By Roy L Hales
Germany’s wholesale electricity prices have been declining for years. Look at the graph above and you will notice they have not been this low since 2002. If that appears to contradict some of the stories the media has been circulating, remember those stories are based on retail prices. A recent study found EU electricity prices have fallen 35%-40% since 2008, but those savings have not been passed on to consumers. The data from Frauenhofer ISE gives a very different perspective from what you find in Bloomberg or the Wallstreet Journal. Germany’s grid appears to be getting more more stable and Germany obtained 31% of its energy from renewable sources YTD.
There has been a marked increase in the amount of renewables (wind, solar, Biomass) used and a corresponding decrease in conventional fuel usage. Brown coal use is down 4% and hard coal about 11%, compared to last year. The biggest reduction is in the gas sector, where the numbers have been halved during the past four years.
The transition to renewable energy has been challenging.
Unexpected surpluses or deficits of electricity can wholesale spot prices to spike or sometimes plummet below zero.
This is not a “German” phenomenon. It happens in other countries, such as the US. According to the EIA:
“In 2011, InterContinental Exchange (ICE, a widely-used, internet-based, bilateral trading platform for matching buyers and sellers) reported 84 instances of negative prices, 80 of which were in the Pacific Northwest. Each of these 84 instances was for ICE’s off-peak product for power delivered during the periods of time when electricity demand is lowest (including a block of eight hours overnight as well as all day Sunday).”
The interesting thing about Germany, is that these spikes do not seem to be as extreme since 2009. (The direction of the spike has also changed, spot prices are now more likely to drop than rise.)
The German grid has not lost more than 16 minutes per customer a year during that same time period, which is pretty good compared to the +4 hours in the US and Canada.
A great deal has been written about Germany’s power surplus. It is the World’s fourth largest economy and has has been exporting power since 2003.
By way of comparison: the World’s largest economy, the US, has been carrying an electrical energy trade deficit for years. It imports millions of megawatthours from Mexico and Canada every year.
Germany did not adopt a feed-in-tarrif program, for solar, until 2004. Seven years later, Germany adopted Energiewende as state policy. Co-incidentally that is also the year that last downward dip in electricity prices began (top of page) and when energy exports really took off.
The German people are paying some of the highest electricity costs in Europe. One of the reasons is a surcharge, currently amounting to about 6.24 euro cent per kWh, which is used to fund the adoption of green energy. Discount that from some of the other prices below and Germany’s prices get look competitive.
Some of the negative stories currently circulating in the media arise from the fact German industries that produce their own energy will no longer be exempt from paying the surcharge. They will have to pay 30% of the surcharge in 2015 and 40% by 2017.
According to the Berlin-based think-tank Agora Energiewende, Germany’s wholesale prices are actually lower than France’s! So even with the surcharge, Germany’s rates could be cheaper than half the prices on that chart.
(This is an area where the US beats Germany. Electricity is very inexpensive in North America. Translating June 2014 rates in the Lower 48 into euro cents, the spread was from 7.61 to 13.71 per kWh.)
Thanks to that surcharge, Germany is now allocating roughly 157 euro ($210 US) for the necessary upgrades that will allow their grid will be able to derive most of its energy from more intermittent sources like the wind and sun.
That surcharge has also enabled them to build the infrastructure that used 31% renewable sources during the first 7 months of 2014.
It is obvious that Germany is facing some tough challenges, but they need to be examined in perspective.
Germany is well on its way to reaching its goal of deriving 40% of its electricity from renewable sources by 2020 and 80% by 2050.
Sources for Comparison of Select Retail Prices
- (a) wikipedia http://en.wikipedia.org/wiki/Electricity_pricing
- (b) Shrink the footprint http://shrinkthatfootprint.com/average-electricity-prices-kwh
- (c) Vaasa Global Energy Think tank http://www.vaasaett.com/wp-content/uploads/2013/05/European-Residential-Energy-Price-Report-2013_Final1.pdf
- (d) EU Energy History http://notalotofpeopleknowthat.files.wordpress.com/2013/10/image28.png
(Image at top of page: Absolute change in electricity production First seven months 2014 versus first seven months 2013 - Fraunhofer ISE)