It's the EU who cut the supplies not Russia (since 70s, the supplies have been stable) and the price spike is the direct result of the 2007 EU energy market deregulation reform. You install a spot market on a commodity you do not have. You don't play with energy security. EU did and we got this messs. By cutting Russia out of the equation EU is now paying 4x for the US LNG (the biggest dream of the US since the launch of the gas pipelines between USSR and Europe). And it's not the amount but the price and the uncertainty resulting from the spot market that make industrial complex of Europe unable to function properly a) margins are hit and b) there is now planning possible due to high volatility of input cost and falling demand. So EU just has to deindustrialize to have enough energy. Like in my home country Estonia - we now consume 2,5x less gas and have 30% less population since the USSR broke up, we live of EU subsidies and we are doing great 😂😂😂😂. The problem with the renewables is that the energy generation density is as low as burning wood, we have no technology for storage and German renewables are working at 12% of capacity. The world refused to invest in nuclear after Chernobyl and we now phase a transition to a new technological wave with ever increasing energy requirements (Iot, sensors etc) while trying to use highly inefficient source of energy. On top, we would need to increase mining of all critical materials by 10-20x to get to the 2050 agenda. Not so green after all, and 2/3 of the refining capacities are based in China. Europe gets 95% of rear earths from China, China is the producer of solar... So we kick out Russia to depend on China in order to destroy our industry and live happily ever after.
And let's not forget with global debt markets unravelling it might be a very costly and probably unfundable task
Relying on 100% renewables is the like trading on 400% margin. It works great until it doesn’t…
Thought Experiment- What happens if/when Germany goes through an extreme weather event? Think freezing weather, overcast skies, and low/no wind? How much reserve capacity will need to be in place from traditional sources to keep the country from freezing to death? What do those sources look like? What happens in a 100% renewable scenario? Will we simply write this off as a shock to the system similar to the authors response to the Russia invasion? Is it okay that people are freezing to death due to our lack of planning for such a shock? **Read Black Swan**
As the authors data clearly points out renewable energy can not be relied upon for consistent power and we must have storage or backup to supplement times of underproduction. A responsible grid should have enough backup to support an extreme tail risk event or we could face extreme consequences. What incentivizes utilities to build/maintain backup capacity producing intermittently and therefor generating negative ROI?
You clearly know a lot about finance, you should probably bring in someone with better knowledge of physics for your energy takes.
First, you simply cannot run a major economy on wind and solar. Especially not in northern Europe.
Germany is a terrible place for solar, with an average capacity factor of 12 percent. Less than half of a place like Arizona.
Second, wind and solar are diffuse and intermittent. So while you are lighting trillions of dollars on fire building them out, you still need fossil fuel backups. They both have Energy Returned on Energy Invested ratios of about 3:1. Natural gas is about 30:1, and the nuclear they chose to shut down is about 100:1.
Batteries for backup sounds great, but they still cost over 100 dollars per MWh, and they are no longer getting cheaper because lithium prices have skyrocketed, and are unlikely to come down soon.
All the work that Germany has done in the last 20 years building renewables lowered their carbon intensity by the same level that the United States lowered ours by switching from coal to natural gas for electricity generation.
According to research done by the folks at www.gorozen.com, about 60-80 percent of the drop in the cost of wind and solar in the last decade or so was due to the low cost of hydrocarbon inputs. Lack of capex spending in that arena has ensured that those days are at least temporarily gone. Note: I have no affilitation with the guys on that site, I just love to read people who dig deep.
I guess I will pour one or two last spritzes of gas on the fire by pointing out that all the building out of renewables is going to require massive amounts of mining. That mining will be opposed by every environmental group in the world that claims to support renewables. On top of that, the supply chains for wind and solar are both largely controlled by China. Does Germany want to go from a situation where they relied on one bad actor for natural gas to a situation where they rely on yet another bad actor for polysilicon and rare earth metals?
Maintaining this policy of supporting weak and unreliable forms of energy is going to be the unwanted gift that keeps on giving.
Amazing the level of anger from the US posters. People in the EU see it differently than you. They have not been trained to hate everything that is not gas and oil. This is not a culture war in the rest of the world. This is not a slight against you.
Turn your argument around, Russell, and the problem is the financial structure of the market. In Australia, where there has been zero - some may say, negative, incentive from policy to build renewables, we also reached the position in the last two years where renewables regularly turned wholesale prices negative in peak sunlight/ wind hours. Of course there is no nuclear power in Australia, but on the other hand domestic pipeline gas prices (and electricity)have been following LNG export prices up since we started exporting from the East coast as well as the West. Now all the new renewables have been built by private enterprise (much of it European companies), and we are now facing early retirement of coal-fired power stations, which will exacerbate price volatility. It should not be beyond the wit of man to allow a baseload price which guarantees the capital expense of building baseload stations, and recognises that intermittent sources of power can only ever be an adjunct - until we have excellent battery storage.
