Europe’s electricity market challenges
Hans ten Berge, Secretary General of Eurelectric spoke to Adam Morton about the challenges facing the electricity market in Europe and the need to stop renewable energy subsidies.
Outlining the situation in Europe at present, Eurelectric’s Hans ten Berge noted that whilst Europe is on course to hit its 2020 targets for efficiency, renewable and CO2 emissions, customers in some countries are being left with very large and rising electricity bills.
Germany is typical of this price problem, where the wholesale market cost of electricity is €200 per MW/hr but the customer has to pay €300 MWh ten Berge also noted that a meeting is due to take place in Brussels as the steel and aluminium industry is unhappy about the price of electricity in Europe compared to the United States.
When asked why is electricity so expensive in Europe? ten Berge reasoned that a lack of a cross border intraday market and a lack of cross border competition in the balancing market are key factors. He also took aim at rising capacities in some nations, due to renewable subsidies.
“The other side of the story is capacities,” said ten Berge. Do we have sufficient capacities? Every country which has sufficient capacity is shouting we don’t need capacity remuneration e.g. Germany they have 30GW as maximum peak capacity. 30GW is what they need at maximum and they have 70GW of renewable energy, 30GW of classic standby and are building a further 7GW of renewables again, so for every 1GW used they have 3GW.
“The total cost of this capacity is charged to the consumers to feed in tariffs or to remuneration for strategic reserves. The wholesale price is around €30 but the government is asking for around €60 on top of the €30 to finance this system. This is not cheap or competitive. It is a system that has lost all track with the market. It is not investible, people are looking to shut down as quickly as possible and because of that, in order to shut down in Germany you need at least 12 months before you can shut down the loss making plant. This is the environment, the capacity which you have, has been subsidised so you don’t need to close down.
“Is this a sustainable internal market? Let’s look at Sunday afternoon, I’m not trying to bash Germany but if you have three times your volumes what do you do when you have so much renewable energy that you cannot get rid of it? You dump it elsewhere and if others don’t want it, you pay cash for it. You pay negative prices on your renewables which you export to get your system balanced.
“What are the neighbours going to do? Phase-shifting transformers are put on the border in order to limit the imports. This is not working, what are the consequences? The German citizens are paying subsidies for negative price energy which they are exporting. The desire to invest in any form is stripped away by these market conditions, as there is no value in generating electricity. We are shifting to an industry with low variable cost and high capital cost.”
After outlining the problem ten Berge spoke on how he would address this, highlighting his desire to see an end to renewable energy subsides, something he feel falsely inflate the market.
“Subsidies on renewable energy is, in my opinion, a dead end,” claimed ten Berge. Nuclear is not affordable and is time consuming. You don’t have many alternatives. Renewable energy is the market driver but it will not be as long as you subsidise the renewable market so we need to have a look at renewable energy and capacity subsidy.
“For renewable energy we should go from a feed-in price guaranteed for 15 years, towards an auctioning system. There is a market based need for renewable energy at 47 per cent they set the market price so the market should adapt. We will still need money for research of course, but not to support investment and kWhrs, they should be borne by the customer directly.
“Support schemes should disappear, but renewable energy contracts that have been made should be honoured, retrospective adjustments should not be allowed. If a government is contracted they should stand over their contracts.
“I don’t think I would be wrong if I were to say there are no bankers willing to invest in the utilities market at this moment without having a certain degree of guarantee. The UK and Belgians want capacity remuneration because they can see a shortage of capacity coming up. I think customers would be willing to pay quite a high amount for electricity but are you allowed to say ‘there is a scarcity you have to pay more’, we have seen that when there is a surplus, governments don’t jump in but they do when there is a lack of capacity.”
ten Berge expanded upon his reasoning for the removal of the subsidies but also admitted he is not optimistic that the removal of subsidies will happen anytime in the near future.
“I’m negative about the cost of renewables. It is fragmented all over Europe and destroys an internal market by bringing renewables to the market at a price which is higher than needed,” said ten Berge.
“If we want to build an energy market, we should have renewables in a much more competitive environment. The logic to subsidising them is something I don’t understand now that it is the dominant market force.
“Am I optimistic that this will happen? There is quite some talk needed to get a harmonized approach between the 28 member states. National interests are prevailing above the common market. In air fleets and telephone companies this has all changed to a more European approach and I feel confident this will happened in the energy sector but we are still in a phase where we are hesitating at this moment in time.”
