12.03.2014
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German power market

The coal squeeze-out

Fraunhofer ISE has published its latest data on the German power sector, and the mild winter is clearly having an effect on power production in Germany. Because exports are down, so is coal power.

This week, the German government released emissions statistics from the energy sector for 2013, and they are up as expected. But still, no specific statistics are available for carbon emissions from the power sector alone. Nonetheless, the government itself reports that two factors are behind the upturn: the cold weather and the surge in coal power. Renewables International believes those two factors are actually closely related.

A few days ago, we reported on a major difference in power production and demand between the first two months of 2013 and 2014, but we did not have the figures for power trading at the time. Yesterday, Fraunhofer ISE updated its excellent PDF to fill that gap.

Net power production is down for nuclear (-0.5 TWh), lignite (-1.1), hard coal (-3.7), and gas (-3.0), but up for wind (4.1) and solar (1.4). Biomass is unchanged, whereas hydropower is also down (-1.4). In other words, non-hydro renewable electricity is up by 5.5 TWh, whereas conventional power is down by 8.3 TW. Hydropower does not make up the difference.

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Fraunhofer ISE

Lower power exports do. In the first two months of 2013, Germany exported around 6.5 TWh net, but that figure has dropped to around 2 TWh in the first two months of this year, a decrease of approximately 70 percent. In all likelihood, the mild winter is the main cause of this reduction in power exports. France in particular has a lot of electric heaters and is reliant upon imports from Germany to meet that demand. Less demand for heat therefore translates into lower power exports from Germany.

The situation is further evidence that exports are a major factor – and one that is almost never mentioned – in the production of coal power in Germany. Coal plants are currently being squeezed out of the market by renewables. Plant operators then offer their electricity at low cost, and neighboring countries begin buying more from Germany.

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Agora Energiewende

March is not providing any respite for the coal sector; it is one of the sunniest on record already. Over the past few days, for instance, solar has peaked at or above 20 GW, with domestic power demand only reaching around 70 GW.

It is noteworthy that the effect of power exports on German coal power production is so consistently overlooked, but there is probably a political reason. Critics of the Energiewende can use the situation as an example of the transition's failure. Likewise, proponents of the Energiewende can use the news to strengthen their call for a coal phaseout. No one benefits from pointing the finger at neighboring countries, but the fact remains that renewable electricity would offset more coal power if Germany did not export so much electricity. (Craig Morris)

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11 Comments on "The coal squeeze-out "

  1. Greg - 15.03.2014, 12:04 Uhr (Report comment)

    @Mahdi
    Can claim no credit for squeeze outs of Prunerov - as I live on a little island far away.
    "Secondly, the electricity overflow is not caused by the North sea wind farms. It is caused by those old baseload plants (in this case probably Jaenschwalde and so on) which are now second or third in the merit order but their operator cannot ramp them down."
    The system operator also has the ability to curtail the wind turbines should system security become an issue. The key issue is that the operators of plants such as Jaenschwalde are willing to sell electricity at a heavily discounted price in-order to continue running.
    Note - your claims are at odds with Craig's. He claims that Germany electricity exports are a primarily about price and demand in neighbouring countries - not system security. Perhaps you should address your comments to him.
    Perhaps by "electricity overflows" you are talking about loop flows, see the report linked to from this article for some interesting details.
    http://energytransition.de/2013/03/german-energy-transition-and-its-neighbors-part-3/

