Are big baseload power providers in Texas destined to suffer the same fate as their counterparts in Germany?
The question arises because Texas is once again undergoing a surge of wind generation installations at a time when wholesale power prices are already on the floor, and zero pricing due to existing wind generation is prevalent.
The comparisons are striking between the power sectors in Germany, which has the most renewables as a percentage of total installed power generation of any country, and Texas, which has the most installed wind generation of any state.
Germany has total generation of roughly 100,000 MW, and its daily average peak demand is around 55,000 MW. To meet that average daily demand, Germany has roughly 38,000 MW of coal-fired and nuclear baseload generation that runs every day.
But Germany also has approximately 65,000 MW of renewables — 33,000 MW of solar and 32,000 MW of wind — that is available to meet demand above the baseload total. On a given day, a portion of Germany’s wind capacity is used in the early morning hours to meet demand, while later in the day a portion of the solar power and wind are used to match the higher peak demand.
One interesting thing about Germany’s generation portfolio is that it does not burn natural gas for electricity. The view is that natural gas, which in large measure is oil-indexed Russian gas, is just too expensive to burn. As a Citi Research report said recently, “Coal generation is now cheaper than gas on the margin in Germany.”
In any event, wholesale power — as opposed to retail prices — are on the floor. This has caused a serious cash flow problem for the big baseload utilities E.ON and RWE, which have been selling assets and reducing payrolls to counter their drop in revenues.
On March 27, Moody’s downgraded E.ON, saying its major challenge in 2015 was lower cash flow from low generation prices in Germany. Moody’s said E.ON is facing “continuing headwinds in its domestic and international businesses, which limit the group’s financial flexibility in the context of a planned reorganization.”
The average German, however, will say that this all wrong, that electricity prices are in fact too high. They refer, of course, to the retail prices they are paying, which can run as high as 28 cents kWh compared to the roughly 10to 11 cents/ kWh that is now the average in the US.
The reason why retail prices are so high is because the German government, perhaps wisely, perhaps not, set up their renewable subsidy programs in such a way that the retail customers pay the renewable companies their subsidies via their monthly electricity bill.
In Texas, the situation is both similar and different.
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To be sure, the subsidy situation for wind in Texas, and elsewhere in the US, is different than in Germany. More than $13 billion of federal tax payers’ money was doled out by the US Treasury to wind developers between September 2009 and the end of 2014. Such wind developers in Texas as E.ON and Iberdrola received $2 billion of that total.
Texas has just over 77,000 MW of total installed capacity. Its average daily demand runs around 52,000 MW. Its coal-fired and nuclear baseload totals roughly 32,000 MW. But the first big difference from Germany is Texas’ 31,600 MW of gas-fired intermediate and peaking capacity. Natural gas is cheap in Texas, and the price of natural gas-fired power is “on the margin” in Texas, which means it sets the price for all the power bid into the market before it.
At 14,100 MW, Texas has more wind generation than any other state in the US. To date, the record high use of wind on a given day is about 9,500 MW.
In recent days, some of this wind power has been priced at $0/MWh. Wind generation tends to kick into high gear at a time when demand is on the decline. As Eric Wieser, a colleague at Platts has noted, zero or negative wind power prices indicate an oversupply situation on the grid that must be corrected by a reduction in the overall amount of generation. Generation that chooses to stay on-line at negative prices are essentially paying load to take the energy, rather than getting paid to generate.
However, the incentive to some companies to produce at zero or negative prices comes from their holding federal production tax credits. This PTC, which equals 2.3cents/MWh, is used by companies to reduce their federal tax exposure. The tax credits are good for ten years, and a company receives the credit only if it is producing power.
Another difference from Germany is that there is retail power in Texas, and residential and industrial concerns are seeing their retail rates linked to a fair degree to the low wholesale prices. Retailers mark up the power after they buy from wholesale marketers and traders, but residents are seeing lower power prices.
Now, though, wind power in Texas is headed toward an expansion to as much as 18,000 MW within the next couple of years. There is also talk of a big push in solar power.
The biggest baseload generator in Texas is Luminant, whose parent firm, Electricity Future Holdings, is already in bankruptcy. A very large pre-existing debt load just can’t be serviced with the low revenues now being generated.
Calpine, which exited bankruptcy almost six years ago, has more gas-fired generation than anyone in Texas, and cringes at the idea of more renewables putting a dent in prices and their revenue.
NRG Energy, the other big baseload generator in Texas, is doing something the two big German utilities have not done. NRG is trying to expand its holdings of renewable generation on the principle of “if you can’t beat’em, join’em.”
Jessica L is somewhat right in that Germany does burn some gas, although the bizarre thing about Germany is that they choose not to “industraiise” the landscape via gas, but are happy to do so via lignite strip mining.
But coal is not as flexible as gas so when the sun goes down and the wind dies down, coal often replaces it. That’s a key reason why after spending all this money, German carbon output is mostly unchanged, and sometimes, even worse.
Texas does show that natural gas (at a third of the cost of German prices) does not prevent the development of renewables, a big fear of EU greens. Cheap gas and cheap renewables are the way forward and this lesson from Texas is conveniently ignored both in Germany, New York State and many another place besides
Jessica: When contradicting an article’s facts, one needs to present documentation. How much gas does Germany burn compared to coal, for example, and what is your source?
