This couldn't be farther from the truth. The electricity market is a disaster that drives the prices artificially high. There is no more correlation between production price and consumption price. A centralized planning would greatly benefit everyone here (well except for shareholders of so-called "alternative suppliers" companies).
If you speak French, this series of video on the Heu?reka YouTube channel explains all this very well, both from the technical side and from the financial side. The videos are rather long because they go in depth on the subject:
- Pourquoi prix de l'élecricité = coût de la centrale la plus chère ? Comprendre le modèle (Why the price of electricity = the cost of the most expensive central? Understanding the underlying model) : https://www.youtube.com/watch?v=Ep3biZAtitE
Exactly, when the Russian invasion of Ukraine started in 2022 I was hit with absurd prices for electricity, even though I live in Sweden where we don't depend at all on gas for electricity generation (it's all nuclear/hydro/wind). I still had to pay absurd prices because of the scam of financial markets taking over electricity in the EU, why the fuck do I have to pay the highest spot price of a whole continent when none of that energy is reaching me?
Natural monopolies should be in the hands of the people through the State, allowing grifters to append themselves to extract rent from those natural monopolies is just ridiculous...
> There is no more correlation between production price and consumption price.
That is because, for certain modes of production (renewables, nuclear), most of the cost is paid up-front during construction, and the cost of production is minimal. The plants (nuclear, solar, wind) are effectively financial devices, where someone takes a huge loan or otherwise gets capital at yearly interest, and slowly pays it off.
The reason the system is so f*d up is because we are gambling with a system critical resource. Not every system benefits from competitive markets especially infrastructure. Having a good working electricity network benefits the greater good and enables business to operate. This does not translate to short term market profits where you need to squeeze every possible dime out of the system. From cutting unneeded maintenance to paying the lowest possible salaries will catch up with you in 10-20 years when the system collapses. The tax payer will be the one paying for the damages and the "criminals" that caused the damage will be retired with their fortune.
> ...from cutting unneeded maintenance to paying the lowest possible salaries will catch up with you in 10-20 years when the system collapses...
I don't think you're taking a clear view of the incentive structure around expensive capital assets. These are massive investments in infrastructure that often need to be paid back over 10-20 year periods before they make a profit. At some point the investment becomes so huge that the owners are incentivised to run even at a loss for a year or so to avoid the pain of writing down the capital they spent so much on.
Skimping on maintenance and salaries isn't what the incentives push towards in a free market. In fact, having worked in similar environments, there is a slight tendency to overpay on salaries and over-invest in maintenance since they make relatively little difference to the profitability of the project and the derisking is extremely valuable.
If an investor isn't planning on paying for maintenance and playing a long game, infrastructure investment is unlikely to appeal (at least not in a standard free market).
The energy provider is literally paying people who are willing to do that. I would hope nothing is stopping people from doing that.
That is more of a technical issue though, when I say they'll run at a loss, I mean purely because when you do the profit-maximisation numbers strange things happen when the capital investment is very high.
Well nothing stops you from doing that of course. It's just that the LCOE will be very high as you use your battery very rarely and the capital cost of the battery spread over the charge cycles will be very high.
Integration is a slightly separate matter from privatisation.
Even if each country's energy system was operated by a state owned enterprise, the overall system would be cheaper and more reliable if countries could better send energy across borders.
North Sea wind could be exported southwards during periods of weak solar and vice versa. France could import fossil fuel energy during periods of nuclear downtime.
> North Sea wind could be exported southwards during periods of weak solar and vice versa. France could import fossil fuel energy during periods of nuclear downtime.
Don't worry they also thought about this, the EU wanted price caps on nuclear because EDF was supposed to make way too much money from the gas crisis & general winter consumption.
The electricity "market" in the EU means supporting the Energiewende, no matter how bad it's failing.
Ah yes, the price cap nonsense that EU thinks will fix problems. Sometimes I wonder if the current politicians in Brussels ever attended basic economy classes. Because they don't seem to understand that they can't control the markets.
