…utilities have suffered vast losses in asset valuation. Their market capitalisation has fallen over €500 billion in five years. That is more than European bank shares lost in the same period.
The full article from The Economist is here, interesting throughout. The article starts with this paradox:
On June 16th something very peculiar happened in Germany’s electricity market. The wholesale price of electricity fell to minus €100 per megawatt hour (MWh). That is, generating companies were having to pay the managers of the grid to take their electricity. It was a bright, breezy Sunday. Demand was low. Between 2pm and 3pm, solar and wind generators produced 28.9 gigawatts (GW) of power, more than half the total. The grid at that time could not cope with more than 45GW without becoming unstable. At the peak, total generation was over 51GW; so prices went negative to encourage cutbacks and protect the grid from overloading.
The trouble is that power plants using nuclear fuel or brown coal are designed to run full blast and cannot easily reduce production, whereas the extra energy from solar and wind power is free. So the burden of adjustment fell on gas-fired and hard-coal power plants, whose output plummeted to only about 10% of capacity.
One implication is that solar and wind receive implicit subsidies from coal and gas plants, through the medium of a backstopped power supply, and those subsidies will be harder to maintain as solar and wind become more important and the installed base of non-renewables weakens.
From this week’s Economist there is also a good piece on problems with water supply in northern China.