Renewables Make German Power Market Design Defunct, Utility Says

Rachel Morison, Bloomberg
June 26, 2012 | 17 Comments

LONDON -- Electricity generation from renewable energy in Germany is reducing power prices and has left the country with a market whose design no longer works, according to Stadtwerke Leipzig GmbH.

Renewable generation, such as wind and solar, receives support from the German government in the form of a feed-in tariff, or FIT. Because there are no costs associated with the wind and sunshine, renewables have a generating margin of zero, as well as legally mandated priority access to the grid. As a result, fossil fuel-fired plants are generating for fewer hours and selling their power at cheaper prices, making them less profitable.

“As long as renewables have zero margin costs, the market design we have doesn’t work,” Jens Teresniak, team manager for business development and market analysis at Stadtwerke Leipzig, said in an interview in Leipzig on June 21. “Capacity markets could be a solution.”

So-called capacity markets allow utilities to fix prices for guaranteed backup power supply in advance, boosting margins for gas and coal electricity plants as renewables output rises. German policy makers are considering how to ensure there are enough round-the-clock plants to keep the lights on when nuclear reactors are phased out and renewables output falls short.

Merit Order

Increasing supply of renewable energy is one of the main reasons electricity prices in Germany have declined, Teresniak said. Average day-ahead electricity prices in Germany fell 18 percent to 43.49 euros ($54.36) a megawatt-hour in the first five months of this year compared to last year, according to data from European Energy Exchange AG compiled by Bloomberg. Germany saw peak solar production in May and this summer will probably see some negative prices during weekends when there is low demand, he added.

“Renewables have shifted the merit order and now it’s like we have two different markets, one for renewables with 20 years’ guaranteed FIT, and one competitive for conventional power plants,” said Thorsten Korner, head of energy trading at Stadtwerke Leipzig. “We have to think about integrating renewables and how we will organize 80 percent renewables on the grid by 2050.”

Swiss bank UBS AG said that the average load factor of hard coal and gas plants will decline by 5 percentage points within the next three years to 33 percent in 2015, including 13.8 gigawatts of expected plant closures.

“Renewables keep growing rapidly in Germany while operating hours and spreads for coal and gas stations decline further,” Patrick Hummel, a senior analyst at UBS in Zurich, said in a research note in April.

Utilities including EON AG and RWE AG have held back from building new gas-fired plants, citing concern that the investments won’t be profitable. RWE said on May 10 that capacity markets aren’t needed in Germany in the near-term and more investment in power grids would better ensure security of supply.

Stadtwerke Leipzig buys and sells German power, gas and European Union emissions permits and traded 55 terawatt-hours of German power in 2011.

Image: Out of order via Shutterstock

17 Comments

Bob Wallace
2012-07-01 00:42:28.0

-- There's one more very interesting storage system about to be tried at full scale size. It consists of storing heat in gravel. Argon gas is moved from hot to cold insulated masses of gravel using a specially designed heat pump. If this works it would be another very cheap way to store. http://gigaom.com/cleantech/the-new-hotness-in-energy-storage-gravel

Bob Wallace
2012-07-01 00:41:32.0

There are multiple grid storage batteries under development. I certainly can't say that any of them will prove out, but here are some promising ones. :-: EOS - zinc-air battery. Designed to last 10,000 cycles, projected cost $160/kWh. Apparently they have tested at >2,000 cycles with no degradation. If they can hit $160/kwh and 10,000 cycles then that's storage at $0.016/kWh. Dirt cheap. :-: Aquion - already mentioned. Third party testing >5,000 cycles rapid charges with no degrading. Target 20,000 cycles. Third party testing >90% round trip efficiency. Target >95% efficiency. Tested for two calendar years so far with no loss of performance. Target 20 years. Target price less than $200/kW. $200/kWh and 5,000 cycles = $0.04/kWh, not bad. $200/kW and 20,000 cycles = $0.01/kWh. Dirt cheap. :-: And there's MIT's liquid metal battery which is prototyped and seems to be scaling up. It also promises to be dirt cheap storage. You might want to watch this TED Talk... http://www.ted.com/talks/view/lang///id/1401 This project is getting money from some big players. :-: This is three different technologies all pointing toward cheap storage. All use cheap and plentiful materials. All we need is for one of them to pan out. We don't yet need storage in order to utilize wind and solar on the grid. We're only at 4% for wind and solar won't be at 1% for a few more years. The existing grids could absorb 25% (eastern grid) to 35% (western grid) wind/solar without storage. :-: I'm seeing so little information about new pump-up (and CAES) under consideration that it seems to me that grids are waiting on batteries.