The precise definition of 'market' gives a lot of room to form opinions.
On the one hand: Europe is a block, and Europe is better for it, given the realities of geopolitics. A common energy infrastructure and policy are integral to making such a block function. Power, electrical or political, needs to be organized for it to work optimally. The European democracies can then define what optimal means: what do we actually want to optimize?
That's the other hand: I agree that a commercial marketplace is not the right focus, at least not now. Europe needs energy sovereignty more than a place for capitalists to extract value. We need to guarantee there is value to extract for future generations first, as the Russian invasion in neighboring Ukraine shows. We can bicker on who makes how much profit later.
Making Europeans less sensitive to macro events in their energy bill is one aim, giving European industry, a foundation under the EU as a power block, is a second aim. We can only make meaningful progress with a well integrated energy market and integrated policies on these subjects. I read the article in this spirit, not in the spirit that Europe needs more deregulation and more commercial opportunities in this market.
European countries are already interconnected. And they import/export power to their neighbors. I don't see a big issue that power from one end can't "flow" to the other end. The losses over thousands of kilometers of power lines will probably offset any gains on the "cheapness" of renewables.
Those connectors have bandwidths, and thus require planning or expansion. Countries have differing policies, which have impacts on countries connected (famous example: wind on German offshore has impact on whether France scales nuclear plants down). The market as is does not favor price stability, or low prices, as parent pointed rightly out, both of which require coordination across European borders.
Transmission-loss reduction is a good example of how Europe might deepen cooperation: HVDC lines are rapidly becoming feasible and economically interesting. By their nature, the require cooperation of multiple jurisdictions and thus policy frameworks, potentially hundreds if including sometimes powerful local governments.
Seems like an interesting article. Germany in particular. Their politicians have adopted a frivolous attitude to energy security for a long time now. Between kneecapping their own nuclear industry and the over-dependence on Russia for energy it'll be interesting to see if they get away with it. This crisis and their response to it is a real test and it is probably going to be the decisive "did it work?" moment for me of the Energiewende to date.
I will also note that although they have succeeded in removing the UK from their maps, they cannot suppress the Swiss spirit. Well done Switzerland for being irrepressible.
> This crisis and their response to it is a real test and it is probably going to be the decisive "did it work?" moment for me of the Energiewende to date.
Right now they are pushing to build more gas pipelines to replace Russia so I'd say no to that.
The lessons from the russian war have not been understood and this was such a big event that I don't know what else would help.
What's wrong with building more gas pipelines? Maybe they's build them towards the South and connect with Turkstream - and get a mix of caspian and russian gas from there.
Also Germany is building LNG terminals, but they take time and LNG is more expensive than normal natural gas, so the only "benefit" is political because they can say "we're not buying from Russia", but nothing else.
It's wrong because gas is a fossil fuel incompatible with the climate goals and the countries providing it (Algeria, Qatar, Azerbaidjan...) are basically the same thing as Russia. And LNG is even dirtier.
So it's a bad thing diplomatically, environmentally and economically.
There's also a huge "earthquake" in how Germany is currently replacing how the internal electricity market is operated...
Spent few weeks trying to help someone find out what kind of setup they need with the switchover, because even the grid compliance officer didn't know...
Germany as the third largest economy in the world (swapped places with Japan recently) and the driving economic force in Europe of course plays a key role in European energy security.
The Ukraine conflict forced the transition to renewables to be accelerated and plans for a transition from coal to gas to be shelved; probably permanently.
Germany no longer is dependent on Russian gas at this point and it never was very dependent on nuclear even before it put in motion the plan to get rid of it completely almost 15 years ago. People are whining about this a lot but it doesn't really matter.
The energy gap is much bigger than the retired nuclear could ever fill and it was never going to be a big part of any short term solution to addressing that gap. It sure would have helped, a little bit. But in the end Germany managed fine without it.
