The early heat wave hitting Europe, the record highs reached the day before yesterday by wholesale electricity prices in France and the sharp increases in other countries, serve as a reminder that the current situation, despite the abundance of renewable energy sources, is no cause for complacency.
In the mornings and afternoons when solar panels are operating at full capacity, Germany saw wholesale prices drop below zero for as long as six hours the day before yesterday, but by the evening of the same day, they had skyrocketed to their highest levels since March, exceeding 176 euros per megawatt-hour.
The Greek market is also sending signals, with a minimum wholesale price today of -1.64 euros, but a maximum of 217 euros/ MWh, which, in fact, had approached 280 euros just three days earlier due to the widespread use of air conditioners—needs that were met during those hours by electricity generated from expensive natural gas-fired power plants.
When asked what the solution to the summer equation is, the answer will depend on demand, any early and intense heatwaves, and the speed of installing new batteries, with the waters serving as a catalyst for yet another summer.
Their use limits the operation of the more expensive natural gas units to hours of limited renewable energy production (afternoon and evening), reducing wholesale price spikes in the evenings as much as possible.
Water is this year’s first line of defense against the risk of price hikes, as explained by Deputy Minister of Environment and Energy Nikos Tsafos. It is estimated that the reservoirs, whose reserves have been used sparingly over the past few months, are at satisfactory levels.
The overproduction of solar power and the constant zero or negative prices on a daily basis arethe second line of defense. Every day in May, we had zero or negative wholesale prices, and for at least 4 hours. The upside of these prolonged zero prices is that they keep the average daily wholesale price low (89 euros/MWh this past May), but the downside is that the revenues of many small and medium-sized producers are shrinking more and more, putting their ability to meet their loan obligations in doubt. Just how acute the problem is at night is evident from the fact that without photovoltaics, the average price for May stands at 129 euros/MWh—45% higher.
The Greek market is now permanently decoupled from neighboring markets. Datashow that we exported electricity to Bulgaria during 96% of the hours in May. It also shows that we have become the 4th largest net electricity exporter in Europe, in absolute terms, behind only France, Sweden, and the Netherlands. When a country’s exports hit record levels—as is now the case on a daily basis—and the capacity of international interconnections with neighboring countries is fully utilized, its market ceases to be linked to those of its neighbors (market decoupling). This means that the country’s wholesale price now follows an independent trajectory and is not influenced by those of its neighbors. Indeed, in the case of Greece, the wholesale price has been consistently lower for months than in the entire region (Albania, North Macedonia, Bulgaria, Romania, Italy), which consistently hovers around 100 euros/megawatt-hour or even higher.
Batteries. A fourth source of optimism is energy storage. Currently, approximately 150 MW of battery capacity is operational, helping to meet peak-hour demand, with new units expected in the near future. “If the installation of 500–600 MW of batteries becomes feasible this summer, then, combined with the operation of hydroelectric plants, we may need to call on natural gas units only minimally this year,” Mr. Tsafos estimated yesterday, though he was quick to clarify that this does not mean he is complacent, as three months after the start of the conflict, the Strait of Hormuz remains closed.
Natural gas remains the major headache for Europe, as indicated by Mitsotakis’s statement yesterday that “we’re not going anywhere with these energy prices, ” as Europe enters the summer season without a deal yet between the U.S. and Iran.
Natural gas storage levels are at historic lows, around 30%, levels that Europe must replenish by this coming November, reaching the 80% target, without, however, having Qatari LNG available on the market, as was the case last year.
The price of natural gas on the Amsterdam trading hub may hover around 46 euros/MWh —that is, below the €65 to €70 it had reached in the first weeks of the war—but compared to the €31/MWh it cost on February 27, it remains 48% higher.
And according to a poll conducted a few weeks ago by the reputable Montel among analysts, if the Strait of Hormuz reopens by the end of May, the price of natural gas will remain at 47 euros/MWh and above 50 euros until the end of the year.
If they open by the end of June, analysts see a price of 50 euros, which will settle at 60 euros for the second half of the year. And if they remain closed until the end of July, then it will settle at 63 euros/MWh.