One of the unintended yet problematic side effects of Germany’s headlong pursuit of of renewables at any cost over the past few years has been a sharp increase in the volatility of electricity prices. As Reuters reports, German spot power prices just spiked more than 17 percent in large part thanks to a sudden dearth of renewable supplies:
The German spot power price for day-ahead delivery hit a nine-month high on Thursday on a sharp fall in renewables power output and unabated worries over tight French nuclear power supply ahead of the cold winter months, traders said.
The German baseload power price for Friday delivery jumped 17.69 percent or 5.75 euros to 38.25 euros ($42.52) /MWh, touching levels last reached in January. The French contract gained 4.4 euros or 8.78 percent to 54.25 euros /MWh.
European power prices have rallied in the past week over concerns that France, a net power exporter, which depends on nuclear for about 75 percent of its electricity needs, could face supply constraints in the winter months.
We should note that renewables aren’t solely responsible for this uptick in prices—France just cut the power targets for its massive fleet of nuclear reactors, and a spike in European coal prices is exacerbating the problem. That said, renewable sources like solar and wind power are by their very nature variable. They can only supply the grid intermittently, when the sun is shining or the wind is blowing, and that inconstant supply naturally leads to big swings in price. Just last week Germany’s spot power prices dropped more than 30 percent as a result of a very windy day.
This puts a lot of strain on grids and the utilities that manage them, which for decades were accustomed to connecting relatively consistent supplies of electricity with consumers. Too much power can be just as much of an issue as too little, and on those particularly sunny or windy days Germany’s grid overloads and spills over onto those of its neighbors. For example, Poland and the Czech Republic have had to pay more than $180 million “to protect their systems from German power surges.”
This volatility is best seen in the methods with which traders, well, trade: consistent inconsistency has forced traders to employ algorithms to do their jobs for them. As one expert noted, movements in German power prices are “about 200 times that of financial markets.” These are not the signs of a healthy system.