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Enron's disciples in Germany?

by DoDo 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.

Display:
And what's the point of the electricity spot market again?

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Wed Aug 1st, 2012 at 07:17:34 AM EST


Friends come and go. Enemies accumulate.
by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Aug 1st, 2012 at 09:43:32 AM EST
[ Parent ]
Enron-type activities.

I'm going for one of two explanations to the events that you describe:

  1. It was a trial run for Enron-style market manipulations to see whether the grid-coordinators, utility regulators, and, ultimately, the residential consumers would notice; or
  2. it was a coincidence of poor forecasting, and, after it was noticed, someone(s) noticed that they had a process to hand by which they could get residential customers to pay for the glitch.

The second case, of course, is also a proof for the opportunists that they've invented/discovered a means of capture of windfall profits. Now all that they have to do - as in the Enron model - is to corrupt the regulator(s).

I think, though, that their problem will be the coordinating agencies. In the Pacific NW, we have Bonneville Power Administration. When Enron was gaming the California market, BPA was only one supplier for them; but, in the rest of BPA's territory, they are the grid coordinating body, so we saw none of the market manipulation here. Hopefully, you can count on your equivalent agencies to perform in like manner.

Interesting side-note - due to the fairly large-scale penetration of wind-generated electrical power, BPA has had to scramble in the last year to balance their input with hydro, etc. Their first serious attempt at balancing high-wind-based output with high-head-hydro output in Spring, 2011 was a debacle. They shut down the wind turbines without apparently realizing that they had signed contracts for some base level of power purchases. So the wind outfits sued - and won - and got paid for idling turbines.

The underlying problem was that the BPA grid operators were used to sitting on their butts for most of every hour, occasionally throwing a few switches. If someone with authority had been reviewing other, worldwide integration processes, they would have known that they have to actively manage the system. Now they've put in place a lot of data collection systems on generators and transmission equipment, and they collate data every 5 minutes - with significant penalties if the owners of the monitored equipment are 15 minutes late in transmission. (In other words owners must keep their monitor and data-transmission equipment in good operating condition.)

paul spencer

by paul spencer (spencerinthegorge AT yahoo DOT com) on Wed Aug 1st, 2012 at 08:19:18 PM EST
[ Parent ]
"Every 5 minutes" is so 20th century. Real time, grid-synchronized phase measurement is what you need...

http://www.ieeepesboston.org/files/2011/06/IEEE-PES-Boston-Synchrophasors.pdf

by asdf on Fri Aug 3rd, 2012 at 12:28:21 PM EST
[ Parent ]
I believe in coincidences.  Coincidences happen all the time.  I just don't trust coincidences.
by rifek on Sun Aug 5th, 2012 at 11:36:02 PM EST
[ Parent ]
Excellent, thanks!
by afew (afew(a in a circle)eurotrib_dot_com) on Wed Aug 1st, 2012 at 07:29:53 AM EST
I don't really get this:

European Tribune - Enron's disciples in Germany?

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.

Is the grid-operator always responsible for costs for starting up plants in cold reserve? If so, why would German power companies pay if it was started in Germany, would they not be paid by the grid-operator?

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Wed Aug 1st, 2012 at 01:51:39 PM EST
I don't fully get it either (I haven't found the precise details yet), but (1) the issue is not the sharing of costs between grid operator and power plant operator, but between the former and consumers; (2) I used "power company" as a general term to gloss over the grid operator/power plant operator issue.

Ad 1: If electricity goes from Germany to a foreign power company, then German private consumers cannot be billed for the use of the grid. Instead the foreign power company will pay the contract price which was originally set for cheaper baseload power, while it will actually cost more, coming from an expensive peaker plant. Someone will have to foot that bill (probably TenneT, but I'm not sure, see below).

Ad 2: From what I understand, the relationship of grid operators and power plant operators in Germany is still rather messy. The EU forced a separation only recently (TenneT bought E.ON's part of the grid). However, Gundremmingen is on the part of the grid operated by TransnetBW, the one of the four still fully owned by the power plant operator parent company (EnBW), so TenneT apparently comes into the picture as direct neighbour and provider of transit. So I'm not sure who pays whom in this setup.

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Wed Aug 1st, 2012 at 02:24:37 PM EST
[ Parent ]
The latest report of the federal net agency has a chapter each on both incidents, but manages to leave out these questions. (Page 48, and in German, of course).
by Katrin on Wed Aug 1st, 2012 at 04:14:47 PM EST
[ Parent ]
I found that one in the meantime, too. The interesting thing is that for the February event, they do say that some South German reserve gas-fired plants couldn't be relied upon due to a gas supply problem (page 52), so they could have said something about plants in Germany for the December event. Also, the map on page 49 showing the overloaded sections of the grid don't indicate problems hindering the use of the idling plants mentioned by IWR.