The simple reality is that unless you already have a nuclear plant up and running, getting a new one is going to take probably well over a decade even under the best of circumstances. Probably more like two decades in Germany. Germany only had a few nuclear plants left in 2021 and they are now gone. New ones were not being planned. So like it or not, nuclear simply was not going to be a major factor in the German energy crisis. The 8GW of nuclear that was left and is now gone was never going to be anywhere close to enough.
Renewables are a different matter. The amount of generation added on a yearly basis is way more than the nuclear capacity they got rid off. The crisis has caused investments to be stepped up and the timeline to be accelerated. So much so, that despite the above, coal usage is not really growing. It just temporarily stopped shrinking. And we're already on the tail end of that too and the shrinkage will resume. At this point, the main challenge is actually not generation but energy transport and storage. It's doubtful coal will be completely shutdown by the mid 2030's as per the original pre-war plan. But it's going to decline in importance between now and then.
LNG as a fuel for gas plants is stupidly expensive and unlikely to be something that will be stepped up. It's a stop gap solution to keep existing plants going and that will increasingly be in the role of peaker plants that are only operational when they have nothing else. But I expect they'll be needed less and less.
Investments in the energy generation and transport infrastructure is going to have to step up of course. This will be good for Germany and Europe. More cables means more resilience against local weather and climate related peaks and dips in wind and solar generation and less dependence on foreign fossil fuel imports.
This isn't exactly an outlier we're dealing with here, we're seeing a situation that was always somewhere between plausible and probable depending on how much trust the assessor had in Russia before 2022. I'm going out on a limb here and saying that the current situation - purposefully avoiding producing energy, followed by an energy crisis - cannot be classed as good for Germany or the EU.
From the lowest point every direction of travel goes up, I suppose. In that sense hopefully the decisions made today are of higher quality and sure, it is in some way good that they've been delivered a clear warning shot and will now hopefully react to it by adjusting their policies.
The crisis is short term bad/annoying. The mitigation is long term excellent. The EU cutting loose from having to import gas/oil/coal from dodgy regimes in Russia, the Middle East, and elsewhere is going to suck for those countries, is good for our planet, and good for the EU.
> Germany no longer is dependent on Russian gas at this point and it never was very dependent on nuclear even before it put in motion the plan to get rid of it completely almost 15 years ago. People are whining about this a lot but it doesn't really matter.
Oh, but it does matter. With high gas prices at the start of the war and shutting down the nuclear - this made electricity price go up all around Germany. Because Germany was in need for electricity and was buying it abroad. So this decision in Germany made poorer people in other countries pay more.
As I argued, Germany's nuclear was too insignificant to really matter. It's been outstripped by renewables growth many times over since the decommissioning began. And the shortage caused by Russian gas disappearing was a lot higher than the nuclear capacity that disappeared. Sure a few extra GW extra would have been helpful. But the shortage was much higher than that. And that's before you consider gas based heating (industrial and domestic) which of course is not helped at all by nuclear and which is by far the largest use of gas.
Any price increases in surrounding countries should be blamed on the policies of those countries first, and of course the Russians. And let's face it, a lot of countries were overly dependent on Russian gas. Trusting the Russians was a big mistake. And lots of countries fell for that.
In an interconnected market, when energy gets scarce, prices go up for everyone. And Germany can afford to pay high prices and it did. A lot of countries selling energy benefited from that. Oil and gas companies did really well and made record profits. And lots of countries declined to tax that appropriately and chose to let these companies keep their profits instead of taxing it and using the revenues to help those people. Don't blame the Germans, blame your local government for that. And then blame yourself if you voted them into office. Choices have consequences. And if you didn't, blame your fellow citizens.
> Don't blame the Germans, blame your local government for that. And then blame yourself if you voted them into office.
In my country we don't have energy generation from gas. At all. Why should I blame my government?
My friend, you came up with a lot of excuses for Germany. The one I can agree with is the war that Russia started. You country was the most dependent on russian gas. You pushed for new gas pipelines with Russia even at the last moments before the war.
