COLUMN-Germany wins from subsidised power exports: Wynn

Thu Apr 18, 2013 9:48am EDT

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(The author is a Reuters market analyst. The views expressed are his own.)

By Gerard Wynn

LONDON, April 18 (Reuters) - Rising electricity exports to the Netherlands and France show how German households are subsidising their neighbours' fuel bills, but Germany is gaining greater benefit from the resultant balancing of its own grid.

The Netherlands is now importing far more power from Germany than it did two years ago, as rising German household charges to pay for wind and solar power cut German wholesale power prices.

Similarly, French imports from Germany grew in 2012, exceeding exports every month.

Germany's eastern neighbour, the Czech Republic, by contrast, has complained about wind power surges that can overload transmission lines. It must noted that the country is less attracted by lower wholesale power prices, which could undermine investment in a planned nuclear power plant.

The Czech complaints serve to highlight how Germany benefits from using neighbouring grids to help to balance its domestic demand and increasingly intermittent power supply.

Estimates of the costs for other countries to host such cross-border flows, or the alternative cost for Germany to reinforce its own grid, suggest that it may be the biggest beneficiary from the subsidised exports.

FLOWS

German wholesale power prices have recently started to undercut those of its European neighbours, partly because of a sharp increase in solar power generation, which has zero marginal cost and priority grid access. (See Chart 1)

Combined German wind and solar power generation last year grew 8.3 percent against 2011 and accounted for 13.2 percent of the country's gross electricity generation. (See Chart 2)

A big rise in solar power generation, up 44 percent, masked a small drop in wind, down 6 percent.

The impact of falling wholesale power prices can be seen in electricity flows between Germany and the Netherlands and France.

From Jan. 2010 to Jan. 2013, flows from the Netherlands to Germany fell 99.2 percent and surged 258 percent going the other way, according to data from the European Network of Transmission System Operators for Electricity. (See Chart 3)

As for France, data from French grid operator RTE show that commercial electricity imports from Germany exceeded exports every month last year.

That compares with an even split of six months each of net imports and net exports in 2011.

Net French imports from Germany widened in the last three months of 2012 compared with the same period in 2011, to 2,709 gigawatt hours (GWh) from 765 GWh, recent European Commission data show.

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Chart 1: link.reuters.com/gud47t

Chart 2: (Slide 7) goo.gl/YlRPO

Chart 3: link.reuters.com/saz47t

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GRID

The cut in wholesale prices produced by the levy on German residential electricity bills is clearly good news for Dutch and French consumers. However, the cross-border energy trade also supports Germany's energy transition away from nuclear, by helping to balance a grid that is likely to become more volatile with rising in wind and solar power.

German households are in effect paying Dutch and French power consumers for grid-balancing services, raising the question whether these offer value for money.

The EU has an inter-transmission compensation (ITC) fund that compensates countries for hosting cross-border electricity flows that spill over from neighbouring grids.

Compensation is limited to 100 million euros a year, but a report in October by the Agency for the Cooperation of Energy regulators said the actual cost of infrastructure to accommodate such flows was as high as 1.3 billion euros in 2011, highlighting the value to Germany of cross-border electricity trade and spillovers as a way to balance its own grid.

Without this trade, Germany would be pressed into expensive domestic action to manage the variability of its renewable power. This would involve shutting down wind farms when power supply exceeds demand, or reinforcing the grid to connect German consumers and power supply better.

Long delays in the development of an internal North-South German onshore grid underline the cost and controversy surrounding such cable upgrades.

And that raises the question whether France and the Netherlands are in fact subsidising German grid investment.

(Editing by David Goodman)

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