Challenges of Transition- German Solar & European Markets’ Merit Order

Transitions to sustainability such as the on-going developments in the German electricity sector must be understood not only for their internal dynamics but also for the dynamic interactions across sectors and borders. This will likely prove vital to successful transition management, such as in the cross-sectoral work of the climate-water-energy nexus or the integration and decarbonisation of the European electricity markets. The recent success of German solar exemplifies this.

During times of peak generation, oversupply of the German transmission system leads to drastic drops in price (at times even going negative, effectively paying to consume). The impacts of such a process go far beyond the domestic market; central European hydroelectricity suppliers just can’t compete. In the past hydro has been able to provide a balancing role, able to flex up or down its production with some plants even storing up potential energy in an upper reservoir before being pumped back down to provide electricity at times of peak prices. This combined with its mature (though geographically limited) commercial status, relatively stable generation capacity and low costs has made hydro one of the most competitive renewable sources for decades. As German solar comes closer and closer to grid parity, it is beginning to displace hydro in the European merit order of electricity supply. In Switzerland change is already underway, with the big producers starting to pull out from this technology- Repower in particular will be cutting 35% in its hydroelectric investments over the next 10-15 years. Germany’s success has cost Swiss industry.

All the while the German solar industry continues to expand, reaching 5.01 TWh in July 2013, and in doing so creates new opportunity for innovation. Though both the viability and green credentials are being fiercely debated, pumped-storage hydro power plants may provide an answer. Pumped hydro could develop a more symbiotic link with solar. The intermittency that produces such low cost electricity is also of course one of solar’s greatest obstacles in expansion. The infrastructure is not yet in place across Europe to allow for a high proportion of electricity from intermittent renewables, but therein lays the opportunity. The ambition of some Swiss firms to turn their country into Europe’s battery– they want to combine their increasing national capacity for pumped hydro (at 1400 MW for 2012, projected to reach 3500 MW by 2017) with Switzerland’s role in European electricity flows (11% of the total comes directly through this central European state). One of the arguments goes that the pairing of increased intermittent generation with pumped hydro, via a multitude of possible policy routes, strengthens both decarbonisation and security of supply. Limited in the long term, this could be a useful bridging strategy.

Under present conditions, this is unlikely to be viable. In the absence of a capacity market Solar PV and pumped hydro are competing technologies. That is not to say whether expansion of hydroelectricity is a preferable option, or whether this merit order effect counts against solar- these and many other factors need to be weighed very carefully in consideration of their potential for the future and across multiple scales. Much rests on how European capacity markets are developed, and the overall changes to electricity infrastructure policy to accelerate the transition to sustainability.

The management of these transitions needs to run a parallel course of governance through the EU, individual states and localities. High rates of renewable generation in Europe are already possible – Denmark for instance hit 40.7% renewable source power in 2012. Energy storage will likely be key across a number of applications, softening the transition’s sharp edges. Should coupling with solar be taken up as the future of pumped storage, a much stronger energy policy coordination between Germany, Switzerland and across the region will be necessary.

The unexpected connection may precipitate both new hurdles and the means to overcome them.

– Miles Ten Brinke – PhD candidate, University of Manchester 

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