Europe’s drive toward a power system based on renewable energy has gone so far that output will probably need to be cut within months because of oversupply.
Network operators are likely to curb solar and wind generation at times of low demand to prevent overloading the region’s 188,000 miles (302,557 kilometers) of power lines, Entso-e, the grid association in Brussels, said last month. Renewable output is poised to almost double to 18 percent by 2020, according to Energy Brainpool GmbH & Co. KG, a consulting firm in Berlin.
Europe’s fivefold surge in green energy in the past decade pushed prices to a nine-year low and wiped out $400 billion in market value of utilities from Germany’s RWE AG (RWE) to GDF Suez SA in Paris. There’s so much power available on windy and sunny days in Germany and Austria that the number of hours producers had to pay consumers to use it doubled in the first five months of 2014, data from the Epex Spot SE exchange in Paris show.
“The system is costly and we need intelligent answers,” Johannes Teyssen, chief executive officer of Dusseldorf, Germany-based EON SE, said June 2 in an interview at the Eurelectric conference in London. “There are some hours where it is inevitable that we will be oversupplied.”
The expansion of renewables is at the center of the European Union’s unprecedented effort to cutcarbon emissions by 20 percent from 1990 levels by the end of the decade. Governments in the 28-nation bloc are discussing accelerating reductions to 40 percent by 2030.
Eight countries from Germany to Bulgaria will need to export or curtail generation, including renewables, at times of low demand during most of this summer, Entso-e said in its May 22 Summer Outlook. Risks to grid operations will be most acute in Bulgaria, Spain and Romania, where capacity to ship power to neighboring countries is less than what’s needed, the 41-member group said.
“It is hard to predict when the grid operator will intervene and for how long and it’s a big problem,” said Burkhard Steinhausen, whose team at Trianel GmbH manages the output of 3,000 megawatts of renewable capacity on behalf of producers. A supply of 1,000 megawatts is enough to power about 2 million European homes.
“If the grid isn’t expanded at the same pace as renewables expansion, then it will happen more often,” he said June 4 by phone from Aachen, Germany.
Carl Pope in Bloomberg View:
Deregulated electricity generators make most of their profits on hot summer afternoons, when air conditioners and offices force grid operators to call up their most expensive electricity: natural gas “peaker” plants. Cheap to build but expensive to operate, these plants are essentially jet engines, producing power on demand for a few hours at a time. However, the entire industry benefits when peaker plants kick in, because every other generator, including the cheapest hydropower operator, receives the same top dollar during those peak hours.
Solar panels — whether utility scale or residential rooftop — generate maximum power on exactly those hot afternoons when demand peaks. What’s more, they do so at no marginal cost; the sun is free. This reduces reliance on peakers, causing prices to fall across the board, including for customers without solar power.
This is what terrifies power companies. In California, the afternoon peak has effectively collapsed. CAISO, the state’s grid manager, projects that the peak will become an afternoon chasm, so low that even power plants designed to operate 24 hours a day as “baseload power” (nuclear energy is a good example) may face difficult decisions about when to operate.
The first victims among utilities will be generators that sell electricity from peakers and other plants in the open market. Soon, their plants will be needed only for the few hours around dusk when the sun is weak but demand is still relatively high.
The monopoly utilities will be hit next. Edison Electric Institute warns of “irreparable damages to revenues and growth prospects” due to the spread of distributed power generation from renewable energy sources.
Why is solar growing so fast? Because in the past three years, the cost of panels has been halved. As prices continue to decline, more rooftops will sprout polysilicon. At the same time, increased energy efficiency is cutting waste. A new generation of efficient appliances — no more heat-generating incandescent light bulbs, for one — is already shaving 7 percent off U.S. electricity demand.
Utilities used to be paid handsomely for keeping idle power plants ready for peak hours on those hot summer days. Now, as an increasing share of peak demand is met by solar panels owned or leased by customers, distribution utilities will simultaneously face slumping volume and lower prices.
To safeguard their revenue, utilities are trying to slow development of rooftop solar by refusing to pay what’s called “fair value of solar” — essentially equitable prices for the electricity that solar panels generate. At the same time, utilities are increasing the fees they levy for access to transmission lines that provide customers with electricity at night.
That may encourage the nation’s hundreds of thousands of rooftop solar owners to pair their solar panels with batteries to store power for the evening. As utilities raise prices — for both power and grid access — individual customers and even entire communities will end long-standing arrangements with traditional utilities altogether, as Chicago, Cincinnati and Marin County, California, have already done, citing discontent over poor utility service and prices.
Utility insiders call this, bluntly, “a death spiral.” In its report, Bernstein noted that utilities had only three choices: suppress growth of cheap solar by refusing to buy the power, raise the costs of connecting to the grid or become rooftop solar developers themselves. “We cannot think of a fourth option.”
There is one. Public utilities have an enormous advantage over the distributed solar companies that are disrupting their afternoon peak-load model. Solar power has very high capital expenses; the costs of borrowing determine who can deploy panels cheaply. Utilities, meanwhile, have access to the cheapest capital in the private sector.
In the very early days of electric power, utilities owned the arc lights that illuminated cities. Over time, they left those appliances to their customers and simply delivered power to the meter. They should return to that earlier, capital-intensive model now.
Why? Utilities are uniquely positioned to provide the capital, storage and connectivity needed to construct the cheapest possible clean-energy power system. They also generally have the best relationships with the customers for rooftop panels, the deepest knowledge of the market and, because they control the grid, a clear advantage in deploying electricity storage technologies such as batteries (another capital-hungry component of the renewable revolution). Apple and Amazon.com fight to accumulate information about their customers and what they consume; electric utilities have a meter in everyone’s house that delivers information on energy consumption free.
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