  2. My2cents - 14.03.2014, 16:23 Uhr (Report comment)

    Hi Billothewisp, thanks for keeping up the thread! I agree the emissions we see in Germany now are a regrettable feature of the country’s energy transition – and they need to be corrected. However, I wouldn’t say this is simply the result of support for renewable energy. Rather it is due to a combination factors, starting with the present energy market model. It selects the running order of power plants based exclusively on which ones have the cheapest operating costs. That effectively means the plants with the cheapest fuel. Second, the recent collapse in coal and carbon prices relative to gas. When you combine this with a growth in generation capacity that has running costs of near zero (wind and solar), only the next cheapest conventional units are left to compete over the energy demand that is left, and they are presently the dirtiest. Renewable energy is not suited to this model, but that doesn’t mean it can’t deliver competitively priced power with far fewer emissions. It can, and we should find a way to leverage that. Let’s break down some of the costs. At the moment, new wind in Germany needs compensation of around EUR 89/MWh, and new, large solar is entitled to EUR 93/MMh, according to present feed-in tariff rates. That is down from rates as high as EUR 624/MWh a decade ago for some solar units. Present rates are already favourable relative to compensation of around EUR 93/MWh needed for a new, efficient gas-fired power plant today and they’re not too far off the EUR 82-86/MWh needed for a new efficient hard coal fired plant. Unfortunately new lignite still remains very cheap at EUR 56/MWh, though it can only operate in certain areas close to its fuel source. I take these prices from this consultancy’s paper here: http://bit.ly/1apumPF . Note these rates for renewables also compare favourably to the UK’s approximately EUR 110/MWh for Hinkley Point (over 35, not 20 years), an indication of how much utilities want for new nuclear investments. Of course, in the present market, utilities turn on their conventional assets when they can cover their running costs, which are much lower (around EUR 25-35/MWh for a hard coal unit), and hope higher prices will grant them a wider margin. As they see no outlook for higher wholesale prices (power in Germany is trading below EUR 36/MWh out to 2017), they don’t want to invest in new plants that will barely be able to cover their running costs. So as long as you only pay for power via the present market model, you will not be able to compensate renewable energy or new power plants adequately. This is why utilities are seeking so-called capacity mechanisms to pay them for the power they can hold on stand-by in addition to what they sell. A way needs to be found to price investment costs plus running costs (including pollution) into final prices. And it makes sense to use renewable energy when it is there, as we have already paid for the investment. It would probably also makes sense to eliminate some of the glut in surplus power by raising efficiency requirements for the power plants allowed to operate. There are many ideas out there. Perhaps we need separate markets for conventional and renewable generation. Finally, it is not accurate to talk of unsubsidized conventional generation versus subsidized renewables. Green subsidies are easy to see because they are printed on a power bill. But the European Commission counted EUR 30bn in annual subsidies across the bloc for renewbles in 2011 and EUR 61bn in direct annual subsidies for fossil fuels and nuclear energy combined. Direct subsidies do not include pollution costs, or nuclear insurance costs borne by the public. In Germany, the OECD counted more than EUR 2bn in various assistance for coal and lignite alone(p. 193): http://bit.ly/1kQC2Dz. These subsidies are hidden in our (my) taxes. If we are serious about cutting emissions efficiently, fossil fuel subsidies are crazy. Renewable energy indeed requires continued support to entice investment. But perhaps not as much as you think. If we were to have a different market model, we could probably end support for wind and solar relatively soon. It is indeed a welcome fact that France has far fewer emissions than Germany due to its nuclear fleet. But this is a fortunate legacy of strategic decisions made long ago in a different context. Companies will not invest in new nuclear energy without significant support. So France too faces significant costs to upgrade its infrastructure in future.

  3. Mahdi - 14.03.2014, 08:46 Uhr (Report comment)

    @Greg Hello from CZ and thanks for (occasional) squeeze outs of that Prunerov monstrosity. I would like to add that 500 MW Prunerov I lignite plant (from 1960th) is about to be completely shut down. Maintenance costs are too high and the need for its capacity was effectively replaced by recent upgrades in Czech nuclear plants. The 1000 GW (5x200 MW) Prunerov II plant is going to be retrofitted (1 blnEUR budget) to the "Neurath F,G" level of effeciency, but it will mean partial shut down in next 5-10 years. Secondly, the electricity overflow is not caused by the North sea wind farms. It is caused by those old baseload plants (in this case probably Jaenschwalde and so on) which are now second or third in the merit order but their operator cannot ramp them down.

  4. Greg - 13.03.2014, 23:24 Uhr (Report comment)

    Regarding Germany's eastern neighbours - and the linked article.

    "Utilities like Prague-based CEZ AS (CEZ) and Warsaw-based PGE SA (PGE) are occasionally forced to disconnect some coal-fired plants in the western parts of the Czech Republic and Poland because of excess power flowing from Germany. CEZ’s Prunerov plant is often a casualty of the unplanned flows, CEPS said."

    The issue they are complaining about is that imported electricity from Germany is cheaper, so they have to ramp down some of their coal-fired plants. If they were willing to sell electricity at a lower price than the Germans, then the German fossil plants would ramp down instead. This is what happens in a competitive market - irrespective of the generation source.