Peter Bradshaw
2012-07-01 00:11:49.0

If we can get enough non-fossil-fuel power quickly enough around the world, we can avoid losing the Sierra snow pack, and many more environmental changes also. If batteries can provide >90% efficiency and are not too expensive, that's great. At least sodium ions are common in the world (the oceans are full of them!), though I would like to know what else is needed. We should surely move on all these fronts as fast as we can, and concentrate on the ones that work the best later. And moving the Hetch Hetchy dam & reservoir down the river is exactly what I meant! But converting hydro to pumped storage should be quick and easy, and the transmission lines are already there, so a start could be done quickly.

Bob Wallace
2012-06-30 11:28:00.0

I agree, fewer dams would be better. But there may be some practical issues that much be faced. -- If we loose the winter snow pack in the Sierras then we may need to capture more of that water as it runs off as rain during the winter months. -- Restoring Hetch Hetchy should be a priority. Why not store that same water lower in less spectacular country? Yosemite is so overcrowded. With population growth we need more places for people to enjoy. -- Several months back a couple of CA utilities were talking about creating new pump-up storage in order to comply with regulations that utilities pull a portion of their peak hour power from storage. -- That talk seems to have gone quite. At the same time I'm seeing a lot of utility scale battery development. -- Aquion is going into production with their sodium-ion battery later this year. Their battery is >90% efficient and based on independent lab testing seems to be affordable. I wouldn't be surprised if utilities, who must have better information that the rest of us, aren't seeing batteries as the solution. -- Grid storage batteries are built into "shipping containers". They can be trucked to the site, stacked high, and "plugged in". They can use low value real estate (brownfields, old industrial sies, etc.). They can be distributed around "neighborhoods", offering fewer transmission issues and local grid backup. They are not likely to meet any environmental opposition. -- If the cost of batteries gets even close to that of pump-up then I think batteries will win. (-- = Paragraph breaks)

Peter Bradshaw
2012-06-30 08:25:15.0

I would prefer not to add additional dams to those we already have, in fact I would like to remove a few, especially ones like Hetch Hetchy in Yosemite, which however could readily be replaced by one further down the Tuolumne River valley, judging by my topo maps. But converting existing dams to have storage capability would have a minimal environmental impact, and in general would tend to restore the water flow below the facility to closer to the original pre-construction pattern. With enough solar/wind/etc. generation, only a few days storage use would be needed, so the downstream flow could be close to the upstream input, with a few days delay. I have not seen any data on battery storage systems of utility-scale capacity, but I suspect they would be big and expensive, and high energy density batteries, I think, do not have the >85% efficiency (recovered power/input power) of a pumped-storage system. Their one advantage would be short transmission lines.

Bob Wallace
2012-06-29 15:18:51.0

In 2007 the feds released a study of existing dams on federal lands. In that study they identified several dams which have adequate inflow and head and are adequately close to transmission lines to be usable as power generators. http://www.usbr.gov/power/data/1834/Sec1834_EPA.pdf They also list dams which have adequate head and distance to transmission but lack year-round inflow. Those could be storage dams. Based on that study I think we much have at least 8,000 pump-up hydro candidates (10% of 80,000) and a number of power production candidates. Right now there are some existing dams being converted to producers.

Tim Dolan
2012-06-29 15:01:32.0

If we are going to use hydro-electric for reserve power. I suspect we will need more plants then we have now. I like the idea, but I don't think we have enough for true supplemental power. Also a high-percentage of those non-power plant dams are water control and don't have enough height variation to make good turbine plants. The other problem is some of them (especially in the NW US) are primary power supply at this time. we would need to change that over time from primary to reserve power without increasing costs for power in those areas. If Hydro could do it by itself I suspect it would have along time ago. But it could be a large part of the reserve energy storage solution set. And I have mentioned this before, but feel the need to mention it again. Energy (not money) is the true determination of a nation's wealth as energy is what is needed to produce something.

Bob Wallace
2012-06-29 13:52:32.0

"Hydroelectric plants, by adding a storage basin below the generators, can be converted to pumped storage plants." Exactly. We have some 2,500 existing electricity producing dams. Add "few days" reservoirs below the dams in the already existing safety zones, uprate the turbines to more powerful turbine/pump combos, and use those dams as dispatchable supply to balance wind and solar. We've got 80,000 existing dams in the US. There must be many which could be used for pump-up storage. The only reason to not convert a lot of existing dams to pump-up storage would that batteries will be cheaper.

