We have all been watching Germany’s energiewende – energy transition – with great interest because there should be important lessons for all of us. Stanley Reed writes in the New York Times about the impact of recent negative power prices. It should be added that negative power prices are not the norm in Germany, but they are far from rare.
Power Prices Go Negative in Germany, a Positive for Energy Users
Germany has spent $200 billion over the past two decades to promote cleaner sources of electricity. That enormous investment is now having an unexpected impact — consumers are now actually paid to use power on occasion, as was the case over the weekend.
Power prices plunged below zero for much of Sunday and the early hours of Christmas Day on the EPEX Spot, a large European power trading exchange, the result of low demand, unseasonably warm weather and strong breezes that provided an abundance of wind power on the grid.
Such “negative prices” are not the norm in Germany, but they are far from rare, thanks to the country’s effort to encourage investment in greener forms of power generation. Prices for electricity in Germany have dipped below zero — meaning customers are being paid to consume power — more than 100 times this year alone, according to EPEX Spot.
On Sunday, factory owners and other major consumers were at times paid more than 50 euros, about $60, per megawatt-hour, a wholesale measure, to take power.
Here is a rundown of these negative power prices, and the impact they have.
What causes negative prices?
Basically, when the supply of power outstrips demand for it.
Demand is particularly low on weekends and holidays, when factories are idle and offices empty. The energy supplies that Germany depends on, however, are less predictable than they used to be.
Wind power, in particular, is highly dependent on changes in weather patterns. Giant spinning turbines produce, on average, about 12 percent of Germany’s power, but on windy days, they can generate several times that amount.
At the same time, other mainstays of the country’s electricity supply, especially some coal and nuclear power plants, are unable to dial back quickly enough, leading to negative prices on electricity trading markets.
Where do they go negative?
Several countries in Europe have experienced negative power prices, including Belgium, Britain, France, the Netherlands and Switzerland.
But Germany’s forays into negative pricing are the most frequent. At times, Germany is able to export its surplus electricity to its neighbors, helping to balance the market. Still, its experiences of negative prices are often longer, and deeper, than they are in other countries.
In one recent example, power prices spent 31 hours below zero during the last weekend of October. At one point, they dipped as low as minus €83, or minus $98, per megawatt-hour, a wholesale measure.
In other words, anyone who was able to hook up for a large blast of electricity at that time was paid €83 per unit for the trouble.
Why is supply so uneven?
The major drawback of both wind and solar power is that they wax and wane with the breeze and sunshine, and not in response to when they are most needed.
Battery storage capacity, meanwhile, is not yet advanced enough to take in all of the excess generation. And because older power plants that run on fossil fuels take a long time to ramp up and reduce electricity generation, they are not able to respond decisively enough to the shifting supply.
Like most traditional power systems, Germany’s was designed to match output to demand. However, “we now have technology that cannot produce according to the demand, but is producing according to the weather,” said Tobias Kurth, the managing director of Energy Brainpool, a Berlin-based consulting firm.
That, he said, is “one of the key challenges in the whole transition of the energy market to renewable power.”
What can be done?
Negative prices indicate that Germany’s power grid, like most others around the world, has not yet adapted to the increasing amounts of renewable energy being produced.
“We have a lot of stress on the grid,” said Ulrike Hörchens, a spokeswoman for Tennet, a large grid operator in Germany and the Netherlands.
For now, technological improvements that would help store additional power, and better distribute it across and between countries, are lagging.
But regulatory tweaks could make a difference. Germany, for example, does not do enough to encourage customers to increase their use at times of oversupply.
On a basic level, that could be as simple as providing incentives for people to turn on the washing machine when power is plentiful, and cheap. Companies could make even more use of such guidance, ramping up energy-hungry tasks at times of low-cost electricity.
Do German consumers benefit from ‘negative prices’?
The wholesale costs of power make up only about a fifth of the average household electricity bill in Germany. The rest is a stew of taxes, fees to finance renewable-energy investments, and charges for use of the grid.
That means their bills are lower than they otherwise would be, because power prices are sometimes negative, though household energy bills have been rising over all anyway. Basically, utilities are not depositing money in customers’ bank accounts.
Power producers are learning to adapt to this new world.
RWE, one of Germany’s largest operators of power installations, employs a weather forecaster to help anticipate surges in wind power, and to match the spikes to when the company expects peak demand.
While negative prices create problems for the company, they also enhance the value of its more flexible installations, including large storage systems.
In one case, it takes advantage of negative prices by being paid to pump large volumes of water into a mountain lake in Austria. When prices are higher, the company releases the water, using turbines to generate electricity.
“We are able to ramp units down, and switch the pumps on,” said Martin Keiner, RWE’s head of commercial asset optimization. “You can earn a lot on flexibility.”