I suspect that at that point we will move to distributed local power generation ,via solar especially, with local battery storage. No large generating or retailing companies want this at the moment, as it disintermediates them - but perhaps it would even be financed out of the savings from the wastage of power when it is sent long distances by wire?
I'd like to insert a minor, yet very hard detail. Market clears to the marginal cost of production. In the case of electricity, this clearing occurs every 15 minutes, in some markets every 30 mins to an hour. Broadly the marginal cost of production is linked to the fuel and cost of dark start, sometimes spinning reserves
Arguably, the renewable fuels, when available cost $0. Does that mean the marginal cost of electricity is $0? And if the marginal cost of fuel is $0 in some cases and in some cases a very expensive fuel (diesel + emissions offsets etc) - how does the system invest in capacity reserves? The risk premium in the electricity offer includes the premium of a very expensive capacity reserve and often comes under a lot of scrutiny by regulators and bidders alike
The above is not easy and we (our team) have not been able to come up with a structural answer/framework.
I think the focus on renewables shouldn't be about energy generation - it can do it no doubt. Consistently? That's a question for another day, b/c I think the biggest most significant headwind for renewables is energy storage. Battery technology is the one area of tech that doesn't have a Moore's law aspect to it.
We (within our team) have debated the impact of the marginal free fuel (wind and sun) on 'capacity' market and its impact on asset development and in turn grid resilience. As you pointed - renewable generation is also interruptible generation however because of the nature of the "free fuel" increasingly became a part of the baseload capacity
Long Coal had been a painful multi year trade within this context
If gas is unavailable for political or economic reasons then renewables have to be firmed with coal or pumped storage, batteries are still not mature enough to store energy in great volumes.
That's why coal prices and equities have mooned in the short term, climate change notwithstanding.
Agree that we will probably see negative wholesale electricity prices in 2 years time. Norway will make a killing either way, as an exporter of natural gas (now) or by importing and re-exporting electricity (in the future). Cunning Vikings!
It's the EU who cut the supplies not Russia (since 70s, the supplies have been stable) and the price spike is the direct result of the 2007 EU energy market deregulation reform. You install a spot market on a commodity you do not have. You don't play with energy security. EU did and we got this messs. By cutting Russia out of the equation EU is now paying 4x for the US LNG (the biggest dream of the US since the launch of the gas pipelines between USSR and Europe). And it's not the amount but the price and the uncertainty resulting from the spot market that make industrial complex of Europe unable to function properly a) margins are hit and b) there is now planning possible due to high volatility of input cost and falling demand. So EU just has to deindustrialize to have enough energy. Like in my home country Estonia - we now consume 2,5x less gas and have 30% less population since the USSR broke up, we live of EU subsidies and we are doing great 😂😂😂😂. The problem with the renewables is that the energy generation density is as low as burning wood, we have no technology for storage and German renewables are working at 12% of capacity. The world refused to invest in nuclear after Chernobyl and we now phase a transition to a new technological wave with ever increasing energy requirements (Iot, sensors etc) while trying to use highly inefficient source of energy. On top, we would need to increase mining of all critical materials by 10-20x to get to the 2050 agenda. Not so green after all, and 2/3 of the refining capacities are based in China. Europe gets 95% of rear earths from China, China is the producer of solar... So we kick out Russia to depend on China in order to destroy our industry and live happily ever after.
And let's not forget with global debt markets unravelling it might be a very costly and probably unfundable task
Relying on 100% renewables is the like trading on 400% margin. It works great until it doesn’t…
Thought Experiment- What happens if/when Germany goes through an extreme weather event? Think freezing weather, overcast skies, and low/no wind? How much reserve capacity will need to be in place from traditional sources to keep the country from freezing to death? What do those sources look like? What happens in a 100% renewable scenario? Will we simply write this off as a shock to the system similar to the authors response to the Russia invasion? Is it okay that people are freezing to death due to our lack of planning for such a shock? **Read Black Swan**
As the authors data clearly points out renewable energy can not be relied upon for consistent power and we must have storage or backup to supplement times of underproduction. A responsible grid should have enough backup to support an extreme tail risk event or we could face extreme consequences. What incentivizes utilities to build/maintain backup capacity producing intermittently and therefor generating negative ROI?
You clearly know a lot about finance, you should probably bring in someone with better knowledge of physics for your energy takes.
First, you simply cannot run a major economy on wind and solar. Especially not in northern Europe.
