Fri Aug 3rd, 2012 at 02:31:50 AM EST
Last winter, on two occasions, Germany's grid operators had to activate reserve capacity. On both occasions, certain circles were quick to seize upon the event as evidence that last year's nuclear shutdowns and the spread of renewables bring supply instability, also hitting neighbouring countries. However, again on both occasions, something was not quite right with the argument: during the first, a lot of peaker plants in Germany stood idle; during the second, Germany's Federal Grid Agency found evidence of mass speculative behaviour by electricity traders at a time France(!) needed massive electricity imports.
The facts known in this story aren't news, and too much is still uncertain. However, it came up in the discussion of Jerome a Paris's The Economist's sad hack job about German energy policy and I was asked for some more digging and a diary.
The cold cold reserve
The first event was on 8-9 December 2011, a period of high wind power in the north of Germany, which supposedly blocked certain power lines. The actual event leading to imports from Austria was a conventional giga-plant supply shortage: Block C of the nuclear power plant of Gundremmingen (near Ulm in the southwestern state of Baden-Württenberg) was shut down after the discovery of two leaky fuel rods. Netherlands-based grid operator TenneT's German branch reacted by requesting the activation of an oil-fired power plant in Graz, Austria, from cold reserve.
As German-language renewables news site IWR reported, at the same time, several oil and gas plants close to Gundremmingen remained shut down in cold reserve. These include three gas-fired power plants which operator E.ON wanted to close in plans announced back in May.
From what I found, the Federal Grid Agency still didn't announce an explanation for this behaviour. IWR, however, pointed to two relevant facts:
- Following last year's re-organisation of the market, the bulk of the costs of electricity from cold reserve plants counts as grid operating cost, and that cost is billed to private consumers (who aren't exempted like large companies) as transmission tariff.
- At the time, Germany was actually exporting electricity to Italy via Austria.
These circumstances make a gaming of the system possible. The theory goes like this: if the replacement of the power lost by the Gundremmingen shutdown would count as part of the Italy exports, then the costs of electricity from cold reserve plants activated in Germany could not be transferred to (domestic) consumers, and German power companies would be left to pay. So starting up a plant in Austria allows for shifting costs to consumers in Germany.
Demand-side forecast "errors"
The second event was on 7-10 February 2012, when practically the entire cold reserve in Germany was activated.
What was special during this period? Supply from renewables was neither too high nor too low. However, throughout the entire period, Germany was a net exporter, even when domestic demand peaked at 57,023 MW between 18 and 19h on 8 February. What was special on the European level was the situation in France: cold weather boosted demand for electric heating, pushing total power demand above 100,000 MW (in the same hour when domestic consumption peaked in Germany).
However, what triggered the cold reserve activation was not simply an EU-level supply crunch, but market behaviour.
Germany's Federal Grid Agency found that electricity traders significantly underestimated demand a day ahead; that is, they bought insufficient scheduled power. There were underestimates across the board, and apparently on purpose: as IWR and taz reported, the agency sent a warning to 900 traders.
What profit could be made by underestimating demand? The answer again has to do with market design and the speciality of the cold reserve regime. The peak in demand in France caused a spike in electricity prices at the European Energy Exchange (situated in Leipzig, Germany). Prices for scheduled power even rose above that of balancing power from reserve plants. And that's where traders could save.