Nora Buli, Stine Jacobsen

OSLO/COPENHAGEN – Wind speeds this year were lower than average in Europe. This led to less electricity being generated by windmills. The result was a worsening of a power crunch, where utilities bought more coal to make up the difference.

This situation illustrates a problem facing the European Union in its efforts to increase renewable power and reach its climate goals: Power prices can rise when wind speeds drop, so generators will need to have ways to store excess power for strong winds.

“If we had high winds or just reasonable winds over that period, we wouldn’t have seen these price spikes,” said Rory McCarthy, principal analyst at Wood Mackenzie.

The demand for thermal power plants increased with less wind power, while tight natural gas supplies increased their costs. Businesses and individuals were both affected by the worldwide rise in gas prices. Some power providers were forced to reduce supplies by heavy industry.

The largest producers of wind in Europe, Britain and Germany harnessed only 14% of their installed capacity during the third quarter. That’s compared to an average 20-26% in prior years according to Refinitiv data. (Graphic: Capacity Factors Wind, https://graphics.reuters.com/POWER-PRICES/lgpdwoymbvo/chart.png)

Germany has Europe’s largest economy, and the continent’s most powerful wind energy capacity. The combined output of both on-and offshore wind farms in Germany fell to around 16%, Bruno Burger, an analyst from Germany’s Fraunhofer Institute said to Reuters. (Graphic: Full Load Hours German Wind Turbines, https://graphics.reuters.com/POWER-PRICES/gdpzymorkvw/chart.png)

Wind power is more affordable than traditional thermal power plants, which must also pay fuel and incur carbon emission costs. It has lower operating costs.

These low wholesale electricity prices lead to lower consumer costs. Prices rise when there are weaker wind conditions, which is not unusual, and thermal plants are required.

Anna Borg is chief executive at Swedish utility Vattenfall and sees two important lessons. According to Anna Borg, chief executive of Swedish utility Vattenfall, the first is that “the market will become more volatile in the future and that market must adapt accordingly.”

Additionally, there is a clear need for flexibility and storage. … We are just at the beginning stages of this type of business model.

European utilities are investing in storage systems, including large batteries and smart charging options for electric cars.

Many countries also want to encourage flexible consumption behavior, such as customers who reduce demand during certain times of the day. A better matching of supply and demand may help to maintain grid stability.

WindEurope estimates that Europe spends around 40 billion Euros per annum on its power grids. It is a lobby group. WindEurope also claims that Europe’s annual investment in these networks will double within the next 30-years to reach 66-80 Billion euros.

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The European Commission (EC) and the International Energy Agency, (IEA), said that recent record-breaking energy prices shouldn’t slow down efforts to reach the Paris Agreement’s climate goals by shifting away from fossil fuels.

Governments should instead increase wind power and other renewable energy sources. This will ensure more output, and less reliance on fossil fuels.

Christian Rynning Toennesen, chief of Norwegian utility Statkraft told Reuters that “the more renewable energy sources we can construct, the more electricity they will generate, and the less coal- and gas are needed to produce electricity,” he said.

He stated that he believes the current trend in renewable energy growth will be sustained and strengthened by electricity prices rather than being slowed.

However, some think the energy transition could be moving too fast. Reuters Europe’s shift away from fossil fuels is being described by Sindre Knutsson (Vice President Markets at Rystad Energy),

Knutsson pointed out that there are more stable coal-fired power plants than nuclear.

It’s not a secret that in the future, we will be using renewable energy to produce electricity. He said that at this time, however, the world still relies on fossil fuels.

Matthew Jones of ICIS, the lead analyst for EU Power, stated that low or zero emission back-up capacities for periods when there is no solar power or wind are more than a decade off being scale.

“So at the moment thermal capacity” he stated to Reuters.

Although earnings at several European wind generators suffered from this year’s winds lulls their businesses remain focused on increasing their capacity.

Orsted, the world’s largest developer of offshore wind farm projects (OTC) stated that the slower wind speeds caused a net loss of 2.5 billion crowns (379.20 million) in the first nine months of 2019 compared with 2020.

RWE Germany stated that weaker winds led to profits for its solar and wind units falling by 38% over the first nine months.

According to companies involved in the sector, there is no evidence that climate change played any role in the reduction in wind speed.

“We follow it on a daily basis, but we see nothing which indicate that there is a long-term change coming,” Orsted’s head of Continental Europe, Rasmus Errboe, told Reuters.

Statkraft regularly monitors wind speed and conditions, but has not experienced any unusual adjustments in its data according to the CEO.

Rynning-Toennesen stated, “To my knowledge there is no pattern that I can see.”

VOLATILITY

The heads of the two leading power trading firms agree that more renewables will cause prices to be volatile over the near and mid-term, because weather will heavily dictate the prices.

Jesper Johanson (chief executive, trading company InCommodities) stated that the European electricity market will soon experience a high level of volatility.

The market is capable of handling higher volatility. Power traders who make a lot from the gyrating markets say that the market has the ability to handle it, while price rises give investors an incentive for back-up funding.

The market must give that price signal in order to attract commercial investment into storage systems other than batteries. Johanson said that volatility is necessary and the stronger the price signal, the greater the number of investments we’ll see. (Graphic: Next-Day Power Prices 2020-2021, https://graphics.reuters.com/POWER-PRICES/gkvlglogwpb/chart.png)

High prices should favour construction of more renewable energy, agreed Anders Bauditz, chief executive of trading firm Norlys Energy Trading.

“Hopefully, the politicians have seen these price extremes over the last few months and will do the tally and then realize that probably we need to push for even more green energy and then figure out how we solve the problem with the intermittency,” he told Reuters.