An additional interesting tidbit was that the Federal Grid Agency called for the regulation of exports, to avoid the selling of more power than available.

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Wed Aug 1st, 2012 at 04:47:34 PM EST
[ Parent ]
I don't fully get it either...

My guess is that this situation arose directly as the planned result of energy company strategists and lobbyists gaming the situation and then either finding or getting inobvious changes in the rules that they could subsequently exploit. In a well run system this would be obvious abuse, but in an environment dominated by neo-liberalism it could pass as business as usual. But that is the obvious surmise.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Aug 1st, 2012 at 05:55:32 PM EST
[ Parent ]
The wind industry association in Germany reports the installation of 1,004 MW of new capacity in the first half of 2012, and the rise of total installed power to 30,016 MW. (Off-shore is still only a minor part of this: 45 MW new and 200 MW total, but farms with a combined 2 GW are expected to be in construction by the end of the year.) The new additions are a quarter more than last year, and they expect 2.5 GW by the end of the year, numbers not seen since 2003. No clear explanation for the growth was given (my guess: turbine price drop due to overcapacity), they only noted that southern states are now installing more (but it doesn't add up to anywhere near a quarter).

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Thu Aug 2nd, 2012 at 04:48:30 AM EST
The increase is partly due to new low wind turbines being deployed more in the south, and the beginning of the repowering program, where a price kicker slightly enhances profitability.

"Life shrinks or expands in proportion to one's courage." - Ana´s Nin
by Crazy Horse on Thu Aug 2nd, 2012 at 09:11:59 AM EST
[ Parent ]
Off-shore wind farms reported as in-construction in the wind association release:

  • BARD Offshore 1 (400 MW)
  • Borkum West II (first phase 200 MW)
  • Riffgat (108 MW)

And now the start of the construction of Global Tech I (400 MW) was announced. Nordsee Ost (295 MW) is to start this summer, Meerwind (288 MW) in September, and Baltic 2 (288 MW) probably this year too. That's a combined 1,979 MW (though I think 125 MW of that is already operating).

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Fri Aug 3rd, 2012 at 05:45:54 AM EST
[ Parent ]
Installations are strong despite, or just because of, the feed-in law revision jitters: 4.4 GW in the first half year, of which 1.8 GW in June alone. With that, total capacity climbed to 29 GW, so it is likely that wind will be surpassed capacity-wise by the end of the year (but not production-wise, due to the lower capacity factor).

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Fri Aug 3rd, 2012 at 05:50:38 AM EST
[ Parent ]
I was at a conference in the US where the Department of Defense proudly announced that all three major branches (Army, Navy/Marines, Air Force) were going to install 1 GW of renewable energy each by 2020.

The last speaker of the day stood up and said, "Germany installed 1.8 GW of PV in the first quarter of this year." and sat down.

Stunned.

Silence.

<grin>

by jam on Fri Aug 3rd, 2012 at 08:31:25 AM EST
[ Parent ]
Funny, i used the same trick in an interview in Truthout, where my anonymity disappears.

HERE


Cumulatively that's an increase of 27 percent of total capacity, which now stands at 11,603 MWs or enough to power an estimated 2.9 million homes. For comparison's sake Germany, at about the size of Texas, already has more than 20,600 MWs installed, in about ten years less time.


"Life shrinks or expands in proportion to one's courage." - Ana´s Nin
by Crazy Horse on Sat Aug 4th, 2012 at 05:43:36 AM EST
[ Parent ]
Five years down the road and Germany is still eating our lunch.

Meine Fresse!

by jam on Mon Aug 6th, 2012 at 12:23:03 PM EST
[ Parent ]
You just described the Eurozone crisis.

If you are not convinced, try it on someone who has not been entirely debauched by economics. — Piero Sraffa
by Migeru (migeru at eurotrib dot com) on Mon Aug 6th, 2012 at 12:43:00 PM EST
[ Parent ]
Perhaps he was trying to say that Germany isn't all bad.

"Life shrinks or expands in proportion to one's courage." - Ana´s Nin
by Crazy Horse on Mon Aug 6th, 2012 at 12:58:36 PM EST
[ Parent ]
Did you hear how Spain is dismantling its renewable energy industry as a result of Troika austerity while Germany presses ahead with R&D at negative interest rates?

If you are not convinced, try it on someone who has not been entirely debauched by economics. — Piero Sraffa
by Migeru (migeru at eurotrib dot com) on Mon Aug 6th, 2012 at 01:02:14 PM EST
[ Parent ]
See 5 months ago.

If you are not convinced, try it on someone who has not been entirely debauched by economics. — Piero Sraffa
by Migeru (migeru at eurotrib dot com) on Mon Aug 6th, 2012 at 01:03:59 PM EST
[ Parent ]
What i said was it's not ALL bad.

