German energy policy has evolved scrappily, with unintended consequences aplenty. In particular it was (presumably) not foreseen that the very large amount of subsidised solar electricity-generation capacity would seriously distort the wholesale electricity market. This is greatly to the detriment of unsubsidised gas-fired power stations which would expect to make their money providing peak power during the middle part of the day, at prices commanding a premium over baseload (24/7) prices - a premium that has been substantially eroded by solar.
This situation could probably be sustainable if it were the end of the story. In logistical terms, after all, it is not fundamentally problematic to introduce a source of electricity that peaks at roughly the same time as demand (midday, in Germany's case). Unfortunately for German electricity consumers it is only the start of the tale. For on top of the solar capacity is another large new tranche of renewables - wind power. This is similarly subsidised and has a marginal cost close to zero. But far from having the predictable output of solar, it is of course subject to the vagaries of the wind. It has a similar distorting impact on the wholesale market as solar, but at essentially random times, creating a radically unstable market dynamic.
The purely physical aspects of the system problems caused by intermittent wind generation can generally be resolved with a combination of good
engineering and operational practices, and enough money - provided the
challenge is on a sufficiently limited scale. However, in Germany these
problems are on a large and growing scale, and the patchwork of
solutions available to grid operators is not robust.
It is fairly self-evident that a situation like this requires, inter alia, a lot of flexible power sources. The best solution is generally to access hydro-electricity. With sufficient quantities of water stored at the top of a hydro facility, it can respond literally in seconds when called upon to back up some deficiency in supply at short notice - the Danish solution (using Norwegian hydro).
Where, as in Germany, there is inadequate availability of hydro power,
gas-fired plant is the obvious second-choice. It is not as flexible as
hydro, but can nevertheless
provide a useful contribution to flexibility requirements, albeit at sub-optimal efficiencies.
However, a market-based approach to bringing on flexible resources
requires appropriate price-signals. As we have seen, for much of the
time solar power undermines the key price signal, namely the premium of
peak price over baseload price, by dint of which it is exactly gas-fired
plant that has been rendered uneconomic. At the time of writing most
German gas-fired plant lies idle; and no-one is building any more.
Imports from neighbouring countries therefore feature significantly in balancing the German grid - including hydro from Norway and Switzerland, when available, but predominantly nuclear (France), hard coal and lignite (Poland and the Czech Republic). We have noted the ironies before.
(Confusingly, Germany also sometimes exports power; and inevitably this is at times of wind and solar surges. Greens make great play of this, sometimes asserting it proves German energy policy is a roaring success. But total capacity was never the issue: it is achieving an efficient and reliable balance in the system at all times between naturally variable demand, and increasingly unpredictable supply.)
So if gas is uneconomic, and nuclear is being phased out, where will Germany source its reliable power ? Another key component in the mix (and another irony) is the large-scale building of new coal and lignite (brown coal) power plants within Germany itself. The ever-growing policy-driven renewables capacity seemingly cannot be halted: but at least the large German coal- and lignite-mining industries can support a new generation of highly efficient fossil-fuel plant. The cost of CO2-burning permits is at rock-bottom; coal is cheaper than gas and is still economic to burn; and a new plant operates at much greater efficiency and significantly lower emissions than the old coal-fired plant it replaces. Unfortunately it offers less flexibility than gas, but can make a contribution to this requirement also.
How much pleasure is derived by greens from the large programme of newbuild coal plants is anyone's guess; but it is how practical German power engineers are attempting to square the circle.
There is no guarantee they will succeed. The final piece in this series will consider the effects and the costs of dysfunctional German energy policy - and a warning to the rest of us.
PART FOUR (CONCLUSION)
Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.