Why electricity prices have exploded in Germany

Why electricity prices have exploded in Germany

2024-11-08 18:30:00

It is a word without a French equivalent, which appeared in the German vocabulary: the “ dark lull » – which could be translated as “dark slump” -, now describes these periods without wind and without sun during which the electricity system is put to the test across the Rhine, as the country relies on wind power and electricity. photovoltaic to produce its current. And for good reason: in the absence of nuclear power, the problem becomes recurrent, and this week provided a new insight.

On wholesale markets, the price of electricity rose to 820 euros per megawatt hour (MWh) in Germany on the Epex exchange, between 5 and 7 p.m. on Wednesday, November 6. That is ten times more than usual, since it rose on average, in recent months, between 60 and 80 euros/MWh. Of course, the surge did not last: an hour later, prices had fallen back to 450 euros/MWh, before flirting again around 100 euros/MWh since. But the event was enough to alert the national media: “ The price of electricity is the highest since the energy crisis », headlined this morning the economic daily Handelsblattnoting that the “ dark doldrums ” was ” temporarily come true ».

“Electricity is suddenly as expensive in the evening as it was in the middle of the energy crisis in 2022,” the business weekly highlighted the day before Business Week.

Energy: electricity storage, largely absent from the French strategy

“Extreme state-of-the-art” power plants

Concretely, to the cruel lack of wind and the absence of sun was added a resumption of consumption, due to colder temperatures than expected. This forced Germany to operate so-called “peak” oil-fired power plants, that is to say called as a last resort, to meet demand. But these installations are expensive to operate, not only because of the price of the fuel burned – fuel oil, therefore – but also the cost of the associated CO2 and, above all, significant start-up costs.

However, it is the power plants switched on last, called “marginal”, which set the price on the electricity market at each moment. And this, for a specific reason: if it cost more for the owner of one of them to start it up than not to produce it, he would favor the second option… which would lead to a supply deficit.

« Paradoxically, this is what ensures the lowest price on average over the year. Without peaks for a few hours per year, we would not pay for the extreme peak assets which ensure the supply-demand balance during moments of tension », Explains Emeric de Vigan, head of electricity markets at Kpler.

Only here: this type of episode could well be repeated more than “ a few hours per year “. Germany has closed its last nuclear power plants, and is now setting itself the objective of achieving a 100% renewable electricity mix by 2035 – without coal or gas, therefore. But the country cannot count on many dams, and wind and solar power, which it is developing massively, will remain very sensitive to the weather. As of Wednesday afternoon, wind energy only contributed 58 megawatts (MW) to the mix, compared to 11,700 MW for lignite and 13,464 MW for gas.

“Local signals” to reduce consumption

Faced with this problem, the Ministry of the Economy German had proposed, in July a measure as innovative as it is controversial: “local signals”. The principle: if there is little wind and solar energy injected at a given time in a given region, anyone who reduces their production will be rewarded, and punished otherwise. And this, through local variations in prices, supposed to reflect “ scarcity or surplus of electricity » at the place in question, the executive explained.

In other words, if such a measure were applied, companies would have to base their production on the weather. What ” relieve the network », very well served when the wind is blowing and the sun is shining but underpowered when the weather conditions are not right. A project “ completely crazy », Christoph Ahlhaus was immediately indignant, president of the association representing medium-sized companies BVMW, stating that “ machines need reliable, affordable electricity 24 hours a day, 365 days a week an ».

Electricity: Berlin’s shock plan to adapt to the weather

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**Interview with ⁢Dr. Ana Müller, Energy Policy Expert**

**Interviewer:** Thank ⁢you for joining us today, Dr. Müller. Let’s talk about Germany’s recent experiences with “Dunkelflaute” ⁢or‍ “dark lull.” Can⁤ you explain what this term means and why it is significant​ for Germany’s energy landscape?

**Dr.⁢ Müller:** ‍Thank you for​ having me! The term “Dunkelflaute” refers to periods when there is ⁤little to no wind or solar power generation. This is significant for Germany because the country has been heavily investing ‌in renewable ⁤energy sources, particularly wind and solar, to achieve a 100% renewable ​electricity mix by ​2035. However, ⁢during ​these “dark‍ lulls,” the electricity ‍system ​is put under stress,​ which raises the ⁢risk of supply deficits.

**Interviewer:**⁤ Recently,⁣ we saw electricity⁣ prices skyrocket in⁤ Germany ‍during a ‍Dunkelflaute, reaching levels not seen since the energy crisis‍ of 2022. ⁣What caused this spike in prices?

**Dr. Müller:**⁢ The ⁢surge in electricity prices can ‍be attributed ⁣to a combination of low renewable generation ⁣due to poor ‌weather conditions, an uptick​ in electricity demand because‍ of colder temperatures, and the reliance on expensive peak oil-fired power plants. ⁣These plants are costly to operate ‍and set the price on the electricity market ​during high-demand periods. As ⁢the ⁢demand increased and renewable generation dropped, these ​expensive sources were ‌activated, leading⁢ to a tenfold increase in⁤ wholesale electricity prices.

**Interviewer:** With Germany phasing out its nuclear power,‍ can ​you elaborate on the​ challenges this presents in ensuring⁣ a stable electricity supply?

**Dr. Müller:** Certainly. The closure of ​nuclear ⁣plants has shifted ⁤reliance onto renewables,‌ which ‍are variable by nature. While Germany aims for a greener energy future, the​ limitations of⁣ wind and solar power mean that energy generation can be ​unpredictable. ⁢There will inevitably​ be challenges in maintaining a balance between supply and demand, especially during periods of Dunkelflauten. This ⁢situation highlights ⁢the importance of ⁤energy⁣ storage solutions and ⁤reliable backup systems.

**Interviewer:** ⁢You mentioned the German Ministry of Economy’s proposal for “local signals.” How⁣ would this function to mitigate the effects of Dunkelflaute?

**Dr. Müller:** The concept of “local signals” is ⁢quite ⁤innovative.​ It suggests that in regions ‍experiencing low energy generation, consumers⁤ could be incentivized to reduce their energy usage. By providing financial incentives or signals to lower consumption during these peak demand times, the⁣ grid can better balance supply⁤ and demand, preventing the type of price spikes we ⁢recently witnessed.

**Interviewer:** ⁤given the increasing occurrence of Dunkelflauten, how ⁣can Germany prepare ⁤for⁢ these challenges moving forward?

**Dr. Müller:** Germany⁢ needs to invest in ‍diversified energy storage solutions, develop a robust grid infrastructure to balance regional variances in supply, and potentially rethink its ⁤energy mix to ‍include more flexible energy sources. Additionally,⁤ energy efficiency measures and consumer engagement will be crucial in navigating these challenges. It’s ​a complex ‍transition, but it’s essential for achieving long-term sustainability in energy production.

**Interviewer:** Thank you, Dr. Müller, for your insights into Germany’s energy challenges and solutions.

**Dr. Müller:** My ​pleasure! Thank you for discussing this critical‌ topic.

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