Negative Pricing: Germany Swamped with Renewable Energy

September 30, 2011

You can practically see the circuits blowing at conservative Bloomberg News, which is following the evolving story of Germany’s transformation to a renewable electric economy.

First, this week, Paul Gipe, the indispensable sage of renewables sent me this:

Recent data shows Germany continues to export electricity despite closing seven nuclear reactors.

Meanwhile Bloomberg reports that continued renewable energy expansion in Germany is driving down power prices.

The Bloomberg article reports:

“The installed solar base in Germany is growing rapidly thanks to continued feed-in tariff support,” Jenny Chase, a solar analyst at Bloomberg New Energy, said today by e-mail. “We expect this to weigh on power spot prices, particularly because renewable energy has priority grid access and near-zero marginal cost.”

but includes the usual caveats about “less reliable” renewables, oldthink need-for-baseload, yadda yadda.

Now, we have this, again Bloomberg – Utilities Giving Away Power as Sun Floods Grid:

The 15 mile-per-hour winds that buffeted northern Germany on July 24 caused the nation’s 21,600 windmills to generate so much power that utilities such as EON AG and RWE AG (RWE) had to pay consumers to take it off the grid.

Rather than an anomaly, the event marked the 31st hour this year when power companies lost money on their electricity in the intraday market because of a torrent of supply from wind and solar parks. The phenomenon was unheard of five years ago.

With Europe’s wind and solar farms set to triple by 2020, utilities investing in new coal and gas-fired power stations no longer face stable returns. As more renewables come on line, a gas plant owned by RWE or EON that may cost $1 billion to build will be stopped more often from running at full capacity. It may only pay for itself on days like Jan. 31, when clouds and still weather pushed an hour of power on the same-day market above 162 ($220) euros a megawatt-hour after dusk, in peak demand time.

“You’re looking at a future where on a sunny day in Germany, you’ll have negative prices,” Bloomberg New Energy Finance chief solar analyst Jenny Chase said about power rates in wholesale trading. “And a lot of the other markets are heading the same way.”

Clearly, this is a temporary situation as the old centralized grid reforms itself to deal with distributed, decentralized renewable technologies.  Better transmission, load management, and probably some energy storage based on off the shelf technologies will more than solve this.

Germany’s model Feed-In-Tariff, now being copied in places like Ontario and Japan, seems like one of the most effective models for bringing new technology to market quickly, creating jobs, and jump starting new industry.

The pattern holds. Whenever someone moves boldly in the direction of renewable energy, they meet with greater success, sooner, and at lower cost, than even the most enthusiastic proponents have imagined.

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21 Responses to “Negative Pricing: Germany Swamped with Renewable Energy”

  1. sinchiroca Says:

    This is really great news, for a number of reasons. It spans a broad period of time, so we can’t attribute it to some fluke of supply over demand. It covers the entire country, so we can’t dismiss it as some local spike. And it covers the whole range of energy sources, so again it integrates all considerations.

    There remains one sticky point: the high price of electricity in Germany, running about $0.30/kw-hr, compared to a worldwide average of $0.10 to $0.15. I’ve always felt that one of the best things we can do for climate change is to raise the prices of energy forms through a system of declining taxation that anticipates future natural price rises, giving consumers a chance to adjust to future prices in a rational way. However, I do wince at prices that are twice as high as elsewhere. On the other hand, I note that European electricity prices are ALL high: France $0.20, Italy $0.35, Denmark $0.40, etc.

    The fact that the German economy is outperforming the American economy, running on electricity prices about 35% of German prices, certainly suggests that we needn’t worry about the effect of high electricity prices on economic performance.

    Germany has done the world a huge service by taking the bull by the horns and showing that conversion to renewables really can be done. I must say, after decades of watching solar and wind to be Economical Real Soon Now, it looks as if we are FINALLY reaching the end of the tunnel. I’ve been wary of current optimism, but there’s nothing like solid data to change one’s mind.

    • greenman3610 Says:

      the key metric for energy is not the price per unit, but the bill you pay monthly.
      If Europe is generally more efficient than the US (it is), then actual expenses for energy will be competitive, if not lower. Moreover, greater reliance on renewables promises more stable costs going forward, as we hit peak oil, and peak coal….

      if anyone has the number for comparative US/Germany monthly power bills, weigh in.

