Friday, October 18, 2013

How to lose half a trillion euros/ Electricity Costs raise alarms across Europe

"Renewable energy has grabbed a growing share of the market, pushed wholesale prices down and succeeded in its goal of driving down the price of new technologies. But the subsidy cost also has been large, the environmental gains non-existent so far and the damage done to today’s utilities much greater than expected."  -the Economist

Reports of discontent with European electricity policies from both the perspective of consumers saddled with ever-increasing bills for no more consumption, and utilities whose profitability has declined, along with their share value.
Higher Electricity Costs Raise Alarm Across Europe | IEEE Spectrum
Image from IEEE Spectrum page
British government predictions of sharply increased electricity prices in the next decades are getting renewed attention these days, as the country's opposition leader Ed MIlliband promised to freeze rates if elected prime minister. A March report from the Department of Energy and Climate Change found that with current policies subsidizing green power, electricity costs will rise 33 percent by 2020 and 41 percent by 2030.
In Germany, according to reports issued this month by IHS Inc. in Denver, Colo., green energy developers received $19 billion in subsidies last year, six times the comparable figure for the UK. Germany has pushed low-carbon and renewable energy technology harder than any other European country, with impressive results: Last year it produced 22 percent of its energy from "green" sources, five times as much as twenty years before. But the costs of those green advances have proven to be unsustainably high, from a political point of view.
In Germany's feed-in tariff system, developers of green technologies are guaranteed specific rates of return well into the future, with the costs of those subsidies distributed among all ratepayers, nationwide. Those subsidies are putting a heavy burden on the country's less well-off ratepayers andthreatening economic growth, at least as industry sees it. Figuring out how to redistribute those burdens without sacrificing the green policies themselves is a major element in negotiations to form a new government in Germany, which are expected to be protracted.  (continue...)
I'm always amazed that the 22% figure is thrown out without explanation that solar is ~5% and wind ~8%; the rest comes from the seldom discussed biofuels and traditional hydro.

Germany is interesting this year in another way: wind and solar have produced less over the first 3 quarters of the year, yet the renewables surcharge is headed up almost 20% again.  It's unclear, to me, how much of the increase is offset by a decline in market prices, and how much is due to payments required to force plants to continue operating.

Increasingly European utilities seek to close infrequently utilized generators, and the governments manoeuvre to force them to stay open.  The capacity trap set by requiring variable renewable energy sources (vRES) to have first access to grids is pounding the finances of the Europe's major utilities

I wrote early this year; "The end of profitability for the only generation exposed to the market price in Ontario serves as a warning to tread very carefully in introducing capacity payments' - but just shirking the issue with patchwork decisions isn't, I hope, the best alternative.

European utilities: How to lose half a trillion euros | The Economist:
The trouble is that power plants using nuclear fuel or brown coal are designed to run full blast and cannot easily reduce production, whereas the extra energy from solar and wind power is free. So the burden of adjustment fell on gas-fired and hard-coal power plants, whose output plummeted to only about 10% of capacity.
These events were a microcosm of the changes affecting all places where renewable sources of energy are becoming more important—Europe as a whole and Germany in particular. To environmentalists these changes are a story of triumph. Renewable, low-carbon energy accounts for an ever-greater share of production. It is helping push wholesale electricity prices down, and could one day lead to big reductions in greenhouse-gas emissions. For established utilities, though, this is a disaster. Their gas plants are being shouldered aside by renewable-energy sources. They are losing money on electricity generation. They worry that the growth of solar and wind power is destabilising the grid, and may lead to blackouts or brownouts. And they point out that you cannot run a normal business, in which customers pay for services according to how much they consume, if prices go negative. In short, they argue, the growth of renewable energy is undermining established utilities and replacing them with something less reliable and much more expensive.
The "only generation exposed to the market price" in Ontario is publicly owned non-regulated hydroelectric; the Liberal government of Ontario has institutionalized the cheap sale of hydro to subsidize rich private contracts.  This is exemplified with the recent news that solar will produce 1/15th of hydro's production, but contribute 37.5% more to the global adjustment pool, which comprises the bulk of the commodity charge for electricity in the province.

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