Jan Willem Zwang
Energy Trendwatcher
Tim de Knegt
CEO & Executive Director
The way that green electricity from wind and solar parks is traded on the power markets requires radical changes over the next few years. Providers will increasingly need to directly sell their power output to local consumers. Both will have to be able to better predict their power generation and consumption and align them more effectively with supply and demand.
Only in this way can we prevent green electricity prices from rising even further, due to additional risk premiums from energy utilities and the shutdown of wind and solar parks during windy and sunny days with high associated power production. This would pose a risk to the growth of renewable energy in the Netherlands, as new investments would be rendered unprofitable.
Moreover, this paradigm shift will be required to prevent further grid imbalances and congestion, as well as the unnecessary dumping or wasting of generated renewable energy.
These statements are made by energy experts Tim de Knegt from the Port of Rotterdam and CEO of energy platform Distro Energy, and Jan Willem Zwang, an energy trendwatcher at Stratergy. Both will be speaking at the Renewable Electricity Trading summit organized by Solarplaza on June 29 in Arnhem, as well as during the free webinar held on June 8 preceding the summit.
The price of green and other electricity is largely determined on the European wholesale market EPEX. It is determined 24 hours in advance based on the total demand and supply of electricity, with the price of coal and gas playing an important role. High gas prices result in high prices of electricity, both green and fossil. Electricity can also be traded on the imbalance market, where prices fluctuate every fifteen minutes.
On dark, windless days, there is insufficient electricity, leading to extra required output from gas and other emergency power plants. On windy and sunny days, there is an excess of electricity, which can even lead to negative prices, especially on weekends. This is also due to the fact that nuclear and other power plants cannot simply be shut down. It is advantageous for businesses and consumers with dynamic energy contracts but disadvantageous for owners of wind and solar parks and energy utilities. In such cases, the parks are cut off, and energy utilities charge an additional risk premium per kilowatt-hour. “Although the prices of green electricity will continue to decrease in the coming years, price fluctuations will only further increase. As a result, grid imbalance increases, and the risk premiums for all types of electricity become six to eight times higher. Due to the increasing risks, energy becomes more expensive,” explains Zwang.
The problem mainly lies in the unpredictability of the weather and, therefore, the generation of wind and solar energy. Additionally, the capacity of the electricity grid is too small, preventing the transportation of surpluses to areas with shortages. This leads to enormous price fluctuations (volatility). According to the experts, the solution lies in the direct delivery of green electricity to consumers through so-called peer-to-peer contracts, and preferably at a local level. Companies such as Groendus, Powerpeers, and Distro Energy already offer this.
“In Rotterdam, Ahoy generates much more electricity with its rooftop solar panels than it actually consumes. On sunny days, it can sell the excess electricity back to the grid with a penalty, but it can also sell it to local households and businesses that are actually eager to buy the electricity,” says De Knegt. Distro Energy, a wholly-owned subsidiary of the Port of Rotterdam, tries to bring parties together in this way to facilitate price agreements and actually deliver and use electricity when it is available. For example, agricultural entrepreneurs and growers can earn more money with the electricity from their cogeneration installations than with their flowers, vegetables, and fruits. “The market is becoming increasingly uncertain. At one moment, you receive a lot of income for your green electricity, and at another moment, nothing. In the next ten years, 100 billion euros will be needed to expand the electricity grid in Northwestern Europe. That slows down the growth of solar and wind. That's why we need to build local networks. Parties can agree on a price that is significantly lower than the EPEX price,” states De Knegt. For example, KPN has already signed a contract with Shell and Eneco to purchase half of the electricity from the Hollandse Kust West wind farm in 2027.
According to Zwang, companies need to improve their energy consumption predictions. Energy utilities can then better take that into account, leading to lower risk premiums. Another possibility is to convert excess green electricity into hydrogen or store it in batteries. The latter can charge when the electricity price is low or negative and supply electricity to the grid when prices are high. This way, consumers and corporates can earn a lot of money with batteries. Zwang has written a guide on this topic. “Currently, a significant amount of renewable energy is lost when wind and solar parks are disconnected. Instead, it is possible to store this energy during windy and sunny moments, usually in the middle of the day, and then deliver it back to the grid later in the day when the demand is higher,” he says.