Peter Bradshaw
2012-06-29 13:43:27.0

"As long as no scalable, widely deployable, economic storage solution is found"... Hydroelectric plants, by adding a storage basin below the generators, can be converted to pumped storage plants. Most generating plants have been sized to deal with storage sufficient for several weeks (months in many places like California), so since the needed storage for solar and wind intermittency is just a few days, they can be utilized for a much higher flow, though this would require more turbine/pumps and transmission capacity. Many nuclear power plants have been combined with pumped storage facilities to handle using a steady generation with an intermittent demand, so can easily be used the other way round. And the time to turn them on/off in either direction is very short, even compared with a gas-driven plant. For Germany, during WWII, one key Allied bombing target was hydroelectric plants, so it must have some, which should be readily convertible. Switzerland, nearby, has a lot of hydroelectric capacity also. And as a bonus, most areas have more rain in winter, so the "hydro" part helps fill in the lower solar output in that season.

Bert Wank
2012-06-29 13:23:03.0

Let's not limit the discussion to FITs-disadvantaged fossil-fueled plants, whose replacement is a national objective. Leipzig municipality should consider LCOE, levelized cost of energy, similar to the total cost of ownership for its aggregate energy production: Solar: $3.3/W to build, $49/MW/yr fixed O&M and FREE sun, at least 5 hours a day Wind: $2.2/W to build, $12/MW/yr fixed O&M and FREE wind, at least 8 hours a day. NatGas $1.1/W to build, $15/MW/yr fixed O&M plus variable fuel costs 365/24/7. It's a complex optimization challenge we are poised to solve, taking into account production cost, availability and maintainability. Good point about energy assurance, longwatcher. As long as no scalable, widely deployable, economic storage solution is found, intermittent renewables integration is a big concern for the main grid operators. We are going to help bridge the gap with distributed real-time grid intelligence, and improve the profitability of bio-gas plants for distributed base load plants.

Tim Dolan
2012-06-28 17:25:54.0

Since the long-term object is to eventually convert power generation corporations into only power assurance companies. Germany is showing the way so far. I recognize I may need to eventual pay more for my "Line Fee" then the pittance I pay now, but I won't mind paying for energy assurance (meaning reliable 24/7 power). If my local company Dominion was a power assurance company instead of a power generation company, they would spend more on fixing the lines so they don't go down in a storm. The catch of course is they would have to un-bury the costs of line maintenance in the electricity generation fees they charge. In the near-term, it would be bad to do that at this time, but if solar/wind capacity in the PGM region was matching Germany's, it would become a necessity. And with energy storage eventually hopefully coming down to reasonable they would not have to maintain very many generation facilities. Just make it cheaper for me to use their storage then buy it myself (essentially what I am doing now through net metering) and they will continue to have a viable business. Just my opinion,

Peter Bradshaw
2012-06-28 15:34:38.0

Fantastic news about Germany! Let's hope the same pattern takes place everywhere else on the planet! And let's work toward low-cost storage, so we don't even need those coal and gas plants at night!

Douglas Prince
2012-06-28 13:29:27.0

Cory - I understand your sentiment and can only assume you live in an area where you may have a choice of utility providers. That competition is what keeps your prices down. Unfortunately, the majority of public utilities in this country are monopolies, ultimately serving their shareholders and NOT their customers. I live in Nevada, and the bastards of NV Energy out here continually find some reason to raise rates every 6 months. They even had the gall to ask for a rate increase after the mass exodus from Nevada during the Depression and the apparent effectiveness of a public relations conservation campaign, ONLY because their shareholders weren't making enough money. The PUC out here is in blatant cahoots with them and frankly I'm surprised bullets haven't been put in certain people's heads. (I can't, I'm more of a knife-person, myself.) So, enjoy it while you can, but realize most people in this country have to work AGAINST their utility, because the bastards are certainly working against them.

Cory Halbardier
2012-06-28 13:11:35.0

I'm a solar guy too. And something I've come to realize is the utility companies, and their methods, have allowed me to know that when I turn my coffee pot on in the morning, I'll get coffee. And when I warm up my oatmeal in the microwave, I'll get warm oatmeal. Utility companies, and their "dirty" ways have allowed us to power our homes and businesses at inexpensive rates for years. They have done it to keep their prices down, and in so doing, keeping the customer prices down, so I can buy other necessities for my family. I'm pro-solar and lets remember that we need to work "with" the utility companies and not against them if we're going to continue to take solar mainstream.

Dr. Jeffery Johnson
2012-06-28 12:22:22.0

Ahhhh, poor babies ... The utility companies have to change their dirty and expensive paradigm ... cry me a river

Bob Wallace
2012-06-27 13:17:01.0

Just wait until cheap storage raises its "ugly" head. Leave that carbon safely sequestered underground where it won't harm us. OK?

Douglas Prince
2012-06-27 12:28:46.0

"As a result, fossil fuel-fired plants are generating for fewer hours and selling their power at cheaper prices, making them less profitable." That's the idea, shithead! This is the best fucking news of the day. Deutschland Uber Alles!