September 27, 2022

Wind turbines operated by German energy supplier RWE.

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Ina Fassbender / AFP via Getty Images

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Germany is in a lot of trouble these days. Economic growth is slowing, unemployment is rising, and the industrial economy is shrinking.

It’s not hard to see why. electricity prices It has increased seven times year after year. It can crush any economy. Some are blaming Russia, which has reduced shipments of natural gas, which turns into electricity. Others blame Germany’s renewable-electricity-generation policies.

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In short, wind and solar assets are not to blame. Nevertheless, the German experience offers many lessons for successfully navigating the energy transition for any country, including the US.

In Germany today, wholesale electricity prices are around 50 cents per kilowatt-hour. Such prices could make a typical US electricity bill, let’s say, $1,500 per month. No one wants to spend $18,000 a year, or about 25% of the average American household income, to keep the lights on.

The simplest explanation of Germany’s plight is to blame Russia and move on. Russia supplies roughly half The Russian authorities have slowed energy delivery because of Germany’s support for Germany’s gas and Ukraine. Case closed.

Gas-fired production will provide about 10% of Germany’s electricity in 2021. That may not sound like much, but it is enough, and the 2022 experience is a good lesson in marginal economics. Bus spit bowling, a 5% reduction in baseload power output resulted in a 600% increase in the price of electricity. A small deficit, or surplus, leads to a large change in price.

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What about renewable energy? they account about 50% of German electricity generation. The sun is still shining and the wind is still blowing, so maybe they can get close. However, electricity prices soared before Russia invaded Ukraine.

Wholesale electricity prices in Germany more than doubled from the beginning of 2021 to the end of that year. People cannot blame Russia for this. Akshay deserves some blame there. Renewable energy production in Germany fell in 2021 because it was not as the wind,

However, the doubling in price is surprising. In general, onshore-wind power is competitive from a cost standpoint, along with other forms of energy generation. that point is still argument By the way. But, he argument The cost does not amount to 100% or 600% of the price difference for coal versus, eg, wind.

The biggest blame for the 2022 German problem may just be a policy error. Another policy decision is affecting Germany’s electricity prices and carbon-dioxide emissions: the decision to phase out nuclear power generation. A decade ago there were about a dozen nuclear plants operating in Germany. now it’s in three,

Whether nuclear power should be adopted or not is a matter for another day. Instead, Germany’s policy mistake may have miscalculated a safe, fully controlled, electricity generation buffer because they dramatically reduce one source of electricity, nuclear plants, while increasing wind and solar assets.

That potential error was then magnified by the fact that there was a hidden risk in the system. Russia was responsible for delivering a lot of natural gas.

Any country or state that wants to phase out fossil-fuel electricity generation may want to add a new category to the planning model: production assets whose costs they fully control, and production assets based on external forces. with dependent cost. Failing to do so risks a 2022 German-type experience.

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They plan to dramatically shift the mix of power generation assets they want to increase the production buffer in any forecast. Can solve a lot of planning mistakes in almost any situation, including electricity.

Write to Al Root at [email protected]