Category — Germany
[Update: Germany Stops Fighting Arithmetic and Ramps Up Construction of Economically Sensible Power Generation]
Two years ago we looked at the claim that wind generation can save money for power pool customers. We found that the supposed savings could be realized only if the elephant in the room – the above-market feed-in tariffs – were ignored.
In other words, the total amount spent on electricity purchases from a power pool was augmented by the additional amounts consumers pay to fund the feed-in-tariff (FIT). As long as wind generators can bid a low price but receive the higher FIT, then they have an incentive to underbid, thereby reducing pool prices, but not overall costs.
In addition, we looked at what an economically least cost system might look like in Germany over the next ten years. We found that it features more coal and lignite, keeps most nuclear plants operating, and builds new gas-fired plants.
The annualized differential in total costs for Germany between the no-nukes, no coal and lots of wind forecast pushed by Germany’s Greens and an economically least cost expansion plan amounts to more than $120 billion over ten years and perhaps as much as $200 billion. A lot of money, in other words.
Update: Since these two posts were published in 2010 Master Resource contributors have made a strong case that Germany’s overinvestment in wind and solar has harmed the nation financially without any compensating improvement in electricity supply. Compounding the overreliance on wind is the planned phase-out of the country’s nuclear power plants – baseload power that will need to be replaced with something other than wind.
It now appears that Germany has made peace with mathematics and economics, and not just in the energy sphere. The country has embarked on a major effort to build reliable power plants for the future. [Read more →]
February 21, 2013 20 Comments
Like in the classic Tale of Two Cities, the world of solar energy today seems filled with the excitement of seeing its revolutionary potential realized by rapid growth, while fearful that falling prices, changing feed in tariff subsidies and looming government deficits will overwhelm it first.
There is no denying solar energy’s promise and potential. Its rapid growth is a worldwide phenomenon. Lately I have been catching up on the news reports and changing solar situation in Europe. A recent report prepared by Ernst & Young for UK’s Solar Trade Association confirmed what we already knew that solar PV prices are falling so fast that by 2013 they will be half of what they cost in 2009. But keep in mind for for on-grid applications, conventional power sources fueled by shale gas in particular are improving too.
New EU Realities
The EU’s big aspirations for a clean energy, low emissions future had run up against government budget deficits. Consequently, the mother’s milk of feed-in-tariffs for qualifying renewables is vulnerable to rapid modification.
Across the EU countries, feed-in-tariffs are being reduced or at least re-evaluated for affordability about every six months. France is the latest country to announce changes in its feed-in-tariff regime. The UK is scheduled to follow suit slashing its feed in tariff rates in August 2011. [Read more →]
August 17, 2011 3 Comments
Thousands of bureaucrats are at another cushy climate confab–this time in Cancun–while Senators Bingaman, Brownback and Reid are contemplating how to ram a federal renewable energy quota through a lame-duck session. Their prospects are not good, which should give them more time to consider the experiences of Europe and windpower. The results of this experiment in energy coercion are humbling.
Germany, specifically, is in the throes of a windpower boondoggle that should be heard the world over. The general lesson is that energy forcing brings with it technological risk that must be factored into the public policy equation.
A North Sea Boondoggle
Barely two months after the inauguration ceremony for Germany’s first pilot offshore wind farm, “Alpha Ventus” in the North Sea, all six of the newly installed wind turbines were completely idle, due to gearbox damage. Two turbines must be replaced entirely; the other four repaired.
Friends of the project, especially Germany’s environment minister, Norbert Roettgen, talked of “teething problems.” The problem is far more serious than that, for wind turbines in the high seas are extremely expensive for power consumers, even when they run smoothly. When they don’t, the problem intensifies. Germany could face blackouts – a new dark age.
The Alpha Ventus failures created intense pressure for Areva Multibrid, a subsidiary of the semipublic French nuclear power company Areva. Every “standstill day,” with the expensive towering turbines standing idle and not generating a single kilowatt hour of electricity, causes lost revenue.
Environmental economist and meteorologist Thomas Heinzow of the University of Hamburg estimated the operator’s revenue shortfall at almost $6,500 (€5,000) per turbine per standstill day. Instilling additional consternation within Areva was the certainly not unreasonable fear that already skittish investors could get cold feet, and wander off in search of less risky ventures. [Read more →]
December 1, 2010 17 Comments
My post last week evaluated the claim that wind generation can save money for power pool customers. It was found that the supposed savings could be realized only if the elephant in the room – the above-market feed-in tariff – was ignored. In other words, consumer payments for electricity from a power pool was half of the story; the real price had to include the consumer-qua-taxpayer funding of the feed-in-tariff (FIT).
And with this two-part scheme, games are played. Wind generators can bid a low price into the pool only to receive a higher FIT, which gives them an incentive to underbid. This might reduce the pool price but not overall cost to Germans for electricity.
Investing in New Generation: What Makes Sense?
If a generation resource is a good investment for its developers then it must return a profit to them. In a normal electricity market this profit comes from supplying a segment of the demand (peak, intermediate/cycling, baseload) from a plant that is efficient technically and financially.
For existing plants and determinations of electricity costs in the here and now we can figure out the average cost of supplying electricity by calculating the weighted average cost of supply for each time period in the market every day. If the addition of one generation source raises this weighted average without improving service quality or reliability, then it is not economical and would generally not be chosen in a well-functioning market.
But what about the future? Electricity suppliers must invest large sums in new generation plants with the expectation that these plants will meet demand at the least cost. This cannot be known with certainty, and mistakes are made all the time, especially when government policy and rent-seeking drive investment choices.
Transmission network operators – those in charge of the “natural monopoly” part of the power business – try to reduce the risk attendant to future supply by figuring out the least costly way to supply power and energy to their customers in the future, including the wires to transmit the electricity. They have to take account of a long list of considerations: investment cost, fuel supply, emissions and licensing regulation, proximity to existing load centers and transmission nodes, transmission congestion – you get the idea.
The transmission system operator also has to pay attention to public policy – renewable energy mandates (“portfolio standards”), federal tax incentives (producer tax credits for wind and solar), feed-in tariffs, powerful politicians who do not want their vistas impaired – in a host of ways that directly impact their views of an optimal future generating system.
What Does the Wise Transmission Operator Do?
A wise investor in generation will first figure out what is economic to build? what are the physical constraints on the system? and finally, what limitations will public policy put on otherwise least cost generation choices?
A Case Study of “Germania”[i]
Let us imagine that we have a rather large and wealthy country to play with, one that currently has about 129 GW of installed generation capacity. Further, we can imagine that this wealthy country, responding to its powerful environmental movement, has decided to
(i) phase out nuclear power;
(ii) limit future coal power-plant operations;
(iii) build a lot (a lot!) of wind generation plants; and
(iv) bring in most of its gas supply from Russia at prices linked directly to refined oil products and crude (i.e., high and volatile). [Read more →]
September 7, 2010 4 Comments