(Montel) A coronavirus induced slump in power prices has rendered margins on German renewables production so bad it risks forcing around 4 GW of ageing wind turbines into retirement from next year, analysts told Montel.
German day-ahead power prices have averaged EUR 23/MWh so far in 2020 – around 42% lower year on year as lockdowns to curb the spread of the virus have contracted demand for electricity and the fuels used to make it.
Revenues for renewable energy production have fared even worse.
Berlin energy advisory service Enervis estimated wind and solar producers’ income from wholesale power sales fell from around EUR 30-35/MWh in April 2019 to EUR 10/MWh last month.
Support schemes fill the gap between these revenues and the contracted prices awarded to owners of renewable energy installations.
However, a large chunk of German onshore wind capacity will begin to roll off such 20-year deals from next year – and the timing could not be worse for these assets.
Hanns Koenig of consultancy Aurora Energy Research puts their maintenance and operating costs at around EUR 15-20/MWh – a threshold they will need to cover via commercial deals from 2021.
“In the current market environment, this is indeed difficult,” Koenig said. “We would expect a considerable number of these plants to be decommissioned if the situation on the electricity market does not change.”
Onshore wind in Germany only tends to capture around 80-85% of the value of average wholesale power prices.
This is because when it is windy, the country’s large fleet of turbines generate at the same time, causing prices to fall over the period they can make money. When the wind subsides, the turbines tend to simultaneously miss out on the ensuing jump in prices.
Especially windy and sunny conditions in the first quarter of the year compounded the effect of the coronavirus slump for renewables, said Nicolai Herrmann, a partner at Enervis.
“Capture rates in April were about 60% of the base price. That is obviously a low value,” Herrmann said. “Last year the minimum was 70% on a monthly basis.”
The combination of low capture rates of already low wholesale power prices was bad news for ageing turbines that would soon need commercial partners, he said.
PPAs in question
Energy market observers have been anticipating a surge in private power purchase agreements (PPAs) to extend the life of wind turbines set to exit support schemes.
Commercial clean energy deals have been taking off in recent years as the cost of building new renewable energy installations has begun to fall below rising wholesale power prices.
The coronavirus slump was only likely to prove a temporary delay for PPAs designed around new renewable energy projects, as the fall in wholesale prices was only likely to affect a fraction of the duration of a long-term contract, Herrmann said.
“But it is different for old wind farms – this is really a problematic situation at the moment.”
Ageing installations would only be in the market for relatively short-term deals aimed at squeezing a few more years of life out of an asset. For them, a 1-2 year period of low prices may make decommissioning a more attractive option.
“If we do not act, it could lead to a large power shortage,” said Hermann Albers, president of the German wind energy association (BWE).
The BWE estimated around 6,000 wind turbines with a capacity of 4.5 GW would be affected next year.
Commercial imperatives could impact as much as 16 GW of onshore wind by 2026 – about 30% of the present fleet, according to BWE figures.
Koenig, however, was less concerned.
He expected a gradual recovery from the coronavirus to deliver higher demand and prices for electricity by next year, while a reversion to average wind speeds should also bolster turbines’ capture rates.
“All in all, we expect onshore wind turbines to achieve an average market value of around EUR 30/MWh in 2021, at which continued operation will be profitable.”
13:58, Friday, 29 May 2020