Germany is a terrible place for solar, with an average capacity factor of 12 percent. Less than half of a place like Arizona.
Second, wind and solar are diffuse and intermittent. So while you are lighting trillions of dollars on fire building them out, you still need fossil fuel backups. They both have Energy Returned on Energy Invested ratios of about 3:1. Natural gas is about 30:1, and the nuclear they chose to shut down is about 100:1.
Batteries for backup sounds great, but they still cost over 100 dollars per MWh, and they are no longer getting cheaper because lithium prices have skyrocketed, and are unlikely to come down soon.
All the work that Germany has done in the last 20 years building renewables lowered their carbon intensity by the same level that the United States lowered ours by switching from coal to natural gas for electricity generation.
According to research done by the folks at www.gorozen.com, about 60-80 percent of the drop in the cost of wind and solar in the last decade or so was due to the low cost of hydrocarbon inputs. Lack of capex spending in that arena has ensured that those days are at least temporarily gone. Note: I have no affilitation with the guys on that site, I just love to read people who dig deep.
I guess I will pour one or two last spritzes of gas on the fire by pointing out that all the building out of renewables is going to require massive amounts of mining. That mining will be opposed by every environmental group in the world that claims to support renewables. On top of that, the supply chains for wind and solar are both largely controlled by China. Does Germany want to go from a situation where they relied on one bad actor for natural gas to a situation where they rely on yet another bad actor for polysilicon and rare earth metals?
Maintaining this policy of supporting weak and unreliable forms of energy is going to be the unwanted gift that keeps on giving.
Amazing the level of anger from the US posters. People in the EU see it differently than you. They have not been trained to hate everything that is not gas and oil. This is not a culture war in the rest of the world. This is not a slight against you.
Turn your argument around, Russell, and the problem is the financial structure of the market. In Australia, where there has been zero - some may say, negative, incentive from policy to build renewables, we also reached the position in the last two years where renewables regularly turned wholesale prices negative in peak sunlight/ wind hours. Of course there is no nuclear power in Australia, but on the other hand domestic pipeline gas prices (and electricity)have been following LNG export prices up since we started exporting from the East coast as well as the West. Now all the new renewables have been built by private enterprise (much of it European companies), and we are now facing early retirement of coal-fired power stations, which will exacerbate price volatility. It should not be beyond the wit of man to allow a baseload price which guarantees the capital expense of building baseload stations, and recognises that intermittent sources of power can only ever be an adjunct - until we have excellent battery storage.
I suspect that at that point we will move to distributed local power generation ,via solar especially, with local battery storage. No large generating or retailing companies want this at the moment, as it disintermediates them - but perhaps it would even be financed out of the savings from the wastage of power when it is sent long distances by wire?
I'd like to insert a minor, yet very hard detail. Market clears to the marginal cost of production. In the case of electricity, this clearing occurs every 15 minutes, in some markets every 30 mins to an hour. Broadly the marginal cost of production is linked to the fuel and cost of dark start, sometimes spinning reserves
Arguably, the renewable fuels, when available cost $0. Does that mean the marginal cost of electricity is $0? And if the marginal cost of fuel is $0 in some cases and in some cases a very expensive fuel (diesel + emissions offsets etc) - how does the system invest in capacity reserves? The risk premium in the electricity offer includes the premium of a very expensive capacity reserve and often comes under a lot of scrutiny by regulators and bidders alike
The above is not easy and we (our team) have not been able to come up with a structural answer/framework.
In other news - Ben Bernanke's Nobel prize in Economics is totally justified and appropriate
I think the focus on renewables shouldn't be about energy generation - it can do it no doubt. Consistently? That's a question for another day, b/c I think the biggest most significant headwind for renewables is energy storage. Battery technology is the one area of tech that doesn't have a Moore's law aspect to it.
We (within our team) have debated the impact of the marginal free fuel (wind and sun) on 'capacity' market and its impact on asset development and in turn grid resilience. As you pointed - renewable generation is also interruptible generation however because of the nature of the "free fuel" increasingly became a part of the baseload capacity
Long Coal had been a painful multi year trade within this context
I'd like to volunteer to be your grunt. I'm serious, please interview me once you are back from your vacation
Was that Robert Habeck ringing the doorbell? Thanks for the post. Always thought provoking.
If gas is unavailable for political or economic reasons then renewables have to be firmed with coal or pumped storage, batteries are still not mature enough to store energy in great volumes.
That's why coal prices and equities have mooned in the short term, climate change notwithstanding.
Agree that we will probably see negative wholesale electricity prices in 2 years time. Norway will make a killing either way, as an exporter of natural gas (now) or by importing and re-exporting electricity (in the future). Cunning Vikings!