iClima : Year ahead electricity prices have reached an all-time high level in Germany, passing €477/MWh, a figure materially above the ca. €150/MWh observed shortly after Russia invade Ukraine.
Gabriela Herculano, manager of iClima Global Decarbonisation Enablers UCITS ETF
“The current ramp up is fundamentally NatGas related. Spark spreads represent the gross margin that a gas fired power plant can earn vis-à-vis the electricity price. Spark spreads (which is what the graph below represents) in Germany are under pressure, underscoring that power has rallied less than NatGas prices. In the UK sparks are a bit higher, but this is the result of the fact that that UK gas prices are lower than European Prices due to some excessive LNG delivery against limited LNG re-gasification capacity in Europe.
“The lower flows of NatGas from Russia into Europe are behind the rally in power prices. This situation is causing inflation across Europe and can have a very negative impact on GDP growth. EU governments are between a “shock and a hard place” having to guarantee security of energy supply, affordability while advancing decarbonization. The conundrum is a trilemma that in the short term requires that coal fired power plants as well as nuclear that were in the process of being decommissioned to operate at maximum capacity. The increase of use of non-renewable, readily available power plants in Europe is being erroneously interpreted as a “slow energy transition”. That is not the case. As we explained in detail in a recent research report, Germany is accelerating and promoting energy efficiency, distributed renewable energy, long duration energy storage and utility scale solar and wind.
“The Federal Association of Energy and Water Industries (BDEW) reported the share of renewable energy in relation to gross electricity consumption reached 50% in the first quarter of the year. The key question becomes how will Germany jump from the current 50% renewable penetration to 80% by 2030 and a completely green grid by 2035? iClima estimates that Germany is to jump from 64 GW of wind (both forms) in 2021 to 83 GW by end of 2022, to 154 GW by 2030 and finally 185 GW by 2035. In terms of solar, figures would be 58 GW in 2021 to 80 GW by year end 2022, to 200 GW by end of 2030 finally reaching 250 GW by 2035.
Empowered by the motivation to solve its “trilemma” of how to decarbonize its grid while providing affordable energy and security of supply, Germany is on the right path to solve the conundrum. That security of supply and zero emission grid does not come at the expense of higher cost, quite the opposite even with all the LDES required to solve the RE intermittency, the overall cost of electricity may still be below the fossil fuel based alternative when considering natural gas at $100/MWh. As the 4th largest global economy and largest EU market, Germany will lead the transition, deliver a “fast energy transition” case, and in the process elevate the solutions. Germany’s early success is crucial in showcasing that a 100% green grid can be achieved (i.e. by 2035) and at lower costs than current BAU fossil fuel based centralized grid. All eyes on Germany.”
Source: ETFWorld
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