Grid crisis

Getting paid to use German power

Strommasten im Sonnenuntergang
Off the grid: Germany's power network can't handle the surpluses produced on windy days. Source: dpa

‘Tis the season for giving, and Germany certainly excelled itself in the gifting stakes over the holiday period. The country, albeit begrudgingly, paid its neighbors to offload thousands of megawatt hours of electricity on New Year’s Day, the result of a surplus that grid operators had to dispense with.

Such energy giveaways — foreign clients received up to €76 per megawatt hour in addition to the free electricity — are increasingly common in Germany. The country’s famous (infamous?) transition to green power is in full swing, with the target to wean Europe’s largest economy off fossil fuel-based power by 2050. This has meant huge growth in renewable sources such as wind and solar power. The problem, however, is that the country’s fleet of conventional coal generators continues to relentlessly churn out cheap electricity. And to make matters worse, grid networks are finding it more and more difficult to distribute power around the country. As a result, the number of hours during which Germany paid clients to offload electricity rose to 146 hours in 2017 from just 15 in 2008.

Under the German Renewable Energy Law, designed to help develop green power, grid operators are obliged to accept and distribute power from renewable sources even when there’s no demand for it on the electricity exchange. In such situations, the price of power turns negative, meaning grid operators have to sell at a loss, passing on the costs to German customers. That means the issue has turned political, and has been pushed up the agenda of preliminary coalition talks between Angela Merkel’s conservatives and the Social Democrat Party, due to start this week.

“Stabilizing the networks has become more complex and is costing us all a lot of money.”

Jochen Homann, president, Federal Network Agency

The current government doesn’t regard the issue as a problem, however. “Negative prices, just like positive prices, provide an important signal to the market by creating incentives for greater flexibility both for production and demand,” the economics ministry said.

Experts disagree on whether the surplus electricity is coming from wind and solar plants or coal-fired power stations. Hubertus Bardt, director of the Cologne Institute for Economic Research, blames renewables and said operators must be forced to produce power more flexibly. “At the moment there’s not enough incentive for the operators of wind turbines and solar plants to adjust their power output in line with demand,” he told Handelsblatt. He’d like to see reform of the German Renewable Energy Law.

But Felix Matthes, an energy analyst at the Institute for Applied Ecology, said fossil-fuel power plants are to blame. “Germany’s power plant fleet doesn’t fit the energy revolution,” he said. “It’s too sluggish. It makes quick reaction to spikes in power demand impossible even though that’s what’s urgently needed these days.” He warned that the fleet was changing far too slowly.

Both experts have a point. But regardless of what’s causing the power surpluses, the fact is that as Germany switches to renewables, it’s failing to marry demand and supply. While negative power prices are one illustration of this, the persistence of grid problems is another. On New Year’s Day, grid operator Tennet, one of four in Germany, said it had to spend close to €1 billion ($1.2 billion) in 2017 on emergency measures to stabilize the grid, a considerable increase from €660 million in 2016. The interventions are necessary to offset a shortage of power lines transporting wind power from the blustery north to the heavily industrialized south.

In autumn and winter, when heavy winds lead to surges in wind power, conventional plants or wind turbines need to be shut down at short notice to avoid overloading the grid. But to prevent the lights going out in the south when this happens, conventional plants there need to be fired up, or emergency power has to be imported from neighboring Austria. The resulting costs of this balancing act are passed on to electricity customers and experts say they could reach up to €4 billion per year by 2020.

03 p05 Electricity to give away-01

If Germany had enough modern power lines linking the north with the south, the grid fluctuations would be easier to manage. But it doesn’t. “The grid remains under extreme strain because of the strong expansion of renewables,” said Lex Hartmann, a member of Tennet’s management board. Germany urgently needs to make progress with its grid expansion plans, he warned. “Until that happens grid bottlenecks, high costs for consumers and an increasingly unstable supply will be the hard reality.”

Jochen Homann, the president of the Federal Network Agency, the power regulator, said consumers face billions of euros in additional costs. “Stabilizing the networks has become more complex and is costing us all a lot of money,” he said. “These costs will only fall when the big power lines come.”

Germany’s chemical industry, among the biggest consumers of power, warned that grid stabilization measures were becoming one of the biggest factors driving up energy costs. “In our view it’s irresponsible to keep on expanding renewable energy where grid capacities are already exhausted,” said Jörg Rothermel, of the VCI chemical industry association.

Fortunately, the energy transition is one area where both Ms. Merkel’s conservatives and the SPD agree there’s an urgent need for change. “Supply and demand are diverging ever further,” said Thomas Bareiss, energy policy coordinator for the conservatives. “If that goes on it will endanger the stability of the power supply and the competitiveness of energy prices.” And Bernd Westphal, economic policy spokesman for the Social Democrats in parliament, said: “We can’t afford this madness in the long run.”

The question is, will they do anything about it?

Klaus Stratmann covers energy policy and politics for Handelsblatt in Berlin. To contact the author: stratmann@handelsblatt.com

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