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German Utilities Pay Power Users as Warm, Windy Christmas Looms

Day-ahead power in Germany turned negative for the first time in at least five years as utilities prefer to pay users rather than halt plants amid low demand, mild temperatures and higher-than-average wind generation.

Baseload next-day power, for supplies delivered around the clock, fell as low as minus 15 euros (minus $19.84) a megawatt- hour, compared with 22 euros a megawatt-hour on Dec. 21 for power delivered today, according to broker data compiled by Bloomberg. That's the first time the day-ahead contract has been negative since Bloomberg started collecting the data in 2007.

(...) Utilities including EON SE and RWE AG (RWE) may prefer to pay users rather than halt fossil fuel-fed plants when turbines and solar cells push power supply above demand.

"Operators may just decide to accept that they are giving away power and money during the Christmas week for a few hours rather than putting up with even higher costs for switching their units off," Juergen Rogalla, head of power plant operations at Stadtwerke Bielefeld GmbH, a regional utility supplying 280,000 households with power and gas, said Dec. 21.

Wind output in Germany is predicted to rise to about 15 gigawatts tomorrow, Meteologica SA, a Madrid-based weather forecaster, said on its website. That compares with an average level of 5 gigawatts, according to data from Leipzig, Germany- based European Energy Exchange AG on Bloomberg.



Wind power
by Jerome a Paris (etg@eurotrib.com) on Tue Dec 25th, 2012 at 05:10:27 PM EST
by Jerome a Paris (etg@eurotrib.com) on Tue Dec 25th, 2012 at 05:12:03 PM EST
[ Parent ]
No no, renewables are prohibitively expensive. I read it somewhere.
by afew (afew(a in a circle)eurotrib_dot_com) on Wed Dec 26th, 2012 at 04:33:14 AM EST
[ Parent ]
Well, they are expensive to traditional producers, yes.

Wind power
by Jerome a Paris (etg@eurotrib.com) on Wed Dec 26th, 2012 at 10:34:29 AM EST
[ Parent ]
But how are utilities going to get paid?!

(If conservative economics is needed for the argument, conservative economics will be trotted out. Just wait and see.)

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Wed Dec 26th, 2012 at 07:18:55 AM EST
[ Parent ]
I look forward eagerly for economists to argue that it is important to halt wind development because it makes electricity too cheap. Perhaps this is a valid economic argument; but I can't see it entering the public debate as such, because of the laugh factor.

Instead, we can expect an increase of spurious attacks on the economics of wind (see above...)

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II

by eurogreen on Wed Dec 26th, 2012 at 07:34:27 AM EST
[ Parent ]
There is a real need:
  • to pay for capacity which needs to be available for when wind is not blowing, but which is going to produce much less electricity than before, and
  • to help the utilities adapt to what is a major shift in the system (and given that we still need them, and pushed them in the past 20 years to make 40-year investments on the basis of a different model, it is not unfair that society bear some of the cost of the transition)

Problem is that these issues are never discussed as such; renewables are presented as expensive and uncompetitive when what they are really is incompatible with the business model of the utilities; regulation is made needlessly complex to hide the fact that the goal is not only to support renewables but also to help utilities deal with the situation (ie transfer money to them discreetly).

And the ignorance of regulators is sometimes stunning.

  • At a recent French-German meeting on renewables, I asked a senior official at the French ministry of energy what he thought of that fact that large industrial users were not paying for the gross cost of the support regime for renewables (which means that (1) retail consumers see their prices increase more than needed while industrial users see their prices go down thanks to the merit order effect, and (2) this creates a competitive advantage for German-based firms vs French-based ones) and he had not the slightest idea what I was talking about.
  • At another recent conference, where both the senior economist of one of the large utilities, and a senior energy EU official, I asked if we shouldn't be more open about how renewables hurt the incumbents, so that regulation focuses on transparent correctives rather than tricks that are noxious (renewables are bad-mouthed, it's costly, and the underlying problems are not solved); again, no reaction beyond the usual "renewables cost money, we need more perfect markets, EU-wide market, blabla"

The more I see these "debates", the more I am impressed by the German regulatory framework, and the more I am nonplussed by the lack of action in France (which is still dominated by the "nothing but more nukes" mindset).

Wind power
by Jerome a Paris (etg@eurotrib.com) on Wed Dec 26th, 2012 at 10:48:27 AM EST
[ Parent ]
....a dis-intermediated market, and the direct monetisation of energy through the use of prepay instruments.

For renewable energy such as wind this monetisation will require a change in the market architecture, since this energy is sold by producers to utilities at a low wholesale market bid price. But intriguingly, such a transformation in market architecture is in the interests of the intermediaries themselves  - whether risk intermediaries (aka banks) or trading intermediaries (aka utilities) - since it enables them to minimise their capital requirement by outsourcing credit and market risk to end users, and that is increasingly what is going on.

