Whereas gas-fired power grew strongly in Germany in 2016, the output of renewables declined slightly. CO2 emissions went up, as did network tariffs and consumer prices. Renewables were funded 70% through auctions and just 30% through feed-in tariffs. An overview by Marius Buchmann.
Gas-fired power production Germany grew significantly in 2016, increasing its share in total production by 38% compared to 2015. It was the first time since 2011 that gas-fired power production grew, writes energy economist Marius Buchmann of Jacobs University in Bremen on his blog Enerquire. He bases himself on the Monitoring Bericht 2017 from the Bundesnetzagentur (BNetzA), the German regulator (which you can find here – in German).
The overall picture looks as follows:
Although renewables capacity increased, renewables production actually slightly decreased, as shown in the following figures:
“The primary reason for the rather stable production from renewables was the low wind speeds in the north of Germany. Due to this reduced wind speed, electricity production from onshore windfarms dropped by 6.5% in 2016 compared to the production in 2015”, writes Buchmann. He observes that “In the current version of the renewable energy law (EEG 2017) the German government has defined an annual path for further expansion of each renewable generation technology. While onshore wind significantly exceeds the targeted 2.8 GW, solar-powered generation missed the development path defined by the government by 1 GW (target for 2016 = 2.5 GW).”
Buchmann has drawn a lot more interesting observations from the BNetzA report, which we summarize below:
More than 70% of production is funded via maker premium model
“The fixed feed-in tariff model has gradually lost importance since 2012. In 2016, more than 72% of total renewable electricity production was funded via a market premium model and only 28% still received a fixed feed-in tariff. While 93.5% of all onshore wind farms and 100% of the offshore windfarms used the market premium model, only 22.6% of total electricity production form solar power was based on the market premium model.”
CO2-emissions of electricity production increased by 1%
“The CO2-emissions from electricity generation increased by 3.6t in 2016. In its report, the BNetzA (2017) stresses that this increase is mainly due to better data availability and not due to a real physical increase of CO2-emissions. The primary source of CO2-emissions in electricity production is lignite, which emitted more than half of the total emissions in the electricity sector, but produced only 23% of total production.”
The need for congestion management and its costs are still high
“On 329 days in 2016 the transmission grid operators had to apply redispatch to secure system stability. In total, 6,3 TWh of production had to be curtailed for redispatch, which equals 1.5% of the total production of all non-renewable generators (1.9% in 2015). Compared to 2015, the requirement for redispatch was reduced by roughly 25% in 2016. Correspondingly, the costs for redispatch fell from €412 million in 2015 to €220 million in 2016.”
“Similar to redispatch, the need for feed-in management (curtailment of renewable production to secure system stability) in 2016 fell by 20% compared to the level of 2015. This means that 2.3% of the total production from renewables had to be curtailed to secure system stability (2.9% in 2015). The primary driver for the reduction of feed-in management was the lower wind power generation due to lower wind speeds in the north of Germany in 2016 compared to the wind production in 2015. As a result, the significant production peaks of wind farms fell by 25% compared to 2015. Still, the requirement for feed-in management remained on a high level and is estimated to rise again in 2017.”
“The compensation costs for feed-in management in 2016 reached a level of €373 million and are therefore significantly lower than in 2015 (€105 million less).”
Network tariffs increase, especially for households
“While the network tariffs for households in Germany remained rather constant in the period from 2013-2015, they increased by 9% in 2016 (+€0,59 ct/ kWh). A similar increase can be observed for commercial (+6%) and large industrial consumers (+10%) in 2016. This is especially due to the energy transition as decentralized generation from renewables requires investments in network infrastructure and increases the need for congestion management. Furthermore, self-consumption of renewable electricity, e.g. through private solar power plants, led to a decrease in the total demand (in kWh) from the network and thus to an increase in the network charges per kWh.”
Wholesale prices dropped to the level of 2007
“As could be observed regularly over the last years, the average price for 1 MWh on the wholesale market in Germany dropped again. Compared to 2015, the average price on the wholesale market for base load (Phelix-Day-Base) dropped by 8% in 2016, from 31.63 €/MWh in 2015 to 28.98 €/MWh. Thereby, the average wholesale prices have reached the lowest level since 2007.”
“Correspondingly, the average peak load price (Phelix-Day-Peak) was reduced by 9% (32.01 €/MWh in 2016) below the level of 2015 (35.06 €/MWh). This means that the average peak price (Phelix-Day-Peak) in 2016 was only 10% higher than the base load price (Phelix- Day-Base) in 2016. To put this into perspective, in 2008, the difference on average between these two prices was 21%.”
Consumer prices increased – especially for basic tariffs
“Though the wholesale prices decreased in Germany in 2016, this cost reduction did not mean a price reduction for consumers. On the contrary, consumer prices increased above the levels of 2015, especially driven by higher network charges.”
Consumer choice and retail competition on the rise
“In 2016, the consumer’s choice between different retailers and products has grown again: in 86% of all network areas of distribution grid operators there were at least 50 retailers active (compared to 25% in 2007). In more than 50% of all network areas the number of active retailers surpassed 100, while four years ago this was only the case in one third of all network areas.”
“As an even more significant indicator of retail competition, the switching rate of consumers (private, commercial, industrial) increased as well. While 11.4% of all private household switched tariffs in 2016, more than 12.5% of non-private consumers did so in 2016.”
No smart meter-rollout due to missing products that match German requirements
“Though digitalization is discussed on every energy-related event in Germany, consumers still don’t have access to smart meters. In 2016, the requirements for intelligent metering systems (smart meters that are able to communicate data outside the household) have been defined, but there was and still is (now in November 2017) not one intelligent metering system available that meets the requirements defined by law in Germany. First intelligent metering systems that fulfill the legal requirements are expected to enter the market in Germany in the first quarter of 2018.”
Buchmann discusses the smart meter roll-out in Germany in greater detail in this post here.
Competition between metering operators very low
“Even though intelligent metering systems were not installed in 2016, there are still conventional meters in place and some consumers were equipped with modern metering systems (smart meters that are not able to communicate with external sources). In principle, the market for metering operation is a competitive market and open to every company that wants to become active here. Still, in 2016, only 9 metering entities were active in the market that had no affiliation with an incumbent energy utility or network operator. The market for metering operation is dominated by network operators and there is only little competition between them. On average, in each network operator’s business area, less than 1% of all metering points are operated by third parties.”
The “Big 4” lose market power in generation – mainly due to Vattenfall’s sale of lignite power plants to LEAG
“In line with the trend of recent years, the market power of the four largest utilities in Germany (Eon, RWE, EnBW and Vattenfall – the Big 4) in the conventional generation sector decreased again in 2016. Mainly due to the fact that Vattenfall sold its lignite power plants to LEAG the market share of the Big 4 + LEAG (which actually makes it the Big 5), the market concentration has dropped for Germany: 2015 the Big 4 owned a market share of 76.2% in conventional generation, in 2016 the Big 5 (with LEAG included) own a similar share (76.5%). If you want to find out more about the strategy of the Big 4 in Germany take a look here.”
“For 2017, it is likely that many trends such as the growing renewable capacity and production that could be observed in 2016 and before will further continue. One important change is that 2017 has seen a price increase on the wholesale market . This cannot be without consequences for production shares of different power plants and prices for private households.”
Marius Buchmann holds a Ph.D. in energy economics and works as Post Doc at Jacobs University in Bremen, Germany. He writes about energy on his blog Enerquire. This article was first published on Enerquire and reposted on our sister website The Energy Collective.