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Europe Faces Green Energy Crisis Because Of Oversupply

Rachel Morison / Bloomberg

Europe’s drive toward a power system based on renewable energy has gone so far that output will probably need to be cut within months because of oversupply.

Network operators are likely to curb solar and wind generation at times of low demand to prevent overloading the region’s 188,000 miles of power lines, Entso-e, the grid association in Brussels, said last month. Renewable output is poised to almost double to 18 percent by 2020, according to Energy Brainpool GmbH & Co. KG, a consulting firm in Berlin.

Europe’s fivefold surge in green energy in the past decade pushed prices to a nine-year low and wiped out $400 billion in market value of utilities from Germany’s RWE AG to GDF Suez SA in Paris. There’s so much power available on windy and sunny days in Germany and Austria that the number of hours producers had to pay consumers to use it doubled in the first five months of 2014, data from the Epex Spot SE exchange in Paris show.

“The system is costly and we need intelligent answers,” Johannes Teyssen, chief executive officer of Dusseldorf, Germany-based EON SE, said on June 2 in an interview at the Eurelectric conference in London. “There are some hours where it is inevitable that we will be oversupplied.”

The expansion of renewables is at the center of the European Union’s unprecedented effort to cut carbon emissions by 20 percent from 1990 levels by the end of the decade. Governments in the 28-nation bloc are discussing accelerating reductions to 40 percent by 2030.

German prices

YEAR-AHEAD electricity prices in Germany, a European benchmark that settled on Thursday at €34.19 ($46.70) a megawatt-hour, have fallen more than 60 percent from a June 2008 peak as renewables boosted supply and the 18-nation euro region’s longest recession cut demand. Forward markets show costs will decline for another four years.

“In some member-states we have been too fast,” in expanding renewables, European Union Energy Commissioner Guenther Oettinger said on June 3 in an interview at the Eurelectric conference. The region needs better infrastructure to integrate the new power, he said.

Europe’s production of renewable energy stretches from reservoirs in Romania to offshore wind parks in the UK. The European Commission says €200 billion ($272 billion) is needed to upgrade power and gas grids by 2020.

Summer outlook

Eight countries from Germany to Bulgaria will need to export or curtail generation, including renewables, at times of low demand during most of this summer, Entso-e said in its May 22 Summer Outlook. Risks to grid operations will be most acute in Bulgaria, Spain and Romania, where capacity to ship power to neighboring countries is less than what’s needed, the 41-member group said.

“It is hard to predict when the grid operator will intervene and for how long, and it’s a big problem,” said Burkhard Steinhausen, whose team at Trianel GmbH manages the output of 3,000 MW of renewable capacity on behalf of producers. A supply of 1,000 MW is enough to power about 2 million European homes.

“If the grid isn’t expanded at the same pace as renewables expansion then, it will happen more often,” he said on June 4 by phone from Aachen, Germany.

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