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Hot air over wind power

It must be odd to be in the renewable energy business at the tail-end of 2012.

In the US, presidential hopeful Mitt Romney wants to kill off wind subsidies. In Scotland, Donald Trump has shelved plans for a hotel because he says its views will be wrecked by "industrial monstrosities" of bird-butchering wind turbines. In Canada, authorities are studying claims that living near a wind farm can give you anything from high blood pressure to headaches. Worldwide, the blogosphere pulses with indignation about solar subsidies.

But the peculiar thing about all this wrath is how rarely it is directed at what is becoming a remarkably destructive aspect of renewable energy: its ability to drive down wholesale electricity prices.

For anyone rendered slack-jawed by the latest monthly power bill, this might sound like good news. But it is not quite that simple, especially for companies that derive a lot of profits from generating power via conventional fossil fuels such as coal or gas.

Some utilities risk having as much as half their power generation profits wiped out by 2020 as renewables reshape energy markets say analysts at UBS, which recently downgraded RWE, the German power company, EDF of France, and the Czech Republic's CEZ Group as a result. Other effects are only starting to be understood as the growth of renewable power soars.

(...)

In countries such as Germany, where green generators delivered more than a quarter of electricity in the first six months of this year, there is now so much renewable power available at certain times of the day that it meets a sizeable chunk of demand.

When this happens, market prices can crash because renewable power generators, which have large subsidies, low operational costs and free fuel, can offer cheaper prices than owners of plants running on conventional fossil fuels.
One fine day in May this year, average wholesale prices during peak hours in Germany were only €26 per megawatt hour - a third of what they were on the same day in 2008, according to research by Zouk Capital, a London-based private equity firm focused on the clean-tech market.




Wind power
by Jerome a Paris (etg@eurotrib.com) on Mon Oct 22nd, 2012 at 05:26:29 AM EST
But the peculiar thing about all this wrath is how rarely it is directed at what is becoming a remarkably destructive aspect of renewable energy: its ability to drive down wholesale electricity prices.

Yes, the business cycle is driven by profits. Declining profits are destructive in that they lead to past investment not being validated by current (and currently forecast) revenue. So the wholesale electricity production sector is either in crisis or looking at one, due to the excessive investment in gas powered plants over the past decade.

Because there's lower demand for gas power, gas prices have also collapsed, hurting gas prospecting companies. See the weekend Salon.

None of this is a bad thing for energy infrastructure, it is bad for energy business.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS

by Migeru (migeru at eurotrib dot com) on Mon Oct 22nd, 2012 at 05:31:42 AM EST
[ Parent ]
Wait. I. Um.

<shifts mindset>

THOSE POOR COMPANIES! THEIR PROFITZ! THE PAINZ!

by Colman (colman at eurotrib.com) on Mon Oct 22nd, 2012 at 05:41:59 AM EST
[ Parent ]
Jerome a Paris:
renewable power generators, which have large subsidies, low operational costs and free fuel, can offer cheaper prices than owners of plants running on conventional fossil fuels.

Not to forget the large subsidies fossil fuels benefit from?

by afew (afew(a in a circle)eurotrib_dot_com) on Mon Oct 22nd, 2012 at 08:34:52 AM EST
[ Parent ]
The subsidies are completely irrelevant to the fact that they have low marginal cost - only the low operating costs and absence of fuel costs are relevant here.

Certain support regimes (like tax credits) which are totally disconnected from the power markets can give an additional incentive for renewable energy producers to bid negative prices on the markets to have certainty of dispatch in massive generation surplus periods (as the separate revenue flow ensures positive cash flow despite negative prices) - which just goes to show that all the complex "market" support regimes easily create perverse incentives just as much as - if not more than - the simpler (but 'socialist') FiTs.

Wind power

by Jerome a Paris (etg@eurotrib.com) on Mon Oct 22nd, 2012 at 09:30:10 AM EST
[ Parent ]

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