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Germany: Wind and the Power Pool Savings Myth

By Donald Hertzmark -- September 3, 2010

Germany is a country that has been a leader in many aspects of “clean” energy development during the past decade.  They were among the leaders in establishing pricing mechanisms for wind and solar, phasing out nuclear power and granting incentives to biomass energy producers.  Germany has the highest proportion of wind in its generation mix, now around 20%, but is no longer the absolute installed capacity leader behind the U.S. and China.

With a vast investment in above-market generation resources some in Germany are channeling “Mad Man Muntz” of early US television history – “lose money on every sale but make it up with the volume.”  It did not work for Muntz TV and it will not work for Germany.

A New Fairy Tale, Starring Wind Energy Generators

Lately, a story has gone round with the following general points:

  • Assume that the marginal cost of wind is the lowest of all existing generation plant types;
  • Assume that power pools in NW Europe accept generator bids based strictly on the marginal energy cost (MEC)
  • Assume that wind can be the marginal generation resource during some peak periods
  • Assume further that this MEC sets the price on the pool for those time segments (30 minutes) where wind is the marginal producer, and therefore
  • Wind, by setting the MEC during some peak demand periods, will reduce the price of energy during such periods and save consumers money.