The underlying logic of this is the same dumb thinking that caused all the stupid infrastructure privatizations of the last 20 years: That the government should "make money" on infrastructure, and if it can't it should privatize it.
The entire point of infrastructure is that the government runs it at a loss, the loss gets captured by the private sector/household, and the multiplier effect makes it a positive thing on the whole. The government should ensure the money is well spent, but if it is then 1 dollar of electricity deficit(on government side) is like 1.2-1.3 dollars of surplus somewhere else on the balance sheet.
The problem, in this case, is that the EU lives in it's own little bubble where it assumes that the member countries and commercial interests act rationally and in the best interest of Europeans.
As such I don't see an issue with an integrated electricity marked, if you at the same time ensure that countries and companies doesn't simply stop investing in energy infrastructure because: We can just buy what we need from someone else.
It's fine to buy cheap wind power and shutdown a power plant if the wind is blowing, but if you only building wind farm and assuming that you can piggy back on the nuclear reactor or dams next door when the wind stops blowing, then it quickly falls appart. Each country, or region, needs to have a plan for self-sufficiency, in all circumstances, but that's not a financially sound idea. Better to have a electricity shortage once in a while, if you only care about money. This is the bit that the EU does not understand. For some reason the EU has always had a blind spot when it comes to the actions companies, and countries, will take in the name of financial gains.
Interconnexions existed before the market, and their development is not purely related to the market. A significant part of grid cooperation through ENTSO-E is about stability, not increased market benefits.
If you will, this is like saying you need an exchange for trade. Well, no, OTC markets exist.
Interconnections sure, but the crisis of 2022 was mostly about cost of gas and other fossil fuels.
The markets made sure that the plants got their costs covered and stayed online.
One can argue whether the last-price-wins is the best market structure but how would you have forced plants to generate at a loss without nationalizing them?
We need some production sites to be operated at a loss, because they have to be maintained the whole year while they may be of use only a few weeks or days per year — but those times we cannot do without them.
No market will ever be able to make that happen, those have ti be publicly owned. Why, oh why on earth would be decide that the benefits should be privatized while the losses have to stay public? Especially when the result of privatization and market policy is that electricity is more expensive for everyone in the end.
It's really not a bold claim. It may seems like so if you chose to believe in the idealized market model but that does not exist in real life.
As for the references, I linked to them (it's in French however) in another comment here.
Also, all of the progress and innovations and building of new generations and renewables and everything until recently has been done without a market, at least in France, which probably has one of the best electricity system in the world.
I wouldn't call electricity (and energy in general) a business. The goal is not to make money but to provide a service. But yes, electricity in France before it was privatized was largely successful. The same could be said for the trains and railways for example. In both cases privatization made the service largely worse than before while prices have been going up and up.
> The markets made sure that the plants got their costs covered and stayed online.
I don't really understand your point here. In an otc trade, costs are also covered, no one works for free.
That being said, my original point was not even about that. It was more about lines in the article that strongly hint that, in the author's opinion, the current issue is politicians not doing enough to force their citizen to swallow the pill. Relevant paragraph:
> Further market integration requires substantial political investment. Governments will need to deal with significant distributional effects within and between countries. Experience has shown that domestic political constraints in this respect are often numerous and difficult to overcome.
> Unavailability of generation due to it being uneconomical to generate has a very direct effect on availability.
Production can't be ramped up significantly in the span of a crisis. In that sense, a different trading scheme wouldn't have made a difference in terms of resource availability during the crisis.
> The electricity market price is downstream dependent on gas market price among others. You want to also remove gas markets then?
Not sure what connection you make between that and my point.
> Anyway, I would gladly hear what would have 2022 looked like had there not been electricity markets.
From an availability PoV, exactly the same. Markets are not responsible for making sure that production is available, or actually used ; that's the role of TSOs.
> Production can't be ramped up significantly in the span of a crisis. In that sense, a different trading scheme wouldn't have made a difference in terms of resource availability during the crisis.
What do those words even mean?
