LiviosAs we increasingly generate our electricity with solar panels and wind turbines, electricity prices will drop. That in itself is good news. But will we – at home and on a larger scale – still get a return on our installations, if electricity also yields less as a result? And will the investments in sustainable energy that we still need be affordable (because they can be recouped)? Construction site Livios consulted Bram Claeys of Regulatory Assistance Project (RAP).
What’s the problem?
“Our country has more and more solar panels and wind turbines, which are becoming cheaper and cheaper,” says Bram Claeys, senior advisor at RAP, a non-governmental organization that supports policymakers on energy, among other things. And that is good news, of course. “If only because we are also switching more and more to electric cars and heating, for which we certainly have to produce enough green energy.”
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“However, research shows that the more our electricity comes from solar and wind energy, the more electricity prices fall. That in itself is also what we want: solar and wind energy are an important solution to get electricity prices under control. However, prices should not drop too low, because then the electricity yield will not be enough to recoup the production installations. In professional jargon, we call this phenomenon price cannibalization.”
Sometimes the price even drops below zero. “Something that is happening more and more often, also in Belgium. This is partly due to a lack of flexibility. Both traditional power stations and sustainable energy sources do not produce enough flexible power. But it also depends on the CO2 price for a CO2 emission allowance, if that price is too low.”
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Can we avoid that?
So if it costs too little for an electricity company to emit one ton of CO2 and if energy production is too inflexible, the electricity price risks falling too low and green energy yields too little to recoup the investments. But something can be done about it.
“What we need, among other things, are enough solutions that allow us to absorb fluctuations in energy production. For example, batteries in which we can temporarily store too much energy produced. And of course demand must generally increase sufficiently. If there is enough demand for the green energy generated, prices will not drop too much.”
“If we achieve enough flexibility, enough demand and sufficiently high CO2 prices, electricity can continue to yield enough to keep further investments in solar and wind energy possible. Even if we generate all the electricity completely without CO2 emissions, research shows.”
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What in practice?
Energy production without any CO2 emissions is the ideal we want to achieve. But where are we actually going in Europe? Bram Claeys: “We believe that some of the reforms that are currently being implemented are going in the right direction to ensure that the CO2 price will be high enough to realize the energy transition. For example, there will be far fewer emission allowances available after the reforms.”
So that’s good, at least according to the RAP. “But we are more concerned about another facet. The European electricity market is currently being reformed, with subsidies for renewable energy sources. These must be cleverly designed so that they do not lead to electricity prices that are too low and therefore price cannibalization. At the same time, price formation on the electricity market must certainly take into account everything that causes higher or lower costs.”
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“And then there is the biggest challenge. On the demand side, we are all going for more electrification and more own production of sustainable energy. But how do we allow local energy sources to participate in the energy market as a group? If we succeed, we really should worry much less about price cannibalization, with supply and demand in balance.”
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This article was written by our partner Livios.be. Livios.be is an expert site that focuses on construction and renovation.
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