Troubled German utility group Energie Baden-Württemberg AG (EnBW) has announced that it intends to shut down a total of four fossil-fuelled power plants as a result of the increasing volumes of renewable energy capacity in the country’s energy market.
With renewable energy given priority in the despatch merit order, this, the company argues, means that fossil-fired facilities are frequently being operated solely as ‘marginal capacity’ — during periods of peak power demand or when renewable energy outputs are low. This results in a drastic fall in revenue, it adds.
Highlighting the challenges facing gas-fired power stations, EnBW also says that given current electricity market prices, older coal- and oil-fired power stations can no longer cover their full operational costs. Consequently, it has decided to close thermal units with a total capacity of 668 MW at sites in Marbach and Walheim.
While this is clear evidence that the penetration of renewable energy is seeing a real shift in the profile of Germany’s generation mix — naturally to be applauded in the round — it of course also illustrates one of the biggest challenges facing the utility player in today’s European electricity market. It’s widely accepted that the economic stranding of half of Europe’s generation fleet has in no small way contributed to the plunging market capitalisation seen in the sector over recent years.
It therefore makes sense that, in the absence of a market mechanism which can support the commercial case for thermal capacity and other flexibility measures which are used only relatively rarely, significant volumes of older, less efficient thermal capacity will inevitably be decommissioned.
At face value this is a good thing.
But ironically these older plants will probably be joined by more expensive, though far more efficient, modern gas-fired installations, which are struggling to compete in the face of high wholesale natural gas prices delivered into Western Europe. Perversely, current market conditions are apparently seeing older lignite-fired stations running at higher capacities, while far more CO2-friendly gas plants are languishing.
Furthermore, without intervention it seems likely that this process of decommissioning more expensive installations will likely continue. Potentially, stability margins may become so thin that they are unable to cope with a significant variation in renewable energy capacity output — at which point the lights go out. This would be a bad thing.
One nation attempting to address this issue is the UK, which along with revealing its renewable energy strike prices also recently unveiled plans for a capacity market. Due to come into operation in 2014, following the enactment of a new raft of energy policy later this year, the Department of Energy and Climate Change (DECC) says the measures to bring on gas and other flexible electricity supply are designed to reduce risks to security of supply from winter 2018.
According to the department, existing generators and investors in new plants or other services, such as demand-side response, will bid to provide the total forecast electricity capacity and, if successful, would receive a steady payment in the year they agree to make that capacity available.
Under the terms of the proposals, they will be obliged to deliver electricity in periods of system stress or face financial penalties. Meanwhile the costs of the capacity agreements will be met by suppliers, and ultimately consumers.
The logic behind this capacity payment scheme could be questioned on a number of fronts — not least that, so far, few firm details have emerged, or that consumers are effectively paying fossil plants just to hang around doing not much most of the time. Nonetheless, the requirement for a stability mechanism is evident.
As the cumulative capacity of variable output renewable energy generation continues to grow, it is essential that this transition is managed effectively to ensure overall system integrity. And by also delivering a market mechanism, a capacity payment at least opens the door on accelerated development of alternatives to Option A: idling gas turbines providing spinning reserve.
It’s to be hoped that any such measures deployed on a wider scale wouldn’t preserve the belching oil-fired horrors lurking in the antique recesses of Europe past their due date. But perhaps more importantly, in addressing the stability issue, in theory at least, such a market also gives an investment boost to a range of emerging ‘clean’ technologies. Primed as major contenders are storage, load shedding, smart grids, multi-national trade and transmission and a host of other effective grid/generation capacity/load management tools.
These are the tools which are vitally needed to fully and reliably integrate vast volumes of renewable generation into national infrastructures. And, ultimately, these are the tools needed to build a 100 percent renewable energy future.
Lead image: Coal-fired power installation via Shutterstock