  5. Greg - 13.03.2014, 23:15 Uhr (Report comment)

    I'm only going to reply to what I see as the key point relevant to this article. The crux of it, is that you believe that German electricity exports are related to grid stability issues.
    i.e. you write: "As your coal/lignite plant cannot be throttled up/down rapidly enough to match RE intermittency"
    Where as Craig in this article shows an example of why he thinks that exports are really about demand/price differentials between France and Germany.
    I'd like to point out that you continue claim that "electricity dumping" going on - but fail to provide any counter argument to Craig's example showing that France's electricity demand and price is more relevant to export levels.
    Since you've dropped your argument about "solar dumping", and shifted to wind, let's talk about wind. Wind turbines in Germany can be automatically curtailed by the grid operator if grid security is a problem. Curtailments are still very low under 1%. If grid security is a problem, as you assert, why are the grid operators not curtailing wind output more?
    I think the answer is pretty clear. Electricity exports are about price. Renewables have priority on the Germany grid, which means that fossil plants will ramp down when renewables are high, unless neighbouring countries have high electricity demand and prices.

  6. Billothewisp - 13.03.2014, 19:56 Uhr (Report comment)

    my2cents & Greg.
    Thanks you your interesting replies to my comment. Below is my reply to your reply. I only do this once otherwise it all gets a bit troll like. But I will read your re-replies if you make any but I will not respond further.
    My2cents....
    I am glad you appreciate that unsubsidised conventional power generation is being forced down to the cheapest generator by highly subsidised renewables. Coupled with the nuclear shutdown the result is German nuclear and gas are replaced by cheap dirty coal and even dirtier lignite. Der Spegeil expounds on how your new coal plant ( Not wind ) has taken over from your shuttering of nuclear http://bit.ly/1eXSidZ
    The sad fact is German CO2 emissions are not going down. There is nothing even on the horison that will offer a significant reduction in the near/medium term. For all your expenditure and subsidy of intermittent renewables your CO2 output continues to rise (compare your figures to France, Sweden or Finland). Even then, Germany has the highest electricity consumer price in Eu See: http://bbc.in/1kP5Bpb
    All thanks to your renewable subsidy regime.
    Yet your renewables account for only about 15-20% of your electrical energy needs. Where are you going to get the other 80+%? How exactly are you going to shut down your dirty coal? More renewables? More subsidy? Seriously? Optimism is good. Wishful thinking is bad.
    As to running costs. I agree RE is capital intensive which means that the unit cost and the maintenance must be covered within the lifetime of the unit. Sadly again, without the massive subsidy few if any RE units would be viable because they are simply too expensive to buy and maintain compared to the total lifetime energy produced. That is - unless they command a massive subsidy. Couple this to the on-going IWT generic gearbox reliability issues (typical rebuild every 5-7 years my post - http://bit.ly/1cfuswl ) and very soon the realistic chance of getting any return without a huge subsidy vanishes. Currently renewables are wholly dependent on subsidy with no credible prospect of being otherwise.
    As for RE unit prices falling - This is true. But European companies (especially German and Danish companies) are going bust because they simply cannot build units to the Chinese dump price. Essentially there is a floor price which is too high to make the units viable without subsidy (German or Chinese)
    To compare German coal to French nuclear is somewhat obtuse. Most French nuclear plant has at least another 30 years of life. Whether this plant is "legacy" or not - I repeat the uncomfortable truth:
    France 75 Kg/MWhr Germany 480MWHr (actually I recently saw a tweet stating it had broken 500)
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    Greg.
    Yes march was a good month - for March - and this year. I am sure you know Solar peaks in June/July. The fact that this March was good (for March) still means it will be about half or less that in June/July (assuming the sun shines) see http://bit.ly/1cClFrr page 10. Annual solar peaks at a time when energy usage is usually at its lowest and also performs at its worst during the time of highest demand (Dec/Jan). As your coal/lignite plant cannot be throttled up/down rapidly enough to match RE intermittency Germany ends up dumping energy randomly onto the European grid usually in June/July or whenever there is a high energy wind event. Though to be fair I don't know exactly which electrons (coal generated or wind/solar generated) get dumped.
    Try Reuters http://reut.rs/NaDcuG or Bloomberg http://bloom.bg/1geSzJD for examples of how you are disturbing your neighbours with power dumping.
    I am glad you see the French nuclear build out as impressive. So do I. It was twenty years long and cost only 35 Bn Euros and provides 78% of their electricity. As most of the plant is less than 30 years old most of it should be good as-is for another 30 years at least. True the EPR (and the AP1000) are wallowing in a ridiculous level of over-engineering but that is what comes from thirty years of unopposed scare mongering about nuclear safety.
    Finally ( maybe this was from my2cents?) Hinkley C - yes it is hugely overpriced. The corporations that are going to build it have the UK government over a barrel. Because the UK has wasted so much money on its own failed energiewende there is now a serious risk of black-outs. Consequently any truly viable low/no carbon power source (like an EPR) can command a huge premium. The government is held to ransom and all thanks to the ineffectiveness of wind and solar.
    Thanks again for the replies. They were interesting.