      • sinchiroca Says:

        I *think* I disagree with your position that the key metric is total payment rather than rate, because the total payment gets entwined with subjective matters of how enjoyable it is to use more energy. If the average German home paid thrice as much per kW-hr but was thrice as efficient, then we could indeed compare the two directly. But I very much doubt that German homes are thrice as efficient as US homes; I’m sure that a significant factor in their lower energy use is less utilization of energy. For example, I would expect that ambient light levels in German homes are lower than in the US. This would mean that Germans are making do with less light. This is bad, but how much worse is it? That’s a purely subjective decision. I’ve stayed in several German homes, and they struck me as more cramped, a bit darker, and colder than American homes. Again, this doesn’t objectively make them worse — but we run into a brick wall of subjectivity here.

        Here’s a really good example of the subjectivity problem: Americans love big-screen TVs; Germans don’t seem so taken by them. This surely saves some German energy. But who’s to say that big-screen TVs are a “legitimate” use of energy or a waste of energy?

        • adelady Says:

          “…colder than American homes…”

          I’ve not visited America but I have stayed in hotels that cater to American tourists. And therefore to their preferences in airconditioning. I find them stiflingly hot in cold weather, and a bit too cold in the warm.

          This is not a matter of inadequacy, but of cultural preferences.

  2. otter17 Says:

    Go Deutschland!


  3. @Peter
    I’m from Germany and so I read your post with even more interest, as I usually do.
    But the graph (with the German electricity exports) in your article is misleading and wrong in several ways.

    a)
    The site where you got this graph states, that the CIA world fact book is the source of those values. This cant be true, because the CIA world fact book gives different values and the most recent value is from 2009, and not from 2010 and 2011 as the graph shows. Second of all, the values themself in the CIA world fact book are different: The 2009 value for German electricity exports in the WFB is 54,13 TWh, not 62,3 TWh as displayed in the graph!
    https://www.cia.gov/library/publications/the-world-factbook/fields/2044.html#gm

    b)
    2011 is not finished, so there is no value for this year and the graph doesn’t make sense, no matter what source these numbers are from.

    c)
    The number of electricity exports is just half the truth. Because you import electricity as well, the relevant numbers would therefore be the net-exports (exports minus imports) or net-imports. This is the actual amount of electricity which is exported resp. imported, and therefore would show, how much of the consumed energy is actually produced in the country. The graph above says nothing about this.

    So, don’t trust numbers which are just posted somewhere on the web.
    *You* should know that, Peter, because that is exactly what you otherwise criticize our beloved climate deniers for (and you do usually a remarkable good job pointing out their errors).

    If you look at the actual numbers (which everyone can get for himself from the German statistical office (Statistisches Bundesamt, http://www.destatis.de), you get a somewhat different image. The latest available values are from July 2011.

    Because the most recent data on electricity imports and exports is from July 2011, you can compare the current Jan-Jul period of 2011 with the same period of previous years. The values of the net-export of German electricity looks then like this:

    As you can see, Germany was still a net exporter of electricity over the Jan-Jul period, but net-exports where clearly lower than in previous years.
    But this is still not the entire truth, because the export surplus results completely from the pre-Fukushima months (Jan-Mar). If you look at the post-fukushima months Apr-Jul, Germany was a big net importer of electricity, especially in May, June and July, when most of our nuclear plants where shut down either because of the shut-down of all older German nuclear power plants (as result of the Fukushima desaster) and because five newer plants where coincidentally non-operational for refuelling and maintenance purposes (in May 2011 only 4 nuclear power plants out of 17 were online).

    But: It would be a wrong conclusion from that and misleading to say, that Germany will therefore become a net-importer. Because there is an annual cycle in our electricity imports/exports. In the summer months (June, July and August) we were a net-importer even before Fukushima, so it is a common thing, that we import more electricity than we export in these month. This gets clear, when you look at the monthly net-exports of Germany since 2006:

    The annual cycle is apparent. The reason for this is, that most of our renewable electricity is from wind power and wind power is by far strongest in the autumn/winter months. In those month we export so much, that the exports exceed the summer imports by far, thus making us a net-exporter over the whole year. Additionally in summer some coal or nuclear plants may not be able to run with full power, because of shortages in cooling water. Those and other effects lead to this annual cycle.

    So, to see how our net-exports of electricity performed actually in the post-fukushima months so far, you must compare them month-by-month with average values from the previous years. In a nut-shell, you have to eliminate the annual cycle e.g. by calculating an anomaly value for the different months. I have just done this and I choose the last 5 years (2006-2010) as base period for the anomaly. So, for example the average net-exports in June in the last five years were -0,3 TWh (so we are a net-importer in June before Fukushima). So, a June 2011 value lower than this would mean, that we did worse then in previous years, a higher value, that we did better.

