Market forces |


Jeremy Wilcox is managing director of the Energy Partnership, an independent Thailand-based energy and environment consulting firm 8/27 Sukhumvit Soi 8, Klongtoey, Bangkok 10110, Thailand | T: +66 2 653 1263 | Mobile: +66 860993375 | S: energypartnership


Reducing Europe’s power bill


Although Europe’s wholesale power prices have fallen by around two-thirds since the energy crisis in 2022 they are still over 60% higher than in 2019, the last full year before the Covid pandemic, and forecasts suggest prices will remain at a premium to 2019 by the middle of the next decade. For all the investment in new renewable capacity, with governments fast tracking power market decarbonisation in the next decade, power prices are forecast to be higher than six years ago when renewables only accounted for around a third of supply.


The culprit according to the net-zero lobby is gas, and the system marginal pricing model. This has built support for a de-coupling of power pricing from gas. Advocates of market decoupling claim that if renewables were paid in accordance with their low costs to generate, and gas plants were compensated separately for system flexibility, this could sharply reduce power prices by aligning most supply with cheaper renewable generation. But so-called decoupling does not eliminate high gas costs, it merely redistributes them. The problem is not power-gas coupling, it is the high cost of gas.


So, would full decarbonisation of the power market and widespread electrification be the answer? In theory yes, but in practice probably not. Advocates of the decarbonisation- electrification approach assert that building out renewables, increasing system flexibility and boosting demand through electrification, and allowing fixed system costs to be spread over a broader base of consumers, would be more effective in reducing bills. A report from Danish renewable think tank Concito claims that the EU could halve fossil fuel imports by 2040 and save €160 bn annually through rapid electrification, with these savings outweighing the additional costs required for the further buildout of renewable installations and grid enhancement that it estimates at €100 bn annually. The


report adds that these savings would increase even further if the EU further integrated its electricity market, invested in grids and improved system flexibility through investments in and integration of large-scale batteries.


As previously noted, this approach would in theory lower wholesale power costs, but the theory assumes that potential wind and solar production will increase in line with installed capacity. But potential wind production is falling as climate change raises temperatures. Potential wind production in the first seven months of the year is 14.4% lower year-on- year in Germany, 3.4% lower in France, 5.2% lower in Spain and 4.9% lower in Poland. While potential solar production is sharply higher year-on-year, up 21.9% in Germany, 31.9% in France, 13.5% in Spain and 14.6% in Poland, installed solar capacity mostly lags wind, the load factor is half that of wind, and large scale expansion of solar farms could adversely impact agriculture.


But even assuming the renewable build is correlated with renewable production potential there will be additional balancing and/or transmission costs. Rapid investment in wind and solar is creating transmission congestion that forces these intermittent producers to be occasionally curtailed. In Germany curtailment of potential solar production increased from 4.4% in 2023 to 7.9% in the first half of 2025, while wind curtailment increased from 1.5% to 4.9%. In Spain, wind curtailments rose to 19.6% in May and solar to 13.2% owing to the reinforcement of the power system following the Iberian Peninsula blackout in April that increased reliance on gas-fired generation at the expense of renewables to stabilise the grid.


The cost of these curtailments is in the compensation paid to operators to halt production. In the UK, the National Electricity System Operator’s overall balancing costs that were driven by curtailment, totalled


… the removal of curtailment would at least provide a more efficient power market.


£2.7 billion in the financial year 2024/25, up by 10% from the previous fiscal year. NESO said wind curtailment volumes in FY 2024/25 increased to 13% of hypothetical wind out-turn (wind out-turn if no curtailment had taken place), with the volumes of wind power curtailment exacerbated by increased congestion on the system in part linked to planned outages in Scotland and high wind output over the summer period, while transfer capacity was at its lowest. And wind curtailment in Britain is already 15% higher year-on-year in the first six months. Balancing costs and rising network costs as investment in transmission capacity increases to reduce congestion are progressively accounting for a greater share of the electricity tariff. Although energy prices have been reducing UK regulator Ofgem has raised the fourth quarter price cap to accommodate the higher curtailment driven balancing costs, while NESO has increased total transmission use of system revenue (transmission tariffs) for FY 2026/27 to £8.9 billion and £2.7 billion above the 2026/27 initial forecast with transmission tariff revenue set to increase to £13.6 billion in 2030/31.


… think tank Concito claims that the EU could


halve fossil fuel imports by 2040 and save €160 bn annually through rapid electrification


12 | September 2025 | www.modernpowersystems.com


There is no easy route to lowering the grid delivered cost of energy. A fully renewable system would still need expensive standby gas for when the wind doesn’t blow, while potential savings from displacing gas with an accelerated renewable build out could be offset by rising incentives to support the buildout and higher network costs, and reductions in balancing costs could be offset by recovery of transmission investment costs to obviate congestion.


But while the delivered cost may prove stubborn, the removal of curtailment would at least provide a more efficient power market.


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48  |  Page 49  |  Page 50  |  Page 51  |  Page 52  |  Page 53  |  Page 54  |  Page 55