chatelard in Switzerland, is a 1.9 billion Swiss franc ($2.1 billion) pumped storage project designed to balance Europe's power grids. It will do this by pumping water up to a high reservoir at times of slack demand and releasing it to generate electricity when demand is at its highest.

Nant de Drance - Image: Alpiq
Nant de Drance - Image: Alpiq

Since 2008, workers have cut 17 kilometres of tunnels, excavated nearly 2 million cubic metres of rock, and are finishing two 425 metre deep vertical shafts that will drop water onto the plant's six turbines from an altitude of 2,200 metres. Together, they will generate 900 megawatts, as much as a typical nuclear plant, with an annual production capacity of 2.5 billion kWh.

At 194 metres long, 52 metres high and 32 metres wide, the machine cavern of Nant de Drance has an interior volume bigger than the the Notre Dame cathedral in Paris.

When work started on Nant de Drance, its shareholders - a consortium led by Swiss utility Alpiq, expected to make healthy returns on their investment. But a report by Reuters shows that changing European energy market conditions have undercut the basis of the plant’s economic justification.

When construction started in 2008, slack demand at night and peak demand by day justified the significant investment in the project, but the traditional daytime price peak has gradually disappeared as fast-growing solar capacity in Germany floods the grids with power around midday. This trend has been compounded by the continent’s economic crisis which has cut demand.

German wholesale power prices are now around 35.70 euros per MWh, less than half their 2008 highs, making it possible for gas-fired generators to compete with pumped storage facilities  to provide extra supply to the power network.

The first turbines at Nant de Drance will go online in 2018, but making a profit from it could take years, given the market backdrop.

Alpiq's rival Axpo is building another big pumped storage plant, Linth Limmern, and when both projects are finished, they will will add more than 2,000 MW of pumped storage capacity to Switzerland's 1,400 MW existing capacity.

But two other storage projects with a combined capacity of 1,630 MW - BKW's Grimsel 3 and Repower's Lago Bianco - have been suspended. Other European dam projects, including Austrian utility Verbund's Reisseck 3, have also been put on ice. In May, German utility RWE pulled out of its 1,400 MW Atdorf project with EnBW.

The turmoil in Europe's power markets has hit not only the Swiss utility companies but the country's trade balance, Reuters says. Switzerland's pumped storage industry earned SwFr 2.1 billion from power exports in 2008, but this fell to just SwFr 771 million in 2012 and SwFr 327 million in 2013.

Along with its German and Austrian peers, Swiss utilities have called for a cut in wind and solar power subsidies. The Swiss association of power producers VSE is calling for a mechanism that would pay pumped storage plant operators for the essential back-up they still provide for the European grid. Measures, they say, should focus on reducing duties and abstaining from regulatory interventions, removing barriers, accelerating projects and adapting market conditions.

In the meantime, having invested so much at the site, the consortium plans to continue its development. In an interview with Swiss newspaper Le Temps, Paul Michellod, a Director of consortium member FMV said: “Even if the situation is difficult in today's electricity market, our current goal is to complete the work."

The developers hope that, with an 80-year concession at the site, the fundamental efficiencies and environmental credentials of pumped storage schemes will ensure the long-term future of Nant de Drance.

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