If you are a power plant and your consumables price goes up. If you can't get the price you sell electricity at increased then you will shut down and your generation will be not available to the grid.
> If you can't get the price you sell electricity at increased then you will shut down and your generation will be not available to the grid.
That simply doesn't happen. Whether an exchange is there to "facilitate" trade, or whether Alice in Paris calls bob in Frankfurt to ask how much 2 GWh will cost for the next day, money will change hands, and the plant will work.
And that would be cheaper how? Each of the hundreds of energy retailers going begging each of the thousands or hundreds of thousands of electricity generators?
All the while thinking if only there would be an online service to sort out the best deal .... oh wait
It's the real disease of the EU. There's no problem of failed policy that shouldn't be addressed by deepening the policy and making it harder to back track. The only possible response to problems of complexity is to make the complexity more intractable.
The real shocker for me is that the authors completely ignore the difference between grid integration and market integration. They seem to hold a maximalist line where the market can and should drive planification of the power grid, and where "managerial-governance" can emerge from that abstraction.
The real answer is simple: states who have much nuclear or public utilities have far lower prices than states who have choose the private way, the coal way and so on. As a results such states do dislike having citizens that compare prices in other EU states judging their politics...
The EU electricity market is very interesting if you are a trader. For everyone else, It is a giant shit show responsible of a price increase of around x2 in the last 3 years. And there is not a single valid physical or technical reason to that.
It is fundamentally broken:
- It has been designed around the marginal cost of production. Which implies that the price of Electricity is directly correlated on the price of Coal and Gas. A top level ludicrous move in middle of a green energy transition.
- It is designed around the concept of energy (Twh) without any consideration on the notion of the power at peak. Consequently their is almost no financial incentive from investors to pay for storage capacity or production medium that will be needed during peak hours. It is a system that makes the grid more and more unstable with time and the states have to compensate that with massive subsidies for storage and fossil fuel power plants...
- The general idea to propagate the variability of the energy price on the final customer by making small business pay themselves at market rate has shown to be a gigantic mistake. A Lot of small business were not able to afford "temporarily" 3-4-10x the average electricity price due to sudden envy of Vladimir Putin to visit his neighbour. The variability killed them, that was entirely avoidable.
This article has been written by the financial people. The same gurus that put this idiotic system in pplace.
Wierdly, every middle size company owner I know has a very different point of view about this when they receive their energy bill.
> almost no financial incentive from investors to pay for storage capacity or production medium that will be needed during peak hours.
I don't follow your logic.
If there is a large difference between prices during the day then there is a large incentive to build daily storage. You earn more the bigger the price differences there are and the more storage comes online the more prices even out over the day.
> If there is a large difference between prices during the day then there is a large incentive to build daily storage.
Real peak does not happen during the day.
The real peak happens around 10-15 days per year, during winter and when temperature drop. These are the days where protecting the Grid against blackout is challenging.
No investor are keen to billions on the table for an hypothetical investment that will be profitable 10 days per year, at best.
> "The energy crisis of 2022, triggered by Russia’s invasion of Ukraine, posed a massive challenge to Europe’s integrated energy markets. Exceptionally high gas prices drove up the cost of gas-fired power plants, on top of which, France’s nuclear fleet, a crucial component of the western European electricity system, suffered unprecedented outages"
The crisis was self-inflicted by the EU on itself: Brussels dropped imports from Russia and the prices went high-sky. They could have minded their own business and Europe could have enjoyed low gas and energy prices, but no... why waste an opportunity of a war to screw something up?
What, a large scale war of aggression, by far the worst that happened on this continent since 1945, that flooded the EU with a million of refugees, is somehow not our business?
And should we trust Putin the Faithless when he declares that he is not interested in the Baltic states, which belong to the EU? He allegedly wasn't interested in Ukraine before.
Russia reduced supply already in 2021 and then in 2022, too, until it ceased supply via Yamal to Poland and Germany as well as via NS1 (prior to its destruction).
