Germany: Rising Renewables, and Falling Electricity Prices

Mixed bag here – overall positive news on the renewable front. Wind and solar energy pouring on to the German grid has lowered electrical prices, the pressure on coal fired power plants has lowered the price of coal, encouraging some to burn more of it – at the same time as coal-bound utilities sink into deeper trouble. Craig Morris has a good take below.
Remember – you’re going to hear constant bad-mouthing of the German experience with renewables – meanwhile they keep rolling along with a national budget surplus and 5 percent unemployment.  The problems that may arise will come, if anything, from failure of traditional business models to make way for the renewable tide – something we’d better get straight on this side of the pond, as well.
Video above discusses how renewables force negative electricity pricing in some areas.

Bloomberg – August 2013:

Germany, Europe’s biggest electricity market, is beating up its traditional utilities.

RWE AG (RWE) and EON SE are getting hurt by falling power prices and a shrinking market share this year. They’re set to report second-quarter earnings this week just as RBC Capital Markets said both may need to raise capital.

“Lower earnings for RWE and EON have knock-on implications for the balance sheet of both companies,” John Musk, an analyst at RBC Capital in London, said last week. “The market has yet to factor in the longer-term earnings impact of German power prices,” which have dropped about 27 percent in a year.

Across Europe and some of the U.S., utilities that a decade ago dominated markets now struggle to cope with lower prices exacerbated by subsidized renewables that don’t pay fuel costs. The pain is most acute in Germany, which led the world installing solar farms and has the largest offshore wind plans. Clean energy also has preference over fossil fuels in European wholesale markets, a job killer at traditional utilities.

EON of Dusseldorf and Essen-based RWE are considering halting coal and gas plants with capacity exceeding 20,000 megawatts and can supply 21 cities the size of Cologne, risking some of the combined workforce of more than 10,000.

Photographer: Krisztian Bocsi/Bloomberg
Chancellor Angela Merkel’s government has said it wants to reform the country’s… Read More
“A significant part of our business model is now facing new challenges,” RWE Chief Financial Officer Bernhard Guenther said in an interview, without being specific about halts or jobs. “Whatever we do in terms of cost and capex-cutting won’t fully compensate the profit loss we see in conventional power generation.” A RWE spokeswoman said there was nothing to add.

Bloomberg – January 2014 :

Power prices in Germany, Europe’s biggest electricity market, probably will weaken for a record fourth consecutive year as utilities add the most coal-fired capacity in more than a decade.

The benchmark year-ahead electricity contract will average about 6 percent less in 2014 than in 2013, according to the median of nine analyst and trader estimates compiled byBloomberg News. Expanding generating capacity will provide 17 percent more supply than peak demand, says Bryan Garnier & Co., an investment bank in Paris.

Wholesale power prices in Europe’s biggest economy plunged 32 percent since 2010 amid record wind and solar output and the weakest demand in four years. The cheapest coal since 2009 is spurring utilities to keep building plants burning the fuel. EON SE (EOAN) and RWE AG (RWE), the largest generators, will report lower profit this year, according to analyst estimates compiled by Bloomberg.

Craig Morris in Renewables International:

You heard it here first, because the forecast is mine – CO2 emissions from German power consumption are likely to decline this year for a number of reasons. But the coal phaseout is unlikely to begin before 2022.

The best forecasts are those that merely describe what is happening today. Several current events described below indicate that carbon emissions from German power consumption will go down, albeit slightly, in 2014.

1. Wind and PV installations continue to roar on. Installations of new wind turbines have returned to levels not seen for the past decade (2.5 GW), and although the German solar sector continues to complain about slower growth, the sector continues to install hundreds of MW per month (219 in November after 435 in October), so the country is likely to come in within its target range of 2.5-3.5 GW in 2014. The government, however, seems anxious to slow down wind power, and feed-in tariffs for PV continue to drop each month, which may slow down growth even further. Nonetheless, 4 GW of PV + wind collectively should be attainable as a low estimate, equivalent to more than 10 percent growth in installed wind + PV capacity.
2. The weather will probably improve. 2013 was a particularly bad year both for wind and PV, each of which just barely managed to grow in terms of kilowatt-hours despite the clear growth in terms of kilowatts. A return to more average weather conditions would increase power production considerably. Therefore, we should have quite a bit more electricity from wind and solar.
3. In 2014, the growth of wind and solar will increasingly offset power from coal. Up to now, renewable electricity has largely offset power from natural gas turbines in accordance with the merit order in Germany, but peak solar and wind power production is starting to dip even deeper into coal power production.
4. No nuclear plant will be phased out this year. Coal power consumption will therefore be squeezed out temporarily – in 2015, the Grafenrheinfeld nuclear plant with a capacity of around 1,345 MW is scheduled to be taken offline for good.
   The main caveat to this list is that coal power production may nonetheless remain stable or even rise slightly despite the lower demand for it in Germany because Germany’s neighbors are increasingly buying inexpensive coal power from Germany (a situation I described here). In other words, carbon emissions from the German power sector might increase because of consumption in the Netherlands, France, etc.More importantly, a minor dip in carbon emissions in a particular year is less crucial than the overall trend. Don’t expect carbon emissions from the German power sector to go down dramatically until Germany starts a phaseout of coal power, which Industry Minister Gabriel says cannot happen at the same time as the nuclear phaseout – which ends in 2022.Finally, we need to stop focusing solely on the power sector and start addressing oil consumption. The power sector only makes up around the fifth of German energy consumption, and oil is the main source of energy for heat and transport – which make up around 80 percent of total energy supply.

