This article follows on from our story yesterday on Alinta, and the complaint by CEO Jeff Dimery that wind energy is “undermining the running regime of exiting thermal generation assets”. There is no doubt that it is. But while some could argue whether this is a good thing (early retirement of ageing polluting assets in a clean energy transition) or a bad thing (stranded assets, loss of value), it seems that it is inevitable as the world transitions to an energy system based around renewables.
This series of graphs – taken from an expansive presentation of energy data collected by Germany’s Franhofer Institute for Sustainable Energy – gives some insight into why the owners of fossil fuel plants hate this scenario. The growing impact of wind farms and solar panels in Europe, and in Germany in particular, are having a massive impact on energy markets – and the impact is very much more an economic one than a technical one. The same is true in Australia, as we discussed yesterday.
The first two sets of graphs represent the electricity output in Germany in weeks 3 and 4 of 2013, from January 14 to January 27. This is the way the fossil fuel generators would like the market to be. Demand is constant, the nuclear and brown coal generators operate with minimal variability, and even black coal generators enjoy relatively stable demand (and revenue) for most of the working week.
Gas is switched on and off as demand fluctuates (mostly between day and night), and the contribution of hydro, wind and solar is minimal. This mixture of baseload, peak load and some variable renewables is the way that most energy markets have worked for the past few decades.
(see more of this story below)
Now let’s fast forward to just a few weeks ago. These next two graphs (below) tell us what happened in weeks 22 and 23, from May 27 to June 9. Germany’s 33GW of solar PV is now powering up, and larger fluctuations of wind power are also having an impact on the market.
The output from the nuclear and brown coal generators is dramatically lowered – their total weekly outputs in January were at least 50 per cent higher than in May, and their peak requirement was 25 per cent higher. The output of black coal generators has been slashed by nearly half in the latest period and has become highly variable (most have to shut down completely over the weekend and sometime overnight), and the demand for gas has fallen by more than half – even though it is used to fill gaps between wind and solar, it is rarely required to switch on for the daytime peaks.
These highlight some of the big problems with the growing penetration of renewables in Germany. Remember, at this level, the market is around 20 per cent, but the government wants this to rise to 40 per cent by 2030. Gas plants, however, are struggling to stay open. Coal generators in Germany – like Alinta and others in Australia – are screaming blue murder because they are being levered out of the market. Most of the new coal plants currently being built in Germany – even the brown coal ones – are designed to be flexible so they can fit in around renewables – which is now the dominant influence on prices in the market.
This was an issue which is being deliberated in German policy circles at the moment and was highlighted by the International Energy Agency in two recent reports – the old style energy markets that focused uniquely on a price for kWh produced are being made redundant, and will need to be replaced by soemthing more sophisticated, along the lines of a “capabilities” market promoted by the likes of the Regulatory Project. Effectively, it is a way of finding a market design that reflects the new market dynamics, the plunging cost of solar PV and wind, and the need to provide an economic incentive (subsidy) to retain flexible fossil fuel capacity.
One of the irony about the production statistics is that when brown coal and nuclear were switched on near full capacity in January – most of their output was exported to other European countries. That’s because the fuel was surplus to requirements. In June, most of the solar was exported, while nuclear from France (the country with most excess capacity) was imported to fill in some of the gaps. That speaks to the importance of a big, interconnected market – something that will benefit South Australia when the interconnector is upgraded.
To finish off, here are another set of graphs. The first gives a different look at the reduction in demand and output from the conventional power stations. The next shows the variability required of the individual conventional sources. Notice the changes in hard coal production -the low carbon price means neither it nor gas can compete with brown coal. Unfortunately, the last graph does not include May or June.