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.

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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.