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Germany

Germany

Wind blamed for network instability in Europe -- Utilities put wind in political hot seat over cross-border trade

A complicated game of political charades is underway in European energy circles, apparently with the aim of bluffing politicians into believing that uncontrollable flows of German wind power are not only destabilising power systems in Poland and the Netherlands, but taking up transmission capacity that would otherwise be used for gainful trade of electricity across national borders. The game is being played by Germany's electricity majors, aided and abetted by the Dutch and Polish transmission network operators.

The actors are blaming the "inflexibility" of Germany's renewable energy law, which requires that all wind power is bought by utilities at a premium price fixed by government. The claim is that wind power production in excess of requirements has to be pushed out of Germany and onto networks in the Netherlands and Poland.

According to Dutch grid operator Tennet, these unexpected volumes of wind have nearly resulted in blackouts in the Netherlands (next story), while in Poland generation already ordered from other plant has had to be cancelled, with resulting economic repercussions. says Vattenfall Europe Transmission. Even the Czech Republic has been affected, adds Vattenfall. E.ON Netz, the north German transmission system operator (TSO), concurs, saying that German wind power "is increasingly pushing the Dutch and Polish high voltage networks to their limits."

The extent to which wind power is actually responsible for the difficulties -- or whether inadequate arrangements for power plant scheduling in general are to blame -- remains unclear. Tennet has been discussing the issue of large cross border flows with the German economic and environment ministries. What seems to be happening is that Germany is channelling power from the windy north to consumers in the south of the country, using the networks of the Netherlands, Belgium and France. The German environment ministry, however, says it can find no direct link between excessive flows of electricity into the Netherlands and wind energy. Many other factors are playing a role, it says.

German wind energy association Bundesverband Windenergie (BWE) believes the wind problem is being exaggerated. "Problems arise when there is very much wind and very little demand for electricity and this happens very rarely," says BWE's Ralf Bischof. He believes lack of sufficient communication between national transmission operators to be a root cause of the problem.

Transmission system operators are not keen to share data with one another, says Bischof, a view also held by the European Federation of Energy Traders (EFET). It suggests the supposed problems with wind are part of a wider issue with TSOs. "They do not share enough information with each other and insufficiently transparent information about capacity utilisation is available to market participants who use the interconnectors," states EFET.

BWE also believes the Dutch complaints are part of a "targeted strategy" to undermine the German renewables law. By arguing the law hinders free trade of electricity across borders, the legislation could yet again be called before the European Court of Justice for contravening European rules on aid to industry, he fears. A 2001 ruling by the court allowed the German wind law, but indicated the topic may have to be revisited if it hindered free trade of electricity. Germany's electricity federation, the Verband der Elektrizitätswirtschaft, claims it has to reserve capacity at cross-border transmission points to offload unwanted wind power, which is tantamount to "restricting the capacity that is available for cross-border trade."

Bound by the rules

According to Anja Chales de Beaulieu of E.ON Netz, in times of high wind generation the TSO has little room to manoeuvre. Only when security of supply is seriously at risk is it legally allowed to interfere in the market -- and cancel generation already ordered by a customer -- or take over cross-border transmission capacity that would otherwise have been allocated for auctioning to power traders.

To maintain security of supply, E.ON sent power out of the country on 58 days between the start of November last year and the end of March because its network was "overburdened due to wind energy," says Chales de Beaulieu. The selection by E.ON Netz of the cross-border transmission option, rather than solving the problem in its own area, is what is infuriating Dutch ISO Tennet.

The implication is that German rules for day-to-day power scheduling ensure that reserve and balancing power can cover a sudden fall in demand, but there are no arrangements for dealing with increases in wind generation, even though swings in wind output are likely to be smoother and can be more predictable than swings in demand. Complicating E.ON's limited choice of action for regulating power, says Chales de Beaulieu, is the issue of who is responsible for paying compensation to a generator if a contract agreed with a customer is cancelled by E.ON Netz -- consumers in the E.ON Netz area, or all German consumers as part of the price they pay for wind under the renewable energy law. "The situation is new," she adds.

Market flawed

From the European Wind Energy Association, policy director Christian Kjær puts the blame for the furore squarely on the structure of the German power markets. Flooding neighbours with power is a sign that market structure is flawed, he says. German rule-makers are ignoring repeated warnings from the German Cartel Office about abuse by the energy majors of their dominant positions in the power market, he says. "An effective regulator is essential for a market to function as intended, just as with stock exchanges," adds Kjær.

In Germany, the four regional monopoly generators own the regional monopoly network companies -- and each of them operates its system as an island. "With no effective unbundling of transmission and generation, the TSOs are -- understandably -- doing what best suits the pockets of their affiliates rather than customers," continues Kjær. Since the German market rules do not make it an economic priority for anybody to juggle thermal generation with wind generation, the best option is send the problem to the Netherlands and Poland.

"The grid is a natural monopoly. It has to be completely separated in ownership, otherwise the energy companies can control transmission and influence prices and the internal market for electricity will never work," says Kjær. "If it can be done in Spain, the Netherlands and UK, it is certainly possible to do it in Germany and France.

"As it is, the German power market structure gives no incentive for the power monopolies to increase the use of wind energy. In fact, wind energy is the largest threat to the vertically integrated utilities' monopoly."

E.ON, he says, has little interest in the expansion of cross border interconnectors because it does not want cheap Danish wind or Scandinavian hydro power to flow into Germany as this would tend to lower the price of power in its own jurisdiction and thus undermine profits. "There is nothing strange in power companies trying to defend a monopoly position in generation and transmission. The problem is that the politicians allow them to do so at the consumers' expense."

Solutions

At least some of the cross-border barriers would have come down had Europe successfully implemented its Internal Energy Market, but progress towards that end is painfully slow. Kjær says the European Commission has been "tireless" in its efforts to achieve real competition in the power markets, aggressively pushing for more interconnectors and full ownership unbundling between transmission and generation. "Unfortunately, European governments have shut down the proposals in the Council," says Kjær.

Last month the EU competition commission launched an inquiry into the wholesale gas and electricity markets. The inquiry is focusing on trade barriers preventing the integration of national transmission systems and the functioning of cross border connections. The inquiry should identify where markets are failing to function effectively. The best market for customers is one which gives priority to electricity with the cheapest marginal cost, says Kjær. Wind power, which has no fuel cost, falls into this bracket.

On the technology front, utilities are also beginning to work on short and long term solutions to ease both the integration of wind power and cross-border bottlenecks. E.ON Netz is altering the electrical geometry of the network to ensure more power flows through Germany, rather than around it. The TSO also plans to install new phase shifting transformers in northern Germany to better direct the flows of power and expand the high and medium voltage network to cope with growing volumes of wind.

Vattenfall Europe Transmission, the grid company of Germany's third largest energy group, is also preparing for network expansion to facilitate electricity marketing and trading across Europe. But when these lines get built -- and whether the true priority is to facilitate efficient flows of power and cross border trade -- remain unanswered questions.

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