The German Energy Fiasco
Wind & solar are raising price volatility as expected. It's already an existential threat for the German economy and it seems destined to get worse as the country keeps running in the wrong direction.
Disclaimer: The information contained in this article is not and should not be construed as investment advice. This is my investing journey and I simply share what I do and why I do that for educational and entertainment purposes.
TLDR Summary
Germany’s electricity grid is on the brink of collapse because of an incredibly naive energy policy that bets the entire country on intermittent energy sources without ensuring adequate energy storage solutions.
Wind and solar are now accounting for 39% of the country’s energy production and the goal is to double existing capacity over the next 10 years. By then renewable energy sources are expected to make up for 100% of energy production.
It is impossible to ensure grid stability in that scenario. Solar production swings can to some extent be buffered with batteries, at least during the warm months. However, solar production breaks down almost completely in the winter. And wind production swings are so erratic that no battery system can ever be dimensioned large enough to absorb production volatility.
As I have repeatedly argued over the years, these intermittent energy sources have to be coupled with fossil fuels which are the only energy storage solution that can realistically buffer solar and wind for the foreseeable future. Germany wanted to do this with cheap Russian gas, at least for a transition period. This approach is cut off for political reasons which is why the country now has to import gas from overseas for a price manyfold higher than before.
The less stable the grid, the more expensive insurance policies will become to protect wholesalers (and by extension consumers) from price surges. Production volatility directly impacts the cost of an energy system.
If Germany refuses to ensure grid stability domestically, it will export the ensuing price volatility and associated costs to neighbor countries. These countries will ultimately refuse to pay the price for the failure of the German energy transition. We are seeing such a public discourse in Nordic countries already. The terms of European energy trade will likely have to be renegotiated. And that will unlikely happen to the benefit of German energy consumers.