The really interesting possibility is the monetisation of and investment in carbon fuel savings, because of course such savings - eg a Bristol Green Deal will be made at the retail price.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Wed Dec 26th, 2012 at 11:48:56 AM EST
[ Parent ]
Not everything in German energy policy is aboveboard, as merkel's transition continues to play favorites on a grand scale.

Berlin to Exempt 1,550 Firms From Electricity Surcharge


The opposition Green Party estimates that the companies will save up to €4 billion ($5.3 billion) as a result. The electricity bills for private energy customers and smaller businesses will increase by a commensurate amount.

"It is breathtaking," says Felix Mathes, an analyst at Öko-Institut, a consultancy on environmental sustainability. In many cases the criterion for exempting companies from the charge -- the need to preserve international competitiveness -- doesn't apply, he says. "At least half the companies don't belong on this list," he says.

The list includes coal mines of the companies RAG and Vattenfall, slaughterhouses of poultry businesses such as Wiesenhof, and a number of animal feed producers. Among others on the list are regional makers of sausage and cheese, chocolate factories, solar and bioenergy companies, the Munich municipal utility, oil company Exxon and even the publisher of regional newspaper Weser-Kurier, Bremer Tageszeitungen AG. (My local paper, which is not competitive with anything. CH.)

An extra added benefit is that the companies which profit from the exemption (Exxon? !!!), can also use the proportionately higher consumer charges to rile up the people against "the renewable subsidy."

"Life shrinks or expands in proportion to one's courage." - Ana´s Nin

by Crazy Horse on Wed Dec 26th, 2012 at 12:39:32 PM EST
[ Parent ]
And isn't the European Commission interested in this disguised subsidy in favour of the international competitiveness of national/regional champions?
by afew (afew(a in a circle)eurotrib_dot_com) on Thu Dec 27th, 2012 at 02:52:06 AM EST
[ Parent ]
Can you give us the correct link to that article?
by afew (afew(a in a circle)eurotrib_dot_com) on Thu Dec 27th, 2012 at 02:52:40 AM EST
[ Parent ]
Spiegel: Berlin to Exempt 1,550 Firms From Electricity Surcharge.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Thu Dec 27th, 2012 at 03:57:44 AM EST
[ Parent ]
Gracias Migs

"Life shrinks or expands in proportion to one's courage." - Ana´s Nin
by Crazy Horse on Thu Dec 27th, 2012 at 04:23:07 AM EST
[ Parent ]
So does this mean that it makes sense to open all your windows and turn on your heaters (air-conditioners, if you're in Munich) to the maximum to get paid as much as possible?
by gk (gk (gk quattro due due sette @gmail.com)) on Wed Dec 26th, 2012 at 07:35:07 AM EST
[ Parent ]
If you have access to the wholesale market, yes...
In practice, some industrial companies will be able to stop their normal production and make money instead by not consuming the power they would normally use (or by using their backup- typically diesel - generators instead...

Wind power
by Jerome a Paris (etg@eurotrib.com) on Wed Dec 26th, 2012 at 10:33:58 AM EST
[ Parent ]
In practice, some industrial companies will be able to stop their normal production and make money instead by not consuming the power they would normally use (or by using their backup- typically diesel - generators instead...

But that wouldn't help, would it? Not with negative electricity prices. What you would want to do is store the excess electricity somewhere... like in hydrogen

by mustakissa on Tue Jan 1st, 2013 at 10:09:25 AM EST
[ Parent ]
It does help - the negative price (received by the industrialist for not consuming (because it usually has longstanding orders for power with priority access, which it accepts to cancel) helps to pay for the higher cost of using diesel generators instead of normal power supplies.

Or the gain on cancelling existing power contracts is higher than the margin made with that power on their own industrial process (ie the industrial company makes more money selling its rights to power than actually using the power).


Wind power

by Jerome a Paris (etg@eurotrib.com) on Wed Jan 2nd, 2013 at 12:04:02 PM EST
[ Parent ]
the negative price (received by the industrialist for not consuming

Eh, that's a double negative. In what direction does the money move, and in consideration for what?

Confused

by mustakissa on Wed Jan 2nd, 2013 at 03:07:43 PM EST
[ Parent ]
If an industrialist had bid (the day before) for demand of, say, 1MW over a peak time hour, and agreed (at the last minute) to not consume that 1MW, the industrialist will obviously not pay for power it is not buying, but will in addition receive some money for having cancelled its demand.

Obviously, that means the industrialist does not have power in that period, which means that it can either (i) not produce during that period or (ii) use another source of power. The economics of either solution depend on the ability to stop production or not, the marginal cost of the production process (including and excluding electricity) and the availability - and cost - of backup power capacity on site.

The economics further depend on whether the industrialist had hedged or not its power purchases (if it has hedged its purchases, it will get the high spot market price from the counterparty and pay back the agreed fixed price, which can represent significant sums of money and make the interruption of production, or the use of expensive backup, still profitable given the negative payments and the rest)


Wind power

by Jerome a Paris (etg@eurotrib.com) on Wed Jan 2nd, 2013 at 04:51:40 PM EST
[ Parent ]

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