The same Germany who is (expletive deleted) Spain in the (some body parts are not considered respectfully in the media and thus not allowed), is full of people who aren't responsible for the BuBa policies, but still managed to make greater steps to a sustainable present than anywhere else.

One could also legitimately argue that Spain's renewable energy industry was somewhat ill-begotten, meaning expropriated technology. (Though it's not China, and some companies have made huge technological advances.)

What's important is that in a few months, perhaps as long as three quarters, Spain will be back in the mix, because there's just too much to lose.

"Life shrinks or expands in proportion to one's courage." - Ana´s Nin

by Crazy Horse on Mon Aug 6th, 2012 at 01:15:18 PM EST
[ Parent ]
One could also legitimately argue that Spain's renewable energy industry was somewhat ill-begotten, meaning expropriated technology. (Though it's not China, and some companies have made huge technological advances.)

Spanish feed-in law encouraged companies to use current technology instead of inventing new technology. Limited quotas ment that they were busy to start new plants which limited the time needed for testing improvements.

by Jute on Fri Aug 10th, 2012 at 04:28:14 AM EST
[ Parent ]
Could you argue that in more detail? As in, what parts of the feed-in law had this effect and what were the signs of using current technology instead of inventing new technology? There are some details which don't seem to rhyme with your claim: Gamesa first installed some of its newly developed turbines in Spain (including the G128), and a significant domestic industry developed on the CSP market. On the other hand, the test plant in which the wind turbine towers double as pumped hydro storage tanks which Crazy Horse showed us the other day appear to be a Gamesa project but it will be built in Germany.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Fri Aug 10th, 2012 at 05:34:38 AM EST
[ Parent ]
I have mostly followed csp sector so I can't comment on wind turbine industry. The tariff for the first plants worth certain amount of megawatts combined with uncertain future  led to a race to build through plants which use oil. Predetermined degression timetable may have better encouraged to test other heat transfer fluids or towers which were more promising techonologies at the time.
by Jute on Fri Aug 10th, 2012 at 06:58:42 AM EST
[ Parent ]
At the time? And now?

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Fri Aug 10th, 2012 at 07:03:31 AM EST
[ Parent ]
There is a Spanish quip: "let them invent".

It is due to Miguel de Unamuno, a writer and philosopher of the first third of the 20th century, in a debate with José Ortega y Gasset (who wrote "Spain is the problem, Europe is the solution").

La frase se da en distintas aunque coincidentes formulaciones: Primero en una carta de Unamuno a Ortega del 30 de mayo de 1906 (Yo me voy sintiendo profundamente antieuropeo. ¿Que ellos inventan cosas?, invéntenlas). Poco después, en julio del mismo año, en un artículo en forma de diálogo de dos personajes:
ROMÁN.- Inventen, pues, ellos y nosotros nos aprovecharemos de sus invenciones. Pues confío y espero en que estarás convencido, como yo lo estoy, de que la luz eléctrica alumbra aquí tan bien como allí donde se inventó.
SABINO.- Acaso mejor.
    El pórtico del templo
Ortega anunció su intención de publicar unas disputas contra la desviación africanista de Unamuno, que no termina escribiendo.
(wiki)
The phrase is given in different but coincident formulations: first in a letter from Unamuno to Ortega on 30 may 1906 (I am feeling more and more deeply anti-European. That they invent things? Let them). Shortly after, in july of the same year, in an article in the form of a dialogue between two characters:
ROMÁN.- Let them, thus, invent, and we will take advantage of their inventions. For I trust and hope that you will be convinced, as I am, that electric light shines just as well here as there where it was invented.
SABINO.- Maybe better.
    The portico of the temple
Ortega announced hs intention to publish disputes against Unamuno's africanist deviation, which in the end he didn't write.
This is at the time of the second industrial revolution, when Germany was developing the automobile and the chemical industry.

Spain had no lack of inventors or scientists (notably Torres-Quevedo, Juan de la Cierva, Isaac Peral or Ramón y Cajal), but it was hindered by a rentier culture, and to this day it is still not friendly to high-value-added employment.

If you are not convinced, try it on someone who has not been entirely debauched by economics. — Piero Sraffa

by Migeru (migeru at eurotrib dot com) on Fri Aug 10th, 2012 at 05:48:57 AM EST
[ Parent ]
Germany twenty years before that built a lot of industry by importing methods from England. IIRC, the whole "Made in ..." started as a Brittish protective method against cheap German knock-offs.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Fri Aug 10th, 2012 at 06:44:04 AM EST
[ Parent ]
See here.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Fri Aug 10th, 2012 at 07:11:56 AM EST
[ Parent ]
Very interesting, had missed (or forgotten) that one.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Fri Aug 10th, 2012 at 04:58:11 PM EST
[ Parent ]
Looking for patent and development in Germany in the late 19th century, I found this about patents in neighbouring Switzerland:

Gerster, R. (2001): Patents and Development. Lessons Learnt from the Economic History of Switzerland, Third World Network, Penang/Malaysia 2001.


