Germany has said it will double power output from renewable electricity by 2035. It's a noble goal but for industry it has been a bit of a headache.
Because solar and wind are sporadic, there are a lot of drops and surges in electricity and to moderate that the German government has to pay power companies to add or cut electricity within seconds to keep the power system stable. Businesses do not want their computers all shutting off while people are working.
How much are they spending? $1.1 billion in that balancing market, which is good for companies because they can get up to 400X wholesale electricity prices - and it's a drop in the bucket compared to the $30 billion per year the country spends on solar and wind. It's still a lot to do what regular energy does organically but when you want companies on standby you have to pay. Even California, which hyper-regulated energy and eliminated nuclear and then had brownouts because companies could not sign long-term contracts or raise rates to purchase on the spot market, didn't manage to overpay by 400X.
Germany believed it could offset the losses in solar and wind by charging for carbon credits - but the trade market is nonexistent. So they are in a weird spot. Renewables were given priority access to the grid and prices have gone down, which would seem to be good for customers, but when the price is fixed and the market plummets, the government subsidies are higher and the cost is more expensive. And then balancing market is used to offset lower margins for traditional energy that has lower priority today.
“At the beginning, this market counted for only a small portion of our earnings,” Hartmuth Fenn, the head of intraday, market access and dispatch at Vattenfall AB, Sweden’s biggest utility. “Today, we earn 10 percent of our plant profits in the balancing market” in Germany, he told Julia Mengewein at Bloomberg.
