What Lessons From Germany and Denmark? [2]

Via Sackerson’s Broad Oak site,  Nick Drew from Capitalists at Work on solar power undermining the efficient market in electricity.

If the Danish electricity sector is an unrepresentative model for most other nations to follow, by dint of its hard-to-replicate access to ultra-flexible hydro electricity from Norway, the Danes do at least seem to have a feasible (if expensive) structure in place.  The same cannot be said of Germany, that other favourite exemplar of red/green advocates of renewable energy, which upon examination is a very odd model for them to be eulogising.

To summarise: Germany barely got through 2012 without serious blackouts; voltage has become highly unreliable in many parts of their complex grid system; heavily subsidised renewables have trashed the German wholesale power market; neighbouring markets are also suffering as a result of unpredictable surges of German wind-power exports; Germany is building a large number of big new coal- and lignite-fired power stations to cope; in the interim, they have become dependent on large-scale imports from some very dirty old lignite plants in Eastern Europe; and to crown it all, their CO2 emissions are increasing!

How has this come to pass?

On major issues like energy, German policy is generally framed by big, set-piece legislation that lays down what is in effect a national plan.  The last coherent German energy plan dates back to the 1980s, and more recent policies have been layered on top in an ad hoc fashion.  That’s how it’s often done in the UK and other countries, but for methodical Germany it is anomalous: and intelligent Germans view the resultant mess as inevitable.

The most recent nonsense was the sequence of on-off-on-off nuclear decisions, culminating in a post-Fukushima bombshell: the summary closure of a large part of the nuclear fleet.  This was always going to leave a big gap to fill in a hurry – hence the immediate increase in imports, which naturally come from neighbours with surplus capacity:  France (nuclear, of course), Poland and the Czech Republic (coal, some of it dreadfully polluting lignite).  The ironies are obvious, and one hopes the anti-nuke greens are proud of themselves.

But the subtler and even less tractable issue is the unforeseen impact of large amounts of ‘must take’ wind- and solar-power, financed by whopping subsidies.  (The electricity doesn’t even need to be generated – the producer merely needs to install the plant.  There are many windfarms in northern Germany that are completed but not connected to the grid – the system cannot accommodate them, and they lie idle – getting paid anyway.)

Key to the situation is that the marginal cost of wind- and solar-power is close to zero. Unsurprisingly, at times of the day when large quantities of zero-cost power are being fed into the grid (foisted on utilities who must take it, irrespective of its market value), the impact on the wholesale market price is to reduce it substantially – not just to zero, it sometimes actually goesnegative, so that people are being paid to take power off the system

The timing of wind generation is notoriously unpredictable, but solar is straightforward: it peaks around noon.  In Germany (though not in all countries) this at least coincides with peak demand.  The impact on wholesale prices is clear.

Source: EPEX

One cannot fail to notice (a) demand rising to maximum at midday (‘Volume’ on the chart) which would ‘normally’ coincide with the highest hourly prices: but (b) a midday collapse in hourly price, which at 1pm is lower than at midnight !  The market price for ‘peak’ electricity as defined in the German/Austrian market (9 am to 8 pm) is now barely greater than for baseload (24-hour), meaning inter alia that no-one will see any incentive to build or run a plant designed to offer flexibility.  In particular, it fundamentally undermines the economics of flexible gas-fired plant, which – since no subsidies are on offer to fossil fuels – needs a ‘normal’, undistorted day-time price to pay its way.  And yet that is the very plant needed to balance the vagaries of wind generation !

Why this was not foreseen is a matter for conjecture.  (Personally, I reckon – and have offered evidence elsewhere – that many Germans who should know better genuinely do not understand how markets work.)  But of this we may be sure: its impact is highly destabilising.



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