German city re-enters energy market

HAMBURG, GERMANY - The city of Hamburg, Germany, which sold its municipal power utility company seven years ago to leading energy producer Vattenfall AB, recently entered into the energy sector again through the establishment of a new company named Hamburg Energie.

The company is a wholly owned subsidiary of the national water supplier Hamburg Waterworks GmbH. Hamburg Energie will initially act as a distributor of electricity generated from clean and renewable sources of energy. The objective of forming the new company is to have more political control over power generation, promote competition, and provide eco-friendly power to its customers in order to help combat climate change.

Hamburg is looking to reposition itself as a significant player in the local power sector.

According to Anja Hajduk, City Senator for Urban Development and Environment, the goal of the company is to reinvest profits from power distribution in the region in renewable energy projects, which, in turn, will provide its citizens a healthy and unpolluted climate.

Hamburg Energie plans to invest $20.45 million in the near future on new environment-friendly power generation projects from renewable sources of energy, such as solar and wind energy, and gas-fired combined-heat-and-power plants. The plan excludes power generated from nuclear fuels and fossil fuels such as coal. Apart from this initial capital outlay, taxpayer money will not available for future project needs. The objective is to sustain and develop the company from existing distribution operations and make it profitable.

Hamburg Energie plans to build the first wind power plant at the wastewater treatment site in Kohlbrandhoft. Construction is slated to begin in the second half of this year and the facility is expected to be operational by 2011. The company aims to become the city's second largest supplier of electricity within the next five years.

Vattenfall is currently the largest supplier with a market share of 83%. Hamburg Energie proposes to initially target retail customers followed by industrial customers. Prices of electricity will be announced in late summer.

The new company also plans to evaluate repurchasing of district heating and gas networks in 2014. Acquisition of the heating grid, which is presently operated and maintained by Vattenfall, is estimated to cost $2.1 billion. While the current contracts for supplying energy to public buildings such as schools and town hall start by the end of 2010 and run up to 2014, the gas contracts commence in early 2010 and terminate in 2014. The suppliers primarily include power and gas companies, such as E.ON AG and Vattenfall. The city is placing a high emphasis on providing power generated from coal-free and nuclear-free sources in order to curb emissions of greenhouse gases.

Hamburg operated the municipal energy supplier HEW from 1914 to 2002 before privatizing it in several stages. Formation of Hamburg Energie has drawn a lot of criticism from the left with concerns over sustainability of the company, consumer protection over electricity tariffs, lack of clarity on alternative energy providers, and lack of concrete plans for setting up new power plants.

However, according to Volker Dumann, a spokesperson for the Ministry of Urban Development and Environment, the residents of Hamburg have supported the formation of the public utility company, as it is likely to pave the way for greater control in power production and distribution in the future.