Restructuring and power market liberalisation have provided the background for the Austrian hydro power industry over the past few years. Simon Jones takes a closer look at recent developments in Austria’s classic hydro landscape
With its network of rivers and mountain ranges, Austria has a classic hydro landscape. Fortunately so, for the landlocked country has few other energy resources — such as minimal hard coal reserves and only poor quality lignite seams. Dependence on scarce hard coal imports hindered post-war economic recovery, but the expansion of hydro production from the late 1940s allowed Austria to share in western European industrial growth. The storage power station at Kaprun, the first major plant built after 1945, came to symbolise this economic reconstruction.
Today hydro covers about three-quarters of Austrian electricity production. Total installed hydro capacity is 11.4GW.
Run-of-river plants on the Danube, along with the Alpine region’s many storage plants, are the mainstays of power generation. Over 40% of Austria’s 55,700GWh potential hydro generation remains untapped, in part due to strict environmental safeguards.
There are around 1700 small hydro plants (with some 600MW total capacity) on the regional utilities’ networks. The government’s power market reform package includes support for small hydro. Regional suppliers must source at least 8% of output from plants with less than 10MW capacity. The Austrian Association for the Promotion of Small Power Stations calculates some 800MW of capacity remains to be developed in this sector.
Verbund is Austria’s biggest power generator and distributor. Every other kilowatt-hour supplied within Austria comes from one of the 76 Verbund power stations. The Vienna utility, founded in 1947, has always relied almost entirely on hydro power. In 1999 run-of-river and storage power plants covered 92.5% of the firm’s 26,823TWh total generation – an all-time high figure. Verbund is the leading central European hydro power group, and the EU’s third biggest behind EdF Hydro and ENEL Hydro.
Forty-eight plants within Verbund’s main generating group, Austrian Hydro Power (AHP), cover about 40% of Austrian power output. This includes the 22 plants (with 2650MW capacity) operated by Draukraft, the Carinthian hydro supplier that became a full subsidiary in September. Verbund overcame regional utility Kelag’s long reluctance to sell its 49% holding in Draukraft, but only after offering Kelag a large cash payment and a stake in AHP.
The deal follows the 1999 merger of the firm’s other hydro holdings – Donaukraft, Tauernkraft and Verbundkraft – to create AHP. Now only one group, Ennskraft, is holding out against this consolidation of Verbund’s hydro holdings. Ennskraft boss Christian Köch admits that, ‘we don’t know what’s planned, but the trend is towards centralisation’.
The restructuring of AHP is part of Verbund’s response to liberalisation of the Austrian power market. This long process began in February 1999 and is scheduled to end in October 2001 with a fully open market – although Federal Economics Minister Martin Bartenstein spoke of a ‘certain flexibility’ in the timetable. Since 1999 the utility has switched from its former semi co-ordinating role, supplying Austria’s main regional utilities under long term contracts, to act as a generator and supplier in the open market.
Verbund tried for many months to build a new supra-regional utility, Energie Austria, to serve as a major outlet for its hydro supplies and strengthen the Austrian industry against foreign entrants. Opposition among regional utilities, which under Austria’s tortuous industry structure are also shareholders in Verbund, blocked this attempt to consolidate the domestic market. Verbund has now opted instead for aggressive marketing of its hydro supplies outside Austria. ‘After the blocking of Energie Austria, we will focus on new markets and clients,’ says chairman Hans Haider. ‘We’re forced to march alone.’
The firm’s slogan, ‘Low cost producer, low cost seller’ sums up the new strategy. Cheap hydro supplies have opened up several neighbouring markets to Verbund. A fierce cost cutting programme has also helped the utility lower tariffs – hence Verbund’s determination to pool its hydro capacity more efficiently within AHP.
Operating and maintenance costs fell 30% in 1999, despite record production, and another 800 jobs went in 2000. The closure of all bar one thermal plant is another sign of Verbund’s dependence on hydro. Imports or spot purchases will cover during low water periods.
The export drive starts with one big advantage – Austria’s prime location in central Europe. As head of marketing Johann Sereinig argues: ‘Our high proportion of clean and cost-effective hydro power, and our geographical position in the centre of Europe are the best conditions for Verbund’s success.’
Around 50% of power exports are to Germany. Verbund is the biggest seller on both the Leipzig and Frankfurt power exchanges, while a Munich-based subsidiary is winning contracts up into northern Germany.
Verbund even reports getting a ‘foot in the door’ in the Bavarian capital, the heart of German firm Bayernwerk’s supply zone. This will not have smoothed a reported bid by the two firms to merge their hydro operations, creating Europe’s second biggest hydro supplier with a network stretching from Bavaria to Hungary.
Going on line
In Italy, Verbund has founded a joint venture with financial holding CIR. Energia markets power for commercial and industrial firms, winning 12 customers with a total volume of 2100GWh within six months. Verbund has earmarked some 5GWh/yr, or around 20% of production, for this project. A deal for 15GWh of deliveries to French utility Linde Gaz’s plants in southern France is the biggest international intervention on the French market, while the firm’s first ‘bundling’ deal involves supplying a paper producer with five plants in three countries (including one in Holland). Eastern Europe is another target. Sereinig predicts strong growth in Poland, although Polish law would require Verbund to set up a local operation to enter the market.