For comedy relief, that always howlingly funny Fox News “there is more sun in Germany” story.

Finally, I’m reprinting this bit of debunking from Amory Lovins, on the “Germany turning back to coal” myth.

MYTH #1: GERMANY’S TURN BACK TO COAL

An efficient new German coal plant begun in 2006, with fast ramp rates to complement variable renewables, was widely but wrongly heralded on its commissioning in 2012 (Europe’s only new coal plant that year) as signaling Germany’s post-Fukushima turn back to coal—not mentioning that it replaced a larger amount of dirtier and far less efficient coal capacity that was shut down. Moreover, replacing old 35-to-38-percent-efficient coal units with modern 46-percent-efficient ones, like some of the 5.3 GWlikely to come online this year, would save a fifth of their coal even if net capacity didn’t change. And though capacity may fluctuate for a few years, the German Energy Agency expects 11.3 GW of coal capacity to be added and 18.5 GW closed by 2020—a net decrease of at least 7.2 GW.

In fact, as explained here and here, Germany has begun no new coal plants since Fukushima, coal-firedgeneration will decline even more than capacity, lignite has no future, and any of the coal plants planned long ago that are completed—offsetting retiring units—are likely to lose money, just as existing ones donow. Another instance in Hamburg reinforces these points. Yet claims continue to propagate that “Germany alone is building 25 coal-fired plants” (20 of 29 originally proposed have already been stopped, 5–6 more shelved) and that “it has now become very, very cheap to burn coal and as a result, there’s a new coal boom in Europe” (nearly all in Britain and Spain), while renewables are “helping to continue the economic collapse of Germany” (Europe’s strongest economy).

German coal-fired generation did rise modestly in 2011–12, substituting for pricier natural gas, about half of which in Europe is price-linked to oil. Very low prices in Europe’s oversupplied carbon emissions market further reduced the price of burning coal. Similarly in the first seven months of 2013 comparedwith a year earlier, three-fourths of the rise in coal-fired generation was due to substitution for gas, the rest to lighter winds—though electricity demand probably declined too.

This temporary coal-burning uptick is often used to claim that German CO2 emissions are rising, even though emissions have trended down since 1990. In fact, despite economic growth, German renewables helped make CO2 emissions fall in 2011, hold steady for power plants and industry in 2012, and probably fall in total in 2012 after adjustment for more oil-fired heating in the exceptionally cold winter. The reason is simple: Germany’s renewable growth has more than offset nuclear shutdowns while efficiency has flattened or decreased electricity demand. It’s not even possible for German power plants to emit more CO2 because of their national emissions cap under EU law.

Flatly contradicting the official data, anti-renewables reports often claim that Germany is going back to coal because renewables didn’t work and are proving unaffordable. Actually, they work just fine, supplying 23 percent of German electricity in 2012 (more than any other source except lignite) and driving dramatically lower wholesale power prices that are attracting energy-intensive industry, making German industrial power highly competitive, and enabling record 2012 power exports that rose another 62 percent in the first half of 2013. (Germany is the only country that consistently exports power to France; its industrial power is cheaper than the EU average, and the gap is widening.) American media, rerunningmany of these false stories, are awkwardly having to shift their tune from “renewables are too costly to compete” to “renewables are walloping our favorite old technologies.” Indeed, German photovoltaicstoday have achieved the price that the European Union in 2011 projected for 2050.

It’s hardly a surprise for the threatened coal industry to claim “many large industrial corporations are migrating out of [Germany].” But for The Economist to make a similar claim, also without a single example, is unusual: Germany’s top energy economist sees no sign of industrial flight, nor has a request for examples elicited any. Yet the canard persists. Perhaps such confusion is due to U.S. expansion of gas-intensive chemical giants like BASF, which naturally pivot toward fourfold-cheaper U.S. natural gas because it’s both a fuel and a feedstock; BASF in Germany also makes 70 percent of its electricity internally from natural gas. But as Craig Morris of Renewables International notes, chemical firms’ U.S. expansions are driven by U.S. gas prices, not German electricity prices. Giant German firms enjoy Germany’s low and falling wholesale electricity prices, getting the benefit of renewables’ near-zero operating cost but exempted from paying for them, as I’ll describe below.

The truth about German industrial electricity prices (such as the wholesale spot and futures market quotations) is easily determined from official statistics, which are far more transparent and thorough than America’s. Even as GE’s Chairman griped that a German steel mill pays four times the typical U.S. industrial power price (perhaps reflecting a confusion between U.S. and Euro cents), the average German wholesale price for June 2013—essentially the price such big industries pay—fell to a record low of 2.8 Euro cents or 3.7 U.S. cents per kWh, well below his 5-cent U.S. benchmark. To be sure, the average retail kWh bought by the entire German industrial sector, much of it small and midsized, cost 8.6 U.S. cents for energy plus 8.0 for taxes, vs. 6.5 cents in the largely tax-free U.S., so smaller firms’ total tariff, typical in Europe, is about twice the U.S. level. But renewables don’t account for that gap; German industry is thriving anyhow because it’s efficient; and U.S. electricity prices rose 4.8 during 2007–12 and 44 percent during 1995–2012—faster than the German increases of 3.7 and 16 percent.

Thus Germany is building the renewable foundation for declining long-term electricity prices. Sure enough, German wholesale power prices have fallen about 30 percent in the past two years to near eight-year lows, putting utilities that underinvested in renewables under severe profit pressure. This success in using modern renewables to reduce and stabilize electric generating costs is sometimes misdescribed as a failure because it creates losers—those who bet against it—as well as the winners who bet on its success.