Massive conventional power overcapacity distorts German market

GERMANY: Despite Germany's much-touted switch to renewables, the country still uses fossil-fuel generation to cover peak demand while wind are solar are discounted.

Imbalance… When the available wind power was taken into the system, overcapacity at the moment of peak load in 2015 reached almost 40GW (pic: RWE)
Imbalance… When the available wind power was taken into the system, overcapacity at the moment of peak load in 2015 reached almost 40GW (pic: RWE)

Unlike countries around the world where renewables are filling a deficit in power generation, Germany's wind developers are expanding into a domestic power market that is still hugely oversupplied by fossil-fuel generators.

Exact estimates of the overcapacity are hard to come by. The regular five-year assessment on surplus capacity available to cover peak demand presented by Germany's four transmission system operators (TSOs) indicates a downward trend.

However, this is widely judged as very cautious since it sets wind energy's potential contribution to covering peak consumption at just 1% of actual installed capacity - counting only 480MW out of a total 48GW in 2016 and 0% for solar's contribution of 40GW in 2016.

With peak demand at an assumed 81.8GW, the surplus in firmly available generating capacity for the German market was calculated to be around 9GW in 2015, and is expected to reach 10.1GW in 2016 and 2017, before shrinking to 7.4GW in 2018 and 4.1GW in 2019.

But with actual peak load in 2015 at only 78.2GW (at 5.30pm on 24 November) and taking the wind power available at the time, there was a huge 39.6GW generation surplus, according to the TSOs' data.

For official figures not to take any real account of wind and solar at all is "a big, big joke," one electricity-trading source told Windpower Monthly.

While the TSOs' caution is understandable - after all, they are responsible for keeping the lights on - electricity-market indicators point to continuing overcapacity similar to that actually seen on the day of peak load in 2015.

These indicators include continuing low wholesale electricity prices, idling or mothballing of considerable gas-fired capacity and the massive electricity export surplus, said a spokesman for think-tank Agora Energiewende.

What price reserve power?

While many German fossil-fuelled power stations are well over 30 years old, they have often been modernised over the years and their controls adapted for more flexible operation.

And, as Agora Energiewende points out, although conventional capacity will be needed less and less often, for many years to come it could remain indispensable on gloomy days with no wind, especially when electricity demand is high.

How the existing conventional plants, not to mention any potential new capacity, will cover their operating and financing costs when being called up so infrequently, and while prices are low, is a question all operators are faced with.

Many seem to be holding out hope for a capacity market where power stations are paid simply for staying in the market.

But for now, the German government insists the current overcapacity has to go before it will consider a capacity market, noted MVV Energie, a stock-exchange listed municipal utility with mainly fossil-fuel but also renewables generation assets.

The government's philosophy is to allow scarcity in generation to be expressed as very high electricity prices, which in turn should finance new generating plants, rather than pay subsidies to secure generating capacity, as is the case in the capacity markets in the UK and France.

Indeed, if all the power stations earmarked for closure were actually decommissioned, the power market would be very different. But operators are "gaming" the market, according to MVV Energie.

Any company closing conventional power station could trigger a price rise that would help its competitors keep their plant in the market, so some companies seem to be merely feinting closure.

For instance, in November 2016, coal-fired generator Steag announced five coal-plant closures totalling 2.5GW for 2017, but it later emerged that two were only temporary closures.

Future prospects

Poor wind speeds in Germany led to disappointingly low electricity generation from wind farms in 2016, slightly easing the overcapacity problem.

Wind speeds last year were around 13% below the ten-year long-term average in coastal areas and nearly 7% down in inland areas, according to the IWR wind-yield index.

As a result, wind-power generation dipped to 67TWh in 2016, compared with 71TWh in 2015, despite onshore wind capacity additions of around 4GW.

Expansion of offshore wind, which added 818MW in 2016, after 2.43GW in 2015, led to 13TWh of generation from wind projects at sea, compared with roughly 8TWh in 2015.

But combined onshore and offshore wind merely edged up by 1TWh to roughly 80TWh in 2016.

If 2017 winds turn out to be better, more wind generation in the market, continuing low wholesale electricity prices and growing problems with the huge export surplus could force a few more fossil fuel-power stations to exit the market. But the overcapacity in the market is so big that the problem is likely to continue for the foreseeable future.

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