The high price of gas is now significantly impacting the electricity market, with the futures market currently listing a megawatt-hour for delivery next year at over €150-nearly double the level recorded at the start of the year.
However, energy economists are skeptical that the increasing share of renewables in the power mix will quickly bring prices down. Hanns Koenig, from the consulting firm Aurora Energy Research, which specializes in electricity market modeling, told the “Frankfurter Allgemeine Zeitung” that even if the renewable share reaches 90%, gas-fired power plants will still determine the market price during more than half of the hours.
He anticipates that electricity prices may only normalize back to pre-crisis levels, between €75 and €80, in the years 2029 or 2030. Koenig also suggests that gas prices could fall back to €30 by then, which was the pre-2022 energy crisis price. This dynamic is driven by how electricity market power plants are dispatched based on their marginal operating costs (the “Merit-Order”). Typically, the last plant required to meet demand determines the price, and despite the growing proportion of renewables, this is often still a gas-fired power plant.
The SPD and the Green Party frequently advocate for expanding renewable energy sources as a means to counter rising electricity costs. Nina Scheer, the SPD parliamentary group’s energy policy spokesperson, told the “Frankfurter Allgemeine Zeitung”, “We must minimize the hours in which fossil fuel power plants are required to effectively counteract this price-inflating effect. The current wars and their impact on fossil resource markets provide fresh proof of the urgent need to transition to renewables.”
Meanwhile, Michael Kellner, the Green Party’s parliamentary group spokesperson on energy policy, criticized not only the continued failure to lower electricity taxes but also the federal government’s decision to cut the subsidy for grid fees by one billion euros, which he argued further burdened the energy-intensive industry.