Also, Austria is still using Russian gas, for example, and there are no sanctions on Russian gas other than on LNG.
Damn that one of most brain dead comments i saw in a while. Appeasement never ends well, if EU wasn't so soft on 2014 invasion, r*ssian would not dare to attack in 2022.
It's not about appeasement. It is about minding your own business and doing what is best for your citizens. And cheap gas is better than expensive gas, and by extension cheap energy is what is best.
You can downvote me as much as you want, but every government's job is to ensure the best for its people and then and only then help others. And because gas prices have tripled/quadrupled for political reasons only, I consider this a failure of all EU governments towards their citizens.
So how would the governments of Germany/France/Spain to name a few cease to exist if they import gas from Russia or Iran or whatever next baddie country you can think of?
A government's primary duty to ensure its existence is not just about surviving for one more day, but also about maintaining its strength and sovereignty so it can survive in future.
By buying energy from adversaries you fund their activities against your own government. This compromises the primary duty by weakening your government in the long term.
Russia had been a "bad neighbour" for over two decades now. In terms of energy policy, worse than Soviet Union (there's reasonable argument that they traded on relatively stellar reputation soviets made when it came to energy supply to the West).
Cheap energy is not everything, and I do not mean here some nebulous (to some) concepts of decency and honour. I mean physical and political safety of the citizens. Several EU countries border Russia. All of them have history when it comes to Russian nationalism (which coincidentally is pretty big in Russian government). And Russians aren't quiet with their saber rattling. Appeasement only results in confirming that threats work to get you to comply, after all.
If anything, the current increase in combat was a wakeup call that "Wandel durch Handel" was a total failure with regards to Russia. For decades, belief in "Change through Trade" constrained possible actions to ensure safety and wellbeing of EU citizens, against belligerent who was all too happy to manipulate energy access to cause issues. Not to mention significant portion of the fossil fuels from Russia... flowed through Ukraine.
So if anything, diversification from Russian gas was at most ripping the bandaid out, something that should have been initiated at latest in 2014 (when it was proposed by Poland), but it was not the first attempt to do so. Pity it took 8 year war kicking into higher gear for some to finally understand.
Sure, diversify, but find a price similar to Russian gas, not four times more expensive and then expect citizens to bear the cost. That's my issue. It can come from the South Pole if it would cost the same or maybe 5-10% more, but not 400% more.
Or, as I think it would have been even better, have citizens vote independently with their wallets. I for example, don't buy Turkish products because I think Erdogan is a-hole and a dictator. But I don't have a problem with other people buying Turkish products. So you could pass a law where citizens would have the option do deny consuming Russian gas and opt for Caspian Sea natural gas, or LNG from Qatar or whatever and pay the appropriate price. Providers would sell them gas from their preferred source and everyone would be happy.
Politics is used for the parts where the free market doesn't produce good outcomes. You can't put a price tag on ~200 000 dead people (counting both sides).
Otherwise we could just do away with the whole overhead of democracy.
I hate to break it to you, but we passed the "we can't put a price-tag" on dead people a very long time ago. Every accident/conflict ended with a money settlement so people are actually walking around with a price-tag on their heads every day.
If you speak French, this series of video on the Heu?reka YouTube channel explains all this very well, both from the technical side and from the financial side. The videos are rather long because they go in depth on the subject:
- Comprendre le marché de l'électricité (Understanding the eletricity market) : https://www.youtube.com/watch?v=ienoSbONyhw
- Les super-profits des fournisseurs alternatifs (The super-profits of alternative suppliers) : https://www.youtube.com/watch?v=P3to46JLDu8
- Comprendre la bourse de l'électricité : le maché SPOT (Understanding the electricity exchange: the SPOT market) : https://www.youtube.com/watch?v=rZCKv0C6Dqs
- Pourquoi prix de l'élecricité = coût de la centrale la plus chère ? Comprendre le modèle (Why the price of electricity = the cost of the most expensive central? Understanding the underlying model) : https://www.youtube.com/watch?v=Ep3biZAtitE