Germans take their Christmas holidays seriously, with the result that hardly anyone works the last week of the year. Factories are quiet, office buildings empty. Demand for electricity plunges, at times forcing prices for business customers into negative territory.
Yes, Virginia, there is a Santa Claus, and at this time of the year he pays people to tap the power grid. One reason for this glut is the imperfect synchronization of renewable energy with traditional fossil fuels. Wind and sun are erratic producers, and the baseload coal plants can’t dial down quickly enough when renewables surge.
At the same time, some power generators have to meet contractual obligations and these take priority over wholesale prices. These utilities keep producing, even in times of excess. Nor can the spillover be delivered to neighboring countries because the infrastructure is lacking.
The silly outcome? Electricity is sold at a loss. On New Year’s Day, for instance, some lucky German buyers of wholesale power got paid €76 ($86) for every megawatt hour they used. That's more than the average selling price over the past year.
Improvements on the way
The Federal Network Agency, manager of the national grid, views the situation as perfectly normal. In fact, they see the negative price as fulfilling its function by sending a signal to the industry that it needs to be more flexible.
For the year as a whole, the number of hours with negative electricity prices and actual prices paid both declined. “This shows that negative prices can improve the reaction time and flexibility of the electricity industry,” said Patrick Graichen, director at the think tank Agora Energiewende.
Improvements, fortunately, are on the way in the form of better connections to neighboring countries and more storage capacity. In future, renewable energy might be used to boost production of green hydrogen, siphoning off more of that excess electricity. Finally, the shuttering of nuclear power plants by 2022 will cut the risk of overproduction.
Other experts are more critical. Hubertus Bardt, executive director at the business-affiliated Cologne Institute for Economic Research, says fluctuating prices indicate shortages and show the need for better coordination of supply and demand. The cost of producing energy – and then paying to get rid of it – was inefficient, to say the least.
“The recurring appearance of negative electricity prices clearly shows that renewable energy production cannot sufficiently adjust to demand,” he said.
Klaus Stratmann covers energy policy for Handelsblatt. Darrell Delamaide adapted this article into English for Handelsblatt Today. To contact the author: [email protected]