Analysis: weak winds worsened the electricity crisis in Europe; utilities need better storage

OSLO / COPENHAGEN, December 22 (Reuters) – Winds have been milder than usual in Europe this year, so wind turbines across the bloc produced less electricity, exacerbating a crisis that made to climb electricity prices to record highs as utilities had to purchase more coal and more scarce, expensive natural gas.

The situation illustrates a challenge the European Union faces as it tries to boost renewable energy and meet its climate targets: Electricity prices can skyrocket when the wind drops, so that generators need means to store some of the excess electricity when winds are strong.

“If we had had strong winds or just reasonable winds during this time frame, we wouldn’t have seen these price spikes,” said Rory McCarthy, senior analyst at Wood Mackenzie.

Less wind power has increased demand at thermal power plants, but tight supplies of natural gas have increased their costs. Soaring global gas prices have pushed up energy bills for businesses and consumers. Some heavy industries had to cut their supplies and some electricity suppliers went bankrupt. Read more

Europe’s largest wind producers, Great Britain, Germany and Denmark operated just 14% of installed capacity in the third quarter, when gas prices hit record highs, compared to an average 20-26% in previous years, according to data from Refinitiv.

In Germany, the largest economy in Europe with the highest wind capacity on the continent, the combined output of wind farms on and at sea has fallen by around 16% this year, Bruno Burger, analyst at the Reuters, told Reuters. German Fraunhofer Institute.

Wind power generation has low operating costs, providing wholesale electricity that is cheaper than thermal power plants that have to pay for fuel, as well as the costs associated with carbon emissions.

This lowers wholesale electricity prices in times of strong wind, which in turn results in lower consumer bills. Periods of weaker wind, which are not uncommon, drive up prices and more thermal power plants are needed.

Anna Borg, managing director of the Swedish company Vattenfall, draws two lessons. First, “the market will be more volatile in the future and the market has to adapt to that,” she told Reuters.

Additionally, “there is a clear need and also a value for flexibility and storage services.… I think we are only at the beginning of developing this kind of business model.”

European utilities are starting to invest in storage systems, including large batteries or smart charging solutions for electric cars.

Several countries are also seeking to reward flexible consumption behaviors such as industrial customers reducing demand at certain times. A better match between supply and demand can help maintain grid stability.

Europe currently invests 40 billion euros per year in electricity grids, according to the pressure group WindEurope which estimates that annual investments must double over the next thirty years to reach 66-80 billion euros per year.

BUILD MORE

The European Commission and the International Energy Agency (IEA) have said recent record energy prices should not slow down efforts to meet climate targets under the Paris Agreement by moving away fossil fuels. Read more

Instead, governments should help increase the capacity of wind power and other renewable energy sources, ensuring higher overall production and avoiding the need to resort to fossil fuels for backup.

“The more renewable energy we can produce, the more electricity will come from these sources and less coal and gas will be needed for power generation,” Christian Rynning-Toennesen, director of Norwegian company Statkraft, told Reuters .

“So we believe that the trend (for the growth of renewables) will continue and be reinforced by these electricity prices, rather than slowed down,” he said.

But some believe that the energy transition may already be ahead of itself. Sindre Knutsson, vice president of markets at consultancy Rystad Energy, told Reuters that Europe is turning away from fossil fuels too quickly.

Knutsson noted that more coal-fired power stations capable of stably generating electricity are being dismantled along with nuclear.

“It’s no secret that we will be using renewables to generate electricity in the future. But for now, we are still dependent on fossil fuels,” he said.

According to Matthew Jones, chief analyst for EU Power at ICIS.

“So at the moment thermal capacity is required,” he told Reuters. BENEFIT ACHIEVED

The profits of several European wind generators have been hit by this year’s wind lulls, but companies remain committed to increasing capacity.

The world’s largest developer of offshore wind farms, Orsted (ORSTED.CO), said the drop in wind speeds negatively impacted SEK 2.5 billion ($ 379.20 million) for the first nine months of the year compared to 2020.

Germany’s RWE (RWEG.DE) said lower winds caused profits from its wind and solar units to drop 38% in the first nine months of the year.

There is no indication that climate change itself played a role in the drop in wind speeds, companies in the sector have said.

“We are monitoring it on a daily basis, but we don’t see anything that indicates that there is any long-term change to come,” Orsted Continental Europe Manager Rasmus Errboe told Reuters.

Statkraft also regularly measures wind speed and conditions, but hasn’t seen any extraordinary adjustments in its data, according to its CEO.

“To my knowledge, there is no trend that we can see,” said Rynning-Toennesen.

VOLATILITY

More renewables will make prices more volatile in the short to medium term, as weather conditions will largely dictate prices, the heads of two electricity trading companies have agreed.

“It will become common for the electricity market in Europe to have a very high degree of volatility because it will just be the nature of the assets that we put online and the nature of the assets that we take offline,” said the Director General. to the InCommodities trading company, Jesper Johanson.

Powerful traders, who usually take advantage of the gyrating conditions, say the market can handle higher volatility and price spikes prompt investors to fund fallback solutions.

“For business investment to be invested in different types of storage, like batteries, the market has to give this price signal. There has to be volatility and the stronger that price signal, the more investment we will see.” Johanson added.

The high prices should encourage the construction of more renewable energies, agreed Anders Bauditz, managing director of the trading company Norlys Energy Trading.

“I hope politicians have seen these extreme prices over the last few months and do the countdown, then realize that we probably need to push for even more green energy, and then figure out how to fix the intermittency problem. “, did he declare. Reuters.

Reporting by Nora Buli in Oslo and Stine Jacobsen in Copenhagen; Editing by Susanna Twidale, Simon Webb and David Gregorio

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