  7. My2cents - 13.03.2014, 17:52 Uhr (Report comment)

    Hi Billothewisp, though you make some valid points, I think you are drawing the wrong conclusions. Solar and wind can indeed be said to be squeezing coal out of the market. Consider the guys who make money burning coal. Germany’s biggest utilities all complain that renewable energy is pressuring wholesale electricity prices so low that conventional plants can barely cover their running costs. The quarterly reports of E.ON, RWE, ENBW and Vattenfall all show utilities slashing profits and winding back plans for conventional generation in Germany. Here’s a Reuters story from yesterday: http://reut.rs/1cWdfGa. Also consider the growing number of applications to mothball power plants in Germany. The present tally stands at 42 units with a combined capacity of over 10 GW. When talking of new builds, you have to consider two things. Most investment decisions were made years ago when power prices were much higher. Most are also intended to displace older, less efficient units. The key is the balance. The network regulator currently expects a net loss of 3.3 GW of conventional capacity by 2018. You can see that here http://bit.ly/1iEawEZ. So renewable energy is indeed displacing conventional generation. The trouble is, the most desirable form of conventional generation is getting displaced first. That means gas ahead of coal, and coal ahead of lignite: flexible conventional units with fewer emissions are being shut down while dirtier, inflexible units are the only ones that can afford to operate. This is a problem of market design. Once a renewable energy unit has been built, it has hardly any running costs. In principle, that’s a good thing. Especially because the investment costs for renewable energy have been coming down rapidly. However, in our present power market, it means whenever renewable energy is available, it pressures the price of electricity towards zero. Gas units that relied on making their money during hours of peak demand are seeing prices at these times plummet. The price they need to switch on is not being realized and the number of hours they run a year is vanishing. It is unfair to say renewable energy is dumped at a time when no one wants it – it is still far from covering 100% of demand at any one time. It is equally true that inflexible sources of conventional power are dumped at these times, as it is too difficult to ramp down production at lignite units for a short period of time. It is also a little unfair to compare Germany’s legacy of commitment to coal to France’s legacy of commitment to nuclear. These decisions were made long before policymakers were concerned with cutting emissions. France has its own challenges, namely replacing its aging nuclear fleet both cost- and climate-efficiently (recall the UK paid a huge sum recently to entice a company to build a new nuclear unit). The challenge for Germany is to find a way of continuing to grow renewable energy while allowing conventional generation, preferably flexible with fewer emissions, to make enough money to fill the gap until it is no longer needed - all while seeking the cheapest way of doing so. A typically German problem in its complexity. But if the country figures out solutions, they will be relevant for everyone.

