H – Flexible power production (no more baseload)
Already, it is clear that intermittent solar and wind power will eventually cut deeply into baseload power. Germans have been aware that baseload power is incompatible with intermittent renewables for years. To complement renewables, we will need dispatchable power plants that can ramp up and down relatively quickly. Such plants more closely resemble today’s medium and peak load (such as gas turbines) than the baseload (such as nuclear plants, which do not ramp easily). To pay for such reserve generating capacity, the power market will need to be redesigned, however, which is why Germany is now increasingly talking about a capacity market and a strategic power reserve.
What do you do when the sun isn’t shining and no wind is blowing? Outside Germany, it is often said that conventional power plants will be needed as bridge technologies as we switch to renewables this century. In particular, there is talk about the need for baseload power, which fluctuating wind turbines and solar panels cannot provide. Germany already gets so much of its power from wind and solar that it has a different viewpoint. To the surprise of many foreign onlookers, Germans realize that baseload power demand will soon be a thing of the past. What is needed is flexibly, quickly dispatchable power generation, not baseload.The difference is easy to understand if we consider central power stations, such as coal and nuclear plants. Ideally, these plants are switched on and run near full capacity until they need servicing. Nuclear plants in particular do not easily ramp up and down within a matter of hours, and attempts to do so are bad for the bottom line in two ways: first, fixed costs remain the same, with only fuel costs being slightly reduced, so the cost of power from the plant increases; and second, the plants themselves undergo thermal fatigue, which can shorten their overall service lives.
For Germany’s four biggest power companies, this new situation represents quite a dilemma. They set up their generating capacity based on the assumption that they would be able to sell power at a great markup during times of peak consumption. Now, power consumption remains unchanged and still peaks at above 70 megawatts on certain days, but solar and wind push back conventional power production into the lower 40s – roughly the level of baseload power that big power corporations are set up to cover. Just a decade ago, these power companies still belittled wind and solar power as niche technologies that would never be able to make up a big chunk of power supply; now, solar and wind power are increasingly making these firms unprofitable.
Unintended outcome: renewables push back natural gas
This outcome is partly intended (see the next section, “I – Energy by the people“) and partly unintended. The unintended part is that renewables are making investments in natural gas turbines unattractive by replacing the medium load, meaning that natural gas turbines do not run for as many hours a year. Essentially, Germany needs to have a dispatchable installed capacity at the level of its peak demand for the year, which is currently around 80 gigawatts and occurs on winter evenings – when the sun is not shining. A large part of that 80 gigawatts therefore needs to be built as dispatchable gas turbines. This option is generally considered the best technically as it requires no additional infrastructure and would allow electricity to be stored seasonally. German researchers have estimated that the storage capacity in the country’s current natural gas lines can contain enough gas to meet the country’s power demands for four months.
Though this option seems the best in terms of technology, it faces a financial challenge: power prices are now so low on the exchange that investments in additional generating capacity would not be profitable. Not only are Germany’s four biggest power firms abandoning plans to set up new gas turbines; there have also been rumors that some of the existing turbines might be taken off-line because they are no longer running for enough hours per year.
While this outcome was predictable, the situation has come about faster than most proponents of renewables expected, especially in light of the extremely fast growth of photovoltaics from 2010 to 2013. If the German PV market continued to grow at the level of those two years, the country could have more than 150 percent of peak demand in the summer, when demand peaks at between 60 and 70 gigawatts during the week and as little as 50 gigawatts of the weekend. One German researcher’s “dental chart” shows what the effect would be if “only” 70 gigawatts of PV is installed by 2020 (keep in mind that the government’s official target is 52 gigawatts by 2020).
Here, the chart has no baseload power at all; the gray area now represents medium and peak load. Clearly, Germany will need a fleet of very flexible, dispatchable power generators that can ramp up every day from around ten gigawatts to 50 gigawatts or more within just a few hours. The country does not have this much flexible generating capacity at present, and all current plans for new power plants are now in question given the new market conditions of lower wholesale prices.
One possible remedy currently being discussed is capacity payments. Here, owners of quickly dispatchable generators would be paid not only by the kilowatt-hour generated, but also by the kilowatt kept on standby. Similar programs exist in other countries, such as Ireland.
In July 2012, the German Environmental Agency (UBA) spoke out against capacity markets, which it fears will be too expensive. Alternatively, the UBA proposes a “strategic reserve.” Here, power companies would be paid for a certain amount of generating capacity maintained in service, not for the power generated from these plants; the rest of the power market would therefore remain undisturbed. The authors of the study estimated that a strategic reserve equivalent to five percent of peak demand would only add 0.1 cents to the price of the kilowatt-hour.