    If you do this, you finally get this:

    Here you can clearly see, that – after Fukushima – the net-exports where much lower than the long-term average for these months. So, we became for a short period an unusual big net-importer. But you can also see, that this peaked in May 2011, where 13 of 17 nuclear power plants went offline nearly at once. In July however, when the five newer plants were back online and only the older plants stayed offline, the net-export anomaly was back to the usual range of fluctuations of the previous years.

    So this shows, that we were able to shut down 8 of our older nuclear power plants (roughly half of our nuclear production) without becoming a net-importer of electricity. And therefore I am absolutely convinced, that we can phase out our 9 remaining nuclear reactors over the next 10 years and that we can replace them in time fully with renewable energy production. We don’t need nuclear power for our electricity.

    • sinchiroca Says:

      I’d like to compliment you, reasonablemadness, on a very well thought-out analysis. It had never occurred to me that the numbers presented here might be off the mark, but fortunately the differences you correct do not alter the conclusions.

      One question, though: people in Germany pay over twice as much for electricity as people in the USA. Is there any objection to that?


  4. The basic conclusions are indeed the same, but it made me curious, that there would be no difference in the 2011 numbers, which seemed unrealistic to me. And I was interested how our net-exports really developed, so I looked into it.

    As to your question:
    We paid always much more for electricity and energy than the US, but to the largest extent just for taxes. Roughly 40% of the electricity price in Germany is from taxes, whereas in the US there are virtually no taxes on electricity consumption, so our pre-tax prices are not so different.

    Currently we have a price of about 0,25 € per kWh for residential consumers in Germany. If you subtract taxes you have a pre-tax price of about 0,15 €, which is at current exchange rates equal to a electricity price of $0,20/kWh. This is not so different from prices in many states in the U.S, for example in California or many states at the east-coast you have a price for residential consumers of $0,15/kWh.

    To the point of acceptance:
    Those higher prices in Germany are not a new thing and people are accustomed to it since decades. So, there is not much complaint about this. When there are complaints, they are not about the price level in general, but for example about unjustified price increases from the utility companies. Spot market prices on our EEX energy exchange has even fallen in recent years, yet some utilities increased their prices for end-consumers. There is simply to less competition (yet) on our electricity market, because only four companies control most of the market. But with the emerging renewables, many smaller utilities emerged on the market and as their market share grows and competition gets tougher, the oligopoly of the “big four” gets most likely broken in the coming years (a development which they try to object by all means, of course), resulting hopefully in lower prices because of a more competitive market.

    The part of the electricity price, which results from the feed-in tariffs of renewable energies is only about 2-3 Center/kWh, and is therefore an only minor factor, which is well accepted in the population. So, it is possible to expand renewables on a big scale without sky-rocketing electricity prices.

    And don’t forget:
    All this is only valid for residential consumers. If you look at commercial or industrial users, they pay much less, because there is less taxation and they are bigger consumers. So for example the energy intensive industries pay only about 0,06 €/kWh or about 8 US-Cent per kWh. So, for those industries, the difference to the prices which a comparable US company would pay, is not very big.
    It is often stated from climate-deniers and likewise people, that we would cripple our economy through this, but this is just plain bull****, because we have off-course special regulations for energy intensive industries so that they can stay competitive on the international markets. If anything, this whole thing is positive for our industry, because we will be in a leading position on the future markets for energy production, energy efficiency and green technologies.

    • greenman3610 Says:

      thanks for all the thought and consideration.
      what it looks like is good news to me.
      am making some inquiries – will be posting more on some of the
      nuts and bolts later this week.


  5. […] reported last week that Germany, leading the world in switching to a renewable economy, is getting swamped by a deluge of new energy, owing to the success of its Feed In Tariff […]


  6. […] few weeks ago I reported news of negative pricing for electricity in some parts of Germany, due to “a torrent” of renewable energy flooding the […]


  7. […] few weeks ago I reported news of negative pricing for electricity in some parts of Germany, due to “a torrent” of renewable energy flooding the […]


  8. […] posted on one of the critical “problems” of booming renewable energy deployment in Germany – negative pricing – utilities forced to give away power due to torrents of renewable […]


  9. […] the absence of American leadership, our competitors are ramping up their efforts to be first in line for the revolution that will make the internet boom look like a […]


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