As for Germany’s interconnections, some of Germany’s neighbor’s have been threatening to shut off their connection with Germany due to the troublesome “dumping” of wind energy causing destabilizing effects on the grid.
Wind’s unpredictable intermittency becomes more of the problem, the more penetration wind is given. Energy markets would sort out power sources better without government mandates and incentives. Hard-headed analysis rather than a quasi-religious faith in “green” energy would serve humanity’s future far better.
Apparently Jessica doesn’t appreciate the analysis ! but what part ?
Jessica Lovering
@J_Lovering
Apparently Germany doesn’t use natural gas for elec., and much more poor analysis found here: Wind in Texas& Germany http://blogs.platts.com/2015/04/02/revenge-of-the-renewables-how-wind-and-solar-play-in-germany-and-texas/ …
Re-Read Jessica, the Wind is dumping energy to kick-out other generations and drop their utilization rates, out of the grid and to gain market power. For me its a Solid analysis.
“In recent days, some of this wind power has been priced at $0/MWh. Wind generation tends to kick into high gear at a time when demand is on the decline. As Eric Wieser, a colleague at Platts has noted, zero or negative wind power prices indicate an oversupply situation on the grid that must be corrected by a reduction in the overall amount of generation. Generation that chooses to stay on-line at negative prices are essentially paying load to take the energy, rather than getting paid to generate.
However, the incentive to some companies to produce at zero or negative prices comes from their holding federal production tax credits. This PTC, which equals 2.3cents/MWh, is used by companies to reduce their federal tax exposure. The tax credits are good for ten years, and a company receives the credit only if it is producing power.”
The renewable energy scam has nothing to do with “saving the planet” or giving consumers reasonably-priced electricity. It is a sneaky way to cut energy use by raising the price to please the Sierra Club while rewarding rich political cronies with unimaginable profit margins. This guy waded through Obama crony Buffett’s Berkshire-Hathaway annual report to get the truth:
–After a complicated struggle to extract enough data out of the obfuscated reporting of Berkshire Hathaway 2013 Annual Report, we can project data that is a probable or estimated summary of how Berkshire, Warren Buffett, and its other shareholders could make an enormous amount of money on green wind energy, $1,574,000,000 tax-free.
—
MidAmerican appropriately makes post-tax profits of $1,574,000,000 for producing just 11% of the electricity that Ameren produces. And Ameren’s net income after an assumed tax rate of 37% is just $255,000,000. So, in the end: 1 kilowatt of windmill electricity produces 57x the profit of 1 kilowatt of hydrocarbon fuel electricity.–
http://nlpc.org/stories/2014/05/21/how-warren-buffet-fleeces-consumers-taxpayers-through-wind-energy
The so-called “renewable” or Progressive energy movement is doing grievous damage to tried-and-true electricity production. Up in Ontario, once low electricity prices tripled after 11 years of left-wing energy policies. They are now in the idiotic position of basically giving away electricity to other areas when their intermittent/green production exceeds demand:
–Ontario Hydro may well have been a mess a decade ago. But it was a mess that produced electricity priced to consumers at 6.5 cents a kWh. Current prices of 15 cents a kWh will rise to over 20 cents a kWh by 2018/19, forcing the average Ontario ratepayer to pay an additional $700 annually. By that date the cost of “renewable energy” to Ontario’s 4.5 million ratepayers will result in an annual extraction of $8-billion to satisfy the perceived benefits of wind, solar and biomass. Over the 20 years of the FIT contracts, $160-billion in disposable income will be removed from ratepayer’s pockets to access a basic commodity, all in the name of “global warming” and renewable power without use of a cost/benefit analysis.–
http://business.financialpost.com/fp-comment/ontarios-power-trip-irrational-energy-planning-tripling-power-rates-under-the-liberals-direction
I have read that Germans pay as much as 35 cents per kwh. Their Energiewende program has been a complete success in that electricity is becoming a luxury product there. Our Sierra Club would love to have the same situation here, and they are well on their way in the Northeast due to closure of a nuke plant, Obama’s war on coal, and Progressive governments refusing to allow needed natural gas line construction:
–Massachusetts consumers will pay significantly higher electric bills this winter as a persistent shortage of natural gas for generating plants drives power prices to record levels.
The cost for a typical household could top $150 a month, based on an announcement this week from one of the state’s two dominant utilities, National Grid. It said its rates will increase by a whopping 37 percent over last winter’s, solely because the cost of buying electricity from power plants has soared to the highest level in decades, according to a company spokesman.–
http://www.bostonglobe.com/business/2014/09/25/national-grid-projects-percent-increase-for-winter-electricity-rates/MBl81NGxTljzr56PZCD7QK/story.html#comments
You need to re-check your facts: Germany does in fact burn natural gas for electricity.
And another significant difference between Germany and Texas is the inter-connectedness of their grids. Germany has strong connections to neighboring countries where it can offload excess wind power at night, and import cheap hydro or nuclear when they need it.
Jessica Lovering
Senior Energy Analyst
The Breakthrough Institute
@J_Lovering