Platts reports in a blog post that renewable energy makes coal and gas power plants in Germany unprofitable. They note that with more renewable in the mix wholesale prices go down, which cuts into the profitability of fossil fuel power plants.
This of course not news. It was clear a long time ago that solar is eating the fossil fuel and nuclear power plants’ lunch, and wind is eating their dinner.
The Platts blog author doesn’t seem to like that development. He writes about an “oversupply of renewable”.
In my book, there is no such thing as an oversupply of renewable. Even if renewable generation is higher than demand, there will be enough ways of using that extra zero price energy. Load some batteries. Make some hydrogen. Crunch some numbers to make bitcoins. Suck some CO2 out of the air. Whatever. But don’t tell me there is no way to use free electricity.
But I actually agree that it is a problem for coal and gas plants to be unprofitable, though that problem is more serious with gas.
That’s because these plants will still be needed for a couple of decades (if the inept CDU/FDP government stays in power) or a couple of years (if we get back to a government that knows what it’s doing with the energy transition). Note that having coal and gas power plants doesn’t necessarily mean burning fossil fuel. We will make gas from wind energy, and we can make coal from modern plants, instead of burning Tasneem’s mom.
If you don’t understand what “burning Tasneem’s mom” means, that’s a poetic way of saying “burning Jurassic plants”. Fossil fuel is nothing else but ancient biomass. Please read my mad genius science fiction novel “Tasneem” (FREE PDF file here) for more on that particular metaphor.
So how is it possible to keep coal and gas plants running with a profit?
The answer is easy. We need to get rid of the stupid and outdated “merit order” model of organizing the power market. And we need to replace it with a design I call “modified merit order”. I have introduced it in February with this (rather long) post.
To sum it up, in modified merit order, every power plant sets their price as the sum of fixed costs, marginal cost, and profit. Renewable energy gets priority even at higher prices, but these are limited to what we now have as feed-in tariff.
In such a model the prices of coal and gas plants will go up as their shares drop, since a lower capacity factor means more fixed cost per kWh. That’s a good thing, since it will keep alive those power plants for the occasional November night with no wind. It will also be nice to see that renewable beats fossil fuel on price, even without factoring in carbon costs and the costs from global meltdown. It will feel good to see solar and wind prices calculated in a way that make sure they beat the fossil fuel competition.
It is already clear that the present model (feed-in tariff plus merit order) does not work. It needs to be changed. And for the time being I don’t see much of a problem with my modified merit order proposal.