As of October 2000 industrial customers can also order customised power products via the first online marketing platform in central Europe. ‘The advantages of austrian-power.com are rapid market processing, no geographic or time barriers, high flexibility and major cost advantages over a traditional marketing system,’ argues Sereinig. ‘Our goal is to arrange half of our power trading via the internet within five years.’ Sales are conducted by APT Power Trading, one of several operations unbundled in line with Austria’s market reform.
Verbund brands itself as the EU’s most environmentally-friendly large generator. The product ‘Austrian Hydro Power – 100% hydro power’ matches the trend for renewable energies and can also be supplied in sufficient quantities to large customers. Verbund had its hydro output certified by Germany’s technical inspection body TÜV – 16,000GWh/yr are guaranteed to come from hydro plants with natural flow conditions, even in years with low water levels.
Oekom Research of Germany placed the utility first among ten international exchange-listed energy suppliers in the world’s first environmental ranking. This is based on its supply portfolio and environmental management – such as the just completed 10-year project to artificially irrigate river wetlands with water from the Greifenstein Danube power plant. Verbund spent US$30M on environmental measures in 1999.
Verbund’s power exports jumped 95% to US$221M for the period January-September 2000. APT traded 6400GWh in 12 countries. Exports account for 40% of total sales. ‘Verbund now has the biggest proportion of exports of any European supplier,’ reports marketing head Sereinig. By contrast domestic sales fell over 20%. Here Verbund conceded price cuts to hold on to its traditional customers, the regional utilities, while many industrial users are locked into deals reached as liberalisation began.
The firm still predicts winning up to 3000 customers within Austria by 2003. A survey for Verbund suggests 25% of customers could switch supplier, but deputy chairman Herbert Schröfelbauer believes 10% is a more likely figure. In November 2000 it signed a major deal with Austrian railways against strong competition from other EU suppliers. Overall sales were well up by volume, a trend helped by the beneficial water regime, but fell 2% by value.
Verbund does not have the hydro export market to itself. The Tyrol utility Tiwag has been trading power across the border to southern Germany since before the war. It is now licensed to sell in the German household and commercial sectors, and also trades on both the country’s power exchanges. Like Verbund, Tiwag relies on hydro for almost all output, and hopes to gain a premium in Germany for such green supplies.
Run-of-river plants on the Danube, Drau and Salzach are the backbone of Verbund’s output, producing over 15B KWh/yr. The nine Danube plants alone generate over half of total supplies, while 14 storage plants on the Drau, Ziller and Salzach boost generation for peak periods in winter. Annual supplies from these plants totalled 3.7B KWh in 1999. Verbund hopes the high alpine reservoirs (already a key part of the country’s leisure and tourism sectors) may also have a future role in water supply.
Freudenau was the world’s first run-of-river plant to supply a one million-population city. The 165MW Danube plant came on stream in 1998, a few miles downstream from Vienna. Verbund had to carry out a range of last minute improvements even to win approval for Freudenau. Controversy still dogs the US$1B project. A recent report from the federal audit board charged that the plant would never be profitable, while the low dam head and reduced river speed ensure Freudenau cannot match other Danube plants. Only one Danube run-of-river plant achieves less than Freudenau’s 1052GWh/yr average supplies – and in contrast, the Altenwörth plant generates almost 2000GWh/yr.
Even Verbund accepts mistakes were made, and that it is unlikely ever to attempt such a big project again. It has already written off US$400M as a non-performing asset, and arranged a leaseback deal with an American investor group to ease financing. Priority will be given in future to efficiency increases at existing hydro plants rather than new projects.
One positive aspect of Freudenau is its successful trial of a matrix turbine for the utilisation of lock water. Developed as part of the European Union’s Thermie research programme, the concept features any number of identical turbine generator units arranged in a matrix-like frame. The 200kW matrix turbine generates cost-effective power from water diverted for ship-lock operations at run-of-river hydro plants. Each single turbine unit consists of an asynchronous generator driven by a fixed turbine attached directly to the generator shaft. The turbine works efficiently with flows in both directions.
There are hundreds of ship locks along European rivers alone and Verbund also hopes for interest from the northern US, where locks are used extensively for water regulation along the huge river networks. Adding the matrix turbine to all nine Verbund plants on the Danube would boost output by 50GWh/yr – enough to supply a town of 15,000 people.
Full scale operation since autumn 1999 at the Freudenau ship-lock has also provided data for adapting the turbine to other settings, such as canals, weirs and public water supply networks – the turbine has no effect on water quality. Verbund ran the turbine in five blocks of five, but the modular system allows for adaptation to virtually any channel shape and to a range of power outputs.
‘The innovative turbine concept opens up many new possibilities for hydro generation,’ argues Wolfgang Semper, project leader at va-tech – the Austrian engineering firm which developed and built the turbine together with Verbund, Linz generator specialist Hitzinger and French partner Bouvier Hydro. ‘As a compact unit in various dimensions, it can be inserted into existing structures,’ says Semper.
Small scale hydro generation from irrigation canals in Asia and central America is another potential application. Verbund and VA Tech have agreed a co-operation deal to supply the turbines worldwide, with interest already reported from the US, India and Pakistan.