Opinion: The problem of negative energy prices for clean energy

A german wind farm. Photo credit: Zero2Cool_DE via Flickr.
By Anders Lorenzen

In recent weeks, environmentalists, green groups, and pro-clean-energy fans have lauded a unique fact. Because of high clean-energy generation, the price of electricity in Germany has become so cheap that it has effectively become free energy. And in some cases, people are even paid to use electricity. This plays into the myth also lauded by many environmentalists, that clean energy is free, as we are blessed with abundant sources such as solar, wind and tides etc.

However, there is a crucial element which I believe they have overlooked.

It is precise because I believe in a future clean-energy system, that I do not believe that low energy prices are a completely positive thing.

When crude oil prices fell, this was celebrated partly for climate change reasons. It meant that, with low oil prices, it would become less profitable for oil companies to invest in future supplies and in other expensive non-renewable energy projects, such as deepwater offshore oil drilling, Arctic oil exploration, tar sands and shale gas extraction.

While it is not the same scenario for clean energy, similar conclusions can be drawn.

A clean-energy investor could be: a) an energy company, b) a farmer, c) a household or d) a school. Let us say that they have all invested in clean-energy projects, such as for example, solar or wind, in the belief that it is profitable for them. Or it could be to help combat climate change, or in some cases even both.

When the clean-energy investors earn profit from those investments they can say, “Hey, it is going quite well, we can actually make a bit of money from this. Let’s invest some more in it”.  On a good day for moderate/good wind or solar energy generation, a good output is produced and they earn good returns on their profits. But on days with negative energy prices, they are actually being penalised for having invested in and produced clean energy. At such times of oversupply, national grid stakeholders would tell them: “You are supplying too much energy, above current demand, and because we can’t shut down our fossil fuel powered generation like coal, gas or nuclear, we are going to charge you for delivering energy to us”. So the clean-energy investors would not only not earn any profit from their investments, they would also be charged for supplying the clean energy.

And suppose, for instance, you are a farmer who has invested in a wind turbine. This is a heavy investment to make, and to make such payments would make a big dent in your profit, and it might make you think twice before investing in renewable energy technology again.

It seems such a shame that we have developed an energy system that fails to harness the maximum potential of clean energy , at a time when it is most readily available. Some countries suffer less than others, for example, Denmark which has several options with regard to energy generation. Denmark has a good interconnection with Germany, Sweden, and Norway and is also building an interconnector to the UK. This means that if Denmark can’t use all of its electricity, one of the neighbouring countries can.

I say this as a big advocate of clean energy. But we must acknowledge that, at present, because there is no grid scale energy storage system in operation, intermittency is a problem. Denmark, for instance, can go from wind power producing 140% of its electricity demand to less than 5% in less than 24 hours. So while we should celebrate achievements of high electricity generation from clean energy, we must also acknowledge the huge problem with lack of storage that is preventing further progress for the industry. Upscaling R&D in energy storage, investing in interconnectors between countries and accepting that, for now, nuclear energy as a low-carbon energy form needs to be part of the solution, must be taken seriously.

But in my mind, one thing is certain: we must not penalize anyone investing in clean energy, but should instead encourage more people to make such investments. However, the way our energy system is constructed today means that we are in fact penalizing such investments.

Related news:

Wind farm operators told to curb supply this summer to protect ageing grids

Germany installs record amount of onshore wind in 2014

German scientist admits nuclear decommissioning takes priority over fighting climate change

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