This situation, however, is nothing new. In 1883, in a message directed to "high- level federal
authorities", eleven Swiss industrialists expressed their hope "in the interest of the general
welfare of our industries and commercial enterprises", that "the 'cup of sorrows' of patent
protection might pass from us untouched" (Beitrag 1883). This statement was signed by
individuals whose names -among them Benziger, Bühler, Geigy, Jenny, Rieter, Steiger,
Schwarzenbach and Ziegler - constituted a roster of leaders in Swiss industry. The textile
manufacturer Steiger offered the retrospective view that " Swiss industrial development was
fostered by the absence of patent protection. If patent protection had been in effect, neither the
textile industry nor the machine-building industry could have laid the foundations for
subsequent development, nor would they have flourished as they did" (Protocoll 1883, 83).

Conditions one hundred years ago were ideal: as a rule, Swiss industrial inventions could be
patented abroad, where patent legislation was in effect. But as Switzerland had no patent laws,
Swiss industries were free to copy foreign inventions without restriction. This situation
was richly exploited. It was not without good reason that the cry was heard from France, "La
Suisse, le pays de contre- facteurs" ("Switzerland, the land of counterfeiters", see Beitrag
1883, 52). In the German Reichstag Switzerland was repeatedly characterised as a "pirate
state" and a "predator state" for copying products such as aspirin and heroin without
permission. At a Swiss patent congress, A. Benziger, a manufacturer from central
Switzerland, declared, "Our industries owe their current state of development to what we have
borrowed from foreign countries. If this constitutes theft, then all our manufacturers are
thieves" (Protocoll 1883, 88).

Pdf, hence the formatting.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Fri Aug 10th, 2012 at 06:11:22 PM EST
[ Parent ]
...and specifically on what you say on the "Made In..." labels: I find that indeed the origin is the Merchandise Marks Act of 1887, though this protectionist measure doesn't seem to have been specifically against German products originally (and the measure backfired, see pdf page 3 here or this 1897 parliamentary debate).

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Fri Aug 10th, 2012 at 07:55:32 AM EST
[ Parent ]
I found this that appears to match my recollection.

Made in Germany - Wikipedia, the free encyclopedia

The label was originally introduced in Britain by the Merchandise Marks Act 1887[1], to mark foreign produce more obviously, as British society considered foreign produce to be inferior to domestic produce, and tried to get buyers to adhere to the concept of 'buying British'[citation needed].

In 1894, the German Reichstag's commission already reported that after suffering slight losses, German manufacturers soon found the label to be of good use since they could distinguish themselves better from the British manufacturers.[this quote needs a citation] This led to more and more manufacturers voluntarily applying the label, and not even World War I, in which marks were mandatory in Britain in order to boycott the Central Powers countries' products,[citation needed], could dent the growing popularity of the mark.

The term Made in Germany was soon associated with product reliability, quality and even perfection[citation needed].

My memory, it needs citations. Can't find where the narrative comes from, but I am apparently not alone in picking it up.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Fri Aug 10th, 2012 at 05:15:36 PM EST
[ Parent ]
The difference between Spain under the Restoration and the German Empire under Bismarck.

If you are not convinced, try it on someone who has not been entirely debauched by economics. — Piero Sraffa
by Migeru (migeru at eurotrib dot com) on Fri Aug 10th, 2012 at 09:36:20 AM EST
[ Parent ]
In my sector, there is Alejandro Goicoechea of Talgo fame, too, though I see his political record is less boastful.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Fri Aug 10th, 2012 at 07:17:51 AM EST
[ Parent ]
Goicoechea I would put in the second third of the 20th century.

If you are not convinced, try it on someone who has not been entirely debauched by economics. — Piero Sraffa
by Migeru (migeru at eurotrib dot com) on Fri Aug 10th, 2012 at 09:38:40 AM EST
[ Parent ]
One could also legitimately argue that Spain's renewable energy industry was somewhat ill-begotten, meaning expropriated technology.

Do you mean the relationship of Vestas and Gamesa?

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Fri Aug 10th, 2012 at 05:04:13 AM EST
[ Parent ]
The same people who supported Troika policies in Spain are also actively working on undermining the renewable energy industry in Germany. And it's exclusively the Rahoy government's fault that they chose to suspend the feed-in law in Spain, instead of transforming it into something not involving tax money.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Mon Aug 6th, 2012 at 05:45:41 PM EST
[ Parent ]


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