Renewables will not reduce German electricity prices throughout next decade – govt advisor

Electricity prices in Germany are unlikely to go down in the near future, despite repeated claims that a complete switch to renewable power is going to make electricity cheaper, government advisor Veronika Grimm has said. While the average cost for generation from wind power, solar PV and other renewable technologies (levelised costs) have been falling constantly in recent years, factors such as intermittent feed-in at times of little wind and sunshine mean that maintaining a reliable energy system year-round will not be cheaper than under the current arrangement, Grimm said in a paper from the Technical University of Nuremberg seen by news website Der Spiegel. According to the authors, levelised generation costs “are no sound foundation for estimating future electricity costs, as energy generation would simply not be possible during some periods. Large-scale battery storage facilities or gas-fired power plants then have to replace renewable power and contribute to higher levelised “costs of load coverage,” which would change the calculus to an extent where “electricity costs do not seem to go down in the next decade.”

Many customers would not make power consumption flexible, depending on the availability of sunshine or wind, but rather continue to keep their demand constant, the energy expert of Germany’s Council of Economic Experts and her colleagues assumed. While generation costs for wind power stood at about 5.49 cents per kilowatt hour (ct/kWh) and at 4.07 ct/kWh for solar power in 2021, total supply costs amounted to at least 6.49 ct/kWh or even more than 7 ct/kWh depending on the location due to the additional power generation needs. Generation costs for renewables are likely to go down further in the coming years, but covering demand is not going to become cheaper regardless, the authors argued. “Costs for covering the supply gaps will remain very high,” Grimm said.

High energy prices for households and companies in Germany have been a key part of the energy transition debate, even before the energy crisis fueled by Russia’s war on Ukraine led to unprecedented price spikes in 2022, which were particularly driven by the cost of fossil fuels. While many energy-intensive companies enjoy reduced rates for electricity to ensure competitive production, smaller businesses and households in Germany pay among the highest prices in Europe. However, more storage and renewable power capacity, as well as better demand-side-management, efficiency, and power transmission infrastructure are widely believed to push electricity costs down. An analysis commissioned by renewable energy lobby group BEE published this week found that the country “sits on a huge treasure trove of untapped capacity for connecting renewables to the grid.” By connecting devices for energy generation, storage and sectoral coupling, the use and cost efficiency of many grid connections could be vastly improved, the analysis found.