3 questions to smart minds

Influence of Renewable Energies on the Electricity Market in Germany

For this 3 questions to A. Flatz

ZOUK Capi­tal
Photo: A. Flatz | ZOUK Capital
24. Novem­ber 2011

Elec­tri­city markets in Germany have moved in an unex­pec­ted direc­tion, with elec­tri­city prices falling. — Ever­y­thing points to new consu­mer models in the future. More and more busi­nesses and house­holds could switch to produ­cing an ever grea­ter share of their own elec­tri­city needs them­sel­ves. In a few years, the total cost of elec­tri­city could even be signi­fi­cantly higher than the cost of self-production. 

For this 3 ques­ti­ons to Part­ner at ZOUK Capi­tal, London

1. How is the elec­tri­city market curr­ently deve­lo­ping in Germany?

The elec­tri­city markets in Germany have deve­lo­ped in a direc­tion that was quite unex­pec­ted for many: rene­wa­ble ener­gies are lowe­ring elec­tri­city prices! — On average this year, 12-month EEX whole­sale prices for both base and peak load power have decli­ned. Peak load in parti­cu­lar has come under pres­sure due to the strong expan­sion of photo­vol­taics. In combi­na­tion with rising gas prices, this has even resul­ted in gas-fired power plants’ gross margins for the 12-month contract for base load being nega­tive for almost 12 months now. Even for peak power, gas-fired power plants were not able to gene­rate a posi­tive gross margin on a monthly basis this year. The reason: the margi­nal cost of produ­cing rene­wa­ble energy is almost zero, since wind and solar are free. The gas-fired power plant, on the other hand, has to pay for every cubic meter of gas. This deve­lo­p­ment was favored by the excep­tio­nally good weather in 2011. Clear skies have led to extre­mely favorable condi­ti­ons for photo­vol­taic instal­la­ti­ons, resul­ting in unusually high PV energy yields.

2. How can it be that rene­wa­ble ener­gies have such a posi­tive impact on the elec­tri­city market?

The appeal of rene­wa­ble energy is its low opera­tio­nal cost. Once instal­led, they produce almost for free (except for small main­ten­ance costs). Now the share of rene­wa­ble ener­gies in Germany has reached almost 25%. PV and wind are slowly beco­ming the price-deter­mi­ning form of elec­tri­city. — This posi­tive impulse from rene­wa­ble ener­gies on whole­sale elec­tri­city prices was not expec­ted by market parti­ci­pants in this way. Rather, that market prices would rise shar­ply after the German reac­tors shut down. — Howe­ver, the oppo­site has occur­red: the grid has not collap­sed and whole­sale elec­tri­city prices are falling due to the influence of rene­wa­ble energy.

In recent years, the cost of elec­tri­city for the end consu­mer has risen shar­ply due to the EEG costs. This increase is now expec­ted to flat­ten out and settle at about the level of infla­tion — for 2012, the increase in EEG costs was set at about 3.5%.

3. What are the conse­quen­ces of this deve­lo­p­ment for the elec­tri­city market and competition?

In the short term, the low elec­tri­city prices on the EEX mean that no new gas-fired power plants will be built. In the long run, the low opera­tio­nal costs of wind and solar power lead to a grea­ter distinc­tion between consump­tion and capa­city costs. The pricing mecha­nism will be more capa­city-based. — It is possi­ble that in a few years a simi­lar situa­tion will occur as in mobile commu­ni­ca­ti­ons: I pay monthly for the provi­sion of band­width — i.e. capa­city — and receive a certain amount of consump­tion for free, for exam­ple 2,000 free call minu­tes per month will corre­spond to a certain amount of kWh consump­tion that can be used for free.

I expect this deve­lo­p­ment to streng­then Germany’s compe­ti­tive posi­tion. Germany is also a leader in energy policy: higher energy prices in the short term have led to effi­ci­ency measu­res. In the longer term, energy prices will stabi­lize because the opera­tio­nal costs of produ­cing elec­tri­city will increase less than if an economy relies on gas, coal, oil, or nuclear

Subscribe newsletter

Here you can read about the latest transactions, IPOs, private equity deals and venture capital investments, who has raised a new fund, how Buy & Build activities are going.

Get in touch

Contact us!
fyb [at]