The price of electricity on the Paris electricity exchange reached an exceptionally high level yesterday. How energy experts explain this – and why a Swedish minister is criticizing Germany because of it.
There was an extraordinary price spike on the so-called spot market on the Paris Epex power exchange late on Thursday afternoon. Between 5 and 6 p.m., a megawatt hour of electricity cost just over 936 euros before the price returned to normal levels.
Amounts currently being called up are usually around the 100 euro mark. Short-term capacities that are needed for immediate consumption are purchased on the spot market.
“Alarming development”
Such price peaks are no longer unusual, said expert Andreas Schroeder tagesschau.de. Schroeder is Head of Energy Analytics at ICIS, an information service for price data on the energy market. “Especially in this autumn-winter season, we are already observing the phenomenon of such price peaks more frequently. The problem has worsened over the past few years.” This development could certainly be described as alarming.
The reason for the price jump is a so-called “dark lull”. This phenomenon refers to special weather conditions in which there is both darkness and calm winds. Electricity production from solar or wind turbines is correspondingly low. Dark lulls occur particularly in autumn or winter, i.e. at a time when there is increased demand for electricity and temperatures are low. If the high demand meets a simultaneous shortage of supply, the price goes up.
“If there's a lot of sun shining and a lot of wind blowing, then the prices are very low, and in the dark periods there can be strong upward price fluctuations. However, this is evened out with long-term procurement, which is what most suppliers do,” explains Kerstin Andreae, Chairwoman of the BDEW headquarters, opposite tagesschau.de.
There is a lack of flexibility in the power grid
Expert Schroeder explains the price peaks as follows: “The expansion of wind and solar energy has not been accompanied by more flexibility in the power grid. There is a capacity gap.” Basically, such price spikes are signs of failures in the energy transition. “There is a lack of reserve capacity that can step in in such cases.”
On the one hand, there are too few reserves available in the form of conventional power plants, says Schroder. “Other factors that would provide the desired flexibility in such situations and that are now missing include battery storage, load control and grid expansion.”
“Electricity storage and ways to use electricity more efficiently are important in these times,” explains Andreae. “Overall, we will need more storage and more flexibilities in the electricity system so that generation, consumption and storage can be better and more cost-effectively balanced.”
What does this mean for consumers?
For the majority of private electricity customers, however, such capers on the electricity market initially have no consequences because they do not purchase electricity on the spot market. Most consumers have agreed to a fixed monthly or annual tariff. “Long-term average prices are particularly important for private customers. We saw price fluctuations last year, both upwards and downwards,” says the chairwoman of the BDEW headquarters.
Many suppliers procure the electricity they need for long-term electricity contracts with long-term fixed prices in partial quantities and step by step at different times. “This strategy smoothes and mitigates upward and downward price fluctuations on the electricity exchanges for end customers,” says Andrae.
The industry is more directly affected than consumers, but there is also usually an average price agreed on a monthly or annual basis, says expert Andreas Schroeder.
Benefit from cheap spot prices?
However, there are also companies that want to benefit from the variable electricity prices on the stock exchange. Flexible pricing models are also available to private consumers. If the electricity market develops favorably, money can be saved. For example, production can be shifted to times when low prices are expected. And consumers can use their washing machine when it is particularly cheap. At the same time, companies may have to stop their systems if prices are particularly high.
In Sweden, for example, such “dynamic” private customer tariffs are common. The price spike there on Thursday had direct consequences. As Swedish media reported, ten minutes of showering there sometimes cost the equivalent of 4.30 euros. “Being clean has its price,” said an energy expert in the Swedish news.
Harsh criticism from Sweden
Ebba Busch, the country's Christian Democratic economics and energy minister, criticized Germany in an unusually harsh manner. “I'm mad at the Germans,” she said. Despite Russia's invasion of Ukraine, the Federal Republic has shut down its last nuclear power plants, but at the same time has not introduced any electricity price zones. German energy policy is irresponsible.
The German and Swedish electricity markets are networked. If too little electricity is produced in Germany, the country buys energy in Scandinavia. The electricity price in Germany therefore affects the price structure in Sweden, for example.
Electricity price zones would mean that electricity in northern Germany would be cheaper than, for example, in Bavaria – because more wind power is produced there. This means that the gap between Swedish and northern German prices would no longer be so great.
