New proposals would kill solar and wind in the European Union 

In mid-May, European grid regulators spoke out against priority dispatch for renewables. If the proposals are adopted, it will be hard to add more wind or solar capacity. The European Commission’s winter package from December still protected renewables. Craig Morris explains what this means for Europe’s energy transition.

Before we get started today, we will need to understand two terms (feel free to skip this paragraph if you already know them). Priority dispatch for renewables simply means that the grid must take up power from wind, solar, and biomass (along with hydro, geothermal, and anything else you give priority to) even if sources with no priority (such as coal, gas, and nuclear) have to be curtailed. Curtailment is when power has been generated already or can be generated, but the grid cannot take it up, so it is thrown away. For more terms, see our Glossary.

In late May, the Environmental and Energy Law Foundation of Würzburg – simply called the “Würzburger” in German – produced a review (PDF in German, but with an English abstract on pp. 7-9) of the Commission’s Winter Package for “clean energy,” which had the following main items in this context:

• Renewable systems larger than 500 kW (and 250 kW or smaller, depending on how much is built, after 2025) would be curtailed first; conventional systems, later.

• The renewable generators would be compensated for 90% of loss revenue nonetheless.

The Würzburger say that “priority grid access” (a term I have often used as synonymous with “priority dispatch”) for renewables could remain unchanged, meaning that a grid connection would need to be provided. The loss of priority “dispatch” means that the power would no longer have to be paid for, however – and since that’s where the money is made, the economic incentive for wind and solar would be gone. That’s where the 90% payment is crucial; foregone revenue would be limited to 10% when power is curtailed.

Furthermore, the Commission would still curtail conventional power first, cogeneration second, and renewables last, as the Würzburger point out: “one can hardly argue that the priority dispatch is abolished by the Commission’s suggestion as {is} often worried.”

In contrast, recent proposals from the CEER and ACER are worrisome. In its White Paper on Clean Energy from January, the Council of European Energy Regulators (CEER) “welcomed the European Commission’s proposals to remove priority dispatch.” But the CEER would expose all generators to the “real-time value of energy.” In mid-May, the Agency for the Cooperation of Energy Regulators (ACER) issued a joint press release with the CEER arguing the same – and adding that compensation for curtailed renewable power should be done away with as well.

You might as well say you don’t want wind or solar

The problem, as the experts certainly know, is twofold. First, wind and solar react to the weather, not to prices. From the grid operator’s perspective, this situation is undesirable: they want generators that produce more power when needed and less when not. Solar and wind cannot be switched on.

Second, solar and wind cannibalize themselves. When the wind blows and the sun shines, more power is generated, so power prices on spot markets go down. If no payment is ensured for curtailment, it doesn’t matter how cheap solar and wind get; they price themselves out of the market [see story below]. In other words, if you want wind and solar, you want guaranteed payments for them. Calls for them to make do with spot prices (and, eventually, forgo curtailment payments) are tantamount to saying, let’s just not have wind and solar, shall we?

The Commission’s use of the term “clean energy” is dangerous. That could be anything: renewables, nuclear, coal with CCS, gas. If the climate is the only issue, nothing speaks against all these sources. Surprisingly, in this complex world, our best minds often reduce everything to one issue, if not one number (GDP, ppm of CO2, etc.). The only complication that CEER and ACER allow for other than cost is that wind and solar are not dispatchable, so let’s do nuclear, gas, and coal with CCS. Nothing else matters.

According to the Würzburger, the regulation proposed in the Winter Package – unlike a directive – would become law immediately; it would not need to be ratified by members states first. The Commission will take account of comments, including those from ACER and CEER, in moving from its Winter Package to the upcoming Clean Energy Package 2020-2030, expected in 2018.

Craig Morris (@PPchef) is the lead author of Global Energy Transition. He is co-author of Energy Democracy, the first history of Germany’s Energiewende, and is currently Senior Fellow at the IASS.

No business case for lots of wind and solar

by Craig Morris, 15 Jul 2015 – energytransition.org

In recent years, the increasing competitiveness of wind and solar power has been widely hailed. But there is a cloud to this silver lining – power production does not match power demand. As a result, the actual value of wind and solar power will decrease as we get more of it.
While everyone celebrates the increasing competitiveness of wind and solar, German analyst Lion Hirth says the value of these energy sources to our energy supply will decrease as we build more.

