I thought that I would look at energy prices in Europe and we start with the general theme that high electricity prices are causing deindustrialisation. In fact when one looks at the numbers the ongoing recession has caused a depression. We have become used to numbers like this.
In July 2024, compared with June 2024, seasonally adjusted industrial production decreased by 0.3% in the euro area and by 0.1% in the EU, according to first estimates from Eurostat, the statistical office of the European Union………In July 2024 compared with July 2023, industrial production decreased by 2.2% the euro area and by 1.7% in the EU.
The most material number is the annual decline. We can back that up with a deeper perspective as the recent peaks for industrial production in the EU in the official series have been 105.4 in September 2022 and 105.1 in February 2023. Whereas in July it was 98.2. which is where the depression argument comes in. After all this is an area which has been a relative strength for the EU over time and a considerable factor in its export surpluses. The Euro area numbers are slightly worse presumably due to a relatively higher weighting for Germany. Not every country is in decline as Denmark has some extraordinary numbers this year being 41% up in annual terms in July, but the aggregate is in a depression.
Will negative electricity prices save the EU?
The Financial Times produced this over the weekend.
European power prices have fallen below zero for a record number of hours this year, as the rapid development of solar and wind generation outpaces the continent’s ability to deal with excess supply.
Then they tell us this.
Electricity prices fell into negative territory for 7,841 hours across the continent during the first eight months of the year, according to consultancy ICIS, with prices falling below minus €20 ($22) per megawatt hour in some instances.
The first quote in essence states one of the fundamental issues of renewable power that you cannot just turn it on when you want it. Even worse it is both unreliable and in the case of solar peaks when you least want it. But then we get a rather extraordinary number because in a 365 day year there are 8760 hours and yet in two thirds of that or around 5840 we have a claim for 7,841 hours of negative prices. Ooops!
Wind and Solar Power has surged
We are told this about the numbers.
Over the past five years, the total capacity of Europe’s solar farms has more than doubled from 127GW to 301GW, while wind capacity has climbed from 188GW to 279GW, according to energy think-tank Ember.
I have a real problem with these sort of numbers because following the UK ones like I do I know that neither source of electricity ever gets anywhere near claimed “capacity”. It has not been a good summer for UK Solar and we have rarely produced more than 10GW compared to an official capacity of 17GW. Remember the peak itself is only for around a couple of hours with daily declines each side of that. Switching to wind power the claimed “capacity” is 28.5GW whereas the maximum production ( for 30 minutes) has been 21.8GW. So it is clear that the capacity numbers used in the article need a large amount of deflation to get maximum’s which are rare (wind) or by definition short-term (solar)
Even in the next cheerleading but there is an issue.
The growth has helped to reduce reliance on fossil fuels and cut emissions, with the output from wind and solar farms in Europe surpassing that from fossil fuel power plants during the first half of this year for the first time.
What we need is a measure of usable output as by definition their negative prices suggest we have oversupply at that moment in time.
Storage
The sentence below is doing a lot of heavy lifting.
However, batteries and other storage or flexibility options have not developed as quickly, meaning there are more and more periods where generators are in effect paying consumers to use up excess electricity.
They completely slide by the issue of cost as batteries are very expensive and in addition to that provide only a relatively short-term answer. Some countries cam take advantage of using hydro power as a storage option but you need a combination of water and altitude for that to work best and sadly most countries do not have that. This is a fundamental issue with renewable power which requires storage on a scale we do not have the technology for.
Actually they do get eventually to the issue of solar power having a pronounced peak.
Solar energy has been the main driver of negative pricing as solar resources tend to be more consistent, leading to negative prices in particular during the spring and summer and late mornings to early afternoon.
The next bit should have been obvious to everyone.
“When it is sunny in Germany it is often sunny in Greece and UK at the same time, and it is all producing in the middle of the day peaking at around 2pm,” said Matthew Jones, head of power analytics at ICIS.
The sun does not change but there may be cloud or fog to reduce solar production. Thus there was always going to be a rather pronounced peak (rather like the normal distribution) which was always going to require substantial storage. So this was always going to be a feature of a renewables future.
Negative pricing marks the sharp end of the so-called price cannibalisation effect of renewables, which sees power prices fall when it is sunny and windy and renewables projects are producing at the same time.
Let me now point out that these negative prices are at the wholesale level not reaching households.
The EU average price in the second half of 2023 — a weighted average using the most recent (2022) consumption data for electricity by household consumers — was €0.2847 per KWh……….For German household consumers, the per KWh cost was 41 % above the EU average price, whereas households in Hungary, Bulgaria and Malta paid less than half the price than the EU average.
There is quite a bit of variation but whilst the numbers are for last year there were lots of negative prices then too ( 6,428 hours). We also get a reminder that previous sources of electricity do not have the same issue.
Italy, meanwhile, which still relies heavily on gas-fired power stations, did not have any negative priced hours.
Comment
As we breakdown this article we see that it crumbles away. In addition to the swerve between wholesale and retail prices we have a situation where they have added up the hours for individual EU countries and presented them as the whole. Indeed it is even worse than that as there are 4 categories for Sweden. This is how we end up with more hours of negative prices than exist!
But there are also very serious problems with the concepts and let me look at storage.
Jones at ICIS believes negative pricing will “largely be solved” by 2030 as Europe builds more batteries and installs more electrolysers to make hydrogen. These devices use electricity to split hydrogen from water, providing an extra source of flexible demand for electricity, which can help prevent negative pricing.
There are strong elements of hopium here as if it is that easy why is it not being used? Well there is more to it than that as Social divide points out in the comments.
There is a >60% roundtrip loss of energy in producing, transporting, compressing, storing, delivering and consuming hydrogen. In effect, if you convert 10MWh of electricity to hydrogen you are delivering 4MWh and effectively destroying 6MWh. And that doesn’t include the billions of Euros required to build the hydrogen storage facilities and the pipelines.
So storage is a “Definitely Maybe” to quote Oasis in terms of concept and as we stand is very expensive (which is why it has not been built). Which means that talk of negative electricity prices is very misleading without a lot of context. In other arenas if you published prices like the renewables sector is allowed to you would find yourself in court.