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Germany's drive to use renewable sources of energy seems to be bearing fruit. Towards the end of December, prices for electricity in the country declined below zero.
That means consumers are being paid to use the power rather than the other way around.
This isn't even the first time this has happened. According to one of Europe's largest electricity trading exchanges (the EPEX Spot), it has happened more than 100 times in 2017.
All of this would seem to bode well for German households, long regarded as operating under the highest energy prices on the continent.
Well, not quite.
But someone else is getting paid.
And the whole matter has crucial implications for where the energy industry is going next…
Given the heavy amount of taxes and fees charged for power, the wholesale cost factors in only about 20% of the real price charged to the average residence.
That means that, while the period of negative costs helps, prices are still going up for German households.
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Meanwhile, bigger wholesale users – industry, factories, and other primary end users – do see a nice pop. According to EPEX Spot figures, for example on Dec. 24, such major consumers were paid about €50 ($60.12 at current exchange rates) per megawatt-hour (MWh).
The price decline results from a combination of low demand, warmer than usual temperatures, and the prevalence of ample winds that provided an abundance of wind power generation.
All of this results in excess supply that needs to be moved along the grid.
Due to the lack of efficient or effective battery and storage systems, electricity that is produced must be used.
It has become a traditional tradeoff between peak and off-peak-hour generation or usage. The recently emerging German largess in solar and wind power has just accentuated the situation.
Meanwhile, variations on the demand side tend to contribute to supply excesses during times of low usage, such as weekends and holiday periods. Both of those, of course, hit this past Sunday.
With the price tag for Germany now well over €100 billion ($120 billion), it would appear that the move to renewable, cleaner energy has been successful.
Well, not so fast…
About the Author
Dr. Kent Moors is an internationally recognized expert in oil and natural gas policy, risk assessment, and emerging market economic development. He serves as an advisor to many U.S. governors and foreign governments. Kent details his latest global travels in his free Oil & Energy Investor e-letter. He makes specific investment recommendations in his newsletter, the Energy Advantage. For more active investors, he issues shorter-term trades in his Energy Inner Circle.