| Energy markets
Above: German power generation fuel mix, MW, 29-31 July 2021 (source EnAppSys)
the future? This is difficult to ascertain. High commodity prices have had such a large influence that it’s almost impossible to say whether reduced capacity has had a direct impact on power prices. There have been no large blackouts, so grid reliability has not really been affected – at least, not in practice. There has been some impact on ancillary service prices as spinning reserve was used to provide flexibility and security to the grid. The opportunity cost for conventional power to deliver ancillary services has gone up as commodity prices have surged higher, but something that’s specifically linked to lower spinning reserve is the availability prices for downward reserves. We have seen those prices – which are traditionally lower than for upward capacity – change dramatically. We now see conventional assets providing downward flexibility at high prices as they are running out of merit to provide this service, ramping down generation when activated.
The need for flexibility
Against this backdrop, should we be worried as we move through the rest of this year? Perhaps a little. As we go through the process of developing more renewables and disincentivising invest-
ment in fossil fuels, we may see a lack of flexibility at some point. It is unclear which flexibility will be the biggest issue: upward flexibility (shortage of supply due to intermittency) or downward flex- ibility (due to super-high renewables generation across several countries). In most countries, a clear signal to invest in flexibility does not exist, policy uncertainty is not helping.
As we move into 2022, the main pressure on the market is being caused by high commodity prices. The lack of generation capacity has not yet reached crisis point; the problem is that it’s so expensive to run a gas asset at the moment. Going forward, we don’t envisage a situation where the lights will go out, but we do foresee potential for more record high power prices. Another key issue being discussed by energy market professionals is how to mitigate the decline in generation capacity, how to ensure there’s sufficient overall capacity available while Europe develops a greener, cleaner electricity system. In some regions we may see an intermediate step, such as moving from coal and lignite to gas. That should help to secure grid stability a little, even if it is not a like-for-like substitution. There may also be opportunities for electricity system operators (ESOs) to integrate
Right: Onyx Power’s Rotterdam coal-fired power plant, 731 MWe (net), commissioned in 2015. According to a Dutch government decision announced on 30 November 2021, the owner is being offered a subsidy (subject to approval by the European Commission) of up to 212.5 million euros to close the power plant, provided a number of conditions are met, eg establishing an adequate social plan. The subsidy conditions require the plant to stop using coal within two months and be decommissioned within three years.
Onyx is a subsidiary of Riverstone Energy. Onyx/Riverstone acquired the Rotterdam unit from Engie in 2019, along with other Engie coal fired units in Germany. Closure of the Rotterdam plant will leave three coal units operating in the Netherlands, Uniper’s Maasvlakte 3 and RWE’s Eemshaven A and B – all of which must cease burning coal by 2030 under current Dutch phase-out plans. (Photo: Onyx Power)
EnAppSys (
www.enappsys.com) is a provider of data, consultancy and information services to companies in the energy and power generation markets, with the aim of enabling them to improve their understanding and maximise the value they are able to extract from the market. The company has a pan-European platform which covers underlying activity across all markets in ENTSO-E member countries.
www.modernpowersystems.com | January/February 2022 | 11
smaller-scale generators into the system and produce electricity closer to the point of demand. This will help to embed more flexibility in the system to complement generation from variable renewable sources.
Managing the extremes
In the long run, we will see massive over-capacity of installed renewables, which on average will be sufficient to supply power to the continent. It’s the extremes that need to be managed. If there will eventually be more than 100 GW of solar power in Germany, the country will not be able to export all of the excess as it’s likely that many of its neighbours will also be experiencing sunny weather. 31 July 2021 already gave us a taste of this, where total power generation in Germany exceeded demand by 15 GW (see graph above). The same applies for countries that are building offshore wind farms relatively close together in the North Sea.
Ultimately, more long-range interconnection capacity will be required to even out weather influences, as well as more short-term and long-term storage and flexible demand to deal with periods of extreme excess and shortage of power.
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