Like most nightmares, expose this one to daylight and it dissipates fast. There has been no sudden and unexpected surge in German wind power generation in the past six months, and network capacity in northern Europe is just as robust as it has always been. The problem lies not in too much wind power, but in too little attention paid to re-shaping power trading arrangements for its efficient dispatch.
As our report this month reveals, no proper account is being taken of likely wind generation coming onto the network when day-ahead contracts for power supply are being agreed between generators and customers in northern Germany. As a result, there are frequent occasions when more thermal power is contracted for than needed. The response of transmission system operator (TSO) E.ON Netz, which by law must accept all wind power output, is to protect the security of its network by seizing cross-border transmission capacity to send the excess out of Germany, upsetting normal border trade in the process.
It is a daft solution. Wind has no fuel costs. When the wind blows, it makes macro-economic sense to throttle back other generation, which has fuel costs, starting with those burning the most expensive fuel. The beneficiary of such a logical approach to managing wind is the consumer, who ends up paying less. But the German market set-up provides no facility for fully integrating wind into the power scheduling process.
Instead of blaming the market rules, E.ON Netz chooses to paint a nightmare scenario of wind running riot. It is a ruse of remarkable political convenience. By frightening consumers, it hopes to frighten politicians into hasty and perhaps ill-thought action that would end up benefiting none other than the established energy players, including the generation side of E.ON. The consumer becomes the ultimate loser.
The German utilities, increasingly unnerved by the competition from independent wind power, would like nothing better than for brakes to be applied to it. Having made substantial contributions to a report on wind energy integration put together by DENA, the Deutsche Energie-Agentur (“uåX˜äŠÊ˜·³Ç, April 2005), the utilities were taken aback by its upbeat conclusions, which any thorough study of the facts will reveal about the true issues of integrating wind. By claiming its network is "overburdened due to wind energy," E.ON Netz is effectively calling the credibility of the DENA report into question.
What's more, by flooding the Netherlands with excess generation, E.ON Netz neatly creates a situation where the Dutch TSO, Tennet, becomes its ally. Tennet is now busy attacking the German renewable energy law for its "inflexibility," gaining a deal of publicity in the process as well as the support of Dutch politicians. That suits Tennet fine. With its sights set on becoming the single TSO for the Netherlands, developing a profile as defender of the Dutch network against German dominance serves its purpose well.
Unveiling the answers
The TSOs are partially right when they blame the German renewables law. By using brute force to lever wind into the market, the law prevents proper integration of wind in the power trading process. The solution, however, is not an ill-timed decision to ditch the wind law, but an entire rethink of the market structure. Pricing signals to make wind the favoured choice for priority dispatch have to be a part of that, along with an understanding that markets need to be flexible enough to not only cope with swings in demand, but also swings in wind generation, neither of which can always be accurately predicted way ahead of time.
Needed, too, is serious action to sort out cross-border trade. More than a decade after the principle of an EU Internal Energy Market was agreed, the rules are still not in place. Close interaction between TSOs -- vital for bringing down virtual barriers in the well connected European network -- is missing. That is a serious impediment to wind. The better the flows of electricity, the more wind power Europe can absorb without additional investment in reserves and balancing power.
Left to their own devices, Europe's energy majors will do nothing to improve the situation, which suits them well. The vain efforts of the German cartel office to spark action on utility misuse of their dominant market positions tells its own story. Germany, however, is about to get an electricity regulator. If he seriously intends to sort out the German market once and for all, he has no better monopoly-breaking tool at his disposal than the cause of wind power. The EU Commission, too, could fashion a useful crowbar out of the strong political backing renewables enjoy to force through rules on cross border trade. Carefully constructed and well regulated, power markets can be made to serve the consumer well -- and not just exist for the convenience of energy companies and their shareholders.
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