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Energy – Making prosperity a reality
Seamless power supply is integral to modern society

The permanent availability of energy is the lynchpin of modern society. A high degree of security of supply is thus essential to prosperity. And, in turn, it is also key to the success of the energy transition.

The irritation caused by your TV set going black at the most suspenseful point of a movie may be large or small. But your anger level rises when experiencing an outage at home that lasts so long that your ice compartment starts to thaw. Interruptions in digital communication can lead to substantial losses for companies. Even the shortest of unscheduled downtimes at industrial production facilities can threaten their existence. Because this causes a plant that is part of a highly complex value-added chain to become unreliable.

Power shortage in the dark doldrums

Electricity supplies in Europe have been very reliable thus far. And this very security of supply is one of the advantages of industry-intensive regions along the Rhine and Maas as well as in central England.

However, the volatile output of renewable energy fuelled by the wind and sun faces transmission system operators with huge challenges. If they fail to put enough electricity on the system, other energy sources have to jump in. Right now, only conventional power stations are capable of ensuring this security of supply.

Potential national solutions for securing capacity

Capacity market in Great Britain

A few years ago, Great Britain was facing the situation that Germany is facing today: Power plants were shut down as they came of age or because they ceased being profitable due to the design of the market, which is oriented towards the expansion of renewables. Since 2014, the danger of a capacity shortage in Great Britain – as well as in France and other EU countries – has been countered by what is known as a capacity market. It remunerates power producers simply for keeping capacity on tap. Lawrence Slade, chief executive of Energy UK: “With the phasing out of coal, the capacity market is the right mechanism to bring forward new investment to ensure customers have electricity any time they need it.” Recently, however, the prices fetched by providers have been so low that concerns have been voiced again that they may stand in the way of important investments in new power stations with lower emissions.

Biomass in the Netherlands

The approach taken in the Netherlands is to strike a balance between climate protection and security of supply using biomass as a fuel for coal power plants. But electricity from biomass is much more expensive than coal. This is why the government subsidises it – for now. There are plans to abolish this support. So far, there has been no market-driven approach to solving the capacity problem in the Netherlands.

Security stand-by and network reserve in Germany

In Germany – as in the Netherlands – the energy-only market is trumps. It remunerates only the electricity actually placed on the system and not the electricity held in reserve. In Germany, only the operators of lignite-fired power plants, which are on security stand-by, receive a lump-sum payment. However, the security stand-by period ends in 2023. Furthermore, southern Germany has network reserves. This mechanism involves power stations being activated in the winter, in order to cover demand for electricity, which is especially high during this season. In northern Germany, this is done using wind power, with which southern Germany cannot be supplied due to insufficient network capacity.

Great Britain, France and other countries counter this with a ‘capacity market’ in which operators of power stations that guarantee the constant availability of electricity are remunerated for keeping ample capacity in reserve in case it is needed in order to meet demand. By contrast, Germany and the Netherlands have an energy-only market in which only electricity feed-ins are remunerated. This is why secured capacity may soon fail to cover peak loads.

How far do we want to go?

The probability of supply shortages may thus rise. Electricity imports from French, Belgian and Czech nuclear power plants can only make up for part of the shortfall. But Stefan Kapferer, Head of the German Association of Energy and Water Industries (BDEW) cautions, “Secured capacity provided by conventional power stations is also being reduced in other EU member states.” It would be risky to rely on neighbouring countries to step in and supply electricity in extreme situations. Supply bottlenecks usually occur virtually simultaneously across countries in central Europe. ENTSO-E, the European Network of Transmission System Operators, predicts a deterioration of security of supply in a large number of its member states in the 2020s.

In industrialised societies, energy is about as important as capital and labour combined. Dietmar Lindenberger, EWI

Moreover, ENTSO-E believes that energy shortages will lead to significant declines in prosperity. Economist Dietmar Lindenberger of the Energy Industry Institute (EWI) at the University of Cologne anticipates that half of the economic output of societies like those in EU countries depends on energy. He stated in the trade periodical Energiewirtschaftliche Tagesfragen, “In industrialised societies, energy is about as important as capital and labour combined.”

Photo credits: Corepics VOF,

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