Electricity Production in Germany in December 2014
On 1 December, 2014, Germany’s conventional power fleet was able to sell around 60 GW of electricity at nearly 7 cents per kilowatt-hour. But just before Christmas, wind power picked up, bringing conventional generation down to around 20 GW – and the price down to a single cent. Sales revenue thus dropped to 1/21th of its high level, from 420 (60 x 7) to 20 (20 x 1). Clearly, wind and solar cannot finance themselves on wholesale markets because prices will plummet as soon as a lot of wind or solar is available. Edited chart taken from Fraunhofer ISE.

First, we have to make a distinction between price and value. The price is what wind and solar power cost. The value is what that green electricity offsets. Solar campaigners in the US talk about the value of solar instead of the price because solar power production peaks at midday – at a time of peak consumption. This solar power therefore initially offsets peaking generators, which are more expensive to run.

But for how long? A few years ago, analysts at the Brattle Group found that enough PV to cover around seven percent of peak demand would actually save costs overall in Texas. But what happens when PV peaks at 15 or 20 percent of demand?

Hirth has looked into this matter repeatedly. His numbers apply for Germany and cannot be transferred, say, to Texas, which has air-conditioning – and hence higher power consumption in the summer than in the winter (the opposite of Germany). But the principle applies everywhere, and it does not look pretty for high penetration levels of wind and solar power.
Value Factor of Wind and Solar Power

Source: Lion Hirth

Both wind and solar power start off with a value exceeding the price; the “value factor” is above 1.00. “Wind power production correlates seasonally with power demand, at least in Germany, whereas solar power production correlates with daily power peaks around noon,” Hirth explains the value factor above 1.00. But the value of wind power falls below that level when it makes up only a few percent of total supply. Solar starts off with a much higher value but quickly plummets. Once the value factor has fallen below 1.00, the price of this electricity is greater than the power it offsets.

Hirth’s numbers represent the share of wind and solar in electricity supply, not the share of peak demand. Solar now covers around seven percent of total power demand in Germany but peaks at close to a third of demand quite regularly on sunny days. So the business case for wind and solar gets worse as penetration levels increase – even as the price of these energy sources becomes more competitive.

Here, we see the challenges from the utility perspective. This is how campaigners in the US depict the value of solar:

Value of solar vs. cost vs. residential electricity price. Source: ILSR

The value of solar remains constant (in Minnesota) rather than dropping, according to Hirth’s calculation. As the article for the chart explains, the perspective is the consumer’s, not the utility’s. As a former Vattenfall (one of the main utilities in Germany) employee (but now independent), Hirth shows us that power markets will see a diminishing value for wind and solar. The “value of solar” argument therefore only works at very low levels of penetration from the utility perspective. At higher levels, it works against wind and solar.

For the past few years, there has been a growing recognition that, to quote German energy analyst David Jacobs, “refinancing any type of power plant via spot market sales of electricity will be increasingly difficult.” But conventional plants can respond to low prices by reducing production. As I put it once, wind and solar undercut themselves; the more wind and solar power is produced, the lower prices will be on wholesale markets.

Hirth estimates that there is practically no business case for more wind and solar in Germany at a combined penetration level of around 50 percent in Germany. Yet, the German government has an official target of 80 percent renewable electricity, and the large gap will not be filled by biomass, hydropower, and imports. Wind and solar will have to grow far beyond 50 percent.

I interpret Hirth’s analysis to show how useful feed-in tariffs will be towards meeting a political target that the market cannot bring about on its own. Hirth disagrees. “Numerous political recommendations can be drawn from my analysis,” he argues.

Wind and solar face an era of much slower growth in Europe. Spain and Italy reached high levels but have practically collapsed since, for instance. European governments are increasingly pushing for wind and solar to react to price signals. But because they undercut themselves, the only way these two energy sources can react to price signals is by not growing any further. Without policy changes, the market will not push the energy transition to 80 percent renewable power. Indeed, the transition might be over much earlier. After all, it was society that called for the Energiewende, not the market.