Germany’s March to Renewable Energy Will Reach Far Beyond Its Borders
The decision by Germany in March 2011 to shut down 8 nuclear generators in the days following the Fukushima disaster caught European power markets off guard. It resulted in an immediate 10-15% rise in German wholesale power prices in the weeks following. While wholesale power prices slowly returned to normal over the course of the following year as renewables exploded onto the scene (with some 60% of that lost generation replaced by wind and solar), demand fell by 5%, and exports of German power fell from 70Twh to just 7Twh.
Subsequently, the decision was made to keep those 8 facilities shuttered permanently and to close all other nuclear power generation in Germany by 2022. The energy transition that is taking place in Germany has required a very rapid increase in renewable power, but it has also driven the demise of coal. Coal is now going to be phased out as well over the next 19 years, with Germany scheduled to lose 12.5 gigawatts (GW) of coal capacity by the year 2022 and its final 10 GW of nuclear power. This will leave the country with less than 80 GW of conventional capacity, according to recommendations from a government-commissioned panel in January. With peak energy demand at around 82GW, the German Government argues that there will still be nearly enough reliable capacity to meet the country’s peak demand. But will there?
Ongoing Power Supply Issues
While the regulators in Berlin point to European capacity for imports to make up any shortages that might occur, Germany’s transmission system operators are estimating a potential shortfall of 5.5 gigawatts between peak power demand and reliable capacity in 2021, even before factoring in the coal plant closures. The government disputes this claim and has said the utilities are acting in their own self-interest and are overstating the potential issue.
Nonetheless, industrial consumers continue to be concerned about the potential for rolling blackouts and power shortages as Europe as a whole continues its move to renewables and away from coal. Further complicating the continent’s energy supply, an additional 100 GW — about the same amount as Germany’s thermal power capacity from other European countries — is also set to be shut down. While the rapid proliferation of renewable power should more than compensate for these losses over the next 10 to 15 years, it’s what happens between now and then that causes concern.
Ripples Through the European Power Market
Currently, Germany exports power to Austria, Switzerland, and Poland, along with the Netherlands, which subsequently sends some of that power onward to the UK and Belgium. Should Germany not be able to continue these power exports, there could be a knock-on effect of shortages and increased price volatility in the wider European power markets; and this period of volatility could last several years until enough renewable energy sources come online to replace existing thermal capacity.
Further, once the vision of a fully renewables-based power grid is realized in Germany and the country has enough capacity to service peak needs, excess capacity on non-peak days will likely drive increased volatility in the neighboring energy grids in Poland, the Czech Republic, and Austria as they deal with Germany’s unpredictable wind and solar energy oversupply.
Unfortunately, without a unified vision and plan for European-wide adoption of massive supplies of renewables and energy storage, Germany’s energy grid decentralization and decarbonization plan will create significant new risks within and beyond its borders; and particularly for energy consumers and traders — requiring those companies to increase their market vigilance via investments in tools for improved operational visibility and portfolio optimization.
Turning to Next-Generation ETRM Software and Advanced Analytics
More than ever, accurate and real-time solutions will be required to immediately identify market imbalances in order to help ameliorate price volatilities and ensure potential outages can be addressed without huge financial losses. Additionally, these solutions will need to deal with cross-border trading and capacities, accurate and timely scheduling, and near real-time shifts in capacity as wind and sunlight conditions shift and change over Germany. While the ongoing transition does present a considerable set of risks that must be managed, those firms in and around the German power markets that invest in the right tools to manage those risks will be best positioned to ultimately profit.
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