  8. My2cents - 13.03.2014, 13:12 Uhr (Report comment)

    Hi Billothewisp, though you make some valid points, I think you are drawing the wrong conclusions. Solar and wind can indeed be said to be squeezing coal out of the market. Consider the guys who make money burning coal. Germany’s biggest utilities all complain that renewable energy is pressuring wholesale electricity prices so low that conventional plants can barely cover their running costs. The quarterly reports of E.ON, RWE, ENBW and Vattenfall all show utilities slashing profits and winding back plans for conventional generation in Germany. Here’s a Reuters story from yesterday: http://reut.rs/1cWdfGa. Also consider the growing number of applications to mothball power plants in Germany. The present tally stands at 42 units with a combined capacity of over 10 GW. When talking of new builds, you have to consider two things. Most investment decisions were made years ago when power prices were much higher. Most are also intended to displace older, less efficient units. The key is the balance. The network regulator currently expects a net loss of 3.3 GW of conventional capacity by 2018. You can see that here http://bit.ly/1iEawEZ. So renewable energy is indeed displacing conventional generation. The trouble is, the most desirable form of conventional generation is getting displaced first. That means gas ahead of coal, and coal ahead of lignite: flexible conventional units with fewer emissions are being shut down while dirtier, inflexible units are the only ones that can afford to operate. This is a problem of market design. Once a renewable energy unit has been built, it has hardly any running costs. In principle, that’s a good thing. Especially because the investment costs for renewable energy have been coming down rapidly. However, in our present power market, it means whenever renewable energy is available, it pressures the price of electricity towards zero. Gas units that relied on making their money during hours of peak demand are seeing prices at these times plummet. The price they need to switch on is not being realized and the number of hours they run a year is vanishing. It is unfair to say renewable energy is dumped at a time when no one wants it – it is still far from covering 100% of demand at any one time. It is equally true that inflexible sources of conventional power are dumped at these times, as it is too difficult to ramp down production at lignite units for a short period of time. It is also a little unfair to compare Germany’s legacy of commitment to coal to France’s legacy of commitment to nuclear. These decisions were made long before policymakers were concerned with cutting emissions. France has its own challenges, namely replacing its aging nuclear fleet both cost- and climate-efficiently (recall the UK paid a huge sum recently to entice a company to build a new nuclear unit). The challenge for Germany is to find a way of continuing to grow renewable energy while allowing conventional generation, preferably flexible with fewer emissions, to make enough money to fill the gap until it is no longer needed - all while seeking the cheapest way of doing so. A typically German problem in its complexity. But if the country figures out solutions, they will be relevant for everyone.

  9. Greg - 13.03.2014, 12:13 Uhr (Report comment)

    Hi Bill,
    You claim "massive dumping of peak solar". But if you read the article again, it notes: "March ... is one of the sunniest on record already.".
    So my question for you is: why are exports to France significantly lower this March, despite the fact that it is sunnier than last March? (also note an additional 3GW of PV has been installed in the meantime)
    Craig has often stated that power exports are a matter of price differences, not grid stability, as you seem to believe. His explanation is that this March electricity prices are lower in France due to warmer weather - this has lead to lower exports.
    "German CO2 480 Kg/MWHr France CO2 75 Kg/MW"
    France's big nuclear build out in the 70's and 80's was impressive. However today they seem unable to repeat this. Their existing reactors continue to age, and they cannot build new reactors quickly enough to replace them. According to EDF they need to build 1 reactor per year from 2020-2060 to replace their existing fleet with EPRs. This seems highly unlikely.
    Luckily Germany has succeeded in bringing down the cost of renewables, so they have another cheaper option to turn to, instead of putting all of their money into new reactors. The French plan to reduce their nuclear capacity to 50%, even keeping at this level will be a challenge for them given the delays and cost overruns at Flammanville.

  10. Billothewisp - 13.03.2014, 08:59 Uhr (Report comment)

    Look at your own graph.
    Even on this cherry picked 2 day continuum where wind+solar+biomass is performing at the top of their game for time of year, they amount to about 1/6th of total demand. To suggest they are squeezing out coal, especially while Germany is building new lignite/coal plant at a rapid pace is both delusional and counter-productive.
    It is no good blaming your emissions (and addiction to coal) on on France when the 2014 Jan-Feb exports amount to the equivalent of a single 1GW station. In the annual export figures (which you blame exclusively on coal) you conveniently ignore the massive dumping of peak solar (in June) and high wind events onto the European grid. Usually dumped when nobody really wants the energy.
    The fact is German CO2 emissions are going up. They are going up even after massive expenditure on wind and solar and after 50% of your timber goes to biomass. The Energiewende has for all intents and purposes (at best) a Zero effect on German CO2 emissions.
    At worst the Energiewende is a dangerous delusion that prevents the adoption of credible alternatives. The simple proof of this is this:
    German CO2 480 Kg/MWHr France CO2 75 Kg/MWHr

  11. James Wimberley - 12.03.2014, 21:16 Uhr (Report comment)

    "France in particular has a lot of electric heaters and is reliant upon imports from Germany to meet that demand. " Electric space heating demand is reasonably well correlated with wind generation, so the steady growth in French wind capacity, and its better interconnectors to Spain, will reduce its need for imports, and make it peakier. Neither will suit German coal generators.

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