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It's true that until recently, the increase of retail prices in Germany had little to do with renewables and much to do with gas (and price policies with a lack of transparency). However, it was different last year. The key issue here is that it wasn't just the investment plans of traditional energy giants that was set up ignoring the merit order effect, but the feed-in law, too.

I explained this in detail in the first comment to UK Wind Power "Debate" : Latest (a joint diary with afew), but to recap in short:

  1. As a political compromise between the then governing SPD and Greens, energy-intensive industries were "exempted" from shouldering the supposed extra costs of the feed-in law.
  2. In practice, based on the erroneous assumption that market prices will stay independent of renewables, each year, the difference between expected feed-in tariff payouts and the expected average market price of the same amount of electricity was divided with the expected total consumption by minor consumers, and utilities added this figure as a surcharge to wholesale prices. (The difference between least year's forecast and reality was then subtracted from next year's.)
  3. Now what if renewables decrease market prices due to the merit order effect? Since the gap between feed-in rates for existing plants and market prices widens, the surcharge for minor consumers increases.
  4. The end effect is that minor consumers subsidize energy-intensive industries: the latter benefit from the drop in wholesale prices due to renewables while the former get a senseless surcharge.

This effect became significant last year, when the rise of solar power and its displacement of daytime peaks reduced wholesale prices significantly. If policy would be decided on a technical basis, the only logical consequence would be to scrap the 'energy-intensive industries exception' resp. the surcharge. However, enter politics.

Until early last year, the then environment minister from the CDU more or less protected the feed-in law against the insane neoliberal attacks from the FDP economy minister. Then he made the triple miscalculation (1) to entertain the thought that he is Merkel's crown prince, (2) to believe that he can get state governments to swallow a foul compromise with the economy minister on feed-in law revision, and (3) to view winning a regional election as a trivial career step. Then he fell spectacularly. His successor was a faithful Merkel foot soldier, who had no clue about environmental issues but knew everything about interest groups and political opportunism (anyone who thought that Merkel's post-Fukushima green makeover represented some long-term policy shift was sorely mistaken). And after sitting still for a few months, he began to play good cop–bad cop with the economy minister.

So the new spin is that retail prices are expensive because renewables are expensive (wholesale prices, what's that?), and the latter are expensive because lots are installed anew (degression, what's that?); and to solve the fictional problem, the new environment minister proposed to cap feed-in law payouts. Now for this to become reality, fortunately, they would have to convince the upper house of the federal parliament, which consists of representatives of the state governments, currently with a left-of-centre majority. Or that's what I'd like to say, however, one never knows about the SPD, what foul compromise they may enter, especially if coal is involved.

Now all of the above is still the before-last trend in the German power sector. But I'll deal with the newest twist in another comment.

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

by DoDo on Mon Mar 25th, 2013 at 05:41:08 PM EST
DoDo nails this issue, particularly #4, the following Paragraph, and the political analysis.

to date, not even the Greens (not especially the Greens) have made the case that it's the industry exemption that has screwed the pooch. Behind the public comments, the effect is well known, as Trittin told me himself.

i remain unable to comprehend this, as it's clear that a significant sector of the German electorate would understand, and vote accordingly. Instead, everything is taking place in negotiations behind the scenes, as befits an oligarchy.


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

by Crazy Horse on Mon Mar 25th, 2013 at 06:41:49 PM EST
[ Parent ]
To be precise: the limitation of the energy-intensive industry exemption to a narrower circle is treated as something everyone agrees upon, but only as if it were a technical side issue, rather than a homing in on the core problem.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Mon Mar 25th, 2013 at 07:24:41 PM EST
[ Parent ]
Here are the latest numbers for energy production and consumption in Germany, courtesy of AG Energiebilanzen e.V. (except for the % of consumption figures which I calculated):

Generation mode  Production% of consumption
2012 2011 2012 2011
Brown coal159.0 TWh150.1 TWh26.7%24.9%
Hard coal118.0 TWh112.4 TWh19.8%18.7%
Nuclear99.5 TWh108.0 TWh16.7%17.9%
Gas70.0 TWh82.5 TWh11.8%13.7%
Wind46.0 TWh48.9 TWh7.7%8.1%
Biomass36.0 TWh32.8 TWh6.1%5.4%
Solar28.0 TWh19.3 TWh4.7%3.2%
Hydro21.2 TWh17.7 TWh3.6%2.9%
Mineral oil9.0 TWh6.8 TWh1.5%1.1%
Domestic waste4.9 TWh4.8 TWh0.8%0.8%
Other26.0 TWh25.6 TWh4.4%4.2%
Total production617.6 TWh608.9 TWh103.9%101.0%
Net import-23.1 TWh-6.3 TWh-3.9%-1.0%
Gross consumption594.5 TWh602.6 TWh100%100%

As you would expect from the discussion of suppressed daily peaks, a major increase for solar and lesser changes for other renewables perfectly balance a drop in gas. You also see a drop in overall consumption (including losses and power sector own use), which is about the same as the drop in nuclear power generation. but what's really glaring is a jump in exports, with a corresponding increase in coal power generation, especially brown coal ( = lignite and sub-bituminous coal in English terminology).

The brown coal increase is mostly temporary. In August last year, two new high-efficiency power plant units started service (ones capable of rapid power variation, adapting to the new high renewables penetration reality). Although the addition of these unneeded new dirt-burners was at least compensated by the closure of older plants with a corresponding capacity, those closures didn't finish until the end of last year. But, temporary or not, this increase had a significant contribution to wholesale price reductions, too.

The development on the hard coal front, however, is expected to get worse this year. You may recall that in 2007, German energy giants promised 26, then 40 new coal plants to replace nuclear capacity. When I asked Where is my coal renaissance? two years later, I judged this "a campaign of wishful thinking ... meant to pave the way for the few plants they will actually be able to realise, in the struggle to maintain market share". Indeed most plans were scuppered, but each of those few remaining are still too much, and most are expected to come on-line this year: 5.3 GW is to be added while only 1 GW is promised to be closed.

In the real world, the consequence will be a dumping on power markets which further depresses wholesale prices. In the world of politics, I expect that the effect will be further attempts to blame the feed-in law and kill it before the federal elections in autumn. However, unless they can retroactively eliminate the 20-year fixed rate guarantee for renewables producers (rather unlikely), I don't see how the over-production would go away – and I think the continued low wholesale prices will ultimately hurt the energy giants with their shiny new coal plants.

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

by DoDo on Mon Mar 25th, 2013 at 07:20:48 PM EST
[ Parent ]
This is old news, but the picture isn't complete without the addition of the grid issue. On the system level, now that the scaremongering about threatening power shortage due to nuclear shutdowns and intermittent renewables doesn't work any more, attacks against renewable expansion now focus on the ability of the power grid to distribute temporary local peaks in production (like strong winds over the North Sea). Most of these attacks are grounded in a biased to highly misleading interpretation of current events (see Enron's disciples in Germany? for an example). However, it's worse that the assessments of future network capacity utilisation (prepared by grid operators) include forecasts of too high coal-fired plant production, higher than even the government plan. So who is really clogging up lines?

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Tue Mar 26th, 2013 at 07:50:00 AM EST
[ Parent ]

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