Ahead of Platts’ European Power Summit in Berlin on 28-29 April, 2014, Henry Edwardes-Evans spoke to Graham Weale, Chief Economist, RWE AG, on German power market supply, demand and wholesale price dynamics, market design and the prospects for a German capacity mechanism. Lennart Ljungblom found some highlights in the interview.
RWE the large German headquartered utility is as all other players in the power market meeting a totally changed market compared with the expectations 10 years ago.
“Since 2007 we have had a constant demand in Germany no expansion as expected at the same time the supply of renewables has increased a great deal. The expectation we had in 2000-2005 was very different, we expected more growth in demand.”
Actually in 2012 the last year we have full statistics of we had 76 TWh less demand than we would have expected. 30 TWh due to stronger development in renewables and 45 TWh because of the static demand, because of the euro crises.
But this volume problem is only half of the total problem.
The situation is even worse if we look into the price situation. The whole sale reached it´s peak 66€/MWh in 2008 and is now down with 50% to 33 €/MWh. And on top of this the difference beween peak and base price has also halfed, the flexibility is much less.
5 reasson makes an extreamly serious picture for the utilities
- Recession making the demand lower than expected
- A much higher built up of renewables.
- Photovoltaics has flattened out the midday peak.
- CO2 prices are very low
- Coal prices much lower than expected.
Now we, like everyone else have had to make savements into the bone and have moutballed gasfired plants and older coal fired plants with to high production costs. If the demand will pick up and relationship between running and fixed costs will change then the will be restarted.
What is needed is a also a change of the business modell with a higher degree of serviceelement such as around the clock supply of electricity as much or as little the customer needs
Today customers gets a bit of free ride.
We need to introduce a capacity market, the importance of capacity and get a price of this.
We hope for a technology neutral capacity market
Renewables are very capital intensive and a wind turbine has almost zero variable cost. One has threrfore to think of the end consumers price structure. In Spain the government is to change the cost structure so that 90 percent of the consumers cost will be fixed. We have to see if this will be realised and then other countries may follow.